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What changed in LivaNova PLC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of LivaNova PLC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+565 added−621 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-27)

Top changes in LivaNova PLC's 2023 10-K

565 paragraphs added · 621 removed · 432 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

119 edited+42 added−69 removed4 unchanged
Biggest changeThese relationships provide us with a detailed understanding of therapeutic and diagnostic developments, trends and emerging opportunities, which enable us to respond to the changing needs of providers and patients. We actively participate in medical meetings and conduct comprehensive training and educational activities to enhance our presence in the medical communities we serve.
Biggest changeTo achieve this objective, LivaNova’s sales team develops and preserves strong relationships with customers, and the Company cultivates and maintains close working relationships with professionals in the medical industry. These relationships provide LivaNova with a detailed understanding of therapeutic and diagnostic trends, developments, and emerging opportunities, which enables the Company to respond to the changing needs of providers and patients.
The competent authorities of the EU countries separately regulate the clinical research for medical devices and the market surveillance of products placed on the market, and manufacturers with CE marked devices are subject to regular inspections to monitor compliance with the applicable directives and essential requirements.
The competent authorities of the EU countries separately regulate the clinical research for medical devices and the market surveillance of products placed on the market, and manufacturers with CE marked devices are subject to regular inspections to monitor compliance with the applicable directives and essential 12 requirements.
Even though a new medical device may be cleared for commercial distribution, we may find limited demand for the device until coverage and sufficient reimbursement levels have been obtained from governmental and private third-party payers. In addition, some private third-party payers require that certain procedures or the use of certain products be authorized in advance as a condition of coverage.
Even though a new medical device may be cleared for commercial distribution, LivaNova may find limited demand for the device until coverage and sufficient reimbursement levels have been obtained from governmental and private third-party payers. In addition, some private third-party payers require that certain procedures or the use of certain products be authorized in advance as a condition of coverage.
The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information about SEC registrants, including LivaNova. 15
The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information about SEC registrants, including LivaNova.
Any adverse regulatory action, depending on its magnitude, may limit our ability to market and sell our products effectively, limit our ability to obtain future premarket approvals or result in a substantial modification to our business practices and operations. For additional information, see “Item 1A.
Any adverse regulatory action, depending on its magnitude, may limit LivaNova’s ability to market and sell its products effectively, limit its ability to obtain future premarket approvals or result in a substantial modification to LivaNova’s business practices and operations. For additional information, see “Item 1A.
Our AspireSR and SenTiva generators provide the traditional benefits of VNS Therapy but add an additional stimulation capability: closed loop stimulation (AutoStim™) which responds to detection of changes in heart rate potentially indicative of a seizure.
LivaNova’s AspireSR and SenTiva generators provide the traditional benefits of VNS Therapy but add an additional stimulation capability: closed loop stimulation (AutoStim) which responds to detection of changes in heart rate potentially indicative of a seizure.
Disclosure Pursuant to Section 13(r) of the Exchange Act of 1934 Section 13(r) of the Exchange Act requires issuers to disclose in their annual reports, among other things, certain types of dealings with Iran and other entities, including transactions or dealing with government-owned entities, even when those activities are lawful and do not involve U.S. persons.
Disclosure Pursuant to Section 13(r) of the Exchange Act of 1934 Section 13(r) of the Exchange Act requires issuers to disclose in their annual reports, among other things, certain types of dealings with Iran and other entities, including transactions or dealing with government-owned entities, even when those activities are lawful and do not involve US persons.
The HLM product group includes HLMs, heater coolers, related cardiac surgery equipment and maintenance and technical services. HLMs temporarily take over the work of the heart and/or lungs, providing blood and oxygen to the body. HLMs are most often used during serious procedures that require the heart to be stopped.
Heart-lung Machines The HLM product group includes HLMs, heater-coolers, related cardiac surgery equipment and maintenance, and technical services. HLMs temporarily take over the work of the heart and/or lungs, providing blood and oxygen to the body. HLMs are most often used during procedures that require the heart to be stopped.
Government programs, private healthcare insurance and managed-care plans have attempted to control costs by limiting the extent of coverage or amount of reimbursement available for particular procedures or treatments, tying reimbursement to outcomes, shifting to population health management, and other mechanisms designed to constrain utilization and contain costs.
Government programs, private healthcare insurance and managed-care plans have attempted to control costs by limiting the extent of coverage or amount of reimbursement available for particular procedures or treatments, by connecting reimbursement to outcomes, by shifting to population health management and through other mechanisms designed to constrain utilization and contain costs.
The CED also includes the possibility to extend the study to a prospective longitudinal registry. In 2019, CMS accepted the protocol for our RECOVER clinical study and the first patient was enrolled.
The CED also includes the possibility to extend the study to a prospective longitudinal registry. In 2019, CMS accepted the protocol for LivaNova’s RECOVER clinical study and the first patient was enrolled.
The 510(k) process, also known as pre-market notification, requires us to demonstrate that our new medical device is substantially equivalent to a legally marketed medical device. The PMA process, which is more costly and rigorous than the 510(k) process, requires us to demonstrate independently that a medical device is safe and effective for its intended use.
The 510(k) process, also known as pre-market notification, requires LivaNova to demonstrate that its new medical device is substantially equivalent to a legally marketed medical device. The PMA process, which is more costly and rigorous than the 510(k) process, requires LivaNova to demonstrate independently that a medical device is safe and effective for its intended use.
The UK Bribery Act prohibits both domestic and international bribery, as well as bribery across both public and private sectors. There are similar laws and regulations applicable to us outside the U.S. and the UK, all of which are subject to evolving interpretations. For additional information, please refer to “Item 1A.
The UK Bribery Act prohibits both domestic and international bribery, as well as bribery across both public and private sectors. There are similar laws and regulations applicable to LivaNova outside the US and the UK, all of which are subject to evolving interpretations. For additional information, please refer to “Item 1A.
The federal healthcare Anti-Kickback Statute prohibits persons from, among other things, knowingly and willfully offering or paying remuneration, directly or indirectly, to a person to induce the purchase, order, lease, or recommendation of a good or service for which payment may be made in whole or part under a federal healthcare program such as Medicare or Medicaid, unless the arrangement fits within one of several statutory exemptions or regulatory “safe harbors.” Violations of the federal Anti-Kickback Statute may result in civil monetary penalties up to $100,000 for each violation, plus up to three times the remuneration involved.
Specifically, t he federal healthcare Anti-Kickback Statute prohibits persons from, among other things, knowingly and willfully offering or paying remuneration, directly or indirectly, to a person to induce them to order, purchase, lease, or recommend a good or service for which payment may be made in whole or in part under a federal healthcare program such as Medicare or Medicaid, unless the arrangement fits within one of several statutory exemptions or regulatory “safe harbors.” Violations of the federal Anti-Kickback Statute may result in civil monetary penalties up to $100,000 for each violation, plus up to three times the remuneration involved.
The FCPA can be used to prosecute companies in the U.S. for arrangements with physicians or other parties outside the U.S. if the physician or party is a government official of another country and prohibited payments are made to obtain or retain business.
The FCPA can be used to prosecute companies in the US for arrangements with physicians or other parties outside the US if the physician or party is a government official of another country and prohibited payments are made to obtain or retain business.
For quality assurance, sole source availability or cost effectiveness purposes, we may procure certain components and raw materials from a sole supplier.
For quality assurance, sole source availability or cost effectiveness purposes, LivaNova may procure certain components and raw materials from a sole supplier.
Cost Containment Initiatives Government and private sector initiatives to limit the growth of healthcare costs, including price regulation, competitive pricing, bidding and tender mechanics, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements are continuing in many countries where we do business.
Cost Containment Initiatives Government and private sector initiatives to limit the growth of healthcare costs, including price regulation, competitive pricing, bidding and tender mechanics, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements are continuing in many countries where LivaNova does business.
Product problems, physician advisories, regulatory safety alerts and publications about our products, or competitor products, can cause major shifts in industry market share, reflecting the importance of product quality, product efficacy and quality systems in the medical device industry.
Physician advisories, regulatory safety alerts and publications about LivaNova’s products, or competitor products, can cause major shifts in industry market share, reflecting the importance of product quality, product efficacy and quality systems in the medical device industry.
The activities of these third parties may cause disruption or delays in the distribution and sale of our products or result in restrictions being placed on our international distribution and sales of products, which may materially impact our business activities.
The activities of these third parties may cause disruption or delays in the distribution and sale of LivaNova’s products or result in restrictions being placed on the Company’s international distribution and sales of products, which may materially impact LivaNova’s business activities.
In 2017, the American Journal of Psychiatry published the results of the longest and largest naturalistic study (the “D23 study”) on treatments for patients experiencing chronic and severe DTD. The findings showed that the addition of the VNS Therapy System to traditional treatment is effective in significantly reducing symptoms of depression and well tolerated compared with traditional treatment alone.
In 2017, the American Journal of Psychiatry published the results of the longest and largest naturalistic study on treatments for patients experiencing chronic and severe DTD. The findings showed that the addition of the VNS Therapy System to traditional 9 treatment was effective in significantly reducing symptoms of depression and well-tolerated compared with traditional treatment alone.
We are also subject to periodic inspections for compliance with applicable quality system regulations, which govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging and servicing of finished medical devices intended for human use.
LivaNova is also subject to periodic inspections for compliance with applicable quality system regulations, which govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, and servicing of finished medical devices intended for human use.
We make available free of charge on or through our website our Proxy Statements on Schedule 14A, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and reports relating to beneficial ownership of our securities filed or furnished pursuant to Section 16 of the Exchange Act, as soon as reasonably practicable after electronically filing such material with the SEC.
Free of charge through its website, LivaNova makes available its Proxy Statements on Schedule 14A, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and reports relating to beneficial ownership of the Company’s securities filed or furnished pursuant to Section 16 of the Exchange Act, as soon as reasonably practicable after electronically filing such material with the SEC.
There can be no assurance that pending patent applications will result in the issuance of patents, that patents issued to or licensed by us will not be challenged or circumvented by competitors, or that these patents will be found to be valid or sufficiently broad to protect our technology or to provide us with a competitive advantage.
There can be no assurance that pending patent applications will result in the issuance of patents, that patents issued to or licensed by LivaNova will not be challenged or circumvented by competitors, or that these patents will be found to be valid or sufficiently broad to protect LivaNova’s technology or to provide the Company with a competitive advantage.
The U.S. government has obtained multi-million and multi-billion-dollar settlements under the False Claims Act, in addition to individual criminal convictions under applicable criminal statutes.
The US government has obtained multi-million and multi-billion-dollar settlements under the False Claims Act, in addition to individual criminal convictions under applicable criminal statutes.
RECOVER may include up to 500 unipolar and up to 500 bipolar patients at a maximum of 100 sites in the United States in the randomized part of the trial and may include up to an additional 5,800 patients in an open label registry.
RECOVER includes 500 unipolar and up to 500 bipolar patients at a maximum of 100 sites in the US in the randomized part of the trial and may include up to an additional 5,800 patients in an open label registry.
The VNS Therapy System consists of an implantable pulse generator and connective lead that stimulate the vagus nerve; surgical equipment to assist with the implant procedure; equipment and instruction manuals enabling a treating physician to set parameters for a patient’s pulse generator; and for epilepsy, magnets to manually suspend or induce nerve stimulation.
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; equipment and instruction manuals enabling a treating physician to set parameters for a patient’s pulse generator; and for epilepsy, magnets to manually suspend or induce nerve stimulation.
Following publication of the D23 study, we requested CMS to reconsider its previous NCD, and in 2018, CMS published a tracking sheet to reconsider its NCD.
Following publication of the D23 study, LivaNova requested that CMS reconsider its previous NCD, and in 2018, CMS published a tracking sheet to reconsider.
Hospitals, which purchase implants, are also seeking to reduce costs through a variety of mechanisms, including, for example, creating centralized purchasing functions that set pricing and, in some cases, limit the number of vendors that can participate in the purchasing program.
Hospitals are also seeking to reduce costs through a variety of mechanisms, for example, creating centralized purchasing functions that set pricing and, in some cases, limit the number of vendors that can participate in a given purchasing program.
The FDA and other regulatory agencies in and outside the U.S. review our design and manufacturing practices, labeling, record keeping, and required reports of adverse experiences and other information to identify potential problems with marketed medical devices.
The FDA and other regulatory agencies in and outside the US review LivaNova’s design and manufacturing practices, labeling, record keeping, and required reports of adverse experiences and other information to identify potential problems with marketed medical devices.
We distribute multiple VNS Therapy Systems for the treatment of epilepsy, including Model 103 (Demipulse), Model 104 (Demipulse Duo), Model 106 (AspireSR), Model 1000 (SenTiva) and Model 1000D (SenTiva Duo) pulse generators.
LivaNova distributes multiple VNS Therapy Systems for the treatment of epilepsy, including Model 103 (Demipulse), Model 104 (Demipulse Duo), Model 106 (AspireSR), Model 1000 (SenTiva) and Model 1000D (SenTiva Duo) pulse generators.
In certain circumstances, governmental authorities may require that we obtain an approval before we export or re-export goods, technology or services to certain destinations, to certain end-users and for certain end-uses.
In certain circumstances, governmental authorities may require LivaNova to obtain approval before LivaNova may export or re-export goods, technology or services to certain destinations, to certain end-users and for certain end-uses.
Although physicians are permitted to 9 use their medical judgment to prescribe medical devices for indications other than those cleared or approved by the FDA, we are prohibited from promoting products for such “off-label” uses and can only market our products for cleared or approved uses.
Although physicians are permitted to use their medical judgment to prescribe medical devices for indications other than those cleared or approved by the FDA, LivaNova is prohibited from promoting products for such “off-label” uses and can only market the Company’s products for cleared or approved uses.
Risk Factors” of this Annual Report on Form 10-K, under the section entitled “ Our products are subject to complex laws and regulations, and failure to obtain product approvals, clearance or reimbursement may materially adversely affect our business, results of operations, cash flows and financial condition. ” Governmental Trade Regulations The sale and shipment of our products and services across international borders, as well as the purchase of components and products from international sources, subject us to extensive governmental trade regulations.
Risk Factors” of this Report, under the section entitled “ LivaNova’s products are subject to complex laws and regulations, and failure to obtain product approvals, clearance or reimbursement may materially adversely affect LivaNova’s business, results of operations, cash flows and financial condition. ” Governmental Trade Regulations The sale and shipment of LivaNova’s products and services across international borders, as well as the purchase of components and products from international sources, subject LivaNova to extensive governmental trade regulations.
