Endologix
ENDOLOGIX INC /DE/ (Form: 8-K, Received: 11/07/2017 16:18:41)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 7, 2017

ENDOLOGIX, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
000-28440
 
68-0328265
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)

2 Musick, Irvine, CA
 
92618
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code: (949) 595-7200
 
N/A
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation
of the registrant under any of the following provisions:

¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.






Item 2.02 Results of Operations and Financial Condition.
On November 7, 2017, Endologix, Inc. ("Endologix") issued a press release to report its preliminary unaudited financial results for the third quarter ended September 30, 2017. The press release is furnished herewith as Exhibit 99.1.
The information in this Current Report on Form 8-K, including Exhibit 99.1, is furnished pursuant to Item 2.02 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d)      Exhibits
Exhibit
Number
Description
Press Release dated November 7, 2017.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
ENDOLOGIX, INC.
 
 
 
Date: November 7, 2017
 
/s/ Vaseem Mahboob
 
 
Vaseem Mahboob
 
 
Chief Financial Officer
(Principal Financial and Accounting Officer)










EXHIBIT INDEX

Exhibit
Number
Description
Press Release dated November 7, 2017



Exhibit 99.1             

LOGOA09.JPG     
                                        
    
INVESTOR CONTACT:
 
Endologix, Inc.

 
Vaseem Mahboob, CFO

 
(949) 595-7200

 
                
Endologix Reports Third Quarter 2017 Financial Results


IRVINE, Calif., November 7, 2017 - Endologix, Inc. (NASDAQ: ELGX), a developer and marketer of innovative treatments for aortic disorders, today announced financial results for the third quarter ended September 30, 2017.

“Third quarter results were in line with our expectations, despite weather related disruptions,” commented John McDermott, Endologix’s Chief Executive Officer. “We are very pleased to have received IDE approval from the FDA for EVAS2, a confirmatory clinical study to evaluate our Gen2 Nellix ® EndoVascular Aneurysm Sealing System with the refined IFU. Subsequent to the end of the quarter, we also strengthened our executive team with the addition of John Onopchenko, our new Chief Operating Officer, who brings a strong track record of success and a wealth of global medical device experience to Endologix. While our recapture with AFX2 has been slower than expected, necessitating a reduction in our revenue guidance, we are pleased with the continued adoption of Ovation, which we expect to be a
near-term growth driver. Additionally, clinical study enrollment remains on track with our new Ovation Alto TM device, which we currently anticipate will be approved in the U.S. and Europe in 2019.”
 
Financial Results
Global revenue in the third quarter of 2017 was $46.0 million , an 11.8% decrease from $52.1 million in the third quarter of 2016. U.S. revenue in the third quarter of 2017 was $30.9 million , a 15.0% decrease from U.S. revenue of $36.3 million in the third quarter of 2016. International revenue was $15.1 million , a 4.5% decrease from International revenue of $15.8 million in the third quarter of 2016. On a constant currency basis, third quarter 2017 International revenue decreased 6.9%.

Gross profit was $29.1 million in the third quarter of 2017, which represents a gross margin of 63.3% . This compares to a gross profit of $36.9 million , or a gross margin of 70.9% , in the third quarter of 2016.

Total operating expenses were $38.5 million in the third quarter of 2017, compared to $48.2 million in the third quarter of 2016. Third quarter 2016 operating expenses included $0.4 million of expenses related to the TriVascular merger. Excluding these items, operating expenses in the third quarter of 2017 were $9.4 million lower than in the prior-year period, representing a decline of 19.6% , which was driven primarily by cost synergies related to the TriVascular merger.

Net loss for the third quarter of 2017 was $14.3 million , or $(0.17) per share, compared to a net loss of $15.2 million , or $(0.18) per share, a year ago. Adjusted Net Loss (non-GAAP, defined below) totaled $9.3 million , compared to an Adjusted Net Loss of $9.1 million for the third quarter of 2016. Endologix reported a negative Adjusted EBITDA (non-GAAP, defined below) of $4.3 million for the third quarter of 2017, compared to a negative Adjusted EBITDA of $3.8 million for the third quarter of 2016.

Total cash, cash equivalents, and restricted cash were $77.0 million as of September 30, 2017 . As of September 30, 2017, the Company had $15.4 million outstanding on the Deerfield revolver.

Financial Guidance
Due to slower than expected AFX2 sales recovery in the U.S., Endologix is reducing its previously issued revenue guidance. The Company now anticipates 2017 revenue in the range of $181 million to $184 million, compared to the previous range of $185 million to $190 million. As a result of careful expense management, the Company is revising its operating expense guidance to a range of $165 million to $170 million, compared to the previous guidance of $170 million. The Company now expects 2017 GAAP loss per share to be in the range of $(0.91) to $(0.93) , compared to the previous range of $(0.91) to $(0.95).

