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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
Form 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________

Commission file number: 001-37599
livn-20220331_g1.jpg
LivaNova PLC
(Exact name of registrant as specified in its charter)
England and Wales ................... 98-1268150
(State or other jurisdiction of .......... (I.R.S. Employer
incorporation or organization) ........ Identification No.)
20 Eastbourne Terrace, London, United Kingdom, W2 6LG
(Address of principal executive offices) ....................... (Zip Code)
Registrant’s telephone number, including area code: (44) (0) 203 325-0660
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Ordinary Shares - £1.00 par value per shareLIVNThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes      No 
ClassOutstanding at April 29, 2022
Ordinary Shares - £1.00 par value per share53,440,615



LIVANOVA PLC
TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONPAGE NO.
 PART II. OTHER INFORMATION
In this Quarterly Report on Form 10-Q, “LivaNova,” “the Company,” “we,” “us” and “our” refer to LivaNova PLC and its consolidated subsidiaries.
This report may contain references to our proprietary intellectual property, including among others:
Trademarks for our Neuromodulation systems, the VNS Therapy System, the VITARIA System and our proprietary pulse generator products: Model 102 (Pulse), Model 102R (Pulse Duo), Model 103 (Demipulse), Model 104 (Demipulse Duo), Model 106 (AspireSR), Model 1000 (SenTiva), Model 1000-D (SenTiva Duo), Model 7103 (VITARIA and TitrationAssist) and Model 8103 (Symmetry).
Trademarks for our Cardiopulmonary products and systems: Essenz™, S5, S3, S5 Pro™, B-Capta, Inspire, Heartlink, XTRA, 3T Heater-Cooler, Connect™ and Revolution.
Trademarks for our advanced circulatory support systems: TandemLife, TandemHeart, TandemLung, ProtekDuo™, LifeSPARC™, ALung™, Hemolung™, Respiratory Dialysis™ and ActivMix™.
Trademarks for our obstructive sleep apnea system: ImThera and aura6000.
These trademarks and trade names are the property of LivaNova or the property of our consolidated subsidiaries and are protected under applicable intellectual property laws. Solely for convenience, our trademarks and trade names referred to in this Quarterly Report on Form 10-Q may appear without the symbol, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights to these trademarks and trade names.

________________________________________
2


NOTE ABOUT FORWARD LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements include, but are not limited to, LivaNova’s plans, objectives, strategies, financial performance and outlook, trends, the amount and timing of future cash distributions, prospects or future events and involve known and unknown risks that are difficult to predict. As a result, our actual financial results, performance, achievements or prospects may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “seek,” “guidance,” “predict,” “potential,” “likely,” “believe,” “will,” “should,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “forecast,” “foresee” or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based on estimates and assumptions that, while considered reasonable by LivaNova and its management based on their knowledge and understanding of the business and industry, are inherently uncertain. These statements are not guarantees of future performance, and stockholders should not place undue reliance on forward-looking statements. There are a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q, and include but are not limited to the risks and uncertainties summarized below:
changes in technology, including the development of superior or alternative technology or devices by competitors and/or competition from providers of alternative medical therapies;
risks related to reductions, interruptions or increasing costs related to the supply of raw materials and components and the distribution of finished products, including as a result of inflation, war, etc.;
failure to develop and commercialize new products and the rate and degree of market acceptance of such products;
failure to obtain approvals or maintain the current regulatory approvals for our products’ approved indications;
failure to comply with, or changes in, laws, regulations or administrative practices affecting government regulation of our products, including, but not limited to, U.S. Food and Drug Administration (“FDA”) laws and regulations;
changes in customer spending patterns;
failure to establish, expand or maintain market acceptance of our products for the treatment of our approved indications;
any legislative or administrative reform to the healthcare system, including the U.S. Medicare or Medicaid systems or international reimbursement systems, that significantly reduces reimbursement for our products or procedures or denies coverage for such products or procedures or enhances coverage for competitive products or procedures, as well as adverse decisions by administrators of such systems on coverage or reimbursement issues relating to our products;
failure to obtain or maintain coverage and reimbursement for our products’ approved indications and risks related to cost containment efforts of healthcare purchasing organizations;
unfavorable results from clinical studies or failure to meet milestones;
losses or costs from pending, or future lawsuits and governmental investigations, including any amount of liability or damages imposed by the Appeals Court or the Supreme Court of Italy with respect to SNIA S.p.A.;
risks relating to our indebtedness under the exchangeable senior notes, our revolving credit facility and our bridge loan facility;
volatility in the global market and worldwide economic conditions, including volatility caused by the invasion of Ukraine, changes to existing trade agreements and relationships between the U.S. and other countries including the implementation of sanctions and/or COVID-19;
effectiveness of our internal controls over financial reporting;
changes in our profitability and/or failure to manage costs and expenses;
fluctuations in future quarterly operating results and/or variations in sales and operating expenses relative to estimates;
cyber-attacks or other disruptions to our information technology systems;
product liability, intellectual property, shareholder-related, environmental-related, income tax and other litigation, disputes, losses and costs;
protection, expiration and validity of our intellectual property;
3


failure to comply with applicable U.S. laws and regulations, including federal and state privacy and security laws and regulations, and applicable non-U.S. laws and regulations;
non-U.S. operational and economic risks and concerns;
risks relating to the outbreak and spread of COVID-19 and its variants around the world;
failure to retain key personnel, prevent labor shortages, or manage labor costs;
harsh weather or natural disasters, including as a result of climate change, that interrupt our business operations or the business operations of our hospital-customers or failure to comply with evolving environmental laws;
failure of new acquisitions to further our strategic objectives or strengthen our existing businesses;
changes in tax laws, including exposure to additional income tax liabilities;
changes in our common stock price; and
activist investors causing disruptions to the business.
