LivaNova PLC 2021 Form 10-K Summary
Business context and reporting period
LivaNova is a global medical device company headquartered in London, England, with operations in Cardiopulmonary, Neuromodulation and Advanced Circulatory Support. The filing covers the fiscal year ended December 31, 2021; fourth-quarter figures are also disclosed. The company disposed of its Heart Valves business on June 1, 2021 and changed its reportable segment structure in the fourth quarter, with prior periods presented on a comparable basis.
Financial performance and key metrics
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Net sales | $1,035.4 million | $934.2 million | 10.8% increase |
| Gross profit | $706.0 million | $594.8 million | 18.7% increase |
| Gross margin | 68.2% | 63.7% | Up 4.5 percentage points |
| Operating loss | $0.8 million | $273.9 million | Substantial improvement |
| Net loss | $135.8 million | $348.8 million | Loss reduced |
| Loss per diluted share | $2.68 | $7.18 | Improved |
| Operating cash flow | $102.5 million | $(79.4) million | Improved by $182.0 million |
- FY 2021 operating margin was approximately negative 0.1%, and net margin was approximately negative 13.1%.
- Quarterly fourth-quarter net sales were $270.1 million, gross profit was $201.6 million, operating income was $24.8 million, and net loss was $5.1 million, or $0.10 diluted loss per share.
- Segment sales were $483.0 million for Cardiopulmonary, $456.2 million for Neuromodulation and $55.5 million for Advanced Circulatory Support. Segment sales increased 8.1%, 28.7% and 31.0%, respectively.
- Segment income was $169.5 million for Neuromodulation and $2.2 million for Advanced Circulatory Support; Cardiopulmonary reported a $6.4 million segment loss.
- Cash and cash equivalents were $208.0 million at year-end, compared with $252.8 million in 2020. Accounts receivable were $185.4 million and inventories were $105.8 million.
- Total debt was $239.5 million at year-end, including $229.7 million classified as current. The company had $125.0 million of revolving credit availability and no borrowings under the 2021 revolving facility.
- The company reported $1.295 billion of stockholders’ equity and $2.201 billion of total assets.
Material changes versus the prior comparable period
- Revenue recovered as hospital access and procedure volumes improved following COVID-19 disruptions. Neuromodulation benefited particularly from higher implant activity and broader hospital access.
- Gross margin improved primarily because of product mix, the Heart Valves divestiture and lower 3T Heater-Cooler remediation expense.
- Cardiopulmonary profitability deteriorated despite higher sales because of a $38.1 million increase in the 3T Heater-Cooler litigation provision and related legal costs, plus higher sales, marketing and research expenses.
- Research and development expense increased to $183.4 million from $152.9 million, reflecting clinical trials, the planned next-generation heart-lung machine and fair-value changes in milestone-based contingent consideration.
- The company repaid its $450 million senior secured term loan in August 2021, paid a $35.6 million make-whole premium and recognized a $60.2 million loss on debt extinguishment.
- LivaNova issued 4.18 million ordinary shares in August 2021 for approximately $322.6 million of net proceeds, primarily used to repay the term loan.
- Cash flow benefited from higher sales, a $24.5 million CARES Act tax refund and lower 3T litigation settlement payments. Investing cash flow was positive due largely to Heart Valves divestiture proceeds and the sale of the Respicardia investment and loan.
- Previously issued 2020 and 2019 financial statements were revised for foreign-currency exchange-rate errors affecting inventory and cost of sales. The filing states that the errors were not material to previously reported periods.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide a clear quantitative revenue, earnings or cash-flow outlook for 2022. Management states that existing cash, operating cash flow and available borrowing capacity are expected to fund operating, research and development, capital expenditure and debt-service needs for the twelve months following issuance of the financial statements, subject to significant contingencies.
- COVID-19 continued to create uncertainty around elective procedures, hospital staffing, supply chains and clinical-trial enrollment. Management reported that manufacturing plants remained open and that no material COVID-related production constraints had occurred through the filing date.
- The ANTHEM-HFrEF heart-failure trial enrolled its 400th patient in December 2021, and an interim analysis was being conducted. RECOVER and other clinical programs remained exposed to site delays or closures.
- The company faces SNIA environmental litigation in Italy. A November 2021 decision ordered damages of approximately €453.6 million, or about $514.6 million at year-end exchange rates. LivaNova appealed, and the payment obligation was stayed subject to a €270.0 million first-demand bank surety.
- In February 2022, LivaNova entered into a €200 million bridge loan facility to support the surety or, if necessary, payment of court-ordered damages or settlements. The filing does not establish the ultimate outcome or total cash exposure from the litigation.
- The company recorded a $39.3 million liability for Saluggia site hazardous-substance decommissioning and a $39.5 million provision for 3T Heater-Cooler product-liability matters. Approximately 90 filed and unfiled 3T-related claims were identified as of March 1, 2022.
- The $287.5 million principal amount of 3.00% cash exchangeable senior notes was classified as current after the exchange condition was met on December 20, 2021. No holders had elected to exchange as of the filing date. The notes had a $181.7 million embedded exchange-feature derivative liability and the related capped-call asset had a fair value of $106.6 million.
- Other significant risks include medical-device regulation and product approvals, recalls and product liability, reimbursement pressure, supply-chain disruptions, cybersecurity and data privacy, foreign-exchange exposure, tax audits, intellectual-property litigation and the potential impairment of goodwill and intangible assets.
Most important facts for investors to verify
- Whether the SNIA litigation appeal succeeds and whether the €270.0 million surety or the €453.6 million damages obligation produces material cash outflows.
- The timing and cash impact of any exchange, repayment or refinancing of the cash exchangeable senior notes.
- Whether the improvement in procedure volumes and Neuromodulation growth persists after COVID-19-related comparisons normalize.
- The ultimate cost and settlement status of 3T Heater-Cooler product-liability claims and remaining remediation actions.
- Progress, enrollment, interim data and regulatory outcomes for RECOVER, ANTHEM-HFrEF and OSPREY.
- Execution of the Heart Valves divestiture, including the remaining €9.3 million payment expected in 2022 and the delayed LivaNova Site Management closing.
- Future goodwill and intangible-asset impairment sensitivity, given $1.3 billion of net intangible assets and goodwill, representing 59.0% of total assets.