Conference Call Information
Endologix's management will host a conference call today at 4:30 p.m. ET (1:30 p.m. PT) to discuss its third quarter 2017 results.

To participate in the conference call, dial 877-407-9716 (domestic) or 201-493-6779 (international).

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 (4:30 p.m. PT) on Tuesday, November 7, 2017, until 11:59 p.m. ET (8:59 p.m. PT) on Tuesday, November 14, 2017. To hear this recording, dial 844-512-2921 (domestic) or 412-317-6671 (international) and enter the passcode 13672121.

About Endologix
Endologix, Inc. develops and manufactures minimally invasive treatments for aortic disorders. The Company's focus is 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 has obtained CE Mark in the EU and is only approved as an investigational device in the United States. The Ovation Alto ® System is only approved as an investigational device and is not currently approved in any market.

Cautions Regarding Forward-Looking Statements
Except for historical information contained herein, this press release contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements generally can 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 used in this press
release include, but are not limited to, statements regarding anticipated growth opportunities for Endologix’s existing products and potential future products, the progress and results of clinical trials, Endologix’s ability to obtain regulatory approval of its existing products and potential future products, Endologix’s ability to increase revenue through sales of its existing products and potential future products, and 2017 financial guidance, the accuracy of which are necessarily subject to risks and uncertainties that may cause Endologix’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 Endologix’s ability to continue integrating the businesses and operations of, and to realize the expected benefits of its merger with, TriVascular, continued market acceptance, endorsement and use of Endologix's products, the success of clinical trials relating to Endologix’s products, product research and development efforts, uncertainty in the process of obtaining regulatory approval for Endologix's products, risks associated with international operations, including currency exchange rate fluctuations, Endologix’s ability to protect its intellectual property rights and proprietary technologies, and other economic, business, competitive and regulatory factors. Undue reliance should not be placed upon the forward-looking statements contained in this press release, which speak only as of the date of this press release. Endologix 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 Endologix's filings with the Securities and Exchange Commission including its Annual Report on Form 10-K for the year ended December 31, 2016 , 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.

Discussion of Non-GAAP Financial Measures
Endologix'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 Endologix'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. Endologix'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.

"GAAP" is generally accepted accounting principles in the United States.

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

In the three and nine months ended September 30, 2017 , this GAAP adjustment to net loss specifically
represents: (i) the fair value adjustment to Nellix contingent consideration liability; (ii) interest expense;
(iii) foreign currency (gains) or losses; (iv) restructuring and other transition costs; and (v) loss on extinguishment of debt.

In the three and nine months ended  September 30, 2016 , this GAAP adjustment to net loss specifically represents: (i) the fair value adjustment to Nellix contingent consideration liability; (ii) interest expense; (iii) foreign currency (gains) or losses; (iv) legal settlement costs; (v) contract termination and business acquisition expenses; (vi) restructuring and other transition costs; (vii) fair value adjustment of derivative liabilities; and (viii) inventory step-up amortization.

In future periods, Adjusted Net Income (Loss) will continue to exclude: (i) the fair value adjustments to the Nellix contingent consideration liability; (ii) interest expense; (iii) foreign currency (gains) or losses; (iv) legal settlement costs; (v) contract termination and business acquisition expenses; (vi) business development expenses; (vii) restructuring and other transition costs; (viii) fair value adjustment of derivative liabilities; (ix) inventory step-up amortization; (x) loss on extinguishment of debt; and (xi) other non-recurring expenses or income, as described by Endologix.

Adjusted EBITDA Definition:

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



# # #



Exhibit 99.1             

ENDOLOGIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands, except per share amounts)

Three Months Ended
 
Nine Months Ended

September 30,
 
September 30,

2017
 
2016
 
2017
 
2016
Revenue


 


 
 
 
 
U.S.
$
30,877

 
$
36,305

 
$
93,672


$
102,457

International
15,109

 
15,817

 
43,482


43,005

Total Revenue
45,986

 
52,122

 
137,154


145,462

Cost of goods sold
16,879

 
15,191

 
47,181


51,131

Gross profit
$
29,107

 
$
36,931

 
$
89,973


$
94,331

Operating expenses:

 

 



Research and development
5,277

 
8,236

 
16,541


23,796

Clinical and regulatory affairs
3,211

 
3,759

 
9,786


11,664

Marketing and sales
21,536

 
26,007

 
71,217


82,749

General and administrative
8,332

 
9,714

 
25,109


29,869

Restructuring costs
98

 
498

 
235


8,612

Settlement costs

 

 


4,650

Contract termination and business acquisition expenses

 
(49
)
 


5,856

Total operating expenses
38,454

 
48,165

 
122,888


167,196

Loss from operations
(9,347
)
 
