Special Note Regarding Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward looking statements are intended to qualify for the safe harbor established by the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by the use of forward-looking terminology such as "anticipates," "believes," "can," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should" or "will" or the negative of these terms or other comparable terminology, or by discussions of strategies, opportunities, plans or intentions. In addition, any statements that refer to projections of our future financial performance, trends in our businesses, or other characterizations of future events or circumstances are forward-looking statements. We have based these forward-looking statements largely on our current expectations based on information currently available to us and projections about future events and trends affecting the financial condition of our business. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Actual results could differ materially from those projected in forward-looking statements as a result of the following factors, among others:
• our ability to operate under the
period of time;
• our ability to successfully implement a plan of reorganization;
• claims not discharged in the Chapter 11 Cases;
• the ability for our management to focus on our operations during the Chapter 11 Cases;
• the volatility of our common stock during the Chapter 11 Cases;
• continued market acceptance, use and endorsement of our products;
• quality control problems with our products;
• consolidation in the health care industry;
• the success of our clinical trials relating to products under development;
• our ability to grow and maintain strong relationships with certain key physicians;
• continued growth in the number of patients qualifying for treatment of
abdominal aortic aneurysms ("AAA") through our products; • our ability to effectively compete with the products offered by our competitors; • the level and availability of third party payor reimbursement for our products; • our ability to effectively develop new or complementary products and technologies;
• our ability to manufacture our endovascular systems to meet demand;
• our ability to grow product revenues;
• changes to our international operations including currency exchange rate
fluctuations; • our ability to effectively manage our business and keep pace with our anticipated growth;
• our ability to develop and retain a direct sales force in the United
States and select European countries; • the nature of and any changes to domestic and foreign legislative,
regulatory and other legal requirements that apply to us, our products,
our suppliers and our competitors; • the timing of and our ability to obtain and maintain any required regulatory clearances and approvals;
• our ability to protect our intellectual property rights and proprietary
technologies;
• our ability to operate our business without infringing the intellectual
property rights and proprietary technology of third parties;
• product liability claims;
• pending and future litigation;
• reputational damage to our products caused by the use, misuse or off-label
use of our products or government or voluntary recalls of our products;
• our utilization of single source suppliers for specialized components of
our product lines;
• our ability to attract, retain, and motivate qualified personnel;
• our ability to make future acquisitions and successfully integrate any such future-acquired businesses; • our ability to maintain adequate liquidity to fund our operational needs and research and developments expenses;
• our ability to identify and manage risks; and
• general macroeconomic and world-wide business conditions.
29 -------------------------------------------------------------------------------- Our actual results, performance or achievements may differ materially from any future results, performance or achievements expressed or implied from such forward-looking statements. Important factors that could cause our actual results, performance or achievements to differ materially from our expectations are disclosed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , filed with theU.S. Securities and Exchange Commission ("SEC") onMarch 11, 2020 , and in this Quarterly Report on Form 10-Q for the fiscal period endedJune 30, 2020 , including but not limited to those factors discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors," "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements." All subsequent written and oral forward-looking statements attributable to us or by persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Our forward-looking statements speak only as of the date each such statement is made. We expressly disclaim any intention or obligation to update or revise any financial projections or any forward-looking statements after the date hereof to conform such statements to actual results or to changes in our opinions or expectations, except as required by applicable law or the rules and regulations of theSEC . Overview Our Business We develop, manufacture, market and sell innovative medical devices for the treatment of aortic disorders. Our products are intended for the minimally invasive endovascular treatment ofAAA . OurAAA products are built on one of two platforms: •Traditional minimally-invasive endovascular aneurysm repair ("EVAR"); or •Endovascular aneurysm sealing ("EVAS"), our innovative solution for sealing the aneurysm sac while maintaining blood flow. Our current EVAR products include the AFX®Endovascular AAA System ("AFX System"), the VELA® Proximal Endograft ("VELA"), and the Ovation® Abdominal Stent Graft System ("Ovation System"). Our current EVAS product is the Nellix® Endovascular Aneurysm Sealing System ("Nellix EVAS System"). We sell our products through a direct sales force inthe United States and internationally through a combination of direct sales and a network of third party distributors and agents. See Item 1 of the Annual Report, entitled "Business," for a discussion of: •Market Overview and Opportunity •Our Products •Product Developments and Clinical Trials •Manufacturing and Supply •Marketing and Sales •Competition When used in this Quarterly Report on Form 10-Q, "we," "our," "us" or "Endologix ," refer toEndologix, Inc. and our consolidated subsidiaries, unless otherwise expressly stated or the context otherwise requires. Endologix®, AFX®, Duraply®, VELA®, IntuiTrak®, ActiveSeal®, Nellix®, Ovation®, Ovation Prime®, Ovation Alto®, and CustomSeal® are registered trademarks ofEndologix, Inc. or its subsidiaries. The Nellix® EndoVascular Aneurysm Sealing System has a CE Mark and is an investigational device inthe United States . The Ovation Alto® System has obtained FDA approval inthe United States and CE Mark approval in the EU.
Bankruptcy Filing and Going Concern
As a result of the commencement of the Chapter 11 Cases onJuly 5, 2020 , we are operating as a debtor-in-possession pursuant to the authority granted under Chapter 11 of the Bankruptcy Code. Pursuant to the Chapter 11 Cases, we intend to restructure our balance sheet and reduce overall indebtedness. Additionally, as a debtor-in-possession, certain of our activities are subject to review and approval by theBankruptcy Court , including, among other things, the incurrence of secured indebtedness, material asset dispositions, and other transactions outside the ordinary course of business. There can be no guarantee we will successfully consummate a sale of our assets or agree upon a viable plan of reorganization with our various stakeholders, or that any such agreement will be reached in the time frame that is acceptable to theBankruptcy Court . 30 -------------------------------------------------------------------------------- We have concluded that our financial condition and projected operating results, defaults under our debt agreements, and the risks and uncertainties surrounding our Chapter 11 Cases raise substantial doubt as to our ability to continue as a going concern.
See Note 3 for further discussion.
Debtor-In-Possession Financing
To ensure sufficient liquidity throughout the Chapter 11 Cases, we obtained a$130.8 million DIP Credit Agreement (See Note 3). This DIP Credit Agreement, coupled with our normal operating cash flows, is providing liquidity for the Company to operate as usual and fulfill ongoing commitments to stakeholders.