It is possible that their customers include entities, such as government-owned hospitals or sub-distributors, that are owned or controlled directly or indirectly by the Iranian government. To the best of our knowledge at this time, we do not have any contracts or commercial arrangements with the Iranian government or other relevant entities.
It is possible that their customers include entities, such as government-owned hospitals or sub-distributors, that are owned or controlled directly or indirectly by the Iranian government. However, to the best of its knowledge at this time, LivaNova does not have any contracts or commercial arrangements with the Iranian government or other relevant entities.
In 2019, CMS produced a final decision providing coverage for Medicare beneficiaries through Coverage with Evidence Development (“CED”) when offered in a CMS-approved, double-blind, randomized, placebo-controlled trial with a follow-up 5 duration of at least one year, as well as coverage of VNS Therapy device replacement.
In 2019, CMS produced a final decision providing coverage for the VNS Therapy System for Medicare beneficiaries through CED when offered in a CMS-approved, double-blind, randomized, placebo-controlled trial with a follow-up duration of at least one year, as well as coverage of VNS Therapy System device replacement.
We also sell and provide goods, technology and services to agents, representatives and distributors who may export such items to customers and end-users, and if these third parties violate applicable export control or economic sanctions laws or regulations when engaging in transactions involving our products, we may be subject to varying degrees of liability depending on the extent of our participation in the transaction.
LivaNova also sells and provides goods, technology and services to agents, representatives and distributors who may export such items to customers and end-users, and if these third parties violate applicable export control or economic sanctions laws or regulations when engaging in transactions involving the Company’s products, LivaNova may be subject to varying degrees of liability depending on the extent of its participation in the transaction.
Such alignment has created increasing levels of price sensitivity among customers for our products. Some third-party payers must also approve coverage and set reimbursement levels for new or innovative devices or therapies before they will reimburse healthcare providers who use the medical devices or therapies.
Such alignment has created increased levels of price sensitivity among customers for LivaNova’s products. Some third-party payers must also approve coverage and set reimbursement levels for new or innovative devices or therapies before they reimburse healthcare providers that use the medical devices or therapies.
Available Information Our executive headquarters are located at 20 Eastbourne Terrace, London, UK W2 6LG. Our website address is www.livanova.com.
Available Information LivaNova’s executive headquarters are located at 20 Eastbourne Terrace, London, UK W2 6LG. The Company’s website address is www.livanova.com.
Our primary medical device competitors in the Cardiopulmonary, Neuromodulation and Advanced Circulatory Support product groups are Terumo Medical Corporation, Maquet Medical Systems, Medtronic plc, Haemonetics Corporation, NeuroPace, Inc. and Abbott Laboratories, Inc., although not all competitors are present in all product lines.
LivaNova’s primary medical device competitors in the Cardiopulmonary, Neuromodulation and ACS product groups are Terumo Medical Corporation, Maquet Medical Systems, Medtronic plc, Haemonetics Corporation, NeuroPace, Inc. and Abbott Laboratories, Inc., although not all competitors are present in all product lines.
In addition, because of developments in managed care, economically motivated customers, consolidation among healthcare providers, increased competition and declining reimbursement rates, we may be increasingly required to compete on the basis of price.
In addition, developments in managed care, economically motivated customers, consolidation among healthcare providers, increased competition and declining reimbursement rates may increasingly require LivaNova to compete on the basis of price.
In 1997, our VNS Therapy System was the first medical device treatment approved by the FDA for the treatment of drug-resistant epilepsy, and today is the only neuromodulation device approved for use in DRE patients in the U.S. as young as four years of age with partial onset, or focal, seizures.
In 1997, LivaNova’s VNS Therapy System was the first medical device treatment approved by the FDA for the treatment of DRE, and today is the only neuromodulation device approved for use in the US in DRE patients as young as four years of age with partial onset, or focal, seizures.
We regularly review third-party patents and patent applications in an effort to protect our intellectual property and avoid disputes over proprietary rights. We rely on non-disclosure and non-competition agreements with employees, consultants and other parties to protect, in part, trade secrets and other proprietary technology.
LivaNova regularly reviews third-party patents and patent applications in an effort to protect its intellectual property and avoid disputes over proprietary rights. LivaNova relies on non-disclosure and non-competition agreements with employees, consultants and other parties to protect, in part, trade secrets and other proprietary technology.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. There has also been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. There is also federal and state regulation of, and transparency with respect to, payments made to physicians and other healthcare providers.
To be sold in Japan, for example, our medical devices must undergo thorough safety examinations and demonstrate medical efficacy from the Japanese government through the Ministry of Health, Labour and Welfare, before they are granted approval.
To be sold in Japan, for example, LivaNova’s medical devices must undergo thorough safety examinations and demonstrate medical efficacy from the Japanese government through the Ministry of Health, Labour and Welfare before they are granted approval. In China, regulatory requirements are becoming more stringent.
In order to continue to compete effectively, we must continue to create or acquire advanced technology, incorporate this technology into proprietary products, obtain regulatory approvals in a timely manner, maintain high-quality manufacturing processes and successfully market these products.
In order to continue to compete effectively, LivaNova will likely be required to continue to create or acquire advanced technology, incorporate this technology into proprietary products, obtain regulatory approvals in a timely manner, maintain high-quality manufacturing processes, and successfully market and sell these products.
The SenTiva generator is the smallest and lightest VNS device capable of delivering responsive therapy for epilepsy and includes the additional flexibility of our Scheduled Programming and Day & Night Programming capabilities. In 2017, VNS Therapy devices were FDA approved for expanded magnetic resonance imaging (“MRI”) access while similar CE Mark approval followed shortly thereafter.
The SenTiva generator is the smallest and lightest VNS device capable of delivering responsive therapy for epilepsy and includes the additional flexibility of LivaNova’s Scheduled Programming and Day & Night Programming capabilities. In 2017, the SenTiva, AspireHC and AspireSR VNS Therapy devices were approved by the FDA for expanded MRI access and similar CE Mark approval followed shortly thereafter.
The management of cross-border transfers of information among and outside of EU member countries is becoming more complex, which may complicate our business and clinical research activities, as well as product offerings that involve transmission or use of patient health information. We continue our efforts to comply with those requirements and to adapt our business processes to those standards.
The management of cross-border transfers of personal information outside of EU member countries is becoming more complex, which may complicate LivaNova’s business and clinical research activities, as well as product offerings that involve transmission or use of patient health information. LivaNova continues to adapt its business processes to comply with those standards and requirements applicable to it.
Given the U.S. government’s success with prosecuting claims under the False Claims Act, we anticipate that the U.S. government will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.
Given the US government’s success in prosecuting claims under the False Claims Act, LivaNova anticipates that the US government will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.
We expect this global regulatory environment will continue to evolve, which could impact the cost, approval lead time, and ultimately, our ability to maintain existing approvals or obtain future approvals for our products. Product and Promotional Restrictions Both before and after we release a product for commercial distribution, we have ongoing responsibilities under various laws and regulations governing medical devices.
LivaNova expects this global regulatory environment will continue to evolve, which could impact the Company’s cost, approval lead time, or ability to maintain existing or obtain future product approvals. Product and Promotional Restrictions Both before and after LivaNova releases a product for commercial distribution, the Company has ongoing responsibilities under various laws and regulations governing medical devices.
Additionally, our Mirandola, Italy plant is certified ISO 14001 and ISO 45001 and our Munich, Germany plant is certified ISO 14001. For additional information related to our manufacturing facilities, refer to “Item 2. Properties” in this Annual Report on Form 10-K.
Additionally, LivaNova’s Mirandola, Italy plant is ISO 14001 and ISO 45001 certified, and its Munich, Germany plant is ISO 14001 certified. For additional information related to LivaNova’s manufacturing facilities, refer to “Item 2. Properties” in this Report.
In 2021, LivaNova received approval from the FDA to proceed with its investigational device exemption clinical study, Treating Obstructive Sleep Apnea using Targeted Hypoglossal Neurostimulation (“OSPREY”), and the first patient was implanted in March 2022. The OSPREY study seeks to confirm the safety and effectiveness of the aura6000 System.
In 2021, LivaNova received approval from the FDA to proceed with its investigational device exemption clinical study, the OSPREY clinical trial, and the first patient was implanted in March 2022. The OSPREY clinical trial seeks to confirm the safety and effectiveness of the aura6000 System.
Two of our non-U.S. subsidiaries currently sell medical devices, including cardiopulmonary and neuromodulation products, to distributors and non-governmental organizations in Iran to support patient care in that country. We have limited visibility into the identity of these distributors’ and non-governmental organizations’ customers in Iran.
Two of LivaNova’s non-US subsidiaries currently sell medical devices, including cardiopulmonary and neuromodulation products, to distributors and non-governmental organizations in Iran to support patient care in that country. LivaNova has limited visibility into the identity of the customers of these distributors’ and non-governmental organizations in Iran.
Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to “business associates,” defined as independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity.
Among other things, HITECH makes certain of HIPAA’s privacy and security standards directly applicable to “business associates,” essentially defined as service providers of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. In certain instances, LivaNova may be considered a business associate.
If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, and exclusion from participation in federal and state healthcare programs, any of which could adversely affect our ability to operate our business and our financial results.
If LivaNova’s operations are found to be in violation of any such laws or any other governmental regulations that apply to the Company, LivaNova may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, entry into corporate integrity agreements or other monitoring agreements with governmental agencies, the curtailment or restructuring of its operations, and exclusion from participation in federal and state healthcare programs, any of which could adversely affect LivaNova’s financial results and the Company’s ability to operate its business.
These changes are causing the marketplace to put increased emphasis on the delivery of more cost-effective medical devices and therapies.
These changes are driving customers to place increased emphasis on the delivery of more cost-effective medical devices and therapies.
The evolving commercial compliance environment and the need to build and maintain robust systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may violate one or more of the requirements.
The evolving commercial compliance environment and the resulting need to build and maintain robust systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increases the possibility that a healthcare company may violate one or more of these requirements and be required to allocate significant resources to its compliance program.
After the last patient enrolled into the RCT has completed 12 months of follow-up, a final analysis will be conducted on the complete dataset for that respective cohort. The trial, if successful, will be used to support a peer-reviewed article and reconsideration of reimbursement for VNS Therapy by CMS for the treatment of DTD.
After the last patient enrolled into the RECOVER clinical study has completed 12 months of follow-up, a final analysis will be conducted on the complete bipolar dataset. The RECOVER clinical study, if successful, may potentially be used to support a peer-reviewed publication and reconsideration of reimbursement for the VNS Therapy System by CMS for the treatment of DTD.
Because we are subject to extensive regulations in the countries in which we operate, we are subject to the risk that laws and regulations could change in a way that would expose us to additional costs, penalties or liabilities.
Because LivaNova is subject to extensive regulations in the countries in which it operates, the Company is subject to the risk that laws and regulations could change in a way that would expose LivaNova to additional costs, penalties or liabilities.
Our website also contains the charters for each standing committee of our Board of Directors. 14 We may from time to time provide important disclosures to investors by posting them in the Investor Relations section of our website, as allowed by SEC rules. Information on our website is not incorporated into this Annual Report on Form 10-K.
LivaNova’s website also contains the charters for each standing committee of its Board of Directors in addition to the Company’s Corporate Governance Guidelines. LivaNova may from time to time provide important disclosures to investors by posting them in the Investor Relations section of its website, as allowed by SEC rules. Information on LivaNova’s website is not incorporated into this Report.
We use quality systems in the design, production, warehousing and distribution of our products to ensure our products are safe and effective. In addition, we utilize environmental management systems and safety programs to protect the environment and our employees. For example, all of our manufacturing facilities are certified ISO 13485.
LivaNova uses quality systems in the design, development, manufacturing, warehousing and distribution of its products to ensure its products are safe and effective. In addition, LivaNova utilizes environmental management systems and safety programs to protect the environment and the Company’s employees. For example, all of LivaNova’s manufacturing facilities are certified ISO 13485.
HIPAA includes federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors; knowingly and willfully embezzling or stealing from a healthcare benefit program; willfully obstructing a criminal investigation of a healthcare offense; and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
These laws do not always have the same exceptions or safe harbors as their federal corollaries and, in some states, apply with respect to all payers, including commercial health insurance companies. 15 HIPAA includes federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors; knowingly and willfully embezzling or stealing from a healthcare benefit program; willfully obstructing a criminal investigation of a healthcare offense; or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, products or services.
In 2007, the United States (“U.S.”) CMS issued a national non-coverage determination (“NCD”) within the U.S. with respect to reimbursement of the VNS Therapy System for patients with DTD, significantly limiting access to this therapeutic option for most patients. In 2020, our VNS Therapy System, Symmetry received CE mark approval for the treatment of DTD.
In 2007, CMS issued a non-coverage determination with respect to reimbursement of the VNS Therapy System for patients with DTD, significantly limiting access for most patients. In 2020, LivaNova’s VNS Therapy System, Symmetry received CE mark approval for the treatment of DTD.
One or more clinical studies may be required to support a 510(k) application and are almost always required to support a PMA application. The European Union (“EU”) established a single regulatory approval process, according to which a “ Conformité Européenne ” (French for “European Conformity”) or CE Mark certifies conformity with all of the legal requirements of the regulatory process.
One or more clinical studies may be required to support a 510(k) application and are almost always required to support a PMA application. The EU has established a single regulatory product approval process, pursuant to which a CE Mark certifies conformity with all of the legal requirements of the regulatory process.
We have also obtained certain trademarks and trade names for our products and maintain certain details about our processes, products and strategies as trade secrets. In the aggregate, we consider these intellectual property assets to be of material importance to our business segments and operations.
LivaNova has also obtained certain trademarks and trade names for the Company’s products and maintains certain details about its processes, products and strategies as trade secrets. In the aggregate, LivaNova considers these intellectual property assets to be of material importance to its business.
Product Approval and Monitoring Many countries where we sell our products subject our medical devices to their own approval and requirements regarding performance, safety and quality. Each medical device we seek to distribute commercially in the U.S., for example, must receive 510(k) clearance or pre-market approval (“PMA”) from the FDA, unless specifically exempted by the agency.
Product Approval and Monitoring Many countries in which LivaNova sells its products subject the Company’s medical devices to their own product approval and requirements regarding performance, safety and quality. For example, each medical device that LivaNova seeks to distribute commercially in the US must receive 510(k) clearance or PMA from the FDA, unless specifically exempted by the agency.
