Market Overview

LivaNova Reports Second Quarter 2018 Results

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LivaNova PLC (NASDAQ:LIVN), a market-leading medical technology and
innovation company, today reported results for the quarter ended
June 30, 2018.

For the second quarter of 2018, worldwide sales from continuing
operations were $287.5 million, an increase of 12.4 percent on a
reported basis and an increase of 10.2 percent on a constant currency
basis, as compared to the same quarter of the previous year. On an
underlying basis, second quarter sales grew 8.7 percent1. On
the basis of U.S. Generally Accepted Accounting Principles (GAAP),
second quarter 2018 diluted earnings per share from continuing
operations were $0.40. Second quarter 2018 adjusted diluted earnings per
share from continuing operations were $0.96.

"The second quarter results reflect the initial success of our growth
strategy as we focus on our Cardiac Surgery and Neuromodulation
portfolios. We saw an acceleration in our underlying sales growth and
grew earnings while making significant investments in marketing, product
development and clinical activities," said Damien McDonald, Chief
Executive Officer of LivaNova. "Neuromodulation grew double digits
behind strong demand for our newest VNS Therapy® System,
SenTiva®, which launched in Europe in the second quarter.
Cardiac Surgery continues to experience strong growth, driven by sales
of our S5® heart-lung machine and our Perceval®
sutureless aortic heart valve. Our differentiated pipeline continues to
make progress and we feel confident in our growth outlook as we continue
to deliver quality care to patients around the world."

1 Sales on an underlying basis refers to GAAP
revenue from continuing operations, excluding: 1) acquisitions for
the first 12 months post-transaction close 2) the impact of
currency translation, and 3) one-time items expected to last no
more than 12 months.

Second Quarter 2018 Results

Worldwide sales from continuing operations for the second quarter were
$287.5 million, up 10.2 percent on a constant currency basis compared to
the second quarter of 2017. The following table highlights worldwide
sales for the second quarter of 2018 by business:

                   
$ in millions    

Three months ended
June 30, 2018

    % Change    

Constant
Currency
% Change

Business / Product Line:     2018     2017        
Cardiopulmonary     136.6     124.1     10.1 %     7.2 %
Heart Valves     33.8     34.4     (1.9 %)     (5.1 %)
Advanced Circulatory Support     6.0         N/A       N/A  
Cardiac Surgery     176.5     158.6     11.3 %     8.3 %
Neuromodulation     110.7     97.0     14.1 %     13.2 %
Other     0.4     0.2     %     %
Total Net Sales     $287.5     $255.8     12.4 %     10.2 %
  • Note: Numbers may not add up precisely due to rounding. Constant
    currency % change is considered a non-GAAP metric.

For discussion purposes, all sales 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.

Cardiac Surgery

Cardiac Surgery sales, which include Cardiopulmonary products, Heart
Valves and Advanced Circulatory Support, were $176.5 million,
representing an 8.3 percent increase versus the second quarter of 2017.

Sales in Cardiopulmonary products were $136.6 million, representing a
7.2 percent increase versus the second quarter of 2017. Growth in
heart-lung machines sales in both U.S. and Rest of World was the major
contributor primarily due to customer upgrades from legacy S3®
to current S5 machines.

Heart Valve sales for both tissue and mechanical heart valves were $33.8
million, a decrease of 5.1 percent compared to the second quarter
of 2017. Strong growth in demand for the Perceval sutureless aortic
heart valve was more than offset by the expected termination of a
contract manufacturing customer and by continued declines in mechanical
and traditional tissue valves.

Advanced Circulatory Support sales, which represent our recently
acquired TandemLife business, were $6.0 million in the quarter.

Neuromodulation

Neuromodulation sales were $110.7 million in the second quarter,
representing a 13.2 percent increase versus the second quarter of 2017.
The increase was driven by strong demand for SenTiva in the U.S. and
Europe coupled with commercial expansion efforts in several
international markets.

Financial Performance

On a U.S. GAAP basis, second quarter 2018 operating income from
continuing operations was $21.6 million. Adjusted operating income from
continuing operations for the second quarter of 2018 was $59.9 million,
a decrease of 6.8 percent as compared to the second quarter of 2017.
This was primarily due to increased investments in sales and marketing
activities, product innovation and clinical trials to support sales
growth and gross margin expansion, along with a negative impact from
foreign currency.

Our adjusted effective tax rate in the quarter was 17.4 percent, an
improvement from 24.0 percent in the second quarter of 2017, as a result
of ongoing tax efforts and the recent changes in U.S. and U.K. tax laws.

