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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: September 30, 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-20220930_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 October 26, 2022
Ordinary Shares - £1.00 par value per share53,522,703



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:
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 and war;
volatility in the global market and worldwide economic conditions, including volatility caused by the invasion of Ukraine, inflation, changes to existing trade agreements and relationships between the U.S. and other countries including the implementation of sanctions;
non-U.S. operational and economic risks and concerns including the effect of changes in foreign exchange rates on quarterly operating results;
failure to retain key personnel, prevent labor shortages, or manage labor costs;
risks associated with the impairment of goodwill and other assets resulting from acquisitions;
risks relating to the effects of interest rate fluctuations on our operating results;
risks relating to the outbreak and spread of COVID-19 and its variants around the world, including market volatility, reductions in business operations and reduction in medical procedures;
changes in technology, including the development of superior or alternative technology or devices by competitors and/or competition from providers of alternative medical therapies;
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.;
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;
risks relating to our indebtedness under the exchangeable senior notes, our revolving credit facility and our 2022 Term Facilities, as defined herein;
3


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 revenue 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;
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;
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 and regulations, 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 nine months ended September 30, 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 (“USD”).

________________________________________

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 September 30,Nine Months Ended September 30,
2022
2021 (1)
2022
2021 (1)
Net revenue$252,605 $253,215 $746,931 $765,301 
Cost of sales81,687 84,551 223,220 260,950 
Gross profit170,918 168,664 523,711 504,351 
Operating expenses:
Selling, general and administrative114,630 109,042 349,637 347,471 
Research and development35,725 42,133 110,872 139,315 
Impairment of goodwill129,396  129,396  
Other operating expenses23,140 1,067 24,518 43,103 
Operating (loss) income (131,973)16,422 (90,712)(25,538)
Interest expense(12,661)(11,355)(34,889)(43,806)
Loss on debt extinguishment (60,238) (60,238)
Foreign exchange and other income/(expense)38,528 13,614 44,065 7,410 
Loss before tax(106,106)(41,557)(81,536)(122,172)
Income tax expense 1,295 1,858 6,347 8,410 
Income (loss) from equity method investments57 (28)(24)(109)
Net loss$(107,344)$(43,443)$(87,907)$(130,691)
Basic loss per share$(2.01)$(0.84)$(1.64)$(2.63)
Diluted loss per share$(2.01)$(0.84)$(1.64)$(2.63)
Shares used in computing basic loss per share53,534 51,582 53,474 49,748 
Shares used in computing diluted loss per share53,534 51,582 53,474 49,748 
(1)The condensed consolidated statements of income (loss) for the three and nine months ended September 30, 2021 have 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 September 30,Nine Months Ended September 30,
2022
2021 (1)
2022
2021 (1)
Net loss$(107,344)$(43,443)$(87,907)$(130,691)
Other comprehensive income (loss):
Net change in unrealized loss on derivatives1,653 (1,197)(274)(2,782)
Tax effect 287  668 
Net of tax1,653 (910)(274)(2,114)
Foreign currency translation adjustment(39,887)(18,986)(85,653)(22,516)
Total other comprehensive loss(38,234)(19,896)(85,927)(24,630)
Total comprehensive loss$(145,578)$(63,339)$(173,834)$(155,321)
(1)The condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2021 have 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)
 September 30, 2022December 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents$231,114 $207,992 
Restricted cash275,165  
Accounts receivable, net of allowance of $11,351 at September 30, 2022 and $13,512 at December 31, 2021
172,093 185,354 
Inventories122,041 105,840 
Prepaid and refundable taxes26,456 37,621 
Current derivative assets760 106,629 
Prepaid expenses and other current assets23,593 35,745 
Total Current Assets851,222 679,181 
Property, plant and equipment, net139,162 150,066 
Goodwill742,370 899,525 
Intangible assets, net365,026 399,682 
Operating lease assets34,976 40,600 
Investments13,941 16,598 
Deferred tax assets1,415 2,197 
Long-term derivative assets48,223  
Other assets16,543 13,102 
Total Assets$2,212,878 $2,200,951 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt obligations$21,695 $229,673 
Accounts payable69,616 68,000 
