United States //   Endologix Reports Fourth Quarter & Fiscal Year 2019 Financial Results

Endologix Reports Fourth Quarter and Fiscal Year 2019 Financial Results

02/19/20

Endologix Reports Fourth Quarter and Fiscal Year 2019 Financial Results

IRVINE, Calif.--(BUSINESS WIRE)--Feb. 19, 2020-- Endologix, Inc. (the “Company”) (NASDAQ: ELGX), a developer and marketer of innovative treatments for aortic disorders, today announced financial results for the fourth quarter and fiscal year ended December 31, 2019.

Global revenue in the fourth quarter of 2019 was $35.8 million, a 3.0% increase from $34.7 million in the fourth quarter of 2018. For the year ended December 31, 2019, global revenue was $143.4 million, an 8.4% decrease from $156.5 million a year ago.

“I am very pleased with our performance in 2019, as we accomplished critical operational and financial goals necessary to help stabilize our business, build a foundation for sustainable growth, and maintain a path to positive operating cash flow by year-end 2021,” commented John Onopchenko, Chief Executive Officer of Endologix, Inc. “Led by recent stability in our AFX business, we have now achieved two consecutive quarters of year-over-year revenue growth. Furthermore, we significantly decreased our cash burn, and our disciplined approach to cost management enabled us to meaningfully reduce our overall annual operating expenses. We enter 2020 with many critical developments underway, including the anticipated completion of EVAS2 enrollment, the initiation of enrollment of our CHEVAS IDE, and the introduction of Alto, all of which will accelerate the momentum that we generated in 2019. We have an exciting year ahead of us, and I am confident that continued execution and commitment to our culture of accountability will enable us to achieve profitable long-term growth.”

Financial Results

U.S. revenue in the fourth quarter of 2019 was $24.4 million, a 1.5% increase from $24.0 million in the fourth quarter of 2018. For the year ended December 31, 2019, U.S. revenue was $95.3 million, a 12.6% decrease from $109.1 million a year ago.

International revenue in the fourth quarter of 2019 was $11.4 million, a 6.5% increase from $10.7 million in the fourth quarter of 2018. On a constant currency basis, international revenue increased 8.5% compared to the fourth quarter of 2018. For the year ended December 31, 2019, international revenue was $48.1 million, a 1.4% increase from $47.4 million a year ago. On a constant currency basis, international revenue increased 4.0% compared to the year ended December 31, 2018.

Gross profit was $21.8 million in the fourth quarter of 2019, representing a gross margin of 61.1%. This compares to a gross profit of $11.4 million, or a gross margin of 32.8%, in the fourth quarter of 2018.

Gross profit in the fourth quarter of 2018 was negatively impacted by the approximately $8.7 million write-off of inventory reserves related to the voluntary recall of Nellix systems. Excluding this impact, gross margin was 57.8% in the fourth quarter of 2018. For the year ended December 31, 2019, gross profit was $91.1 million, representing a gross margin of 63.5%. This compares to a gross profit of $91.9 million, or a gross margin of 58.7%, for the year ended December 31, 2018. Excluding the impact of previously mentioned Nellix inventory reserves, fiscal year 2018 gross margin was 64.3%.

Total operating expenses in the fourth quarter of 2019 were $31.7 million, a 9.6% decrease from $35.1 million in the fourth quarter of 2018. Fourth quarter 2019 operating expenses included $0.4 million of costs associated with restructuring, while fourth quarter of 2018 operating expenses included $2.0 million of costs associated with restructuring and contract termination, product withdrawal, and business acquisition expenses. Excluding these items, operating expenses decreased 5.4% compared to the fourth quarter of 2018. For the year ended December 31, 2019, total operating expenses were $133.6 million, a 16.5% decrease from $160.1 million a year ago.

Net Loss for the fourth quarter of 2019 was $7.8 million, or $(0.40) per share, compared to a Net Loss of $26.0 million, or $(2.65) per share, a year ago. Adjusted Net Loss (non-GAAP measure, defined below) totaled $8.1 million, compared to an Adjusted Net Loss of $21.3 million for the fourth quarter of 2018. Adjusted EBITDA loss (non-GAAP measure, defined below) totaled $5.2 million for the fourth quarter of 2019, compared to Adjusted EBITDA loss of $17.0 million a year ago.

Net Loss for the year ended December 31, 2019 was $64.8 million, or $(3.84) per share, compared to a Net Loss of $79.7 million, or $(9.07) per share, a year ago. Adjusted Net Loss totaled $36.9 million, compared to an Adjusted Net Loss of $62.7 million for the year ended December 31, 2018. Adjusted EBITDA loss totaled $23.9 million for the year ended December 31, 2019, compared to Adjusted EBITDA loss of $43.4 million a year ago.

