Form 8-K EndoChoice Holdings, For: Mar 03

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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) March 3, 2016

 

 

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)		(IRS Employer Identification No.)
11810 Wills Road Alpharetta, Georgia				30009
(Address of principal executive offices)				(Zip Code)

Registrant’s telephone number, including area code (888) 682-3636

Not Applicable

(Former name or former address, if changed since last report)

 

 

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 (see General Instruction A.2. below):

 

¨	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))

 

 

 

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Item 2.02 — Results of Operations and Financial Condition.

On March 3, 2016, the EndoChoice Holdings, Inc. (the “Company”) reported results for its fiscal year 2015, which ended December 31, 2015. A copy of the Company’s press release is attached to this Current Report on Form 8-K as Exhibit 99.1, and is incorporated herein by reference.

Such information, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

Item 5.02 — Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

Effective as of March 3, 2016, Kevin V. Rubey and Douglas N. Ladd stepped down as the Company’s Chief Operating Officer and Chief Marketing Officer, respectively. Each of Messrs. Rubey and Ladd will remain with the Company for a brief transitionary period. In connection with these departures, effective as of March 3, 2016, David N. Gill, the Company’s current Chief Financial Officer, will become the Company’s President & Chief Financial Officer. In this new role, Mr. Gill will continue to be responsible for finance and information technology matters at the Company, and will assume responsibility for the Company’s manufacturing, product development, services and supply chain functions. The marketing function will report directly to the Company’s Chief Executive Officer, Mark G. Gilreath.

Mr. Gill, age 61, joined EndoChoice as its Chief Financial Officer in August 2014 and has worked in the medical device and life sciences industries for more than 20 years. Previously he served as the Chief Financial Officer of INC Research, a clinical research organization, from 2011 to 2013 after having served as a board member and its audit committee chairman from 2007 to 2010. Mr. Gill was the Chief Financial Officer of TransEnterix, a private surgical products company, from 2009 to 2011. Prior to that, he was the Chief Financial Officer and Treasurer of NxStage Medical, Inc., a publicly-traded dialysis equipment company, from 2005 to 2006. From 2006 to 2009, Mr. Gill was retired and served as a director and audit committee chairman of two public life science companies, LeMaitre Vascular and Isotis Biologics, as well as several private life science companies. Earlier in his career, Mr. Gill was the Senior Vice President and Chief Financial Officer of CTI Molecular Imaging, Inc., a publicly-traded medical imaging company, from 2002 to 2004, before its sale; was President, Chief Operating Officer, and Director, of Interland, Inc., a publicly-traded telecom-related company, from 2000 to 2001, before its sale; was Chief Operating Officer and Chief Financial Officer of Novoste Corporation, a publicly-traded medical device company, from 1996 to 2000; and served as president for Dornier Medical Systems, a private urologic equipment company, from 1992 to 1995, before its sale. Mr. Gill holds a B.S. degree, cum laude, in Accounting from Wake Forest University and an MBA, with honors, from Emory University, and was formerly a certified public accountant. Mr. Gill currently serves on the board and as audit committee chairman of both Cempra Pharmaceuticals and Histogenics Corporation.

In connection with Mr. Gill’s appointment as President & Chief Financial Officer, on March 3, 2016, the Company amended and restated its employment agreement with Mr. Gill to adjust his title to reflect this appointment and to increase his base salary to $374,000 annually (subject to annual review by the Board of Directors or the Compensation Committee).

The foregoing description of Mr. Gill’s Amended and Restated Employment Agreement is qualified in its entirety by reference to the full text of the Amended and Restated Employment Agreement which will be attached as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

The information required by Item 404(a) of Regulation S-K with respect to Mr. Gill has been previously reported under the caption “Related Party Transactions” in the Company’s final prospectus filed with the SEC on June 5, 2015 pursuant to Rule 424(b) under the Securities and Exchange Act of 1933, as amended, relating to the Company’s Registration Statement on Form S-1 (File No. 333-203883), which disclosure is incorporated by reference herein.