On a U.S. GAAP basis, second quarter 2018 diluted earnings per share
from continuing operations were $0.40. Second quarter 2018 adjusted
diluted earnings per share from continuing operations were $0.96, an
increase of 3.2 percent as compared to the second quarter of 2017.

2018 Guidance

LivaNova worldwide net sales for full-year 2018 are expected to grow
between 6 and 8 percent on a constant currency basis. Full-year
2018 effective tax rate is expected to be in the range of 18 to 20
percent. Adjusted diluted earnings per share for 2018 are expected to be
in the range of $3.50 to $3.70.

Webcast and Conference Call Instructions

The Company will host a live audio webcast for interested parties
commencing at 1 p.m. London time (8 a.m. Eastern Daylight Time) on
Wednesday, Aug. 1, 2018 that will be accessible through the Investor
Relations section of the LivaNova corporate website at www.livanova.com.
To listen to the conference call live by telephone, dial (866) 393-4306
(if dialing from within the U.S.) or (734) 385-2616 (if dialing from
outside the U.S.). The conference ID is 5184037.

Within 24 hours of the webcast, a replay will be available under the
"News & Events / Presentations" section of the Investor Relations
portion of the LivaNova website, where it will be archived and
accessible for approximately 12 months.

About LivaNova

LivaNova PLC is a global medical technology company built on nearly five
decades of experience and a relentless commitment to improve the lives
of patients around the world. LivaNova's advanced technologies and
breakthrough treatments provide meaningful solutions for the benefit of
patients, healthcare professionals and healthcare systems. Headquartered
in London, LivaNova has a presence in more than 100 countries worldwide.
The Company currently employs approximately 4,000 employees.
LivaNova operates as two businesses: Cardiac Surgery and
Neuromodulation, with operating headquarters in Mirandola (Italy)
and Houston (U.S.A.), respectively.

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 necessarily 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, the operating performance measure 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.

The Company also believes adjusted financial measures such as adjusted
diluted earnings per share, adjusted operating income and adjusted tax
rate are meaningful and allow investors to evaluate the Company's
performance for different periods on a more comparable basis by
adjusting for items that are not related to the ongoing operations of
the Company.

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. 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. 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, and depreciation and amortization for 2018,
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, serving the needs of our customers
and patients, and delivering strong value to our shareholders. Important
factors that may cause actual results to differ include, but are not
limited to: (i) the inability of LivaNova to meet expectations regarding
the timing, completion and accounting of tax treatments; (ii)
organizational and governance structure; (iii) reductions in customer
spending, a slowdown in customer payments and changes in customer demand
for products and services; (iv) unanticipated changes relating to
competitive factors in the industries in which LivaNova operates; (v)
the ability to hire and retain key personnel; (vi) the ability to
attract new customers and retain existing customers in the manner
anticipated; (vii) changes in legislation or governmental regulations
affecting LivaNova; (viii) international, national or local economic,
social or political conditions that could adversely affect LivaNova, its
partners or its customers; (ix) conditions in the credit markets; (x)
business and other financial risks inherent to the industries in which
LivaNova operates; (xi) risks associated with assumptions made in
connection with critical accounting estimates and legal proceedings;
(xii) LivaNova's international operations, which are subject to the
risks of currency fluctuations and foreign exchange controls; (xiii) and
the potential for international unrest, economic downturn or effects of
currencies, tax assessments, tax adjustments, anticipated tax rates, raw
material costs or availability, benefit or retirement plan costs, or
other regulatory compliance costs. 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.

 
LIVANOVA PLC
QUARTERLY SALES
(U.S. dollars in millions)
               
Three Months Ended June 30,
2018 2017

% Change at
Actual Currency
Rates

% Change at
Constant
Currency Rates(1)

Cardiopulmonary
US $42.1 $39.7 6.1 % 6.1 %
Europe 35.9 34.0 5.8 % (1.2 %)
Rest of world 58.6 50.5 16.1 % 13.7 %
Total 136.6 124.1 10.1 % 7.2 %
 
Heart Valves
US 6.1 6.2 (0.9 %) (0.9 %)
Europe 11.9 10.7 11.0 % 3.4 %
Rest of world 15.8 17.6 (10.0 %) (11.7 %)
Total 33.8 34.4 (1.9 %) (5.1 %)
 
Advanced Circulatory Support
US 5.5 N/A N/A
Europe 0.4 N/A N/A
Rest of world 0.2 N/A N/A
Total 6.0 N/A N/A
 