Other factors that could cause our actual results to differ from our projected results are described in (1) “Part II, Item 1A. Risk Factors” and elsewhere in this and our other Quarterly Reports on Form 10-Q, (2) our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (“2021 Form 10-K”), (3) our reports and registration statements filed and furnished from time to time with the Securities and Exchange Commission (“SEC”) and (4) other announcements we make from time to time.
Readers are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. Operating results for the three months ended March 31, 2022 are not necessarily indicative of future results, including the full fiscal year. You should also refer to our “Annual Consolidated Financial Statements,” “Notes” thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” contained in our 2021 Form 10-K and in our Quarterly Reports on Form 10-Q.
Financial Information and Currency of Financial Statements
All of the financial information included in this quarterly report has been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.” and such principles, “U.S. GAAP”). The reporting currency of our condensed consolidated financial statements is U.S. dollars.

________________________________________

4


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended March 31,
2022
2021 (1)
Net sales$240,175 $247,603 
Cost of sales71,732 84,195 
Gross profit168,443 163,408 
Operating expenses:
Selling, general and administrative118,525 115,681 
Research and development40,918 44,625 
Other operating expenses(505)8,800 
Operating income (loss) 9,505 (5,698)
Interest expense(7,840)(15,936)
Foreign exchange and other gains/(losses)3,904 (6,443)
Income (loss) before tax5,569 (28,077)
Income tax expense 2,537 2,644 
Losses from equity method investments(39)(40)
Net income (loss)$2,993 $(30,761)
Basic income (loss) per share$0.06 $(0.63)
Diluted income (loss) per share$0.06 $(0.63)
Shares used in computing basic income (loss) per share53,300 48,736 
Shares used in computing diluted income (loss) per share54,176 48,736 
(1)The condensed consolidated statement of income (loss) for the three months ended March 31, 2021 has been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”
See accompanying notes to the condensed consolidated financial statements
5


LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(In thousands)
Three Months Ended March 31,
2022
2021 (1)
Net income (loss)$2,993 $(30,761)
Other comprehensive (loss) income:
Net change in unrealized loss on derivatives(695)(335)
Tax effect 339 
Net of tax(695)4 
Foreign currency translation adjustment(8,260)(25,875)
Total other comprehensive loss(8,955)(25,871)
Total comprehensive loss$(5,962)$(56,632)
(1)The condensed consolidated statement of comprehensive income (loss) for the three months ended March 31, 2021 has been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”
See accompanying notes to the condensed consolidated financial statements
6


LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share amounts)
 March 31, 2022December 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents$128,737 $207,992 
Restricted cash313,647  
Accounts receivable, net of allowance of $13,493 at March 31, 2022 and $13,512 at December 31, 2021
182,112 185,354 
Inventories114,844 105,840 
Prepaid and refundable taxes29,168 37,621 
Current derivative assets82 106,629 
Prepaid expenses and other current assets41,033 35,745 
Total Current Assets809,623 679,181 
Property, plant and equipment, net147,957 150,066 
Goodwill896,599 899,525 
Intangible assets, net390,455 399,682 
Operating lease assets38,167 40,600 
Investments16,745 16,598 
Deferred tax assets2,699 2,197 
Long-term derivative assets96,717  
Other assets17,921 13,102 
Total Assets$2,416,883 $2,200,951 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt obligations$4,752 $229,673 
Accounts payable73,921 68,000 
Accrued liabilities and other92,026 88,937 
Current derivative liabilities1,928 183,109 
Current litigation provision liability30,126 32,845 
Taxes payable22,592 15,140 
Accrued employee compensation and related benefits82,569 79,266 
Total Current Liabilities307,914 696,970 
Long-term debt obligations455,810 9,849 
Contingent consideration83,341 86,830 
Deferred tax liabilities7,879 7,728 
Long-term operating lease liabilities30,876 35,919 
Long-term employee compensation and related benefits18,779 19,105 
Long-term derivative liabilities170,660  
Other long-term liabilities49,770 49,905 
Total Liabilities1,125,029 906,306 
Commitments and contingencies (Note 7)
Stockholders’ Equity:
Ordinary Shares, £1.00 par value: unlimited shares authorized; 53,763,500 shares issued and 53,435,821 shares outstanding at March 31, 2022; 53,761,510 shares issued and 53,263,297 shares outstanding at December 31, 2021
82,298 82,295 
Additional paid-in capital2,121,098 2,117,961 
Accumulated other comprehensive loss(16,132)(7,177)
Accumulated deficit(894,791)(897,784)
Treasury stock at cost, 327,679 ordinary shares at March 31, 2022; 498,213 ordinary shares at December 31, 2021
(619)(650)
Total Stockholders’ Equity1,291,854 1,294,645 
Total Liabilities and Stockholders’ Equity$2,416,883 $2,200,951 
See accompanying notes to the condensed consolidated financial statements