Total cash, cash equivalents and restricted cash were $42.8 million as of December 31, 2019, compared to $24.7 million as of December 31, 2018.

Fiscal Year 2020 Financial Guidance

The Company expects 2020 revenue of at least $145 million and anticipates 2020 operating expenses to be approximately $130 million.

Conference Call Information

The Company's management will host a conference call today at 4:30 p.m. ET (1:30 p.m. PT) to discuss its fourth quarter and fiscal year 2019 results.

To participate in the conference call, dial 888-254-3590 (domestic) or +1 323-994-2093 (international) and refer to the passcode 2044596.

This conference call will also be webcast and can be accessed from the “Investors” section of the Company’s website at www.endologix.com. The webcast replay of the call will be available at the same site approximately one hour after the end of the call.

A recording of the call will also be available from 7:30 p.m. ET on Wednesday, February 19, 2020, until 11:59 p.m. ET on Wednesday, February 26, 2020. To hear this recording, dial 844-512-2921 (domestic) or 412-317-6671 (international) and enter the passcode 2044596.

About Endologix, Inc.

The Company develops and manufactures minimally invasive treatments for aortic disorders. The Company's focus is in endovascular stent grafts for the treatment of abdominal aortic aneurysms (AAA). AAA is a weakening of the wall of the aorta, the largest artery in the body, resulting in a balloon-like enlargement. Once an AAA develops, it continues to enlarge and, if left untreated, becomes increasingly susceptible to rupture. The overall patient mortality rate for ruptured AAA is approximately 80%, making it a leading cause of death in the U.S. For more information, visit www.endologix.com.

The Nellix® EndoVascular Aneurysm Sealing System and Ovation Alto® Abdominal Stent Graft System, the Company's next generation Ovation system device, are approved only as investigational devices and are not currently approved for commercial purposes in any market.

Cautionary Note Regarding Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified by the use of words such as “anticipate,” “expect,” “could,” “may,” “will,” “believe,” “estimate,” “forecast,” “goal,” “project,” “continue,” “outlook,” “guidance,” “future,” other words of similar meaning and the use of future dates. Forward-looking statements include all statements other than statements of historical fact contained in this press release, including statements regarding maintaining a path to being operating cash flow positive by year end 2021; upcoming anticipated completion of EVAS2 enrollment, initiation of enrollment of the Company's CHEVAS IDE, and the introduction of Alto (and the acceleration of the Company’s momentum resulting therefrom); the Company’s confidence that continued execution and commitment to its culture of accountability will enable it to achieve, profitable, long-term growth; and the Company’s FY 2020 revenue guidance and its anticipated FY 2020 operating expense, the accuracy of which are necessarily subject to risks and uncertainties that may cause the Company’s actual results to differ materially and adversely from the statements contained herein. Some of the potential risks and uncertainties that could cause actual results to differ materially and adversely from anticipated results include continued market acceptance, endorsement and use of the Company’s products, the Company’s continued compliance with its financial covenants and other operating restrictions under its lending facilities, the Company’s ability to access the capital markets on terms acceptable to it or at all, the Company’s abilities to service its indebtedness and to satisfy and discharge its indebtedness as such indebtedness comes due, the success of clinical trials relating to the Company’s products, product research and development efforts, uncertainty in the process of obtaining and maintaining regulatory approval for the Company’s products, the Company's ability to protect its intellectual property rights and proprietary technologies, the Company’s ability to retain its key executive, sales and other personnel, and other economic, business, competitive, and regulatory factors. Forward-looking statements represent management’s current expectations and predictions about trends affecting the Company's business and industry and are based on information available as of the time such statements are made. The forward-looking statements contained in this press release speak only as of the date of this press release. The Company undertakes no obligation to update any forward- looking statements contained in this press release to reflect new information, events or circumstances after the date they are made, or to reflect the occurrence of unanticipated events. Please refer to the Company’s filings with the Securities and Exchange Commission including its Annual Report on Form 10-K for the year ended December 31, 2018 and subsequent Quarterly Reports on Form 10-Q for more detailed information regarding these risks and uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements.

Discussion of Non-GAAP Financial Measures

The Company’s management believes that the non-GAAP measures of (1) “Adjusted Net Income (Loss)” and (2) “Adjusted EBITDA” enhance an investor’s overall understanding of the Company’s financial and operating performance and its future prospects by (i) being more reflective of core operating performance and (ii) being more comparable with financial results over various periods. These measures, when used in conjunction with related financial measures calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), provide investors with an additional financial analytical framework that may be useful in assessing the Company’s financial condition and results of operations. The Company’s management uses these financial measures for strategic decision making, forecasting future financial results, and evaluating current period financial and operating performance. The presentation of non-GAAP financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. Furthermore, these measures are not intended to be liquidity measures. Other companies, including other companies in the Company’s industry, may not use these measures or may calculate these measures differently than the Company does, limiting their usefulness as comparative measures. The Company intends to calculate these non-GAAP financial measures in a consistent manner from period to period. A reconciliation of each of the non-GAAP financial measures to the most directly comparable GAAP measures has been provided under the heading “Non-GAAP Reconciliations” in the financial statement tables attached to this press release.