Cardiac Surgery
US 53.8 45.9 17.0 % 17.1 %
Europe 48.1 44.6 7.8 % 0.7 %
Rest of world 74.6 68.0 9.6 % 7.4 %
Total 176.5 158.6 11.3 % 8.3 %
 
Neuromodulation
US 89.4 81.4 9.8 % 9.8 %
Europe 11.9 9.5 25.5 % 17.8 %
Rest of world 9.3 6.1 52.8 % 51.0 %
Total 110.7 97.0 14.1 % 13.2 %
 
Other
US N/A N/A
Europe N/A N/A
Rest of world 0.4 0.2 N/A N/A
Total 0.4 0.2 N/A N/A
 
Totals
US 143.1 127.3 12.4 % 12.4 %
Europe 60.1 54.2 10.9 % 3.7 %
Rest of world 84.3 74.4 13.3 % 11.1 %
Total $287.5 $255.8 12.4 % 10.2 %
* The sales results presented are unaudited. Numbers may not add up
precisely due to rounding.
 
(1) 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 PLC
SIX MONTH SALES
(U.S. dollars in millions)
               
Six Months Ended June 30,
2018 2017

% Change at
Actual Currency
Rates

% Change at
Constant
Currency Rates(1)

Cardiopulmonary
US $80.6 $71.9 12.1 % 12.1 %
Europe 72.8 64.6 12.7 % 1.7 %
Rest of World 108.4 95.0 14.1 % 9.4 %
Total 261.8 231.4 13.1 % 8.1 %
 
Heart Valves
US 12.7 12.3 3.3 % 3.3 %
Europe 24.0 21.0 14.0 % 2.6 %
Rest of World 28.2 33.0 (14.7 %) (17.4 %)
Total 64.8 66.3 (2.3 %) (7.2 %)
 
Advanced Circulatory Support
US 5.5 N/A N/A
Europe 0.4 N/A N/A
Rest of world 0.2 N/A N/A
Total 6.0 N/A N/A
 
Cardiac Surgery
US 98.7 84.2 17.3 % 17.3 %
Europe 97.1 85.6 13.5 % 2.3 %
Rest of World 136.8 128.0 6.8 % 2.7 %
Total 332.6 297.8 11.7 % 6.7 %
 
Neuromodulation
US 167.4 155.1 7.9 % 7.9 %
Europe 22.2 17.4 27.5 % 16.3 %
Rest of World 14.9 11.7 27.5 % 26.0 %
Total 204.5 184.2 11.0 % 9.9 %
 
Other
US N/A N/A
Europe N/A N/A
Rest of World 0.8 0.7 N/A N/A
Total 0.8 0.7 N/A N/A
 
Total
US 266.1 239.2 11.2 % 11.2 %
Europe 119.4 103.0 15.8 % 4.7 %
Rest of World 152.4 140.4 8.6 % 4.6 %
Total $537.9 $482.7 11.4 % 7.9 %
* The sales results presented are unaudited. Numbers may not add up
precisely due to rounding.
 
(1) 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 PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(U.S. dollars in millions, except per share amounts)
           
Three Months Ended June 30,
2018   2017 % Change (1)
 
Net sales $287.5 $255.8
Cost of sales 92.0 84.0
Product remediation 1.5   1.7    
Gross profit 194.0   170.1   14.1 %
 
Operating expenses:
Selling, general and administrative 123.4 94.3
Research and development 34.2 33.8
Merger and integration expenses 4.4 3.5
Restructuring expenses 0.5 2.6
Amortization of intangibles 9.8   8.1    
Total operating expenses 172.4   142.3   21.2 %
     
Operating income from continuing operations 21.6   27.8   (22.3 %)
 
Interest expense, net (2.8 ) (1.3 )
Gain on acquisition 39.4
Foreign exchange and other losses (0.1 ) (2.8 )  
Income from continuing operations before tax 18.8   63.0   (70.2 %)
 
Income tax (benefit) expense (1.0 ) 3.3
Losses from equity method investments (0.3 ) (14.1 )  
Net income from continuing operations 19.5   45.7   (57.3 %)
     
Net (loss) income from discontinued operations (4.5 ) 1.8    
     
Net income $15.1   $47.5   (68.2 %)
 
Basic income (loss) per common share:
Continuing operations $0.40 $0.95
Discontinued operations ($0.09 ) $0.04  
$0.31   $0.99  
 
Diluted income (loss) per common share:
Continuing operations $0.40 $0.95
Discontinued operations ($0.09 ) $0.03  
$0.31   $0.98  
 
