10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

__________________________________________________ 

FORM 10-Q

 __________________________________________________ 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to ________

Commission file number 000-28440

 __________________________________________________ 

ENDOLOGIX, INC.

(Exact name of registrant as specified in its charter)

 __________________________________________________ 

Delaware	68-0328265
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

11 Studebaker, Irvine, California 92618

(Address of principal executive offices)

(949) 595-7200

(Registrant’s telephone number, including area code)

  ________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o  (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

On April 28, 2014, there were 64,013,757 shares outstanding of the registrant’s only class of common stock.

ENDOLOGIX, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2014

TABLE OF CONTENTS

Item	Description	Page
Part I. Financial Information
Item 1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets at March 31, 2014 and December 31, 2013	1
	Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the three months ended March 31, 2014 and 2013	2
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
Part II. Other Information
Item 1.	Legal Proceedings	25
Item 6.	Exhibits	25
Signatures		26

Part I. Financial Information

ENDOLOGIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts)

(Unaudited)

	March 31,			December 31,
	2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	42,179		$	95,152
Marketable securities	77,418			31,313
Accounts receivable, net allowance for doubtful accounts of $195 and $399, respectively.	25,448			24,972
Other receivables	690			310
Inventories	24,036			19,558
Prepaid expenses and other current assets	2,537			2,328
Total current assets	172,308			173,633
Property and equipment, net	11,224			7,338
Goodwill	29,101			29,103
Intangibles, net	42,980			43,096
Deposits and other assets	2,525			3,027
Total assets	$	258,138		$	256,197
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,232		$	6,265
Accrued payroll	9,796			11,476
Accrued expenses and other current liabilities	4,231			3,094
Contingently issuable common stock	34,800			46,500
Total current liabilities	60,059			67,335
Deferred income tax	1,024			1,135
Deferred rent	3,749			1,585
Contingently issuable common stock	14,300			14,400
Convertible notes	67,901			67,101
Total liabilities	147,033			151,556
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized. No shares issued and outstanding.	—			—
Common stock, $0.001 par value; 75,000,000 shares authorized. 64,050,204 and 63,866,392 shares issued, respectively. 64,004,986 and 63,866,392 shares outstanding, respectively.	64			64
Treasury stock, at cost, 45,218 and 0 shares, respectively.	(644		)	—
Additional paid-in capital	323,615			321,756
Accumulated deficit	(210,787		)	(216,082		)
Accumulated other comprehensive loss	(1,143		)	(1,097		)
Total stockholders’ equity	111,105			104,641
Total liabilities and stockholders’ equity	$	258,138		$	256,197

The accompanying notes are an integral part of these condensed consolidated financial statements.

1

- ENDOLOGIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended March 31,
	2014			2013
Revenue	$	33,264		$	29,784
Cost of goods sold	8,969			7,256
Gross profit	24,295			22,528
Operating expenses:
Research and development	4,105			3,519
Clinical and regulatory affairs	2,200			2,364
Marketing and sales	16,143			15,249
General and administrative	7,163			5,885
Total operating expenses	29,611			27,017
Loss from operations	(5,316		)	(4,489		)
Other income (expense):
Interest income	59			10
Interest expense	(1,390		)	—
Other income, net	358			684
Change in fair value of contingent consideration related to acquisition	11,800			(5,200		)
Total other income (expense)	10,827			(4,506		)
Net income (loss) before income tax expense	$	5,511		$	(8,995	)
Income tax expense	(216		)	(339		)
Net income (loss)	$	5,295		$	(9,334	)
Other comprehensive (loss) income (foreign currency translation)	(46		)	328
Comprehensive income (loss)	$	5,249		$	(9,006	)
Basic net income (loss) per share	$	0.08		$	(0.15	)
Diluted net income (loss) per share	$	0.08		$	(0.15	)
Shares used in computing basic net income (loss) per share	63,405			62,189
Shares used in computing diluted net income (loss) per share	66,017			62,189

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

ENDOLOGIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2014			2013
Cash flows from operating activities:
Net income (loss)	$	5,295		$	(9,334	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Bad debt expense	(12		)	—
Depreciation and amortization	602			484
Stock-based compensation	1,613			2,230
Change in fair value of contingent consideration related to acquisition	(11,800		)	5,200
Accretion of interest on convertible note	800			—
Amortization of deferred financing costs	97			—
Non-cash foreign exchange gain	(367		)	—
Changes in operating assets and liabilities:
Accounts receivable and other receivables	(242		)	(3,064		)
Inventories	(4,360		)	(436		)
Prepaid expenses and other current assets	(147		)	(103		)
Accounts payable	4,005			182
Accrued payroll	(1,654		)	(7		)
Accrued expenses and other liabilities	3,190			1,454
Net cash used in operating activities	$	(2,980	)	$	(3,394	)
Cash flows from investing activities:
Purchases of marketable securities	(53,023		)	—
Maturities of marketable securities	6,918			—
Purchases of property and equipment	(3,491		)	(1,102		)
Net cash used in investing activities	$	(49,596	)	$	(1,102	)
Cash flows from financing activities:
Proceeds from exercise of stock options	246			997
Minimum tax withholding paid on behalf of employees for restricted stock units	(644		)	—
Net cash (used in) provided by financing activities	$	(398	)	$	997
Effect of exchange rate changes on cash and cash equivalents	1			410
Net decrease in cash and cash equivalents	$	(52,973	)	$	(3,089	)
Cash and cash equivalents, beginning of year	95,152			45,118
Cash and cash equivalents, end of year	$	42,179		$	42,029
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	129		$	—
Non-cash investing and financing activities:
Landlord funded leasehold improvements	$	2,425		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

1. Description of Business, Basis of Presentation, and Operating Segment

(a) Description of Business

Endologix, Inc. (the "Company","we","our" or "us") is a Delaware corporation with corporate headquarters and production facilities located in Irvine, California. The Company develops, manufactures, markets, and sells innovative medical devices for the treatment of aortic disorders. The Company's products are intended for the treatment of abdominal aortic aneurysms ("AAA"). The Company's AAA products are built on one of two platforms: (1) traditional minimally-invasive endovascular repair ("EVAR") or (2) endovascular sealing (“EVAS”), the Company's innovative solution for sealing the aneurysm sac while maintaining blood flow through two blood flow lumens. The Company's current EVAR products include the Endologix AFX Endovascular AAA System (“AFX”) and the Endologix Intuitrak Endovascular AAA System (“Intuitrak”). The Company's current EVAS product is the Nellix Endovascular Aneurysm Sealing System (“Nellix EVAS System”). Sales of the Company's EVAR and EVAS platforms (including extensions and accessories) to hospitals in the U.S. and Europe, and to third-party international distributors, provide the sole source of the Company's reported revenue.

The Company's EVAR products consist of (i) a cobalt chromium alloy stent covered by polytetrafluoroethylene (commonly referred to as "ePTFE") graft material (“Stent Graft”) and (ii) an accompanying delivery system. Once fixed in its proper position within the abdominal aorta, the Company's EVAR device 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 the AAA to rupture.

The Company's EVAS product 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 polymer dispenser. The Company's EVAS product seals the entire aneurysm sac effectively, excluding the aneurysm sac and reducing the likelihood of future aneurysm rupture. Additionally, it has the potential to reduce post procedural re-interventions.

(b)Basis of Presentation

The accompanying Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). These financial statements include the financial position, results of operations, and cash flows of the Company, including its subsidiaries, all of which are wholly-owned. All inter-company accounts and transactions have been eliminated in consolidation. For the three months ended March 31, 2014 and 2013, there were no related party transactions.

The interim financial data as of March 31, 2014 is unaudited and is not necessarily indicative of the results for a full year. In the opinion of the Company's management, the interim data includes normal and recurring adjustments necessary for a fair presentation of the Company's financial results for the three months ended March 31, 2014. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations relating to interim financial statements.

The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on March 3, 2014.

(c) Operating Segment

The Company has one operating and reporting segment that is focused exclusively on the development, manufacture, marketing, and sale of EVAR and EVAS product for the treatment of aortic disorders. For the three months ended March 31, 2014, all of the Company's revenue and related expenses were solely attributable to these activities. Substantially all of the Company's long-lived assets are located in the U.S.

4

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

2. Use of Estimates and Summary of Significant Accounting Policies

The preparation of financial statements in conformity with GAAP requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, the Company's management evaluates its estimates, including those related to (i) collectibility of customer accounts; (ii) whether the cost of inventories can be recovered; (iii) the value of goodwill and intangible assets; (iv) realization of tax assets and estimates of tax liabilities; (v) likelihood of payment and value of contingent liabilities; and (vi) 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.

For a complete summary of our significant accounting policies, please refer to Note 1, "Summary of Significant Accounting Policies, in Part II, Item 8 of our 2013 Annual Report on Form 10-K for the year ended December 31, 2013, filed March 3, 2014. There have been no material changes to our significant accounting policies during the three months ended March 31, 2014.

3. Balance Sheet Account Detail

(a) Property and Equipment

Property and equipment consisted of the following:

	March 31, 2014			December 31, 2013
Production equipment, molds, and office furniture	$	8,254		$	8,033
Computer hardware and software	3,402			3,290
Leasehold improvements	3,055			3,058
Construction in progress (software and related implementation, production equipment, and leasehold improvements)	6,632			2,594
Property and equipment, at cost	$	21,343		$	16,975
Accumulated depreciation	(10,119		)	(9,637		)
Property and equipment, net	$	11,224		$	7,338

Depreciation expense for property and equipment for the three months ended March 31, 2014, and 2013 was $0.5 million, and $0.4 million respectively.

(b) Inventories

Inventories consisted of the following:

	March 31, 2014		December 31, 2013
Raw materials	$	4,080	$	3,793
Work-in-process	7,082		4,539
Finished goods	12,874		11,226
Inventories	$	24,036	$	19,558

5

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

(c) Goodwill and Intangible Assets

The following table presents goodwill, indefinite lived intangible assets, finite lived intangible assets, and related accumulated amortization:

	March 31, 2014			December 31, 2013
Goodwill (1)	$	29,101		$	29,103
Intangible assets:
Indefinite lived intangibles
Trademarks and trade names	2,708			2,708
Finite lived intangibles
Developed technology (2)	$	40,100		$	40,100
Accumulated amortization	(105		)	(48		)
Developed technology, net	$	39,995		$	40,052
Patent	$	100		$	100
Accumulated amortization	(100		)	(95		)
Patent, net	$	—		$	5
License	$	100		$	100
Accumulated amortization	(49		)	(41		)
License, net	$	51		$	59
Customer relationships	$	543		$	544
Accumulated amortization	(317		)	(272		)
Customer relationships, net	$	226		$	272
Intangible assets (excluding goodwill), net	$	42,980		$	43,096

(1) Difference in goodwill value between these dates is solely due to a foreign currency translation adjustment.

(2) Was reclassified in the first quarter of 2013 from in- process research and development to finite lived intangibles, which coincided with the European commercial launch of the product (Nellix EVAS System) associated with this intangible asset. A significant portion of this intangible asset will not begin amortization until the U.S. launch of this product, currently scheduled for 2016.

Amortization expense for intangible assets for the three months ended March 31, 2014, and 2013 was $0.1 million, and $0.1 million respectively.

Estimated amortization expense for the five succeeding years and thereafter (which includes amortization of intangible assets which commenced in February 2013 with the commercial launch of the Nellix System in Europe) is as follows:

6

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

	Amortization Expense
Remainder of 2014	$	331
2015	641
2016	953
2017	2,250
2018	3,866
2019	4,521
2020 & Thereafter	27,710
Total	$	40,272

(d) Marketable securities

Investments in held-to-maturity marketable securities, which all mature during 2014, consist of the following at March 31, 2014:

	March 31, 2014
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Corporate and other debt securities	$	77,418	$	8	$	(12	)	$	77,414

At March 31, 2014, the Company’s investments included 22 held-to-maturity debt securities in unrealized loss positions with a total unrealized loss of approximately $12 thousand and a total fair market value of approximately $77.4 million. All investments with gross unrealized losses have been in unrealized loss positions for less than 6 months. The unrealized losses were caused by interest rate fluctuations. There was no change in the credit risk of the securities. The Company does not intend to sell the securities and it is not likely that the Company will be required to sell the securities before the expected recovery of their amortized cost bases. There were no realized gains or losses on the investments for the three months ended March 31, 2014.

(e) Fair Value Measurements

The following fair value hierarchy table presents information about each major category of the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2014:

	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At December 31, 2013
Cash and cash equivalents	$	95,152	$	—	$	—	$	95,152
Contingently issuable common stock	$	—	$	—	$	60,900	$	60,900
At March 31, 2014
Cash and cash equivalents	$	42,179	$	—	$	—	$	42,179
Contingently issuable common stock	$	—	$	—	$	49,100	$	49,100

There were no re-measurements to fair value during the three months ended March 31, 2014 of financial assets and liabilities that are not measured at fair value on a recurring basis. There were no transfers between Level 1, Level 2, or Level 3 securities during the three months ended March 31, 2014.

(f) Instruments Not Recorded at Fair Value on a Recurring Basis

We measure the fair value of our Senior Notes carried at amortized cost quarterly for disclosure purposes. The estimated fair value of the Senior Notes is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar

7

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

issues. Based on the market prices, the fair value of our long-term debt was $83.3 million as of March 31, 2014 and $84.9 million as of December 31, 2013.

We measure the fair value of our held-to-maturity marketable securities carried at amortized cost quarterly for disclosure purposes. The fair value of certain marketable securities is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar instruments.

4. Stock-Based Compensation

The Company classifies stock-based compensation expense in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss, based on the department to which the recipient belongs. Stock-based compensation expense included in cost of goods sold and operating expenses during the three months ended March 31, 2014 and 2013, was as follows:

	Three Months Ended
	March 31,
	2014			2013
Cost of goods sold	$	208		$	150
Operating expenses:
Research and development	161			205
Clinical and regulatory affairs	(103		)	403
Marketing and sales	538			578
General and administrative	809			894
Total operating expenses	$	1,405		$	2,080
Total	$	1,613		$	2,230

5. Net Income (Loss) Per Share

Basic net income (loss) per share was calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the three ended March 31, 2014 and 2013. Diluted net income per share for the three months ended March 31, 2014, was calculated by adjusting outstanding shares for the dilutive effects of outstanding, but unexercised, stock options and unvested restricted stock, as calculated under the treasury stock method.

