Endologix Reports 27% and 25% Revenue Growth for the Full Year and Fourth Quarter 2012

Feb 27 2013

IRVINE, California—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, 2012.

John McDermott, Endologix President and Chief Executive Officer, said, “In 2012 we achieved another year of strong revenue growth driven by continued adoption of the AFX® Endovascular AAA System. Our U.S. sales team continues to gain share with existing customers while also introducing more physicians to the unique benefits of anatomical fixation. Internationally we grew 61% in 2012, led by our new direct sales and marketing team in Europe that has done a great job building the Endologix business in a short period of time. Overall, we believe we are well positioned to continue gaining market share, particularly as we begin to leverage our new product pipeline.”

Mr. McDermott added, “During the first quarter 2013, we received CE Mark for the Nellix® Endovascular Aneurysm Sealing System. This significant milestone will allow us to begin a controlled market introduction in Europe of the Nellix system in March 2013. The Nellix system is a revolutionary new device that we expect will simplify aortic aneurysm repair and improve clinical outcomes.”

Financial Results

Global revenue in the fourth quarter of 2012 was $29.2 million, a 25% increase from $23.4 million in the same quarter of 2011. For the year ended December 31, 2012, total revenue increased 27% to $105.9 million, compared to $83.4 million for the year ended December 31, 2011.

U.S. revenue in the fourth quarter of 2012 was $23.4 million, a 20% increase compared with $19.4 million in the fourth quarter of 2011, which was largely driven by the continued adoption of the AFX system and the expansion of the U.S. sales force through the addition of clinical specialists.

International revenue was $5.9 million, a 47% increase compared to $4.0 million in the fourth quarter of 2011. The international sales increase is attributable to a transition to a direct sales organization in Europe, beginning in September 2011, and improved penetration in the Latin American and Japanese markets.  Gross profit was $22.1 million in the fourth quarter of 2012, which represents a gross margin of 76%.  This compares with gross margin of 77% in the fourth quarter of 2011. Gross profit was $80.7 million for the year ended December 31, 2012, representing a gross margin of 76%. This compares with gross margin of 78% for the year ended December 31, 2011. Lower gross margins for the three and twelve months ended December 31, 2012 are the result of a greater proportion of international sales to global sales in both periods, and certain royalty payments that had not yet commenced in the corresponding 2011 periods.

Total operating expenses were $27.8 million in the fourth quarter of 2012, compared to $21.3 million in the fourth quarter of 2011. Total operating expenses for the year ended December 31, 2012 were $102.6 million, compared with $83.1 million for the year ended December 31, 2011. Operating expenses for the year ended December 31, 2012 include a $5.0 million charge related to the Company’s previously announced settlement agreement with Cook Incorporated, $1.0 million purchase of an exclusive license to patents used in the Nellix system, and $0.4 million in transaction costs to acquire our former Italian distributor’s business.

Marketing and sales expenses were $15.0 million in the fourth quarter of 2012, an increase from $11.5 million in the prior year period. For the year ended December 31, 2012, marketing and sales expenses were $54.0 million, an increase from $44.7 million for the year ended December 31, 2011. These increases were driven primarily by the costs associated with building the Company’s direct sales organization in Europe.

Research and development expenses were $4.7 million in the fourth quarter of 2012, an increase from $3.9 million in the prior year period. For the year ended December 31, 2012, research and development expenses were $16.6 million, a slight decrease from $16.7 million for the year ended December 31, 2011.  For the full year 2012 research and development expenses were primarily focused on the development
of Ventana and the Nellix system.

Clinical and regulatory affairs expenses were $1.6 million in the fourth quarter of 2012, an increase from $1.4 million in the prior year period. For the year ended December 31, 2012, clinical and regulatory affairs expenses were $6.3 million, an increase from $4.4 million for the year ended December 31, 2011.  These increases were primarily driven by the continued enrollment and follow-up costs associated with PEVAR and Ventana clinical trials, and various costs to achieve CE Mark approval of Ventana and the Nellix system.

General and administrative expenses were $6.5 million in the fourth quarter of 2012, up from $4.4 million in the same period in 2011. For the year ended December 31, 2012, general and administrative expenses were $20.3 million, up from $15.5 million for the year ended December 31, 2011. These increases were driven primarily by legal and administrative expenses associated with the establishment of European operations.

Endologix reported a net loss for the fourth quarter of 2012 of $6.5 million, or $(0.11) per share, compared with a net loss of $3.7 million, or $(0.06) per share, for the fourth quarter of 2011. The fourth quarter 2012 loss includes a $1.0 million non-cash charge for the increase of the contingent liability related to the Nellix acquisition. Endologix reported Adjusted Net Loss (non-GAAP and defined below) for the fourth quarter of 2012 of $5.5 million, or $(0.09) per share, compared with an Adjusted Net Loss (non-GAAP and defined below) for the fourth quarter of 2011 of $3.2 million, or $(0.06) per share.

For the year ended December 31, 2012, Endologix reported a net loss of $35.8 million, or $(0.60) per share, compared to a net loss of $28.7 million, or $(0.51) per share, for the year ended December 31, 2011. Endologix reported an Adjusted Net Loss (non-GAAP and defined below) for the year ended December 31, 2012 of $15.7 million, or $(0.26) per share, compared with an Adjusted Net Loss (non-GAAP and defined below) for the year ended December 31, 2011 of $16.5 million, or $(0.29) per share.

Total cash and cash equivalents were $45.1 million as of December 31, 2012, compared to $20.0 million as of December 31, 2011.

Financial Guidance

Endologix anticipates 2013 revenue to be in the range of $126 million to $133 million, representing growth of 19% to 25% from 2012. Endologix anticipates a GAAP loss in 2013 of ($0.14) to ($0.17) per share and an adjusted EBITDA (non-GAAP and defined below) of $0.01 to $0.05 per share, and anticipates generating cash in the second half of 2013.

About Endologix

Endologix, Inc. develops and manufactures minimally invasive treatments for aortic disorders. Endologix 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 75%, 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 is not approved in the United States for either investigational use or commercial sale. The Ventana™ Fenestrated System is an investigational device in the United States and international markets.