LivaNova Reports Second-Quarter 2022 Results

LivaNova PLC (Nasdaq: LIVN), a market-leading medical technology and innovation company, today reported results for the quarter ended June 30, 2022.

Financial Summary and Highlights¹

• Revenue of $254.2 million for the quarter, decreased 3.9 percent on a reported basis and increased 0.5 percent on a constant-currency basis, as compared to the prior-year period

• Revenue, excluding sales from the Heart Valves business which was divested effective June 1, 2021, increased 1.8 percent on a reported basis and 6.5 percent on a constant-currency basis, as compared to the prior-year period

• U.S. GAAP diluted earnings per share were $0.30 and adjusted diluted earnings per share were $0.53

• Closed term loan facilities in July 2022 for an aggregate principal amount of up to $350 million and repaid in full and terminated the prior $220 million bridge facility

• Received New Technology Add-on Payment (NTAP) approval from the U.S. Centers for Medicare and Medicaid for the Hemolung Respiratory Assist System for in-patient care

• Updating full-year 2022 outlook to reflect foreign currency headwinds and supply chain pressures, including the inflationary environment

“We delivered revenue growth in the second quarter, excluding foreign currency headwinds, driven by our Cardiopulmonary and Neuromodulation businesses,” said Damien McDonald, Chief Executive Officer of LivaNova. “Based on our first-half performance, we now forecast higher full-year revenue growth on strong demand in Cardiopulmonary. To reflect the impact of foreign currency and increased supply chain pressures, we now expect lower adjusted earnings and free cash flow. We are committed to executing on our core growth drivers, delivering on our extensive clinical and product pipeline opportunities, and improving profitability and cash generation."

Second-Quarter 2022 Results

The following table summarizes sales for the second quarter of 2022 by segment (in millions):

All revenue growth rates below reflect comparable, constant-currency growth. Constant-currency growth accounts for the impact from fluctuations in the various currencies in which the Company operates as compared to reported growth.

Cardiopulmonary revenue increased 14.3 percent versus the second quarter of 2021 with growth across all regions. This growth was primarily driven by oxygenator sales due to an increase in cardiac surgery procedures and strength in heart-lung machine sales in the Rest of World and U.S. regions.

Neuromodulation revenue increased 2.3 percent versus the second quarter of 2021 driven by the Europe and Rest of World regions and by favorable pricing in the U.S., partially offset by lower implant volumes.

Advanced Circulatory Support (ACS) revenue decreased 29.1 percent compared to the second quarter of 2021 primarily due to a reduction in patients treated with extracorporeal membrane oxygenation (ECMO) related to fewer severe COVID-19 cases and hospital staffing challenges, partially offset by growth in non-COVID-19 cases.

Financial Performance²

On a U.S. GAAP basis, second-quarter 2022 operating income was $31.8 million, as compared to an operating loss of $36.3 million for the second quarter of 2021. Adjusted operating income for the second quarter of 2022 was $33.4 million, as compared to $37.9 million for the second quarter of 2021.

On a U.S. GAAP basis, second-quarter 2022 diluted earnings per share was $0.30, as compared to a diluted loss per share of $1.15 in the second quarter of 2021. Second-quarter 2022 adjusted diluted earnings per share was $0.53, as compared to $0.50 per share in the second quarter of 2021.

Updated Full-Year 2022 Outlook

LivaNova now expects revenue for full-year 2022 to grow between 4 and 6 percent on a constant-currency basis, excluding the impact of the Heart Valves divestiture. Foreign currency is now expected to be a 4 to 5 percent headwind.

Adjusted diluted earnings per share for 2022 are now expected to be in the range of $2.25 to $2.45, assuming a fully diluted share count of 54 million for full-year 2022. In 2022, the Company now estimates that adjusted free cash flow will be in the range of $60 to $80 million.

Conference Call Instructions

The Company will host a live audiocast at 1 p.m. London time (8 a.m. EDT) on Wednesday, August 3, 2022 that will be accessible at www.livanova.com/events. Listeners should register in advance and log on approximately 10 minutes in advance to ensure proper setup. To listen to the conference call by telephone, dial +1 844 200 6205 (if dialing from within the U.S.) or +1 929 526 1599 (if dialing from outside the U.S.). The conference call access code is 469820. Within 24 hours of the audiocast, a replay will be available at www.livanova.com/events, where it will be archived and accessible for approximately 90 days.

About LivaNova

LivaNova PLC is a global medical technology and innovation company built on nearly five decades of experience and a relentless commitment to provide hope for patients and their families through innovative medical technologies, delivering life-changing improvements for both the Head and Heart. Headquartered in London, LivaNova employs approximately 3,000 employees and has a presence in more than 100 countries for the benefit of patients, healthcare professionals and healthcare systems worldwide. For more information, please visit www.livanova.com.

Use of Non-GAAP Financial Measures

In this press release, management has disclosed financial measurements that present financial information not in accordance with GAAP. Company management uses these measurements as aids in monitoring the Company’s ongoing financial performance from quarter to quarter and year to year on a regular basis and for benchmarking against other medical technology companies. Non-GAAP financial measures used by the Company may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. These non-GAAP financial measures should be considered along with, but not as alternatives to, operating performance measures as prescribed by GAAP.