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Item 9.01 — Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit No.		Description
99.1		Press Release, dated March 3, 2016.

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SIGNATURES

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 hereunto duly authorized.

Date: March 3, 2016.

 

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Press Release, dated March 3, 2016.

Exhibit 99.1

 

EndoChoice Announces Fourth Quarter and

Full Year 2015 Financial Results and Provides

Guidance for 2016

Alpharetta, GA, March 3, 2016 — EndoChoice Holdings, Inc. (NYSE: GI) announced today financial results for the fourth quarter and full year 2015.

2015 Highlights

 

•

Revenue of $72.3 million, up 18% year-over-year (20% in constant currency)

 

•

Installed base of Fuse® reaches 123 systems; end user systems increased 116% in 2015.

 

•

Pathology revenue up 10% year-over-year driven by 20% specimen growth and 18% customer growth

 

•

International revenue up 11% year-over-year (33% in constant currency)

 

•

Launched two new Single Use Products in 2015; four launches planned for 2016

Mark Gilreath, Founder and Chief Executive Officer of EndoChoice, said, “In 2015 we made good progress with our strategic growth initiatives, positioning the Company for continued growth across all three of our business lines in 2016. There continues to be strong interest in the unique 330 degree field of view, unmatched clinical data and advanced features offered by the Fuse system. In addition, we have several enhancements planned for mid-year 2016, such as the Lumos™ Adaptive Matrix Imaging System, which we believe will further enhance Fuse adoption. Our territory managers also enter 2016 with much deeper experience, as over half have now been in their territories for more than 12 months. We also have invested in growth drivers for our single use products and pathology services, including our new team of dedicated Account Managers and several new product launches that will further differentiate EndoChoice from the competition. Taken together, we believe these steps position us to achieve our revenue guidance for 2016 while also making progress towards profitability.”

David Gill, Chief Financial Officer of EndoChoice, added, “We ended the year with $87.7 million in cash, cash equivalents and marketable securities as well as a $15 million available line of credit, providing adequate resources to execute on our growth strategies for the next few years. Our 2016 financial guidance reflects improving operating leverage as our top line growth outpaces our investments in an expanded sales and marketing team.”

Fourth Quarter 2015 Financial Review

Total revenue for the fourth quarter 2015 was $18.5 million, compared to $18.3 million in the fourth quarter 2014, an increase of 1.2% as reported and an increase of 2.7% on a constant currency basis. Foreign currency exchange rates negatively impacted fourth quarter 2015 reported revenue by $0.3 million. Fourth quarter 2015 revenue growth was driven by growth in single use products and pathology revenues. Fourth quarter 2015 total revenue consisted of $5.2 million in Imaging, $9.5 million in Single-Use Products, and $3.9 million in Pathology.

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This compares to fourth quarter 2014 total revenue, which consisted of $6.2 million in Imaging, $9.0 million in Single-Use Products, and $3.1 million in Pathology.

Gross profit was $5.1 million, or 27.3% of revenue, for the fourth quarter 2015, compared to gross profit of $5.0 million, or 27.5% of revenue, for the fourth quarter 2014. Fourth quarter 2015 gross margin reflects a one-time charge of $1.1 million related to the voluntary exchange with customers of early generation Fuse scopes and a $485,000 charge related to obsolete inventory triggered by new product launches. Excluding these items, fourth quarter 2015 gross margin would have been 35.8%. Operating expenses for the fourth quarter 2015 were $17.6 million, compared to $17.8 million for the fourth quarter 2014.

Net loss for the fourth quarter 2015 was $13.0 million, or ($0.53) per share, compared to a net loss of $15.0 million for the fourth quarter 2014, or ($1.10) per share. Weighted average basic shares outstanding were 24.8 million for the fourth quarter 2015.

On a non-GAAP basis, the Company reported an Adjusted EBITDA loss of ($9.8) million, or (53%) of revenue, for the fourth quarter 2015, compared to ($10.9) million, or (59%) of revenue, for the fourth quarter 2014.