	Three Months Ended
	March 31,
	2014		2013
Net income (loss)	$	5,295	$	(9,334	)
Weighted average shares- basic	63,405		62,189
Weighted average shares- diluted	66,017		62,189
Net income (loss) per share- basic	$	0.08	$	(0.15	)
Net income (loss) per share- diluted	$	0.08	$	(0.15	)

The following outstanding Company securities were included in the above calculations of net income per share because their impact was dilutive:

8

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

	Three Months Ended
	March 31,
	2014	2013
Common stock options	2,027	—
Restricted stock awards	152	—
Restricted stock units	433	—
Total	2,612	—

The following outstanding Company securities were excluded from the above calculations of net income (loss) per share because their impact would have been anti-dilutive:

	Three Months Ended
	March 31,
	2014	2013
Common stock options	1,153	2,768
Restricted stock awards	—	492
Restricted stock units	—	457
Total	1,153	3,717

As discussed in Note 6, in December 2013, the Company issued $86.3 million aggregate principal amount of 2.25% convertible senior notes due 2018 (the “Notes”) in an underwritten public offering. Upon any conversion the Notes may be settled, at the Company’s election, in cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock. For purposes of calculating the maximum dilutive impact, it is presumed that the Notes will be settled in common stock with the resulting potential common shares included in diluted earnings per share if the effect is more dilutive. The effect of the conversion of the Notes is excluded from the calculation of dilutive earnings per share because the impact of these securities would be anti-dilutive. The potential dilutive effect of these securities is shown in the chart below:

	Three Months Ended March 31,
	2014	2013
Conversion of the Notes	3,588	—

The effect of the contingently issuable common stock is excluded from the calculation of basic net income (loss) per share until all necessary conditions for issuance have been satisfied. Refer to Note 9 of the Notes to the Condensed Consolidated Financial Statements for further discussion.

6. Credit Facilities

2.25% Convertible Senior Notes

On December 10, 2013, the Company issued $86.3 million aggregate principal amount 2.25% Convertible Senior Notes (the “Notes”). The Notes mature on December 15, 2018 unless earlier repurchased by the Company or converted. The Company received net proceeds from the sale of the Notes of approximately $82.6 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company. Interest is payable on the Notes on June 15 and December 15 of each year, beginning June 15, 2014.

The Notes are governed by the terms of a base indenture (the “Base Indenture”), as supplemented by the first supplemental indenture relating to the Notes (the “First Supplemental Indenture,” and together with the Base Indenture, the “Indenture”), between the Company and Wells Fargo Bank, National Association (the “Trustee”), each of which were entered into on December 10, 2013.

9

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

The Notes are senior unsecured obligations and are: (1) senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the Notes; (2) equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; (3) effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; (4) and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries.

The Company may not redeem the Notes prior to December 15, 2016. On or after December 15, 2016, the Company may redeem for cash all or any portion of the Notes, at its option, but only if the closing sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the second trading day immediately preceding the date on which the Company provides notice of redemption, exceeds 130% of the conversion price on each applicable trading day. The redemption price will equal 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.

Holders may convert their Notes at any time prior to the close of business on the business day immediately preceding September 15, 2018 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014, if the closing sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the Notes in effect on each applicable trading day; (2) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price for the Notes for each such trading day was less than 98% of the closing sale price of the Company’s common stock on such date multiplied by the then-current conversion rate; (3) if the Company calls all or any portion of the notes for redemption, at any time prior to the close of business on the second scheduled trading day prior to the redemption date, or (4) upon the occurrence of specified corporate events. On or after September 15, 2018 until the close of business on the second scheduled trading day immediately preceding the stated maturity date, holders may surrender their Notes for conversion at any time, regardless of the foregoing circumstances.

Upon conversion, the Company will at its election pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock.

The initial conversion rate will be 41.6051 shares of the Company’s common stock for each $1,000 principal amount of Notes, which represents an initial conversion price of approximately $24.04 per share. Following certain corporate transactions that occur on or prior to the stated maturity date or the Company’s delivery of a notice of redemption, the Company will increase the conversion rate for a holder that elects to convert its Notes in connection with such a corporate transaction.

If a fundamental change (as defined in the Indenture) occurs prior to the stated maturity date, holders may require the Company to purchase for cash all or any portion of their Notes at a fundamental change purchase price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date.

The Indenture contains customary terms and covenants and events of default with respect to the Notes. If an event of default (as defined in the Indenture) occurs and is continuing, either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Notes may declare the principal amount of the Notes to be due and payable immediately by notice to the Company (with a copy to the Trustee). If an event of default arising out of certain events of bankruptcy, insolvency or reorganization involving the Company or a significant subsidiary (as set forth in the Indenture) occurs with respect to us, the principal amount of the Notes and accrued and unpaid interest, if any, will automatically become immediately due and payable.

The Company was not required to separate the conversion option in the Notes under ASC 815, "Derivatives and Hedging", and has the ability to settle the Notes in cash, common stock or a combination of cash and common stock, at its option. In accordance with cash conversion guidance contained in ASC 470-20, "Debt with Conversion and Other Options", the Company accounted for the Notes by allocating the issuance proceeds between the liability and the equity component. The equity component is classified in stockholders’ equity and the resulting discount on the liability component is accreted such that interest expense equals the Company’s nonconvertible debt borrowing rate. The separation was performed by first determining the fair value of a similar debt that does not have an associated equity component. That amount was then deducted from the initial proceeds of the Notes as a whole to arrive at a residual amount, which was allocated to the conversion feature that is classified as equity. The initial fair value of the indebtedness was $66.9 million resulting in a $19.3 million allocation to the embedded conversion option. The embedded conversion option was recorded in stockholders’ equity and as debt discount, to be

10

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

subsequently accreted to interest expense over the term of the Notes. Underwriting discounts and commissions and offering expenses totaled $3.7 million and were allocated between the liability and the equity component in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. As a result, $2.9 million attributable to the indebtedness was recorded as deferred financing costs in other assets, to be subsequently amortized as interest expense over the term of the Notes, and $0.8 million attributable to the equity component was recorded a a reduction to additional paid-in-capital in stockholders’ equity.

For the three months ended March 31, 2014, total interest expense related to the outstanding principal balance of the Notes was $1.4 million of which $0.8 million related to accretion of debt discount, $0.5 million related to contractual coupon interest expense, and $0.1 million related to the amortization of debt issuance costs at the effective interest rate of 9.0%. As of March 31, 2014, the Company had outstanding borrowings of $67.9 million, and deferred financing costs of $2.7 million, related to the Notes. There are no principal payments due during the term.

Annual interest expense on these notes will range from $5.7 million to $6.9 million through maturity.

Capped Call Transactions

On December 10, 2013 in connection with the pricing of the Notes and the exercise in full of their overallotment option by the underwriters, the Company entered into privately-negotiated capped call transactions (the “Capped Call Transactions”) with Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Capped Call Transactions initial conversion rate and number of options substantially corresponds to each $1,000 principal amount of Notes. The Company used approximately $7.4 million of the net proceeds from the Notes offering to pay for the cost of the Capped Call Transactions.

The Capped Call Transactions are separate transactions entered into by the Company with Bank of America, N.A., are not part of the terms of the Notes and will not change the holders’ rights under the Notes. The Capped Call Transactions have anti-dilution adjustments substantially similar to those applicable to the Notes. The Capped Call Transactions are derivative instruments that qualify for classification within stockholders’ equity because they meet an exemption from mark-to-market derivative accounting.

The Capped Call Transactions are expected generally to reduce the potential dilution and/or offset potential cash payments that the Company is required to make in excess of the principal amount upon conversion of the Notes in the event that the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, is greater than the strike price of the Capped Call Transactions, which initially corresponds to the $24.04 conversion price of the Notes. If, however, the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, exceeds the initial cap price of $29.02, there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such market price exceeds the cap price of the Capped Call Transactions.

The Company will not be required to make any cash payments to Bank of America, N.A. or any of its affiliates upon the exercise of the options that are a part of the Capped Call Transactions, but will be entitled to receive from Bank of America, N.A. (or an affiliate thereof) a number of shares of the Company’s common stock and/or an amount of cash generally based on the amount by which the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, is greater than the strike price of the Capped Call Transactions during the relevant valuation period under the Capped Call Transactions. However, if the market price of the Company’s common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions during such valuation period under the Capped Call Transactions, the number of shares of common stock and/or the amount of cash the Company expects to receive upon exercise of the Capped Call Transactions will be capped based on the amount by which the cap price exceeds the strike price of the Capped Call Transactions.

For any conversions of Notes prior to the close of business on the 55th scheduled trading day immediately preceding the stated maturity date of the Notes, including without limitation upon an acquisition of the Company or similar business combination, a corresponding portion of the Capped Call Transactions will be terminated. Upon such termination, the portion of the Capped Call Transactions being terminated will be settled at fair value (subject to certain limitations), as determined by Bank of America, N.A., in its capacity as calculation agent under the Capped Call Transactions, which the Company expects to receive from Bank of America, N.A., and no payments will be due Bank of America, N.A. The capped call expires on December 13, 2018.

11

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

Wells Fargo line of credit

In October 2009, the Company entered into a revolving credit facility with Wells Fargo Bank (“Wells”), which was last amended on March 31, 2014, whereby the Company may borrow up to $20.0 million, subject to the calculation and limitation of a borrowing base (the “Wells Credit Facility”). All amounts owing under the Wells Credit Facility will become due and payable upon its expiration on November 15, 2014. A sub-feature in the line of credit allows for the issuance of up to $7.5 million in letters of credit. As of March 31, 2014, the Company issued a total of $6.4 million in letters of credit under the Wells Credit Facility. Any outstanding amounts under the Wells Credit Facility bear interest at a variable rate equal to the Wells prime rate, plus 1.0%, which is payable on a monthly basis. The Wells Credit Facility is collateralized by all of the Company's assets, except its intellectual property.

The Wells Credit Facility contains financial covenants requiring the Company to (i) maintain a minimum current ratio of 2.0, equal to the quotient of modified current assets to current liabilities, as defined in the Wells Credit Facility (the "Modified Quick Ratio Covenant"), and (ii) not to exceed pre-tax net loss (excluding non-cash contingent consideration associated with the acquisition of Nellix) of $11.0 million for the three months ended March 31, 2014; 18.0 million for the six months ended June 30, 2014; $22.0 million for the nine months ended September 30, 2014; and $26.0 million for the year ended December 31, 2014 (the "Net Loss Covenant").  The Wells Credit Facility also included a negative covenant limiting 2013 capital expenditures to an aggregate of $6.0 million and 2014 capital expenditures to an aggregate of $13.0 million. The Company was in compliance with the financial covenants as of and for the three months ended March 31, 2014.  

The Wells Credit Facility also contains a “material adverse change” clause (“MAC”). If the Company encounters difficulties that would qualify as a MAC in its (i) operations, (ii) condition (financial or otherwise), or (iii) ability to repay amounts outstanding under the Wells Credit Facility, it could be canceled at Wells' sole discretion. Wells could then elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and proceed against any collateral securing such indebtedness. No borrowings were outstanding at March 31, 2014.

7. Revenue by Geographic Region

The Company's revenue by geographic region, was as follows:

	Three Months Ended
	March 31,
	2014			2013
United States	$	23,988	72.1%	$	24,727	83.0%
Europe	$	6,585	19.8%	$	3,347	11.2%
Rest of World ("ROW"):
Latin America	$	918	2.8%	$	572	1.9%
Asia/Pacific	1,773		5.3%	1,138		3.9%
Total ROW	$	2,691	8.1%	$	1,710	5.8%
Revenue	$	33,264	100.0%	$	29,784	100.0%

8. Commitments and Contingencies

(a) Leases

The Company leases its administrative, research, and manufacturing facilities located in Irvine, California and an administrative office located in Den Bosch, The Netherlands. These facility lease agreements require the Company to pay operating costs, including property taxes, insurance, and maintenance. In addition, the Company has certain equipment under long-term agreements that are accounted for as operating leases.

12

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

Future minimum payments by year under non-cancelable leases with initial terms in excess of one year were as follows as of March 31, 2014:

Remainder of 2014	$	847
2015	2,026
2016	2,067
2017	2,123
2018	2,186
2019	2,251
2020 and thereafter	24,777
Total	$	36,277

Facilities rent expense for the three months ended March 31, 2014 and 2013 were $0.7 million and $0.1 million, respectively.

On June 12, 2013, the Company entered into a lease agreement for two adjacent office, research and development, and manufacturing facilities in Irvine, California.  The premises consist of approximately 129,000 combined square feet. The lease has a 15-year term beginning January 1, 2014 and provides for one optional five year extension. The initial base rent under the lease is $1.9 million per year, payable in monthly installments, and escalates by 3% per year for years 2015 through 2019, and 4% per year for years 2020 and beyond.  The Company is entitled to rent abatement for the first nine months of the lease. These premises will replace the Company's existing Irvine facilities.

The terms of this lease agreement provide for $6.8 million of landlord-funded improvements (and certain other allowances) to this facility, in order to best suit the Company's requirements. In June 2013, the Company had Wells Fargo issue the landlord two letters of credit in the aggregate amount of $6.4 million under its Wells Credit Facility, representing financial collateral while these facility improvements are completed. The Company placed the same amount in a restricted cash account with Wells Fargo, in order to fully support these issued, but undrawn, letters of credit. In July 2013, this restricted cash account was fully released under the July 26, 2013 amendment to the Wells Fargo Credit Facility.

(b) Employment Agreements and Retention Plan

The Company has entered into employment agreements with its executive officers under which payment and benefits would become payable in the event of termination by the Company for any reason other than cause, death or disability or termination by the employee for good reason (collectively, an “Involuntary Termination”) prior to, upon or following a change in control of the Company. The severance payment will generally be in a range of six to eighteen months of the employee’s then current salary for an Involuntary Termination prior to a change in control of the Company, and will generally be in a range of eighteen to twenty-four months of the employee’s then current salary for an Involuntary Termination upon or following a change in control of the Company.

(c) Legal Matters

We are from time to time involved in various claims and legal proceedings of a nature we believe are normal and incidental to a medical device business. These matters may include product liability, intellectual property, employment, and other general claims. Such cases and claims may raise complex factual and legal issues and are subject to many uncertainties, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. We accrue for contingent liabilities when it is probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are adjusted periodically as assessments change or as additional information becomes available.

LifePort Sciences LLC v. Endologix, Inc.

On December 28, 2012, LifePort Sciences, LLC ("LifePort") filed a complaint against us in the U.S. District Court, District of Delaware, alleging that certain of our products infringe U.S. Patent Nos. 5,489,295, 6,117,167, 6,302,906, 5,993,481 and 5,676,696, which are alleged to be owned by LifePort. LifePort is seeking an unspecified amount of monetary damages for sale of our products and injunctive relief. We do not believe that we infringe on any of these patents and we intend to vigorously

13

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

defend against this matter. As of December 31, 2013 we have filed a motion to transfer the case from Delaware to California. The motion remains pending and we cannot predict when, or on what basis, this matter will be resolved. We do believe, however, that the outcome will not have a material adverse effect on our financial position, results of operations, or cash flow. However, in order to avoid further legal costs and diversion of management resources, it is reasonably possible that we may reach a settlement with LifePort, which could result in a liability. However, we cannot presently estimate the amount, or range, of reasonably possible losses due to the nature of this potential litigation settlement.

