Endologix's (ELGX) CEO John McDermott on Q2 2014 Results - Earnings Call Transcript

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 |  About: Endologix Inc (ELGX)
by: SA Transcripts

Call Start: 17:00

Call End: 17:58

Endologix, Inc (NASDAQ:ELGX)

Q2 2014 Earnings Conference Call

July 30, 2014 17:00 ET

Executives

Zack Kubow - IR, The Ruth Group

John McDermott - CEO

Shelley Thunen - CFO

Analysts

Rick Wise - Stifel

Brooks West - Piper Jaffray

Joanne Wuensch - BMO Capital Markets

Jason Mills - Canaccord Genuity

Chris Cooley - Stephens

Steven Lichtman – Oppenheimer

Matt Keeler - Credit Suisse

Chris Pasquale - JPMorgan

Operator

Welcome to Endologix’s Inc Second Quarter 2014 Earnings Conference Call. (Operator Instructions). I would now like to turn the conference over to your host Zack Kubow of The Ruth Group. Thank you .You may now begin.

Zack Kubow

Thanks, operator, and thanks everyone for participating in today’s call. Joining me from the Company are John McDermott, Chief Executive Officer; and Shelley Thunen, Chief Financial Officer. This call is also being broadcast live over the Internet at www.endologix.com and a replay of the call will be available on the Company’s website for 30 days.

Before we begin, I’d like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of Federal Securities laws. These forward-looking statements involve material risks and uncertainties. For a discussion of risk factors, I encourage you to review the Endologix’s annual report on Form 10-K and subsequent reports as filed with the Securities and Exchange Commission.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, July 30, 2014. Endologix undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call.

With that said, I’d like to turn the call over to John.

John McDermott

Thanks Zack. Good afternoon everybody. We achieved strong results in the second quarter with improved performance in the U.S. another quarter of growth from Nellix Limited introduction in Europe and continued enrollment in our clinical studies. I will begin the call today with a quick overview of our results for the quarter followed by an update on our new product and growth drivers.

Next I will turn the call over to our CFO, Shelley Thunen who will provide a more detailed review of our second quarter financial performance and full year guidance. After that I will come back on to review our key goals for the rest of the year and then we will open it up for questions.

We achieved total revenue of $38.3 million in the second quarter of 2014, an increase of 13% year-over-year and 15% sequentially over Q1. International revenue grew 36% driven by our sales in clinical team in Europe that increased sales by 89% over Q2 last year. In the U.S. revenue grew 6% continuing the positive trend that began in the first quarter following a slow start to the year in January. In the U.S. we currently have 93 sales reps and clinical specialists and expect to finish the year just under 100 representing sales force growth of about 18% in 2014.

This will position us nicely going into next year and provides additional depth and coverage for the anticipated launch of AFX3 in 2015 and Nellix in 2016. In Europe we currently have a sales and clinical team of 28 and are planning to get up around 32 by the end of this year which represents a sales force increase of 28% over 2013.

This will give us a nice initial footprint in Europe and enough people to impact the market in 2015. Looking forward into Q3 and Q4, we will be focused on our sales growth in the U.S., the gradual roll out of Nellix in Europe and enrollment of the Nellix clinical studies. We have made progress in the U.S. and continue to get positive physician feedback on VELA, our new Proximal Endograft. We have also continued our Percutaneous EVAR Training Program and since so far this year have trained 180 doctors. By the end of 2014 we expect to have trained 500 physicians since starting this initiative last year. We have seen good growth from our PEVAR trained physicians and expect to continue the program in 2015.

Now turning to Nellix, we’re little over a year into the limited market introduction in Europe and we’re very pleased with the overall clinical results and high level of physician interest. In the second quarter we completed 500 Nellix procedures and recently achieved the acquisition milestone of $10 million and trailing 12 month international sales. These results together with the continued high demand for the product gives us the confidence and the potential for Nellix to become the market leading device for the treatment of abdominal aortic aneurysms.

On the clinical front, the Nellix clinical studies are progressing nicely. We currently have just over 200 patients enrolled in the EVAS FORWARD global registry. This is a 300 patient prospective multi-center trial designed to capture real world clinical results with the Nellix device.

We expect the next clinical data presentation from the global registry to be sometime this fall. For the EVAS FORWARD-IDE we currently have 75 patients enrolled and are forecasting to complete enrollment of all 180 patients around the end of this year. This would position us for a potential PMA approval in the U.S. by the end of 2016.

So overall we have made good progress in the second quarter and feel like we’re well positioned for continued growth. With that I would like to hand the call over to Shelley Thunen for her financial review. Shelley?