Adjusted Net Income (Loss) Definition:

(1) “Adjusted Net Income (Loss)” is a non-GAAP measure defined by the Company as net income (loss) under GAAP, excluding (to the extent relevant in a particular reporting period): (i) restructuring and other transition costs; (ii) contract termination, product withdrawal and business acquisition expenses; (iii) legal settlement costs; (iv) business development expenses, including licensing costs related to research and development activities; (v) inventory step-up amortization; (vi) interest expense; (vii) foreign currency loss (gain); (viii) fair value adjustment to Nellix® contingent consideration liability; (ix) fair value adjustment of derivative liabilities; and (x) loss on debt extinguishment.

In the three and twelve months ended December 31, 2019 and 2018, this GAAP adjustment to net loss specifically represents: (i) restructuring and other transition costs; (ii) contract termination, product withdrawal and business acquisition expenses; (iii) interest expense; (iv) foreign currency loss (gain); (v) fair value adjustment to Nellix® contingent consideration liability; (vi) fair value adjustment of derivative liabilities; and (vii) loss on debt extinguishment.

Adjusted EBITDA Definition:

(2) “Adjusted EBITDA” is a non-GAAP measure defined by the Company as “Adjusted Net Income (Loss)” excluding income tax (benefit) expense, depreciation and amortization expense, and stock-based compensation expense.

ENDOLOGIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

Unaudited

(In thousands, except per share amounts)

 

 

 

 

 

Quarter Ended

 

Year Ended

 

December 31,

 

December 31,

 

2019

 

2018

 

2019

 

2018

Revenue

 

 

 

 

 

 

 

U.S.

$

24,401

 

 

$

24,033

 

 

$

95,316

 

 

$

109,093

 

International

11,350

 

 

10,660

 

 

48,054

 

 

47,380

 

Total Revenue

35,751

 

 

34,693

 

 

143,370

 

 

156,473

 

Cost of goods sold

13,922

 

 

23,327

 

 

52,284

 

 

64,550

 

Gross profit

21,829

 

 

11,366

 

 

91,086

 

 

91,923

 

Gross margin

61.1

%

 

32.8

%

 

63.5

%

 

58.7

%

Operating expenses:

 

 

 

 

 

 

 

Research and development

4,317

 

 

4,013

 

 

18,104

 

 

20,793

 

Clinical and regulatory affairs

2,972

 

 

3,344

 

 

14,036

 

 

13,851

 

Marketing and sales

15,887

 

 

16,942

 

 

64,673

 

 

76,855

 

General and administrative

8,092

 

 

8,756

 

 

35,984

 

 

43,477

 

Restructuring costs

419

 

 

138

 

 

838

 

 

3,270

 

Contract termination, product withdrawal and business acquisition expenses

 

 

1,869

 

 

 

 

1,869

 

Total operating expenses

31,687

 

 

35,062

 

 

133,635

 

 

160,115

 

Loss from operations

(9,858

)

 

(23,696

)

 

(42,549

)

 

(68,192

)

Other expense, net

(8,175

)

 

(8,844

)

 

(34,590

)

 

(28,165

)

Change in fair value of contingent consideration related to acquisition

800

 

 

2,800

 

 

1,700

 

 

7,100

 

Loss on debt extinguishment

 

 

 

 

(11,756

)

 

(2,270

)

Change in fair value of derivative liabilities

8,173

 

 

3,792

 

 

17,713

 

 

12,097

 

Total other income (expense), net

798

 

 

(2,252

)

 

(26,933

)

 

(11,238

)

Net loss before income taxes

(9,060

)

 

(25,948

)

 

(69,482

)

 

(79,430

)

Income tax (expense) benefit

1,230

 

 

(7

)

 

4,725

 

 

(284

)

Net loss

$

(7,830

)

 

$

(25,955

)

 

$

(64,757

)

 

$

(79,714

)

 

 

 

 

 

 

 

 

Comprehensive loss, net of taxes:

 

 

 

 

 

 

 

Net loss

$

(7,830

)

 

$

(25,955

)

 

$

(64,757

)

 

$

(79,714

)

Other comprehensive loss on foreign currency translation

(653

)

 

(100

)

 

(772

)

 

(747

)

Comprehensive loss

$

(8,483

)

 