There can be no assurance that these agreements will not be breached or will be enforceable, in particular due to new proposed regulation in the U.S., that we will have adequate remedies for any breach, that others will not independently develop equivalent proprietary information or that third parties will not otherwise gain access to our trade secrets and proprietary knowledge.
There can be no assurance that these agreements will not be breached or will be enforceable, that LivaNova will have adequate remedies for any breach, that others will not independently develop equivalent proprietary information or that third parties will not otherwise gain access to LivaNova’s trade secrets and proprietary knowledge. For additional information, please refer to “Item 1A.
After two anti-seizure medications fail to deliver seizure control, the epilepsy is characterized as drug-resistant, at which point, adjunctive non-drug options are considered, including VNS therapy, ketogenic diet, resective or ablative surgery and other neuromodulation therapies.
ASMs typically serve as a first-line treatment and are prescribed for virtually all patients diagnosed with epilepsy. After two ASMs fail to deliver seizure control, the epilepsy is characterized as drug-resistant. At this point, adjunctive non-drug options are considered, including VNS therapy, ketogenic diet, resective or ablative surgery and other neuromodulation therapies.
In addition, state laws, such as the California Consumer Privacy Act (“CCPA”), govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance and data protection efforts. For additional information, see “Item 1A.
In addition, state laws, such as the CCPA, govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance and data protection efforts. Since the CCPA was enacted, other US states have enacted privacy laws.
We are subject, for example, to the Physician Payments Sunshine Act, which requires us to report certain payments and other transfers of value we make to U.S. licensed physicians or U.S. teaching hospitals annually. Any failure to comply with such laws and regulations hold the potential for criminal and civil financial penalties.
LivaNova is subject to, for example, the Physician Payments Sunshine Act, which requires the Company to report annually certain payments and other transfers of value it makes to US licensed physicians, nurse practitioners, physician assistants, or teaching hospitals. Any failure to comply with such laws and regulations may result in civil financial penalties.
Of our senior leadership team, which includes the executive team, vice presidents and directors, approximately 32% are female and approximately 68% are male. Finally, as of December 31, 2022, of our approximately 2,900 employees, approximately 52% are female and approximately 48% are male.
Of the Company’s senior leadership team, which includes the executive team, vice presidents and directors, as of December 31, 2023, approximately 30% are female and approximately 70% are male. Finally, as of December 31, 2023, of LivaNova’s approximately 2,900 employees, 51% are female and 49% are male.
Risk Factors” of this Annual Report on Form 10-K, under the section entitled “ The failure to comply with anti-bribery laws could materially adversely affect our business and result in civil and/or criminal sanctions. ” Environmental Regulation and Management We are subject to various environmental laws, directives and regulations both in the U.S. and abroad.
Risk Factors” of this Report, under the section entitled “ Failure to comply with anti-bribery laws could materially adversely affect LivaNova’s business and result in civil and/or criminal sanctions. ” Environmental Regulation and Management LivaNova is subject to various environmental laws, directives and regulations both in the US and abroad that have resulted in, and could lead to, increased environmental compliance expenditures and reporting.
Our business is also affected by patient privacy and security laws, cost containment initiatives, and environmental health and safety laws and regulations worldwide. 8 The laws applicable to us are subject to changing and evolving interpretations, and we continue to monitor such shifts.
LivaNova’s business is also affected by data privacy and security laws, cost containment initiatives, and environmental health and safety laws and regulations worldwide. LivaNova works to ensure compliance with such laws and regulations and continues to monitor the laws applicable to LivaNova, which are subject to changing and evolving interpretations.
We sell most of our medical devices through direct sales representatives in the U.S. and a combination of direct sales representatives and independent distributors in markets outside the U.S. 7 Our marketing and sales strategy is focused on rapid, cost-effective delivery of high-quality products to a diverse group of customers worldwide, including perfusionists, neurologists, neurosurgeons and other physicians, hospitals and other medical institutions and healthcare providers.
LivaNova’s marketing and sales strategy is focused on rapid, cost-effective delivery of high-quality products to a diverse group of customers worldwide, including perfusionists, neurologists, neurosurgeons and other physicians, hospitals and other medical institutions and healthcare providers.
Risk Factors” of this Annual Report on Form 10-K, under the section entitled “ We are substantially dependent on patent and other proprietary rights and failing to protect such rights or to be successful in litigation related to our rights or the rights of others may result in our payment of significant monetary damages and/or royalty payments, negatively impact our ability to sell current or future products, or prohibit us from enforcing our patent and other proprietary rights against others. ” Markets and Distribution Methods The three largest markets for our medical devices are the U.S., Europe and the Asia-Pacific region (“APAC”).
Risk Factors” of this Report, under the section entitled “ LivaNova is substantially dependent on patent and other proprietary rights and failing to protect such rights or to be successful in litigation related to LivaNova’s rights or the rights of others may result in the Company’s payment of significant monetary damages and/or royalty payments, negatively impact LivaNova’s ability to sell current or future products or prohibit the Company from enforcing its patent and other proprietary rights against others. ” Markets and Distribution Methods LivaNova sells most of its medical devices through direct sales representatives in the US and a combination of direct sales representatives and independent distributors in international markets.
Privacy standards are becoming increasingly strict; enforcement actions and financial penalties related to privacy issues in the EU are growing, and new privacy and data residency laws and restrictions are being passed in other countries including the U.S., China, and Brazil.
Enforcement actions and financial penalties related to privacy issues in the EU continue to grow, and new privacy and data localization laws and restrictions are being passed in other countries including the US.
Production, Quality Systems and Raw Materials We manufacture a majority of our products at nine manufacturing facilities located in Italy, Germany, the U.S., Brazil and Australia. We purchase raw materials and many of the components used in our manufacturing facilities from numerous suppliers in various countries.
Production, Quality Systems and Raw Materials LivaNova manufactures a majority of its products in facilities located in the US, Italy, Germany, Australia and Brazil. LivaNova purchases raw materials and components used in its products from numerous suppliers located in various countries worldwide.
The technique enables the surgical team to oxygenate and circulate the patient's blood, thus allowing the surgeon to operate on the heart. The most commonly performed procedures requiring cardiopulmonary bypass are conventional coronary artery bypass grafting and valve surgeries.
CPB is commonly used in many operations involving the heart. This technique enables the surgical team to oxygenate and circulate the patient’s blood, thus enabling the surgeon to operate on the heart. The most commonly performed procedures requiring CPB are conventional coronary artery bypass grafting and valve surgeries. LivaNova’s products enable CPB for neonatal, pediatric, and adult patients.
To varying degrees, each of these agencies requires us to comply with laws and regulations governing the research, development, testing, manufacturing, labeling, pre-market clearance or approval, marketing, distribution, advertising, promotion, record keeping, reporting, tracking, and importing and exporting of our products.
Government Regulation and Other Considerations LivaNova’s medical devices are subject to extensive government regulation by numerous government agencies, both within and outside the US. These agencies require LivaNova to comply with laws and regulations governing the research, development, testing, manufacturing, labeling, pre-market clearance or approval, marketing, distribution, advertising, promotion, record keeping, reporting, tracking, importing, and exporting of LivaNova’s products.
Obstructive Sleep Apnea In 2018, we acquired full ownership of ImThera, a privately held, emerging-growth company developing an implantable neurostimulation device system for the treatment of obstructive sleep apnea. The device stimulates the hypoglossal nerve, which in turn, engages certain muscles in the tongue in order to open the airway while a patient is sleeping.
The reconsideration process will happen independently for the unipolar and bipolar cohorts. Obstructive Sleep Apnea In 2018, LivaNova acquired full ownership of ImThera, a company developing an implantable neurostimulation device system for the treatment of obstructive sleep apnea. The device stimulates the hypoglossal nerve, which engages specific tongue and palate muscles to open the airway while a patient sleeps.
Violations can also result in criminal penalties, including criminal fines of up to $100,000 and imprisonment for up to 10 years. Finally, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid. In addition to the Anti-Kickback Statute, many states have their own anti-kickback laws.
Violations can also result in criminal penalties, including criminal fines of up to $50,000 and imprisonment for up to 10 years. Finally, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid. Additionally, violations of the False Claims Act can result in significant monetary penalties and treble damages.
In the U.S., the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) as amended by the Health Information Technology and Clinical Health Act (“HITECH”) and their respective implementing regulations impose specified requirements relating to the privacy, security and transmission of individually identifiable health information.
In the US, HIPAA, as amended by the HITECH Act and their respective implementing regulations, imposes specified requirements relating to the privacy and security of certain individually identifiable health information.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks include sanctions; greater exposure to inflation; rising interest rates; changes in energy prices; increased exposure to cyber-attacks and supply chain challenges; fluctuating exchange rates; local product changes and evolving requirements; longer-term receivables in local jurisdictions; difficulty enforcing agreements; greater exposure to creditworthiness of customers and local law enforcement of obligations; trade protection measures and import and export licensing requirements; failure to comply with anti-bribery laws; different labor regulations and workforce instability; higher danger of terrorist activity, war or civil unrest; selling our products through distributors and agents; and political and economic instability.
Biggest changeThese risks, many of which LivaNova has experienced first-hand, include: higher danger of terrorist activity, war or civil unrest; greater exposure to inflation; volatility in freight and labor costs; fluctuating interest and exchange rates; evolving sanctions; increased exposure to cyber-attacks and supply chain challenges; changing energy prices; local product changes and compliance requirements; longer payments terms and collection times for receivables in local jurisdictions; difficulty enforcing agreements; greater exposure to creditworthiness of customers and inconsistent local law enforcement of obligations; trade protection measures and import and export licensing requirements; ensuring compliance with anti-bribery laws; different labor regulations and workforce instability; selling its products through distributors and agents; and political and economic instability.
The risk of being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts and their provisions are open to a variety of interpretations.
The risk of being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by regulatory authorities or the courts and their provisions are open to a variety of interpretations.
Certain environmental laws assess liability on current, prior and/or related owners or operators of real property for the costs or investigation, removal or remediation of hazardous substances at their properties or at properties on which they have disposed of hazardous substances.
Certain environmental laws assess liability on current, prior and/or related owners or operators of real property for the costs of investigation, removal, or remediation of hazardous substances on their properties or at properties on which they have disposed of hazardous substances.
Accordingly, the exchange feature that is part of the Notes is accounted for as a derivative pursuant to accounting standards relating to derivative instruments. This resulted in an initial valuation of the exchange feature, which was bifurcated from the debt component of the Notes, resulting in an original issue discount.
Accordingly, the exchange feature that is part of the Notes is accounted for as a derivative pursuant to accounting standards relating to derivative instruments. This resulted in an initial accounting valuation of the exchange feature, which was bifurcated from the debt component of the Notes, resulting in an original issue discount.
The capped call transactions are expected generally to offset cash payments due upon exchange of the Notes in excess of the principal amount thereof in the event that the market value per ordinary share of the Company is at the time of exchange of the Notes greater than the strike price under the capped call transactions, with such offset subject to a cap based on the cap price.
The capped call transactions are expected generally to offset cash payments due upon exchange of the Notes in excess of the principal amount thereof in the event that the market price per ordinary share of the Company at the time of exchange of the Notes is greater than the strike price under the capped call transactions, with such offset subject to a cap based on the cap price.
Any such issues, whether in relation to trials, approvals, reimbursement or clearances, could have a material adverse effect on our business, results of operations, cash flows and financial condition. Failure to comply with product-related government regulations may materially adversely affect our business, results of operations, cash flows and financial condition.
Any such issues, whether in relation to trials, approvals, clearances or reimbursement, could have a material adverse effect on LivaNova’s business, results of operations, cash flows and financial condition. Failure to comply with product-related government regulations may materially adversely affect LivaNova’s business, results of operations, cash flows and financial condition.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of our business activities, including our relationships with surgeons and other healthcare providers, some of whom recommend, purchase and/or prescribe our devices, group purchasing organizations and our independent sales agents and distributors, could be subject to challenge under one or more of such laws.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that some of LivaNova’s business activities, including the Company’s relationships with surgeons and other healthcare providers, some of whom recommend, purchase and/or prescribe LivaNova’s devices, group purchasing organizations and LivaNova’s independent sales agents and distributors, could be subject to challenge under one or more of such laws.
Similarly, periodic changes to reimbursement methodologies could have an adverse impact on our business. Adoption of some or all of such healthcare policy and reimbursement proposals could have a material adverse effect on our business, results of operations, cash flows and financial position.
Similarly, periodic changes to reimbursement methodologies could have an adverse impact on LivaNova’s business. Adoption of some or all of such healthcare policy and reimbursement proposals could have a material adverse effect on LivaNova’s business, results of operations, cash flows and financial position.
Private parties could also bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. In addition, our operations involve the use of substances regulated under environmental laws, including for purposes of sterilization.
Private parties could also bring personal injury or other claims due to the presence of, or exposure to, hazardous substances. In addition, LivaNova’s operations involve the use of substances regulated under environmental laws, including for purposes of sterilization.
These proposals have resulted in efforts to enact healthcare system reforms that may lead to pricing restrictions, payback requirements, limits on the amounts of reimbursement available for our products and limits on the acceptance and use of our products.
These proposals have resulted in efforts to enact healthcare system reforms that may lead to pricing restrictions, payback requirements, limits on the amounts of reimbursement available for LivaNova’s products and limits on the acceptance and use of LivaNova’s products.
The original issue discount is amortized and recognized as a component of interest expense over the term of the Notes, which results in an effective interest rate reported in our consolidated statements of operations in excess of the stated interest rate of the Notes.
The original issue discount is amortized and recognized as a component of interest expense over the term of the Notes, which results in an effective interest rate reported in LivaNova’s consolidated statements of operations in excess of the stated interest rate of the Notes.
For example, such restrictions could adversely affect our ability to finance our operations, make strategic acquisitions, investments or alliances, restructure our organization or finance capital needs. Additionally, our ability to comply with these covenants and restrictions may be affected by events beyond our control, such as prevailing economic, financial, regulatory and industry conditions.
For example, such restrictions could adversely affect LivaNova’s ability to finance its operations, make strategic investments, alliances or acquisitions, restructure its organization or finance capital needs. Additionally, LivaNova’s ability to comply with these covenants and restrictions may be affected by events beyond its control, such as prevailing economic, financial, regulatory and industry conditions.
The impact of pending or existing climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present major risks to our future operations.
The impact of pending or existing climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present major risks to LivaNova’s future operations.
The Option Counterparties or their respective affiliates may modify these initial hedge positions by entering into or unwinding various derivatives with respect to our ordinary shares and/or purchasing or selling our ordinary shares or other securities of ours in secondary market transactions prior to the maturity of the Notes (and are likely to do so during any observation period related to an exchange of the Notes or upon a repurchase or redemption of the Notes).