Shelley Thunen

Good afternoon and thank you John. Today we’re pleased to report our financial results and key metrics for the second quarter of 2014. Total revenue for the second quarter increased by 13% year-over-year to $38.3 million. For the six months ended June 30, 2014 total revenue increased 12% to $71.6 million compared to $63.7 million for the six months ended June 30, 2013. Domestic revenue in the second quarter increased by 6% year-over-year and 17% sequentially to $28 million. The increase in the U.S. was due to improving AFX procedure trends following a slow start to the year in the first quarter of 2014. International revenue increased by 36% year-over-year in the second quarter to $10.3 million.

In Europe revenue increased to $7.8 million up 89% year-over-year and 19% sequentially. The international sales increase was primarily attributable to strong growth of Nellix sales. Gross margin in the second quarter of 2014 as compared to the prior quarter or year ago remains stable at 74%. For the six months ended June 30, 2014 gross margin was 74% as compared to gross margin of 75% for the six months ended June 30, 2013. The decrease in gross margin for the six months period was primarily driven by geography and product mix with a greater proportion sales from international market which carry lower gross margins. Operating expenses for the second quarter of 2014 were $32.3 million compared to $27.5 million in the same period last year.

Operating expenses for the six months ended 2014 were $61.9 million compared to $54.5 million for the six months ended June 30, 2013. The increase in operating expenses was driven by R&D, sales and marketing and G&A expenses. Our GAAP net loss was $9 million or $0.14 per share in the second quarter of 2014 compared to net income of $5.7 million or $0.09 per share for the second quarter of 2013.

In the second quarter of 2014 the accounting for the Nellix consideration generated a non-cash expense of $3.8 million or $0.06 per share as compared to $7.6 million of benefit or $0.12 of income in the second quarter of 2013. These fluctuations to net income due to Nellix contingent consideration are primarily due to the change in Endologix’s common stock price quarter-to-quarter.

In June we reached the first Nellix acquisition milestone payable in Endologix common stock to former Nellix shareholders, therefore the vast majority of fluctuation from this non-operating item will no longer effect our book results and EPS starting in the third quarter of 2014. Our adjusted net loss for the second quarter which is book income, net income or loss less the contingent consideration for Nellix in convertible debt expense was $3.8 million loss or $0.06 per share loss as compared to a loss of $1.9 million or $0.03 per share loss in the second quarter of 2013.

While revenue continued to increase at a rate of 13% in the second quarter of 2014. We increased our investments in R&D, clinical study sales and marketing and G&A as we expected. For the six months ended June 30, 2014 we reported a net loss of $3.7 million or $0.06 per share compared to a net loss of $3.7 million or $0.06 per share for the six months ended June 30, 2013.

Our adjusted net loss excluding the Nellix contingent consideration convertible debt expense for the six months ended June 30, 2014 with $8.9 million or $0.14 per share compared to an adjusted net loss for the six months ended June 30, 2013 as $6.1 million or $0.10 per share.

On an adjusted EBITDA basis a non-GAAP measure of GAAP income or loss adding back non-cash benefit or charges including the Nellix contingent consideration, stock based compensation, depreciation, amortization, interest expense, tax and foreign currency remeasurement against the losses.

Our net loss in the second quarter of 2014 was $947,000 or $0.02 per share compared to income of $456,000 or $0.01 per share in the second quarter of 2013. For the six months ended June 30, 2014 adjusted EBITDA loss was $4 million or $0.06 per share loss compared to a loss of 64,000 in the prior year period.

Now turning to the balance sheet, accounts receivable days outstanding, the 63 days at the end of the second quarter of 2014 compared to 65 days at the end of 2013 and 69 days at the end of March 2014. Our DSOs have continued to be excellent, U.S. DSOs were a bit below the normal at the end of the second quarter while international DSOs remain stable. However we continue to anticipate that DSOs will increase as our sales to international accounts continue to increase as a percent of revenue because they are traditionally slower to pay than our U.S. customers.

Inventory turnover was 1.5 turns at quarter end compared to 1.6 turns at the end of March 2014. Inventory turns are as we expected although slightly lower than historical numbers as we prepare to move to our new manufacturing facility in the fourth quarter and increase inventory levels for Nellix as revenue and demand increases.

We ended the quarter with cash and cash equivalent and investments of a $110.8 million as compared to a $119.6 million in cash and cash equivalents at the end of the first quarter.

Principal uses of cash in the second quarter were expected capital expenditures for a new facility and continued investment in inventory.

Now turning to guidance we’re narrowing our revenue guidance to a $148 million to a $152 million, a 12% to 15% increase over 2013. This compares to the previous range of a $146 million to a $152 million. However we have adjusted our geographic mix expectation with U.S. revenue growth now expected to be 4% to 6% versus 6% to 10% previously and international revenue growth now expected to be 42% to 46% compared to 26% to 30% previously.

Within revenue guidance we typical expect seasonality in Europe in the third quarter resulting in a sequential dip followed by growth from the broader market introduction of Nellix in the fourth quarter.

