Form 8-K EndoChoice Holdings, For: Aug 06

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August 6, 2015 7:42 AM EDT


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 6, 2015
 
EndoChoice Holdings, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
001-37414
 
90-0886803
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)

11810 Wills Road
Alpharetta, Georgia 30009
(Address of principal executive offices) (Zip Code)
(888) 682-3636
(Registrant’s telephone number, including area code)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




ITEM 2.02 — Results of Operations and Financial Condition.
On August 6, 2015, EndoChoice Holdings, Inc. ("EndoChoice") issued a press release announcing its financial results for the quarter ended June 30, 2015. A copy of the press release is furnished herewith as Exhibit 99.1.
The information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities under that Section, nor shall it be deemed to be incorporated by reference into any filing of EndoChoice under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.
ITEM 9.01 — Financial Statements and Exhibits.
(d) Exhibits
The following exhibit is furnished with this report on Form 8-K:
99.1    Press release dated June 30, 2015





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
EndoChoice Holdings, Inc.
 
 
 
 
Date: August 6, 2015
 
 
 
By:
 
/s/ David N. Gill
 
 
 
 
 
 
David N. Gill
 
 
 
 
 
 
Chief Financial Officer




EXHIBIT INDEX
Exhibit
Number
  
Description
 
 
99.1
  
Press release dated August 6, 2015.



Exhibit 99.1

EndoChoice Announces Second Quarter 2015 Financial Results
Imaging revenue up 77% year-over-year
Alpharetta, GA, August 6, 2015 /PRNewswire/ -- EndoChoice Holdings, Inc. (NYSE: GI) announced today financial results for the second quarter 2015.
Highlights
•
Total revenue of $18.6 million, up 27% year-over-year, before currency impact
•
Shipped 27 Fuse® systems; 86 systems installed since launched
•
Completed initial public offering, raising $94.5 million in net proceeds to fund commercial expansion; refinanced and expanded debt facility
•
Guidance provided for 2015
Mark Gilreath, Founder and Chief Executive Officer of EndoChoice, said, “We delivered strong results in the second quarter, with total revenue growth of 27% in constant currency and good progress on our strategic initiatives. This was highlighted by the shipment of 27 Fuse systems in the quarter, with good balance across U.S. and international geographies. Our sales force is driving Fuse adoption, achieving head-to-head wins against larger competitors by leveraging its unique 330 degree field of view and clinically demonstrated ability to detect 69% more pre-cancerous polyps. We now have a global installed base of 86 systems and have a deep pipeline of leads with a high level of interest from practices interested in the technology. We also continue to see strong adoption of our single-use products and pathology services by Fuse customers. Looking forward, we expect to continue ramping Fuse sales, contributing to full year 2015 revenues of between $73 million and $76 million.”
David Gill, Chief Financial Officer of EndoChoice, said, “In June, we completed our IPO, a significant milestone for the Company that provided $94.5 million in growth capital. We followed this with a refinancing of our debt, lowering our overall cost of capital and expanding our borrowing capacity. Together, we intend to leverage these additional resources to further drive the global commercial adoption of the EndoChoice platform, including the anticipated expansion of our North American sales team by at least 20 reps by year end. We will also invest in broadening our platform of GI products and services to best serve the GI caregiver.”
Financial Review
Total revenue for the second quarter 2015 was $18.6 million, compared to $15.1 million the second quarter 2014, an increase of 24% as reported and an increase of 27% on a constant currency basis. Foreign currency exchange rates negatively impacted second quarter 2015 reported revenue by $472,000. Second quarter 2015 revenue growth was driven by strong Fuse system shipments and increased single use product and pathology revenues. Second quarter 2015 total revenue consisted of $6.1 million of Imaging revenue, $9.2 million of Single-Use Product revenue, and $3.3 million of Pathology revenue. This compares to second quarter 2014 total revenue, which consisted of $3.4 million of Imaging revenue, $8.6 million of Single-Use Product revenue, and $3.1 million of Pathology revenue.
Gross profit was $6.5 million, or 35% of revenue, for the second quarter 2015, compared to gross profit of $5.3 million, or 35% of revenue, for the second quarter 2014. On a sequential basis, gross margin improved 2% from 33% in the first quarter 2015. Operating expenses for the second quarter 2015 were $21.4 million, compared to $17.9 million for the second quarter 2014, driven by increased non-cash stock compensation expense triggered by the Company’s corporate conversion associated with its initial public offering.