Weighted average common shares outstanding
Basic 48.5 48.1
Diluted 49.3 48.3
 
Adjusted gross profit (1) $196.5 $173.0 13.6 %
Adjusted SG&A (1) 104.1 86.0 21.0 %
Adjusted R&D (1) 32.5 22.7 43.2 %
Adjusted operating income from continuing operations (1) 59.9 64.3 (6.8 %)
Adjusted income from continuing operations, net of tax (1) 47.5 44.8 6.0 %
Adjusted diluted earnings per share from continuing operations (1) $0.96 $0.93 3.2 %
 
 
Statistics (as a % of net sales, except for income tax rate)
           
GAAP Three Months Ended June 30, Adjusted (1) Three Months Ended June 30,
2018     2017 2018 2017
Gross profit 67.5 % 66.5 % 68.3 % 67.6 %
SG&A 42.9 % 36.8 % 36.2 % 33.6 %
R&D 11.9 % 13.2 % 11.3 % 8.9 %
Operating income from continuing operations 7.5 % 10.9 % 20.8 % 25.1 %
Income from continuing operations, net of tax 6.8 % 17.9 % 16.5 % 17.5 %
Income tax rate (5.5 %) 5.2 % 17.4 % 24.0 %

(1)

   

Adjusted financial measures are Non-GAAP measures and exclude
specified items as described and reconciled in the "Reconciliation
of GAAP to non-GAAP Financial Measures" contained in the press
release.

 

*

Numbers may not add up precisely due to rounding.

 
 
LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(U.S. dollars in millions, except per share amounts)
           
Six Months Ended June 30,
2018 2017 % Change(1)
 
Net sales $537.9 $482.7
Cost of sales 176.6 164.0
Product remediation 5.3   0.9    
Gross profit 356.0   317.7   12.1 %
 
Operating expenses:
Selling, general and administrative 227.6 181.6
Research and development 66.0 54.2
Merger and integration expenses 7.4 5.7
Restructuring expenses 2.4 12.6
Amortization of intangibles 18.6   16.1    
Total operating expenses 321.9   270.2   19.1 %
     
Operating income from continuing operations 34.1   47.5   (28.2 %)
 
Interest expense, net (4.4 ) (3.4 )
Gain on acquisitions 11.5 39.4
Foreign exchange and other (losses) gains (0.3 ) 0.3    
Income from continuing operations before tax 40.8   83.9   (51.4 %)
 
Income tax expense 2.9 8.9
Losses from equity method investments (0.6 ) (16.1 )  
Net income from continuing operations 37.4   58.9   (36.5 %)
     
Net loss from discontinued operations (9.0 ) (0.1 )  
     
Net income $28.3   $58.8   (51.9 %)
 
Basic income (loss) per common share:
Continuing operations $0.77 $1.22
Discontinued operations ($0.18 ) $—  
$0.59   $1.22  
 
Diluted income (loss) per common share:
Continuing operations $0.76 $1.22
Discontinued operations ($0.18 ) $—  
$0.58   $1.22  
 
Weighted average common shares outstanding
Basic 48.4 48.1
Diluted 49.3 48.2
 
Adjusted gross profit (1) $363.9 $321.0 13.4 %
Adjusted SG&A (1) 200.9 167.9 19.7 %
Adjusted R&D (1) 61.6 42.9 43.6 %
Adjusted operating income from continuing operations (1) 101.4 110.2 (8.0 %)
Adjusted income from continuing operations, net of tax (1) 81.1 77.2 5.1 %
Adjusted diluted earnings per share from continuing operations (1) $1.65 $1.60 3.1 %
 
 
Statistics (as a % of net sales, except for income tax rate)
           
GAAP Six Months Ended June 30, Adjusted (1) Six Months Ended June 30,
2018     2017 2018 2017
Gross profit 66.2 % 65.8 % 67.7 % 66.5 %
SG&A 42.3 % 37.6 % 37.4 % 34.8 %
R&D 12.3 % 11.2 % 11.5 % 8.9 %
Operating income from continuing operations 6.3 % 9.8 % 18.8 % 22.8 %
Income from continuing operations, net of tax 6.9 % 12.2 % 15.1 % 16.0 %
Income tax rate 7.0 % 10.6 % 16.7 % 23.8 %
(1)     Adjusted financial measures are Non-GAAP measures and exclude
specified items as described and reconciled in the "Reconciliation
of GAAP to non-GAAP Financial Measures" contained in the press
release.
 
* Numbers may not add up precisely due to rounding.
 
