Endologix
ENDOLOGIX INC /DE/ (Form: 8-K, Received: 02/22/2017 16:28:50)


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): February 22, 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))






Item 2.02 Results of Operations and Financial Condition.
On February 22, 2017, Endologix, Inc. ("Endologix") issued a press release to report its preliminary unaudited financial results for the fourth fiscal quarter and for the fiscal year ended December 31, 2016. 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
99.1
Press Release dated February 22, 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: February 22, 2017
 
/s/ Vaseem Mahboob
 
 
Vaseem Mahboob
 
 
Chief Financial Officer
(Principal Financial and Accounting Officer)










EXHIBIT INDEX

Exhibit
Number
Description
99.1
Press Release dated February 22, 2017



Exhibit 99.1             

IMAGE0A01.JPG     
                                        
    
COMPANY CONTACTS :
INVESTOR CONTACTS :
Endologix, Inc.
The Ruth Group
John McDermott, CEO
Zack Kubow (646) 536-7020
Vaseem Mahboob, CFO
Nick Laudico (646) 536-7030
(949) 595-7200
 
www.endologix.com
 
                
Endologix Reports Results for the Fourth Quarter

and Full Year 2016

IRVINE, Calif., February 22, 2017 - Endologix, Inc. (NASDAQ: ELGX), developer and marketer of innovative treatments for aortic disorders, today announced financial results for the three and twelve

months ended December 31, 2016.

John McDermott, Endologix Chief Executive Officer, said, “In 2016, we successfully completed the TriVascular integration, advanced our strategic initiatives, and remain well positioned to execute on our long-term growth strategy. Looking forward, we have several opportunities to build value and enhance our position in the global aortic market. We anticipate CE Mark approval for Ovation Alto and Nellix ChEVAS in 2017, further expanding the number of AAA patients that can be treated with our innovative technologies. We also have several clinical milestones anticipated over the coming year, including presentation of the LUCY data and initiation of U.S. IDE clinical trials for Ovation Alto and Nellix ChEVAS. We also remain on track to submit the Nellix two-year IDE results and updated IFU to the FDA in the second quarter, which will be a key milestone towards Nellix FDA approval.”



Financial Results

As a result of its merger with TriVascular Technologies, Inc. completed on February 3, 2016, Endologix’s GAAP results (“as reported”) include TriVascular's results from that date forward. In addition to reporting GAAP results, Endologix is providing a comparison to combined financial results, which combine standalone Endologix and TriVascular results for the fourth quarter of 2015 and year ended December 31, 2015 in their entirety.

Global revenue in the fourth quarter of 2016 was $47.5 million , a 21% increase from $39.2 million in the
fourth quarter of 2015 and a 3% decrease from combined revenue of $49.0 million in the fourth quarter of 2015. For the year ended December 31, 2016, global revenue was $192.9 million , a 26% increase from $153.6 million for the year ended December 31, 2015 and a 1% increase from combined revenue of $190.6 million for the year ended December 31, 2015.

U.S. revenue in the fourth quarter of 2016 was $33.7 million , a 27% increase as reported and a 1% decrease from combined U.S. revenue of $33.9 million in the fourth quarter 2015. International revenue was $13.8 million , an 8% increase as reported and a 9% decrease from combined international revenue of $15.1 million in the fourth quarter of 2015. On constant currency basis, fourth quarter 2016 international revenue increased 10% as reported and decreased 7% on a combined basis.

Gross profit was $29.5 million in the fourth quarter of 2016, which represents a gross margin of 62% , compared to a gross margin of 60% as reported and 61% on a combined basis in the fourth quarter of 2015. Gross profit was $123.8 million for the year ended December 31, 2016, representing a gross margin of 64% . This compares to a gross margin of 66% as reported and 65% on a combined basis for the year ended December 31, 2015. Fourth quarter and year ended December 31, 2016 gross profit was negatively impacted by $0.6 million and $10.5 million related to purchase price accounting for inventory and intangible assets acquired by Endologix in the TriVascular merger. Excluding this impact, fourth quarter 2016 gross margin was 63% and year ended December 31, 2016 was 70%.