In the U.S. we anticipate growth as compared to last year in each of the quarters in the second half but we still anticipate summer seasonality in the third quarter. We continue to expect full year 2014 gross margin to be in the range of 73% to 75%. On the bottom-line we’re also narrowing our guidance within the previous guidance ranges. Projected 2014 GAAP guidance is $0.24 to $0.30 loss per share. Projected 2014 non-GAAP adjusted net loss which excludes the Nellix contingent consideration and convertible debt expense is expected to be between $0.27 to $0.33 loss per share as compared to a wide range of $0.22 to $0.35 loss previously.

On an adjusted EBITDA basis we’re also narrowing our expectations to $0.10 to $0.16 losses compared to previous guidance of $0.17 loss for share for the year. Again adjusted EBITDA per loss share is GAAP net loss per share without the effect of Nellix contingent consideration debt expense, non-cash expenses such as depreciation, stock based compensation and foreign currency remeasurement.

Not included in this loss per share guidance however our potential efforts, litigation and outcomes and the effects to possible business development transaction. We’re also reiterating our cash expectation. We expect in 2014 with appropriate $101 million to $106 million in cash using between $20 million to $25 million in 2014.

2014 cash use includes approximately $12 million in capital expenditures primarily for leasehold improvements and equipment for our new facility in Irvine to supper our current and expected revenue growth.

And increase in working capital for accounts receivable and inventories consistent with our growth. With the remaining cash of over a $100 million at year end we believe we have sufficient cash resources to continue to fund the business in future years.

I will now turn the call back to John.

John McDermott

Thanks Shelley. We’re pleased with our progress in the second quarter of 2014 and remain confident in our full year revenue guidance as well as the long term growth potential of the business. Following our key goals and priorities for the rest of the year. First and foremost is to achieve our revenue guidance, second is to continue driving adoption in the U.S. of AFX, VELA and PEVAR. Third is to continue with the limited introduction of Nellix and begin a gradual roll out to more new customers in the fourth quarter and fourth is to complete enrollment in the EVAS FORWARD-IDE and the global registry around the end of this year. By achieving these goals we will continue on our path to our becoming a leading innovator in endovascular aortic aneurysm repair.

We look forward to keeping you posted on our progress and are planning to participate in the Canaccord Genuity Growth Conference in August and the Credit Suisse Conference in September. In addition we plan to host an investor meeting in conjunction with the VEITH Symposium in New York on November 19th. We will provide additional information on this event in the fall.

With that we will open it up for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Rick Wise from Stifel.

Rick Wise - Stifel

Obviously a terrific quarter and it's great to see the progress. John can you talk a little bit more on your U.S. performance and the new guidance range? It seems like you made tremendous progress. If you aren’t where you thought you would be in terms of U.S. growth despite the obvious acceleration. Help us understand where the delta is, where are you relative to where you thought you would be coming into the year? What’s that about?

John McDermott

When we adjusted our numbers early in the year that was our best estimate at the time and so as we have now got a couple of quarters under our belt and we lookout at the rest of the year, we felt it was just prudent to adjust a little bit uncertainty at just about how much seasonality we will see but we felt like that adjusted range was more appropriate and although it's lower than we might have thought of going into the year if you compare first half, second half. The second half growth rate in the U.S. right now is estimated at about 8% which is still two times the market growth rate. So although that’s a number that’s historically lower than what we have seen in the U.S., we’re still capturing market share and so you combine that 2x market growth rate together with what we see is very bullish results in Europe. We think we still got a nice growth profile.

Rick Wise - Stifel

And I just want to understand, that you have been very clear about talking to us about the in recent months over the month over month sequential improvements which I assume you are still seeing. But can you give us a little more color on rep productivity, sales force is expanding a little faster than I thought, that seems good. You didn’t include any rep productivity in your guidance if I remember correctly. Does your new guidance include that productivity? Are you seeing that the productivity you have seen frankly over the last 5 or 6 years?

John McDermott

Yes, so the rep productivity has continued to be consistent with what we have seen in the past. Our overall average is about seven cases per month per rep which is relatively flat year-over-year at this point. Now we will dilute that a little bit with some additional reps. We may measure kind of 10 year reps versus new reps because the new reps take a little while to come up to speed. The new reps will primarily benefit us next year and then we also have clinical specialist and the clinical specialist tend to do about two times the number of cases per month as a rep. So on average around 14. So the productivity numbers have maintained and have been pretty consistent.

We think there is still growth opportunity there and we see that as the sales force gets more tenured but it will get diluted a little bit when we bring on some new rookie. So I think seven moving up to eight is a pretty good way to think about it for the next year or so.

Rick Wise - Stifel

Sounds like you’re back to the pre-fourth quarter ’13 run-rate right?

John McDermott

I don’t have that number. You mean in terms of the run-rate for the sales domestically?

