v3.25.2
Derivatives and Risk Management
 6 Months Ended
Jun. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Risk Management
Note 2. Derivatives and Risk Management
Due to the global nature of LivaNova’s operations, the Company is exposed to FX fluctuations. LivaNova enters into FX derivative contracts to reduce the impact of FX fluctuations on earnings and cash flow.
LivaNova is also exposed to equity price risk in connection with its 2025 Notes and 2029 Notes, including exchange/conversion and settlement provisions based on the price of its ordinary shares at exchange/conversion or maturity of the 2025 Notes and 2029 Notes. The Capped Call Transactions associated with the 2025 Notes and 2029 Notes also include settlement provisions that are based on the price of LivaNova’s ordinary shares, subject to a capped price per share. LivaNova does not enter into derivative contracts for speculative purposes.
LivaNova measures all outstanding derivatives each period-end at fair value and reports the fair value as either financial assets or liabilities on the condensed consolidated balance sheets. At the inception of the contract, the derivative is designated as either a freestanding derivative or a hedge. Derivatives that are not designated as hedging instruments are referred to as freestanding derivatives, with changes in fair value included in earnings. These derivatives are intended to serve as economic hedges and follow the cash flows of the economic hedged item. The cash flows from these derivative contracts are reported as operating activities in LivaNova’s condensed consolidated statements of cash flows. LivaNova had no designated hedging instruments as of June 30, 2025 and December 31, 2024.
Freestanding FX Derivatives
The gross notional amount of freestanding FX derivative contracts not designated as hedging instruments outstanding as of June 30, 2025 and December 31, 2024 was $427.8 million and $442.3 million, respectively. These derivative contracts are designed to offset the FX effects in earnings of various intercompany loans and trade receivables. LivaNova recorded net gains of $15.0 million and $1.7 million for these freestanding derivatives for the three months ended June 30, 2025 and 2024, respectively. LivaNova recorded net gains of $25.4 million and $4.9 million for these freestanding derivatives for the six months ended June 30, 2025 and 2024, respectively. These amounts are included in foreign exchange and other income/(expense) in LivaNova’s condensed consolidated statements of income (loss).
Capped Call Derivatives
The Capped Call Transactions are carried on the condensed consolidated balance sheets as a derivative asset at their estimated fair value and are adjusted at the end of each reporting period, with unrealized gain or loss reflected in foreign exchange and other income/(expense) in the condensed consolidated statements of income (loss). The Capped Call Transactions are measured at fair value using the Black-Scholes model utilizing observable and unobservable market data, including stock price, remaining contractual term, expected volatility, risk-free interest rate, and expected dividend yield, as applicable. For additional information regarding the Capped Call Transactions, refer to LivaNova’s 2024 Form 10-K.
Embedded Derivatives
The 2025 Notes and 2029 Notes each include terms resulting in a bifurcated embedded derivative. The Embedded Derivatives are measured at fair value using a binomial lattice model and estimated discounted cash flows that utilize observable and unobservable market data and are adjusted at the end of each reporting period, with the unrealized gain or loss reflected in foreign exchange and other income/(expense) in the condensed consolidated statements of income (loss).
Counterparty Credit Risk
LivaNova is exposed to credit risk in the event of non-performance by the counterparties to the Company’s derivatives.
The Option Counterparties are financial institutions. To limit LivaNova’s credit risk, the Company selected financial institutions with a minimum long-term investment grade credit rating. LivaNova’s exposure to the credit risk of the Option Counterparties is not secured by any collateral. If one or more of the Option Counterparties becomes subject to insolvency proceedings, LivaNova will become an unsecured creditor in those proceedings, with a claim equal to the Company’s exposure at that time under the 2025 Capped Calls and/or 2029 Capped Calls, as applicable, with that Option Counterparty.
To manage credit risk with respect to LivaNova’s other derivatives, the Company selects and periodically reviews counterparties based on credit ratings, limits its exposure with respect to each counterparty, and monitors their respective market positions. However, if one or more of these counterparties were in a liability position to the Company and were unable to meet their obligations, any transactions with the counterparty could be subject to early termination, which could result in substantial losses for the Company.
Balance Sheet Presentation
LivaNova offsets fair value amounts associated with its derivative instruments that are executed with the same counterparty under master netting arrangements on the Company’s condensed consolidated balance sheets. Master netting arrangements include a right to set off or net together purchases and sales of similar products in the settlement process.
The following tables present the fair value and the location of derivative contracts reported on the condensed consolidated balance sheets (in thousands):
Derivative AssetsDerivative Liabilities
June 30, 2025Balance Sheet Location
Fair Value (1)
Balance Sheet Location
Fair Value (1)
Derivatives Not Designated as Hedging Instruments:
Capped call derivatives (2025 Notes)Prepaid expenses and other current assets$1,303 
Capped call derivatives (2029 Notes)Long-term derivative assets21,658 
Embedded derivative (2025 Notes)Accrued liabilities and other$1,363 
Embedded derivative (2029 Notes)Long-term derivative liabilities48,093 
FX derivative contractsPrepaid expenses and other current assets9,373 Accrued liabilities and other6 
Total derivatives not designated as hedging instruments$32,334 $49,462 
(1)For the classification of inputs used to evaluate the fair value of LivaNova’s derivatives, refer to “Note 3. Fair Value Measurements.”
Derivative AssetsDerivative Liabilities
December 31, 2024Balance Sheet Location
Fair Value (1)
Balance Sheet Location
Fair Value (1)
Derivatives Not Designated as Hedging Instruments:
Capped call derivatives (2025 Notes)Prepaid expenses and other current assets$2,624 
Capped call derivatives (2029 Notes)Long-term derivative assets23,735 
Embedded derivative (2025 Notes)Accrued liabilities and other$2,915 
Embedded derivative (2029 Notes)Long-term derivative liabilities51,819 
FX derivative contractsPrepaid expenses and other current assets738 
Total derivatives not designated as hedging instruments$27,097 $54,734 
(1)For the classification of inputs used to evaluate the fair value of LivaNova’s derivatives, refer to “Note 3. Fair Value Measurements.”