9. 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. As of March 31, 2014, the Company's stock price last closed at $12.87 per share. Thus, had the Nellix Milestones been achieved on March 31, 2014, the Contingent Payment would have comprised 3.7 million shares, representing a value of $47.6 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(f) 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 decreased by $4.57, or (26.2)%, between December 31, 2013 and March 31, 2014. The decrease in the value of the Company's common stock was the primary driver affecting the decrease in the fair value of the Contingent Payment during the three months ended March 31, 2014.

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 and Comprehensive Loss.

	Fair Value of Contingently Issuable Common Stock
December 31, 2013	$	60,900
Fair value adjustment of Contingent Payment for three months ended March 31, 2014	(11,800		)
March 31, 2014	$	49,100

As of March 31, 2014, $34.8 million was presented in current liabilities due to the expected achievement of one of the Nellix Milestones during 2014.

10. Income Tax Expense

The Company applied an estimated annual effective tax rate (“ETR”) approach for calculating a tax provision for interim periods. The Company recorded a provision for income taxes of $0.2 million for the three months ended March 31, 2014. The Company's ETR was 3.9% for the three months ended March 31, 2014.  The Company's ETR for the three months ended March 31, 2014 differs from the U.S. federal statutory tax rate of 34% primarily as a result of nondeductible expenses (including the Nellix Contingent Payment), state income taxes, foreign income taxes, and the impact of a full valuation allowance on its deferred tax assets.

14

ENDOLOGIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(all tabular amounts presented in thousands, except per share, per unit, and number of years)

(Unaudited)

The Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the U.S. and certain foreign jurisdictions. Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against substantially all deferred tax assets. If/when the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period(s) such determination is made.

15

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Concerning 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 from liability 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,” “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:

• continued market acceptance of our products;

• continued growth in the number of patients qualifying for treatment of abdominal aortic aneurysms 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 successfully commercialize products which incorporate the technology obtained in our acquisition of Nellix, Inc. (“Nellix”);     

• our ability to effectively develop new or complementary technologies; our ability to manufacture our endovascular systems to meet demand; changes to our international operations;

• 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 and other foreign countries;

• the nature of and any changes to 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 and litigation expenses; reputational damage to our products caused by mis-use or off-label use or government or voluntary product recalls; our utilization of a single source supplier 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; and

• general macroeconomic and world-wide business conditions.

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 year ended December 31, 2013, filed with the SEC on March 3, 2014, 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. We expressly disclaim any intent or obligation to update information contained in any forward-looking statement after the date thereof to conform such information to actual results or to changes in our opinions or expectations. 

Our forward-looking statements speak only as of the date each such statement is made. We expressly disclaim any intent or obligation to update 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 the SEC and The NASDAQ Stock Market, LLC.

16

Overview

Our Business

Our corporate headquarters and manufacturing facility is located in Irvine, California. We develop, manufacture, market, and sell innovative medical devices for the treatment of aortic disorders. Our principal products are intended for the treatment of abdominal aortic aneurysms ("AAA"). Our AAA products are built on one of two platforms: (1) traditional minimally-invasive endovascular repair ("EVAR") or (2) endovascular sealing (“EVAS”), our innovate solution for sealing the aneurysm sac while maintaining blood flow through two blood flow lumens.

We sell our products through (i) our direct U.S. and European sales forces and (ii) third-party international distributors and agents in other parts of the world.

See Item 1. of our Annual Report on Form 10-K for the year ended December 31, 2013, entitled "Business," for a discussion of:

• Market Overview and Opportunity

• Our Products

• Manufacturing and Supply

• Marketing and Sales

• Competition

• Clinical Trials and Product Developments

Endologix®, AFX® and Nellix® are registered trademarks of Endologix, Inc., and Ventana™ and the respective product logos are trademarks of Endologix, Inc.

Recent Highlights of Our Product Development Initiatives and Regulatory Approvals

Nellix

In February 2013, our EVAS device, the Nellix EVAS System, commenced limited market introduction in Europe and a limited commercial release is currently underway. In December 2013, we received Investigational Device Exemption (“IDE”) approval in the United States to begin a clinical trial which commenced in January 2014.

AFX

In February 2014, we launched a new proximal extension in the US, VELA, designed specifically for the treatment of proximal aortic neck anatomies. VELA features a circumferential graft line marker and controlled delivery system that enable predictable deployment and final positional adjustments. The VELA launch is expected in Europe in the second half of 2014.

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 AAA repair procedure, or from sales to distributors upon title transfer (which is typically at shipment), provided our other revenue recognition criteria have been met.

Cost of Goods Sold

Cost of goods sold includes 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, production materials and supplies expense, allocated facilities-related expenses, and certain direct costs such as shipping.

Research and Development

Research and development expenses 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.

17

Clinical and Regulatory

Clinical and regulatory expenses 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 gaining 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 specialist, 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 include 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, the federal Medical Device Excise Tax, and allocated facilities-related expenses.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the 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. While management believes these estimates are reasonable and consistent, they are by their very nature, estimates of amounts that will depend on future events. Accordingly, actual results could differ from these estimates. Our Audit Committee periodically reviews our significant accounting policies.

For a description of our critical accounting policies and estimates, please refer to the “Critical Accounting Policies and Estimates” section in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in our Annual Report on Form 10-K for the year ended December 31, 2013. There have been no material changes in any of our critical accounting policies and estimates during the three months ended March 31, 2014.

18

Results of Operations

Operations Overview - Three Months Ended March 31, 2014 versus 2013

The following table presents our results of continuing operations and the related percentage of the period's revenue (in thousands):

	Three Months Ended March 31,
	2014				2013
Revenue	$	33,264		100.0%	$	29,784		100.0%
Cost of goods sold	8,969			27.0%	7,256			24.4%
Gross profit	24,295			73.0%	22,528			75.6%
Operating expenses:
Research and development	4,105			12.4%	3,519			11.8%
Clinical and regulatory affairs	2,200			6.6%	2,364			7.9%
Marketing and sales	16,143			48.5%	15,249			51.2%
General and administrative	7,163			21.5%	5,885			19.8%
Total operating expenses	29,611			89.0%	27,017			90.7%
Loss from operations	(5,316		)	(16.0)%	(4,489		)	(15.1)%
Total other income (expense)	10,827			32.5%	(4,506		)	(15.1)%
Net income (loss) before income tax expense	5,511			16.5%	(8,995		)	(30.2)%
Income tax expense	(216		)	(0.6)%	(339		)	(1.1)%
Net income (loss)	$	5,295		15.9%	$	(9,334	)	(31.3)%

Comparison of the Three Months Ended March 31, 2014 versus 2013

Revenue

	Three Months Ended March 31,
	2014		2013		Variance		Percent Change
	(in thousands)
Revenue	$	33,264	$	29,784	$	3,480	11.7%

Our 11.7% revenue increase of $3.5 million over the prior year period primarily resulted from:

(i) a $3.2 million increase in European sales volume due to strong direct sales growth related to both Nellix and AFX;

(ii) an increase in sales volume to Latin America and our Asia Pacific markets; and

(iii) a decrease in U.S. sales procedures due to competitive pressures and a delay with the VELA FDA approval.

19

Cost of Goods Sold, Gross Profit, and Gross Margin

	Three Months Ended March 31,
	2014			2013			Variance		Percent Change
	(in thousands)
Cost of goods sold	$	8,969		$	7,256		$	1,713	23.6	%
Gross profit	24,295			22,528			1,767		7.8	%
Gross margin percentage (gross profit as a percent of revenue)	73.0		%	75.6		%

The $1.7 million increase in cost of goods sold was driven by our revenue increase of $3.5 million.

Gross margin for the three months endedMarch 31, 2014 decreased to 73.0% from 75.6% for the three months endedMarch 31, 2013. The increase in cost of goods sold, and corresponding decrease to gross margin is due to geography and product mix with a greater proportion of sales from international markets, which have lower average selling prices and a higher cost to produce Nellix compared to AFX.

Operating Expenses

	Three Months Ended March 31,
	2014		2013		Variance			Percent Change
	(in thousands)
Research and development	$	4,105	$	3,519	$	586		16.7%
Clinical and regulatory affairs	2,200		2,364		(164		)	(6.9)%
Marketing and sales	16,143		15,249		894			5.9%
General and administrative	7,163		5,885		1,278			21.7%

Research and Development. The $0.6 million increase in research and development expenses was primarily attributable to continued product development investments related to Nellix and AFX.

Clinical and Regulatory Affairs. The $0.2 million decrease in clinical expenses is due to variable stock-based compensation expense, due to the stock price decrease in the first quarter of 2014.

Marketing and Sales. The $0.9 million increase in marketing and sales expenses for the three months endedMarch 31, 2014, as compared to the prior year period, was primarily related to increased investments in our European sales force and marketing activities.

General and Administrative. The $1.3 million increase in general and administrative expenses is primarily attributable to professional and audit fees and expense to support the continued growth in Europe.

Other income (expense), net

	Three Months Ended March 31,
	2014		2013			Variance	Percent Change
	(in thousands)
Other income (expense), net	$	10,827	$	(4,506	)	15,333	>100%

Other Income (Expense), Net. Other Income for the three months ended March 31, 2014 includes a non-cash benefit of $(11.8) million, which reflects a decrease in the fair value of the Nellix contingent consideration, which was almost entirely related to the decrease in Endologix's stock price during the quarter (see Note 9). Partially offsetting this fair value adjustment is interest expense associated with our convertible notes.

20

Provision for Income Taxes

	Three Months Ended March 31,
	2014			2013			Variance		Percent Change
	(in thousands)
Income tax expense	$	(216	)	$	(339	)	$	123	(36.3	)%

Our income tax expense was $0.2 million and our effective tax rate was 3.9% for the three months ended March 31, 2014. During the three months ended March 31, 2014 and 2013, we had operating legal entities in the U.S., Italy, New Zealand, Switzerland and the Netherlands (including registered sales branches in certain countries in Europe). We have certain minimum tax liabilities attributable to our operations in these countries and in the U.S (see Note 10).

Liquidity and Capital Resources

The chart provided below summarizes selected liquidity data and metrics as of March 31, 2014, December 31, 2013, and March 31, 2013:

	March 31, 2014		December 31, 2013		March 31, 2013
	(in thousands, except financial metrics data)
Cash and cash equivalents	$	42,179	$	95,152	$	42,029
Marketable securities	77,418		31,313		—
Accounts receivable, net	25,448		24,972		25,661
Total current assets	172,308		173,633		88,180
Total current liabilities	60,059		67,335		18,780
Working capital surplus (a)	112,249		106,298		69,400
Current ratio (b)	2.9		2.6		4.7
Days sales outstanding ("DSO") (c)	69		65		78
Inventory turnover (d)	1.6		1.7		1.6

(a) total current assets minus total current liabilities as of the corresponding balance sheet date.

(b) total current assets divided by total current liabilities as of the corresponding balance sheet date.

(c) net accounts receivable at period end dividedby revenue for the current period multiplied by the number of days in the period.

(d) cost of goods sold divided by the average inventory balance for the corresponding period.

Operating Activities

Cash used in operating activities was $3.0 million for the three months ended March 31, 2014 as compared to cash used in operating activities of $3.4 million in the prior year period. The cash used in operating activities primarily consisted of (i) a change in the fair value of the Nellix contingent consideration of $11.8 million; (ii) inventory purchases of $4.4 million; offset by a decrease in accounts payable of $4.0 million.

During the three months ended March 31, 2014, and 2013 our cash collections from customers totaled $33.2 million and $27.4 million, respectively, representing 100% and 92.0% of reported revenue for the same periods.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2014 was $49.6 million, as compared to cash used in investing activities of $1.1 million in the prior year period. The cash used in investing activities primarily consisted of $3.5 million used for machinery and equipment purchases and $53.0 million used to purchase marketable debt securities; offset by $6.9 million in maturities of marketable securities.

Financing Activities

Cash used in financing activities was $0.4 million for the three months ended March 31, 2014, as compared to cash provided by financing activities of $1.0 million in the prior year period. Cash used in financing activities consisted of $0.6 million used in minimum tax withholding paid on behalf of employees for restricted stock units; offset by proceeds of $0.2 million from the exercise of stock options.

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Credit Arrangements

See Note 6 of the Notes to the Condensed Consolidated Financial Statements. We were in compliance with all debt covenants as of March 31, 2014.

Credit Risk

The majority of our accounts receivable arise from product sales in the U.S. However, we also have significant

receivable balances from customers within the European Union, Japan, Brazil, Argentina, and Mexico. Our accounts

receivable in the U.S. are primarily due from public and private hospitals. Our accounts receivable outside of the U.S. are

primarily due from public and private hospitals and independent distributors.  Our historical write-offs of accounts receivable have not been significant.

We monitor the financial performance and credit worthiness of our customers so that we can properly assess

and respond to changes in their credit profile. Since our customers operate in certain countries such as Greece and Italy, where adverse economic conditions persist, it increases the risk of our inability to collect amounts due to us from them. To determine our allowance for doubtful accounts we consider these factors and other relevant considerations. Our allowance for doubtful accounts of $0.2 million as of March 31, 2014, represents our best estimate of the amount of probable credit losses in our existing accounts receivable.

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 Ventana and the Nellix System.

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 our sales force expansion;

• the need for additional capital to fund strategic acquisitions;

• 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 believe that our world-wide cash resources are adequate to operate our business. We presently have several operating subsidiaries and branches outside of the U.S. As of March 31, 2014, these subsidiaries and branches hold an aggregate $7.0 million in foreign bank accounts to fund their local operations. A portion of these balances related to undistributed earnings, and are deemed by management to be permanently reinvested in the corresponding country in which our subsidiary operates. Management has no present or planned intention to repatriate foreign earnings into the U.S. However, in the event that we required additional funds in the U.S. and had 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 had sufficient net operating losses to offset this potential tax liability.

In the event we require additional financing in the future, it may not be available on commercially reasonable terms, if at all. Even if we are able to obtain financing, 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). If we are not able to obtain required financing, we may need to curtail our operations and/or our planned product development.

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Contractual Obligations

Contractual obligation payments by year with initial terms in excess of one year were as follows as of March 31, 2014 (in thousands):

	Payments due by period
Contractual Obligations	Total		Remainder of 2014		2015		2016		2017		2018		2019		2020 and thereafter
Long-term debt obligations	$	86,250	$	—	$	—	$	—	$	—	$	86,250	$	—	$	—
Interest on debt obligations	9,732		1,968		1,941		1,941		1,941		1,941		—		—
Operating lease obligations	36,277		847		2,026		2,067		2,123		2,186		2,251		24,777
Total	$	132,259	$	2,815	$	3,967	$	4,008	$	4,064	$	90,377	$	2,251	$	24,777

Refer to Note 6 of the Notes to the Condensed Consolidated Financial Statements for a discussion of long-term debt obligations and Note 8 of the Notes to the Condensed Consolidated Financial Statements for a discussion of operating lease obligations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements (except for operating leases) that provide financing, liquidity, market or credit risk support, or involve derivatives. In addition, we have no arrangements that may expose us to liability that are not expressly reflected in the accompanying Consolidated Financial Statements.