Delisting of our Common Stock from the
Our Common Stock was previously listed on the NASDAQ Global Market under the symbol ELGX. OnJuly 16, 2020 , theNASDAQ Stock Market suspended the trading of our Common Stock following our filing the Chapter 11 Cases, and our Common Stock has been quoted "over-the-counter" on the OTC Pink Market under the symbol ELGXQ.
Impact of COVID-19 Pandemic
During the first quarter of 2020, we were subject to challenging social and economic conditions created as a result of the novel strain of coronavirus, SARS-CoV-2 ("COVID-19"). The resulting impact of the COVID-19 outbreak created various financial impacts to our operations as a result of taking necessary precautions for essential personnel to operate safely both in person as well as remotely. Cost incurred include items like incremental payroll costs, consulting support, IT infrastructure and facilities related costs. The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our customers and our sales cycles, employee or industry events, and effect on our vendors, all of which are uncertain and cannot be predicted. To date, we have experienced a number of deferred or cancelled procedures as a result of the strain put on the healthcare system. There can be no assurances these procedures will be rescheduled when healthcare systems normalize. We may experience constrained supply or curtailed customer demand that could materially adversely impact our business, results of operations and overall financial performance in future periods. Specifically, we may experience impact from changes in how we and companies worldwide conduct business due to the COVID-19 pandemic, including but not limited to restrictions on travel and in-person meetings, production delays, closures of manufacturing facilities, warehouses and logistics supply and distribution chains and staffing shortages, decreases or delays in customer demand and spending, difficulties or changes to our sales process and customer support. As of the filing date of this Form 10-Q, the extent to which COVID-19 may impact our financial condition or results of operations or guidance is uncertain. The effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods. See Risk Factors for further discussion of the possible impact of the COVID-19 pandemic on our business.
Highlights of Our Product Development Initiatives, Clinical Trials and Regulatory Approvals
Overview
Our focus is to continually develop innovative and cost-effective medical devices for the treatment of aortic disorders. We believe that our ability to develop new technologies is key to our future growth and success. Historically, we have focused on developing our EVAR and EVAS products to treat infrarenalAAA , including initial development of products to treat complexAAA anatomies. However, we expect to devote more resources in the future to developing, enhancing and obtaining expanded indications for our current EVAR and EVAS products and to develop new product indications to treat more complex anatomies. We have the following trials in process to build independent and collective clinical and economic evidence of clinical safety and effectiveness: 31 -------------------------------------------------------------------------------- Nellix EVAS System Our Nellix EVAS System is designed to seal the aneurysm and provide blood flow to the legs through two blood flow lumens. The Nellix EVAS System consists: of (i) bilateral covered stents with endobags; (ii) a biocompatible polymer injected into the endobags to seal the aneurysm; and (iii) a delivery system and associated accessories. The Nellix EVAS System is intended to seal the entire aneurysm sac effectively excluding the aneurysm and reducing the likelihood of future aneurysm rupture. We have the following trials in process to build independent and collective clinical and economic evidence of clinical safety and effectiveness: •EVAS FORWARD Investigational Device Exemption ("IDE"). We conducted this pivotal clinical trial to evaluate the safety and effectiveness of the Nellix EVAS System. This study is a prospective single arm registry which enrolled 179 patients at 29 centers inthe United States andEurope . InNovember 2014 , we completed enrollment in the study, and we submitted the one year results to theUnited States Food and Drug Administration ("FDA") inMarch 2016 . InMay 2016 , we announced the results of the one-year clinical data from the EVAS FORWARD IDE study that demonstrate that the Nellix EVAS System met the study primary endpoints for major adverse events at 30 days (safety) and treatment success at one year (effectiveness). Two-year imaging revealed a signal of migration, leading to a field safety notification issued inOctober 2016 and a dedicated root cause analysis, resulting in refinements to the IFU. Following the implementation of the refined IFU, the Nellix EVAS system is applicable to treat an estimated 40% ofAAA patients with a traditional aneurysm. Subsequently, the two-year results from the trial were published in theJournal of Vascular Surgery inMarch 2018 . This data was previously announced inJune 2017 at theSociety of Vascular Surgery Vascular Annual Meeting ("VAM"). Key highlights from the Nellix United States IDE trial two-year clinical data are included below: •Freedom from all endoleaks (95.1%), rupture (99.4%) and all-cause mortality (93.8%) among all patients. •Highest freedom of type II endoleaks, ever reported at two years (96.6%) among all patients. •When applying the refined IFUs for Nellix, patients at the two-year follow up demonstrated 95.9% freedom from Type IA endoleak, migration >10mm, and sac growth. •EVAS2 IDE. InMay 2017 , we announced the decision to seek FDA approval of the Nellix EVAS System by conducting a confirmatory clinical study with the refined IFU and the Company's next generation Nellix device design, the "Nellix 3.5 EVAS System." The Nellix 3.5 EVAS System incorporates design improvements to enhance ease of use and offers physicians more sizes to treat more patients withAAA . InOctober 2017 , we announced our receipt of IDE approval from the FDA to commence a confirmatory clinical study to evaluate the safety and effectiveness of the Nellix 3.5 EVAS System for the endovascular treatment of infrarenalAAA . EVAS2 will prospectively evaluate the refined IFU and the Nellix 3.5 EVAS System. The study is approved to enroll up to 105 primary patients, with one-year follow-up data required for the pre-market approval ("PMA") application. We commenced EVAS2 patient enrollment inMarch 2018 and completed enrollment inMay 2020 . •EVAS FORWARD Global Registry. This registry is designed to provide real world clinical results to demonstrate the effectiveness and applicability of the Nellix EVAS System. The first phase of the registry included 300 patients enrolled in up to 30 international centers. The first patient in the registry was treated inOctober 2013 , and inSeptember 2014 , we announced completion of patient enrollment in the EVAS FORWARD Global Registry. InNovember 2016 , we announced positive two-year results on 300 patients from the EVAS FORWARD Global Registry at the Annual Symposium on Vascular and Endovascular Issues (the "VEITH Symposium"). The following outcomes were presented at the VEITH Symposium: •37% of patients having complex anatomies; •98.1% freedom from any persistent endoleaks at latest follow-up; •No secondary interventions for Type II endoleaks; •97.4% freedom from aneurysm-related mortality; and •98.5% freedom from cardiovascular mortality. In 2017, we commenced the EVAS FORWARD Global Registry 2, a post market evaluation of the Nellix 3.5 EVAS System. •ASCEND Registry. InApril 2016 , we announced the first data presentation with one-year outcomes from the ASCEND Registry, a physician-initiated registry of the Nellix EVAS System used with aortic branch stent grafts for the treatment of patients with complex AAAs. The results of the study were formally published in the peer-reviewedJournal of Endovascular Therapy inDecember 2017 . InSeptember 2017 , we announced CE Mark approval for the Nellix EVAS System with the refined IFU. The Nellix EVAS System is being studied inthe United States under an IDE. Following a thorough review of supporting clinical data, our Notified 32 --------------------------------------------------------------------------------
Body, together with an independent clinical reviewer, determined that the Nellix EVAS System, with the refined IFU, met the applicable safety and clinical performance requirements.