Accrued liabilities and other79,008 88,937 
Current derivative liabilities3,572 183,109 
Current litigation provision liability43,989 32,845 
Taxes payable12,398 15,140 
Accrued employee compensation and related benefits57,738 79,266 
Total Current Liabilities288,016 696,970 
Long-term debt obligations518,249 9,849 
Contingent consideration81,850 86,830 
Deferred tax liabilities6,525 7,728 
Long-term operating lease liabilities28,236 35,919 
Long-term employee compensation and related benefits17,509 19,105 
Long-term derivative liabilities83,145  
Other long-term liabilities42,385 49,905 
Total Liabilities1,065,915 906,306 
Commitments and contingencies (Note 10)
Stockholders’ Equity:
Ordinary Shares, £1.00 par value: unlimited shares authorized; 53,814,279 shares issued and 53,522,857 shares outstanding at September 30, 2022; 53,761,510 shares issued and 53,263,297 shares outstanding at December 31, 2021
82,376 82,295 
Additional paid-in capital2,143,762 2,117,961 
Accumulated other comprehensive loss(93,104)(7,177)
Accumulated deficit(985,691)(897,784)
Treasury stock at cost, 291,422 ordinary shares at September 30, 2022; 498,213 ordinary shares at December 31, 2021
(380)(650)
Total Stockholders’ Equity1,146,963 1,294,645 
Total Liabilities and Stockholders’ Equity$2,212,878 $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)
Nine Months Ended September 30,
2022
2021 (1)
Operating Activities:
Net loss$(87,907)$(130,691)
Non-cash items included in net loss:
Impairment of goodwill129,396  
Remeasurement of derivative instruments(38,825)(2,211)
Stock-based compensation32,492 30,574 
Remeasurement of contingent consideration to fair value(33,323)17,755 
Amortization18,970 20,005 
Depreciation16,593 18,493 
Amortization of debt issuance costs16,394 13,087 
Amortization of operating lease assets7,100 12,133 
Deferred tax expense (benefit)977 (1,026)
Loss on debt extinguishment 60,238 
Remeasurement of Respicardia investment and loan (4,642)
Other392 1,944 
Changes in operating assets and liabilities:
Accounts receivable, net(1,665)(7,851)
Inventories(22,571)8,778 
Other current and non-current assets12,191 20,532 
Accounts payable and accrued current and non-current liabilities(5,395)2,999 
Taxes payable(1,772)4,996 
Litigation provision liability8,171 3,951 
Net cash provided by operating activities51,218 69,064 
Investing Activities:
Purchases of property, plant and equipment(17,383)(17,893)
Acquisition, net of cash acquired(8,857) 
Purchase of investments(928)(3,520)
Proceeds from sale of Heart Valves, net of cash disposed 40,244 
Proceeds from sale of Respicardia investment and loan 23,057 
Other(293)(1,353)
Net cash (used in) provided by investing activities(27,461)40,535 
Financing Activities:
Proceeds from long-term debt obligations507,547  
Repayment of long-term debt obligations(220,784)(451,396)
Shares repurchased from employees for minimum tax withholding(8,550)(12,246)
Proceeds from deferred consideration from sale of Heart Valves, net of working capital adjustments4,597  
Payment of debt issuance costs(3,292)(1,875)
Proceeds from share issuances under ESPP1,788 1,750 
Proceeds from issuance of ordinary shares, net 324,180 
Payment of make-whole premium on long-term debt obligations (35,594)
Payment of contingent consideration (5,249)
Other481 2,247 
Net cash provided by (used in) financing activities281,787 (178,183)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(7,257)(2,402)
Net increase (decrease) in cash, cash equivalents and restricted cash298,287 (70,986)
Cash, cash equivalents and restricted cash at beginning of period207,992 252,832 
Cash, cash equivalents and restricted cash at end of period$506,279 $181,846 
(1)The condensed consolidated statement of cash flows for the three and nine months ended September 30, 2021 have 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 and nine months ended September 30, 2022 and 2021, 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 and nine months ended September 30, 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”) and its effects on the economy, employment, patient behaviors and supply chain, among others, has caused and may continue to cause variable demand for our products. Our business continues to be affected by varying levels of government-imposed lockdowns in Asia, as well as global hospital-related challenges, which have led to a decrease in procedures. Notwithstanding improving market dynamics, our Neuromodulation business continues to experience ongoing COVID-19 related headwinds, as described above. Meanwhile, the recovery of global cardiopulmonary procedures has resulted in stronger demand for our Cardiopulmonary products. Our Advanced Circulatory Support (“ACS”) business has been negatively impacted by a reduction in patients treated with extracorporeal membrane oxygenation (“ECMO”) related to fewer severe COVID-19 cases and hospital-related challenges. 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, particularly as we move into the winter months.
