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Why Endologix Lost a Third of Its Value Today

By Todd Campbell - Oct 27, 2015 at 9:04PM

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An acquisition and notes offering offset better-than-hoped third-quarter results.

Source: Endologix.

What: Despite beating Wall Street analyst expectations on both the top and bottom line, shares in Endologix (ELGX.Q) tumbled by more than 35% today.

So what: The maker of devices used in aortic disorders reports that its third-quarter sales of $38.2 million grew 2.8% from last year and that its net loss during the quarter totaled $0.13. Analysts were looking for the company to deliver sales of $37.4 million and a net loss of $0.14. 

The top-line results were down from $39.5 million in the second quarter, but the bottom-line earnings marked an improvement from the $0.19 net loss in Q2. 

After adjusting for currency translation, revenue from Endologix's products for the treatment of abdominal aortic aneurysms would have grown by 7% year over year. That's solid, but it was still down from the year-over-year ex-currency growth rate of 8% the company delivered in the second quarter. 

Endologix also announced that it's acquiring TriVascular Tech (NASDAQ: TRIV) for $211 million and that it will raise money to pay off TriVascular Tech's $56 million in debt via a $150 million convertible debt offering.

Now what: The acquisition gives Endologix an opportunity to bolster its product line and further establish itself in the cardiac arena, but investors appear concerned that integrating TriVascular Tech, a company that's still losing money, could push out Endologix's timeline to profitability or distract management from the task at hand of winning FDA approval for its next-generation Nellix device in America.

Sales of the device have been gaining ground since winning approval in Europe. In Q3, ex-currency European sales improved by 32% thanks primarily to Nellix, which saw its sales grow 45% in the quarter.. 

An U.S. approval of Nellix would certainly be a big win for investors and a decision from the FDA could come by the end of next year, but in the meantime, investors will still need to endure losses stemming from Endologix's R&D and sales efforts. Last quarter, the company's operating expenses reached $36.4 million, up from $32.5 million a year ago.

Since currency headwinds are likely to continue weighing on quarterly results for now and its acquisition plans create some additional uncertainty, investors may want to approach this one cautiously. It may be better to let the company get a couple of quarters behind it proving that the deal isn't a distraction and that Nellix can indeed win over the FDA before jumping in and buying shares. 

 

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