 
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - UNAUDITED
(U.S. dollars in millions, except per share amounts)
        Specified Items    
Three Months Ended June 30, 2018    

GAAP
Financial
Measures

   

Merger
and
Integration
Expenses
(A)

   

Restructuring
Expenses
(B)

   

Depreciation
and
Amortization
Expenses
(C)

   

Product
Remediation
Expenses
(D)

   

Acquisition
Costs
(E)

   

CRM
Disposal
Costs
(F)

   

Non-
recurring
Legal and
Contingent
Consideration
(G)

   

Stock-based
Compensation
Costs
(H)

   

Certain Tax
Adjustments
(I)

   

Certain
Interest
Adjustments
(J)

   

Adjusted
Financial
Measures

Net sales $287.5                                     $287.5
Cost of sales 92.0 (4.9 ) (0.1 ) 4.2 (0.2 ) 91.0
Product remediation 1.5                         (1.5 )                                          

Gross profit

194.0 4.9 1.5 0.1 (4.2 ) 0.2 196.5
Operating expenses:
Selling, general and administrative 123.4 (0.1 ) (3.4 ) (1.2 ) (8.6 ) (6.0 ) 104.1
Research and development 34.2 (0.1 ) (2.4 ) 2.1 (1.3 ) 32.5
Merger and integration expenses 4.4 (4.4 )
Restructuring expenses 0.5 (0.5 )
Amortization of intangibles 9.8                   (9.8 )                                                
Total operating expenses 172.4       (4.4 )     (0.5 )     (10.0 )           (5.8 )     (1.2 )     (6.5 )     (7.3 )                 136.6  
Operating income from continuing operations 21.6 4.4 0.5 14.9 1.5 5.9 1.2 2.3 7.5 59.9
Interest income 0.2 0.2
Interest expense (3.0 ) 0.8 (2.2 )
Foreign exchange and other losses (0.1 )                                                                 (0.1 )
Income from continuing operations before tax 18.8 4.4 0.5 14.9 1.5 5.9 1.2 2.3 7.5 0.8 57.8
Income tax (benefit) expense (1.0 ) 1.1 0.1 3.3 0.4 1.4 0.4 2.6 1.5 0.4 0.2 10.1
Losses from equity method investments (0.3 )                                                                 (0.3 )
Net income from continuing operations $19.5       $3.3       $0.4       $11.6       $1.2       $4.5       $0.9       ($0.2 )     $6.0       ($0.4 )     $0.6     $47.5  
Diluted EPS - Continuing Operations $0.40 $0.07 $0.01 $0.24 $0.02 $0.09 $0.02 $0.00 $0.12 ($0.01 ) $0.01 $0.96
GAAP results for the three months ended June 30, 2018 include:
(A)     Merger and integration expenses related to our legacy companies
(B) Restructuring expenses related to organizational changes
(C) Includes depreciation and amortization associated with purchase
price accounting
(D) Costs related to the 3T Heater-Cooler remediation plan
(E) Costs related to acquisitions
(F) Corporate costs incurred to divest of the CRM business not
attributable to discontinued operations
(G) Contingent consideration related to acquisitions and legal expenses
primarily related to 3T Heater-Cooler defense and other matters
(H) Non-cash expenses associated with stock-based compensation costs
(I) Primarily relates to discrete tax items and the tax impact of
intercompany transactions
(J) Primarily relates to intellectual property migration and other
non-recurring impacts to interest expense
* Numbers may not add up precisely due to rounding.
 
 
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - UNAUDITED
(U.S. dollars in millions, except per share amounts)
        Specified Items    
Three Months Ended June 30, 2017    

GAAP
Financial
Measures

   

Merger and
Integration
Expenses
(A)

   

Restructuring
Expenses
(B)

   

Depreciation
and
Amortization
Expenses
(C)

   

Product
Remediation
Expenses
(D)

   

Acquisition
Costs
(E)

   

Impairment
(F)

   

Non-recurring
Legal and
Contingent
Consideration
(G)

   

Stock-based
Compensation
Costs
(H)

   

Certain Tax
Adjustments
(I)

   

Certain
Interest
Adjustments
(J)

   

