Market Overview

Endologix Reports Fourth Quarter and Fiscal Year 2018 Financial Results

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Endologix, Inc. (the "Company") (NASDAQ:ELGX), a developer and marketer
of innovative treatments for aortic disorders, today announced financial
results for the fourth quarter and fiscal year ended December 31, 2018.

Global revenue in the fourth quarter of 2018 was $34.7 million, a 21.2%
decrease from $44.0 million in the fourth quarter of 2017. For the year
ended December 31, 2018, global revenue was $156.5 million, a 13.6%
decrease from $181.2 million a year ago.

"Our performance in the fourth quarter and second half of the year
reinforces confidence in our strategic planning process and our ability
to implement improvements. The objectives we accomplished during the
second half of 2018 align with those we laid out during our second
quarter earnings call as part of our strategic reset. As we enter 2019,
our single biggest lever will be a consistent and unwavering application
of individual and company-wide accountability. We will lean heavily on
this lever throughout the year as the critical enabler of consistent
delivery on our commitments to patients, customers, investors, and other
stakeholders. We are determined to sustain the momentum generated over
the last two quarters as we continue to take steps to improve the
Company's operational and financial footing. While there are still
challenges ahead, the entire Endologix team remains singularly dedicated
to data-driven superior outcomes in the treatment of AAA," commented
John Onopchenko, Chief Executive Officer of Endologix, Inc.

Financial Results

U.S. revenue in the fourth quarter of 2018 was $24.0 million, an 18.6%
decrease from $29.5 million in the fourth quarter of 2017. For the year
ended December 31, 2018 U.S. revenue was $109.1 million, an 11.5%
decrease from $123.2 million a year ago.

International revenue in the fourth quarter of 2018 was $10.7 million, a
26.3% decrease from $14.5 million in the fourth quarter of 2017. On a
constant currency basis, international revenue decreased 25.1% compared
to the fourth quarter of 2017. For the year ended December 31, 2018,
international revenue was $47.4 million, an 18.2% decrease from $57.9
million a year ago. On a constant currency basis, international revenue
decreased 20.0% compared to the year ended December 31, 2017.

Gross profit was $11.4 million in the fourth quarter of 2018,
representing a gross margin of 32.8%. Gross profit was negatively
impacted by approximately $8.7 million of inventory reserves related to
the voluntary recall of Nellix systems during the quarter. Excluding
this impact, gross margin was 57.8%, compared to a gross profit of $31.4
million, or a gross margin of 71.3%, in the fourth quarter of 2017. For
the year ended December 31, 2018, gross profit was $91.9 million,
representing a gross margin of 58.7%. Excluding the impact of previously
mentioned Nellix inventory reserves, fiscal year 2018 gross margin was
64.3%. This compares to a gross profit of $121.3 million, or a gross
margin of 67.0%, for the year ended December 31, 2017.

Total operating expenses in the fourth quarter of 2018 were $35.1
million, a 12.9% decrease from $40.3 million in the fourth quarter of
2017. Fourth quarter 2018 operating expenses included $2.0 million of
costs associated with restructuring and contract termination, product
withdrawal and business acquisition expenses, while fourth quarter of
2017 operating expenses included $1.2 million of costs associated with
restructuring. Excluding these items, operating expenses decreased 15.3%
compared to the fourth quarter of 2017. For the year ended December 31,
2018, total operating expenses were $160.1 million, a 1.9% decrease from
$163.1 million a year ago.

Net loss for the fourth quarter of 2018 was $26.0 million, or $(0.26)
per share, compared to a net loss of $14.5 million, or $(0.17) per
share, a year ago. Adjusted Net Loss (non-GAAP measure, defined below)
totaled $21.3 million, compared to an Adjusted Net Loss of $7.0 million
for the fourth quarter of 2017. Adjusted EBITDA (non-GAAP measure,
defined below) loss totaled $17.0 million for the fourth quarter of
2018, compared to Adjusted EBITDA loss of $2.7 million a year ago.

Net loss for the year ended December 31, 2018 was $79.7 million, or
$(0.91) per share, compared to a net loss of $66.4 million, or $(0.80)
per share, a year ago. Adjusted Net Loss totaled $62.7 million, compared
to an Adjusted Net Loss of $39.5 million for the year ended December 31,
2017. Adjusted EBITDA loss totaled $43.4 million for the year ended
December 31, 2018, compared to Adjusted EBITDA loss of $19.2 million a
year ago.

Total cash, cash equivalents and restricted cash were $24.7 million as
of December 31, 2018, compared to $60.6 million as of December 31, 2017.

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 first quarter ending March 31, 2019 of
approximately $35 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 fourth quarter and fiscal year 2018
results.

To participate in the conference call, dial 877-407-9716 (domestic) or
201-493-6779 (international) and enter the passcode 13687136.

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 this call will also be available from 7:30 p.m. ET on
Monday, February 25, 2019, until 11:59 p.m. ET on Monday, March 4, 2019.
To hear this recording, dial 844-512-2921 (domestic) or 412-317-6671
(international) and enter the passcode 13687136.

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 and Ovation
Alto® Abdominal Stent Graft System, the Company's next
generation Ovation system device, are approved only as investigational
devices and are not currently approved for commercial purposes in any
market.

Cautionary Note 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 continued focus on
individual and company-wide accountability to enable to fulfill our
commitments to patients, customers, investors, and other stakeholders;
continued improvement of the Company's operational and financial
footing;; and the Company's Q1 2019 and FY 2019 revenue guidance and its
anticipated FY 2019 operating expense, 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, 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, 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,
2017 and subsequent Quarterly Reports on Form 10-Q 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 twelve months ended December 31, 2018 and 2017, this
GAAP adjustment to net loss specifically represents: (i) restructuring
and other transition costs; (ii) contract termination, product
withdrawal and business acquisition expenses; (iii) interest expense;
(iv) foreign currency loss (gain); (v) fair value adjustment to Nellix®
contingent consideration liability; (vi) fair value adjustment of
derivative liabilities; and (vii) loss on debt extinguishment.