InApril 2018 , we announced the results of a study, which was presented byMarc Schermerhorn , M.D., Chief of Vascular Surgery atBeth Israel Deaconess Medical Center , at the Late-Breaking Aortic Trials Session during the Charing Cross 40th International Symposium. The results of the study were also formally published in the Annals of Vascular Surgery inOctober 2019 . This retrospective, propensity-weighted study compared long-term survival for the Nellix EVAS System with traditional EVAR. The study reported significantly higher three-year survival for EVAS patients as compared to EVAR patients. Those patients with larger aneurysms (greater than 5.5 cm in diameter) treated with EVAS had half the mortality at three years as compared to those treated with traditional EVAR systems. The retrospective study included 333 EVAS patients from the original Nellix United States IDE Trial and 15,431 patients from theSociety for Vascular Surgery Vascular Quality Initiative , all of whom were treated between 2014 and 2016. The patients were propensity weighted forAAA size, patient demographics, and cardiovascular risk factors. The primary outcome was overall survival, with a secondary analysis of overall survival stratified by aneurysm size. InJanuary 2019 , we announced that in order to ensure optimal outcomes for patients, the Nellix EVAS System will, for the foreseeable future, only be available for use at approved centers outside ofthe United States in a clinical investigation setting with pre-screened patients that adhere to the current anatomical indications for use. All cases will be pre-screened by a physician panel to ensure adherence to protocol and use in accordance with current product indications. Compassionate use requests will be reviewed in accordance with the process established by us and associated national competent authorities. The existing inventory has been voluntarily recalled. InJanuary 2019 , we announced that the CE Mark for the Nellix EVAS System had been suspended by our Notified Body following a voluntary recall and field safety notification issued by us onJanuary 4, 2019 . Suspension of the CE Mark means that we may not affix the CE Mark and sell the Nellix EVAS System in theEuropean Union ("EU") during the term of the suspension. InJune 2019 , we announced that the CE Mark for the Nellix EVAS System had been reinstated by GMED, the EU Notified Body for the Nellix EVAS System. The reinstatement followed an assessment of clinical evidence. InAugust 2019 , we announced that we have received IDE approval from the FDA to commence a new pivotal study to evaluate the safety and effectiveness of the Nellix Chimney EndoVascular Aneurysm Sealing System ("ChEVAS") for the endovascular treatment of complexAAA . The ChEVAS system is an endovascularAAA therapy designed to combine the Nellix 3.5 endograft with parallel visceral stents to enable treatment of patients with juxta-renal, para-renal, and suprarenalAAA . The application of EVAS for patients with complex aneurysms is expected to offer innovative new technology to a group of patients that are underserved by the current standard of care.
AFX System and VELA
The AFX System, which is comprised of AFX and AFX2 (discussed in further detail below), consists of: (i) a cobalt chromium alloy stent covered by expanded polytetrafluoroethylene (commonly referred to as ePTFE) graft material; and (ii) accompanying delivery systems. Once fixed in its proper position on the abdominal aortic bifurcation, the AFX System provides a conduit for blood flow, thereby relieving pressure within the weakened or "aneurysmal" section of the vessel wall, which greatly reduces the potential for theAAA to rupture. InFebruary 2014 , we launched a new proximal extension inthe United States , VELA, designed to be used in conjunction with our AFX bifurcated device. VELA features a circumferential graft line marker and controlled delivery system that enable predictable deployment and final positional adjustments. We began a commercial introduction of VELA inEurope inJanuary 2015 . InSeptember 2014 , we announced a new clinical study called Looking at EVAR Outcomes by Primary Analysis of Randomized Data ("LEOPARD"). This study was designed to compare outcomes of the AFX System versus other commercially available EVAR devices. We designed the LEOPARD study to randomize and enroll at least 400 patients at up to 80 leading centers throughoutthe United States and commenced enrollment in the first quarter of 2015. The centers were a mix of our current and new customers, with each investigator selecting one competitive device to randomize against the AFX System. The LEOPARD study is being led by an independent steering committee of leading physicianswho are responsible for presenting the results over the 5-year follow-up period. Positive results from LEOPARD were presented at the VEITH Symposium inNovember 2019 . Based on thosewho completed follow-up, the one-year freedom from Aneurysm Related Complications ("ARC") shows that overall the AFX System has a comparable performance to other devices. Analysis of individual clinical outcomes suggests that different EVAR approaches may have advantages in different patient populations. The AFX System remains the only device that preserves the patient's aortic bifurcation. 33 -------------------------------------------------------------------------------- InDecember 2015 , we announced that the AFX System for the treatment ofAAA received Shonin approval from theJapanese Ministry of Health, Labor and Welfare ("MHLW"). InFebruary 2016 , we announced the completion of the firstUnited States commercial implant of AFX2, which reduces procedure steps for the delivery and deployment of the bifurcated endograft. AFX2 also facilitates peripheral EVAR, ("PEVAR"), by providing the lowest profile contralateral access through a 7F introducer. These improvements bring together our ActiveSeal® technology, DuraPly® PTFE graft material and VELA, into an integrated new EVAR system. InDecember 2016 , we received notice from our Notified Body that the CE Mark for AFX and AFX2 would be suspended due to reports of Type III endoleaks with AFX with Strata graft material ("AFX Strata"), a prior generation of the AFX device. For our current generation of AFX products, we had implemented device and graft material improvements and updated IFUs resulting in a substantial reduction in reported Type III endoleaks. We provided documentation of the foregoing reduction in Type III endoleaks to our Notified Body. InJanuary 2017 , we received notice from our Notified Body that the CE Mark for AFX and AFX2 had been reinstated, effective immediately. Additionally, inDecember 2016 , we placed a temporary hold on shipments of AFX and AFX2 to complete an investigation of quality concerns with some sizes of these devices. Subsequently, we removed the temporary hold and resumed shipments of all sizes of AFX and the smaller diameter sizes of AFX2 and initiated