Endologix, Inc. ( ELGX)

Q3 2011 Earnings Conference Call

October 27, 2011 5:00 PM ET

Executives

Zack Kubow – The Ruth Group, IR

John McDermott – President and CEO

Bob Krist – CFO

Analysts

Duane Nash – Wedbush Securities

Steven Lichtman – Oppenheimer

Chris Cooley – Stephens Incorporated

John Putnam – Capstone Investments

Presentation

O perator

Greetings and welcome to the Endologix Incorporated Third Quarter 2011 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Zack Kubow of The Ruth Group Investor Relations. Thank you, Mr. Kubow. You may begin.

Zack Kubow

Thanks operator and thanks everyone for participating in today’s call. Joining me from the company are John McDermott, President and Chief Executive Officer; and Bob Krist, Chief Financial Officer. This call is also being broadcast live over the Internet at www.endologix.com and a replay of the call will be available on the company’s website for 30 days.

Before we begin, I would like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of the Federal Securities laws. These forward-looking statements involve material risks and uncertainties. For a discussion of risk factors, I encourage you to review the Endologix’ Annual Report on Form 10-K and subsequent reports as filed with the Securities and Exchange Commission.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, October 27, 2011. Endologix undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

With that said, I would like to turn it over to John McDermott.

John McDermott

Thanks, Zack and welcome everyone to today’s call. We achieved several important milestones during the third quarter as we continued to gain market share. Global revenue was up 25% to a record $22.3 million led by 33% year-over-year and 22% sequential growth in the U.S.

Our strong results were driven by the launch of AFX in the second half of August. Many of our customers and several new Endologix users were eagerly awaiting the opportunity to try our new AFX Endovascular AAA System and the feedback has been positive. In particular, physicians like the low-profile delivery system and our new STRATA graft material. We fully transitioned our U.S. sales customer base to AFX during the quarter and continued to be only company that offers an endovascular graft with the clinical advantages of anatomical fixation. Based upon the strong quarter and year-to-date results, we are increasing our full year revenue guidance to $82 million to $84 million which represents 22% to 25% annual growth.

Turning now to our U.S. sales force, we ended the quarter with a total of 71 reps and clinical specialists. This is our first year adding clinical specialists and the early results are very encouraging, so we plan to keep gradually adding more over time. In addition to supporting reps to get double booked with cases, several of the clinical specialists will provide support for our upcoming Ventana and Nellix clinical trials. We planned to finish 2011 with at least 72 reps and clinical specialists and we expect to increase that to up around 80 by the end of 2012.

Outside the U.S., we completed the transition of our European distribution agreement with LeMaitre Vascular and began working directly with European customers on September 1. We are actively recruiting, training, and building the team to support our current customers and prepare for the European launches of AFX, Nellix, and Ventana in 2012.

Turning to our new product pipeline, we continue to make good progress on all programs. First, we are still on track to complete enrollment in the PEVAR clinical trial by the end of this year. Second, we have 20 of the 30 patients enrolled in the Ventana international clinical trial. Third, we have a conditional IDE approval for Ventana. And last, we are still on track to submit our EU regulatory submission for Nellix by the end of this year.

Combined with the AFX, these new products will give Endologix a lineup of innovative market expanding devices that will enhance our ability to gain market share and be the leader in endovascular aneurysm repair. In Europe, we expect to launch AFX in the first quarter of 2012 and then pending CE Mark approval, we will start with a very limited market introduction of Nellix in mid 2012. We have planned to move very deliberately and limit the number of centers in order to focus on good outcomes and refining all aspects of the procedure. We’ll probably stay in a limited market release phase through the balance of 2012 and then look at opening it up in 2013.

For Ventana, we hope to gain CE approval in the fall and begin a limited rollout in selected centers again focusing on clinical outcomes and building one good customer at a time. In U.S., we expect to keep growing with a full year of AFX sales in 2012 and hope to receive the percutaneous indication by the end of next year, which would position Endologix is the only is our company that can promote and trained the percutaneous technique.

We continue to be very enthusiastic about a product pipeline and encouraged by the feedback we are receiving from physicians. Next month, we will highlight the pipeline at the Annual (inaudible) conference in New York including presentation on AFX, PEVAR, Nellix, and Ventana. We also expect to have new articles published over the next year and just recently had an AFX initial case experience published in endovascular today.

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