As of March 31, 2014, we did not have any relationships with unconsolidated entities or financial partnerships, often referred to as "structured finance" or "special purpose entities," established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not subject to any material financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We do not believe that we currently have material exposure to interest rate, foreign currency exchange rate or other relevant market risks.

Interest Rate and Market Risk. We have investments in U.S. Government and agency securities, corporate bonds and other debt securities. As a result, we are exposed to potential loss from market risks that may occur as a result of changes in interest rates, changes in credit quality of the issuer or otherwise.

We generally place our marketable security investments in high quality credit instruments, as specified in our investment policy guidelines. A hypothetical 100 basis point decrease in interest rates would result in an approximate $112,285 increase in the fair value of our investments as of March 31, 2014. We believe, however, that the conservative nature of our investments mitigates our interest rate exposure, and our investment policy limits the amount of our credit exposure to any one issue, issuer (with the exception of U.S. agency obligations) and type of instrument. We do not expect any material loss from our marketable security investments and therefore believe that our potential interest rate exposure is limited. We intend to hold the majority of our investments to maturity, in accordance with our business plans.

We do not use derivative financial instruments in our investment portfolio. We are averse to principal loss and try to ensure the safety and preservation of our invested funds by limiting default risk, market risk, and reinvestment risk. We attempt to mitigate default risk by investing in only high credit quality securities and by positioning our portfolio to appropriately respond to a significant reduction in the credit rating of any investment issuer or guarantor.

We are also exposed to market risk for changes in interest rates on the Wells Credit Facility. All outstanding amounts under the Wells Credit Facility bear interest at a variable rate equal to the Wells prime rate, plus 1.00%, which is payable on a monthly basis. As of March 31, 2014, we had no amounts outstanding under the Wells Credit Facility. However, if we draw down the Wells Credit Facility, we may be exposed to market risk due to changes in the rate at which interest accrues.

Our Senior Notes bear fixed interest rates, and therefore, would not be subject to interest rate risk. The capped call transactions are derivative instruments that qualify for classification within stockholders’ equity because they meet an exemption from mark-to-market derivative accounting. The settlement amounts for the capped call transactions are each determined based upon the difference between a strike price and a traded price of the Company’s common stock.

Foreign Currency Transaction Risk. While a majority of our business is denominated in the U.S. dollar, a portion of our revenues and expenses are denominated in foreign currencies. Fluctuations in the rate of exchange between the U.S. dollar and the Euro or the British Pound Sterling may affect our results of operations and the period-to-period comparisons of our operating results. Foreign currency transaction realized and unrealized gains and losses resulted in approximately $0.4 million of gain during the three months ended March 31, 2014. During the three months ended March 31, 2014, our primary exposure to foreign currency rates related to our Europe operations.

Item 4. CONTROLS AND PROCEDURES.

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures, as of the end of the period covered by this report, were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the first quarter of 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information

Item 1. LEGAL PROCEEDINGS.

Refer to Note 8 of the Notes to the Condensed Consolidated Financial Statements for discussion of legal proceedings.

Item 6. EXHIBIT INDEX.

The following exhibits are filed or furnished herewith:

Exhibit 10.1	(1)	Employment Agreement, dated February 1, 2014, by and between Endologix, Inc. and John McDermott (Incorporated by reference to Exhibit 10.1 to Endologix, Inc. Current Report on Form 8-K filed with the SEC on February 3, 2014).
Exhibit 10.2	(1)	Employment Agreement, dated February 1, 2014, by and between Endologix, Inc. and Shelly B. Thunen (Incorporated by reference to Exhibit 10.2 to Endologix, Inc. Current Report on Form 8-K filed with the SEC on February 3, 2014).
Exhibit 10.3	(1)	Employment Agreement, dated February 1, 2014, by and between Endologix, Inc. and Robert D. Mitchell (Incorporated by reference to Exhibit 10.3 to Endologix, Inc. Current Report on Form 8-K filed with the SEC on February 3, 2014).
Exhibit 10.4	(1)	Employment Agreement, dated February 1, 2014, by and between Endologix, Inc. and Dave Jennings.
Exhibit 10.5	(1)	Employment Agreement, dated February 1, 2014, by and between Endologix, Inc. and James Machek.
Exhibit 10.6	(1)	Form of Indemnification Agreement entered into with Endologix, Inc. officers and directors (Incorporated by reference to Exhibit 10.6 to Endologix, Inc. Current Report on Form 8-K filed with the SEC on February 3, 2014).
Exhibit 31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
Exhibit 31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
Exhibit 32.1	(2)	Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
Exhibit 32.2	(2)	Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
Exhibit 101.INS		XBRL Instance Document
Exhibit 101.SCH		XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL		XBRL Taxonomy Extension Calculation Lin Base Document
Exhibit 101.DEF		XBRL Taxonomy Extension Definition Link Base Document
Exhibit 101.LAB		XBRL Taxonomy Extension Label Link Base Document
Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Link Base Document

(1) These exhibits are identified as management contracts or compensatory plans or arrangements of Endologix.

(2) Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ENDOLOGIX, INC.
May 2, 2014	/s/ John McDermott
	John McDermott Chief Executive Officer and Chairman of the Board (Principal Executive Officer)
May 2, 2014	/s/ Shelley B. Thunen
	Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-10.4

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of February 1, 2014 (the “Effective Date”), is entered into by and between ENDOLOGIX, Inc., a Delaware corporation (the “Company”), and David Jennings (the “Executive”).

RECITALS

WHEREAS, the Company and Executive previously entered into an Employment Agreement dated as of June 24, 2013 (the “Prior Agreement”); and

WHEREAS, the Company desires to continue to employ Executive and update certain terms and conditions of Executive’s employment, as evidenced by this Agreement, which is intended to supersede and replace the Prior Agreement in its entirety.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth herein, the Company and Executive, intending to be legally bound, hereby agree as follows:

1. Employment; Term. The Company agrees to continue to employ Executive, and Executive agrees to continue to be employed by the Company, upon the terms and conditions set forth herein. This Agreement shall be for an initial term that continues in effect through the third anniversary of the Effective Date, which shall be extended automatically for one or more additional terms of one (1) year each, as of each anniversary of the Effective Date (such initial term or additional term referred to herein as the “Term”). The Agreement may be terminated by either party for any reason or no reason by providing the other party with at least thirty (30) days’ prior written notice.

2. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

2.1 “Board” shall mean the Board of Directors of the Company.

2.2 “Cause” shall mean any of the following: (i) any act of fraud by Executive in connection with Executive’s responsibilities to the Company that is materially injurious to the Company; (ii) Executive’s conviction of a felony; (iii) a willful act by Executive that constitutes gross misconduct and is materially injurious to the Company; or (iv) Executive’s willful and material breach of a material obligation or material duty under this Agreement or the Company’s policies, which breach in the case of (iii) or (iv) is not cured within thirty (30) days after written notice thereof is received by Executive. Executive shall be afforded an opportunity to explain and defend such actions before the Board.

2.3 “Change in Control” includes each of the following events with respect to the Company:

(a) The acquisition, directly or indirectly, in one transaction or a series of related transactions, by any person or group (within the meaning of Section 13(d)(3) of the

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Exchange Act) of the beneficial ownership of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of all outstanding securities of the Company;

(b) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) the acquisition of assets or stock of another entity, in each case, other than a transaction which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least 50% of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction;

(c) The sale, transfer or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, except for a transaction in which the holders of the outstanding voting securities of the Company immediately prior to such transaction(s) receive as a distribution with respect to securities of the Company, in the aggregate, securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the acquiring entity immediately after such transaction(s); or

(d) The approval by the stockholders of a plan or proposal for the liquidation or dissolution of the Company;

provided, that for purposes of this definition, a transaction or event described in paragraph (a), (b), (c) or (d) shall constitute a “Change in Control” only if such transaction or event occurs after the Effective Date and constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5), with respect to the Executive.

2.4 “Code” means the Internal Revenue Code of 1986, as amended.

2.5 “Disability” means the inability of Executive to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than six (6) months, as determined by a competent physician selected by the Board and reasonably agreed to by Executive following such six-month period.

2.6 “Good Reason” shall mean the occurrence of any of the following events or conditions without Executive’s written consent:

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(a) a material reduction in Executive’s authority, duties or responsibilities;

(b) a material diminution in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report;

(c) a material diminution in Executive’s Base Salary (as defined herein);

(d) a material change in the geographic location at which Executive must perform Executive’s duties, except for reasonably required travel by the Company; or

(e) any other action or inaction that constitutes a material breach by the Company of its obligations to Executive under this Agreement, including, without limitation, as specifically set forth herein.

Executive must provide written notice to the Company of the occurrence of any of the foregoing events or conditions without Executive’s written consent within ninety (90) days following the occurrence of such event. The Company shall have a period of thirty (30) days to cure such event or condition (if applicable) after receipt of written notice of such event from Executive. Any voluntary termination of Executive’s employment for Good Reason following such cure period must occur no later than the date that is two (2) years following the initial occurrence of one of the foregoing events or conditions without Executive’s written consent.

2.7 “Involuntary Termination” means Executive’s Separation from Service by reason ofa (i) termination of Executive’s employment by the Company other than for Cause, death or Disability or (ii) Executive’s resignation for Good Reason.

2.8 “Separation from Service,” with respect to Executive, means Executive’s “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h).

2.9 “Specified Employee” means a “specified employee,” as defined in Treasury Regulation Section 1.409A-1(i).

3. Duties.

3.1 Position. Executive shall be employed as Vice President, Human Resources, initially reporting to the Chief Executive Officer, and shall have the duties and responsibilities customarily associated with such position and as may be reasonably assigned from time to time. Executive shall perform faithfully and diligently all functions associated with Executive’s position and all duties assigned to Executive.

3.2 Exclusive Services. Executive shall devote such time as is reasonably necessary for Executive to fulfill Executive’s duties. This shall not preclude Executive from (a) devoting time to personal and family endeavors or investments, (b) serving on community and civic boards, (c) participating in industry or trade associations, or (d) serving on a board of a

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public or private company that does not directly compete with the Company; provided, that (x) such activities do not materially interfere with Executive’s duties to the Company, and (y) the Chief Executive Officer shall approve Executive’s service on any board of directors.

3.3 Policies and Procedures. Executive agrees to comply with the Company’s policies and procedures as such may be modified from time to time.

4. Compensation and Benefits. The Company shall pay or provide, as the case may be, to Executive the compensation and other benefits and rights set forth in this Section 4.

4.1 Base Salary. The Company shall pay to Executive an annual base salary of $245,000 per year (the “Base Salary”), payable in accordance with the Company’s usual payroll practices (and in any event no less frequently than monthly). Executive’s Base Salary shall be subject to an annual review by the Board following the Effective Date. In the event of an adjustment to the Base Salary, the term “Base Salary” shall refer to the adjusted amount.

4.2 Bonus. Executive shall be eligible to participate in such cash incentive compensation plan or program as may be approved by the Board (or committee thereof) from time to time for senior executives of the Company. Executive’s target bonus award under such plan(s) initially shall be forty percent (40%) of Executive’s Base Salary but shall be adjusted annually in the sole and absolute discretion of the Board (or Compensation Committee thereof) (the “Target Bonus”). Any bonus amounts payable by the Company pursuant to this Section 4.2 shall be paid to Executive in accordance with the terms and conditions of the applicable cash incentive compensation plan or program.

4.3 Benefits. Executive shall be entitled to participate in all customary and usual benefits available to senior executive officers under the Company’s benefit plans and arrangements, including, without limitation, health, dental, vision and life insurance, premiums for which shall be paid by the Company and Executive, and any other employee benefit plan or arrangement made available in the future by the Company to its senior executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall have the right to amend or delete any such benefit plan or arrangement made available by the Company to its senior executives and not otherwise specifically provided for herein.

4.4 Expenses; Travel. The Company shall reimburse Executive for all reasonable out-of-pocket business and travel expenses incurred in connection with the performance of Executive’s duties or professional activities on behalf of the Company in accordance with the Company’s reimbursement policies.

4.5 Vacation. Executive shall be entitled to such periods of paid vacation each calendar year as provided from time to time under the Company’s vacation policy and consistent with vacation as afforded to the Company’s senior officers and commensurate with Executive’s position with the Company.

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5. Acceleration of Equity Awards in the Event of a Change in Control. Upon a Change in Control, solely as a result of the Change in Control and without regard to Executive’s termination of employment (if any), all outstanding unvested equity awards held by Executive shall become fully vested and, if applicable, exercisable as to all shares of the Company’s common stock covered thereby, in each case as of the date of the Change in Control. In the event the Company’s equity incentive plan(s), the award agreements evidencing Executive’s outstanding equity awards, the definitive agreement effecting the Change in Control or any action by the Board or committee thereof provide for more favorable treatment to the Executive, Executive shall be entitled to the more favorable treatment. This provision shall apply notwithstanding anything to the contrary in any other written agreement between Executive and the Company (including any equity award agreement), which shall be deemed superseded to the extent necessary to give effect to this provision.

6. Termination of Employment and Severance. Executive shall be entitled to receive benefits upon termination of Executive’s employment by the Company other than for Cause, death or disability or by Executive for Good Reason as set forth in this Section 6.

6.1 Involuntary Termination Prior to a Change in Control. In the event of Executive’s Involuntary Termination prior to a Change in Control, Executive shall be entitled to receive the benefits provided in this Section 6.1, subject to Executive’s compliance with Section 6.5:

(a) The Company shall pay to Executive any fully earned but unpaid Base Salary, earned and accrued but unpaid bonus amounts for any calendar year prior to the calendar year in which Executive’s termination of employment occurs, unused and accrued vacation and unreimbursed business expenses through the date of termination at the rate then in effect, plus all other earned or accrued amounts to which Executive is entitled under any compensation plan or practice of the Company at the time of termination (the “Accrued Obligations”) as soon as practicable following the date of Executive’s Involuntary Termination.

(b) Executive shall be entitled to receive a cash severance payment in an amount equal to six months of Executive’s Base Salary, payable in a lump sum cash payment on the first business day of the calendar month occurring after the sixtieth (60^th) day following the date of Executive’s Separation from Service; provided, however, that if Executive is a Specified Employee of the date of Executive’s Separation from Service, such payment shall be made in accordance with Section 10.2 hereof.

(c) Executive shall be entitled to receive a cash payment equal to the annual bonus for the year in which Executive’s Separation from Service occurs (as determined by the Company in its discretion based on estimated performance for such year as of the date of Executive’s Separation from Service), prorated for the number of calendar days worked in such calendar year, which shall be paid in a lump sum on the first business day of the calendar month occurring after the sixtieth (60^th) day following the date of Executive’s Separation from Service.

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(d) Executive shall be entitled to receive continuation of group health insurance benefits for a period of six months, with the Company to continue to pay the same portion of the monthly premium for Executive and Executive’s eligible dependents as the Company paid immediately prior to Executive’s Involuntary Termination, provided, that Executive elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), for Executive and Executive’s eligible dependents who were covered under the Company’s health plans as of the date of Executive’s Involuntary Termination.