Shelley Thunen

No, I think we’re if we look at kind of overall first half growth versus the last year it's about a 2% growth and then as John said if you extrapolate the numbers it is about an 8% so it's a little lower growth rate than we got in the fourth quarter because we’re a little -- but I think that we’re at not similar growth rates but certainly similar run-rates.

Rick Wise - Stifel

One last one, Nellix supply progress, it sounds like you’re still on track for the 3Q, 4Q gradual capacity increase just -- is that going to be fully up and running and supplying the market and maybe you can give us a little color on when your full capacity, let’s say by the end of the year or start of next year, what kind of revenue rate can you supply or support globally? Thanks.

John McDermott

So in terms of the move of the move or the facility expansion that is on track in fact we have got some people that are already starting now to move to the new facility. Operationally we are going through our registration processes now. Have had some inspects and are working through the approvals for the new facility. Expect to get those approvals and be operational in the new facility by the end of this quarter. In terms of the capacity of the new facility, when we do our five year plan which we’re finalizing and updating currently we built that building with the anticipation that that facility could support our needs for at least another five years before we would have to add additional capacity. So we -- there is a tremendous amount of growth potential on the manufacturing side in that facility. So I don’t expect production to be anything we talk about for the next few years.

Operator

Thank you. Our next question comes from Brooks West from Piper Jaffray.

Brooks West - Piper Jaffray

John another just follow-up on the U.S. market, can you talk about the resolution of some of the negative dynamics in Q1 and I’m thinking about competitive launches and maybe some physicians who are excluded from some of the trials coming back into the fold?

John McDermott

Yes as we kick back through that and we’re not monitoring that in the same level of detail that we were at the outset but I would say we have seen progress across the Board in those categories that affected us. We’re starting to rebuild some of those relationships where physicians were frustrated with us on not being included in Nellix. I have seen progress there. As far as the Cook phenomenon that we talked about previously. We have also seen progress there because some of the physicians that have now gone through the training have been frustrated that there is a very high case turn down rate for that device and so they have committed their infrarenal cases and not been able to get very many these complex cases done.

So we have seen some improvement there, although there are still some folks that are working off their case volumes and then on the overall competiveness, the competitive dynamic. I would say that continues all of the companies are working hard to hold on to what they have got, TriVascular is a new entrant as you know, Lombard as well and so I would expect the marketplace overall to be more competitive moving forward and our position within the market and the company’s profile has also changed over the last year.

Right now if you annualize our Q2 domestic numbers, we’re running between 16% and 17% market share and that’s without even launching Nellix. So we’re clearly much more on the radar screen than the competitors than we had been in the prior periods which means just more counter detailing and overall more competitive environment. That said, we feel we’re well positioned with the sales force expansion with AFX3 in 2015 and Nellix in 2016 we like our domestic growth opportunities.

Brooks West - Piper Jaffray

And just a follow-up also on the Nellix I guess more robust launch in Q4. Can you talk about -- my understanding is you haven't been consigning inventory to either hospitals or dealers. I’m wondering could we see a bump from those kinds of revenue in Q4? And maybe Shelley can you give us a little bit of a sense of the cadence for international revenue growth from Q3 to Q4?

John McDermott

Let me take the consignment question Brooks. It's true we have very few hospitals with consignment stock and although we will increase that I wouldn’t expect to increase that dramatically in Q4 because we still want to be involved in hands on with as many cases as we can and once you put stuff in on consignment you have lost it a little bit of the visibility to anatomies and we’re not quite ready for that. So overtime we will broaden the consignment accounts but it's not going to be a focus of our growth activities Nellix related. Most of the growth in Nellix accounts is going to come from just opening new accounts and making the product more widely available. So far we have kept it to a relatively smaller number of centers in Europe.

Brooks West - Piper Jaffray

And then I guess Shelley before you go, John, consignment but also could we see some stocking orders in Q4?

John McDermott

You will see some but not much. The growth in Europe is mostly direct. We do have some distributor business in Europe but the significant majority of the revenue you’re seeing out of Europe is direct and even if we did consign they wouldn’t recognize those revenues until they use the devices. So the stocking related revenue from Nellix is going to be pretty minor.

Shelley Thunen

And just to clarify direct consignment at hospitals, we don’t recognize revenue until the case is completed and then distributors, well we’re introducing Nellix to distributors in Europe we’re currently doing that but that is a minor portion of our total European revenue and we kind of anticipate that that will continue in the third and fourth quarters.

Brooks West - Piper Jaffray

So then do you expect a big step up in international revenue growth from Q3 to Q4, how should we think about them?

Shelley Thunen

I think as we guided I expect in Europe that we will be down sequentially from the second quarter which was very strong in the third quarter just because of the seasonality and then backup as we enter our robust market launch in Europe in the fourth quarter. On other international sales, you know rest of the world which is primarily Latin America and Asia and that is primarily distributor income. I expect that to remain relatively stable.