1

Net loss for the second quarter 2015 was $19.5 million, or $1.01 per share, compared to a net loss of $13.7 million for the second quarter 2014, or $1.13 per share. The net loss increase was due to one-time charges, including $3.5 million in non-cash stock compensation expense, $407,000 in mark-to-market adjustments on outstanding warrants and a $2.3 million loss on early extinguishment of debt. Weighted average basic shares outstanding were 19.3 million for the second quarter 2015.
On a non-GAAP basis, the Company reported Adjusted EBITDA of ($9.6) million, or (51%) of revenue, for the second quarter 2015, compared to ($10.5) million, or (69%) of revenue, for the second quarter 2014.
Cash and cash equivalents were $118.5 million as of June 30, 2015. In June, the Company completed its IPO and received aggregate net proceeds of approximately $94.5 million, after deducting underwriting discounts and commissions and estimated offering expenses. In addition on June 30, 2015 the Company refinanced its outstanding debt and closed on a new $58 million senior secured credit facility which lowers the cost of capital and conserves cash over the next three years. 
Financial Guidance
The Company is providing financial guidance for full year 2015, as follows:
•
Total revenue in the range of $73 million to $76 million
•
Gross margin in the range of 35% to 36%
•
Operating expenses in the range of $75 million to $77 million
•
Net loss in the range of ($57) million to ($60) million, or ($2.70) to ($2.85) per share, assuming 21,045,000 weighted average shares outstanding for the year
•
Adjusted EBITDA in the range of ($36) million to ($37) million
Additional information regarding EndoChoice's results can be found by visiting the Investor Relations section of EndoChoice's website at http://investor.endochoice.com.
Conference Call
EndoChoice will hold a conference call on Thursday, August 6, 2015 at 9:00 a.m. ET to discuss the results. The dial-in numbers are (866) 807-9684 for domestic callers and (412) 317-5415 for international callers. A live webcast of the conference call will be available on the investor relations section of the Company's website at http://investor.endochoice.com.
A replay of the call will be available starting on August 6, 2015 through August 14, 2015. To access the replay, dial (877) 344-7529 for domestic and (412) 317-0088 for international callers, with the replay access code 10067875. The webcast replay will be available in the investor relations section of the Company’s website for 90 days following the completion of the call.
Forward-Looking Statement
This press release contains “forward-looking statements” as defined under U.S. federal securities laws, including, among other things, statements about our operations and financial performance. Examples of forward-looking statements include, but are not limited to, our projected total revenue, gross margin, operating expense, net loss and Adjusted EBITDA for the full year 2015, as well as our expectation to continue ramping Fuse sales, contributing to full year 2015 revenues of between $73 million and $76 million, and our anticipated expansion of our North American sales team by at least 20 reps by year end.

2

Forward-looking statements include all statements that are not historical facts. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on any forward-looking statements in this press release. Factors that could affect these statements include, but are not limited to, our ability to achieve or sustain profitability; general economic, market, or business conditions; the opportunities that may be presented to and pursued by the Company; conditions in the medical technology industry; the ability to generate sufficient cash flow or otherwise obtain funds to repay new or outstanding indebtedness; the ability to successfully commercialize our products, including Fuse®; competition from new or existing competitors; and other risks described from time to time in EndoChoice's filings with the Securities and Exchange Commission ("SEC") (including the prospectus filed by EndoChoice with the SEC on June 5, 2015). The discussion of these risks is specifically incorporated by reference into this press release.
Forward-looking statements are based on currently available information and our current assumptions, expectations and projections about future events. You should not rely on our forward-looking statements. These statements are not guarantees of future performance and are subject to future events, risks and uncertainties – many of which are beyond our control or are currently unknown to us – as well as potentially inaccurate assumptions that could cause actual results to differ materially from our expectations and projections. Except as required by law, we disclaim any obligation to update any forward-looking statements for any reason after the date of this press release.
Use of Non-GAAP Financial Measures
The Company has supplemented its GAAP net loss with a non-GAAP measure of Adjusted EBITDA. Management believes that this non-GAAP financial measure provides useful supplemental information to management and investors regarding the performance of EndoChoice, and provides an additional meaningful comparison of results for current periods with previous operating results, and assists management in analyzing future trends, making strategic and business decisions and establishing internal budgets and forecasts. A reconciliation of the GAAP net loss to EBITDA and Adjusted EBITDA is provided in the schedule below.
There are limitations in using this non-GAAP financial measure because it is not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. This non-GAAP financial measure should not be considered in isolation or as a substitute for GAAP financial measures. Investors and potential investors should consider non-GAAP financial measures only in conjunction with EndoChoice's consolidated financial statements prepared in accordance with GAAP and the reconciliation of the non-GAAP financial measure provided in the schedule below.
About EndoChoice:
Based near Atlanta, EndoChoice (NYSE: GI) is a medtech company focused on the manufacturing and commercialization of platform technologies including endoscopic imaging systems, devices and infection control products and pathology services for specialists treating a wide range of gastrointestinal conditions, including colon cancer. EndoChoice leverages its direct sales organization to serve more than 2,500 customers in the United States and works with distribution partners in 30 countries. The Company was founded in 2008 and has rapidly developed a broad and innovative product portfolio, which includes the Full Spectrum Endoscopy System (Fuse®). EndoChoice, Fuse, and Full Spectrum Endoscopy are registered trademarks of EndoChoice Holdings, Inc.