a voluntary recall: of (i) the small remaining quantity of original AFX Strata; and (ii) the larger diameter sizes of AFX2. InJanuary 2017 , we removed the temporary hold and resumed shipments of the remaining larger diameter sizes of AFX2. InJuly 2018 , we sent a voluntary safety notice ("Safety Notice") to healthcare professional ("HCP") users of the AFX System to provide updated information on comparative AFX Type III endoleak rates, patient-tailored surveillance recommendations, and recommendations for intervening through an AFX device or re-intervening on an AFX device. No product was removed from the field as part of that safety update action. InOctober 2018 , the FDA classified theJuly 2018 Safety Notice as a Class I recall. The FDA defines a Class I recall as including a firm's correction of a marketed product in circumstances where there is a reasonable probability that use of or exposure to the device would cause serious adverse health consequences or death. The clinical conditions resulting in this Class I recall classification (Type III endoleaks) are principally related to AFX with Strata material. The AFX with Strata material was replaced by AFX incorporating the DuraPly material in both AFX and AFX2 devices. Strata was last manufactured in 2014, last sold in 2016, and removed from global inventories in the first half of 2017. There is no AFX with Strata product remaining in any commercial market. No product return is required under this recall, and no further action by HCPs were required in addition to the Safety Notice. The guidance provided in theJuly 2018 Safety Notice remains current. OnOctober 8, 2019 , our AFX2 product received a 3-year shelf-life approval from the FDA. OnOctober 28, 2019 , the FDA issued a safety update pertaining to our AFX system, in which the FDA referenced data from an integrated healthcare system (Rothenberg et. al.), published in a conference abstract and presented atAmerican College of Surgeons Clinical Congress 2019 onOctober 28, 2019 . The FDA interpreted such data as suggesting that there "may be a higher than expected risk of Type III endoleaks occurring with the use of AFX with Duraply and AFX2 endovascular grafts." Both we and the FDA noted meaningful limitations in the referenced data, including with respect to our currently commercially available AFX2 system. We are assessing the referenced data and comparing them to our own multiple data sets, including data from the LEOPARD trial (the only randomized controlled trial of EVAR providing the highest level evidence on AFX Duraply and AFX2 systems), real-world data from a vascular registry, our benchmarked complaint data, and meta-analyses of current literature. The FDA safety update does not constitute a recall or correction to the AFX System, including the AFX2 system. Ovation System The Ovation System consists of: (i) a radiopaque nitinol suprarenal stent with integral anchors; (ii) a low-permeability polytetrafluoroethylene ("PTFE"), aortic body graft that contains a network of inflatable rings filled with a liquid polymer that solidifies during the deployment procedure; (iii) nitinol iliac limb stents encapsulated with PTFE; and (iv) accompanying ultra-low profile delivery systems, auto injector and fill polymer kit. The Ovation System creates a custom seal that conforms to anatomical irregularities and has a ultra-low profile delivery system allowing for percutaneous access. InMay 2011 , we initiated a 3-year European Post-Market Registry to enroll 500 patients across 30 European centers. Enrollment ended inDecember 2013 . InJanuary 2017 , we announced positive 3-year results from the Ovation EU Post-Market Registry. The data was presented at the 2017 Leipzig Interventional Course ("LINC") meeting and showed that the Ovation System has the broadest range of patient applicability on IFU of all commercially available infrarenal endovascularAAA devices. The resulting outcomes included: 34 -------------------------------------------------------------------------------- •99% freedom from aneurysm-related mortality; •99% freedom from migration, rupture, and conversion; •97% freedom from Type I/III endoleak; and •Excellent freedom from secondary intervention for occlusion (97%), Type I endoleak (97%) and Type II endoleak (95%). InOctober 2014 , we initiated the LIFE Study to illustrate the potential advantages of a "Fast Track" protocol including PEVAR, no general anesthesia, no time in ICU and a one-night stay in the hospital with the Ovation System. InMay 2016 , we announced the completion of enrollment of 250 patients at 34 sites participating in the LIFE Study. InFebruary 2018 , the results of the one-month clinical data from the LIFE Study were published in theJournal of Endovascular Therapy . These results demonstrate that the Ovation System met the study primary endpoint for major adverse events at 30 days. The following are highlights of the publication, with outcomes covering one-month follow-up: •Low major adverse event rate of 0.4%; •No ruptures, conversion, or secondary interventions; •No type III endoleaks and low Type I endoleaks (0.4%); •Fast-Track completed in 216 patients (87%), with positive results compared to non-Fast-Track patients; •Procedure time of 84 minutes vs. 110 minutes; •General anesthesia use 0% vs. 18%; •ICU stay 0% vs. 32%; and •Mean hospital stay 1.2 days vs. 1.9 days. InAugust 2015 , we enrolled the first subject in the LUCY Study, a multi-center post-market registry designed to explore the clinical benefits associated with EVAR using the Ovation System in female patients withAAA , as compared to males. This was the first prospective study evaluating EVAR in females, a population that has historically been underrepresented in EVAR clinical trials. We announced completion of enrollment of 225 patients in the LUCY Study inFebruary 2017 . The 30-day LUCY data showed that, in women, the ultra-low profile (14F) Ovation System device resulted in: •At least 28% greater EVAR eligibility for women withAAA ; •1.3% major adverse events; •No deaths; •No proximal endoleaks; •No limb occlusion; •Low readmission rate of 3.9%; and •100% procedural success. InJune 2018 at the VAM, the 1-year results of the LUCY Study were announced in the late-breaking clinical trial session. Despite having more complex anatomies at the time of the index procedure women continue to demonstrate similar outcomes to men through one year. The 1-year outcomes of freedom from conversion, rupture,AAA -related mortality and device-related reintervention were similar between the two arms. InFebruary 2015 , the FDA approved the next generation Ovation iX Iliac Stent Graft for the Ovation System, and inJuly 2015 , the FDA approved the Ovation iX Abdominal Stent Graft System. InSeptember 2015 , the first patients were treated with the Ovation iX Abdominal Stent Graft System inEurope , and inAugust 2015 , we initiated the launch of the Ovation iX System inthe United States . InNovember 