We don’t see other than orders between -- we don’t see lot of growth in our international market in the third and fourth quarters, that business is relatively stable. Although we could get a little bit as we introduce Nellix in 2014 I think as we think about Japan we have had variability in our orders quarter to quarter, that’s really about their ordering pattern more than anything else but we look at those markets primarily being driven by Nellix as we go forward I think particularly in Japan we’re starting to see a lot more competition. We will probably have three new entrance in that market and this year and early next year and we would expect reacceleration in that market as we get AFX net market and then later Nellix.

Operator

Thank you. Our next question comes from Joanne Wuensch from BMO Capital Markets.

Joanne Wuensch - BMO Capital Markets

It is two pieces of it. The first one is, you comment about, and I'm going to quote you, a robust market launch in Europe that will begin in the fourth quarter. What does it take to do a robust market launch in Europe, and if I think about that being our fourth quarter number, how does that flow into next year?

Shelley Thunen

Let me clarify, I hope I said this word in front of robust. We try and say more robust market launch, I think that we’re trying to clarify that difference between more robust market launch than what we’re doing now versus a full market launch and so I do think there is some nuance in there Joanne as well. And we want to be careful about that. I think our focus is on adding hospitals that have higher volume rather than going out to everybody. John do you want to add a little bit about --

John McDermott

I think it's -- the way I would think of it Joanne is you get a little bit of a sense for our procedure growth quarter-over-quarter where in what I could characterize and still a relatively limited commercial phase. We will take that up a notch in Q4 and what that means that a tactical level is we’re going to broaden the number of accounts that we’re interacting with and spreading the device more widely. Now we feel like we have got enough experience and refine all the procedure steps and troubleshooting and sizing and everything. We feel well prepared to make the technology more widely available. I can’t give you a number obviously but it will be an expansion over the current run-rates.

Joanne Wuensch - BMO Capital Markets

Okay, and so the next piece of that question, getting past the fourth-quarter into next year, what makes you move or how do you think about moving into a full launch?

John McDermott

We maybe kind of hung up in the schematics a little bit. I define a full launch more with other products where we have lots and lots consignment and we’re making the product available basically to whoever wants it and this is not that kind of product, it's a new technology, it's still relatively early in it's life cycle and so I think we will handle it maybe differently than the market when people talk about full market launch it's in a very unconstrained way and I just don’t see us getting to that for some time. So what we will talk about is continued controlled market introduction but offering it to more and more doctors but I think we will still be able to put up some very nice sequential growth numbers with well managed introduction of the product.

In Europe right now we have had the product available for a short period of time, we’re already between 11% and 12% market share where the small team and a limited introduction. So we feel like we have got very substantial growth potential there.

Joanne Wuensch - BMO Capital Markets

And just one additional question. PEVAR, how is that doing in the United States? Could you give us an update on that, please?

John McDermott

Yes I think I mentioned in my remarks, so far this year we have trained a 180 physicians. The goal by the end of the year is to get around 250 which combined with last year will put us up at about 500 physicians trained year-to-date since starting the initiative last year. We see very nice growth out of those physicians who go through the training program, so we expect to continue it and it's going well, we get very good feedback from the physicians that attend that and I think we have impacted and will continue to impact the market overall the number of physicians that do PEVAR now is considerably higher than when we started this.

Operator

Thank you. Our next question comes from Jason Mills from Canaccord.

Jason Mills - Canaccord Genuity

First question is, two part, specific to Nellix in Europe. It was acting as sort opting on the number of accounts you expect to end the year at. I think last time we spoke you were in the close to a 100 or closing on a 100 sort of where you see that going and with respect to the nuanced language around full launch or more robust launch following up on the question, obviously you are being very careful as it seems very prudent to -- what physicians do it or patients that’s indicated for and I will open it whoever wants it -- hopefully prevent really, really difficult cases where unfortunately outcome should be a little worse. I’m wondering as you get past the global registry enrollment, obviously you want the device to work well on every patient but I’m wondering if that is a trigger for a more open launch of the product, getting past that not every patient is going to be recorded in the registry.

John McDermott

Yes it will certainly helpful because then we will have a good bit of prospective clinical data in a wide range of anatomies and that will inform the training programs and the education of the clinical community. So I do think the registry data can be useful. At this point it's just what happens is when a physician starts to use Nellix they quickly realize that they can do things with this technology that they cannot do with other devices, so they quickly want to start treating aneurysm that are well off the IFU and it looks like Nellix has great potential to do that but we want to just do that cautiously and that’s why we’re still a little bit reluctant to go with consignments in a broader introduction.