7


LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended March 31,
2022
2021 (1)
Operating Activities:
Net income (loss)$2,993 $(30,761)
Non-cash items included in net income (loss):
Stock-based compensation10,256 9,536 
Amortization6,465 6,699 
Depreciation5,626 6,079 
Amortization of debt issuance costs4,412 4,409 
Remeasurement of contingent consideration to fair value(3,773)453 
Amortization of operating lease assets2,653 5,389 
Remeasurement of Respicardia investment and loan (4,640)
Remeasurement of derivative instruments(1,355)7,268 
Other1,073 498 
Changes in operating assets and liabilities:
Accounts receivable, net1,494 (3,372)
Inventories(9,637)(1,625)
Other current and non-current assets(1,953)26,820 
Accounts payable and accrued current and non-current liabilities9,957 (1,858)
Taxes payable709 (3,337)
Litigation provision liability(3,097)(2,078)
Net cash provided by operating activities25,823 19,480 
Investing Activities:
Purchases of property, plant and equipment(5,215)(8,220)
Purchase of investments(278)(1,800)
Proceeds from asset sales11 162 
Net cash used in investing activities(5,482)(9,858)
Financing Activities:
Proceeds from long-term debt obligations218,342  
Payment of debt issuance costs(2,426) 
Shares repurchased from employees for minimum tax withholding(1,074)(3,740)
Payment of contingent consideration (4,387)
Other35 (201)
Net cash provided by (used in) financing activities214,877 (8,328)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(826)(1,587)
Net increase (decrease) in cash, cash equivalents and restricted cash234,392 (293)
Cash, cash equivalents and restricted cash at beginning of period207,992 252,832 
Cash, cash equivalents and restricted cash at end of period$442,384 $252,539 
(1)The condensed consolidated statement of cash flows for the three months ended March 31, 2021 has been revised. For further details refer to “Note 1. Unaudited Condensed Consolidated Financial Statements.”
See accompanying notes to the condensed consolidated financial statements
8


LIVANOVA PLC AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Unaudited Condensed Consolidated Financial Statements
Basis of Presentation
The accompanying condensed consolidated financial statements of LivaNova as of, and for the three months ended March 31, 2022, have been prepared in accordance with U.S. GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. The accompanying condensed consolidated balance sheet of LivaNova at December 31, 2021 has been derived from audited financial statements contained in our 2021 Form 10-K, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments considered necessary for a fair statement of the operating results of LivaNova and its subsidiaries, for the three months ended March 31, 2022, and are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The financial information presented herein should be read in conjunction with the audited consolidated financial statements and notes thereto accompanying our 2021 Form 10-K.
Global Developments
COVID-19
The COVID-19 pandemic (“COVID-19”) has caused and may continue to cause unpredictable demand for our products. Throughout the pandemic, healthcare customers have diverted medical resources and priorities towards the treatment of COVID-19, and public health bodies have delayed elective procedures, which has negatively impacted the usage of our products. Further, some people have avoided seeking treatment for non-COVID-19 procedures, and hospitals and clinics have experienced staffing shortages, which has negatively impacted the demand for our products. While the recent recovery of global cardiopulmonary procedures has resulted in stronger demand for our Cardiopulmonary products, our Neuromodulation and Advanced Circulatory Support businesses continue to experience ongoing COVID-19 related headwinds. We are monitoring the potential for various strains of the virus to cause a resumption of high levels of infection and hospitalization that, in turn, may affect the demand for our products.
Moreover, although our RECOVER study and ANTHEM-HFrEF pivotal trial continue to progress, there may be delays or closures of sites in the future should COVID-19 or variants thereof strengthen or reemerge.
Certain conditions improved during 2021, but we continue to experience COVID-19 related headwinds. Like many companies, for example, we are experiencing supply chain delays and interruptions, labor shortages, inflationary pressures and logistical issues in the wake of COVID-19. Though, to date, our supply of raw materials and the production and distribution of finished products have not been materially affected, demand and low capacity worldwide have caused longer lead times and put price pressure on key raw materials. Moreover, freight and labor costs at our manufacturing facilities have increased in the wake of inflation globally. The Company continues to respond to such challenges, and while we have business continuity plans in place, the impact of the ongoing challenges we are experiencing, along with their potential escalation, may adversely affect our business and the recoverability of our tangible and intangible assets. The future impact of pandemic-related developments remains uncertain.