Total operating expenses were $51.7 million in the fourth quarter of 2016, compared to $45.5 million as reported and $66.5 million on a combined basis in the fourth quarter of 2015. Fourth quarter 2016 operating expenses included $2.4 million for expenses related to restructuring and contract termination and fourth quarter 2015 included $5.1 million for business acquisition expenses. Excluding these items, operating expenses in the fourth quarter of 2016 as compared to combined operating expenses in the fourth quarter of 2015 were lower by $12.2 million, or 20%, driven by synergy savings resulting from the TriVascular merger. For the year ending December 31, 2016, total research & development expenses were 16% lower and total selling, general and administrative expenses were 11% lower as compared to combined reported expenses for the year ending December 31, 2015.

Net loss for the fourth quarter of 2016 was $24.9 million , or $(0.30) per share, compared with net loss of $15.3 million , or $(0.22) per share, and combined net loss of $32.6 million for the fourth quarter of 2015. Endologix reported a negative Adjusted EBITDA (non-GAAP and defined below) for the fourth quarter of 2016 of $13.2 million , compared with a combined negative Adjusted EBITDA for the fourth quarter of 2015 of $25.7 million .

For the year ended December 31, 2016, Endologix reported a net loss of $154.7 million , or $(1.91) per share, compared with net loss of $50.4 million , or $(0.75) per share, and combined net loss of $111.8 million for the year ended December 31, 2015. Endologix reported a negative Adjusted EBITDA for the year ended December 31, 2016 of $41.4 million , compared with a combined negative Adjusted EBITDA for the year ended December 31, 2015 of $78.4 million .

Total cash, cash equivalents, restricted cash and marketable securities were $49.1 million as of December 31, 2016, compared to $177.3 million as of December 31, 2015 . During the fourth quarter of 2016, the Company used $1.0 million for merger and restructure related expenses.


Financial Guidance

Endologix anticipates 2017 revenue to be in the range of $193 million to $200 million, representing reported growth of 0% to 4% compared to 2016 and constant currency growth of 2% to 5%. Endologix anticipates 2017 GAAP loss per share of $(0.70) to $(0.76) per share.

Conference Call Information

Endologix's management will host a conference call today to discuss these topics beginning at 5:00 P.M. Eastern time (2:00 P.M. Pacific time). To participate via telephone please call (877) 407-0789 from the U.S. or 1-(201)-689-8562 from outside the U.S. A telephone replay will be available for seven days following the completion of the call by dialing (844) 512-2921 from the U.S. or 1-(412)-317-6671 from outside the U.S., and entering pin number 13655149. The conference call will be broadcast live over the Internet at www.endologix.com. After the live webcast, a webcast replay of the call and a transcript of the call will be available online from the investor relations page of Endologix's website through February 22, 2018.

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 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. Additional information can be found on Endologix's website at 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.

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 the status of Endologix’s post-merger integration of TriVascular’s businesses and operations, 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 integrate 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 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, 2015, 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)", (2) “Adjusted EBITDA" and (3) "Combined Financial Results" 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; and (ix) inventory step-up amortization.

In the three and twelve months ended December 31, 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) 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; and (ix) inventory step-up amortization.

In the three and twelve months ended December 31, 2015, this GAAP adjustment to net loss specifically represents: (i) the fair value adjustment to the Nellix contingent consideration liability; (ii) interest expense from the Company's convertible debt; and (iii) foreign currency (gains) or losses; and (iv) business development expenses; and (v) contract termination and business acquisition expenses.

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 from the Company's convertible debt; (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; and (x) 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.

Combined Financial Results Definition:
(3) "Combined Financial Results" are non-GAAP measures defined by Endologix as Endologix's financial results combined with TriVascular's financial results.