3

Company Contact:
David Gill, Chief Financial Officer
[email protected]
678-585-1040
Investor Contacts:
Nick Laudico or Zack Kubow
The Ruth Group
646-536-7030 / 7020

4

EndoChoice Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
in thousands (except share and per share data)
 
December 31,
2014
 
June 30,
2015
Assets:
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
13,761

 
$
118,459

Receivables, net
 
8,379

 
8,213

Inventories
 
13,637

 
12,376

Deferred tax assets
 
970

 
485

Prepaid expenses and other current assets
 
2,363

 
2,861

Total current assets
 
39,110

 
142,394

Property and equipment, net
 
9,668

 
8,283

Intangible assets, net
 
16,655

 
15,570

Goodwill
 
20,301

 
20,598

Deposits and other long-term assets
 
1,075

 
781

Total assets
 
$
86,809

 
$
187,626

Liabilities and Stockholders' Equity:
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
5,127

 
$
5,419

Accrued expenses and other current liabilities
 
8,328

 
10,407

Current portion of deferred rent
 
55

 
191

Deferred revenue
 
1,278

 
1,004

Total current liabilities
 
14,788

 
17,021

Long-term debt, net of discount
 
38,939

 
42,591

Deferred rent, less current portion
 
607

 
380

Deferred tax liabilities
 
4,147

 
3,941

Other long-term liabilities
 
2,089

 
1,035

Total liabilities
 
60,570

 
64,968

Commitments and contingencies
 

 

Stockholders’ equity:
 
 
 
 
Preferred stock, $0.001 par value per share; 50,000,000 shares authorized; no shares issued and
outstanding at December 31, 2014 and June 30, 2015
 
—

 
—

Common stock, $0.001 par value; 150,000,000 shares authorized; 14,467,219 shares issued and
outstanding at December 31, 2014; 24,728,740 shares issued and outstanding at June 30, 2015
 
14

 
25

Additional paid-in capital
 
125,404

 
255,512

Accumulated deficit
 
(97,165
)
 
(131,921
)
Accumulated other comprehensive loss
 
(2,014
)
 
(958
)
Total stockholders’ equity
 
26,239

 
122,658

Total liabilities and stockholders’ equity
 
$
86,809

 
$
187,626

See accompanying notes to condensed consolidated financial statements.

5

EndoChoice Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
in thousands (except share and per share data)
 
 
2014
 
2015
 
2014
 
2015
Revenues:
 
 
 
 
 
 
 
 
 
GI equipment and supplies
 
 
$
12,017

 
$
15,285

 
$
22,925

 
$
29,080

GI pathology services
 
 
3,064

 
3,357

 
6,003

 
6,310

Net revenues
 
 
15,081

 
18,642

 
28,928

 
35,390

Cost of revenues:
 
 
 
 
 
 
 
 
 
GI equipment and supplies
 
 
8,397

 
10,952

 
14,543

 
20,978

GI pathology services
 
 
1,393

 
1,157

 
2,700

 
2,300

Cost of revenues
 
 
9,790

 
12,109

 
17,243

 
23,278

Gross profit
 
 
5,291

 
6,533

 
11,685

 
12,112

Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
 
 
5,923

 
5,166

 
11,073

 
9,849

Sales and marketing
 
 
6,794

 
7,557

 
13,303

 
15,800

General and administrative
 
 
3,952

 
7,944

 
7,652

 
12,361

Amortization of intangible assets
 
 
1,188

 
690

 
2,361

 
1,377

Operating expenses
 
 
17,857

 
21,357

 
34,389

 
39,387

Operating loss
 
 
(12,566
)
 
(14,824
)
 
(22,704
)
 
(27,275
)
Other expense:
 
 
 
 
 
 
 
 
 
Other expense
 
 
(270
)
 
(598
)
 
(277
)
 
(1,631
)
Interest expense
 
 
(740
)
 
(1,503
)
 
(1,089
)
 
(3,094
)
Loss on early retirement of debt
 
 
—

 
(2,282
)
 
—

 
(2,282
)
Total other expense
 
 
(1,010
)
 
(4,383
)
 
(1,366
)
 
(7,007
)
Net loss before income taxes
 
 
(13,576
)
 
(19,207
)
 
(24,070
)
 