Ukraine Invasion
In February 2022, Russia launched an invasion in Ukraine which caused us to assess our ability to sell in the market due to international sanctions, to consider the potential impact of raw material sourced from the region, and to determine whether we are able to transact in a compliant fashion. Although the region represented 1% of our total net sales for 2021, the Russian invasion of Ukraine has increased economic uncertainties, and a significant escalation or continuation of the conflict could have a material, global impact on our operating results. In addition, our Russian employees and local subsidiary are subject to evolving laws and regulations imposed by the Russian authorities in response to international sanctions.
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Revision of Previously Issued Financial Statements
During the fourth quarter of 2021, the Company identified and corrected an error related to foreign currency exchange rates utilized to calculate inventory and cost of sales for the years ended December 31, 2017 through 2020 and the nine months ended September 30, 2021. Using the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 250-S99-1, Assessing Materiality, and ASC Topic 250-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated whether our previously issued consolidated financial statements were materially misstated due to these errors. Based upon our evaluation of both quantitative and qualitative factors, we believe that the effects of these errors were not material individually or in the aggregate to any previously reported quarterly or annual period. Accordingly, we have revised our previously issued financial statements as shown below (in thousands):
Consolidated Statements of Income (Loss)
Three Months Ended March 31, 2021
As Previously ReportedAdjustmentsAs Revised
Cost of sales - exclusive of amortization$79,216 $1,275 $80,491 
Operating loss(4,423)(1,275)(5,698)
Loss before tax(26,802)(1,275)(28,077)
Income tax expense2,856 (212)2,644 
Net loss(29,698)(1,063)(30,761)
Basic and diluted loss per share$(0.61)$(0.02)$(0.63)
Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended March 31, 2021
As Previously ReportedAdjustmentsAs Revised
Net loss$(29,698)$(1,063)$(30,761)
Total comprehensive loss(55,569)(1,063)(56,632)
Consolidated Statements of Stockholders’ Equity
As Previously ReportedAdjustmentsAs Revised
Accumulated DeficitTotal Stockholders’ EquityAccumulated DeficitTotal Stockholders’ EquityAccumulated DeficitTotal Stockholders’ Equity
March 31, 2021$(782,100)$1,065,757 $(10,627)$(10,627)$(792,727)$1,055,130 
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2021
As Previously ReportedAdjustmentsAs Revised
Net loss$(29,698)$(1,063)$(30,761)
Deferred tax expense (benefit)37 (212)(175)
Changes in operating assets and liabilities:
Inventories(2,900)1,275 (1,625)
Net cash used in operating activities19,480  19,480 
Reclassifications
We have reclassified certain prior period amounts on the condensed consolidated statements of income (loss), the condensed consolidated balance sheets and the condensed consolidated statements of cash flows for comparative purposes. These reclassifications did not have a material effect on our financial condition, results of operations or cash flows. The prior period reclassifications on the condensed consolidated statements of income (loss) are summarized and presented below (in thousands):
Product remediation has been reclassified to cost of sales;
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Merger and integration expenses have been reclassified to other operating expenses;
Restructuring expenses have been reclassified to other operating expenses;
Litigation provision, net has been reclassified to other operating expenses;
Amortization of intangibles has been reclassified to cost of sales or selling, general and administrative based on the nature of the underlying intangible asset;
Gain on the sale of Heart Valve business has been reclassified from revaluation of disposal group to other operating expenses; and
Interest income has been reclassified to foreign exchange and other gains/(losses).
Three Months Ended March 31, 2021
As RevisedReclassificationsCurrent Presentation
Net sales$247,603 $ $247,603 
Cost of sales80,491 3,704 84,195 
Product remediation68 (68) 
Gross profit167,044 (3,636)163,408 
Operating expenses:
Selling, general and administrative112,618 3,063 115,681 
Research and development44,625  44,625 
Merger and integration expenses630 (630) 
Restructuring expenses6,092 (6,092) 
Revaluation of disposal group(966)966  
Amortization of intangibles6,699 (6,699) 
Litigation provision, net3,044 (3,044) 
Other operating expenses 8,800 8,800 
Operating loss(5,698) (5,698)
Interest income(74)74  
Interest expense(15,936) (15,936)
Foreign exchange and other gains/(losses)(6,369)(74)(6,443)
Loss before tax$(28,077)$ $(28,077)
Significant Accounting Policies
Our significant accounting policies are detailed below and in “Note 2. Basis of Presentation, Use of Accounting Estimates and Significant Accounting Policies” and “Note 3. Revenue Recognition” of our 2021 Form 10-K.
Restricted Cash
The Company classifies cash that is not available for use in its operations as restricted cash within current assets on the condensed consolidated balance sheet. As of March 31, 2022, our restricted cash balance totaled $313.6 million and was comprised of cash deposits with Barclays held as collateral for a first demand bank guarantee of €270.0 million (approximately $299.5 million as of March 31, 2022) to obtain the suspension of the Court of Appeal of Milan judgment for the payment of damages in connection with the SNIA litigation until review of such judgment by the Italian Supreme Court (the “SNIA Litigation Guarantee”). As security for the SNIA Litigation Guarantee, LivaNova is required to grant cash collateral to Barclays in US dollars in an amount equal to the USD equivalent of 105% of the amount of the SNIA Litigation Guarantee calibrated on a biweekly basis. For additional information regarding the SNIA litigation, please refer to “Note 7. Commitments and Contingencies.”