(11,234
)
 
(32,915
)

(72,865
)
Other income (expense)
(5,664
)
 
(3,837
)
 
(15,514
)

(12,236
)
Change in fair value of contingent consideration related to acquisition
800

 

 
3,400


(100
)
Loss on debt extinguishment

 

 
(6,512
)


Change in fair value of derivative liabilities

 

 


(43,831
)
Total other income (expense)
(4,864
)
 
(3,837
)
 
(18,626
)

(56,167
)
Net loss before income tax expense
$
(14,211
)
 
$
(15,071
)
 
$
(51,541
)

$
(129,032
)
Income tax expense
(62
)
 
(174
)
 
(338
)

(720
)
Net loss
$
(14,273
)
 
$
(15,245
)
 
$
(51,879
)

$
(129,752
)
Other comprehensive income (loss) foreign currency translation
232

 
153

 
1,369


1,067

Comprehensive loss
$
(14,041
)
 
$
(15,092
)
 
$
(50,510
)

$
(128,685
)



 


 





Basic and diluted net loss per share
$
(0.17
)
 
$
(0.18
)
 
$
(0.62
)

$
(1.61
)
Shares used in computing basic and diluted net loss per share
83,496

 
82,446

 
83,225


80,402





Exhibit 99.1             

Non-GAAP Reconciliations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Net Loss to Adjusted Net Loss:
 

 
 
 
 
Net loss
$
(14,273
)
 
$
(15,245
)
 
$
(51,879
)
 
$
(129,752
)
Fair value adjustment to Nellix contingent consideration liability
(800
)
 

 
(3,400
)
 
100

Interest expense
6,021

 
4,084

 
16,119

 
11,681

Foreign currency (gain) loss
(354
)
 
(108
)
 
(560
)
 
838

Settlement costs

 

 

 
4,650

Contract termination and business acquisition expenses

 
(49
)
 

 
5,856

Restructuring and other transition costs
98

 
768

 
629

 
9,507

Fair value adjustment of derivative liabilities

 

 

 
43,831

Inventory step-up amortization

 
1,416

 

 
8,238

Loss on extinguishment of debt

 


6,512

 

(1) Adjusted Net Loss
$
(9,308
)
 
$
(9,134
)
 
$
(32,579
)
 
$
(45,051
)
 
 
 
 
 
 
 
 
Adjusted Net Loss to Adjusted EBITDA:
 
 
 
 
 
 
Adjusted Net Loss
$
(9,308
)
 
$
(9,134
)
 
$
(32,579
)
 
$
(45,051
)
Income tax expense
62

 
174

 
338

 
720

Depreciation and amortization
2,287

 
2,303

 
6,934

 
6,531

Stock-based compensation expense
2,613

 
2,875

 
8,801

 
9,641

(2) Adjusted EBITDA
$
(4,346
)
 
$
(3,782
)
 
$
(16,506
)
 
$
(28,159
)












Exhibit 99.1             


ENDOLOGIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands)

September 30,
 
December 31,

2017
 
2016
ASSETS

 

Current assets:

 

Cash and cash equivalents
$
74,619

 
$
26,120

Restricted cash
2,369

 
2,001

Marketable securities

 
20,988

Accounts receivable, net allowance for doubtful accounts of $1,015 and $1,037, respectively.
33,979

 
34,430

Other receivables
439

 
1,787

Inventories
42,686

 
41,160

Prepaid expenses and other current assets
3,784

 
3,359

Total current assets
157,876

 
129,845

Property and equipment, net
20,207

 
23,265

Goodwill
120,903

 
120,711

Intangibles, net
81,502

 
84,511

Deposits and other assets
1,486

 
1,352

Total assets
$
381,974

 
$
359,684



 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

Accounts payable
$
10,878

 
$
13,237

Accrued payroll
16,998

 
19,997

Accrued expenses and other current liabilities
11,157

 
11,668

Revolving line of credit
15,441

 

Total current liabilities
54,474

 
44,902

Deferred income taxes
879

 
879

Deferred rent
7,786

 
7,949

Other liabilities
1,719

 
3,783

Contingently issuable common stock
8,800

 
12,200

Debt
222,957

 
177,178

Total liabilities
296,615

 
246,891

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; 135,000,000 shares authorized. 83,646,895 and 82,986,244   shares issued, respectively. 83,434,656 and 82,774,005   shares outstanding, respectively.
84

 
83

Treasury stock, at cost, 212,239 shares.
(2,942
)
 
(2,942
)
Additional paid-in capital
590,840

 
567,765

Accumulated deficit
(505,480
)
 
(453,601
)
Accumulated other comprehensive income
2,857

 
1,488

Total stockholders’ equity
85,359

 
112,793

Total liabilities and stockholders’ equity
$
381,974

 
$
359,684