Our preference would be to be in every one of those cases and work together with the clinical community to understand the boundaries because we’re reshaping the boundaries of EVAR now with EVAS and we just want to do that cautiously. So we’re not trying to be overly conservative but when you see and talk to physicians that now have access to it, they are treating and they want to treat patients that they have been unable to treat with EVAR before and we’re just trying to do that slowly.

I can’t give you an exact time frame but what I can tell you is even in this kind of approach, a relatively conservative roll out where we have considerable influence over the cases that are done. I still think we can get to market leadership. I don’t think this approach is going to impede our ability to become market leader. I just think it's the right way to preserve the integrity, of t technology for the long term and at some point we may talk about it in a more unconstrained type of commercial environment but for the time being I think we got to all calibrate that we want to just take our time and do it right and show good sequential growth.

Jason Mills - Canaccord Genuity

In Europe I know it's a little bit more fragmented than it is in United States, what is market leadership from a percentage standpoint in Europe?

John McDermott

Right now our estimate for Medtronic is 45%, so the new player comes, that’s the current measurement. I don’t think you have to be there. I mean for our growth I don’t think you have to be at 45 to be market leader given the number of competitors in that market. I think your mid-30s positions you as market leader in Europe from what I can tell you, that’s how we have modeled it anyway.

Jason Mills - Canaccord Genuity

The question on the number of customers John, would you be willing to talk more about that?

John McDermott

Yes, I’m sorry I didn’t mean to ignore that. Our target has always been to finish the year at about 90 accounts and we’re in a good shape relative to that target. We haven't decided yet, what level of metrics we want to provide the marketplace moving forward. We’re still sorting that out, what I can tell you is right now the device is well is a bit ahead of our internal projections both in terms of cases per account, the number of accounts and the ASPs. So far there has been upside in our forecast and I don’t see any reason to think that will change.

We may provide account target when we give guidance next year but at this point just know that we’re in a good shape to hit our 100 account by the end of the year target.

Jason Mills - Canaccord Genuity

Few follow-ups, on complex (indiscernible), external market, any update there on Nellix and also the internal program and sort of at this point in time whether or not there are -- it's dual program still in your mind spending similar amounts of resources on both programs or if there is any change to that?

John McDermott

It's unchanged, it's dual approach at this point and all of the learning’s from the Ventana 1, clinical activates and development program of course speeding into these development efforts and I’m encouraged by what we’re starting to see here in terms of opportunities both for what I would call an EVAR as well as an EVAS approach and we still expect to enter into human implants in 2015 as we have talked about.

At this point I can’t tell you which platform or both but I do still, we’re very focused on this more complex market and we think it's a major unmet need. I can also tell you though that within the Nellix registry we’re gathering prospective data on Nellix in very complex anatomies both with branches as well as super short necks [ph]. So we’re developing data in addition to the development program we will have real world prospective clinical data on complex anatomies with the Nellix platform so that will also help inform our plans moving forward for complex anatomies.

Jason Mills - Canaccord Genuity

Last question for me, you have talked about being in 40% at domestic centers John, I think it surprises some folks that we talk to that you’re not in 60% of U.S. EVAR centers. Where does that stand now? Has it changed at all and sort of what is the dynamic by which you can change that, how you go higher overtime?

John McDermott

Well clearly Nellix changes that dynamic dramatically. I think we’re still in that range of 40, to be honest I don’t check it on a regular basis, it's kind of one of those points in time that we check periodically. We’re seeing good continued customer growth as evidenced by overall sales growth above the market rate. But I believe that the combination of Nellix and AFX positions us very uniquely in the marketplace both in terms of overall market share and procedures as well as the percentage of accounts that we’re in.

I think we will continue to nimble a way out of it and we will get some progress with what we have got planned in the pipeline between now and Nellix but with Nellix I would expect those percentages to change materially.

Operator

Thank you. Our next question comes from Chris Cooley from Stephens.

Chris Cooley - Stephens

John, Shelley I would appreciate if you can maybe help us think a little bit about the drivers for your revised growth expectations in the U.S. You have touched on it a little bit already but could you maybe help us bucket it if we kind of think about what’s coming from let’s say a more favorable mix, what might be coming from maybe greater utilization as a result of PEVAR and then what’s just, let’s call it maybe organic or share reclaiming there from a post to competitive dynamic and I have just a couple of quick follow-ups.

John McDermott

I don’t have them broken down in buckets, I can tell you that one of the key contributors to the growth is the introduction of VELA. Very positive physician feedback on that new product. So we have some physicians that may have had some exposure to the device in the past and liked it but maybe didn’t like the way that the old deployment system worked, they have tried VELA, they like it. We’re getting more cases. That’s a pretty consistent theme. So I would say VELA is a key contributor and then that combined with PEVAR I think those are the two primary contributors to the U.S.