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Note 2. Divestiture of Heart Valve Business
On December 2, 2020, LivaNova entered into a Purchase Agreement with Mitral Holdco S.à r.l., a company incorporated under the laws of Luxembourg and wholly-owned and controlled by funds advised by Gyrus Capital S.A., a Swiss private equity firm. The Purchase Agreement provides for the divestiture of certain of LivaNova’s subsidiaries as well as certain other assets and liabilities relating to the Company’s Heart Valve business and site management operations conducted by the Company’s subsidiary LivaNova Site Management (“LSM”) at the Company’s Saluggia campus for €60.0 million. On April 9, 2021, LivaNova and the Purchaser entered into an A&R Purchase Agreement which amends and restates the original Purchase Agreement to, among other things, defer the closing of the sale and purchase of LSM by up to two years and include or amend certain additional terms relating to such deferral, including certain amendments relating to the potential hazardous substances liabilities of LSM and the related expense reimbursement provisions.
The closing of the sale of the Heart Valve business occurred on June 1, 2021, and we received €34.8 million (approximately $42.5 million as of June 1, 2021), subject to customary trade working capital and net indebtedness adjustments, as set forth in the Purchase Agreement. We also received $3.0 million in December 2021. An additional €9.3 million (approximately $10.3 million as of March 31, 2022) is payable to LivaNova in 2022. During the three months ended March 31, 2021, we increased the carrying value of the disposal group by $1.0 million, which is included within other operating expenses on the condensed consolidated statement of income (loss).
Note 3. Investments
Investments on the condensed consolidated balance sheets represent the carrying value of our investments in equity securities of non-consolidated affiliates without readily determinable fair values for which we do not exert significant influence over the investee. These equity investments are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. At March 31, 2022 and December 31, 2021, the carrying value of our investments was $16.7 million and $16.6 million, respectively.
In April 2021, Zoll Medical Corporation acquired Respicardia Inc., a privately funded U.S. company in which we had an equity investment and also to which we had a loan outstanding. As a result of the acquisition, we received proceeds of $23.1 million for both our investment and loan receivable which had carrying values of $17.7 million and $0.8 million as of December 31, 2020, respectively. The Company recorded a gain of $4.6 million during the first quarter of 2021 to adjust the investment and loans receivable to fair value, which is included in foreign exchange and other gains/(losses) on the condensed consolidated statement of income (loss).
Note 4. Fair Value Measurements
We review the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. There were no transfers between Level 1, Level 2, or Level 3 during the three months ended March 31, 2022 and 2021.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis (in thousands):
Fair Value as of March 31, 2022Fair Value Measurements Using Inputs Considered as:
Level 1Level 2Level 3
Assets:
Derivative assets - designated as cash flow hedges (foreign currency exchange rate “FX”)$262 $ $262 $ 
Derivative assets - freestanding instruments (FX)21  21  
Derivative assets - capped call derivatives96,717   96,717 
Convertible notes receivable2,770   2,770 
$99,770 $ $283 $99,487 
Liabilities:
Derivative liabilities - designated as cash flow hedges (FX)$1,946 $ $1,946 $ 
Derivative liabilities - freestanding instruments (FX) 183  183  
Derivative liabilities - embedded exchange feature170,660   170,660 
Contingent consideration arrangements94,609   94,609 
$267,398 $ $2,129 $265,269 

Fair Value as of December 31, 2021
Fair Value Measurements Using Inputs Considered as:
Level 1Level 2Level 3
Assets:
Derivative assets - designated as cash flow hedges (foreign currency exchange rate FX)
$243 $ $243 $ 
Derivative assets - freestanding instruments (FX)61  61  
Derivative assets - capped call derivatives106,629   106,629 
Convertible notes receivable2,767   2,767 
$109,700 $ $304 $109,396 
Liabilities:
Derivative liabilities - designated as cash flow hedges (FX)$1,286 $ $1,286 $ 
Derivative liabilities - freestanding instruments (FX)427  427  
Derivative liabilities - embedded exchange feature181,700   181,700 
Contingent consideration arrangements98,382   98,382 
$281,795 $ $1,713 $280,082 
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The following table provides a reconciliation of the beginning and ending balances of our recurring fair value measurements, using significant unobservable inputs (Level 3) (in thousands):
Capped Call Derivative AssetConvertible Notes ReceivableEmbedded Exchange Feature Derivative LiabilityContingent Consideration Liability Arrangements
As of December 31, 2021$106,629 $2,767 $181,700 $98,382 
Changes in fair value(9,912)3 (11,040)(3,773)
Total at March 31, 202296,717 2,770 170,660 94,609 
Less current portion at March 31, 2022 2,495  11,268 
Long-term portion at March 31, 2022$96,717 $275 $170,660 $83,341 
Embedded Exchange Feature and Capped Call Derivatives
In June 2020, the Company issued $287.5 million in 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. Please refer to “Note 5. Financing Arrangements” for further details. 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 capped call derivative is measured at fair value using the Black-Scholes model utilizing observable and unobservable market data, including stock price, remaining contractual term, expected volatility, risk-free interest rate and expected dividend yield, as applicable.