2016 , we announced at the VEITH Symposium that the 5-year results from the Ovation Global Pivotal Trial were positive and showed the following outcomes: •Broad patient applicability, with 40% of the patients treated outside the labeled indications of other EVAR devices; •Stable aortic neck diameters with an average expansion of 0.1mm, compared to 5.3mm as reported with other EVAR devices; •96.6% freedom from secondary interventions related to type I endoleak; and •No migration or conversions. InAugust 2016 , we announced that the first two patients had been treated with Ovation Alto, which is the newest device in the Ovation System platform of abdominal stent graft systems. Ovation Alto is an investigational device, currently not approved in any market. It expands EVAR to include the treatment of patients with complex AAAs, specifically patients with very short or otherwise complex aortic neck anatomy. This is achieved by the conformable O-rings with CustomSeal® polymer that have been 35 -------------------------------------------------------------------------------- repositioned near the top of the endograft, providing seal just below the renal arteries. InNovember 2016 , we received IDE approval from the FDA to conduct a clinical study with Ovation Alto inthe United States . InMarch 2017 , we announced the enrollment of the first patients in the Expanding Patient Applicability with Polymer Sealing OvationAlto Stent Graft ("ELEVATE") IDE clinical study, our pivotal clinical trial to evaluate the safety and effectiveness of Ovation Alto for the repair of infrarenal AAAs. The ELEVATE IDE clinical trial is approved to enroll 75 patients at up to 16 centers inthe United States . InFebruary 2018 , we announced the final patient enrollment in the ELEVATE IDE clinical study. InSeptember 2019 andDecember 2019 , the Effectiveness of Custom Seal with Ovation: Review of Evidence ("ENCORE,") reports regarding the study of polymer endovascular aneurysm repair ("Polymer EVAR") using Ovation System were published in theJournal of Vascular Surgery . ENCORE is a pooled retrospective analysis of the 5 prospective clinical trials and registries and encompasses 1,296 patients, nearly 160 centers and over 200 investigators inthe United States ,Europe andLatin America . The studies within ENCORE had predefined follow-up periods ranging from 1 month to up to 5 years, and across the studies the median follow up was greater than 2 years. At 5 years, the ENCORE analysis included the following results for the Ovation System based on the available data: •99% freedom fromAAA -related mortality; •99% freedom from conversion; •99% freedom from rupture; •98% freedom from reintervention for Type Ia endoleak; and •93% freedom from all device-related reintervention. InFebruary 2019 , we announced that the Ovation System for the treatment ofAAA received Shonin approval from the MHLW. InMarch 2020 , we announced FDA approval for our Alto Abdominal Stent Graft System. Approval was based on our regulatory submission that includes the ELEVATE IDE clinical study. Pursuant to the terms of approval, the first 100 patients after commercial launch will be included in a post approval imaging study to determine consistency in device selection betweenEndologix's internal imaging services and those of the implanting physicians. InJuly 2020 , we announced the first commercial implant and theU.S. commercial release of Alto endograft for the treatment ofAAA . The Alto endograft builds and improves upon the anatomically adaptive sealing technology, which has been studied in over 1,300 patients in ENCORE analysis and ELEVATE IDE clinical study.
In
Characteristics of Our Revenue and Expenses Revenue Revenue is derived from sales of our EVAR and EVAS products (including extensions and accessories) to hospitals upon completion of eachAAA repair procedure, or from sales to distributors upon title transfer (which is typically at shipment), provided our other revenue recognition criteria have been met. Our global revenue does not reflect a significant degree of seasonality. However, for our implant-based revenue, the number of medical procedures incorporating our products is generally lower during summer months. We believe that this trend may be due to the summer holiday season inEurope andthe United States . Cost of Goods Sold Cost of goods sold primarily consists of compensation (including stock-based compensation) and benefits of production personnel and production support personnel. Cost of goods sold also includes depreciation expense for production equipment, amortization of developed technology, production materials and supplies expense, allocated facilities-related expenses, and certain direct costs such as shipping. Research and Development Research and development primarily consist of compensation (including stock-based compensation) and benefits for research and development personnel, materials and supplies, research and development consultants, outsourced and licensed research and development costs, and allocated facilities-related costs. Our research and development activities primarily relate to the development and testing of new devices and methods to treat aortic disorders. 36 -------------------------------------------------------------------------------- Clinical and Regulatory Clinical and regulatory expenses primarily consist of compensation (including stock-based compensation) and benefits for clinical and regulatory personnel, regulatory and clinical payments related to studies, regulatory costs related to registration and approval activities, and allocated facilities-related costs. Our clinical and regulatory activities primarily relate to obtaining regulatory approval for the commercialization of our devices. Marketing and Sales Marketing and sales expenses primarily consist of compensation (including stock-based compensation) and benefits for our sales force, clinical specialists, internal sales support functions and marketing personnel. It also includes costs attributable to marketing our products to our customers and prospective customers. General and Administrative General and administrative expenses primarily consist of compensation (including stock-based compensation) and benefits for personnel that support our general operations such as information technology, executive management, financial accounting, and human resources. General and administrative expenses also include bad debt expense, patent and legal fees, financial audit fees, insurance, recruiting fees, other professional services and allocated facilities-related expenses. Results of Operations InDecember 2019 , a novel strain of coronavirus, which causes COVID-19, was identified. Due to the rapid and global spread of the virus, onMarch 11, 2020 , theWorld Health Organization declared the COVID-19 outbreak a pandemic. To slow the proliferation of COVID-19, governments have implemented extraordinary measures, which include the mandatory closure