(e) Executive shall be entitled to receive reasonable outplacement services, on an in-kind basis, from a firm selected by the Company, suitable to Executive’s position and directly related to Executive’s Involuntary Termination, for a period of twelve (12) months following the date of the Involuntary Termination, in an aggregate amount of cost to the Company not to exceed $10,000. Notwithstanding the foregoing, Executive shall cease to receive outplacement services on the date Executive accepts employment with a subsequent employer.

(f) Outstanding equity awards granted to Executive under the Company’s equity incentive plans on or prior to the Effective Date, to the extent unvested and unexercised (if applicable), shall receive additional vesting as follows (i) with respect to any outstanding stock option award that vests in installments, such award shall become vested and, if applicable, exercisable by an additional six months (the “Additional Vesting Period”), and (ii) with respect to any outstanding equity award that has performance-based (milestone) vesting, such award shall become fully vested and, if applicable, exercisable if the performance-based vesting date occurs during the Additional Vesting Period, in each case, as of the date of Executive’s Involuntary Termination. Outstanding equity awards granted to Executive under the Company’s equity incentive plans following the Effective Date shall not be entitled to any additional vesting as a result of Executive’s Involuntary Termination pursuant to this Agreement.

6.2 Involuntary Termination Upon or Following Change in Control. In the event of Executive’s Involuntary Termination upon or within twenty-four (24) months following a Change in Control, Executive shall be entitled to receive, in lieu of any severance benefits to which Executive may otherwise be entitled under Section 6.1 hereof, the benefits provided in this Section 6.2, subject to Executive’s compliance with Section 6.5:

(f) The Company shall pay to Executive the Accrued Obligations as soon as practicable following the date of Executive’s Involuntary Termination;

(g) Executive shall be entitled to receive a cash severance payment in an amount equal to the sum of 18 months of Executive’s Base Salary plus Target Bonus, payable in a lump sum cash payment on the first business day of the calendar month occurring after the sixtieth (60^th) day following the date of Executive’s Separation from Service; provided,

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however, that if Executive is a Specified Employee of the date of Executive’s Separation from Service, such payment shall be made in accordance with Section 10.2 hereof.

(h) Executive shall be entitled to receive a cash payment equal to the Target Bonus for the year in which Executive’s Separation from Service occurs, which shall be paid in a lump sum on the first business day of the calendar month occurring after the sixtieth (60^th) day following the date of Executive’s Separation from Service.

(i) Executive shall be entitled to receive continuation of group health insurance benefits for a period of 18 months, with the Company to continue to pay the same portion of the monthly premium for Executive and Executive’s eligible dependents as the Company paid immediately prior to Executive’s Involuntary Termination, provided, that Executive elects continuation coverage pursuant to COBRA for Executive and Executive’s eligible dependents who were covered under the Company’s health plans as of the date of Executive’s Involuntary Termination.

(j) Executive shall be entitled to receive reasonable outplacement services, on an in-kind basis, from a firm selected by the Company, suitable to Executive’s position and directly related to Executive’s Involuntary Termination, for a period of twelve (12) months following the date of the Involuntary Termination, in an aggregate amount of cost to the Company not to exceed $10,000. Notwithstanding the foregoing, Executive shall cease to receive outplacement services on the date Executive accepts employment with a subsequent employer.

(k) All outstanding equity awards granted under the Company’s equity incentive plans held by Executive, to the extent unvested and unexercised, shall become fully vested and, if applicable, exercisable, in each case as of the date of Executive’s Involuntary Termination. This provision shall apply notwithstanding anything to the contrary in any other written agreement between Executive and the Company (including any equity award agreement), which shall be deemed superseded to the extent necessary to give effect to this provision.

6.3 Termination of Employment due to Executive’s Death or Disability. If Executive’s employment is terminated by the Company due to Executive’s death or Disability, the Company shall pay to Executive (or Executive’s estate or legal representative, if applicable) the Accrued Obligations as soon as practicable following the date of Executive’s termination of employment.

6.4 Other Terminations. If Executive’s employment is terminated at any time by the Company other than without Cause or due to Executive’s death or Disability (including a non-renewal of this Agreement) or by Executive without Good Reason, the Company shall not have any other or further obligations to Executive under this Agreement (including any financial obligations) except that Executive shall be entitled to receive the Accrued Obligations and

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any continuation of benefits required by COBRA or applicable law (for which Executive shall be solely responsible).

6.5 Release. As a condition to Executive’s receipt of any post-termination benefits pursuant to Section 6.1 or Section 6.2 hereof, Executive shall execute and deliver within fifty (50) days following the date of Executive’s Involuntary Termination, and not revoke within any revocation period required by law, a general release of all claims in favor of the Company (the “Release”) in the form attached hereto as Exhibit A.

6.6 Exclusive Remedy. Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive’s rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing at the termination of Executive’s employment shall cease upon such termination.

6.7 No Mitigation. Except as otherwise set forth in Section 8, Executive shall not be required to mitigate the amount of any payment provided for in this Section 6 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 6 be reduced by any compensation earned by Executive as the result of employment by another employer or self-employment or by retirement benefits.

6.8 Payments in Lieu of COBRA Continuation. Notwithstanding Section 6.1(d) and Section 6.2(d), with regard to such COBRA continuation coverage, if the Company determines in its sole discretion that it cannot provide such coverage without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof provide to Executive a taxable monthly payment in an amount equal to the monthly COBRA premium (which amount shall be based on the premiums for the first month of COBRA coverage).

7. Limitation on Payments.

7.1 Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by Executive (including any payment or benefit received in connection with a Change in Control or the termination of Executive’s employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, including the payments and benefits under Section 5 and Section 6 of this Agreement, being hereinafter referred to as the “Total Payments”) would be subject (in whole or part), to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, the cash severance payments shall first be reduced, and the non-cash severance payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and

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personal exemptions attributable to such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments). The Total Payments shall be reduced by the Company in its reasonable discretion in the following order: (A) reduction of any cash severance payments otherwise payable to Executive that are exempt from Section 409A of the Code, (B) reduction of any other cash payments or benefits otherwise payable to Executive that are exempt from Section 409A of the Code, but excluding any payment attributable to the acceleration of vesting or payment with respect to any stock option or other equity award with respect to the Company’s common stock that are exempt from Section 409A of the Code, (C) reduction of any other payments or benefits otherwise payable to Executive on a pro rata basis or such other manner that complies with Section 409A of the Code, but excluding any payment attributable to the acceleration of vesting and payment with respect to any stock option or other equity award with respect to the Company's common stock that are exempt from Section 409A of the Code, and (D) reduction of any payments attributable to the acceleration of vesting or payment with respect to any stock option or other equity award with respect to the Company’s common stock that are exempt from Section 409A of the Code.

7.2 For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of an accounting firm or compensation consulting firm with nationally recognized standing and substantial expertise and experience on Section 280G matters (“Independent Advisors”) selected by the Company, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of Independent Advisors, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

8. Certain Restrictive Covenants.

8.1 Confidential Information. During the Term and thereafter, Executive shall continue to be bound by the restrictions in the Proprietary Information and Inventions Agreement with the Company (the “Proprietary Rights Agreement”).

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8.2 Cooperation. During the Term and thereafter, Executive agrees to cooperate with the Company and its agents, accountants and attorneys concerning any matter with which Executive was involved during Executive’s employment. Such cooperation shall include, but not be limited to, providing information to, meeting with and reviewing documents provided by the Company and its agents, accountants and attorneys during normal business hours or other mutually agreeable hours upon reasonable notice and being available for depositions and hearings, if necessary and upon reasonable notice. If Executive’s cooperation is required after the termination of Executive’s employment, the Company shall reimburse Executive for any reasonable out of pocket expenses incurred in performing Executive’s obligations hereunder.

8.3 Return of the Company’s Property. Upon the termination of Executive’s employment in any manner, as a condition to Executive’s receipt of any post-termination benefits described in Section 6.1 or 6.2 of this Agreement, Executive shall immediately surrender to the Company all lists, books and records of, or in connection with, the Company’s business, and all other property belonging to the Company.

8.4 Non-Disparage. As an additional inducement for the Company to enter into this Agreement, Executive agrees that Executive shall refrain throughout the Term and for a period of one (1) year following the date of Executive’s termination of employment from publishing any oral or written statements about Company, any of its affiliates or any of the Company’s or such affiliates’ directors, officers, employees, consultants, agents or representatives that (a) are slanderous, libelous or defamatory, (b) disclose private information about or confidential information of the Company, any of its affiliates or any of Company’s or any such affiliates’ business affairs, directors, officers, employees, consultants, agents or representatives, or (c) place the Company, any of its affiliates, or any of the Company’s or any such affiliates’ directors, officers, employees, consultants, agents or representatives in a false light before the public. A violation or threatened violation of this prohibition may be enjoined by the courts. The rights afforded the Company and its affiliates under this provision are in addition to any and all rights and remedies otherwise afforded by law.

8.5 Non-Solicitation. As an additional inducement for the Company to enter into this Agreement, Executive agrees that for a period of one (1) year following the date of Executive’s termination of employment, Executive shall not, directly or indirectly knowingly induce any person in the employment of the Company to (A) terminate such employment, or (B) accept employment, or enter into any consulting arrangement, with anyone other than the Company.

8.6 Rights and Remedies Upon Breach. If Executive breaches or threatens to commit a breach of any of the provisions of this Section 8 (the “Restrictive Covenants”), the Company shall have any rights and remedies available to the Company under law or in equity.

8.7 Severability of Covenants/Blue Penciling. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive

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Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any of the Restrictive Covenants, or any part thereof, are unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. Executive hereby waives any and all right to attack the validity of the Restrictive Covenants on the grounds of the breadth of their geographic scope or the length of their term.

8.8 Enforceability in Jurisdictions. The Company and Executive intend to and do hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the Company and Executive that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.

9. Indemnification. Executive shall be entitled to indemnification as an officer of the Company as provided in the Indemnification Agreement entered into with the Company dated February 1, 2014 (the “Indemnification Agreement”), along with the applicable provisions of the Company’s director and officer liability insurance (if any), bylaws and Delaware law, without regard to any future changes in Executive’s assignment or position.

10. Section 409A of the Code.

10.1 Compliance with Section 409A. To the maximum extent permissible by applicable law, the payments and benefits payable under this Agreement shall be interpreted to be exempt from Section 409A of the Code, including, without limitation, the exemptions pursuant to Treasury Regulation Sections 1.409A-1(b)(4) and 1.409A-1(b)(9). To the extent the payments and benefits under this Agreement are subject to Section 409A of the Code, this Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations thereunder. If the Company and Executive determine that any compensation, benefits or other payments that are payable under this Agreement and intended to comply with Sections 409A(a)(2), (3) and (4) of the Code do not comply with Section 409A of the Code, the Company and Executive agree to amend this Agreement, or take such other actions as the Company and Executive deem reasonably necessary or appropriate, to comply with the requirements of Section 409A of the Code, while preserving the economic agreement of the parties. In the case of any compensation, benefits or other payments that are payable under this Agreement and intended to comply with Sections 409A(a)(2), (3) and (4) of the Code, if any provision of the Agreement would cause such compensation, benefits or other payments to fail to so

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comply, such provision shall not be effective and shall be null and void with respect to such compensation, benefits or other payments, and such provision shall otherwise remain in full force and effect. The Executive’s right to receive installment payments of any severance payments or benefits under this Agreement shall be treated as a right to receive a series of separate payments, and accordingly, each installment payment shall at all times be considered a separate and distinct payment. To the extent any reimbursement of expenses under this Agreement is subject to Section 409A of the Code, the reimbursements shall be paid in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) and be paid on or before the last day of Executive’s taxable year following the taxable year in which Executive incurred the expenses.

10.2 Delayed Distribution under Section 409A. If Executive is a Specified Employee on the date of Executive’s Separation from Service, any payments made under Section 6.1 or Section 6.2 and any other payments or benefits (or portion thereof) under this Agreement that are subject to Section 409A of the Code and payable upon Executive’s Separation from Service shall be delayed in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, and such payments or benefits shall be paid or distributed to Executive during the thirty (30) day period commencing on the earlier of (a) the expiration of the six-month period measured from the date of Executive’s Separation from Service or (b) the date of Executive’s death. Upon the expiration of the applicable six-month period under Section 409A(a)(2)(B)(i) of the Code, all payments deferred pursuant to this Section 10.2 shall be paid in a lump sum payment to Executive (or Executive’s estate, in the event of Executive’s death). Any remaining payments due under the Agreement shall be paid as otherwise provided herein.

11. General Provisions.

11.1 Successors and Assigns. The rights of the Company under this Agreement may, without the consent of Executive, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity that at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. As used in this Agreement, the “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise. Executive shall not be entitled to assign any of Executive’s rights or obligations under this Agreement. This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount is at such time

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payable to Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee, or other designee or, if there be no such designee, to Executive’s estate.

11.2 Waiver. Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement.

11.3 Attorneys’ Fees. Each side will bear its own attorneys’ fees in any dispute unless a statutory section at issue, if any, authorizes the award of attorneys’ fees to the prevailing party; provided, that in the event Executive’s employment is terminated by the Company without Cause or due to Executive’s death or Disability, or by Executive for Good Reason, in each case following a Change in Control, the Company shall pay the Executive’s attorneys’ fees, unless the arbitrator or court, as applicable, finds the claim to be frivolous, in bad faith or without merit.

11.4 Severability. In the event any provision of this Agreement is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

11.5 Interpretation; Construction. The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement. This Agreement has been drafted by legal counsel representing the Company, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Agreement and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

11.6 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof.

11.7 Arbitration. In the event of any controversy, claim or dispute between the parties hereto arising out of or relating to this Agreement, the matter shall be determined by arbitration, which shall take place in Orange County, California, under the rules of the American Arbitration Association. The arbitrator shall be a retired Superior Court judge mutually agreeable to the parties and if the parties cannot agree such person shall be chosen in accordance with the rules of the American Arbitration Association. The arbitrator shall be bound by applicable legal precedent in reaching his or her decision. Any judgment upon

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such award may be entered in any court having jurisdiction thereof. Any decision or award of such arbitrator shall be final and binding upon the parties and shall not be appealable. The parties hereby consent to the jurisdiction of such arbitrator and of any court having jurisdiction to enter judgment upon and enforce any action taken by such arbitrator. The fees payable to the American Arbitration Association and the arbitrator shall be paid by the Company.

11.8 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (a) by personal delivery when delivered personally; (b) by overnight courier upon written verification of receipt; (c) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (d) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to Executive at the last available address in the Company’s records and to the Company at its principal place of business, or such other address as either party may specify in writing.