The embedded exchange feature and capped call derivatives are classified as Level 3 as 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. In general, an increase in our stock price or stock price volatility would increase the fair value of the embedded exchange feature and capped call derivatives which would result in an increase in expense. As time to the expiration of the derivatives decreases, the fair value of the derivatives would decrease. The future impact on net income depends on how significant inputs such as stock price, stock price volatility and time to the expiration of the derivatives change in relation to other inputs. Changes in the fair value of the embedded exchange feature derivative and capped call derivatives are recognized in foreign exchange and other gains/(losses) in the condensed consolidated statements of income (loss).
The stock price volatility as of March 31, 2022 was 36%. As of March 31, 2022, a 10% lower volatility, holding other inputs constant, would result in approximate fair value for the embedded exchange feature derivative of $154.5 million and a 10% higher volatility, holding other inputs constant, would result in approximate fair value of $188.2 million. As of March 31, 2022, a 10% lower volatility, holding other inputs constant, would result in approximate fair value for the capped call derivatives of $107.4 million and a 10% higher volatility, holding other inputs constant, would result in approximate fair value of $87.4 million.
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Contingent Consideration Arrangements
The following table provides the fair value of our Level 3 contingent consideration arrangements by acquisition (in thousands):
March 31, 2022December 31, 2021
ImThera$83,341 $86,830 
TandemLife11,268 11,552 
$94,609 $98,382 
The ImThera business combination involved contingent consideration arrangements composed of potential cash payments upon the achievement of a certain regulatory milestone and a sales-based earnout associated with sales of products. The sales-based earnout is valued using projected sales from our internal strategic plan. Both arrangements are Level 3 fair value measurements and include the following significant unobservable inputs as of March 31, 2022:
ImThera AcquisitionValuation TechniqueUnobservable InputInputs
Regulatory milestone-based paymentDiscounted cash flowDiscount rate5.3%
Probability of payment85%
Projected payment year2024
Sales-based earnoutMonte Carlo simulationRisk-adjusted discount rate13.9%
Credit risk discount rate5.5% -6.2%
Revenue volatility32.5%
Probability of payment85%
Projected years of earnout2025-2028
The TandemLife business combination involved a contingent consideration arrangement composed of potential cash payments upon the achievement of certain regulatory milestones. The arrangement is a Level 3 fair value measurement and includes the following significant unobservable inputs as of March 31, 2022:
TandemLife AcquisitionValuation TechniqueUnobservable InputInputs
Regulatory milestone-based paymentDiscounted cash flowDiscount rate4.9%
Probability of payment90%
Projected payment year2023
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Note 5. Financing Arrangements
The outstanding principal amount of our long-term debt as of March 31, 2022 and December 31, 2021 was as follows (in thousands, except interest rates):
March 31, 2022December 31, 2021MaturityInterest Rate
2020 Cash Exchangeable Senior Notes$228,535 $225,140 December 20253.00%
Bridge Loan Facility216,366  June 20234.17%
Bank of America Merrill Lynch Banco Múltiplo S.A.7,203 6,113 July 20239.32%
Mediocredito Italiano3,312 3,379 December 20230.50%-2.74%
Bank of America, U.S.1,500 1,500 January 20232.85%
Other623 663 
Total long-term facilities457,539 236,795 
Less current portion of long-term debt1,729 226,946 
Total long-term debt$455,810 $9,849 
Revolving Credit
The outstanding principal amount of our short-term unsecured revolving credit agreements and other agreements with various banks was $3.0 million and $2.7 million at March 31, 2022 and December 31, 2021, respectively, with interest rates ranging from 2.85% to 9.32% and loan terms ranging from overnight to 364 days, as of March 31, 2022.
On August 13, 2021, LivaNova PLC and its wholly-owned subsidiary, LivaNova USA, Inc. (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 Revolving Credit Facility”). The 2021 Revolving Credit Facility, as amended on March 16, 2022, expires on August 13, 2026 and bears interest at a rate equal to, for U.S. dollar-denominated loans, an adjusted Secured Overnight Financing Rate (“SOFR”) with a floor of 0.00%, or a Base Rate, plus, in each case, a variable margin based on the Company’s senior secured net leverage ratio. Interest is paid monthly or quarterly, as selected by the Borrower, with any outstanding principal due at maturity. The First Lien Credit Agreement also contemplates the payment of commitment fees on the unused portion of the commitments, at a variable percentage based on the Company’s senior secured net leverage ratio. The 2021 Revolving Credit Facility is available for working capital and other general corporate purposes and, if drawn, can be repaid at any time without premium or penalty. The First Lien Credit Agreement contains customary representations, warranties and covenants, including the requirement to maintain a senior secured first lien net leverage ratio of less than 4.50 to 1.00 for as long as there are any revolving loans outstanding under the 2021 Revolving Credit Facility, as well as in order for the Company to borrow additional revolving loans.