# # #



Exhibit 99.1             

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

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2016

2015

2016

2015
Revenue











U.S.
$
33,654


$
26,403


$
136,111


$
107,228

International
13,809


12,829


56,814


46,384

Total Revenue
47,463


39,232


192,925


153,612

Cost of goods sold
18,002


15,515


69,133


51,821

Gross profit
$
29,461


$
23,717


$
123,792


$
101,791

Operating expenses:







Research and development
8,541


8,738


32,337


26,421

Clinical and regulatory affairs
4,551


4,415


16,215


15,418

Marketing and sales
25,010


19,110


107,759


78,213

General and administrative
11,175


8,149


41,044


29,581

Restructuring costs
2,481




11,093



Contract termination and business acquisition expenses
(88
)

5,071


5,768


5,071

Settlement costs




4,650



Total operating expenses
51,670


45,483


218,866


154,704

Loss from operations
(22,209
)

(21,766
)

(95,074
)

(52,913
)
Other income (expense)
(5,538
)

(3,139
)

(17,774
)

(6,748
)
Change in fair value of contingent consideration
related to acquisition
2,600


100


2,500


(100
)
       Change in fair value of derivative liabilities




(43,831
)


Total other expense
(2,938
)

(3,039
)

(59,105
)

(6,848
)
Net loss before income tax expense
$
(25,147
)

$
(24,805
)

$
(154,179
)

$
(59,761
)
Income tax benefit (expense)
222


9,512


(498
)

9,337

Net loss
$
(24,925
)

$
(15,293
)

$
(154,677
)

$
(50,424
)
Other comprehensive income (loss) foreign currency translation
$
(89
)

$
(555
)

$
978


$
(1,762
)
Comprehensive loss
$
(25,014
)

$
(15,848
)

$
(153,699
)

$
(52,186
)
Basic and diluted net loss per share
$
(0.30
)

$
(0.22
)

$
(1.91
)

$
(0.75
)
Shares used in computing basic and diluted net loss per share
82,686


67,976


80,976


67,671





Exhibit 99.1             




Non-GAAP Reconciliations:
















Three Months Ended

Twelve Months Ended

December 31,

December 31,

2016

2015

2016

2015
Net Loss to Adjusted Net Loss







Net loss
$
(24,926
)

$
(15,293
)

$
(154,677
)

$
(50,424
)
Fair value adjustment to Nellix contingent consideration liability
(2,600
)

(100
)

(2,500
)

100

Interest expense
4,160


3,016


15,841


7,476

Foreign currency (gain) loss
1,274


89


2,112


(504
)
Settlement costs




4,650



Contract termination and business acquisition expenses
(88
)

5,071


5,768


5,071

Business development expenses
1,000


1,866


1,000


2,500

Restructuring and other transition costs
2,907




12,414



Fair value adjustment of derivative liabilities




43,831



Inventory step-up amortization




8,238



(1) Adjusted Net Loss
$
(18,273
)

$
(5,351
)

$
(63,323
)

$
(35,781
)








Adjusted Net Loss to Adjusted EBITDA:







Adjusted Net Loss
$
(18,273
)

$
(5,351
)

$
(63,323
)

$
(35,781
)
Income tax (benefit) expense
(222
)

(9,512
)

498


(9,337
)
Depreciation and amortization
2,618


1,325


9,149


5,886

Stock-based compensation
2,645


2,086


12,286


9,255

(2) Adjusted EBITDA
$
(13,232
)

$
(11,452
)

$
(41,390
)

$
(29,977
)




























Exhibit 99.1             
















Three Months Ended December 31, 2015

Twelve Months Ended December 31, 2015

Endologix Standalone
TriVascular Standalone
(3) Combined Financial Results

Endologix Standalone
TriVascular Standalone
(3) Combined Financial Results
Revenue:







     US
$
26,403

$
7,461

$
33,864


$
107,228

$
26,475

$
133,703

     International
12,829

2,319

15,148


46,384

10,518

56,902

Total Revenue
39,232

9,780

49,012


153,612

36,993

190,605

Cost of goods sold
15,515

3,746

19,261


51,821

14,317

66,138

Gross profit
$
23,717

$
6,034

$
29,751


$
101,791

$
22,676

$
124,467

Operating expenses:







     Research and development
8,738

2,150

10,888


26,421

9,161

35,582

     Clinical and regulatory affairs
4,415

1,826

6,241


15,418

7,132

22,550

     Marketing and sales
19,110

10,933

30,043


78,213

40,121

118,334

     General and administrative
8,149

6,156

14,305


29,581

19,069

48,650

Contract termination and business acquisition expenses
5,071


5,071


5,071


5,071

          Total operating expenses
45,483

21,065

66,548


154,704

75,483

230,187

Loss from operations
(21,766
)
(15,031
)
(36,797
)

(52,913
)
(52,807
)
(105,720
)
Total other income (expense)
(3,039
)
(2,303
)
(5,342
)

(6,848
)
(8,419
)
(15,267
)
Net loss before income tax benefit (expense)
$
(24,805
)
$
(17,334
)
$
(42,139
)

$
(59,761
)
$
(61,226
)
$
(120,987
)
Income tax benefit (expense)
9,512

(6
)
9,506


9,337

(185
)
9,152

Net loss
$
(15,293
)
$
(17,340
)
$
(32,633
)

$
(50,424
)
$
(61,411
)
$
(111,835
)





Exhibit 99.1             










Three Months Ended

Twelve Months Ended

Dec. 31, 2015

Dec. 31, 2015
Combined Net Loss to Combined Adjusted Net Loss:



Combined Net Loss
$
(32,633
)

$
(111,835
)
Fair value adjustment to Nellix contingent consideration liability
(100
)

100

Interest expense
5,276


15,624

Foreign currency (gain) loss
89


(504
)
Contract termination and business acquisition expenses
5,071


5,071

Business development expenses
1,866


2,500

(3) Combined Adjusted Net Loss
$
(20,431
)

$
(89,044
)




Combined Adjusted Net Loss to Combined Adjusted EBITDA:



Combined Adjusted Net Loss
$
(20,431
)

$
(89,044
)
Income tax (benefit) expense
(9,506
)

(9,152
)
Depreciation and amortization
1,576


6,499

Stock-based compensation
2,638


13,275

(3) Combined Adjusted EBITDA
$
(25,723
)

$
(78,422
)















Exhibit 99.1             


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

December 31,

2016

2015
ASSETS



Current assets:



Cash and cash equivalents
$
26,120


$
124,553

Restricted cash
2,001



Marketable securities
20,988


52,768

Accounts receivable, net of allowance for doubtful accounts of $1,037 and $226, respectively
34,430


28,531

Other receivables
1,787


375

Inventories
41,160


27,860

Prepaid expenses and other current assets
3,359


2,325

Total current assets
129,845


236,412

Property and equipment, net
23,265


23,355

Goodwill
120,711


28,685

Intangibles, net
84,511


42,118

Deposits and other assets
1,352


480

Total assets
$
359,684


$
331,050





LIABILITIES AND STOCKHOLDERS’ EQUITY



Current liabilities:





Accounts payable
$
13,237


$
17,549

Accrued payroll
19,997


13,030

Accrued expenses and other current liabilities
11,668


5,576

Contingently issuable common stock


14,700

Total current liabilities
44,902


50,855

Deferred income taxes
879


879

Deferred rent
7,949


8,051

Other liabilities
3,783


210

Contingently issuable common stock
12,200



Convertible notes
177,178


167,748

Total liabilities
246,891


227,743

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 and 100,000,000 shares authorized, respectively. 82,986,244 and 68,235,179 shares issued, respectively. 82,774,005 and 68,034,386 shares outstanding, respectively.
83


68

Additional paid-in capital
567,765


404,462

Accumulated deficit
(453,601
)

(298,924
)
Treasury stock, at cost, 212,239 and 200,793 shares, respectively.
(2,942
)

(2,809
)
Accumulated other comprehensive income
1,488


510

Total stockholders’ equity
112,793


103,307

Total liabilities and stockholders’ equity
$
359,684


$
331,050