Adjusted
Financial
Measures

Net sales $255.8                                     $255.8
Cost of sales 84.0 (0.9 ) (0.2 ) (0.1 ) 82.8
Product remediation 1.7                         (1.7 )                                          
Gross profit 170.1 0.9 1.7 0.2 0.1 173.0
Operating expenses:
Selling, general and administrative 94.3 (0.2 ) (3.9 ) (4.1 ) 86.0
Research and development 33.8 (10.9 ) (0.3 ) 22.7
Merger and integration expenses 3.5 (2.5 ) (1.0 )
Restructuring expenses 2.6 (2.6 )
Amortization of intangibles 8.1                   (8.1 )                                                
Total operating expenses 142.3       (2.5 )     (2.6 )     (8.4 )           (11.8 )           (3.9 )     (4.4 )                 108.7  
Operating income from continuing operations 27.8 2.5 2.6 9.3 1.7 12.1 3.9 4.5 64.3
Interest income 0.3 0.3
Interest expense (1.6 ) 0.2 (1.4 )
Gain on acquisition of Caisson Interventional, LLC 39.4 (39.4 )
Foreign exchange and other losses (2.8 )                                                                 (2.8 )
Income from continuing operations before tax 63.0 2.5 2.6 9.3 1.7 (27.4 ) 3.9 4.5 0.2 60.4
Income tax expense 3.3 0.6 0.9 2.7 0.5 2.7 1.2 0.9 1.1 0.6 14.5
Losses from equity method investments (14.1 )                                   13.0                             (1.1 )
Net income from continuing operations $45.7       $2.0       $1.7       $6.7       $1.2       ($30.1 )     $13.0     $2.7       $3.6       ($1.1 )     ($0.4 )     $44.8  
Diluted EPS - Continuing Operations $0.95 $0.04 $0.04 $0.14 $0.02 ($0.62 ) $0.27 $0.06 $0.07 ($0.03 ) ($0.01 ) $0.93
GAAP results for the three months ended June 30, 2017 include:
(A)     Merger and integration expenses related to our legacy companies
(B) Restructuring expenses related to organizational changes
(C) Includes depreciation and amortization associated with purchase
price accounting
(D) Costs related to the 3T Heater-Cooler remediation plan
(E) Caisson-related acquisition costs and gain on acquisition
(F) Impairment of an equity-method investment, Highlife
(G) Contingent consideration related to acquisitions, legal expenses
primarily related to 3T Heater-Cooler defense and other matters
(H) Non-cash expenses associated with stock-based compensation costs
(I) Primarily relates to discrete tax items and the tax impact of
intercompany transactions
(J) Primarily relates to intellectual property migration and other
non-recurring impacts to interest expense
* Numbers may not add up precisely due to rounding.
 
 
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - UNAUDITED
(U.S. dollars in millions, except per share amounts)
        Specified Items    
Six Months Ended June 30, 2018    

GAAP
Financial
Measures

   

Merger
and
Integration
Expenses
(A)

   

Restructuring
Expenses
(B)

   

Depreciation
and
Amortization
Expenses
(C)

   

Product
Remediation
Expenses
(D)

   

Acquisition
Costs
(E)

   

CRM
Disposal
Costs
(F)

   

Non-
recurring
Legal and
Contingent
Consideration
(G)

   

Stock-based
Compensation
Costs
(H)

   

Certain Tax
Adjustments
(I)

   

Certain
Interest
Adjustments
(J)

   

Adjusted
Financial
Measures

Net sales $537.9                                     $537.9
Cost of sales 176.6 (5.7 ) (0.1 ) 3.6 (0.5 ) 174.0
Product remediation 5.3                         (5.3 )                                          
Gross profit 356.0 5.7 5.3 0.1 (3.6 ) 0.5 363.9
Operating expenses:
Selling, general and administrative 227.6 (0.3 ) (3.8 ) (1.9 ) (11.4 ) (9.3 ) 200.9
Research and development 66.0 (0.1 ) (3.7 ) 1.9 (2.4 ) 61.6
Merger and integration expenses 7.4 (7.4 )
Restructuring expenses 2.4 (2.4 )
Amortization of intangibles 18.6                   (18.6 )                                                
Total operating expenses 321.9       (7.4 )     (2.4 )     (19.1 )           (7.5 )     (1.9 )     (9.5 )     (11.7 )                 262.5  
Operating income from continuing operations 34.1 7.4 2.4 24.7 5.3 7.6 1.9 6.0 12.2 101.4
Interest income 0.7 0.7
Interest expense (5.1 ) 1.5 (3.6 )
Gain on acquisition of ImThera Medical, Inc. 11.5 (11.5 )
Foreign exchange and other losses (0.3 )                                                                 (0.3 )
Income from continuing operations before tax 40.8 7.4 2.4 24.7 5.3 (3.9 ) 1.9 6.0 12.2 1.5 98.1
Income tax expense 2.9 1.7 0.5 5.7 1.2 1.8 0.6 3.4 2.6 (4.4 ) 0.4 16.4
Losses from equity method investments (0.6 )                                                                 (0.6 )
Net income from continuing operations $37.4       $5.7       $1.9       $19.0       $4.0       ($5.7 )     $1.2       $2.5       $9.5       $4.4       $1.1     $81.1  
Diluted EPS - Continuing Operations $0.76 $0.12 $0.04 $0.39 $0.08 ($0.12 ) $0.03 $0.05 $0.19 $0.09 $0.02 $1.65
GAAP results for the six months ended June 30, 2018 include:
(A)     Merger and integration expenses related to our legacy companies
(B) Restructuring expenses related to organizational changes
(C) Includes depreciation and amortization associated with purchase
price accounting
(D) Costs related to the 3T Heater-Cooler remediation plan
(E) Costs related to acquisitions
(F) Corporate costs incurred to divest of the CRM business not
attributable to discontinued operations
(G) Contingent consideration related to acquisitions and legal expenses
primarily related to 3T Heater-Cooler defense and other matters
(H) Non-cash expenses associated with stock-based compensation costs
(I) Primarily relates to discrete tax items and the tax impact of
intercompany transactions
(J) Primarily related to intellectual property migration and other
non-recurring impacts to interest expense
* Numbers may not add up precisely due to rounding.
 