There were no outstanding borrowings under the 2021 Revolving Credit Facility as of March 31, 2022 and December 31, 2021.
Bridge Loan Facility
On February 24, 2022, LivaNova PLC and its wholly-owned subsidiary, LivaNova USA, Inc., entered into an Incremental Facility Amendment No. 1 to the 2021 Revolving Credit Facility, relating to a €200 million bridge loan facility (the “Bridge Loan Facility”). On March 16, 2022, LivaNova entered into Amendment No. 2 to the 2021 Revolving Credit Facility, 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 Revolving Credit Facility 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. On March 18, 2022, LivaNova PLC, acting through its Italian branch, entered into an Indemnity Letter and an Account Pledge Agreement with Barclays, further to which Barclays issued the SNIA Litigation Guarantee. As security for the SNIA Litigation Guarantee, LivaNova is required to grant cash collateral to Barclays in US dollars in an amount equal to the USD equivalent of 105% of the amount of the SNIA Litigation Guarantee calibrated on a biweekly basis. The proceeds of the Bridge Loan Facility were used by LivaNova to post a portion of the cash collateral supporting the SNIA Litigation Guarantee and can be used towards payment of court ordered damages or settlements (including interest, expenses and charges in connection therewith) in the event of a negative decision by the Italian Supreme Court. The cash held as collateral supporting the SNIA Litigation Guarantee of $313.6 million is classified as restricted cash on the condensed consolidated balance sheet as of March 31, 2022. The Bridge Loan Facility bears interest at an adjusted term SOFR, with a floor of 0.5%, plus 3.5% increasing by 0.25% 15 days after drawing and by an additional 0.5%
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90 days after drawing and every 90 days thereafter, with a maximum margin of 5.25% over adjusted SOFR. The effective interest rate of the Bridge Loan Facility at March 31, 2022 was 11.04%. The Bridge Loan Facility matures on June 16, 2023 and is subject to mandatory prepayment in connection with certain asset dispositions, equity or debt issuance as well as in the event that collateral securing the SNIA Litigation Guarantee is released. For additional information regarding the SNIA litigation, please refer to “Note 7. Commitments and Contingencies.”
Debt discounts and issuance costs related to the Bridge Loan Facility were approximately $4.5 million. Amortization of debt discount and issuance costs for the Bridge Loan Facility was $0.9 million for the three months ended March 31, 2022 and is included in interest expense on the consolidated statement of income (loss). The unamortized discount related to the Bridge Loan Facility as of March 31, 2022 was $3.6 million.
Outstanding borrowings under the Bridge Loan Facility was $220.0 million as of March 31, 2022.
2020 Cash Exchangeable Senior Notes
On June 17, 2020, our wholly-owned subsidiary, LivaNova USA, Inc., issued $287.5 million aggregate principal amount of 3.00% Notes (the “Notes”) by private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The sale of the Notes resulted in approximately $278.0 million in net proceeds to the Company after deducting issuance costs. Interest is payable semiannually in arrears on June 15 and December 15 of each year, beginning on December 15, 2020. The effective interest rate of the Notes at March 31, 2022 was 9.95%. The Notes mature on December 15, 2025 unless earlier exchanged, repurchased, or redeemed.
Debt discounts and issuance costs related to the Notes were approximately $82.0 million and included $75.0 million of discount attributable to the embedded exchange feature, discussed below, and $7.0 million of allocated issuance costs to the Notes related to legal, bank and accounting fees. Amortization of debt discount and issuance costs for the Notes was $3.4 million and $3.1 million for the three months ended March 31, 2022 and 2021, respectively, and is included in interest expense on the consolidated statement of income (loss). The unamortized discount related to the Notes as of March 31, 2022 and December 31, 2021 was $59.0 million and $62.4 million, respectively.
Holders of the Notes are entitled to exchange the Notes at any time during specified periods, at their option. This includes the right to exchange the Notes during any calendar quarter, if the last reported sale price of LivaNova’s ordinary shares, with a nominal value of £1.00 per share, is greater than or equal to 130% of the exchange price, or $79.27 per share for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter. The exchange condition was not satisfied during the quarterly period ending March 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 March 31, 2022. The Notes are exchangeable solely into cash and are not exchangeable into ordinary shares of LivaNova or any other security under any circumstances. The initial exchange rate for the Notes is 16.3980 ordinary shares per $1,000 principal amount of Notes (equivalent to an initial exchange price of approximately $60.98 per share). The exchange rate is subject to adjustment in certain circumstances, as set forth in the indenture governing the Notes.
The Company may redeem the Notes at its option, on or after June 20, 2023 and prior to the 51st scheduled trading day immediately preceding the maturity date, in whole or in part, if the last reported sale price per ordinary share has been at least 130% of the exchange price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Additionally, the Company may redeem the Notes at its option, prior to their stated maturity, in whole but not in part, in connection with certain tax-related events.