The Option Counterparties or their respective affiliates may modify these initial hedge positions by entering into or unwinding various derivatives with respect to LivaNova’s ordinary shares and/or purchasing or selling its ordinary shares or other of LivaNova’s securities in secondary market transactions prior to the maturity of the Notes (and are likely to do so during any observation period related to an exchange of the Notes or upon a repurchase or redemption of the Notes).
These potential consequences, as well as any adverse outcome from government investigations, could have a material adverse effect on our business, results of operations, cash flows and financial condition. In addition, in the U.S., device manufacturers are prohibited from promoting their products for uses and indications that are not set forth in the approved product labeling (so called “off-label uses”).
These potential consequences, as well as any adverse outcome from government investigations, could have a material adverse effect on LivaNova’s business, results of operations, cash flows and financial condition. In addition, device manufacturers are prohibited from promoting their products for uses and indications that are not set forth in the approved product labeling (so called “off-label uses”).
Implementation of further legislative or administrative reforms to these reimbursement systems, or adverse decisions relating to coverage of or reimbursement for our products by administrators of these systems, could have a material adverse impact on the acceptance of and demand for our products and the prices that our customers are willing to pay for them.
Implementation of further legislative or administrative reforms to these reimbursement systems, or adverse decisions relating to coverage of or reimbursement for LivaNova’s products by administrators of these systems, could have a material adverse impact on the acceptance of and demand for the Company’s products and the prices that LivaNova’s customers are willing to pay for them.
Investors may also implement this type of strategy by entering into swaps on our ordinary shares in lieu of or in addition to selling short our ordinary shares. This activity could decrease (or reduce the size of any increase in) the market price of our ordinary shares at that time.
Investors may also implement this type of strategy by entering into swaps on LivaNova’s ordinary shares in lieu of or in addition to selling short the Company’s ordinary shares. This activity could decrease, or reduce the size of any increase in, the market price of LivaNova’s ordinary shares at that time.
Our failure to repurchase the Notes or exchange the Notes for cash at a time when the repurchase or exchange is required by the Indenture governing the Notes would constitute a default under such Indenture.
LivaNova’s failure to repurchase the Notes or exchange the Notes for cash at a time when the repurchase or exchange is required by the Indenture governing the Notes would constitute a default under such Indenture.
The ability to make scheduled payments of interest on, and principal of, to satisfy exchanges for cash in respect of, and/or to refinance, our outstanding Notes or other indebtedness (including any indebtedness under our revolving credit facility or term facilities) depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
The ability to make scheduled payments of interest on, and principal of, to satisfy exchanges for cash in respect of, and/or to refinance LivaNova’s outstanding Notes or other indebtedness (including any indebtedness under LivaNova’s revolving credit facility or term facilities) depends on the Company’s future performance, which is subject to economic, financial, competitive and other factors beyond its control.
For example, our Saluggia campus contains hazardous substances as a result of nuclear installations, built in 1960 under previous ownership, and the Italian Government has stated that we will eventually be responsible for dismantling the nuclear installation on Company property, as well as delivering the aforementioned waste to a national repository.
For example, LivaNova’s Saluggia campus contains hazardous substances as a result of nuclear installations built in 1960 under previous ownership, and the Italian Government has stated that LivaNova will eventually be responsible for dismantling the nuclear installation on Company property, as well as delivering the aforementioned waste to a national repository.
The exchange condition was not satisfied on December 31, 2022, and therefore, exchangeability is not an option from January 1, 2023 through March 31, 2023.
The exchange condition was not satisfied on December 31, 2023, and therefore, exchangeability is not an option from January 1, 2024, through March 31, 2024.
Product liability claims or product recalls in the future, regardless of their ultimate outcome, could have a material adverse effect on our business and reputation and on our ability to attract and retain customers for our products, and losses from product liability claims in the future could exceed our product liability insurance coverage and lead to a material adverse effect on our financial condition and liquidity.
Product liability claims or product recalls in the future, regardless of their ultimate outcome, could have a material adverse effect on LivaNova’s business and reputation and on the Company’s ability to attract and retain customers for its products, and future losses from product liability claims could exceed LivaNova’s product liability insurance coverage and lead to a material adverse effect on the Company’s financial condition and liquidity.
However, to the extent we or our contract sterilizers are unable to sterilize our products, whether due to regulatory, legislative, or other constraints, including on the use of EtO, we may be unable to transition to alternative internal or external resources or methods in a timely or cost-effective manner or at all, which could have a material impact on our results of operations and financial condition.
However, to the extent LivaNova or its contract sterilizers are unable to sterilize LivaNova’s products, whether due to regulatory, legislative, or other constraints, including on the use of EtO, LivaNova may be unable to transition to alternative internal or external resources or methods in a timely or cost-effective manner or at all, which could have a material impact on LivaNova’s results of operations and financial condition.
Other governments have enacted, amended or are enacting similar data protection laws, including data localization laws that require data to stay within their borders and other technical and operational adaptions that may be required given the rapid changes in data protection regulation where we conduct business.
Other governments have enacted, amended, or are enacting similar data protection laws, including data localization laws that require data to stay within their borders and other technical and operational adaptions that may be required given the rapid changes in data protection regulation where LivaNova conducts business.
Even an allegation of impropriety could adversely impact our reputation and/or business operations. Furthermore, our devices, products and therapies are purchased principally by hospitals or physicians that typically bill various third party payers, such as governmental healthcare programs (e.g., Medicare, Medicaid and comparable non-U.S. programs), private insurance plans and managed care plans, for the healthcare services provided to their patients.
Even an unsubstantiated allegation of impropriety could adversely impact LivaNova’s reputation and/or business operations. Furthermore, LivaNova’s devices, products and therapies are purchased principally by hospitals or physicians that typically bill various third-party payers, such as governmental healthcare programs (e.g., Medicare, Medicaid and comparable non-US programs), private insurance plans and managed care plans for the healthcare services provided to their patients.
In addition, our indebtedness including under the Notes, combined with our other financial obligations and contractual commitments including those under our revolving credit facility or term facilities, could have other important consequences.
In addition, LivaNova’s indebtedness including under the Notes, combined with the Company’s other financial obligations and contractual commitments including those under LivaNova’s revolving credit facility or term facilities, could have other important consequences.
The laws and/or collective bargaining agreements that are applicable to these agreements could have an impact on our flexibility, as they apply to programs to redefine and/or strategically reposition our activities. Our ability to implement staff downsizing programs or even temporary interruptions of employment relationships is predicated on the approval of government entities and the consent of labor unions.
The laws and/or collective bargaining agreements that are applicable to these agreements could have an impact on LivaNova’s flexibility, as they apply to programs to redefine and/or strategically reposition the Company’s activities. LivaNova’s ability to implement staff reduction programs or even temporary interruptions of employment relationships is predicated on the approval of government entities and the consent of labor unions.
The holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change (as defined in the indenture governing the Notes (the “Indenture”)) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any.
The holders of the Notes have the right to require LivaNova to repurchase their Notes upon the occurrence of a fundamental change (as defined in the Indenture) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any.
Our business, results of operations, cash flows, financial condition and liquidity could be materially adversely affected by a negative decision in the case of SNIA and could be adversely affected by an increase in anticipated costs relating to transportation of hazardous waste in Saluggia.
LivaNova’s business, results of operations, cash flows, financial condition and liquidity could be materially adversely affected by a negative decision in the case of SNIA and could be adversely affected by an increase in anticipated costs relating to disposal of hazardous waste in Saluggia.
As such, there may be a material net impact to our consolidated statements of operations, which could adversely affect the price at which our ordinary shares trade. The arbitrage or hedging strategy by purchasers of the Notes and Option Counterparties in connection with our capped call transactions may affect the value of our ordinary shares.
As such, there may be a material net impact on LivaNova’s consolidated statements of operations, which could adversely affect the price at which its ordinary shares trade. The arbitrage or hedging strategy by purchasers of the Notes and Option Counterparties in connection with LivaNova’s capped call transactions may affect the value of LivaNova’s ordinary shares.
In some cases, we purchase specific components and raw materials from primary or main suppliers (or in some cases, a single or sole supplier) for reasons related to quality assurance, cost-effectiveness and availability. Any problem affecting a supplier (whether due to external or internal causes) could have a negative impact on us.
In some cases, LivaNova purchases specific components and raw materials from primary or main suppliers (or in some cases, a single or sole supplier) for reasons related to quality assurance, cost-effectiveness and availability. Any problem affecting a supplier (whether due to external or internal causes) could have a negative impact on LivaNova.
However, there can be no assurance that we will accurately predict the outcomes of ongoing audits, and the actual outcomes of these audits could have a material impact on our consolidated statements of income (loss) or financial condition.
However, there can be no assurance that LivaNova will accurately predict the outcomes of ongoing audits, and the actual outcomes of these audits could have a material impact on LivaNova’s consolidated statements of income (loss) or financial condition.
Our exposure to the credit risk of the Option Counterparties is not secured by any collateral. If an Option Counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings, with a claim equal to our exposure at that time under the capped call transactions with that Option Counterparty.
LivaNova’s exposure to the credit risk of the Option Counterparties is not secured by any collateral. If an Option Counterparty becomes subject to insolvency proceedings, LivaNova will become an unsecured creditor in those proceedings, with a claim equal to the Company’s exposure at that time under the capped call transactions with that Option Counterparty.
Although this accounting treatment does not affect the amount of cash interest paid to holders of the Notes or our cash flows, it reduces our earnings and could adversely affect the price at which our ordinary shares trade.
Although this accounting treatment does not affect the amount of cash interest paid to holders of the Notes or LivaNova’s cash flows, it reduces the Company’s earnings and could adversely affect the price at which its ordinary shares trade.
Investments and investment collaborations in and with medical technology companies are inherently risky, and we cannot guarantee that any of our previous or future acquisitions, investments or investment collaborations will be successful or will not materially adversely affect our business, results of operations, cash flows and financial condition.
Investments and investment collaborations in and with medical technology companies are inherently risky, and LivaNova cannot guarantee that any of its previous or future acquisitions, investments or investment collaborations will be successful or will not materially adversely affect LivaNova’s business, results of operations, cash flows and financial condition.
Third parties could obtain patents that may require us to negotiate licenses to conduct our business, and the required licenses may not be available on reasonable terms or at all. We also rely on non-disclosure and non-competition agreements with certain employees, consultants and other parties to protect, in part, trade secrets and other proprietary rights.
Third parties could obtain patents that may require LivaNova to negotiate licenses to conduct business, and the required licenses may not be available on reasonable terms or at all. LivaNova also relies on non-disclosure and non-competition agreements with certain employees, consultants and other parties to protect, in part, trade secrets and other proprietary rights.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel, government shutdowns and statutory, regulatory and policy changes. In addition, a portion of our revenue is dependent on U.S. federal government healthcare program reimbursement.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government funding levels, the ability to hire and retain key personnel, government shutdowns, and statutory, regulatory and policy changes. In addition, a portion of LivaNova’s revenue is dependent on US federal government healthcare program reimbursement.
Certain restrictions and covenants in our debt instruments, including our revolving credit facility or term facilities, could affect our ability to operate and may limit our ability to react to market conditions or to take advantage of potential business opportunities as they arise.
Certain restrictions and covenants in LivaNova’s debt instruments, including the Company’s revolving credit facility or term facilities, could affect its ability to operate and may limit its ability to react to market conditions or to take advantage of potential business opportunities as they arise.
We expect that many investors in, and potential purchasers of the Notes will employ, or seek to employ, an arbitrage strategy with respect to the Notes. Investors would typically implement such a strategy by selling short our ordinary shares underlying the Notes and dynamically adjusting their short position while continuing to hold the Notes.
LivaNova expects that many investors in, and potential purchasers of, the Notes will employ, or seek to employ, an arbitrage strategy with respect to the Notes. Investors would typically implement such a strategy by selling short LivaNova’s ordinary shares underlying the Notes and dynamically adjusting their short position while continuing to hold the Notes.
This activity could cause or avoid an increase or decrease in the market price of our ordinary shares at that time. We are subject to counterparty risk with respect to the capped call transactions. The Option Counterparties are financial institutions, and we are subject to the risk that they might default under the capped call transactions.
This activity could cause or avoid an increase or decrease in the market price of LivaNova’s ordinary shares at that time. 28 LivaNova is subject to counterparty risk with respect to the capped call transactions. The Option Counterparties are financial institutions, and LivaNova is subject to the risk that they might default under the capped call transactions.
Such an event could result in product liability claims or a recall of, or safety alert relating to, one or more of our products. For example, as described in “Note 14.
Such an event could result in product liability claims or a recall of, or safety alert relating to, one or more of LivaNova’s products. For example, as described in “Note 13.
The FDA and similar non-U.S. governmental authorities may require the recall of commercialized products in the event of material deficiencies or defects in design, software or manufacture or in the event that a product poses an unacceptable risk to health.
The FDA and similar non-US governmental authorities may require the recall of commercialized products in the event of material deficiencies or defects in design, software or manufacture, or in the event that a product poses an unacceptable risk to 23 patients’ health.
Any disruption in U.S. federal government operations, including government shutdowns, could have a material adverse effect on our business, results of operations, cash flows and financial condition. Risks Related to our Indebtedness Paying amounts due in cash in respect of our outstanding Notes on interest payment dates, at maturity and upon exchange thereof will require a cash payment.
Any disruption in US federal government operations, including government shutdowns, could have a material adverse effect on LivaNova’s business, results of operations, cash flows and financial condition. 26 Risks Related to LivaNova’s Indebtedness Paying amounts due with respect to LivaNova’s outstanding Notes on interest payment dates, at maturity and upon exchange thereof will require a cash payment.
We cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.
LivaNova cannot predict the nature, scope or effect of future regulatory requirements to which the Company’s international operations might be subject or the manner in which existing laws might be administered or interpreted.
Similarly, EU Reg MDR prohibits manufacturers from misleading users and patients by suggesting uses for the device other than those stated as part of the intended purpose for which the conformity assessment was carried out. Governmental regulations outside the U.S. have, and may continue to become, increasingly stringent and common.
The EU MDR, for example, prohibits manufacturers from misleading users and patients by suggesting uses for the device other than those stated as part of the intended purpose for which the conformity assessment was carried out. Governmental regulations outside the US have, and may continue to, become increasingly stringent and common as well.