Moreover, although our RECOVER study and ANTHEM-HFrEF and OSPREY clinical trials continue to progress, there may be delays or closures of sites in the future should COVID-19 or variants thereof strengthen or reemerge.
Our net revenue and profitability have been negatively affected by the unfavorable foreign currency exchange impact of the strengthened U.S. dollar against a number of currencies. Furthermore, we continue to experience 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 substantially due to COVID-related disruptions and 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 revenue 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.
9


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 September 30, 2021Nine Months Ended September 30, 2021
As Previously ReportedAdjustmentsAs RevisedAs Previously ReportedAdjustmentsAs Revised
Cost of sales$83,105 $1,446 $84,551 $256,828 $4,122 $260,950 
Operating income (loss)17,868 (1,446)16,422 (21,416)(4,122)(25,538)
Loss before tax(40,111)(1,446)(41,557)(118,050)(4,122)(122,172)
Income tax expense (benefit)2,098 (240)1,858 9,094 (684)8,410 
Net loss(42,237)(1,206)(43,443)(127,253)(3,438)(130,691)
Basic and diluted loss per share$(0.82)$(0.02)$(0.84)$(2.56)$(0.07)$(2.63)
Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended September 30, 2021Nine Months Ended September 30, 2021
As Previously ReportedAdjustmentsAs RevisedAs Previously ReportedAdjustmentsAs Revised
Net loss$(42,237)$(1,206)$(43,443)$(127,253)$(3,438)$(130,691)
Total comprehensive loss(62,133)(1,206)(63,339)(151,883)(3,438)(155,321)
Consolidated Statements of Stockholders’ Equity
As Previously ReportedAdjustmentsAs Revised
Accumulated DeficitTotal Stockholders’ EquityAccumulated DeficitTotal Stockholders’ EquityAccumulated DeficitTotal Stockholders’ Equity
September 30, 2021$(879,655)$1,312,498 $(13,002)$(13,002)$(892,657)$1,299,496 
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2021
As Previously ReportedAdjustmentsAs Revised
Net loss$(127,253)$(3,438)$(130,691)
Deferred tax benefit(342)(684)(1,026)
Changes in operating assets and liabilities:
Inventories4,656 4,122 8,778 
Net cash provided by operating activities69,064  69,064 
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.
10


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 September 30, 2022, our restricted cash balance totaled $275.2 million and was comprised of cash deposits with Barclays held as collateral for a first demand bank guarantee of €270.0 million (approximately $263.9 million as of September 30, 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 USD 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 10. Commitments and Contingencies.”
