Contingently Issuable Common Stock

9 Months Ended

Sep. 30, 2012

Business Combinations [Abstract]

Contingently Issuable Common Stock

Contingently Issuable Common Stock

On December 10, 2010 (the “Nellix Closing Date”), the Company completed its acquisition of Nellix, Inc., a pre-revenue, AAA medical device company. The purchase price consisted of 3.2 million of the Company's common shares, issuable to the former Nellix stockholders as of the Nellix Closing Date, then representing a value of $19.4 million. Additional payments, solely in the form of the Company's common shares (the “Contingent Payment”), will be made upon the achievement of a revenue milestone and a regulatory approval milestone (collectively, the “Nellix Milestones”).

The ultimate value of the Contingent Payment will be determined on the date that each Nellix Milestone is achieved. The number of issuable shares will be established using an applicable per share price, which is subject to a ceiling and/or floor, resulting in a maximum of 10.2 million shares issuable upon the achievement of the Nellix Milestones.

As of the Closing Date, the fair value of the Contingent Payment was estimated to be $28.2 million. At September 30, 2012, the Company's stock price closed at $13.82 per share. Thus, had the Nellix Milestones been achieved on September 30, 2012, the Contingent Payment would have comprised 4.2 million shares, representing a value of $58.0 million.

The value of the Contingent Payment is derived using a discounted income approach model, with a range of probabilities and assumptions related to the timing and likelihood of achievement of the Nellix Milestones (which include Level 3 inputs - see Note 2(v) and the Company's stock price (Level 1 input) as of the balance sheet date. These varying probabilities and assumptions and changes in the Company's stock price have required fair value adjustments of the Contingent Payment in periods subsequent to the Nellix Closing Date.

The per share price of the Company's common stock increased by $2.34, or 20%, between December 31, 2011 and September 30, 2012. The increase in the value of the Company's common stock was the primary driver affecting the increase in the fair value of the Contingent Payment during the nine months ended September 30, 2012.

The Contingent Payment fair value will continue to be evaluated on a quarterly basis until milestone achievement occurs, or until the expiration of the "earn-out period," as defined within the Nellix purchase agreement. Adjustments to the fair value of the Contingent Payment are recognized within other income (expense) in the Condensed Consolidated Statements of Operations.

	Fair Value of Contingently Issuable Common Stock
December 31, 2011	$	38,700
Fair value adjustment of Contingent Payment for nine months ended September 30, 2012	12,700
September 30, 2012	$	51,400

Business Combination

GVT Acquisition Overview

On July 2, 2012 (the “GVT Closing Date”), the Company terminated its exclusive distribution agreement with its Italian distributor, Global Vascular Technologies S.r.l. ("GVT"), in order to begin direct sales activity in Italy. Immediately after termination, the Company closed an asset purchase agreement for the underlying Italian distribution business from GVT for total consideration of $2.4 million (the “GVT Acquisition”). This business consists of (i) a trained and assembled sales workforce (on the GVT Closing Date, four former GVT sales employees joined the Company to assume similar roles), and (ii) various active distribution and direct sales agreements, which were assumed by the Company.

Since July 2, 2012, the results of operations of the GVT business, since renamed Endologix Italia S.r.l., have been included in the accompanying Condensed Consolidated Statements of Operations.

Direct Costs of the GVT Acquisition

The Company's direct costs of the GVT Acquisition included legal and accounting fees of $0.4 million. Such amount is included in contract termination and business acquisition expenses within the accompanying Condensed Consolidated Statements of Operations for the nine months ended September 30, 2012.

GVT Purchase Price Allocation

The GVT purchase price of $2.4 million was allocated based on the preliminary fair value estimates of the acquired assets and liabilities (the Company expects to finalize the GVT purchase price allocation by December 31, 2012, upon completion of the valuation), and is as follows:

Identifiable intangible assets (customer list)	$	500
Total identifiable net assets	500
Goodwill	1,867
Total purchase price allocation	$	2,367

Identified intangible assets associated with the acquisition of GVT (customer list) will be amortized to general and administrative expense over the estimated period of benefit of three years. To estimate fair value of the customer list, the Company used the “income approach” which is a valuation technique that converts future expected net cash flows to be derived from this asset into a single, present-valued amount.

Goodwill

Goodwill presented above of $1.9 million represents the difference of the GVT purchase price of $2.4 millionminus the net identifiable intangible asset acquired.

Applicable GAAP requires that the value of a trained and assembled workforce be included in goodwill, and not presented as a separate intangible asset. The four sales employees hired as part of the GVT Acquisition are clinically adept with the Company's ELG System; have long-standing professional relationships with Italian distributors and physicians; and have a high degree of sales experience within the Italian EVAR market. The Company believes these acquired employees will provide the foundation for meaningful revenue growth in Italy, which is widely recognized as the second-largest EVAR market in Europe.

In accordance with applicable GAAP, the Company will not amortize goodwill associated with the GVT acquisition. Goodwill is subject to annual impairment testing. The goodwill resulting from the GVT acquisition is expected to be amortized over 18 years for tax purposes.

Pro Forma Financial Information

The following unaudited pro forma financial information is presented to reflect the results of the Company's consolidated operations for the three and nine months ended September 30, 2012 and 2011, as if the acquisition of GVT had occurred on January 1, 2011. Adjustments have been made to (i) revenue for estimates of increased sales prices, had the sales been made directly to our former distributor's customers; (ii) operating expenses for increased payroll costs related to four additional sales employees; and (iii) operating expense decreases for the exclusion of one-time transactions costs directly associated with the GVT Acquisition. These pro forma results have been prepared for general comparative purposes only and may not be indicative of what operating results would have been, had the acquisition actually taken place on January 1, 2011, and may not be indicative of future operating results.

	(Pro Forma)
	Three Months Ended September 30,
	2012			2011
Revenue	$	26,696		$	22,378
Cost of goods sold	6,444			4,829
Total operating expenses	27,185			22,770
Net loss	(5,857		)	(6,676		)
Net loss per share - basic and diluted	(0.10		)	(0.12		)
	(Pro Forma)
	Nine Months Ended September 30,
	2012			2011
Revenue	$	76,910		$	60,346
Cost of goods sold	18,148			13,352
Total operating expenses	74,647			62,271
Net loss	(28,947		)	(25,190		)
Net loss per share - basic and diluted	(0.49		)	(0.45		)