(34,282
)
Income tax expense
 
 
(132
)
 
(280
)
 
(516
)
 
(479
)
Net loss
 
 
(13,708
)
 
(19,487
)
 
(24,586
)
 
(34,761
)
Other comprehensive income (loss)
 
 
583

 
1,796

 
(23
)
 
1,056

Comprehensive loss
 
 
$
(13,125
)
 
$
(17,691
)
 
$
(24,609
)
 
$
(33,705
)
Net loss per share attributable to common stockholders, basic and diluted
 
 
$
(1.13
)
 
$
(1.01
)
 
$
(2.04
)
 
$
(2.01
)
Weighted-average shares of common stock used to compute net loss per share attributable to common stockholders, basic and diluted
 
12,091,134

 
19,300,197

 
12,075,655

 
17,320,472

See accompanying notes to condensed consolidated financial statements.


6

EndoChoice Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
June 30,
in thousands
2014
 
2015
Cash flows from operating activities:
 
 
 
Net loss
$
(24,586
)
 
$
(34,761
)
Adjustments to reconcile net loss to net cash used in operations:
 
 
 
Depreciation and amortization
4,281

 
4,027

Loss on disposal of fixed assets
—

 
227

Non-cash interest expense and discount amortization
71

 
475

Change in fair value of warrant liability
—

 
435

Provision for doubtful accounts
400

 
588

Unrealized foreign currency loss
322

 
952

Deferred taxes
445

 
176

Stock-based compensation
10

 
3,501

Loss on early retirement of debt
—

 
2,282

Loss on impairment of property and equipment
—

 
912

Changes in certain working capital components and other assets and liabilities:
 
 
 
Accounts receivable
(746
)
 
(467
)
Inventories
(830
)
 
875

Prepaid expenses and other current assets
(735
)
 
(432
)
Other assets
(1,271
)
 
299

Accounts payable, accrued expenses, and other liabilities
536

 
2,350

Net cash used in operations
(22,103
)
 
(18,561
)
Cash flows from investing activities:
 
 
 
Capital expenditures
(6,788
)
 
(2,555
)
Net cash used in investing activities
(6,788
)
 
(2,555
)
Cash flows from financing activities:
 
 
 
Borrowings on line of credit
11,100

 
—

Payments on line of credit
(13,571
)
 
—

Proceeds from term loan
30,000

 
43,000

Principal payments on term loan
—

 
(40,000
)
Prepayment and end of term fees for early retirement of debt
—

 
(2,306
)
Payments for debt financing fees
(506
)
 
(417
)
Principal payments on capital leases
(39
)
 
—

Proceeds from issuance of member units, net
141

 
31,000

Proceeds from issuance of common stock, net of issuance costs
—

 
94,460

Proceeds from option exercises
—

 
71

Net cash provided by financing activities
27,125

 
125,808

Effect of exchange rate changes on cash and cash equivalents
1

 
6

Net (decrease) increase in cash and cash equivalents
(1,765
)
 
104,698

Cash and cash equivalents, beginning of period
8,040

 
13,761

Cash and cash equivalents, end of period
$
6,275

 
$
118,459

Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of capitalized interest
$
1,018

 
$
2,824

Income taxes
$
—

 
$
6

See accompanying notes to condensed consolidated financial statements.

7

EndoChoice Holdings, Inc.
Reconciliation of Net Loss to EBITDA and Adjusted EBITDA
(Unaudited)
 
  
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
  
2014
 
2015
 
2014
 
2015
in thousands
  
 
 
 
 
 
 
 
Net loss
  
$
(13,708
)
  
$
(19,487
)
  
$
(24,586
)
 
$
(34,761
)
Adjustments to net loss:
  
 
 
 
 
 
 
 
Interest expense
  
740

  
1,503

  
1,089

  
3,094

Income tax expense
  
132

  
280

 
516

  
479

Depreciation and amortization
  
2,376

  
1,926

  
4,281

  
4,027

EBITDA(1)
  
$
(10,460
)
  
$
(15,778
)
  
$
(18,700
)
  
$
(27,161
)
Stock-based compensation expense
 
5

  
3,496

  
10

  
3,501

Warrant liability mark-to-market adjustment
 
—

  
407

  
—

  
435

Loss on early debt retirement
 
—

  
2,282

  
—

  
2,282

Adjusted EBITDA(2)
  
$
(10,455
)
  
$
(9,593
)
  
$
(18,690
)
  
$
(20,943
)
(1) We define EBITDA as net loss plus interest expense, income tax expense, and depreciation and amortization.
(2) We define adjusted EBITDA as net loss plus interest expense, income tax expense, depreciation and amortization, stock-based compensation expense, warrant liability mark-to-market adjustments, and loss on early debt retirement.

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