LivaNova (LIVN) Q4 2015 earnings summary

Executive summary

• Merger completed 19 Oct 2015, combining Neuromodulation, Cardiac Surgery and CRM; 2016 was planned as the first full year of combined operations.

• Transitional-period results cover Cyberonics from 25 Apr–31 Dec 2015 and Sorin only from 19 Oct–31 Dec 2015; management cautioned that comparisons are not comparable.

• Revenue was $415.7m; operating loss was $23.7m and net loss was $29.1m, including $72.2m of exceptional items.

Financial highlights

• Revenue $415.7m; gross profit $266.9m; operating profit before exceptional items $48.5m; reported operating loss $23.7m.

• Net loss attributable to owners was $29.1m; basic and diluted loss per share both $0.89.

• Exceptional items totaled $72.2m: merger costs $42.1m, integration $13.7m, restructuring $11.3m and Cerbomed impairment $5.1m.

• Adjusted for exceptional items, operating profit before those items was $48.5m; results also included $20.8m of cost-of-sales expense from acquisition inventory step-up amortization.

Outlook and guidance

• 2016 priorities: revenue growth in all three business units, delivery of merger synergies, operating-margin expansion adjusted for one-time costs and EPS growth.

• 2016 cost of sales as a percentage of revenue expected to be approximately in line with the transitional period; merger-related costs expected to fall significantly, while integration expenses remain material.

• CRM reorganisation expected to reduce workforce by ~140 positions and generate $16m–$21m of pre-tax, non-recurring cash charges in 2016.

• Existing cash, investments and expected operating cash generation were considered sufficient for operating needs, working capital, R&D, capital expenditure and debt service over the next 12 months.

• Longer-term growth platforms include heart failure, sleep apnea and mitral valve therapies; China regulatory activity for CRM joint venture and local Cardiac Surgery manufacturing was expected to complete in 2017.