While physicians may exercise their discretion in prescribing a device off-label, a device manufacturer’s failure to comply with the related applicable regulations could subject us to significant civil or criminal exposure, administrative obligations and costs, and/or other potential penalties from, and/or agreements with, the federal government.
While physicians may exercise their discretion in prescribing a device off-label, a device manufacturer’s failure to comply with the related applicable regulations could subject LivaNova to significant civil or criminal exposure, administrative obligations and costs, and/or other potential penalties.
Additionally, our patents, trade secrets, or other agreements may not prevent competitors from independently developing or selling similar products and services and may not adequately deter misappropriation or improper use of our technology. Further, pending patent applications may not result in patents being issued to us.
Additionally, LivaNova’s patents, trade secrets, or other agreements may not prevent competitors from independently developing or selling similar products and services and may not adequately deter misappropriation or improper use of the Company’s technology. Further, pending patent applications may not result in patents being issued to LivaNova.
Upon repurchase of the Notes, we will be required to make cash payments as required by the Indenture. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of, or exchange of, the Notes for cash.
Upon repurchase of the Notes, LivaNova will be required to make cash payments as required by the Indenture. LivaNova may not have enough available cash or be able to obtain financing at the time the Company is required to make repurchases of, or exchange of, the Notes for cash.
Success in pre-clinical testing and early clinical studies does not always ensure that later clinical studies will be successful, as we experienced and announced, for instance, in connection with the VITARIA SYSTEM in the ANTHEM-HFrEF clinical trial, and we cannot be sure that later studies will replicate the results of prior studies.
Success in pre-clinical testing and early clinical studies does not always ensure that later clinical studies will be successful, as LivaNova experienced and announced, for instance, in connection with stopping enrollment of the ANTHEM-HFrEF clinical trial, and LivaNova cannot be sure that later studies will replicate the results of prior studies.
Our failure to comply with rules relating to reimbursement of healthcare goods and services, healthcare fraud and abuse, false claims and other applicable laws or regulations may subject us to penalties and limit patient access to our devices, thereby adversely impacting our reputation and business operations.
Failure to comply with rules relating to reimbursement of healthcare goods and services, healthcare fraud and abuse, false claims and other applicable laws or regulations may subject LivaNova to penalties and limit patient access to its devices, thereby adversely impacting the Company’s reputation and business operations.
Our ability to refinance the Notes or other indebtedness, which we may need to do in order to satisfy our obligations thereunder, will depend on the capital markets and our financial condition at such time.
LivaNova’s ability to refinance the Notes or other indebtedness, which the Company may need to do in order to satisfy its obligations thereunder, will depend on the capital markets and LivaNova’s financial condition at such time.
Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our ordinary shares.
LivaNova’s exposure will depend on many factors but generally an increase in the Company’s exposure will be correlated to an increase in the market price and in the volatility of its ordinary shares.
We maintain policies and programs to educate our employees and agents on these legal requirements, and to prevent and prohibit improper practices. However, existing safeguards and any future improvements may not always be effective, and our employees, consultants, sales agents or distributors may engage in conduct for which we could be held responsible.
LivaNova maintains policies and programs to educate its employees and agents on these legal requirements, and to prevent and prohibit improper practices. However, existing safeguards and any future improvements may not always be effective, and LivaNova’s employees, consultants, sales agents, or distributors may engage in conduct for which LivaNova could be held responsible.
Any delay or termination of our clinical studies will delay the filing of regulatory submissions or requests for coverage determinations and, ultimately, our ability to commercialize new products or product modifications and obtain reimbursement for our products.
Any delay or termination of LivaNova’s clinical studies will delay or preclude the filing of 21 regulatory submissions or requests for coverage determinations and, ultimately, LivaNova’s ability to commercialize new products or product modifications and obtain reimbursement for the Company’s products.
Patents issued to or licensed by us in the past or in the future may be challenged or circumvented by competitors and such patents may be found invalid, unenforceable or insufficiently broad to protect our technology and may limit our competitive advantage.
Patents issued to or licensed by LivaNova in the past or in the future may be challenged or circumvented by competitors and such patents may be found invalid, unenforceable or insufficiently broad to protect the Company’s technology, and may limit LivaNova’s competitive advantage.
We cannot be certain that these agreements will not be breached, that we will have adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information, or that third parties will not otherwise gain access to our trade secrets or proprietary knowledge.
LivaNova cannot be certain that these agreements will not be breached, that the Company will have adequate remedies for any breach, that others will not independently develop substantially equivalent proprietary information, or that third parties will not otherwise gain access to LivaNova’s trade secrets or proprietary knowledge.
Moreover, due to strict standards and regulations governing the manufacture and marketing of our products, we may not be able to locate new supply sources quickly or at all in response to a supply reduction or interruption, with negative effects on our ability to manufacture our products effectively and timely.
Moreover, due to strict standards and regulations governing the manufacture and marketing of LivaNova’s products, the Company may not be able to locate new supply sources quickly or at all in response to a supply reduction or interruption, resulting in negative effects on its ability to manufacture products effectively and timely.
Even if we are able to obtain approval, clearance and reimbursement, it may take a significant amount of time, require the expenditure of substantial resources, involve stringent clinical and pre-clinical testing and increased post-market surveillance, and/or involve modifications, repairs or replacements of our products or limitations on the proposed uses of our products.
Even if LivaNova is able to obtain approval, marketing clearance and reimbursement, it may take a significant amount of time, require the expenditure of substantial resources, involve stringent clinical and pre-clinical testing and increased post-market surveillance, and/or involve modifications, repairs or replacements of LivaNova’s products or limitations on the proposed uses of its products.
If we are unable to demonstrate that our devices are cost-effective, third party payers may not reimburse the use of our products or not provide sufficient reimbursement for our products, which could reduce sales of our products to healthcare providers who depend upon reimbursement for payment for their services.
If LivaNova is unable to demonstrate that the Company’s devices are cost-effective, third-party payers may not reimburse the use of LivaNova’s products or provide sufficient reimbursement for LivaNova’s products, which could reduce sales of the Company’s products to healthcare providers that depend upon reimbursement for payment for their services.
While we intend to defend against any threats to our intellectual property, any litigation to counter the infringement, misappropriation, or unauthorized use of our intellectual property may require the expenditure of significant financial and managerial resources, which may adversely affect our business, results of operations, cash flows and financial condition.
While LivaNova intends to defend against any threats to the Company’s intellectual property, any litigation to counter the infringement, misappropriation, or unauthorized use of LivaNova’s intellectual property may require the expenditure of significant financial and managerial resources, which may adversely affect LivaNova’s business, results of operations, cash flows and financial condition.
If any of these restrictions or covenants is breached, we could be in default under one or more of our debt instruments, which, if not cured or waived, could result in acceleration of the indebtedness under such agreements and cross defaults under our other debt instruments. (For more information on these debt instruments, please refer to “Note 11.
If any of these restrictions or covenants are breached, LivaNova could be in default under one or more of its debt instruments, which, if not cured or waived, could result in acceleration of the indebtedness under such agreements and cross-defaults under its other debt instruments. For more information on these debt instruments, please refer to “Note 10.
The physical impacts of natural disasters and extreme weather conditions, such as hurricanes, tornadoes, earthquakes, winter storms, wildfires or flooding could pose physical risks to our facilities, temporarily reduce demand, disrupt our supply chain operations and our suppliers’ operations, and negatively impact operational costs.
The physical impacts of natural disasters and extreme weather conditions, such as hurricanes, tornadoes, earthquakes, winter storms, wildfires or flooding could pose physical risks to LivaNova’s facilities, temporarily reduce demand, reduce employee productivity, increase absenteeism, disrupt the Company’s supply chain operations and its suppliers’ operations, and negatively impact operational costs.
Financing Arrangements” in the consolidated financial statements in this Annual report on Form 10-K. The conditional exchange features of the Notes if triggered, may adversely affect our liquidity and operating results. If the conditional exchange feature of the Notes is triggered, holders of Notes are entitled to exchange the Notes at any time during specified periods, at their option.
Financing Arrangements” in LivaNova’s consolidated financial statements included in this Report. The conditional exchange features of the Notes, if triggered, may adversely affect LivaNova’s liquidity and operating results. If the conditional exchange feature of the Notes is triggered, holders of the Notes are entitled to exchange the Notes at any time during specified periods, at their option.
We are, therefore, exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors, independent sales agents and distributors may engage in fraudulent or other illegal activity in violation of these laws and our Code of Conduct.
LivaNova is, therefore, exposed to the risk that its employees, independent contractors, principal investigators, consultants, vendors, independent sales agents, and distributors may engage in fraudulent or other illegal activity in violation of these laws and LivaNova’s Code of Conduct.
These business dealings represent an insignificant amount of our consolidated revenues and income but expose us to a heightened risk of violating applicable sanctions regulations.
These business dealings represent an insignificant amount of LivaNova’s consolidated revenues and income but expose the Company to a heightened risk of violating applicable sanctions regulations.
It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
It is not always possible to identify and deter misconduct by LivaNova’s employees and other third parties, and the precautions the Company takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting LivaNova from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations.
Our ability to commercialize our products is dependent, in large part, on whether third party payers, including private healthcare insurers, managed care plans, governmental programs and others agree to cover the costs and services associated with our products and related procedures in the U.S. and internationally.
LivaNova’s ability to profitably commercialize the Company’s products is dependent, in large part, on whether third-party payers, including private healthcare insurers, managed care plans, governmental programs and others, agree to cover the costs and services associated with LivaNova’s products and related medical procedures in the US and internationally.
Competitive factors include product quality, reliability and performance; product technology and innovation; breadth of product lines and product services; ability to identify new market trends; changes to the regulatory environment; cost-effectiveness and price; customer support and training; capacity to recruit engineers, scientists and other qualified employees; and reimbursement approval.
Competitive factors include: product quality, reliability and performance; product technology and innovation; breadth of product lines and product services; ability to identify new market trends; changes to the regulatory environment; cost-effectiveness and price; customer support and training; capacity to recruit engineers, scientists and other qualified employees; ability to navigate the regulatory approval process in the markets in which LivaNova operates; reimbursement approval; and effectiveness of systems and processes.
As previously disclosed, for example, in 2015, the Italian Parliament introduced rules for entities that supply goods and services to the Italian National Healthcare System. This healthcare law impacts the business and financial reporting of medical technology sector companies that sell devices in Italy.
For example, in 2015, the Italian Parliament introduced rules for entities that supply goods and services to the Italian National Healthcare System, impacting the business and financial reporting of medical technology sector companies that sell devices in Italy.
Similarly, we may divest and have divested portions of our business, resulting in the migration of data and overlapping data obligations. As a result of such divestitures, we may face risks due to migration or modification of controls, procedures and policies relating to 20 data privacy and cybersecurity internally or enroute.
Similarly, LivaNova may divest and has divested portions of its business, resulting in the migration of data and overlapping data obligations. As a result of such divestitures, LivaNova may face risks due to the migration or modification of controls, procedures and policies relating to data privacy and cybersecurity internally or enroute during migration.
In connection with the pricing of the Notes, we entered into privately negotiated capped call transactions with certain financial institutions (the “Option Counterparties”).
In connection with the pricing of the Notes, LivaNova entered into privately negotiated capped call transactions with certain financial institutions.
If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical products are ineffective or pose an unreasonable health risk, the FDA could ban such medical products, detain or seize adulterated or misbranded medical products, order a recall, repair, replacement, or refund of such products, refuse to grant pending PMA applications or require certificates of non-U.S. governments for exports, and/or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health.
If the FDA were to conclude that LivaNova is not in compliance with applicable laws or regulations, or that any of the Company’s medical products are ineffective or pose an unreasonable health risk, the FDA could ban such medical products, detain or seize adulterated or misbranded medical products, order a recall, repair, replacement or refund of such products, refuse to grant pending PMA applications, and/or require LivaNova to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health.
Because of the predominance of government-administered healthcare systems in many parts of the world outside the U.S., many of our customer relationships are potentially subject to such laws.
Because of the predominance of government-administered healthcare systems in many parts of the world outside the US, many of LivaNova’s customer relationships are potentially subject to such laws.
Any of these factors could harm our business, results of operations, cash flows and financial condition. In addition, if we incur additional indebtedness under the revolving credit facility or term facilities, the risks related to our business and our ability to repay our indebtedness including under the Notes would increase. For additional information, please refer to “Note 11.
Any of these factors could harm LivaNova’s business, results of operations, cash flows and financial condition. In addition, if LivaNova incurs additional indebtedness under the revolving credit facility or term facilities, the risks related to LivaNova’s business and its ability to repay the Company’s indebtedness, including under the Notes, would increase. For additional information, please refer to “Note 10.
In addition, there is also some uncertainty as to whether the courts of U.K. would recognize or enforce judgements of U.S. courts obtained against us or any of our directors or officers. Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our results of operations and financial condition.
In addition, there is also some uncertainty as to whether the UK courts would recognize or enforce judgments of US courts obtained against LivaNova or any of its directors or officers. Changes in tax laws or exposure to additional income tax liabilities could have a material impact on LivaNova’s results of operations and financial condition.
Any failure to comply with these laws and regulations could subject us or our officers and employees to criminal and civil financial penalties. Finally, we are subject to risks relating to changes in government and private medical reimbursement programs and policies, and changes in legal regulatory requirements in the U.S. and around the world.
Any failure to comply with these laws and regulations could subject the Company or its officers and employees to criminal and civil financial penalties. Finally, LivaNova is subject to risks relating to changes in government and private medical reimbursement programs and policies and changes in legal regulatory requirements in the US and around the world.
Unauthorized persons routinely attempt to access our products or systems in order to disrupt, disable or degrade services, to obtain proprietary or confidential information, to make ransom demands, or to remotely disrupt or access the systems of large health care providers by exploiting our systems.
Unauthorized persons routinely attempt to access LivaNova’s systems to disrupt, disable or degrade services, obtain proprietary or confidential information, make ransom demands, and/or remotely disrupt or access the systems of large health care providers by exploiting the Company’s systems.
Quality concerns with our processes, goods, and services could harm our reputation for producing high-quality products and erode our competitive advantage, sales, and market share. Quality is extremely important to us and our customers due to the serious and costly consequences of product failure. Our quality certifications are critical to the marketing success of our goods and services.
Quality concerns with LivaNova’s processes, products, and services could harm the Company’s reputation for producing high-quality products and erode LivaNova’s competitive advantage, revenue, and market share. Quality is extremely important to LivaNova and its customers due to the serious and costly consequences of product failure. LivaNova’s quality certifications are critical to the marketing success of the Company’s products and services.