of businesses, restrictions on travel and gatherings, and quarantine and physical distancing requirements. In addition, inMarch 2020 , theU.S. Surgeon General and theAmerican College of Surgeons issued guidance advising that elective surgical procedures be curtailed or deferred and hospitals in theU.S. and globally have, to varying degrees, suspended elective surgeries. While certain abdominal aortic aneurysm procedures treating larger-diameter or ruptured aneurysms are deemed essential and certain surgeries, like in cases of trauma, cannot be delayed, we are seeing a significant reduction in procedural volumes as hospital systems and/or patients elect to defer abdominal aortic aneurysm procedures with smaller-diameter, less-severe aneurysms. As a result of these measures, we have experienced substantial reductions in procedural volumes and anticipate this trend will continue during the pandemic. In addition, restrictions on the ability to travel as well as the temporary closures of our facilities and the facilities of our suppliers has adversely affected our business. Further, due to the travel restrictions and physical distancing requirements, the Company has been limited in its ability to train and educate surgeons on the Company's surgical techniques and products, which may impact its ability to scale demand once healthcare services return to normal. These restrictions have also impacted the Company's manufacturing capabilities and distribution and warehousing operations as it reduces capacity and implements policies to prioritize the health and safety of employees and contractors. Although the cumulative impact of these disruptions has had a significant impact on our business, as of the date of this filing, due to uncertainties regarding the duration and scope of the current COVID-19 pandemic, the Company cannot predict the specific extent to which the COVID 19 pandemic will have on its business and financial results. 37 --------------------------------------------------------------------------------
Operations Overview - Three and Six Months Ended
The following table presents our results of continuing operations and the related percentage of the period's revenue (in thousands, except percentages):
Three Months EndedJune 30 ,
Six Months Ended
2020 2019 2020 2019 Revenue$ 24,841 100.0 %$ 36,238 100.0 %$ 53,351 100.0 %$ 71,844 100.0 % Cost of goods sold 10,688 43.0 % 13,254 36.6 % 24,066 45.1 % 25,661 35.7 % Gross profit 14,153 57.0 % 22,984 63.4 % 29,285 54.9 % 46,183 64.3 % Operating expenses: Research and development 3,624 14.6 % 4,355 12.0 % 7,160 13.4 % 9,142 12.7 % Clinical and regulatory affairs 3,071 12.4 % 3,647 10.1 % 6,236 11.7 % 7,432 10.3 % Marketing and sales 11,610 46.7 % 15,920 43.9 % 26,106 48.9 % 32,706 45.5 % General and administrative 13,197 53.1 % 8,929 24.6 % 23,316 43.7 % 18,345 25.5 % Restructuring costs - - % - - % - - % 419 0.6 % Total operating expenses 31,502 126.8 % 32,851 90.7 % 62,818 117.7 % 68,044 94.7 % Loss from operations (17,349 ) (69.8 )% (9,867 ) (27.2 )% (33,533 ) (62.9 )% (21,861 ) (30.4 )% Total other expense, net (8,698 ) (35.0 )% (20,520 ) (56.6 )% (10,602 ) (19.9 )% (30,515 ) (42.5 )% Net loss before income taxes (26,047 ) (104.9 )% (30,387 ) (83.9 )% (44,135 ) (82.7 )% (52,376 ) (72.9 )% Income tax benefit (expense) (46 ) (0.2 )% 3,253 9.0 % (73 ) (0.1 )% 3,214 4.5 % Net loss$ (26,093 ) (105.0 )%$ (27,134 ) (74.9 )%$ (44,208 ) (82.9 )%$ (49,162 ) (68.4 )% Comparison of the Three Months Ended June 30, 2020 versus 2019 ` Revenue Three Months Ended June 30, 2020 2019 Variance Percent Change (in thousands) Revenue$ 24,841 $ 36,238 $ (11,397 ) (31.5 )% United States Sales. Net sales totaled$14.2 million in the three months endedJune 30, 2020 , a 40.7% decrease from$24.0 million in net sales in the three months endedJune 30, 2019 , largely driven by the impact of deferredAAA surgeries related to the COVID-19 pandemic. International Sales. Net sales of products in our international regions totaled$10.6 million in the three months endedJune 30, 2020 , a 13.2% decrease from$12.2 million in net sales of products in our international regions in the three months endedJune 30, 2019 . The decrease was primarily driven by product sunsets inLatin America and the impact of COVID-19 pandemic. Cost of Goods Sold, Gross Profit, and Gross Margin Three Months Ended June 30, 2020 2019
Variance Percent Change
(in thousands) Cost of goods sold$ 10,688 $ 13,254 $ (2,566 ) (19.4 )% Gross profit 14,153 22,984 (8,831 ) (38.4 )% Gross margin percentage (gross profit as a percent of revenue) 57.0 % 63.4 % 38
-------------------------------------------------------------------------------- Gross margin percentage for the three months endedJune 30, 2020 decreased to 57.0% from 63.4% for the three months endedJune 30, 2019 . The decrease in gross profit margin was primarily attributable to unfavorable geographic mix and lower volumes in the three months endedJune 30, 2020 compared to prior year period. Operating Expenses Three Months Ended June 30, 2020 2019 Variance Percent Change (in thousands) Research and development $ 3,624$ 4,355 $ (731 ) (16.8 )% Clinical and regulatory affairs 3,071 3,647 (576 ) (15.8 )% Marketing and sales 11,610 15,920 (4,310 ) (27.1 )% General and administrative 13,197 8,929 4,268 47.8 % Research and Development. The$0.7 million decrease in research and development expenses for the three months endedJune 30, 2020 , as compared to the prior year period, was attributable to timing of project spending and prudent expense management.
Clinical and Regulatory Affairs. The
Marketing and Sales. The$4.3 million decrease in marketing and sales expenses for the three months endedJune 30, 2020 , as compared to the prior year period, was attributable to lower sales volume, lower headcount and prudent expense management. General and Administrative. The$4.3 million increase in general and administrative expenses for the three months endedJune 30, 2020 , as compared to the prior year period was primarily attributable to bankruptcy professional fees and increase in bad debt reserve.
Other Expense, Net
Three Months Ended June 30, 2020 2019 Variance
Percent Change
(in thousands)
Other expense, net
Other expense, net of$8.7 million for the three months endedJune 30, 2020 consists primarily of interest expense of$10.9 million , change in fair value of contingent consideration related to the Nellix acquisition of$0.1 million and foreign currency translation loss of$0.1 million , which was partially offset by income from changes in fair value of derivative liabilities of$2.3 million . Other expense, net of$20.5 million for the three months endedJune 30, 2019 consists primarily of loss on debt extinguishment of$11.8 million , interest expense of$8.9 million and fair value of contingent consideration related to the Nellix acquisition of$0.3 million , which was partially offset by income from changes in fair value of derivative liabilities of$0.9 million .