 
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - UNAUDITED
(U.S. dollars in millions, except per share amounts)
        Specified Items    
Six Months Ended June 30, 2017    

GAAP
Financial
Measures

   

Merger and
Integration
Expenses
(A)

   

Restructuring
Expenses
(B)

   

Depreciation
and
Amortization
Expenses
(C)

   

Product
Remediation
Expenses
(D)

   

Acquisition
Costs
(E)

   

Impairment
(F)

   

Non-recurring
Legal and
Contingent
Consideration
(G)

   

Stock-based
Compensation
Costs
(H)

   

Certain Tax
Adjustments
(I)

   

Certain
Interest
Adjustments
(J)

   

Adjusted
Financial
Measures

Net sales $482.7                                     $482.7
Cost of sales 164.0 (2.0 ) (0.2 ) (0.1 ) 161.6
Product remediation 0.9                         (0.9 )                                          
Gross profit 317.7 2.0 0.9 0.2 0.1 321.0
Operating expenses:
Selling, general and administrative 181.6 (0.5 ) (5.4 ) (7.7 ) 167.9
Research and development 54.2 (0.1 ) (10.9 ) (0.4 ) 42.9
Merger and integration expenses 5.7 (4.7 ) (1.0 )
Restructuring expenses 12.6 (12.6 )
Amortization of intangibles 16.1                   (16.1 )                                                
Total operating expenses 270.2       (4.7 )     (12.6 )     (16.6 )           (11.8 )           (5.4 )     (8.2 )                 210.8  
Operating income from continuing operations 47.5 4.7 12.6 18.7 0.9 12.1 5.4 8.2 110.2
Interest income 0.5 0.5
Interest expense (3.9 ) 1.3 (2.6 )
Gain on acquisition of Caisson Interventional, LLC 39.4 (39.4 )
Foreign exchange and other gains (losses) 0.3                                           (3.2 )                       (2.9 )
Income from continuing operations before tax 83.9 4.7 12.6 18.7 0.9 (27.4 ) 2.2 8.2 1.3 105.2
Income tax expense 8.9 1.1 2.2 7.5 0.3 2.7 1.8 1.5 (1.5 ) 0.6 25.1
Losses from equity method investments (16.1 )                 0.1                   13.0                             (3.0 )
Net income from continuing operations $58.9       $3.6       $10.4       $11.3       $0.7       ($30.1 )     $13.0     $0.5       $6.7       $1.5       $0.7     $77.2  
Diluted EPS - Continuing Operations $1.22 $0.07 $0.22 $0.23 $0.01 ($0.62 ) $0.27 $0.01 $0.14 $0.03 $0.01 $1.60
GAAP results for the six months ended June 30, 2017 include:
(A)     Merger and integration expenses related to our legacy companies
(B) Restructuring expenses related to organizational changes
(C) Includes depreciation and amortization associated with purchase
price accounting
(D) Costs related to the 3T Heater-Cooler remediation plan
(E) Caisson-related acquisition costs and gain on acquisition
(F) Impairment of an equity-method investment, Highlife
(G) Contingent consideration related to acquisitions, legal expenses
primarily related to 3T Heater-Cooler defense, gain on sale of
Instituto Europeo di Oncologia S.R.L. and other matters
(H) Non-cash expenses associated with stock-based compensation costs
(I) Primarily relates to discrete tax items and the tax impact of
intercompany transactions
(J) Primarily relates to intellectual property migration and other
non-recurring impacts to interest expense
* Numbers may not add up precisely due to rounding.
 