Embedded Exchange Feature
The embedded exchange feature of the Notes requires bifurcation from the Notes and is accounted for as a derivative liability. The fair value of the Notes’ embedded exchange feature derivative at the time of issuance was $75.0 million and was recorded as debt discount on the Notes. This discount is amortized as interest expense using the effective interest method over the term of the Notes. The Notes’ embedded exchange feature derivative is carried on the condensed consolidated balance sheets at its estimated fair value and is adjusted at the end of each reporting period, with the unrealized gain or loss reflected within foreign exchange and other gains/(losses) in the condensed consolidated statements of income (loss). The fair value of the embedded exchange feature derivative liability was $170.7 million as of March 31, 2022.
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Capped Call Transactions
In connection with the pricing of the Notes, the Company entered into privately negotiated capped call transactions with certain of the initial purchasers of the Notes or their respective affiliates. 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. The capped call transactions expire on December 15, 2025 and must be settled in cash. If the capped call transactions are converted or redeemed early, settlement occurs at their termination value, which is equal to their fair value at the time of the redemption. The capped call transactions are carried on the condensed consolidated balance sheets as a derivative asset at their estimated fair value and are adjusted at the end of each reporting period, with unrealized gain or loss reflected within foreign exchange and other gains/(losses) in the condensed consolidated statements of income (loss). The fair value of the capped call derivative assets was $96.7 million as of March 31, 2022. As of March 31, 2022, the capped call derivative assets are classified as long-term.
Note 6. Derivatives and Risk Management
Due to the global nature of our operations, we are exposed to foreign currency exchange rate fluctuations. We enter into FX derivative contracts to reduce the impact of foreign currency exchange rate fluctuations on earnings and cash flow. We are also exposed to equity price risk in connection with our Notes, including exchange and settlement provisions based on the price of our ordinary shares at exchange or maturity of the Notes. In addition, the capped call transactions associated with the Notes also include settlement provisions that are based on the price of our ordinary shares, subject to a capped price per share. We do not enter into derivative contracts for speculative purposes.
We measure all outstanding derivatives each period end at fair value and report the fair value as either financial assets or liabilities on the condensed consolidated balance sheets. At inception of the contract, the derivative is designated as either a freestanding derivative or a hedge. Derivatives that are not designated as hedging instruments are referred to as freestanding derivatives with changes in fair value included in earnings.
If the derivative qualifies for hedge accounting, changes in the fair value of the derivative will be recorded in accumulated other comprehensive income (“AOCI”) until the hedged item is recognized in earnings upon settlement/termination. FX derivative gains and losses in AOCI are reclassified to our condensed consolidated statements of income (loss) as shown in the tables below. We evaluate hedge effectiveness at inception. Cash flows from derivative contracts are reported as operating activities on our condensed consolidated statements of cash flows.
Freestanding FX Derivative Contracts
The gross notional amount of FX derivative contracts not designated as hedging instruments outstanding at March 31, 2022 and December 31, 2021 was $93.8 million and $136.7 million, respectively. These derivative contracts are designed to offset the FX effects in earnings of various intercompany loans and trade receivables. We recorded net gains for these freestanding derivatives of $1.0 million and $7.7 million for the three months ended March 31, 2022 and 2021, respectively. These gains are included in foreign exchange and other gains/(losses) on our condensed consolidated statements of income (loss).
Counterparty Credit Risk
We are exposed to credit risk in the event of non-performance by the counterparties to our derivatives.
The two counterparties to the capped call transactions are financial institutions. To limit our credit risk, we selected financial institutions with a minimum long-term investment grade credit rating. Our exposure to the credit risk of the counterparties is not secured by any collateral. If a 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 counterparty.
To manage credit risk with respect to our other derivatives, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors the market positions. However, if one or more of these counterparties were in a liability position to the Company and were unable to meet their obligations, any transactions with the counterparty could be subject to early termination, which could result in substantial losses for the Company.
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Cash Flow Hedges
We utilize FX derivative contracts, designed as cash flow hedges, to hedge the variability of cash flows associated with our 12-month U.S. dollar forecasts of revenues and costs denominated in British Pound, Japanese Yen and the Euro. We transfer to earnings from AOCI the gain or loss realized on the FX derivative contracts at the time of invoicing.
The gross notional amounts of open derivative contracts designated as cash flow hedges at March 31, 2022 and December 31, 2021 were as follows (in thousands):
Description of Derivative ContractMarch 31, 2022December 31, 2021
FX derivative contracts to be exchanged for British Pounds$8,126 $11,160 
FX derivative contracts to be exchanged for Japanese Yen3,334 6,648 
FX derivative contracts to be exchanged for Euros43,620 58,224 
$55,080 $76,032 
After-tax net gain associated with derivatives designated as cash flow hedges recorded in the ending balance of AOCI and the amount expected to be reclassified to earnings in the next 12 months are as follows (in thousands):
Description of Derivative ContractAfter-Tax Net Loss in AOCI as of March 31, 2022After-Tax Net Loss in AOCI as of March 31, 2022 Expected to be Reclassified to Earnings in Next 12 Months
FX derivative contracts$(1,640)$(1,640)
Pre-tax gains (losses) for derivative contracts designated as cash flow hedges recognized in other comprehensive income (loss) (“OCI”) and the amount reclassified to earnings from AOCI were as follows (in thousands):
Three Months Ended March 31,