Income Tax Benefit (Expense)
Three Months EndedJune 30, 2020 2019
Variance Percent Change
(in thousands) Income tax benefit (expense)$ (46 ) $
3,253
Our income tax expense was$46 thousand and our effective tax rate was (0.18)% for the three months endedJune 30, 2020 due to our tax positions in various jurisdictions. During the three months endedJune 30, 2020 and 2019, we had operating legal 39 --------------------------------------------------------------------------------
entities in the
Comparison of the Six Months Ended June 30, 2020 versus 2019 ` Revenue Six Months Ended June 30, 2020 2019 Variance Percent Change (in thousands) Revenue$ 53,351 $ 71,844 $ (18,493 ) (25.7 )% United States Sales. Net sales totaled$32.9 million in the six months endedJune 30, 2020 , a 29.8% decrease from$46.8 million in net sales in the six months endedJune 30, 2019 , largely driven by the impact of deferredAAA surgeries related to the COVID-19 pandemic. International Sales. Net sales of products in our international regions totaled$20.5 million in the six months endedJune 30, 2020 , a 13.2% decrease from$25.0 million in net sales of products in our international regions in the six months endedJune 30, 2019 . The decrease was primarily driven by product sunsets inLatin America , exit ofSouth Korea and the impact of COVID-19 pandemic. Cost of Goods Sold, Gross Profit, and Gross Margin Six Months Ended June 30, 2020 2019 Variance Percent Change (in thousands) Cost of goods sold$ 24,066 $ 25,661 $ (1,595 ) (6.2 )% Gross profit 29,285 46,183 (16,898 ) (36.6 )% Gross margin percentage (gross profit as a percent of revenue) 54.9 % 64.3 % Gross margin percentage for the six months endedJune 30, 2020 decreased to 54.9% from 64.3% for the six months endedJune 30, 2019 . The decrease in gross profit margin was primarily attributable to unfavorable geographic mix and lower volumes in the six months endedJune 30, 2020 compared to prior year period. Operating Expenses Six Months Ended June 30, 2020 2019 Variance Percent Change (in thousands) Research and development$ 7,160 $ 9,142 $ (1,982 ) (21.7 )% Clinical and regulatory affairs 6,236 7,432 (1,196 ) (16.1 )% Marketing and sales 26,106 32,706 (6,600 ) (20.2 )% General and administrative 23,316 18,345 4,971 27.1 % Restructuring costs - 419 (419 ) (100.0 )% Research and Development. The$2.0 million decrease in research and development expenses for the six months endedJune 30, 2020 , as compared to the prior year period, was attributable to timing of project spending and prudent expense management. Clinical and Regulatory Affairs. The$1.2 million decrease in clinical and regulatory affairs expenses for the six months endedJune 30, 2020 , as compared to the prior year period, was attributable to expense timing and prudent expense management. 40
-------------------------------------------------------------------------------- Marketing and Sales. The$6.6 million decrease in marketing and sales expenses for the six months endedJune 30, 2020 , as compared to the prior year period, was attributable to lower sales volume, lower headcount and prudent expense management. General and Administrative. The$5.0 million increase in general and administrative expenses for the six months endedJune 30, 2020 , as compared to the prior year period was primarily attributable to higher legal and finance costs associated with debt restructuring, bankruptcy professional fees and increase in bad debt reserve.
Restructuring costs. The
Other Expense, Net
Six Months Ended June 30, 2020 2019 Variance Percent Change (in thousands) Other expense, net$ (10,602 ) $ (30,515 ) $ 19,913 >100% Other expense, net of$10.6 million for the six months endedJune 30, 2020 consists primarily of interest expense of$21.4 million , foreign currency translation loss of$1.2 million and change in fair value of derivative liabilities of$0.7 million , which was partially offset by gain on debt extinguishment of$12.5 million and fair value of contingent consideration related to the Nellix acquisition of$0.2 million . Other expense, net of$30.5 million for the six months endedJune 30, 2019 consists primarily of interest expense of$17.3 million and loss on debt extinguishment of$1.2 million , expense from changes in fair value of derivative liabilities of$1.2 million and change in fair value of contingent consideration related to the Nellix acquisition of$0.1 million . Income Tax Expense Six Months Ended June 30, 2020 2019
Variance Percent Change
(in thousands) Income tax benefit (expense)$ (73 ) $
3,214
Our income tax expense was$73 thousand and our effective tax rate was (0.17)% for the six months endedJune 30, 2020 due to our tax positions in various jurisdictions. During the six months endedJune 30, 2020 and 2019, we had operating legal entities in theU.S. ,Canada ,Italy ,New Zealand ,Poland ,Singapore andthe Netherlands (including registered sales branches in certain countries inEurope ). 41
-------------------------------------------------------------------------------- Liquidity and Capital Resources The chart provided below summarizes selected liquidity data and metrics as ofJune 30, 2020 ,December 31, 2019 andJune 30, 2019 :June 30, 2020 December
31, 2019
(in thousands, except financial metrics data) Cash, cash equivalents and restricted cash$ 19,696 $ 42,760$ 52,143 Accounts receivable, net$ 11,087 $ 22,392$ 21,926 Total current assets$ 61,407 $ 93,703$ 107,418 Total current liabilities$ 229,598 $ 55,793$ 42,531 Working capital (deficit) surplus$ (168,191 ) $ 37,910$ 64,887 Current ratio 0.3 1.7 2.5 Days sales outstanding ("DSO") 41 58 55 Inventory turnover 1.7 1.8 1.7 Operating Activities In the six months endedJune 30, 2020 , cash used in operating activities was$31.3 million . This was primarily the result of a net loss of$44.2 million , non-cash operating expenses of$13.3 million , and changes in operating assets and liabilities of$0.5 million . In the six months endedJune 30, 2019 , our operating activities used$20.5 million in cash. This was primarily the result of a net loss of$49.2 million , non-cash operating expenses of$29.9 million , and changes in operating assets and liabilities of$1.2 million . During the six months endedJune 30, 2020 and 2019, our cash collections from customers totaled$64.6 million and$70.8 million , respectively, representing 121.1% and 98.5% of reported revenue for the same periods. Investing Activities Cash used in investing activities was$0.1 million for the six months endedJune 30, 2020 as compared to cash used in investing activities of$0.2 million for the six months endedJune 30, 2019 . For the six months endedJune 30, 2020 , cash used in investing activities consisted of$0.1 million used for machinery and equipment purchases. For the six months endedJune 20, 2019 , cash used in investing activities consisted of$0.2 million used for machinery and equipment purchases. Financing Activities Cash provided by financing activities was$8.4 million for the six months endedJune 30, 2020 , as compared to cash provided by financing activities of$48.1 million in the prior year period. For the six months endedJune 30, 2020 , cash provided by financing activities consisted of proceeds from our PPP loan of$9.8 million , which was offset by$1.4 million used in deferred financing