Market Overview

Endologix Reports Second Quarter 2018 Financial Results

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Endologix, Inc. (NASDAQ:ELGX), a developer and marketer of innovative
treatments for aortic disorders, today announced financial results for
the second quarter ended June 30, 2018.

The Company reported global revenue of $44.7 million in the second
quarter of 2018, a decrease of 7.9% from $48.6 million in the second
quarter of 2017, as strong growth in AFX® sales in Japan and
Ovation® sales in the U.S. were offset by lower U.S. sales of
AFX®, and softness in the Latin American market. Gross profit
of $29.6 million in the second quarter represented gross margin of
66.2%. Adjusted EBITDA (non-GAAP, defined below) loss totaled $9.3
million for the second quarter of 2018.

John Onopchenko, Chief Executive Officer of Endologix, Inc., commented,
"Our second quarter results were in line with our expectations with
solid growth from Ovation in the U.S. and AFX® in Japan,
offset by slower sales of AFX® in the U.S. market and Nellix®
in Europe. Looking at the remainder of this year and beyond, we are
taking meaningful and necessary steps to reset our operational,
clinical, and financial priorities in order to position the Company for
long-term success. Collectively, these initiatives would improve our
competitiveness and lower our cost-to-serve. Our key strategic
initiatives include strengthening the Company's leadership team,
creating a culture of accountability, focused product and clinical
development, rightsizing and investing in customer and market
intelligence within our commercial organization, and exiting a number of
small international markets."

"We firmly believe that Endologix has a well differentiated product
portfolio delivering superior clinical outcomes, as evidenced by a
growing body of clinical data related to our Nellix® and
Ovation® products, and we are excited about the opportunities
that lie ahead for our pipeline products, including Alto® and
ChEVAS," continued Mr. Onopchenko. "Looking forward, we will continue to
build a culture of accountability while using this reset to strengthen
our foundation and position the Company for profitable growth."

Financial Results

Global revenue in the second quarter of 2018 was $44.7 million, a 7.9%
decrease from $48.6 million in the second quarter of 2017. U.S. revenue
in the second quarter of 2018 was $30.0 million, a 6.0% decrease from
U.S. revenue of $31.9 million in the second quarter of 2017.
International revenue was $14.8 million, an 11.4% decrease from
International revenue of $16.7 million in the second quarter of 2017. On
a constant currency basis, second quarter 2018 International revenue
decreased 14.1% over the second quarter of 2017.

Gross profit was $29.6 million in the second quarter of 2018, which
represents a gross margin of 66.2%. This compares to a gross profit of
$32.2 million, or a gross margin of 66.4%, in the second quarter of 2017.

Total operating expenses increased 12.4% to $45.1 million in the second
quarter of 2018, compared to $40.1 million in the second quarter of
2017, driven by an increase in general and administrative expenses
related primarily to the CEO transition and increased legal expense
related to the financing and ongoing litigation.

Net loss for the second quarter of 2018 was $23.9 million, or $(0.28)
per share, compared to a net loss of $16.3 million, or $(0.20) per
share, a year ago. Adjusted Net Loss (non-GAAP, defined below) totaled
$15.6 million, compared to an Adjusted Net Loss of $8.0 million for the
second quarter of 2017. Adjusted EBITDA (non-GAAP, defined below) loss
totaled $9.3 million for the second quarter of 2018, compared to
Adjusted EBITDA loss of $2.3 million for the second quarter of 2017.

Total cash, cash equivalents, and restricted cash were $37.6 million as
of June 30, 2018.

Financial Guidance

After a critical evaluation of the market, as well as the current
business and related trends, the Company is making significant changes
to its strategy, and, as a result, is reducing its previously issued
revenue guidance. The Company now anticipates 2018 revenue in the range
of $145 million to $155 million, compared to the previous range of $170
million to $180 million. The Company now expects 2018 GAAP loss per
share in the range of $(1.04) to $(1.12), compared to the previous range
of $(0.89) to $(0.95). These loss per share numbers contemplate the
impact of restructuring, but exclude the impact of any financing related
accounting adjustments.

Investor Event

The Company's management will host an investor briefing on October 2,
2018 in New York City after the close of market. Full details will be
posted to the "Investors" section of the Company's website at www.endologix.com
in the near future.

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 second quarter 2018 results.

To participate in the conference call, dial 877-407-9716 (domestic) or
201-493-6779 (international) and refer to the passcode 13681567.

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 Thursday, August 9, 2018, until 11:59 p.m. ET (8:59 p.m. PT)
on Thursday, August 16, 2018. To hear this recording, dial 844-512-2921
(domestic) or 412-317-6671 (international) and enter the passcode
13681567.

About Endologix, Inc.

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 relate to
Endologix's steps to reset its operational, clinical, and financial
priorities to position it for long-term success, including anticipated
improvement in competitiveness and reduced cost-to-serve; key strategic
initiatives include strengthening Endologix's leadership team, focusing
product and clinical development, rightsizing and investing in customer
and market intelligence, and exiting a number of small international
markets; positioning of Endologix's business for cash flow breakeven in
2020; prospects for Endologix's pipeline products, including Ovation
Alto and ChEVAS; positioning Endologix for profitable growth;
Endologix's reduced 2018 revenue guidance and its anticipated 2018 GAAP
loss per share; and the anticipated Investor Event, 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, 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 and
maintaining regulatory approval for Endologix's products, Endologix's
ability to protect its intellectual property rights and proprietary
technologies, and other economic, business, competitive and regulatory
factors. The forward-looking statements contained in this press release
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, 2017, and its Quarterly Reports on Form 10-Q for
the quarters ended March 31, 2018 and June 30, 2018 (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.

