Endologix Reports Third Quarter 2019 Financial Results

“Our persistent focus on execution has resulted in improved performance across the business including AFX2 in the U.S., as evidenced by our third-quarter results,” commented John Onopchenko, Chief Executive Officer of Endologix, Inc. “We posted solid financial results, with the Company returning to annualized growth while effectively managing our expenses and meaningfully reducing our quarterly cash burn to less than $5 million. Our U.S. AFX volumes were up sequentially in the third quarter, and our global AFX volumes grew double digits year over year. We attribute these AFX results in the U.S. in large part to the value physicians place on the strength of our clinical evidence, which encompasses over 60,000 patients as illustrated in our recently released AFX Annual Clinical Update (2016-2019). Our operational progress to-date has steadily improved, and we are positioned to build off these results in the fourth quarter and into 2020.”

Financial Results

Global revenue in the third quarter of 2019 was $35.8 million, a 2.9% increase from $34.8 million in the third quarter of 2018. U.S. revenue in the third quarter of 2019 was $24.1 million, a 6.2% decrease from U.S. revenue of $25.7 million in the third quarter of 2018. International revenue was $11.7 million, a 28.7% increase from International revenue of $9.1 million in the third quarter of 2018. On a constant currency basis, third quarter 2019 International revenue increased 31.5% over the third quarter of 2018.

Gross profit was $23.1 million in the third quarter of 2019, representing a gross margin of 64.5%. This compares to a gross profit of $22.6 million, or a gross margin of 65.1%, in the third quarter of 2018 as lower sales volumes more than offset operational improvements.

Total operating expenses decreased 12.0% to $33.9 million in the third quarter of 2019, compared to $38.5 million in the third quarter of 2018. Operating expenses in the third quarter of 2018 included $2.9 million of restructuring costs; excluding these costs operating expenses decreased 4.9%.

Net loss for the third quarter of 2019 was $7.8 million, or $(0.40) per share, compared to a net loss of $10.1 million, or $(1.19) per share, a year ago. Adjusted Net Loss (non-GAAP, defined below) totaled $10.5 million, compared to an Adjusted Net Loss of $13.0 million for the third quarter of 2018. Adjusted EBITDA (non-GAAP, defined below) loss totaled $5.6 million for the third quarter of 2019, compared to Adjusted EBITDA loss of $9.3 million for the third quarter of 2018.

Total cash, cash equivalents, and restricted cash were $47.8 million as of September 30, 2019.

Financial Guidance

The Company reaffirms its previously issued annual guidance and continues to expect 2019 revenue of at least $140 million. The Company anticipates revenue for the fourth quarter ending December 31, 2019 in the range of $32.5 million to $35.5 million. The Company continues to expect 2019 operating expenses in the range of $130 million to $140 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 third quarter 2019 results.

To participate in the conference call, dial 877-407-9716 (domestic) or +1 201-493-6779 (international) and refer to the passcode 13696025.

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, November 6, 2019, until 11:59 p.m. ET on Wednesday, November 13, 2019. To hear this recording, dial 844-512-2921 (domestic) or +1 412-317-6671 (international) and enter the passcode 13696025.

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 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

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 the Company’s ability to build off the recent operational progress during the fourth quarter of 2019 and into 2020; the Company’s reaffirmation of its FY 2019 revenue guidance and its anticipated FY 2019 operating expense; and the Company’s anticipated Q4 2019 revenue range and operating expense range, 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, reports by third parties in respect of the performance of the Company’s products, 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 and to defend itself against third party intellectual property infringement claims, 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 our management’s current expectations and predictions about trends affecting our 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 its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019 (once it is filed) 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 nine months ended September 30, 2019 and 2018, this GAAP adjustment to net loss specifically represents: (i) the fair value adjustment to Nellix^® contingent consideration liability; (ii) interest expense; (iii) foreign currency losses; (iv) restructuring and other transition costs; (v) fair value adjustment of derivative liabilities; and (vi) loss on extinguishment of debt.

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.