Unless otherwise noted, all sales growth rates in this release reflect comparable, constant-currency growth. Management believes that referring to comparable, constant-currency growth is the most useful way to evaluate the sales performance of LivaNova and to compare the sales performance of current periods to prior periods on a consistent basis. Constant-currency growth, a non-GAAP financial measure, measures the change in sales between current and prior-year periods using average exchange rates in effect during the applicable prior-year period.

LivaNova calculates forward-looking non-GAAP financial measures based on internal forecasts that omit certain amounts that would be included in GAAP financial measures. For example, forward-looking net sales growth projections are estimated on a constant-currency basis and exclude the impact of foreign currency fluctuations. Forward-looking non-GAAP adjusted diluted earnings per share guidance exclude other items such as, but not limited to, changes in fair value of derivatives and contingent consideration arrangements and asset impairment charges that would be included in comparable GAAP financial measures. The most directly comparable GAAP measure for constant-currency net sales, non-GAAP adjusted tax rate and adjusted diluted earnings per share are net sales, the effective tax rate and earnings per share, respectively. The most directly comparable GAAP measure for adjusted free cash flow is net cash provided by operating activities. However, non-GAAP financial adjustments on a forward-looking basis are subject to uncertainty and variability as they are dependent on many factors, including but not limited to, the effect of foreign currency exchange fluctuations, impacts from potential acquisitions or divestitures, the ultimate outcome of legal proceedings, gains or losses on the potential sale of businesses or other assets, restructuring costs, merger and integration activities, changes in fair value of derivatives and contingent consideration arrangements, asset impairment charges and the tax impact of the aforementioned items, tax law changes or other tax matters. Accordingly, forward-looking GAAP financial measures and reconciliations to the most directly comparable forward-looking GAAP financial measures are not available without unreasonable effort.

The Company also believes adjusted financial measures such as adjusted gross profit percentage, adjusted selling, general and administrative expense, adjusted research and development expense, adjusted other operating expenses, adjusted operating income, adjusted income tax expense, adjusted net income and adjusted diluted earnings per share, are measures by which LivaNova generally uses to facilitate management review of the operational performance of the company, to serve as a basis for strategic planning and to assist in the design of compensation incentive plans. Additionally, the Company also uses the non-GAAP liquidity measure adjusted free cash flow. Furthermore, adjusted financial measures allow investors to evaluate the Company’s core performance for different periods on a more comparable and consistent basis, and with other entities in the medical technology industry by adjusting for items that are not related to the ongoing operations of the Company or incurred in the ordinary course of business.

Safe Harbor Statement

Certain statements in this press release, 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,” "outlook," “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. Investors are cautioned that all such statements involve risks and uncertainties, including without limitation, statements concerning achieving a stronger future, driving sustainable growth and value to our shareholders, projected net sales, adjusted diluted earnings per share, cash flow from operations, capital expenditures, depreciation and amortization, advancing our growth, driving product launches and funding our equity investments, executing on our synergy targets and retaining our focus, energy and discipline as a company, and serving the needs of our customers and patients. Important factors that may cause actual results to differ include, but are not limited to: (i) 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 and related to inflationary pressure; (ii) 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; (iii) 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; (iv) non-U.S. operational and economic risks and concerns including the effect of changes in foreign exchange rates on quarterly operating results; (v) failure to retain key personnel, prevent labor shortages, or manage labor costs; (vi) changes in technology, including the development of superior or alternative technology or devices by competitors and/or competition from providers of alternative medical therapies; (vii) 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.; (viiii) failure to develop and commercialize new products and the rate and degree of market acceptance of such products; (ix) failure to obtain approvals or maintain the current regulatory approvals for our products’ approved indications; (x) 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; (xi) changes in customer spending patterns; (xii) failure to establish, expand or maintain market acceptance of our products for the treatment of our approved indications; (xiii) 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; (xiv) failure to obtain or maintain coverage and reimbursement for our products’ approved indications and risks related to cost containment efforts of healthcare purchasing organizations; (xv) unfavorable results from clinical studies or failure to meet milestones; (xvi) risks relating to our indebtedness under the exchangeable senior notes, our revolving credit facility and our 2022 Term Facilities; (xvii) effectiveness of our internal controls over financial reporting; (xviii) changes in our profitability and/or failure to manage costs and expenses; (xix) fluctuations in future quarterly operating results and/or variations in sales and operating expenses relative to estimates; (xx) cyber-attacks or other disruptions to our information technology systems; (xxi) product liability, intellectual property, shareholder-related, environmental-related, income tax and other litigation, disputes, losses and costs; (xxii) protection, expiration and validity of our intellectual property; (xxiii) 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; (xxiv) 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; (xxv) failure of new acquisitions to further our strategic objectives or strengthen our existing businesses; (xxvi) changes in tax laws and regulations, including exposure to additional income tax liabilities; (xxvii) changes in our common stock price; and (xxviii) activist investors causing disruptions to the business.

The foregoing list of factors is not exhaustive. You should carefully consider the foregoing factors and the other risks and uncertainties that affect the Company’s business, including those described in the “Risk Factors” section of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other documents filed from time to time with the United States Securities and Exchange Commission by LivaNova.

We caution you not to place undue reliance on any forward-looking statements, which are made only as of the date of this press release. The Company does not undertake or assume any obligation to update publicly any of the forward-looking statements in this press release to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable law. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

The following table presents the reconciliation of GAAP diluted weighted average shares outstanding, used in the computation of GAAP diluted net loss per common share, to adjusted diluted weighted average shares outstanding, used in the computation of adjusted diluted earnings per common share (in millions of shares):