costs. Credit Arrangements See Note 7 of the Notes to the Condensed Consolidated Financial Statements for a discussion of our credit arrangements. Future Capital Requirements We believe that the future growth of our business will depend upon our ability to successfully develop new technologies for the treatment of aortic disorders and successfully bring these technologies to market. We expect to incur significant expenditures in completing product development and clinical trials for our products. The timing and amount of our future capital requirements will depend on many factors, including: •the need for working capital to support our sales growth; •the need for additional capital to fund future development programs; •the need for additional capital to fund strategic acquisitions; 42 -------------------------------------------------------------------------------- •our requirements for additional facility space or manufacturing capacity; •our requirements for additional information technology infrastructure and systems; and •adverse outcomes from potential litigation and the cost to defend such litigation. We have limited capital resources and expect to incur further losses for the foreseeable future. The Company's recurring operating losses, net operating cash flow deficits, accumulated deficit and bankruptcy filing, raise substantial doubt about the Company's ability to continue as a going concern for one year from the issuance of the accompanying consolidated financial statements. We presently have several operating subsidiaries outside ofthe United States . As ofJune 30, 2020 , these subsidiaries held an aggregate of$2.7 million in foreign bank accounts to fund their local operations. These balances related to undistributed earnings, are deemed by management to be permanently reinvested in the corresponding countries in which our subsidiaries operate. Management has no present or planned intention to repatriate foreign earnings intothe United States and may have to repatriate any foreign earnings to meet those needs, we would then need to accrue, and ultimately pay, incremental income tax expenses on such "deemed dividend," unless we then have sufficient net operating losses to offset this potential tax liability. We will require additional capital to sustain our operations and make the investments we need to execute upon our business plan. If we are unable to generate sufficient revenue from our existing business plan, we will need to obtain additional equity or debt financing. Further, the COVID-19 outbreak has negatively impacted the global economy and financial markets which could interfere with our ability to access financing. If we attempt to obtain additional debt or equity financing, we cannot assume that such financing will be available on favorable terms, if at all. Further, it may cause substantial dilution (in the case of an equity financing), or may contain burdensome restrictions on the operation of our business (in the case of debt financing). Lastly, if we are not able to obtain required financing, we may need to curtail our operations and/or our planned product development. Contractual Obligations Contractual obligation payments by year with initial terms in excess of 1 year were as follows as ofJune 30, 2020 (in thousands):
Payments due by period
Remainder of Total 2020 2021 2022
2023 2024 2025 Thereafter
Debt obligations
45,621 7,628 16,417 12,713 6,965 1,898 - - Operating lease obligations 28,324 1,799 4,269 3,994 3,016 2,909 2,905 9,432 Purchase commitments 1,087$ 249 $ 838 - - - - - Total$ 359,958 $ 9,926 $ 44,475 $ 110,412 $ 103,267 $ 79,541 $ 2,905 $ 9,432 Debt obligations includes interest payable in kind on our term loan facility and a$11.1 million exit fee under our credit facility agreement with affiliates ofDeerfield Management Company, L.P. (collectively, "Deerfield"). Interest on debt obligations includes interest on the 5% convertible notes, which shall be paid, at the Company's option, either in cash or, if certain terms are met in accordance with the 5% convertible notes indentures, shares of common stock or paid in kind. See Note 7 of the Notes to the Condensed Consolidated Financial Statements for a discussion of debt obligations and Note 9(a) of the Notes to the Condensed Consolidated Financial Statements for a discussion of operating lease obligations. The commencement of the Chapter 11 Cases constituted an event of default and caused the automatic and immediate acceleration of all debt outstanding under our various debt agreements. However, any efforts to enforce payment obligations under the debt agreements are automatically stayed as a result of the filing of the Chapter 11 Cases, and the creditors' rights of enforcement in respect of the debt agreements are subject to the applicable provisions of the Bankruptcy Code. Further, the entire amount of outstanding debt has been classified as current in these financial statements.
Off-Balance Sheet Arrangements
Other than the purchase commitments described above, we do not have any
off-balance sheet arrangements as of
43 -------------------------------------------------------------------------------- Critical Accounting Policies and Estimates We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted inthe United States ("GAAP"). The preparation of the financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Management evaluates its estimates on an ongoing basis, including those related to: (i) the collectibility of customer accounts; (ii) whether the cost of inventories can be recovered; (iii) the value of goodwill and intangible assets; (iv) the realization of tax assets and estimates of tax liabilities; (v) the likelihood of payment and the value of contingent liabilities; and (vi) the potential outcome of litigation. Such estimates are based on management's judgment which takes into account historical experience and various assumptions. Nonetheless, actual results may differ from management's estimates. See Part II, Item 7 of the Annual Report for a discussion of our critical accounting policies and estimates. There have been no other material changes in our critical accounting policies and estimates from those disclosed in the Annual Report. The price of our common stock has declined significantly and may continue to fluctuate in future periods. Fluctuations in our stock price may negatively affect the liquidity of our common stock, which could further adversely impact our stock price. If the recent negative volatility of our market capitalization is sustained, we may perform impairment tests more frequently and it is possible that our goodwill could become impaired, which could result in a material charge and adversely affect our results of operations. To date, we have not recorded any impairment charges. Recent Accounting Pronouncements InAugust 2018 , the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance modifies the disclosure requirements on fair value measurements. The Company adopted this standard onJanuary 1, 2020 , and adoption of this standard did not have a material impact on the Company's consolidated financial statement presentation or results.
Other recent accounting pronouncements issued by the FASB (including its
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