$

(26,055

)

 

$

(65,529

)

 

$

(80,461

)

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

$

(0.40

)

 

$

(2.65

)

 

$

(3.84

)

 

$

(9.07

)

Shares used in computing basic and diluted net loss per share

19,509

 

 

9,803

 

16,850

 

 

8,790

Non-GAAP Reconciliations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

Year Ended

 

December 31,

 

December 31,

 

2019

 

2018

 

2019

 

2018

Net Loss to Adjusted Net Loss

 

 

 

 

 

 

 

Net loss

$

(7,830

)

 

$

(25,955

)

 

$

(64,757

)

 

$

(79,714

)

Restructuring and other transition costs

433

 

 

406

 

 

852

 

 

3,710

 

Contract termination, product withdrawal and business acquisition expenses

 

 

1,869

 

 

 

 

1,869

 

Interest expense

9,099

 

 

8,763

 

 

34,973

 

 

27,658

 

Foreign currency (gain) loss

(878

)

 

247

 

 

(330

)

 

711

 

Fair value adjustment to Nellix® contingent consideration liability

(800

)

 

(2,800

)

 

(1,700

)

 

(7,100

)

Fair value adjustment of derivative liabilities

(8,173

)

 

(3,792

)

 

(17,713

)

 

(12,097

)

Loss on extinguishment of debt

$

 

 

$

 

 

$

11,756

 

 

$

2,270

 

(1) Adjusted Net Loss

$

(8,149

)

 

$

(21,262

)

 

$

(36,919

)

 

$

(62,693

)

 

 

 

 

 

 

 

 

Adjusted Net Loss to Adjusted EBITDA:

 

 

 

 

 

 

 

Adjusted Net Loss

$

(8,149

)

 

$

(21,262

)

 

$

(36,919

)

 

$

(62,693

)

Income tax (benefit) expense

(1,230

)

 

7

 

 

(4,725

)

 

284

 

Depreciation and amortization

1,626

 

 

2,063

 

 

$

6,890

 

 

7,982

 

Stock-based compensation

2,555

 

 

2,219

 

 

10,849

 

 

11,030

 

(2) Adjusted EBITDA

$

(5,198

)

 

$

(16,973

)

 

$

(23,905

)

 

$

(43,397

)

ENDOLOGIX, INC.

CONSOLIDATED BALANCE SHEETS

Unaudited

(In thousands, except share and per share amounts)

 

 

December 31,

 

2019

 

2018

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

41,560

 

 

$

23,531

 

Restricted cash

1,200

 

 

1,200

 

Accounts receivable, net of allowance for doubtful accounts of $1,317 and $802, respectively

22,392

 

 

20,651

 

Other receivables

282

 

 

329

 

Inventories

26,405

 

 

30,399

 

Prepaid expenses and other current assets

1,864

 

 

2,821

 

Total current assets

93,703

 

 

78,931

 

Property and equipment, net

13,152

 

 

16,033

 

Goodwill

120,814

 

 

120,848

 

Other intangible assets, net

72,603

 

 

76,163

 

Deposits and other assets

1,124

 

 

1,095

 

Operating lease right-of-use assets

5,768

 

 

 

Total assets

$

307,164

 

 

$

293,070

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

14,024

 

 

$

10,986

 

Accrued payroll

18,232

 

 

14,627

 

Accrued expenses and other current liabilities

12,931

 

 

13,314

 

Current portion of debt

10,606

 

 

 

Total current liabilities

55,793

 

 

38,927

 

Deferred income taxes

150

 

 

150

 

Deferred rent

 

 

8,065

 

Operating lease liabilities

11,621

 

 

 

Derivative liabilities

940

 

 

4,012

 

Other liabilities

2,244

 

 

1,992

 

Contingently issuable common stock

500

 

 

2,200

 

Debt

172,060

 

 

198,078

 

Total liabilities

243,308

 

 

253,424

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Convertible preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding

 

 

 

Common stock, $0.001 par value, 170,000,000 shares authorized, 18,190,054 and 10,387,926 shares issued, respectively, 18,098,464 and 10,345,367 shares outstanding, respectively

18

 

 

10

 

Treasury stock, at cost, 91,590 and 42,559 shares, respectively

(4,235

)

 

(4,026

)

Additional paid-in capital

730,729

 

 

640,789

 

Accumulated deficit

(664,472

)

 

(599,715

)

Accumulated other comprehensive income

1,816

 

 

2,588

 

Total stockholders’ equity

63,856

 

 

39,646

 

Total liabilities and stockholders’ equity

$

307,164

 

 

$

293,070

 

 

Source: Endologix, Inc.

INVESTOR CONTACT:
Endologix, Inc.
Vaseem Mahboob, CFO
(949) 595-7200