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.

 
ENDOLOGIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
Unaudited
(In thousands, except per share amounts)
 
  Quarter Ended   Year Ended
December 31, December 31,
2018   2017 2018   2017
Revenue
U.S. $ 24,033 $ 29,537 $ 109,093 $ 123,209
International 10,660   14,466   47,380   57,948  
Total Revenue 34,693 44,003 156,473 181,157
Cost of goods sold 23,327   12,647   64,550   59,828  
Gross profit 11,366   31,356   91,923   121,329  
Operating expenses:
Research and development 4,013 4,478 20,793 21,019
Clinical and regulatory affairs 3,344 3,166 13,851 12,952
Marketing and sales 16,942 21,183 76,855 92,400
General and administrative 8,756 10,192 43,477 35,301
Restructuring costs 138 1,242 3,270 1,477
Contract termination, product withdrawal and business acquisition
expenses
1,869     1,869    
Total operating expenses 35,062   40,261   160,115   163,149  
Loss from operations (23,696 ) (8,905 ) (68,192 ) (41,820 )
Other expense, net (8,844 ) (5,913 ) (28,165 ) (21,427 )
Change in fair value of contingent consideration related to
acquisition
2,800 (500 ) 7,100 2,900
Loss on debt extinguishment (2,270 ) (6,512 )
Change in fair value of derivative liabilities 3,792     12,097    
Total other expense, net (2,252 ) (6,413 ) (11,238 ) (25,039 )
Net loss before income taxes (25,948 ) (15,318 ) (79,430 ) (66,859 )
Income tax (expense) benefit (7 ) 797   (284 ) 459  
Net loss $ (25,955 ) $ (14,521 ) $ (79,714 ) $ (66,400 )
 
Comprehensive loss, net of taxes:
Net loss $ (25,955 ) $ (14,521 ) $ (79,714 ) $ (66,400 )
Other comprehensive (loss) income on foreign currency translation (100 ) 478   (747 ) 1,847  
Comprehensive loss $ (26,055 ) $ (14,043 ) $ (80,461 ) $ (64,553 )
 
Basic and diluted net loss per share $ (0.26 ) $ (0.17 ) $ (0.91 ) $ (0.80 )
Shares used in computing basic and diluted net loss per share 98,030   83,621 87,900   83,325
 
       
Non-GAAP Reconciliations:
 
Quarter Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
Net Loss to Adjusted Net Loss:
Net loss $ (25,955 ) $ (14,521 ) $ (79,714 ) $ (66,400 )
Restructuring and other transition costs 406 1,242 3,710 1,871
Contract termination, product withdrawal and business acquisition
expenses
1,869 1,869
Interest expense 8,763 5,945 27,658 22,064
Foreign currency loss (gain) 247 (118 ) 711 (678 )
Fair value adjustment to Nellix® contingent consideration
liability
(2,800 ) 500 (7,100 ) (2,900 )
Fair value adjustment of derivative liabilities (3,792 ) (12,097 )
Loss on debt extinguishment     2,270   6,512  
(1) Adjusted Net Loss $ (21,262 ) $ (6,952 ) $ (62,693 ) $ (39,531 )
 
Adjusted Net Loss to Adjusted EBITDA:
Adjusted Net Loss $ (21,262 ) $ (6,952 ) $ (62,693 ) $ (39,531 )
Income tax expense (benefit) 7 (797 ) 284 (459 )
Depreciation and amortization expense 2,063 2,177 7,982 9,111
Stock-based compensation expense 2,219   2,843   11,030   11,644  
(2) Adjusted EBITDA $ (16,973 ) $ (2,729 ) $ (43,397 ) $ (19,235 )
 
 
ENDOLOGIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands, except share and per share amounts)
 
  December 31,   December 31,
2018 2017
ASSETS
Current assets:
Cash and cash equivalents $ 23,531 $ 57,991
Restricted cash 1,200 2,608
Accounts receivable, net of allowance for doubtful accounts of $802
and $470, respectively
20,651 32,294
Other receivables 329 418
Inventories 30,399 45,153
Prepaid expenses and other current assets 2,821   4,670  
Total current assets 78,931   143,134  
Property and equipment, net 16,033 19,212
Goodwill 120,848 120,927
Other intangible assets, net 76,163 80,403
Deposits and other assets 1,095   1,371  
Total assets $ 293,070   $ 365,047  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,986 $ 12,351
Accrued payroll 14,627 15,054
Accrued expenses and other current liabilities 13,314 16,002
Current portion of debt 17,202
Revolving line of credit   21  
Total current liabilities 38,927   60,630  
Deferred income taxes 150 201
Deferred rent 8,065 7,724
Derivative liabilities 4,012
Other liabilities 1,992 3,877
Contingently issuable common stock 2,200 9,300
Debt 198,078   208,253  
Total liabilities 253,424   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, 103,879,246 and 83,855,824 shares issued,
respectively, 103,453,661 and 83,643,585 shares outstanding,
respectively
104 84
Treasury stock, at cost, 425,585 and 212,239 shares, respectively (4,026 ) (2,942 )
Additional paid-in capital 640,695 594,586
Accumulated deficit (599,715 ) (520,001 )
Accumulated other comprehensive income 2,588   3,335  
Total stockholders' equity 39,646   75,062  
Total liabilities and stockholders' equity $ 293,070   $ 365,047  
 

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