Moreover, if we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties, or civil or criminal fines, any or all of which could have a material adverse effect on our business.
Moreover, if LivaNova does not adequately address problems associated with its devices, the Company may face additional regulatory enforcement action, including FDA warning letters, product seizure, injunctions, administrative penalties, or civil or criminal fines, any of which could have a material adverse effect on LivaNova’s business.
Our devices and therapies are subject to regulation by various governmental agencies worldwide responsible for coverage, reimbursement and regulation of healthcare goods and services, including laws and regulations related to kickbacks, false claims, self-referrals and healthcare fraud.
LivaNova’s devices and therapies are subject to regulation by various governmental agencies worldwide that are responsible for regulating healthcare goods and services, including laws and regulations related to kickbacks, false claims, self-referrals and healthcare fraud.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our principal executive office is located in the UK and is leased by us. Our business segments have headquarters located in the U.S. for Neuromodulation and Advanced Circulatory Support and Italy for Cardiopulmonary. We have manufacturing and research facilities located in Brazil, Germany, Italy, Australia and the U.S.
Biggest changeItem 2. Properties LivaNova’s principal executive office is located in the UK and is leased by the Company. LivaNova’s business segments are headquartered in the US for Neuromodulation and historically, ACS, and in Italy for Cardiopulmonary. LivaNova has manufacturing and research facilities located in the US, Italy, Germany, Australia, and Brazil.
Our manufacturing and research facilities are approximately 1.0 million square feet. The manufacturing and research facilities located in the U.S., Italy and Brazil are substantially owned by us. Approximately 46% of our manufacturing and research facilities by square feet are located within the U.S.
The Company’s manufacturing and research facilities are approximately 1.0 million square feet. The manufacturing and research facilities located in the US, Italy and Brazil are substantially owned by LivaNova. Approximately 45% of the Company’s manufacturing and research facilities by square feet are located within the US.
We believe that all of our facilities are in good operating condition, suitable for their respective uses and adequate for current needs.
LivaNova believes that all of its facilities are in good operating condition, suitable for their respective uses and adequate for current needs.
Approximately 57% of our manufacturing and research facilities by square feet are owned by us and the balance is leased. We also maintain 25 primary administrative offices in 18 countries. Most of these locations are leased. We are using substantially all of our currently available productive space to develop, manufacture and market our products.
Approximately 59% of LivaNova’s manufacturing and research facilities by square feet are owned by the Company and the balance is leased. LivaNova also maintains 31 primary administrative offices in 21 countries. Most of these locations are leased. LivaNova is using substantially all of the Company’s currently available productive space to develop, manufacture and market LivaNova’s products.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeCommitments and Contingencies” in our consolidated financial statements and accompanying notes, beginning on page F-1 of this Annual Report on Form 10-K and should be considered an integral part of “Item 3 of Part I” of this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures Not applicable. 30 PART II
Biggest changeItem 3. Legal Proceedings Information pertaining to certain material pending legal and regulatory proceedings and settlements is incorporated herein by reference to “Note 13. Commitments and Contingencies” in LivaNova’s consolidated financial statements and accompanying notes, beginning on page F-1 of this Report, and should be considered an integral part of “Item 3 of Part I” of this Report. Item 4.
Removed
Item 3. Legal Proceedings Information pertaining to certain material pending legal and regulatory proceedings and settlements is incorporated herein by reference to “Note 14.
Added
Mine Safety Disclosures Not applicable. 33 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe information under the caption “Stock Performance Graph” above is not deemed to be “filed” as part of the Annual Report on Form 10-K and is not subject to the liability provisions of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Biggest changeThe information under the caption “Stock Performance Graph” above is not deemed to be “filed” as part of the Report and is not subject to the liability provisions of Section 18 of the Exchange Act.
A substantially greater number of holders of our ordinary shares are “street name” or beneficial holders, whose shares of record are held by banks, brokers and other financial institutions. Dividend Policy We currently have no intention to declare and pay dividends. Issuer Purchases of Securities None.
A substantially greater number of holders of LivaNova’s ordinary shares are “street name” or beneficial holders, whose shares of record are held by banks, brokers and other financial institutions. Dividend Policy LivaNova currently has no intention to declare and pay dividends. Issuer Purchases of Securities None.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our ordinary shares are quoted on the Nasdaq Global Market under the symbol “LIVN.” As of February 17, 2023, according to data provided by our transfer agent, there were 20 stockholders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities LivaNova’s ordinary shares are quoted on the Nasdaq Stock Market LLC under the symbol “LIVN.” As of February 23, 2024, according to data provided by LivaNova’s transfer agent, there were 20 stockholders of record.
Stock Performance Graph The following graph compares our five-year cumulative total return with the five-year cumulative total return of the companies on the Standard & Poor’s (“S&P’s”) 500 Index and the companies on the S&P Health Care Equipment Index. This graph assumes the investment of $100 on December 31, 2017 and the reinvestment of all dividends since that date.
Stock Performance Graph The following graph compares LivaNova’s five-year cumulative total return with the five-year cumulative total return of the companies on the S&P 500 Index and the companies on the S&P Health Care Equipment Index. This graph assumes the investment of $100 on December 31, 2018 and the reinvestment of all dividends since that date.
Such information will not be deemed incorporated by reference into any filing we make under the Securities Act of 1933, as amended, unless we explicitly incorporate it into such filing at such time. Item 6. [Reserved] 31
Such information will not be deemed incorporated by reference into any filing LivaNova makes under the Securities Act, unless LivaNova explicitly incorporates it into such filing at such time. Item 6. [Reserved] 34 Item 7.
Added
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 the corresponding notes included elsewhere in this Report.
Added
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 2023, 2022 and 2021.
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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 & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeDuring the year ended December 31, 2021, we recognized a loss from the sale of the Heart Valve business of $1.9 million, which is included within other operating expenses on the consolidated statements of income (loss). 34 Results of Operations The following table summarizes our consolidated results for the years ended December 31, 2022, 2021 and 2020 (in thousands): 2022 2021 2020 Net revenue $ 1,021,805 $ 1,035,365 $ 934,241 Cost of sales 314,577 329,371 339,478 Gross profit 707,228 705,994 594,763 Operating expenses: Selling, general and administrative 469,243 471,904 446,561 Research and development 155,805 183,414 152,902 Impairment of disposal group — — 180,160 Impairment of goodwill 129,396 — 21,269 Other operating expenses 29,536 51,460 67,770 Operating loss from continuing operations (76,752) (784) (273,899) Interest expense (48,250) (50,151) (40,837) Loss on debt extinguishment — (60,238) (1,407) Foreign exchange and other income/(expense) 49,860 (13,299) (31,879) Loss from continuing operations before tax (75,142) (124,472) (348,022) Income tax expense (benefit) 11,051 11,198 (960) Losses from equity method investments (53) (148) (264) Net loss from continuing operations (86,246) (135,818) (347,326) Net loss from discontinued operations, net of tax — — (1,493) Net loss $ (86,246) $ (135,818) $ (348,819) 35 Net Revenue by Segment and Geographic Area: The following table presents net revenue by operating segment and geographic region for the years ended December 31, 2022, 2021 and 2020 (in thousands, except for percentages): % Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Cardiopulmonary United States $ 159,489 $ 154,073 $ 132,543 3.5 % 16.2 % Europe (1) 127,064 134,562 122,062 (5.6) % 10.2 % Rest of World 213,761 194,344 192,127 10.0 % 1.2 % 500,314 482,979 446,732 3.6 % 8.1 % Neuromodulation United States 374,542 358,476 282,509 4.5 % 26.9 % Europe (1) 50,291 51,435 39,019 (2.2) % 31.8 % Rest of World 52,160 46,261 32,916 12.8 % 40.5 % 476,993 456,172 354,444 4.6 % 28.7 % Advanced Circulatory Support United States 37,527 53,821 41,094 (30.3) % 31.0 % Europe (1) 1,447 1,120 1,027 29.2 % 9.1 % Rest of World 327 518 200 (36.9) % 159.0 % 39,301 55,459 42,321 (29.1) % 31.0 % Other (2) United States — 4,929 12,488 (100.0) % (60.5) % Europe (1) — 14,407 31,259 (100.0) % (53.9) % Rest of World 5,197 21,419 46,997 (75.7) % (54.4) % 5,197 40,755 90,744 (87.2) % (55.1) % Totals United States 571,558 571,299 468,634 — % 21.9 % Europe (1) 178,802 201,524 193,367 (11.3) % 4.2 % Rest of World 271,445 262,542 272,240 3.4 % (3.6) % Total $ 1,021,805 $ 1,035,365 $ 934,241 (1.3) % 10.8 % (1) Includes countries in Europe where we have a direct sales presence.
Biggest changeGoodwill and Intangible Assets” in LivaNova’s consolidated financial statements included in this Report. 37 Results of Operations The following table summarizes LivaNova’s consolidated results for the years ended December 31, 2023, 2022 and 2021 (in thousands): 2023 2022 2021 Net revenue $ 1,153,545 $ 1,021,805 $ 1,035,365 Cost of sales 382,295 314,577 329,371 Gross profit 771,250 707,228 705,994 Operating expenses: Selling, general and administrative 518,129 469,243 471,904 Research and development 193,817 155,805 183,414 Impairment of goodwill — 129,396 — Impairment of long-lived assets 89,974 — — Other operating expenses 37,828 29,536 51,460 Operating loss (68,498) (76,752) (784) Interest expense (58,853) (48,250) (50,151) Loss on debt extinguishment — — (60,238) Foreign exchange and other income/(expense) 46,125 49,860 (13,299) Loss before tax (81,226) (75,142) (124,472) Income tax (benefit) expense (98,876) 11,051 11,198 Losses from equity method investments (104) (53) (148) Net income (loss) $ 17,546 $ (86,246) $ (135,818) 38 Net Revenue by Segment and Geographic Area: The following table presents net revenue by operating segment and geographic region for the years ended December 31, 2023, 2022 and 2021 (in thousands, except for percentages): % Change 2023 2022 2021 2023 vs 2022 2022 vs 2021 Cardiopulmonary United States $ 188,299 $ 159,489 $ 154,073 18.1 % 3.5 % Europe (1) 156,606 127,064 134,562 23.2 % (5.6) % Rest of World 244,072 213,761 194,344 14.2 % 10.0 % 588,977 500,314 482,979 17.7 % 3.6 % Neuromodulation United States 407,493 374,542 358,476 8.8 % 4.5 % Europe (1) 57,435 50,291 51,435 14.2 % (2.2) % Rest of World 54,782 52,160 46,261 5.0 % 12.8 % 519,710 476,993 456,172 9.0 % 4.6 % Advanced Circulatory Support United States 39,252 37,527 53,821 4.6 % (30.3) % Europe (1) 751 1,447 1,120 (48.1) % 29.2 % Rest of World 319 327 518 (2.4) % (36.9) % 40,322 39,301 55,459 2.6 % (29.1) % Other Revenue (2) 4,536 5,197 40,755 (12.7) % (87.2) % Totals United States 635,044 571,558 571,299 11.1 % 0.0 % Europe (1) 214,792 178,802 201,524 20.1 % (11.3) % Rest of World 303,709 271,445 262,542 11.9 % 3.4 % Total $ 1,153,545 $ 1,021,805 $ 1,035,365 12.9 % (1.3) % (1) Includes countries in Europe where the Company has a direct sales presence.
On March 16, 2022, LivaNova entered into Amendment No. 2 to the 2021 First Lien Credit Agreement, which converted the available borrowings under the Bridge Loan Facility from €200 million to $220.0 million and converted the EURIBOR rate in the 2021 First Lien Credit Agreement to SOFR.
On March 16, 2022, LivaNova entered into Amendment No. 2 to the 2021 First Lien Credit Agreement, which converted the available borrowings under the Bridge Loan Facility from €200 million to $220 million and converted the EURIBOR rate in the 2021 First Lien Credit Agreement to SOFR.
LivaNova delivered a borrowing notice for $220.0 million in connection with the Bridge Loan Facility, which was funded on March 17, 2022. LivaNova used the proceeds of the Bridge Loan Facility to post a portion of the cash collateral supporting the SNIA Litigation Guarantee.
LivaNova delivered a borrowing notice for $220 million in connection with the Bridge Loan Facility, which was funded on March 17, 2022. LivaNova used the proceeds of the Bridge Loan Facility to post a portion of the cash collateral supporting the SNIA Litigation Guarantee.
The embedded exchange feature derivative is measured at fair value using a binomial lattice model and discounted cash flows that utilize observable and unobservable market data.
The embedded exchange feature derivative is measured at fair value using a binomial lattice model and estimated discounted cash flows that utilize observable and unobservable market data.
In May 2022, we acquired the remaining 97% of equity interests for a purchase price of up to $110.0 million, consisting of $10.0 million paid at closing, subject to customary adjustments, and contingent considerations of up to $100.0 million payable upon achievement of certain sales-based milestones beginning in 2023 and ending in 2027.
In May 2022, LivaNova acquired the remaining 97% of equity interests for a purchase price of up to $110.0 million, consisting of $10.0 million paid at closing, subject to customary adjustments, and contingent considerations of up to $100.0 million payable upon achievement of certain sales-based milestones beginning in 2023 and ending in 2027.
The 2021 First Lien Credit Agreement is available for working capital and other general corporate purposes and, if drawn, can be repaid at any time without premium or penalty. There were no outstanding borrowings under the 2021 First Lien Credit Agreement as of December 31, 2022.
The 2021 First Lien Credit Agreement is available for working capital and other general corporate purposes and, if drawn, can be repaid at any time without premium or penalty. There were no outstanding borrowings under the 2021 First Lien Credit Agreement as of December 31, 2023.
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 we operate and operating or cash flow losses.
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, we generally measure fair value by considering sale prices for similar assets, discounted estimated future cash flows using an appropriate discount rate and/or estimated replacement cost.
Long-lived assets held and used are assessed for possible impairment by comparing their carrying values with their associated undiscounted, future cash flows. In 42 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.
We base 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.
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.
The Term Facilities have a maturity of the earlier of (i) five years or (ii) 91 days prior to December 15, 2025, the maturity date of the Notes, unless by that date LivaNova USA will have either redeemed or refinanced the Notes, or set aside an amount of cash equal to the then-outstanding principal amount of the Notes. 44 For additional information on our debt and debt transactions, please refer to “Note 11.
The Term Facilities have a maturity of the earlier of (i) five years or (ii) 91 days prior to December 15, 2025, the maturity date of the Notes, unless by that date LivaNova USA will have either redeemed or refinanced the Notes, or set aside an amount of cash equal to the then-outstanding principal amount of the Notes. 46 For additional information on LivaNova’s debt and debt transactions, please refer to “Note 10.