Note 2. Business Combinations
As of December 31, 2021, LivaNova owned a 3% investment in ALung Technologies, Inc. (“ALung”), a privately held medical device company focused on creating advanced medical devices for treating respiratory failure. On May 2, 2022, we acquired the remaining 97% of equity interests in ALung for a purchase price of up to $110.0 million, consisting of $10.0 million paid at closing, subject to customary adjustments, and contingent consideration of up to $100.0 million payable upon achievement of certain sales-based milestones beginning in 2023 and ending in 2027. Total consideration included approximately $5.5 million of non-cash consideration.
The following table presents the acquisition date fair value of the consideration transferred and the fair value of our interest in ALung prior to the acquisition, including certain measurement period adjustments (in thousands):
Initial Fair Value of Consideration
Measurement Period Adjustments (1)
Adjusted Fair Value of Consideration
Cash and other considerations$15,586 $ $15,586 
Contingent consideration 26,369 (9,578)16,791 
Fair value of consideration transferred $41,955 $(9,578)$32,377 
(1)During the third quarter of 2022, measurement period adjustments were recorded based on information obtained about facts and circumstances that existed as of the acquisition date.
The following table presents the preliminary purchase price allocation at fair value for the ALung acquisition, including certain measurement period adjustments (in thousands):
Initial Purchase Price Allocation
Measurement Period Adjustments (1)
Adjusted Purchase Price Allocation
Developed technology - 15-year life
$13,950 $(11,050)$2,900 
Goodwill25,893 977 26,870 
Other assets and liabilities, net 2,112 495 2,607 
Net assets acquired$41,955 $(9,578)$32,377 
(1)During the third quarter of 2022, measurement period adjustments were recorded based on information obtained about facts and circumstances that existed as of the acquisition date.
Goodwill arising from the ALung acquisition, which is not deductible for tax purposes, primarily represents the synergies anticipated between ALung and our ACS business. The assets acquired, including goodwill, are recognized in our ACS segment. The goodwill for the ACS reporting unit was fully impaired during the third quarter of 2022. Please refer to “Note 5. Goodwill and Intangible Assets” for further details.
We recognized ALung acquisition-related expenses of approximately $0.5 million and $4.9 million during the three and nine months ended September 30, 2022, respectively, within “Selling, general and administrative” expenses on our consolidated statement of income (loss).
11


The Company’s consolidated financial statements include the operating results of ALung from the acquisition date. Separate post-acquisition operating results and pro forma financial information for this acquisition have not been presented as the effect was not material for disclosure purposes.
The contingent consideration payments are triggered upon the achievement of thresholds associated with sales of products covered by the purchase agreement and are estimated to occur during the years reflected in the table below. The sales-based earnout was valued using projected sales from our internal strategic plan and is a Level 3 fair value measurement, which includes the following significant unobservable inputs (in thousands):
ALung AcquisitionFair value at May 2, 2022Valuation TechniqueUnobservable InputRanges
Sales-based earnout$16,791 Monte Carlo simulationRisk-adjusted discount rate7.0%-8.4%
Credit risk discount rate6.4%-8.0%
Revenue volatility25.7%
Projected years of earnout2023-2027
For a reconciliation of the beginning and ending balance of contingent consideration liabilities refer to “Note 7. Fair Value Measurements.”
Note 3. Divestiture of Heart Valve Business
On December 2, 2020, LivaNova entered into a Purchase Agreement with Mitral Holdco S.à r.l. (“Mitral”), 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 and the remaining deferred purchase price of €9.3 million in July 2022. In July 2022, we also made a €4.8 million payment to Mitral upon finalizing the trade working capital and net indebtedness adjustments. During the three and nine months ended September 30, 2021, we recognized a (loss) gain from the sale of the Heart Valve business of $(0.1) million and $0.7 million, respectively, which is included within other operating expenses on the condensed consolidated statements of income (loss).