Full Year 2015 Financial Review

Total revenue for the full year 2015 was $72.3 million, compared to $61.4 million for the full year 2014, an increase of 18% as reported and an increase of 20% on a constant currency basis. Foreign currency exchange rates negatively impacted full year 2015 reported revenue by $1.5 million. Full year 2015 revenue growth was driven by Fuse system shipments and growth in single use products and pathology revenues. Full year 2015 total revenue consisted of $22.4 million in Imaging, $36.1 million in Single-Use Products, and $13.8 million in Pathology. This compares to full year 2014 total revenue, which consisted of $15.0 million in Imaging, $33.8 million in Single-Use Products, and $12.6 million in Pathology.

Gross profit was $23.3 million, or 32.2% of revenue, for the full year 2015, compared to gross profit of $22.5 million, or 36.7% of revenue, for the full year 2014. Without the aforementioned one-time charges in the fourth quarter, our gross profit percentage for the year would have been 34.4%. Operating expenses for the full year 2015 rose 5.6% to $73.6 million, compared to $69.7 million for the full year 2014.

Net loss for the full year 2015 was $59.4 million, or ($2.82) per share, compared to a net loss of $53.6 million for the full year 2014, or ($4.30) per share. Weighted average basic shares outstanding were 21.1 million for the full year 2015.

On a non-GAAP basis, the Company reported an Adjusted EBITDA loss of ($38.1) million, or (53%) of revenue, for the full year 2015 compared to ($40.0) million, or (65%) of revenue, for the full year 2014.

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Financial Guidance

The Company is providing financial guidance for full year 2016, as follows:

 

•

Total revenue in the range of $86 million to $93 million;

 

•

Gross margin of 37-38%;

 

•

Operating expenses in the range of $76 million to $77.5 million;

 

•

Net loss in the range of ($49.0) million to ($50.5) million, or to ($1.95) to ($2.01) per share assuming 25,100,000 weighted average shares outstanding for the year;

 

•

Adjusted EBITDA loss in the range of ($30) million to ($31.5) million; and

 

•

Free Cash Flow in the range of ($39) million to ($42) million after approximately $7 million of capital expenditures.

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, March 3, 2016 at 9:00 a.m. ET to discuss the results. The dial-in numbers are (877) 328-5344 for domestic callers and (412) 317-5469 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 March 3, 2016 through March 10, 2016. To access the replay, dial (877) 344-7529 for domestic and (412) 317-0088 for international callers, with the replay access code 10081531. A webcast replay will also 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, Adjusted EBITDA and cash flow for the full year 2016, as well as anticipated product launches in 2016.

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

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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.

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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

[email protected]

[email protected]

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EndoChoice Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

in thousands (except share and per share data)		December 31, 2015				December 31, 2014
Assets:
Current assets:
Cash and cash equivalents		$	34,033			$	13,761
Short-term marketable securities(1)			33,872				—
Receivables, net			9,880				8,379
Inventories			17,473				13,637
Deferred income taxes			—				970
Prepaid expenses and other current assets			3,108				2,363
Total current assets			98,366				39,110
Long-term marketable securities(1)			19,748				—
Property and equipment, net			11,523				9,668
Intangible assets, net			13,819				16,655
Goodwill			20,105				20,301
Deposits and other long-term assets			777				1,075
Total assets		$	164,338			$	86,809
Liabilities and Stockholders’ Equity:
Current liabilities:
Accounts payable		$	8,434			$	5,127
Accrued expenses and other current liabilities			9,203				8,328
Current portion of deferred rent			85				55
Deferred revenue			812				1,278
Total current liabilities			18,534				14,788
Long-term debt, net of discount			42,643				38,939
Deferred rent, less current portion			761				607
Deferred income taxes			2,493				4,147
Other long-term liabilities			614				2,089
Total liabilities			65,045				60,570
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, 2015 and December 31, 2014			—				—
Common stock, $0.001 par value; 150,000,000 shares authorized; 24,886,516 shares issued and outstanding at December 31, 2015; 14,467,219 shares issued and outstanding at December 31, 2014			26				14
Additional paid-in capital			257,384				125,404
Accumulated deficit			(156,549	)			(97,165	)
Accumulated other comprehensive loss			(1,568	)			(2,014	)
Total stockholders’ equity			99,293				26,239
Total liabilities and stockholders’ equity		$	164,338			$	86,809