Embedded Exchange Feature and Capped Call Derivatives In June 2020, the Company issued cash exchangeable senior notes and entered into related capped call transactions. The cash exchangeable senior notes include an embedded exchange feature that is bifurcated from the cash exchangeable senior notes.
Embedded Exchange Feature and Capped Call Derivatives In June 2020, the Company issued the Notes and entered into related capped call transactions. The Notes include an embedded exchange feature that is bifurcated from the Notes.
We evaluate 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 requires various assumptions, including revenue growth rates.
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.
Although we do 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 our future operating results and share prices are disclosed in “Item 1A.
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 “Item 1A.
If holders elect to exchange their Notes during any future periods in the event an exchange condition is met, we would be required to settle our exchange obligation through the payment of cash, which could adversely affect our liquidity. 43 The Company has also entered into privately negotiated capped call transactions with terms substantially similar to those applicable to the Notes.
If holders elect to exchange their Notes during any future periods in the event an exchange condition is met, LivaNova would be required to settle its exchange obligation through the payment of cash, which could adversely affect the Company’s liquidity. 45 The Company has also entered into privately negotiated capped call transactions with terms substantially similar to those applicable to the Notes.
Customer relationships consist of relationships with hospitals and surgeons in the countries where we operate. Indefinite-lived intangible assets other than goodwill are composed of IPR&D assets acquired in acquisitions.
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.
On August 13, 2021, LivaNova PLC and its wholly-owned subsidiary, LivaNova USA (the “Borrower”), entered into a First Lien Credit Agreement with the lenders and issuing banks party thereto and Goldman Sachs Bank USA, as First Lien Administrative Agent and First Lien Collateral Agent, relating to a $125 million senior secured multi-currency revolving credit facility to be made available to the Borrower (the “2021 First Lien Credit Agreement”).
On August 13, 2021, LivaNova PLC and the Borrower entered into a First Lien Credit Agreement with the lenders and issuing banks party thereto and Goldman Sachs Bank USA, as First Lien Administrative Agent and First Lien Collateral Agent, relating to a $125 million senior secured multi-currency revolving credit facility to be made available to the Borrower.
As a result of the changes in the overall level of our income, the earnings mix in various jurisdictions, changes in valuation allowances, and the changes in tax laws, our consolidated effective income tax rate may vary substantially from one reporting period to another.
As a result of changes in the overall level of the Company’s taxable income, the mix of taxable income in various jurisdictions, changes in tax valuation allowances, and changes in tax laws, LivaNova’s consolidated effective income tax rate may vary substantially from one reporting period to another.
This evidence includes: profitability in the most recent quarters; internal forecasts for the current and next two future years; size 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 our net operating losses due to ownership changes, pursuant to Internal Revenue Code (“IRC”) Section 382; and the implementation of prudent and feasible tax planning strategies, if any.
This evidence includes: profitability in the most recent quarters; internal profitability forecasts for the current and next two future years; the 43 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.
We recognize deferred tax assets and liabilities for the anticipated future tax effects of temporary differences between the financial statements basis and the tax basis of our 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.
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.
This risk is limited due to the large number of customers and their dispersion across a number of geographic areas, as well as our efforts to control our exposure to credit risk by monitoring our receivables and the use of credit approvals and credit limits. In addition, we have historically had strong collections and minimal write-offs.
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.
We continue 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 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.
As security for the SNIA Litigation Guarantee, LivaNova is required to grant cash collateral to Barclays in USD in an amount equal to the USD equivalent of 105% of the amount of the SNIA Litigation Guarantee calibrated on a biweekly basis. At December 31, 2022, the cash collateral classified as restricted cash on the consolidated balance sheet was $301.4 million.
As security for the SNIA Litigation Guarantee, LivaNova is required to grant cash collateral to Barclays in USD in an amount equal to the USD equivalent of 105% of the amount of the SNIA Litigation Guarantee calibrated on a biweekly basis. On December 31, 2023, the cash collateral classified as restricted cash on the consolidated balance sheets was $311.4 million.
The Company uses historical volatility and implied volatility from options traded to determine expected stock price volatility which is an unobservable input that is significant to the valuation. For additional information, please refer to “Note 10. Fair Value Measurements” and “Note 11. Financing Arrangements” in the consolidated financial statements in this Annual report on Form 10-K.
The Company uses historical volatility and implied volatility from options traded to determine expected stock price volatility which is an unobservable input that is significant to the valuation. For additional information, please refer to “Note 9. Fair Value Measurements” and “Note 10. Financing Arrangements” in LivaNova’s consolidated financial statements included in this Report.
From time to time, we may decide to access debt and/or equity markets to optimize our capital structure, raise additional capital or increase liquidity as necessary. Our liquidity could be adversely affected by the factors affecting future operating results, including those referred to in “Item 1A. Risk Factors” above and by the contingencies referred to in “Note 14.
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 “Item 1A. Risk Factors” above and by the contingencies referred to in “Note 13.
For additional information, please refer to “Note 18. Income Taxes” in the consolidated financial statements in this Annual report on Form 10-K. 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.
For additional information, please refer to “Note 17. 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 amounts may be materially different from the provision recorded. For additional information, please refer to “Note 14. Commitments and Contingencies” in the consolidated financial statements in this Annual report on Form 10-K.
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 amounts may be materially different from the provision recorded. For additional information, please refer to “Note 13. Commitments and Contingencies” in LivaNova’s consolidated financial statements included in this Report.
As part of our third-quarter 2022 assessment, we considered that revenue for our ACS reporting unit during the nine months ended September 30, 2022, had declined by approximately 29% compared to the prior year period, primarily as a result of a reduction in severe COVID-19 cases, hospital-related challenges and product mix. Furthermore, future revenue projections were reduced.
As part of LivaNova’s third-quarter 2022 assessment, the Company considered that revenue for its ACS reporting unit during the nine months ended September 30, 2022, had declined by approximately 29% compared to the prior year period, primarily as a result of a reduction in severe COVID-19 cases, hospital-related challenges and product mix.
We allocate any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired to goodwill.
LivaNova allocates any excess purchase price over the fair value of the net tangible and identifiable intangible assets acquired to goodwill.
Commitments and Contingencies” in the consolidated financial statements in this Annual report on Form 10-K. 42 Our 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.
Commitments and Contingencies” in LivaNova’s consolidated financial statements included in this Report. 44 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.
To the extent that realization does not meet the “more-likely-than-not” criterion, we establish a valuation allowance. We periodically review the adequacy and necessity of the valuation allowance by considering significant positive and negative evidence relative to our ability to recover deferred tax assets and to determine the timing and amount of valuation allowance that should be released.
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.
Based on the valuation performed, we determined that the fair value of the ACS reporting unit was less than the carrying value and recognized a goodwill impairment of $129.4 million. For additional information, please refer to “Note 4. Business Combinations” and “Note 8. Goodwill and Intangible Assets” in the consolidated financial statements in this Annual report on Form 10-K.
Based on the valuation performed, LivaNova determined that the fair value of the ACS reporting unit was less than the carrying value and recognized a goodwill impairment of $129.4 million. For additional information, please refer to “Note 4. Business Combinations” and “Note 7. Goodwill and Intangible Assets” in LivaNova’s consolidated financial statements included in this Report.
The following are areas requiring management’s judgment that we consider critical: 40 Goodwill and Long-Lived Assets We allocate the purchase price consideration for an acquisition to the assets we acquire and liabilities we assume 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.
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.
Each reporting period, we review if there are circumstances that warrant an evaluation of the carrying amounts of our property and equipment and our finite-lived intangible assets to determine whether such carrying amounts continue to be recoverable.
Each reporting period, LivaNova reviews if 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.
Historically, we have maintained a foreign currency exchange rate risk management strategy that utilizes cash flow hedges and freestanding foreign currency derivatives to reduce our exposure to unanticipated fluctuations in forecasted revenue and costs, inter-company debt, deposits and accounts receivable caused by changes in foreign currency exchange rates.
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.
We regularly assess the likely outcomes of our tax positions in order to determine the appropriateness of our reserves; however, the actual outcome of an audit can be significantly different than our expectations, which could have a material impact on our tax provision.
LivaNova regularly assesses the likely outcomes of its tax positions in order to determine the appropriateness of the Company’s reserves; however, the actual outcome of an audit can be significantly different than LivaNova’s expectations, which could have a material impact on the Company’s tax provision.
While we believe that our reserves for credit losses are adequate, essentially all of our trade receivables are concentrated in the hospital and healthcare sectors worldwide, and accordingly, we are exposed to their respective business, economic and country-specific variables.
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.
On February 21, 2022, the Court of Appeal in Milan (“Court of Appeal”) notified the Company that it granted the Company a suspension with respect to the payment of damages in the amount of €453.6 million (approximately $484.9 million at December 31, 2022) in the SNIA litigation until a decision has been reached on our appeal to the Italian Supreme Court.
On February 21, 2022, the Court of Appeal notified the Company that it granted the Company a suspension with respect to the payment of damages in the amount of €453.6 million (approximately $502.0 million at December 31, 2023) in the SNIA litigation until a decision has been reached on LivaNova’s appeal to the Italian Supreme Court.
Contingent Consideration Liabilities Contingent consideration liabilities are from arrangements resulting from acquisitions that involve potential future payment of consideration that is contingent upon the achievement of performance milestones and sales-based earn-outs. Contingent consideration liabilities are measured at fair value each reporting period, the determination of which requires significant judgments and estimates.
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 earn-outs. Contingent consideration liabilities are measured at fair value each reporting period, the determination of which requires significant judgments and estimates.
The capped call transactions are expected generally to offset any cash payments the Company is required to make upon exchange of the Notes in excess of the principal amount thereof in the event that the market value per ordinary share, as measured under the capped call transactions, is greater than the strike price of the capped call transactions, with such offset being subject to an initial cap price of $100.00 per share.
The capped call transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of LivaNova’s ordinary shares underlying the Notes and are expected generally to offset any cash payments the Company is required to make upon exchange of the Notes in excess of the principal amount thereof in the event that the market value per ordinary share, as measured under the capped call transactions, is greater than the strike price of the capped call transactions, with such offset being subject to an initial cap price of $100.00 per share.
Upon the settlement of our foreign currency cash flow hedges in the fourth quarter of 2022 and following an in-depth analysis of the utility of our cash flow hedging program, we discontinued our foreign currency cash flow hedging program.
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.
Costs and Expenses The following table presents costs and expenses as a percentage of net revenue for the years ended December 31, 2022, 2021 and 2020: 2022 2021 2020 Cost of sales 30.8 % 31.8 % 36.3 % Selling, general and administrative 45.9 % 45.6 % 47.8 % Research and development 15.2 % 17.7 % 16.4 % Impairment of disposal group — % — % 19.3 % Impairment of goodwill 12.7 % — % 2.3 % Other operating expenses 2.9 % 5.0 % 7.3 % Cost of Sales Cost of sales consisted primarily of direct labor, allocated manufacturing overhead, the acquisition cost of raw materials and components.
Costs and Expenses The following table presents costs and expenses as a percentage of net revenue for the years ended December 31, 2023, 2022 and 2021: 2023 2022 2021 Cost of sales 33.1 % 30.8 % 31.8 % Selling, general and administrative 44.9 % 45.9 % 45.6 % Research and development 16.8 % 15.2 % 17.7 % Impairment of goodwill — % 12.7 % — % Impairment of long-lived assets 7.8 % — % — % Other operating expenses 3.3 % 2.9 % 5.0 % Cost of Sales Cost of sales consists primarily of direct labor, allocated manufacturing overhead, and the acquisition cost of raw materials, and components.
Based on these circumstances, we concluded it was more likely than not that the goodwill of our ACS reporting unit was impaired, and we performed a quantitative assessment of the goodwill as of September 30, 2022, using management’s then current estimate of future cash flows.
As a result, the Company lowered its future revenue projections for the ACS reporting unit. Based on these circumstances, LivaNova concluded it was more likely than not that the goodwill of LivaNova’s ACS reporting unit was impaired and performed a quantitative assessment of the goodwill as of September 30, 2022, using management’s then current estimate of future cash flows.
Based on these circumstances, we concluded it was more likely than not that the goodwill of our ACS reporting unit was impaired, and we performed a quantitative assessment of the goodwill as of September 30, 2022, using management’s then current estimate of future cash flows.
As a result, the Company lowered its future revenue projections for the ACS reporting unit. Based on these circumstances, LivaNova concluded it was more likely than not that the goodwill of the Company’s ACS reporting unit was impaired, and performed a quantitative assessment of the goodwill as of September 30, 2022, using management’s then current estimate of future cash flows.
We estimate the useful lives of our finite-lived intangible assets, which requires significant management judgment. We evaluate our intangible assets each reporting period to determine whether events and circumstances indicate a different useful life.
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.
Countries where sales are made through distributors are included in “Rest of World.” (2) For the years ended December 31, 2021 and 2020, Other primarily includes the net revenue of the Company’s Heart Valve business, which was divested on June 1, 2021.
Countries where sales are made through distributors are included in “Rest of World.” (2) Other revenue primarily includes rental income not allocated to segments. For the year ended December 31, 2021, other revenue also includes the net revenue of the Company’s Heart Valve business, which was divested on June 1, 2021.
The fair value of contingent consideration is determined based on the consideration expected to be transferred and estimated as the probability of future cash flows, discounted to present value in accordance with accepted valuation methodologies. For additional information, please refer to “Note 10. Fair Value Measurements” in the consolidated financial statements in this Annual report on Form 10-K.
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 9. Fair Value Measurements” in LivaNova’s consolidated financial statements included in this Report.
The total amount of unrecognized tax benefit, as of December 31, 2022, if recognized, would reduce our income tax expense by approximately $1.6 million. We periodically assess the recoverability of our 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.
The total amount of unrecognized tax benefit, as of December 31, 2023, if recognized, would reduce LivaNova’s income tax expense by approximately $5.4 million. 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.
Information on Cardiopulmonary that could potentially impact our consolidated financial statements and related disclosures is incorporated by reference to “Note 14. Commitments and Contingencies: FDA Warning Letter” and “Note 14. Commitments and Contingencies: Product Liability Litigation” in the consolidated financial statements in this Annual Report on Form 10-K.
Information on Cardiopulmonary that could potentially impact LivaNova’s consolidated financial statements and related disclosures is incorporated by reference to “Note 13. Commitments and Contingencies: FDA Warning Letter” and “Note 13. Commitments and Contingencies: Product Liability Litigation” in LivaNova’s consolidated financial statements included in this Report.