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 (to the extent
relevant in a particular reporting period): (i) the fair value
adjustment to the Nellix® acquisition 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; (ix) inventory step-up
amortization; and (x) loss on extinguishment of debt. Endologix intends
to calculate "Adjusted Net Income (Loss)" in a consistent manner from
period to period.

In the three and six months ended June 30, 2018 and 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.

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.

       

ENDOLOGIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(In thousands, except per share amounts)

 
Three Months Ended Six Months Ended
June 30, June 30,
2018     2017 2018     2017
Revenue
U.S. $ 29,986 $ 31,906 $ 59,361 $ 62,795
International 14,754   16,650   27,663   28,373  
Total Revenue 44,740   48,556   87,024   91,168  
Cost of goods sold 15,136   16,332   29,094   30,302  
Gross profit $ 29,604   $ 32,224   $ 57,930   $ 60,866  
Operating expenses:
Research and development 6,244 5,734 11,743 11,264
Clinical and regulatory affairs 3,728 2,740 7,299 6,575
Marketing and sales 21,116 23,781 42,841 49,681
General and administrative 14,022 7,904 24,391 16,777
Restructuring costs   (29 ) 233   137  
Total operating expenses 45,110   40,130   86,507   84,434  
Loss from operations (15,506 ) (7,906 ) (28,577 ) (23,568 )
Other income (expense) (6,544 ) (5,552 ) (11,985 ) (9,850 )
Change in fair value of contingent consideration related to
acquisition
(1,800 ) 3,800 (700 ) 2,600
Loss on debt extinguishment   (6,512 ) (2,270 ) (6,512 )
Total other income (expense) (8,344 ) (8,264 ) (14,955 ) (13,762 )
Net loss before income tax expense $ (23,850 ) $ (16,170 ) $ (43,532 ) $ (37,330 )
Income tax expense (26 ) (122 ) (111 ) (276 )
Net loss $ (23,876 ) $ (16,292 ) $ (43,643 ) $ (37,606 )
Other comprehensive income (loss) foreign currency translation (552 ) 781   (679 ) 1,137  
Comprehensive loss $ (24,428 ) $ (15,511 ) $ (44,322 ) $ (36,469 )
 
Basic and diluted net loss per share $ (0.28 ) $ (0.20 ) $ (0.52 ) $ (0.45 )
Shares used in computing basic and diluted net loss per share 84,462   83,247 84,112   83,087
 
               
Non-GAAP Reconciliations:
 
Three Months Ended Six Months Ended
June 30, June 30,
2018 2017 2018 2017
Net Loss to Adjusted Net Loss:
Net loss $ (23,876 ) $ (16,292 ) $ (43,643 ) $ (37,606 )
Fair value adjustment to Nellix contingent consideration liability 1,800 (3,800 ) 700 (2,600 )
Interest expense 5,863 5,803 11,670 10,098
Foreign currency (gain) loss 656 (210 ) 331 (206 )
Restructuring and other transition costs (15 ) 233 532
Loss on extinguishment of debt   6,512   2,270   6,512  
(1) Adjusted Net Loss $ (15,557 ) $ (8,002 ) $ (28,439 ) $ (23,270 )
 
Adjusted Net Loss to Adjusted EBITDA:
Adjusted Net Loss $ (15,557 ) $ (8,002 ) $ (28,439 ) $ (23,270 )
Income tax expense 26 122 111 276
Depreciation and amortization expense 1,939 2,336 3,931 4,649
Stock-based compensation expense 4,265   3,234   7,286   6,188  
(2) Adjusted EBITDA $ (9,327 ) $ (2,310 ) $ (17,111 ) $ (12,157 )
 
       

ENDOLOGIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(In thousands)

 
June 30, December 31,
2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 35,629 $ 57,991
Restricted cash 2,010 2,608
Accounts receivable, net allowance for doubtful accounts of $623 and
$470, respectively.
32,431 32,294
Other receivables 481 418
Inventories 42,800 45,153
Prepaid expenses and other current assets 2,582   4,670  
Total current assets 115,933   143,134  
Property and equipment, net 17,703 19,212
Goodwill 120,883 120,927
Intangibles, net 78,398 80,403
Deposits and other assets 821   1,371  
Total assets $ 333,738   $ 365,047  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,184 $ 12,351
Accrued payroll 13,479 15,054
Accrued expenses and other current liabilities 16,461 16,002
Current portion of debt 17,752 17,202
Revolving line of credit   21  
Total current liabilities 60,876   60,630  
Deferred income taxes 201 201
Deferred rent 7,792 7,724
Other liabilities 2,284 3,877
Contingently issuable common stock 10,000 9,300
Debt 212,959   208,253  
Total liabilities 294,112   289,985  
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 and 135,000,000 shares
authorized, respectively. 85,132,810 and 83,855,824 shares issued,
respectively. 84,707,225 and 83,643,585 shares outstanding,
respectively.
85 84
Treasury stock, at cost, 425,585 and 212,239 shares, respectively. (3,705 ) (2,942 )
Additional paid-in capital 604,234 594,586
Accumulated deficit (563,644 ) (520,001 )
Accumulated other comprehensive income 2,656   3,335  
Total stockholders' equity 39,626   75,062  
Total liabilities and stockholders' equity $ 333,738   $ 365,047  
 

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