 

(1)

Marketable securities are comprised of U.S. Treasury, U.S. government agency, commercial paper, and investment-grade corporate debt securities . Short-term marketable securities have a remaining maturity of less than one year, and long-term marketable securities have a remaining maturity of less than two years .

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EndoChoice Holdings, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

 

		Three Months Ended December 31,								Year Ended December 31,
in thousands (except share and per share data)		2015				2014				2015				2014
Revenues:
GI equipment and supplies		$	14,690			$	15,176			$	58,454			$	48,824
GI pathology services			3,857				3,146				13,846				12,595
Net revenues			18,547				18,322				72,300				61,419
Cost of revenues:
GI equipment and supplies			11,963				12,150				43,745				33,815
GI pathology services			1,527				1,137				5,245				5,093
Cost of revenues			13,490				13,287				48,990				38,908
Gross profit			5,057				5,035				23,310				22,511
Operating expenses:
Research and development			3,501				4,879				17,288				21,702
Sales and marketing			7,644				7,696				30,367				27,660
General and administrative			5,764				4,532				23,158				16,456
Amortization of intangible assets			686				729				2,753				3,908
Operating expenses			17,595				17,836				73,566				69,726
Operating loss			(12,538	)			(12,801	)			(50,256	)			(47,215	)
Other expense:
Other expense			(522	)			(338	)			(1,793	)			(1,563	)
Interest expense			(1,157	)			(1,710	)			(5,414	)			(3,950	)
Loss on early retirement of debt			—				—				(2,282	)			—
Total other expense			(1,679	)			(2,048	)			(9,489	)			(5,513	)
Net loss before income taxes			(14,217	)			(14,849	)			(59,745	)			(52,728	)
Income tax benefit (expense)			1,172				(182	)			361				(916	)
Net loss			(13,045	)			(15,031	)			(59,384	)			(53,644	)
Other comprehensive income (loss):
Foreign currency translation adjustments			908				(2,258	)			551				(5,064	)
Change in fair value of available-for-sale securities			(116	)			—				(105	)			—
Other comprehensive income (loss)			792				(2,258	)			446				(5,064	)
Comprehensive loss		$	(12,253	)		$	(17,289	)		$	(58,938	)		$	(58,708	)
Net loss per share attributable to common stockholders, basic and diluted		$	(0.53	)		$	(1.10	)		$	(2.82	)		$	(4.30	)
Weighted-average shares of common stock used to compute net loss per share attributable to common stockholders, basic and diluted			24,802,675				13,692,665				21,076,246				12,482,988

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EndoChoice Holdings, Inc.

Reconciliation of Net Loss to EBITDA and Adjusted EBITDA

(Unaudited)

 

		Three Months Ended December 31,								Year Ended December 31,
in thousands		2015				2014				2015				2014
Net loss		$	(13,045	)		$	(15,031	)		$	(59,384	)		$	(53,644	)
Adjustments to net loss:
Interest expense			1,157				1,710				5,414				3,950
Income tax (benefit) expense			(1,172	)			182				(361	)			916
Depreciation and amortization			2,231				2,233				8,286				8,757
EBITDA (1)		$	(10,829	)		$	(10,906	)		$	(46,045	)		$	(40,021	)
Stock-based compensation expense			998				5				5,228				20
Warrant liability mark-to-market adjustment			—				—				435				—
Loss on early retirement of debt			—				—				2,282				—
Adjusted EBITDA (2)		$	(9,831	)		$	(10,901	)		$	(38,100	)		$	(40,001	)

 

(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 retirement of debt.

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