We consider estimates to be critical if we are 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 will change from period to 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.
While we believe that our tax return positions are fully 41 supported, tax authorities may disagree with certain positions we have taken and assess additional taxes, and as a result, we may establish reserves for uncertain tax positions, which require a significant degree of management judgment.
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.
As of December 31, 2022, availability under the Delayed Draw Term Facility was $50 million. Proceeds of the Initial Term Facility were used to repay in full the Bridge Loan Facility on July 6, 2022, with the remainder to be used for general corporate purposes of the Company.
On April 6, 2023, LivaNova drew $50 million under the Delayed Draw Term Facility for general corporate purposes. Proceeds from the Initial Term Facility were used to repay in full the Bridge Loan Facility on July 6, 2022, with the remainder used for general corporate purposes of the Company.
The exchange condition was not satisfied on December 31, 2022. As a result, we have included our obligations from the Notes and the associated embedded exchange feature derivative as a long-term liability on the consolidated balance sheet as of December 31, 2022.
The exchange condition was not satisfied on December 31, 2023. As a result, LivaNova has included its obligations from the Notes and the associated embedded exchange feature derivative as a long-term liability on the consolidated balance sheets as of December 31, 2023.
Neuromodulation segment income for the year ended December 31, 2022, was $172.8 million compared to $169.5 million for the year ended December 31, 2021.
Neuromodulation segment income for the year ended December 31, 2023 was $153.4 million compared to $172.8 million for the year ended December 31, 2022.
We mitigate our credit risk relating to counterparties of our derivatives through a variety of techniques, including transacting with multiple, high-quality financial institutions, thereby limiting our exposure to individual counterparties and by entering into International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreements, which include provisions for a legally enforceable master netting agreement, with almost all of our derivative counterparties.
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.
Epilepsy We continue to make significant investments in R&D focused on improving the Vagus Nerve Stimulation Therapy (“VNS Therapy”) System with an enhanced pulse generator, lead and programming software, and we are developing new products that provide additional features and functionality. We also support studies for our product development efforts and to build clinical evidence for the VNS Therapy System.
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.
Cardiopulmonary segment income for the year ended December 31, 2022, was $11.2 million, compared to segment loss of $6.4 million for the year ended December 31, 2021.
Cardiopulmonary segment income for the year ended December 31, 2023 was $20.0 million, compared to segment income of $11.2 million for the year ended December 31, 2022.
Income Taxes We are a UK corporation, and we operate through our various subsidiaries in a number of countries throughout the world. Our provision for income taxes is based on the tax laws and rates applicable in the jurisdictions in which we operate and earn income. We use significant judgment and estimates in accounting for our income taxes.
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.
For the years ended December 31, 2021 and 2020, Other also includes the results of our Heart Valve business, which was divested on June 1, 2021. 32 Cardiopulmonary Our Cardiopulmonary segment is engaged in the development, production and sale of cardiopulmonary products, including heart-lung machines (“HLM”), oxygenators, autotransfusion systems, perfusion tubing systems, cannulae and other related accessories.
For the years ended December 31, 2021, “Other” also includes the results of LivaNova’s Heart Valve business, which was divested on June 1, 2021. 35 Cardiopulmonary LivaNova’s Cardiopulmonary segment is engaged in the design, development, manufacture, marketing and selling of cardiopulmonary products, including HLMs, oxygenators, autotransfusion systems, perfusion tubing systems, cannulae and other related accessories.
We file federal and local tax returns in many jurisdictions throughout the world and are subject to income tax examinations for our fiscal year 2015 and subsequent years, with certain exceptions.
LivaNova files federal and local tax returns in many jurisdictions throughout the world and is subject to income tax examinations for its fiscal year 2018 and subsequent years, with certain exceptions.
Management’s Discussion and Analysis of Financial Condition and Results of Operations located in our Form 10-K for the year ended December 31, 2021, filed on March 1, 2022, for reference to discussion of the fiscal year ended December 31, 2020, the earliest of the three fiscal years presented.
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, 2022 , filed on February 27, 2023, for reference to discussion of 2021, the earliest of the three fiscal years presented.
Foreign Exchange and Other Income/(Expense) Foreign exchange and other income/(expense) consist primarily of gains and losses arising from transactions denominated in a currency different from an entity’s functional currency, foreign currency exchange rate derivative gains and losses and changes in the fair value of embedded and capped call derivatives.
Financing Arrangements” in LivaNova’s consolidated financial statements included in this Report. 41 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, and changes in the fair value of embedded and capped call derivatives.
We performed a sensitivity analysis of the revenue growth rate for our Cardiopulmonary and Neuromodulation reporting units, as of October 1, 2022, and determined that a decrease of 0.5% in the expected revenue growth rate would not result in an impairment of goodwill.
LivaNova also performed a sensitivity analysis of the revenue growth rate for the Company’s Cardiopulmonary and Neuromodulation reporting units as of October 1, 2023, and determined that a 0.5% decrease in the Cardiopulmonary or Neuromodulation growth rate would not result in an impairment of goodwill for the respective reporting units or indefinite-lived intangible assets.
Under these agreements, we agree to exchange, at specific intervals, the difference between fixed and floating interest amounts calculated by reference to agreed-upon notional principal amounts. The interest rate swaps are structured to mirror the payments terms of the underlying loan.
Under these agreements, LivaNova agrees to 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.
If interest rates were to increase / (decrease) by 100 basis points, the effect on interest expense within our consolidated statement of income (loss) would be an increase / (decrease) of approximately $3 million, respectively. Concentration of Credit Risk Our trade accounts receivable represent potential concentrations of credit risk.
Conversely, if the interest rate associated with LivaNova’s variable-rate depository account were to increase/(decrease) by 100 basis points, the effect on foreign exchange and other income/(expense) within LivaNova’s consolidated statements of income (loss) would be an increase/(decrease) of approximately $3.5 million, respectively. Concentration of Credit Risk LivaNova’s trade accounts receivable represent potential concentrations of credit risk.
Liquidity and Capital Resources Based on our current business plan, we believe that our sources of liquidity, which primarily consist of cash and cash equivalents, future cash generated from operations and available borrowings under our current debt facilities, will be sufficient to fund our uses of liquidity, primarily consisting of purchase obligations for expected operating, working capital, capital expenditures, and debt service requirements over the twelve-month period beginning from the issuance date of this Annual Report on Form 10-K.
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 earn-outs and debt service requirements over the twelve-month period beginning from the issuance date of this Report.
Interest Rate Risk We are subject to interest rate risk on our investments and debt. We currently use interest rate derivative instruments designated as cash flow hedges to manage a portion of our exposure to interest rate movements and to reduce the risk of increased borrowing costs by converting floating-rate debt into fixed rate 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.
Market Risk We are exposed to certain market risks as part of our ongoing business operations, including risks from foreign currency exchange rates, interest rate risks and concentration of procurement suppliers, that could adversely affect our consolidated financial position, results of operations or cash flows. 45 We manage these risks through regular operating and financing activities and, at certain times, derivative financial instruments.
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.
GAAP, management makes estimates and assumptions that may affect the reported amounts of our assets and liabilities, the disclosure of contingent liabilities as of the date of our consolidated financial statements and the reported amounts of our revenue and expenses during the reporting period. Our actual results may differ from these estimates.
To prepare LivaNova’s consolidated financial statements in conformity with US 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.
The Incremental Amendment No. 2 provides for LivaNova USA to, among other things, obtain commitments for term loan facilities from a syndicate of lenders in an aggregate principal amount of $350 million consisting of (i) an initial term loan facility in an aggregate principal amount of $300 million (the “Initial Term Facility”) and (ii) a delayed draw term loan facility in an additional aggregate principal amount of $50 million, which are available in one single drawing on or after July 6 until the date that is nine months after such date (the “Delayed Draw Term Facility” and, together with the Initial Term Facility, the “Term Facilities”).
On July 6, 2022, LivaNova and the Borrower entered into Incremental Facility Amendment No. 2, which provides for the Borrower to, among other things, obtain commitments for term loan facilities from a syndicate of lenders in an aggregate principal amount of $350 million consisting of (i) the Initial Term Facility with an aggregate principal amount of $300 million and (ii) the Delayed Draw Term Facility with an additional aggregate principal amount of $50 million.
Income Taxes LivaNova PLC is resident in the UK. Our subsidiaries conduct operations and earn income in numerous countries and are subject to the laws of taxing jurisdictions within those countries, and the income tax rates imposed in the tax jurisdictions in which our subsidiaries conduct operations vary.
The Company’s subsidiaries conduct operations and earn income in numerous countries and are subject to the varying laws and income tax rates of the taxing jurisdictions within those countries.
Description of the Business We are a public limited company organized under the laws of England and Wales and headquartered in London, England. We are a global medical device company.
LivaNova is a public limited company organized under the laws of England and Wales and is headquartered in London, England.
(“ALung”), a privately-held medical device company focused on creating advanced medical devices for treating respiratory failure.
LivaNova previously owned a 3% equity interest in ALung, a privately-held medical device company focused on creating advanced medical devices for treating respiratory failure.
Cost of sales as a percentage of net revenue was 30.8% for the year ended December 31, 2022, a decrease of 1.0% compared to the year ended December 31, 2021.
Cost of sales as a percentage of net revenue was 33.1% for the year ended December 31, 2023, an increase of 2.3 percentage points compared to the year ended December 31, 2022.
Holders of the Notes are entitled to exchange the Notes at any time during specified periods, at their option.
On June 17, 2020, LivaNova’s wholly-owned subsidiary, LivaNova USA, issued the Notes. Holders of the Notes are entitled to exchange the Notes at any time during specified periods, at their option.
Net proceeds from the offering were approximately $322.6 million, after deducting underwriting discounts, commissions and offering expenses. Proceeds from the offering were used to repay the Company’s $450 million 2020 senior secured term loan.
Proceeds from the offering were used to repay the Company’s $450 million 2020 senior secured term loan.
Our effective income tax rate from continuing operations was (14.7%), (9.0)% and 0.3% for the years ended December 31, 2022, 2021 and 2020, respectively.
LivaNova’s effective income tax rate was (121.7%) and 14.7% for the years ended December 31, 2023 and 2022, respectively.
Critical Accounting Estimates We have adopted various accounting policies to prepare the consolidated financial statements in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). Our most significant accounting policies are disclosed in “Note 2. Basis of Presentation, Use of Accounting Estimates and Significant Accounting Policies” and “Note 3.
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 US 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.
Cash Flows The following table presents net cash and cash equivalents provided by (used in) operating, investing and financing activities and the net increase (decrease) in the balance of cash and cash equivalents for the years ended December 31, 2022, 2021 and 2020 (in thousands): 2022 2021 2020 Operating activities $ 69,921 $ 102,544 $ (79,422) Investing activities (38,414) 36,904 (41,844) Financing activities 280,130 (181,483) 310,756 Effect of exchange rate changes on cash and cash equivalents (4,011) (2,805) 2,205 Net increase (decrease) $ 307,626 $ (44,840) $ 191,695 Operating Activities Cash provided by operating activities for the year ended December 31, 2022 decreased $32.6 million compared to the prior year.
Cash Flows The following table presents net cash and cash equivalents provided by (used in) operating, investing and financing activities and the net increase (decrease) in the balance of cash and cash equivalents for the years ended December 31, 2023, 2022 and 2021 (in thousands): 2023 2022 2021 Operating activities $ 74,914 $ 69,921 $ 102,544 Investing activities (40,331) (38,414) 36,904 Financing activities 21,484 280,130 (181,483) Effect of exchange rate changes on cash and cash equivalents 6,187 (4,011) (2,805) Net increase (decrease) $ 62,254 $ 307,626 $ (44,840) Operating Activities Cash provided by operating activities for the year ended December 31, 2023 increased $5.0 million compared to the prior year primarily resulting from improvements in working capital and an increase in net income adjusted for non-cash items, partially offset by an increase in 3T Heater-Cooler litigation payments of $24.8 million.
We performed a sensitivity analysis, as of October 1, 2022, for each of these assumptions and determined that an increase of 0.5% in the discount rate, or a decrease of 0.5% in the expected revenue growth rate would not result in an impairment of our indefinite-lived intangible asset.
Similarly, LivaNova performed a sensitivity analysis of the discount rate for the same reporting units as of October 1, 2023 and determined that a 0.5% increase in the Cardiopulmonary or Neuromodulation discount rate would not result in an impairment of goodwill for the respective reporting units or indefinite-lived intangible assets.
The following table presents selected financial information related to our liquidity as of December 31, 2022 and 2021 (in thousands): 2022 2021 Short-term Liquidity Cash and cash equivalents $ 214,172 $ 207,992 Availability under the 2021 First Lien Credit Agreement 125,000 125,000 Availability under the Delayed Draw Term Facility 50,000 — $ 389,172 $ 332,992 Working Capital Current assets $ 886,136 $ 679,181 Current liabilities 297,398 696,970 $ 588,738 $ (17,789) Debt Obligations Current portion of long-term debt $ 20,892 $ 226,946 Short-term unsecured borrowing arrangements 2,542 2,727 Current debt obligations 23,434 229,673 Long-term debt obligations 518,067 9,849 Total debt obligations $ 541,501 $ 239,522 Debt and Capital Our capital structure consists of debt and equity.
The following table presents selected financial information related to LivaNova’s liquidity as of December 31, 2023 and 2022 (in thousands): 2023 2022 Available Short-term Liquidity Cash and cash equivalents $ 266,504 $ 214,172 Availability under the 2021 First Lien Credit Agreement 125,000 125,000 Availability under the Delayed Draw Term Facility (1) — 50,000 $ 391,504 $ 389,172 Working Capital Current assets $ 988,158 $ 886,136 Current liabilities 334,983 297,398 $ 653,175 $ 588,738 Debt Obligations Current portion of long-term debt $ 17,484 $ 20,892 Short-term unsecured borrowing arrangements 627 2,542 Current debt obligations 18,111 23,434 Long-term debt obligations 568,543 518,067 Total debt obligations $ 586,654 $ 541,501 (1) On April 6, 2023, LivaNova drew the full $50 million under the Delayed Draw Term Facility to be used for general corporate purposes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk The information required under 7A. has been incorporated by reference to the information contained in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K under the section entitled “ Market Risk.”
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk The information required under 7A. has been incorporated by reference to the information contained in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Report under the section entitled “ Market Risk.”

Other LIVN 10-K year-over-year comparisons