We’re seeing that we’re making progress with some of the lost cases that we talked about in the early part of the year. But I do think VELA plays an active role in that because they give us a chance, they try VELA, it goes well and we start to pick up more business.

I do think also that maybe around the end of the year we will start to see some benefit from the new hires but most of the sales force expansion in the U.S. will be -- will benefit from next year.

Chris Cooley - Stephens

Understood. And then maybe just another one quick one on the U.S. marketplace, clearly with the value added features of VELA and some of the benefits of PEVAR, I think you will be able to actually gain some pricing there and then there is a lot of counter detailing going on right now. There is bundling, could you just maybe talk a little bit about the pricing both in the U.S. as well as abroad for traditional devices. I know you said Nellix of course was holding nicely and taking some price but if you think about maybe kind of the traditional EVAR devices?

John McDermott

Yes. So far what I’ve seen -- what we have seen as an organization this year is price have been pretty stable. There is more contracting activity, contractual activity but we haven't seen a noticeable impact on ASPs at least in the first half of the year. In Europe I would say the market; the prices also seem to be relatively stable. We do in situations we’re seeing competitors try to react with price when we show up with Nellix. So far that has not awarded [ph] any of our efforts because they really want to use Nellix. But I guess the sense that in Europe also the prices are relatively stable and we’re and so far have been successful at getting some premium.

So I would characterize the EVAR market right now as prices are relatively stable. I think Nellix does have the opportunity to maybe to create more pricing tension as competitors get threatened we might see more pressure on price but at this early stage we’re not seeing too much of it.

Chris Cooley - Stephens

Understood and then just maybe one final one and then I will get back in queue on Nellix. I realize this was a very small percent of cases, it's a little bit of discussion of course at the end of last year about (indiscernible). I know we didn’t see much of that in our discussions post Charing Cross but just wanted to know if you had any additional feedback on that front. Is that a phenomenon that you see increasing? Has it stable? Or that really hasn’t continue to manifest itself? Just kind of curious what kind of incremental color you can provide there? Thanks so much.

John McDermott

Yes. I will give you a little bit of a benchmarking and this will be anecdotal because we’re gathering a prospective data so the best data I can give you will be from the registry and it will this fall. So what I can do is share with you the data that gets reported to us relative to the number of cases and obviously that’s not scientific but for some benchmarking. The reports of any Endoleak’s with Nellix are very, very low. In fact I think if you took type ones, twos, threes and fours and you put them all together the sense I get forward is we’re probably somewhere under 1% with all Endoleaks. If you looked at the comparable EVAR literature with prospective currently available EVAR devices, you would see just Type 2 Endoleak rates in the 15% to 30% range and then you would add the other types of Endoleak’s to that and you will probably end up with a blended rate somewhere in the mid to high 20s.

So obviously our less than 1% is under reported because they are commercial cases and it's not in a controlled clinical trial but it still gives you at least a broad range of spectrum on which to consider. So the Endoleak rate early on seems to be substantially below what’s seen with the EVAR devices and we will again have the prospective data from the registry and provide an update on that probably at the VEITH Meeting in November.

Operator

Thank you. Our next question comes from Steven Lichtman from Oppenheimer.

Steven Lichtman - Oppenheimer

John just on the guidance in the U.S. you noted earlier the improvements on the issues from earlier this year, is the lower U.S. guidance versus previous than a reflection of the competitive environment, maybe a little bit more color on that will be helpful.

John McDermott

Yes it's just a reflection of updating our run-rates and forecast and as we look at previous 6 to 10 and we look at our trends and our average daily sales by rep we just felt that that was going to be on the high end and that this new range better reflected where we expected. There isn't any particular driver to it's Steve, it's a combination of the factors that we have talked about previously. We just feels it's a more accurate range for the rest of the year, so we felt that it was appropriate to reset it.

Steven Lichtman - Oppenheimer

And then just in the U.S., looks like sales force numbers have moved a bit higher, is that right? You went from 90 to now more like a 100 and is that front line reps or going to be more clinical case support?

John McDermott

To answer the first question it is an increase and it's primarily just based on our early honestly our early experience with Nellix in Europe. It's clear, we’re just going to need more people and the opportunity is substantial and I want to have plenty of time to get to get the team built and trained and ready or U.S. introduction and so we can start to do that more gradually now and get a little benefit out of that in ’15. So we’re just getting ready for what we think is a big opportunity and we have also been able to attract some very high caliber people lately. So it's a bit opportunistic but the number is up. What was your second question Steve?

Steven Lichtman - Oppenheimer

No that was really it, this is my last question just on the Nellix trial in the U.S. Is your off site up and running? Just get to the 180 by year-end, seems like a pace you will need to pick up. Will there be more sites coming on in the back half or are you expecting more (indiscernible) any thoughts on that?