11.9 Survival. Sections 2 (“Definitions”), 5 (“Termination and Severance”), 6 (“Acceleration of Equity Awards in the Event of a Change in Control”), 7 (“Limitation on Payment”), 8 (“Certain Restrictive Covenants”), 9 (“Indemnification”), and 11 (“General Provisions”) of this Agreement shall survive termination of Executive’s employment by the Company.

11.10 Entire Agreement. This Agreement, the Proprietary Rights Agreement, the Indemnification Agreement and any Company equity incentive plan and related award agreements evidencing outstanding equity awards held by Executive together constitute the entire agreement between the parties relating to this subject matter and supersede all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral, including the Prior Agreement; provided, that this Agreement shall supersede any other written agreement (including any equity award agreement) between Executive and the Company as expressly provided in Section 6.2(f). This Agreement may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

11.11 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

(Signature Page Follows)

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THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

EXECUTIVE

Dated: 02/01/2014        /s/ David Jennings

Print Name:

ENDOLOGIX, INC.

Dated: 02/01/2014        By: /s/ John McDermott

Name: John McDermott

Title: Chief Executive Officer

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EXHIBIT A

GENERAL RELEASE OF CLAIMS

THIS GENERAL RELEASE OF CLAIMS (“Release”) is entered into as of this _____ day of ________, ____, between [ ˜ ] (“Executive”), and Endologix, Inc., a Delaware corporation (the “Company”) (collectively referred to herein as the “Parties”).

WHEREAS, Executive and the Company are parties to that certain Employment Agreement dated as of February 1, 2014 (the “Agreement”);

WHEREAS, the Parties agree that Executive is entitled to certain severance benefits under the Agreement, subject to Executive’s execution of this Release; and

WHEREAS, the Company and Executive now wish fully and finally to resolve all matters between them.

NOW, THEREFORE, in consideration of, and subject to, the severance benefits payable to Executive pursuant to the Agreement, the adequacy of which is hereby acknowledged by Executive, and that Executive acknowledges that Executive would not otherwise be entitled to receive, Executive and the Company hereby agree as follows:

1. General Release of Claims by Executive.

1.1 Executive, on behalf of himself or herself and his or her executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and the employee benefit plans in which Executive is or has been a participant by virtue of his or her employment with or service to the Company (collectively, the “Company Releasees”), from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, “Claims”), that Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof or on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever Executive’s employment by or service to the Company or the termination thereof, including any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, and claims of

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any kind that may be brought in any court or administrative agency including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000, etseq.; the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 etseq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 etseq.; the Civil Rights Act of 1866, and the Civil Rights Act of 1991; 42 U.S.C. Section 1981, etseq.; the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, etseq. (the “ADEA”); the Equal Pay Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of Federal Contract Compliance, 41 C.F.R. Section 60, etseq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601 etseq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 etseq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 etseq.; and the California Fair Employment and Housing Act, California Government Code Section 12940, etseq.

Notwithstanding the generality of the foregoing, Executive does not release the following claims:

(a) Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;

(b) Claims for workers’ compensation insurance benefits under the terms of any worker’s compensation insurance policy or fund of the Company;

(c) Claims pursuant to the terms and conditions of the federal law known as COBRA;

(d) Claims for indemnity under the bylaws of the Company, as provided for by Delaware law or under any applicable insurance policy with respect to Executive’s liability as an employee, director or officer of the Company;

(e) Claims based on any right Executive may have to enforce the Company’s executory obligations under the Agreement; and

(f) Claims Executive may have to vested or earned compensation and benefits.

1.2 EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

BEING AWARE OF SAID CODE SECTION, EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS EXECUTIVE MAY HAVE THEREUNDER, AS WELL AS

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UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

1.3 Executive acknowledges that this Release was presented to him or her on the date indicated above and that Executive is entitled to have 21 days’ time in which to consider it. Executive further acknowledges that the Company has advised Executive that Executive is waiving his or her rights under the ADEA, and that Executive may obtain advice concerning this Release from an attorney of his or her choice, and Executive has had sufficient time to consider the terms of this Release. Executive represents and acknowledges that if Executive executes this Release before 21 days have elapsed, Executive does so knowingly, voluntarily, and upon the advice and with the approval of Executive’s legal counsel (if any), and that Executive voluntarily waives any remaining consideration period.

1.4 Executive understands that after executing this Release, Executive has the right to revoke it within seven days after his or her execution of it. Executive understands that this Release will not become effective and enforceable unless the seven-day revocation period passes and Executive does not revoke the Release in writing. Executive understands that this Release may not be revoked after the seven-day revocation period has passed. Executive also understands that any revocation of this Release must be made in writing and delivered to the Company at its principal place of business within the seven-day period.

1.5 Executive understands that this Release shall become effective, irrevocable, and binding upon Executive on the eighth day after my execution of it, so long as Executive has not revoked it within the time period and in the manner specified in clause (d) above. Executive further understands that Executive will not be given any severance benefits under the Agreement until the effective date of this Release.

2. No Assignment. Executive represents and warrants to the Company Releasees that there has been no assignment or other transfer of any interest in any Claim that Executive may have against the Company Releasees, or any of them. Executive agrees to indemnify and hold harmless the Company Releasees from any liability, claims, demands, damages, costs, expenses and attorneys’ fees incurred as a result of any such assignment or transfer from Executive.

3. Paragraph Headings. The headings of the several paragraphs in this Release are inserted solely for the convenience of the Parties and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof.

4. Severability. The invalidity or unenforceability of any provision of this Release shall not affect the validity or enforceability of any other provision of this Release, which shall remain in full force and effect.

5. Governing Law. This Release will be governed by and construed in accordance with the laws of the United States and the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof.

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6. Counterparts. This Release may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

7. Construction. The language in all parts of this Release shall in all cases be construed simply, according to its fair meaning, and not strictly for or against any of the parties hereto. Without limitation, there shall be no presumption against any party on the ground that such party was responsible for drafting this Release or any part thereof.

8. Entire Agreement. This Release and the Agreement set forth the entire agreement of the Parties in respect of the subject matter contained herein and therein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto, and any prior agreement of the Parties in respect of the subject matter contained herein.

9. Amendment. No provision of this Release may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer of the Company as may be specifically designated by the Board.

10. Understanding and Authority. The Parties understand and agree that all terms of this Release are contractual and are not a mere recital, and represent and warrant that they are competent to covenant and agree as herein provided. The Parties have carefully read this Release in its entirety; fully understand and agree to its terms and provisions; and intend and agree that it is final and binding on all Parties.

IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed the foregoing Release as of the date first written above.

EXECUTIVE                        ENDOLOGIX, INC.

__________________                    By:

Print Name: Print Name:

Title:

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EX-10.5

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of February 1, 2014 (the “Effective Date”), is entered into by and between ENDOLOGIX, Inc., a Delaware corporation (the “Company”), and James Machek (the “Executive”).

RECITALS

WHEREAS, the Company and Executive previously entered into an Employment Agreement dated as of April 9, 2013 (the “Prior Agreement”); and

WHEREAS, the Company desires to continue to employ Executive and update certain terms and conditions of Executive’s employment, as evidenced by this Agreement, which is intended to supersede and replace the Prior Agreement in its entirety.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth herein, the Company and Executive, intending to be legally bound, hereby agree as follows:

1. Employment; Term. The Company agrees to continue to employ Executive, and Executive agrees to continue to be employed by the Company, upon the terms and conditions set forth herein. This Agreement shall be for an initial term that continues in effect through the third anniversary of the Effective Date, which shall be extended automatically for one or more additional terms of one (1) year each, as of each anniversary of the Effective Date (such initial term or additional term referred to herein as the “Term”). The Agreement may be terminated by either party for any reason or no reason by providing the other party with at least thirty (30) days’ prior written notice.

2. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

2.1 “Board” shall mean the Board of Directors of the Company.

2.2 “Cause” shall mean any of the following: (i) any act of fraud by Executive in connection with Executive’s responsibilities to the Company that is materially injurious to the Company; (ii) Executive’s conviction of a felony; (iii) a willful act by Executive that constitutes gross misconduct and is materially injurious to the Company; or (iv) Executive’s willful and material breach of a material obligation or material duty under this Agreement or the Company’s policies, which breach in the case of (iii) or (iv) is not cured within thirty (30) days after written notice thereof is received by Executive. Executive shall be afforded an opportunity to explain and defend such actions before the Board.

2.3 “Change in Control” includes each of the following events with respect to the Company:

(a) The acquisition, directly or indirectly, in one transaction or a series of related transactions, by any person or group (within the meaning of Section 13(d)(3) of the

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Exchange Act) of the beneficial ownership of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of all outstanding securities of the Company;

(b) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination or (y) the acquisition of assets or stock of another entity, in each case, other than a transaction which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) directly or indirectly, at least 50% of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction;

(c) The sale, transfer or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, except for a transaction in which the holders of the outstanding voting securities of the Company immediately prior to such transaction(s) receive as a distribution with respect to securities of the Company, in the aggregate, securities possessing more than fifty percent (50%) of the total combined voting power of all outstanding voting securities of the acquiring entity immediately after such transaction(s); or

(d) The approval by the stockholders of a plan or proposal for the liquidation or dissolution of the Company;

provided, that for purposes of this definition, a transaction or event described in paragraph (a), (b), (c) or (d) shall constitute a “Change in Control” only if such transaction or event occurs after the Effective Date and constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5), with respect to the Executive.

2.4 “Code” means the Internal Revenue Code of 1986, as amended.

2.5 “Disability” means the inability of Executive to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not less than six (6) months, as determined by a competent physician selected by the Board and reasonably agreed to by Executive following such six-month period.

2.6 “Good Reason” shall mean the occurrence of any of the following events or conditions without Executive’s written consent:

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(a) a material reduction in Executive’s authority, duties or responsibilities;

(b) a material diminution in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report;

(c) a material diminution in Executive’s Base Salary (as defined herein);

(d) a material change in the geographic location at which Executive must perform Executive’s duties, except for reasonably required travel by the Company; or

(e) any other action or inaction that constitutes a material breach by the Company of its obligations to Executive under this Agreement, including, without limitation, as specifically set forth herein.

Executive must provide written notice to the Company of the occurrence of any of the foregoing events or conditions without Executive’s written consent within ninety (90) days following the occurrence of such event. The Company shall have a period of thirty (30) days to cure such event or condition (if applicable) after receipt of written notice of such event from Executive. Any voluntary termination of Executive’s employment for Good Reason following such cure period must occur no later than the date that is two (2) years following the initial occurrence of one of the foregoing events or conditions without Executive’s written consent.

2.7 “Involuntary Termination” means Executive’s Separation from Service by reason ofa (i) termination of Executive’s employment by the Company other than for Cause, death or Disability or (ii) Executive’s resignation for Good Reason.

2.8 “Separation from Service,” with respect to Executive, means Executive’s “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h).

2.9 “Specified Employee” means a “specified employee,” as defined in Treasury Regulation Section 1.409A-1(i).

3. Duties.

3.1 Position. Executive shall be employed as Vice President, Research & Development, initially reporting to the Chief Executive Officer, and shall have the duties and responsibilities customarily associated with such position and as may be reasonably assigned from time to time. Executive shall perform faithfully and diligently all functions associated with Executive’s position and all duties assigned to Executive.

3.2 Exclusive Services. Executive shall devote such time as is reasonably necessary for Executive to fulfill Executive’s duties. This shall not preclude Executive from (a) devoting time to personal and family endeavors or investments, (b) serving on community and civic boards, (c) participating in industry or trade associations, or (d) serving on a board of a

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public or private company that does not directly compete with the Company; provided, that (x) such activities do not materially interfere with Executive’s duties to the Company, and (y) the Chief Executive Officer shall approve Executive’s service on any board of directors.

3.3 Policies and Procedures. Executive agrees to comply with the Company’s policies and procedures as such may be modified from time to time.

4. Compensation and Benefits. The Company shall pay or provide, as the case may be, to Executive the compensation and other benefits and rights set forth in this Section 4.

4.1 Base Salary. The Company shall pay to Executive an annual base salary of $260,000 per year (the “Base Salary”), payable in accordance with the Company’s usual payroll practices (and in any event no less frequently than monthly). Executive’s Base Salary shall be subject to an annual review by the Board following the Effective Date. In the event of an adjustment to the Base Salary, the term “Base Salary” shall refer to the adjusted amount.

4.2 Bonus. Executive shall be eligible to participate in such cash incentive compensation plan or program as may be approved by the Board (or committee thereof) from time to time for senior executives of the Company. Executive’s target bonus award under such plan(s) initially shall be forty percent (40%) of Executive’s Base Salary but shall be adjusted annually in the sole and absolute discretion of the Board (or Compensation Committee thereof) (the “Target Bonus”). Any bonus amounts payable by the Company pursuant to this Section 4.2 shall be paid to Executive in accordance with the terms and conditions of the applicable cash incentive compensation plan or program.

4.3 Benefits. Executive shall be entitled to participate in all customary and usual benefits available to senior executive officers under the Company’s benefit plans and arrangements, including, without limitation, health, dental, vision and life insurance, premiums for which shall be paid by the Company and Executive, and any other employee benefit plan or arrangement made available in the future by the Company to its senior executives, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. The Company shall have the right to amend or delete any such benefit plan or arrangement made available by the Company to its senior executives and not otherwise specifically provided for herein.

4.4 Expenses; Travel. The Company shall reimburse Executive for all reasonable out-of-pocket business and travel expenses incurred in connection with the performance of Executive’s duties or professional activities on behalf of the Company in accordance with the Company’s reimbursement policies.

4.5 Vacation. Executive shall be entitled to such periods of paid vacation each calendar year as provided from time to time under the Company’s vacation policy and consistent with vacation as afforded to the Company’s senior officers and commensurate with Executive’s position with the Company.

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5. Acceleration of Equity Awards in the Event of a Change in Control. Upon a Change in Control, solely as a result of the Change in Control and without regard to Executive’s termination of employment (if any), all outstanding unvested equity awards held by Executive shall become fully vested and, if applicable, exercisable as to all shares of the Company’s common stock covered thereby, in each case as of the date of the Change in Control. In the event the Company’s equity incentive plan(s), the award agreements evidencing Executive’s outstanding equity awards, the definitive agreement effecting the Change in Control or any action by the Board or committee thereof provide for more favorable treatment to the Executive, Executive shall be entitled to the more favorable treatment. This provision shall apply notwithstanding anything to the contrary in any other written agreement between Executive and the Company (including any equity award agreement), which shall be deemed superseded to the extent necessary to give effect to this provision.

6. Termination of Employment and Severance. Executive shall be entitled to receive benefits upon termination of Executive’s employment by the Company other than for Cause, death or disability or by Executive for Good Reason as set forth in this Section 6.

6.1 Involuntary Termination Prior to a Change in Control. In the event of Executive’s Involuntary Termination prior to a Change in Control, Executive shall be entitled to receive the benefits provided in this Section 6.1, subject to Executive’s compliance with Section 6.5:

(a) The Company shall pay to Executive any fully earned but unpaid Base Salary, earned and accrued but unpaid bonus amounts for any calendar year prior to the calendar year in which Executive’s termination of employment occurs, unused and accrued vacation and unreimbursed business expenses through the date of termination at the rate then in effect, plus all other earned or accrued amounts to which Executive is entitled under any compensation plan or practice of the Company at the time of termination (the “Accrued Obligations”) as soon as practicable following the date of Executive’s Involuntary Termination.