On July 29, 2022, we received a demand letter from Mitral for approximately €20.8 million ($21.2 million as of July 29, 2022) for breach of warranty claims under the A&R Purchase Agreement. Specifically, the claims allege failure to disclose certain information relating to a supplier, thereby allegedly impacting the profitability of Mitral’s business in China and Japan. We responded via letter on October 14, 2022, that we do not believe Mitral’s claims will be sustained and that LivaNova is not responsible for any alleged breach of warranty. We also noted that warranty claims of this type, subject to certain exceptions, are capped at €8 million, and the amount of any such loss. The Company has not recognized a liability related to this matter because any potential loss is not currently probable.
Note 4. Restructuring
We initiate restructuring plans to leverage economies of scale, streamline distribution and logistics, and strengthen operational and administrative effectiveness in order to reduce overall costs.
During the second quarter of 2022, management committed to implement a cost-optimization and cost reduction program to adapt to current economic conditions, which includes a workforce reduction to be completed by mid-2023. We recognized a charge of $4.1 million and $4.6 million during the three and nine months ended September 30, 2022, respectively. The total estimated restructuring costs associated with the plan are approximately $10.0 million including employee termination benefits, consulting fees and contract termination costs.
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The following table provides a reconciliation of the beginning and ending balance of the accruals and other reserves recorded in connection with our restructuring plans included within accrued liabilities and other and other long-term liabilities on the condensed consolidated balance sheet (in thousands):
Balance at December 31, 2021 (1)
$836 
Charges4,608 
Cash payments(1,831)
Balance at September 30, 2022$3,613 
(1)Represents restructuring plans initiated prior to 2022.
The following table presents restructuring expense by reportable segment (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Cardiopulmonary$371 $53 $390 $2,882 
Neuromodulation 2,328 (28)2,278 1,493 
Advanced Circulatory Support739  739  
Other669 63 1,201 5,406 
Total (1)
$4,107 $88 $4,608 $9,781 
(1)Restructuring expense is included within other operating expenses on the condensed consolidated statements of income (loss).
Note 5. Goodwill and Intangible Assets
We test goodwill and indefinite-lived intangible assets for impairment on an annual basis on October 1 or when events or changes in circumstances indicate that a potential impairment exists.
As part of our assessment as of September 30, 2022, 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. 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 current estimate of future cash flows. 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, in our condensed consolidated statements of income (loss) for the three and nine months ended September 30, 2022. Cumulative goodwill impairments from continuing operations since the merger of Cyberonics, Inc. and Sorin S.p.A. in October 2015 through September 30, 2022 totaled $193.1 million.
We also performed an interim impairment analysis related to the ImThera IPR&D intangible asset. As a result, we determined that the fair value of the asset exceeded the carrying value by 11% and the IPR&D intangible asset was not impaired.
13


Note 6. 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 and an investment accounted for under the equity method. As of September 30, 2022 and December 31, 2021, the carrying value of our investments was $13.9 million and $16.6 million, respectively.
As of December 31, 2021, LivaNova owned a 3% investment in ALung with a carrying value of $3.0 million, as well as held a note receivable due from ALung with a carrying value of $2.5 million. On May 2, 2022, we acquired the remaining 97% of equity interests in ALung. Please refer to “Note 2. Business Combinations” for further details.
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 income/(expense)” on the condensed consolidated statement of income (loss).
During the second quarter of 2021, the Company received a cash dividend from its investment in MD Start II of $3.1 million, which is included in “Foreign exchange and other income/(expense)” on the condensed consolidated statements of income (loss) for the nine months ended September 30, 2021.
Note 7. 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 nine months ended September 30, 2022 and 2021.
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 September 30, 2022Fair Value Measurements Using Inputs Considered as:
Level 1Level 2Level 3
Assets:
Derivative assets - designated as cash flow hedges (foreign currency exchange rate “FX”)$377 $ $377 $ 
Derivative assets - designated as cash flow hedges (interest rate swaps)760  760  
Derivative assets - freestanding instruments (FX)47  47  
Derivative assets - capped call derivatives48,223   48,223 
Convertible notes receivable282   282 
$49,689 $ $1,184 $