John McDermott

So 29 of 30 are up so we have one more that’s going through their training actually next week or the week after excuse me and then they will be finalizing and up and running, you’re right, if you just kind of spread what’s left to do over the remaining months and we actually have it spread down to the week level of course. There does need to be an increase in the volume. We’re already seeing that though in the number of screens that are coming in as well as the number of cases that are in the queue. We started initiative and it's been a little bit slower early because we required all the physicians that were participating in the study they come to Irvine for their training because we think it's the best way to give them comprehensive training that though does create a little bit of a logistics challenge for busy doctors.

So we didn’t get as many of the physicians trained as fast as we would have liked in a perfect world. Most of that though is behind us, now we’re adding some additional physicians and some of the facilities but I would say the pace has picked up nicely and I don’t know if we will make it by the end of the year but that’s certainly our goal and if we don’t it will be close.

Operator

Thank you. Our next question comes from Matt Keeler from Credit Suisse.

Matt Keeler - Credit Suisse

Actually couple of questions, first I was wondering if you can give us more color on the Nellix modifications, you expect to have available this summer. Can you maybe tell us what’s involved there and when you expect to have those commercially available?

John McDermott

So we’re right now in the process of implementing a few minor tweaks, I don’t want to go into too much detail about what they are just for competitive and other reasons. I don’t think they are material product changes, so I would just say they are enhancement based upon our early experience and physician input and we plan to have those integrated into the product line in late Q3, early Q4 time frame and everything is on track with those and then we have another wave of enhancements that will be implemented in the second half of next year and some of those enhancements depending on their timing will make their way into the final PMA product. So we have got some early enhancements and then another wave of enhancements next year.

Matt Keeler - Credit Suisse

And then once you have Nellix capacity wrapped in Europe, are there any reimbursement or other regularity constraints that you have to deal with that might limit geographic expansion or is it basically dictated then by headcount and demand?

John McDermott

Well in the U.S. it will be headcount demand, in Europe it's largely headcount and demand with a few exceptions. You have got France and Belgium which have their own unique reimbursement requirements. We’re working our way through those now and then in all the other markets it's really becomes both the question of headcount, clinical capability and the regulatory registration. So we have got a whole map constructed of the markets that we want to go into and the different time periods and then the headcount resource requirements to do those cases well and establish those relationship. So this has got several years of incremental markets and incremental growth opportunities. But it's a combination of variables depending upon the market.

Matt Keeler - Credit Suisse

And then just one follow-up and then I will drop the early key markets for you, I guess as we think about 4Q and 2015?

John McDermott

Yes so 4Q is going to be primarily Europe. We do have some business in New Zealand and we may start a little bit of limited business in Latin America but that will just be early cases, that will broaden out in 2015. So those are the primary markets for Nellix at the end -- in Q4 and in ’15. And then we will provide a little bit more clarity, when we give guidance next year we can talk a little bit more about our planned geographic expansion I don’t want to get into too much detail with that right now.

Operator

Thank you. Our next question comes from the line of Chris Pasquale from JPMorgan

Chris Pasquale - JPMorgan

I want to follow-up on the increased hiring target for the U.S., we have been hearing that it's a pretty competitive environment for reps right, so how easy are you find it to attract talents and where are those hires coming from?

John McDermott

Most of them are coming from the traditional peripheral vascular companies. So the guys that sells peripheral stents, balloons, filters, like Bard, Covidien, Cordis, Boston Scientific. There is a variety of them and they tend to be the natural evolution for the top performing clinically astute reps to evolve into EVAR. So that’s where most of them come from.

Chris Pasquale - JPMorgan

And will those additional 10 or so heads contribute in a meaningful way to sales this year, is that a factor as you kind of think about your U.S. projections for the full year or is it really going to be deminimus?

John McDermott

I would say it's pretty deminimus, we may get a little bit in the at the end of the year but most of it is really to be well positioned for next year and again as I said earlier as we look at now our the demand in what we’re seeing for Nellix in Europe, I just think it's prudent for us to start to plan and build a bigger team. So that’s part of what’s driving this.

Chris Pasquale - JPMorgan

And I just wanted to confirm the math on Nellix, did I hear you correctly that the 500 procedures you talked about all occurred during 2Q. I think before you have been giving updates on procedures as of the date of the quarterly call, so I just want to make sure we’re thinking about that correctly?

John McDermott

We’re just going to provide this quarterly update and then we will probably stop with the procedure by procedure update. So we did 500 in Q2 and we did 300 in Q1. So gives you a little bit of a sense of the trajectory. Now again as Shelley pointed out Q3 has got to seasonality impact from Europe but we would certainly expect Q4 to be above Q2.

Operator

Thank you. And now I will turn the call back over to our speakers for closing comments.

John McDermott

All right. Well thanks everyone for calling in and joining the call this evening and for your interest in Endologix. We look forward to seeing you at the upcoming conferences. Have a good evening.

Operator

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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