(b) Executive shall be entitled to receive a cash severance payment in an amount equal to six months of Executive’s Base Salary, payable in a lump sum cash payment on the first business day of the calendar month occurring after the sixtieth (60^th) day following the date of Executive’s Separation from Service; provided, however, that if Executive is a Specified Employee of the date of Executive’s Separation from Service, such payment shall be made in accordance with Section 10.2 hereof.

(c) Executive shall be entitled to receive a cash payment equal to the annual bonus for the year in which Executive’s Separation from Service occurs (as determined by the Company in its discretion based on estimated performance for such year as of the date of Executive’s Separation from Service), prorated for the number of calendar days worked in such calendar year, which shall be paid in a lump sum on the first business day of the calendar month occurring after the sixtieth (60^th) day following the date of Executive’s Separation from Service.

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(d) Executive shall be entitled to receive continuation of group health insurance benefits for a period of six months, with the Company to continue to pay the same portion of the monthly premium for Executive and Executive’s eligible dependents as the Company paid immediately prior to Executive’s Involuntary Termination, provided, that Executive elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), for Executive and Executive’s eligible dependents who were covered under the Company’s health plans as of the date of Executive’s Involuntary Termination.

(e) Executive shall be entitled to receive reasonable outplacement services, on an in-kind basis, from a firm selected by the Company, suitable to Executive’s position and directly related to Executive’s Involuntary Termination, for a period of twelve (12) months following the date of the Involuntary Termination, in an aggregate amount of cost to the Company not to exceed $10,000. Notwithstanding the foregoing, Executive shall cease to receive outplacement services on the date Executive accepts employment with a subsequent employer.

(f) Outstanding equity awards granted to Executive under the Company’s equity incentive plans on or prior to the Effective Date, to the extent unvested and unexercised (if applicable), shall receive additional vesting as follows (i) with respect to any outstanding stock option award that vests in installments, such award shall become vested and, if applicable, exercisable by an additional six months (the “Additional Vesting Period”), and (ii) with respect to any outstanding equity award that has performance-based (milestone) vesting, such award shall become fully vested and, if applicable, exercisable if the performance-based vesting date occurs during the Additional Vesting Period, in each case, as of the date of Executive’s Involuntary Termination. Outstanding equity awards granted to Executive under the Company’s equity incentive plans following the Effective Date shall not be entitled to any additional vesting as a result of Executive’s Involuntary Termination pursuant to this Agreement.

6.2 Involuntary Termination Upon or Following Change in Control. In the event of Executive’s Involuntary Termination upon or within twenty-four (24) months following a Change in Control, Executive shall be entitled to receive, in lieu of any severance benefits to which Executive may otherwise be entitled under Section 6.1 hereof, the benefits provided in this Section 6.2, subject to Executive’s compliance with Section 6.5:

(f) The Company shall pay to Executive the Accrued Obligations as soon as practicable following the date of Executive’s Involuntary Termination;

(g) Executive shall be entitled to receive a cash severance payment in an amount equal to the sum of 18 months of Executive’s Base Salary plus Target Bonus, payable in a lump sum cash payment on the first business day of the calendar month occurring after the sixtieth (60^th) day following the date of Executive’s Separation from Service; provided,

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however, that if Executive is a Specified Employee of the date of Executive’s Separation from Service, such payment shall be made in accordance with Section 10.2 hereof.

(h) Executive shall be entitled to receive a cash payment equal to the Target Bonus for the year in which Executive’s Separation from Service occurs, which shall be paid in a lump sum on the first business day of the calendar month occurring after the sixtieth (60^th) day following the date of Executive’s Separation from Service.

(i) Executive shall be entitled to receive continuation of group health insurance benefits for a period of 18 months, with the Company to continue to pay the same portion of the monthly premium for Executive and Executive’s eligible dependents as the Company paid immediately prior to Executive’s Involuntary Termination, provided, that Executive elects continuation coverage pursuant to COBRA for Executive and Executive’s eligible dependents who were covered under the Company’s health plans as of the date of Executive’s Involuntary Termination.

(j) Executive shall be entitled to receive reasonable outplacement services, on an in-kind basis, from a firm selected by the Company, suitable to Executive’s position and directly related to Executive’s Involuntary Termination, for a period of twelve (12) months following the date of the Involuntary Termination, in an aggregate amount of cost to the Company not to exceed $10,000. Notwithstanding the foregoing, Executive shall cease to receive outplacement services on the date Executive accepts employment with a subsequent employer.

(k) All outstanding equity awards granted under the Company’s equity incentive plans held by Executive, to the extent unvested and unexercised, shall become fully vested and, if applicable, exercisable, in each case as of the date of Executive’s Involuntary Termination. This provision shall apply notwithstanding anything to the contrary in any other written agreement between Executive and the Company (including any equity award agreement), which shall be deemed superseded to the extent necessary to give effect to this provision.

6.3 Termination of Employment due to Executive’s Death or Disability. If Executive’s employment is terminated by the Company due to Executive’s death or Disability, the Company shall pay to Executive (or Executive’s estate or legal representative, if applicable) the Accrued Obligations as soon as practicable following the date of Executive’s termination of employment.

6.4 Other Terminations. If Executive’s employment is terminated at any time by the Company other than without Cause or due to Executive’s death or Disability (including a non-renewal of this Agreement) or by Executive without Good Reason, the Company shall not have any other or further obligations to Executive under this Agreement (including any financial obligations) except that Executive shall be entitled to receive the Accrued Obligations and

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any continuation of benefits required by COBRA or applicable law (for which Executive shall be solely responsible).

6.5 Release. As a condition to Executive’s receipt of any post-termination benefits pursuant to Section 6.1 or Section 6.2 hereof, Executive shall execute and deliver within fifty (50) days following the date of Executive’s Involuntary Termination, and not revoke within any revocation period required by law, a general release of all claims in favor of the Company (the “Release”) in the form attached hereto as Exhibit A.

6.6 Exclusive Remedy. Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided herein, all of Executive’s rights to salary, severance, benefits, bonuses and other amounts hereunder (if any) accruing at the termination of Executive’s employment shall cease upon such termination.

6.7 No Mitigation. Except as otherwise set forth in Section 8, Executive shall not be required to mitigate the amount of any payment provided for in this Section 6 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 6 be reduced by any compensation earned by Executive as the result of employment by another employer or self-employment or by retirement benefits.

6.8 Payments in Lieu of COBRA Continuation. Notwithstanding Section 6.1(d) and Section 6.2(d), with regard to such COBRA continuation coverage, if the Company determines in its sole discretion that it cannot provide such coverage without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof provide to Executive a taxable monthly payment in an amount equal to the monthly COBRA premium (which amount shall be based on the premiums for the first month of COBRA coverage).

7. Limitation on Payments.

7.1 Notwithstanding any other provisions of this Agreement, in the event that any payment or benefit received or to be received by Executive (including any payment or benefit received in connection with a Change in Control or the termination of Executive’s employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, including the payments and benefits under Section 5 and Section 6 of this Agreement, being hereinafter referred to as the “Total Payments”) would be subject (in whole or part), to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, the cash severance payments shall first be reduced, and the non-cash severance payments shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and

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personal exemptions attributable to such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments). The Total Payments shall be reduced by the Company in its reasonable discretion in the following order: (A) reduction of any cash severance payments otherwise payable to Executive that are exempt from Section 409A of the Code, (B) reduction of any other cash payments or benefits otherwise payable to Executive that are exempt from Section 409A of the Code, but excluding any payment attributable to the acceleration of vesting or payment with respect to any stock option or other equity award with respect to the Company’s common stock that are exempt from Section 409A of the Code, (C) reduction of any other payments or benefits otherwise payable to Executive on a pro rata basis or such other manner that complies with Section 409A of the Code, but excluding any payment attributable to the acceleration of vesting and payment with respect to any stock option or other equity award with respect to the Company's common stock that are exempt from Section 409A of the Code, and (D) reduction of any payments attributable to the acceleration of vesting or payment with respect to any stock option or other equity award with respect to the Company’s common stock that are exempt from Section 409A of the Code.

7.2 For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of an accounting firm or compensation consulting firm with nationally recognized standing and substantial expertise and experience on Section 280G matters (“Independent Advisors”) selected by the Company, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of Independent Advisors, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

8. Certain Restrictive Covenants.

8.1 Confidential Information. During the Term and thereafter, Executive shall continue to be bound by the restrictions in the Proprietary Information and Inventions Agreement with the Company (the “Proprietary Rights Agreement”).

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8.2 Cooperation. During the Term and thereafter, Executive agrees to cooperate with the Company and its agents, accountants and attorneys concerning any matter with which Executive was involved during Executive’s employment. Such cooperation shall include, but not be limited to, providing information to, meeting with and reviewing documents provided by the Company and its agents, accountants and attorneys during normal business hours or other mutually agreeable hours upon reasonable notice and being available for depositions and hearings, if necessary and upon reasonable notice. If Executive’s cooperation is required after the termination of Executive’s employment, the Company shall reimburse Executive for any reasonable out of pocket expenses incurred in performing Executive’s obligations hereunder.

8.3 Return of the Company’s Property. Upon the termination of Executive’s employment in any manner, as a condition to Executive’s receipt of any post-termination benefits described in Section 6.1 or 6.2 of this Agreement, Executive shall immediately surrender to the Company all lists, books and records of, or in connection with, the Company’s business, and all other property belonging to the Company.

8.4 Non-Disparage. As an additional inducement for the Company to enter into this Agreement, Executive agrees that Executive shall refrain throughout the Term and for a period of one (1) year following the date of Executive’s termination of employment from publishing any oral or written statements about Company, any of its affiliates or any of the Company’s or such affiliates’ directors, officers, employees, consultants, agents or representatives that (a) are slanderous, libelous or defamatory, (b) disclose private information about or confidential information of the Company, any of its affiliates or any of Company’s or any such affiliates’ business affairs, directors, officers, employees, consultants, agents or representatives, or (c) place the Company, any of its affiliates, or any of the Company’s or any such affiliates’ directors, officers, employees, consultants, agents or representatives in a false light before the public. A violation or threatened violation of this prohibition may be enjoined by the courts. The rights afforded the Company and its affiliates under this provision are in addition to any and all rights and remedies otherwise afforded by law.

8.5 Non-Solicitation. As an additional inducement for the Company to enter into this Agreement, Executive agrees that for a period of one (1) year following the date of Executive’s termination of employment, Executive shall not, directly or indirectly knowingly induce any person in the employment of the Company to (A) terminate such employment, or (B) accept employment, or enter into any consulting arrangement, with anyone other than the Company.

8.6 Rights and Remedies Upon Breach. If Executive breaches or threatens to commit a breach of any of the provisions of this Section 8 (the “Restrictive Covenants”), the Company shall have any rights and remedies available to the Company under law or in equity.

8.7 Severability of Covenants/Blue Penciling. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive

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Covenants shall not thereby be affected and shall be given full effect, without regard to the invalid portions. If any court determines that any of the Restrictive Covenants, or any part thereof, are unenforceable because of the duration of such provision or the area covered thereby, such court shall have the power to reduce the duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced. Executive hereby waives any and all right to attack the validity of the Restrictive Covenants on the grounds of the breadth of their geographic scope or the length of their term.

8.8 Enforceability in Jurisdictions. The Company and Executive intend to and do hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographical scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of the breadth of such scope or otherwise, it is the intention of the Company and Executive that such determination not bar or in any way affect the right of the Company to the relief provided above in the courts of any other jurisdiction within the geographical scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants.

9. Indemnification. Executive shall be entitled to indemnification as an officer of the Company as provided in the Indemnification Agreement entered into with the Company dated February 1, 2014 (the “Indemnification Agreement”), along with the applicable provisions of the Company’s director and officer liability insurance (if any), bylaws and Delaware law, without regard to any future changes in Executive’s assignment or position.

10. Section 409A of the Code.

10.1 Compliance with Section 409A. To the maximum extent permissible by applicable law, the payments and benefits payable under this Agreement shall be interpreted to be exempt from Section 409A of the Code, including, without limitation, the exemptions pursuant to Treasury Regulation Sections 1.409A-1(b)(4) and 1.409A-1(b)(9). To the extent the payments and benefits under this Agreement are subject to Section 409A of the Code, this Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations thereunder. If the Company and Executive determine that any compensation, benefits or other payments that are payable under this Agreement and intended to comply with Sections 409A(a)(2), (3) and (4) of the Code do not comply with Section 409A of the Code, the Company and Executive agree to amend this Agreement, or take such other actions as the Company and Executive deem reasonably necessary or appropriate, to comply with the requirements of Section 409A of the Code, while preserving the economic agreement of the parties. In the case of any compensation, benefits or other payments that are payable under this Agreement and intended to comply with Sections 409A(a)(2), (3) and (4) of the Code, if any provision of the Agreement would cause such compensation, benefits or other payments to fail to so

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comply, such provision shall not be effective and shall be null and void with respect to such compensation, benefits or other payments, and such provision shall otherwise remain in full force and effect. The Executive’s right to receive installment payments of any severance payments or benefits under this Agreement shall be treated as a right to receive a series of separate payments, and accordingly, each installment payment shall at all times be considered a separate and distinct payment. To the extent any reimbursement of expenses under this Agreement is subject to Section 409A of the Code, the reimbursements shall be paid in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv) and be paid on or before the last day of Executive’s taxable year following the taxable year in which Executive incurred the expenses.

10.2 Delayed Distribution under Section 409A. If Executive is a Specified Employee on the date of Executive’s Separation from Service, any payments made under Section 6.1 or Section 6.2 and any other payments or benefits (or portion thereof) under this Agreement that are subject to Section 409A of the Code and payable upon Executive’s Separation from Service shall be delayed in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, and such payments or benefits shall be paid or distributed to Executive during the thirty (30) day period commencing on the earlier of (a) the expiration of the six-month period measured from the date of Executive’s Separation from Service or (b) the date of Executive’s death. Upon the expiration of the applicable six-month period under Section 409A(a)(2)(B)(i) of the Code, all payments deferred pursuant to this Section 10.2 shall be paid in a lump sum payment to Executive (or Executive’s estate, in the event of Executive’s death). Any remaining payments due under the Agreement shall be paid as otherwise provided herein.

11. General Provisions.

11.1 Successors and Assigns. The rights of the Company under this Agreement may, without the consent of Executive, be assigned by the Company, in its sole and unfettered discretion, to any person, firm, corporation or other business entity that at any time, whether by purchase, merger or otherwise, directly or indirectly, acquires all or substantially all of the assets or business of the Company. The Company will require any successor (whether direct or indirect, by purchase, merger or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. As used in this Agreement, the “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law or otherwise. Executive shall not be entitled to assign any of Executive’s rights or obligations under this Agreement. This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount is at such time

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payable to Executive hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee, or other designee or, if there be no such designee, to Executive’s estate.

