Endologix's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Endologix, Inc. (ELGX)

Q2 2012 Earnings Conference Call

July 26, 2012 17:00 ET

Executives

Zack Kubow – The Ruth Group

John McDermott – President and Chief Executive Officer

Bob Krist – Chief Financial Officer

Analysts

Steven Lichtman – Oppenheimer & Company

Chris Cooley – Stephens

Brooks West – Piper Jaffray

John Putnam – Capstone Investment

Presentation

Operator

Greetings, and welcome to the Endologix Inc. Second Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. A 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. 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, the 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 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’s 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, July 26, 2012. 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’d like to turn the call over to John.

John McDermott

Thanks Zack. During the second quarter, we continue to drive growth in our core business and advance our new product pipeline. We have successfully launched the AFX System in the U.S. and Europe and are planning launches in the other markets in the second half of this year.

Our strong core business combined with significant opportunities for market expansion and share gains with PEVAR, Ventana, and Nellix give us a unique growth profile over the next several years. I’ll start today’s call with a quick overview of our results for the quarter, followed by an operational and pipeline update. Then, I’ll turn the call over to Bob for his financial review, and after that, I’ll come back on to discuss our goals for the remainder of the year.

Second quarter global revenue was up 33% to a record $25.5 million. In the U.S., we achieved 29% year-over-year growth driven by the continued effectiveness of our sales team and the clinical results with AFX. We ended the quarter with 71 U.S. reps and clinical specialists and are targeting to finish the year around 78 to 80. In Europe, Q2 was our first full quarter with AFX and the team did a very nice job growing 175% over last year. Although we are still in the early stages of building our European organization, we are very pleased with the caliber of talent in their early results.

To further strengthen and expand our European business, during the quarter, we completed the acquisition of our Italian distributor. Italy is the second largest EVAR in Europe and we are excited to welcome four people and an established network of sub-dealers. Similar to our decision to go direct in other European markets, this enables us to build relationships with thought-leading physicians and control the training and introduction of our new devices. With the addition of Italy, we now expect to finish 2012 with 28 to 32 dedicated employees in Europe, of which about 70% will be dedicated to clinical and sales support.

Now, switching to the new product pipeline, we are pleased to announce the completion of our PVAR clinical trial and submission of a PMA supplement to the FDA. We remain hopeful that we’ll receive approval for a percutaneous indication in the United States by the end of this year. For Nellix, we continue to wait for feedback from the notified body and are still expecting to receive the CE Mark on the current version of the device in the near-term. Since submitting our original CE back in December of last year we have continued to do clinical cases and receive positive feedback from physicians.

Most recently, we received a reported case of a thrombosis which is a known complication in EVAR. Although our thrombosis rate with Nellix is still well within the rates reported in the literature for other devices, we have determined that the minor process and design enhancements will enable us to further optimize the device. So, we have adjusted our plans to implement these improvements prior to filing the IDE in initiating our European limited market introduction. We expect this change to pushback our estimated IDE filing from Q3, 2012 to Q1, 2013 and the limited market introduction in Europe from Q3, 2012 to Q2, 2013. Although it’s a difficult decision to impose a delay on the program, we think it’s the right thing to do for the long-term clinical and commercial success of the technology.

To further demonstrate our confidence in the Nellix platform, during the quarter, we entered into an exclusive worldwide license agreement for the polymer technology used in the Nellix system. This agreement includes 23 issued patents covering a wide range of polymers and hydrogels for the treatment of aortic and peripheral aneurysms. The agreement further strengthens our intellectual property position with Nellix and significantly increases competitive barriers to entry.

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