 
LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(U.S. dollars in millions)
       
June 30, 2018 December 31, 2017
ASSETS
Current Assets:
Cash and cash equivalents $47.4 $93.6
Accounts receivable, net 261.9 282.1
Inventories 157.8 144.5
Prepaid and refundable taxes 51.9 46.3
Assets held for sale 13.6
Assets of discontinued operations 250.7
Prepaid expenses and other current assets 35.6 39.0
Total Current Assets 554.7 869.9
Property, plant and equipment, net 186.2 192.4
Goodwill 965.7 784.2
Intangible assets, net 798.4 535.4
Investments 21.1 34.5
Deferred tax assets, net 65.5 11.6
Other assets 5.5 76.0
Total Assets $2,597.1 $2,503.9
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current debt obligations $110.6 $84.0
Accounts payable 86.9 85.9
Accrued liabilities and other 86.2 78.9
Taxes payable 23.1 12.8
Accrued employee compensation and related benefits 61.3 66.2
Liabilities of discontinued operations 78.1
Total Current Liabilities 368.0 406.0
Long-term debt obligations 50.4 62.0
Contingent consideration 178.4 34.0
Deferred income taxes liability 154.4 123.3
Long-term employee compensation and related benefits 29.3 28.2
Other long-term liabilities 33.5 35.1
Total Liabilities 814.1 688.6
Total Stockholders' Equity 1,783.0 1,815.3
Total Liabilities and Stockholders' Equity $2,597.1 $2,503.9
* Numbers may not add up precisely due to rounding.
 
 
LIVANOVA PLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED
(U.S. dollars in millions)
    Six Months Ended June 30,
Operating Activities: 2018     2017
Net income $28.3 $58.8
Non-cash items included in net income:
Depreciation 16.6 18.0
Amortization 18.6 23.1
Stock-based compensation 14.2 8.6
Deferred income tax benefit (9.9 ) (19.8 )
Losses from equity method investments 1.8 18.5
Gain on acquisitions (11.5 ) (39.4 )
Impairment of property, plant and equipment 0.5 4.6
Amortization of income taxes payable on inter-company transfers of
property
5.2 17.8
Remeasurement of contingent consideration to fair value (5.5 ) 0.2
Other (0.9 ) 1.7
Changes in operating assets and liabilities:
Accounts receivable, net 21.8 (15.9 )
Inventories (11.3 ) (6.9 )
Other current and non-current assets (15.8 ) (13.9 )
Accounts payable and accrued current and non-current liabilities (3.9 ) (12.4 )
Restructuring reserve 0.3   (11.1 )
Net cash provided by operating activities 48.5   31.6  
 
Investing Activities:
Acquisitions, net of cash acquired (279.9 ) (14.2 )
Purchases of property, plant and equipment and other (13.2 ) (14.9 )
Proceeds from the sale of CRM business franchise 186.7
Proceeds from sale of cost-method investment 3.2
Loans to equity method investees (6.8 )
Proceeds from asset sales 13.2 5.2
Other   (0.1 )
Net cash used in investing activities (93.2 ) (27.7 )
 
Financing Activities:
Change in short-term borrowing, net (18.0 ) (12.8 )
Proceeds from short-term borrowing (maturities greater than 90 days) 240.0 20.0
Repayment of short-term borrowing (maturities greater than 90 days) (190.0 )
Repayment of long-term debt obligations (12.2 ) (11.3 )
Proceeds from exercise of stock options 2.7 2.4
Payment of deferred consideration - acquisition of Caisson
Interventional, LLC
(14.1 )
Shares repurchased from employees for minimum tax withholding (7.1 ) (1.6 )
Other (0.4 ) (0.1 )
Net cash provided by (used in) financing activities 0.9   (3.4 )
 
Effect of exchange rate changes on cash and cash equivalents (2.5 ) 2.4  
Net (decrease) increase in cash and cash equivalents (46.2 ) 2.9
 
Cash and cash equivalents at beginning of period 93.6   39.8  
Cash and cash equivalents at end of period $47.4   $42.7  
* Numbers may not add up precisely due to rounding.
 
 
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - UNAUDITED

Three Months Ended
June 30, 2018

   

GAAP
Financial
Measure

   

Impact of
Foreign
Currency
Fluctuations

    Acquisitions    

Termination of
Contract
Manufacturing
Agreement

   

Adjusted
Financial
Measure
Underlying
Sales
Growth

Sales growth percent 12.4% (2.2%) (2.3%) 0.8% 8.7%

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