11.2 Waiver. Either party’s failure to enforce any provision of this Agreement shall not in any way be construed as a waiver of any such provision, or prevent that party thereafter from enforcing each and every other provision of this Agreement.

11.3 Attorneys’ Fees. Each side will bear its own attorneys’ fees in any dispute unless a statutory section at issue, if any, authorizes the award of attorneys’ fees to the prevailing party; provided, that in the event Executive’s employment is terminated by the Company without Cause or due to Executive’s death or Disability, or by Executive for Good Reason, in each case following a Change in Control, the Company shall pay the Executive’s attorneys’ fees, unless the arbitrator or court, as applicable, finds the claim to be frivolous, in bad faith or without merit.

11.4 Severability. In the event any provision of this Agreement is found to be unenforceable by an arbitrator or court of competent jurisdiction, such provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the parties shall receive the benefit contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory in the judgment of such arbitrator or court, the unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

11.5 Interpretation; Construction. The headings set forth in this Agreement are for convenience only and shall not be used in interpreting this Agreement. This Agreement has been drafted by legal counsel representing the Company, but Executive has participated in the negotiation of its terms. Furthermore, Executive acknowledges that Executive has had an opportunity to review and revise the Agreement and have it reviewed by legal counsel, if desired, and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

11.6 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the United States and the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof.

11.7 Arbitration. In the event of any controversy, claim or dispute between the parties hereto arising out of or relating to this Agreement, the matter shall be determined by arbitration, which shall take place in Orange County, California, under the rules of the American Arbitration Association. The arbitrator shall be a retired Superior Court judge mutually agreeable to the parties and if the parties cannot agree such person shall be chosen in accordance with the rules of the American Arbitration Association. The arbitrator shall be bound by applicable legal precedent in reaching his or her decision. Any judgment upon

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such award may be entered in any court having jurisdiction thereof. Any decision or award of such arbitrator shall be final and binding upon the parties and shall not be appealable. The parties hereby consent to the jurisdiction of such arbitrator and of any court having jurisdiction to enter judgment upon and enforce any action taken by such arbitrator. The fees payable to the American Arbitration Association and the arbitrator shall be paid by the Company.

11.8 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be delivered as follows with notice deemed given as indicated: (a) by personal delivery when delivered personally; (b) by overnight courier upon written verification of receipt; (c) by telecopy or facsimile transmission upon acknowledgment of receipt of electronic transmission; or (d) by certified or registered mail, return receipt requested, upon verification of receipt. Notice shall be sent to Executive at the last available address in the Company’s records and to the Company at its principal place of business, or such other address as either party may specify in writing.

11.9 Survival. Sections 2 (“Definitions”), 5 (“Termination and Severance”), 6 (“Acceleration of Equity Awards in the Event of a Change in Control”), 7 (“Limitation on Payment”), 8 (“Certain Restrictive Covenants”), 9 (“Indemnification”), and 11 (“General Provisions”) of this Agreement shall survive termination of Executive’s employment by the Company.

11.10 Entire Agreement. This Agreement, the Proprietary Rights Agreement, the Indemnification Agreement and any Company equity incentive plan and related award agreements evidencing outstanding equity awards held by Executive together constitute the entire agreement between the parties relating to this subject matter and supersede all prior or simultaneous representations, discussions, negotiations, and agreements, whether written or oral, including the Prior Agreement; provided, that this Agreement shall supersede any other written agreement (including any equity award agreement) between Executive and the Company as expressly provided in Section 6.2(f). This Agreement may be amended or modified only with the written consent of Executive and an authorized representative of the Company. No oral waiver, amendment or modification will be effective under any circumstances whatsoever.

11.11 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

(Signature Page Follows)

14

OC\1608076.7

THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES HAVE EXECUTED THIS AGREEMENT ON THE DATES SHOWN BELOW.

EXECUTIVE

Dated: 02/01/2014        /s/ James Machek            

Print Name:

ENDOLOGIX, INC.

Dated: 02/01/2014        By: /s/ John McDermott        

Name: John McDermott

Title: Chief Executive Officer

15

OC\1608076.7

EXHIBIT A

GENERAL RELEASE OF CLAIMS

THIS GENERAL RELEASE OF CLAIMS (“Release”) is entered into as of this _____ day of ________, ____, between [ ˜ ] (“Executive”), and Endologix, Inc., a Delaware corporation (the “Company”) (collectively referred to herein as the “Parties”).

WHEREAS, Executive and the Company are parties to that certain Employment Agreement dated as of February 1, 2014 (the “Agreement”);

WHEREAS, the Parties agree that Executive is entitled to certain severance benefits under the Agreement, subject to Executive’s execution of this Release; and

WHEREAS, the Company and Executive now wish fully and finally to resolve all matters between them.

NOW, THEREFORE, in consideration of, and subject to, the severance benefits payable to Executive pursuant to the Agreement, the adequacy of which is hereby acknowledged by Executive, and that Executive acknowledges that Executive would not otherwise be entitled to receive, Executive and the Company hereby agree as follows:

1. General Release of Claims by Executive.

1.1 Executive, on behalf of himself or herself and his or her executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and the employee benefit plans in which Executive is or has been a participant by virtue of his or her employment with or service to the Company (collectively, the “Company Releasees”), from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, “Claims”), that Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof or on or prior to the date hereof, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever Executive’s employment by or service to the Company or the termination thereof, including any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, and claims of

16

OC\1608076.7

any kind that may be brought in any court or administrative agency including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000, etseq.; the Americans with Disabilities Act, as amended, 42 U.S.C. § 12101 etseq.; the Rehabilitation Act of 1973, as amended, 29 U.S.C. § 701 etseq.; the Civil Rights Act of 1866, and the Civil Rights Act of 1991; 42 U.S.C. Section 1981, etseq.; the Age Discrimination in Employment Act, as amended, 29 U.S.C. Section 621, etseq. (the “ADEA”); the Equal Pay Act, as amended, 29 U.S.C. Section 206(d); regulations of the Office of Federal Contract Compliance, 41 C.F.R. Section 60, etseq.; the Family and Medical Leave Act, as amended, 29 U.S.C. § 2601 etseq.; the Fair Labor Standards Act of 1938, as amended, 29 U.S.C. § 201 etseq.; the Employee Retirement Income Security Act, as amended, 29 U.S.C. § 1001 etseq.; and the California Fair Employment and Housing Act, California Government Code Section 12940, etseq.

Notwithstanding the generality of the foregoing, Executive does not release the following claims:

(a) Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;

(b) Claims for workers’ compensation insurance benefits under the terms of any worker’s compensation insurance policy or fund of the Company;

(c) Claims pursuant to the terms and conditions of the federal law known as COBRA;

(d) Claims for indemnity under the bylaws of the Company, as provided for by Delaware law or under any applicable insurance policy with respect to Executive’s liability as an employee, director or officer of the Company;

(e) Claims based on any right Executive may have to enforce the Company’s executory obligations under the Agreement; and

(f) Claims Executive may have to vested or earned compensation and benefits.

1.2 EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS BEEN ADVISED OF AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

BEING AWARE OF SAID CODE SECTION, EXECUTIVE HEREBY EXPRESSLY WAIVES ANY RIGHTS EXECUTIVE MAY HAVE THEREUNDER, AS WELL AS

OC\1608076.7

UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

1.3 Executive acknowledges that this Release was presented to him or her on the date indicated above and that Executive is entitled to have 21 days’ time in which to consider it. Executive further acknowledges that the Company has advised Executive that Executive is waiving his or her rights under the ADEA, and that Executive may obtain advice concerning this Release from an attorney of his or her choice, and Executive has had sufficient time to consider the terms of this Release. Executive represents and acknowledges that if Executive executes this Release before 21 days have elapsed, Executive does so knowingly, voluntarily, and upon the advice and with the approval of Executive’s legal counsel (if any), and that Executive voluntarily waives any remaining consideration period.

1.4 Executive understands that after executing this Release, Executive has the right to revoke it within seven days after his or her execution of it. Executive understands that this Release will not become effective and enforceable unless the seven-day revocation period passes and Executive does not revoke the Release in writing. Executive understands that this Release may not be revoked after the seven-day revocation period has passed. Executive also understands that any revocation of this Release must be made in writing and delivered to the Company at its principal place of business within the seven-day period.

1.5 Executive understands that this Release shall become effective, irrevocable, and binding upon Executive on the eighth day after my execution of it, so long as Executive has not revoked it within the time period and in the manner specified in clause (d) above. Executive further understands that Executive will not be given any severance benefits under the Agreement until the effective date of this Release.

2. No Assignment. Executive represents and warrants to the Company Releasees that there has been no assignment or other transfer of any interest in any Claim that Executive may have against the Company Releasees, or any of them. Executive agrees to indemnify and hold harmless the Company Releasees from any liability, claims, demands, damages, costs, expenses and attorneys’ fees incurred as a result of any such assignment or transfer from Executive.

3. Paragraph Headings. The headings of the several paragraphs in this Release are inserted solely for the convenience of the Parties and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision hereof.

4. Severability. The invalidity or unenforceability of any provision of this Release shall not affect the validity or enforceability of any other provision of this Release, which shall remain in full force and effect.

5. Governing Law. This Release will be governed by and construed in accordance with the laws of the United States and the State of California applicable to contracts made and to be performed wholly within such State, and without regard to the conflicts of laws principles thereof.

OC\1608076.7

6. Counterparts. This Release may be executed in several counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument.

7. Construction. The language in all parts of this Release shall in all cases be construed simply, according to its fair meaning, and not strictly for or against any of the parties hereto. Without limitation, there shall be no presumption against any party on the ground that such party was responsible for drafting this Release or any part thereof.

8. Entire Agreement. This Release and the Agreement set forth the entire agreement of the Parties in respect of the subject matter contained herein and therein and supersede all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto, and any prior agreement of the Parties in respect of the subject matter contained herein.

9. Amendment. No provision of this Release may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer of the Company as may be specifically designated by the Board.

10. Understanding and Authority. The Parties understand and agree that all terms of this Release are contractual and are not a mere recital, and represent and warrant that they are competent to covenant and agree as herein provided. The Parties have carefully read this Release in its entirety; fully understand and agree to its terms and provisions; and intend and agree that it is final and binding on all Parties.

IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed the foregoing Release as of the date first written above.

EXECUTIVE                        ENDOLOGIX, INC.

By:

Print Name: Print Name:

Title:

OC\1608076.7

OC\1608076.7

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

I, John McDermott, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Endologix, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principals;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 2, 2014	By:	/s/ John McDermott
		John McDermott
		John McDermott Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

I, Shelley B. Thunen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Endologix, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principals;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 2, 2014	By:	/s/ Shelley B. Thunen
		Shelley B. Thunen
		Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, John McDermott, certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 that:

(1) The Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 780(d)); and

(2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 2, 2014	By:	/s/ John McDermott
		John McDermott
		John McDermott Chief Executive Officer and Chairman of the Board (Principal Executive Officer)

This certification accompanies the Quarterly Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

I, Shelley B. Thunen, certify pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 that:

(1) The Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 (the “Quarterly Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 780(d)); and

(2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 2, 2014	By:	/s/ Shelley B. Thunen
		Shelley B. Thunen
		Chief Financial Officer (Principal Financial and Accounting Officer)

This certification accompanies the Quarterly Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section.

XML

Net Income (Loss) Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		12 Months Ended		3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013	Dec. 31, 2012	Mar. 31, 2014 Common stock options	Mar. 31, 2013 Common stock options	Mar. 31, 2014 Restricted Stock [Member]	Mar. 31, 2013 Restricted Stock [Member]	Mar. 31, 2014 Restricted stock units	Mar. 31, 2013 Restricted stock units	Dec. 31, 2013 Convertible Debt [Member]	Dec. 10, 2013 Convertible Debt [Member]
Earnings Per Share, Basic and Diluted [Abstract]
Net Income (Loss) Attributable to Parent	$ 5,295	$ (9,334)
Shares used in computing basic net income (loss) per share	63,405	62,189
Shares used in computing diluted net income (loss) per share	66,017	62,189
Basic net income (loss) per share (usd per share)	$ 0.08	$ (0.15)
Diluted net income (loss) per share (usd per share)	$ 0.08	$ (0.15)
Weighted Average Number Diluted Shares Outstanding Adjustment [Abstract]
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements, Employee Stock Options	2,027	0
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements, Restricted Stock	152	0
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements, Restricted Stock Units (RSUs)	433	0
Incremental Common Shares Attributable to Share-based Payment Arrangements	2,612	0
Weighted Average Number of Shares Outstanding, Diluted [Abstract]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,153	3,717			1,153	2,768	0	492	0	457
Convertible notes	$ 67,901		$ 67,101									$ 86,300
Stated interest rate											2.25%
Potential Dilutive Effect of Securities [Abstract]
Conversion of the Notes			3,588	0

XML

Balance Sheet Account Detail Property Plant and Equipment (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Property and equipment, at cost	$ 21,343,000		$ 16,975,000
Accumulated depreciation	(10,119,000)		(9,637,000)
Property and equipment, net	11,224,000		7,338,000
Depreciation expense	500,000	400,000
Production equipment, molds, and office furniture
Property, Plant and Equipment [Line Items]
Property and equipment, at cost	8,254,000		8,033,000
Computer hardware and software
Property, Plant and Equipment [Line Items]
Property and equipment, at cost	3,402,000		3,290,000
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, at cost	3,055,000		3,058,000
Construction in progress (software and related implementation, production equipment, and leasehold improvements)
Property, Plant and Equipment [Line Items]
Property and equipment, at cost	$ 6,632,000		$ 2,594,000

XML

Contingently Issuable Common Stock (Details) (USD $) Share data in Millions, except Per Share data, unless otherwise specified	0 Months Ended	3 Months Ended
	Dec. 10, 2010	Mar. 31, 2014	Mar. 31, 2013
Business Combinations [Abstract]
Purchase price common shares	3.2
Common shares value	$ 19,400,000
closing stock price		$ 12.87
Number of Shares, Contingently Issuable	10.2	3.7
Estimated fair value of Contingent payment	28,200,000
Contingent consideration, at fair value hypothetical value		47,600,000
Business acquisition, increase (decrease) common stock		$ (4.57)
Business acquisition, percentage increase (decrease)		(26.20%)
Fair Value of Contingently Issuable Common Stock [Roll Forward]
December 31, 2013		60,900,000
Fair value adjustment of Contingent Payment for three months ended March 31, 2014		(11,800,000)	5,200,000
March 31, 2014		$ 49,100,000

XML

Stock-Based Compensation

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation

The Company classifies stock-based compensation expense in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss, based on the department to which the recipient belongs. Stock-based compensation expense included in cost of goods sold and operating expenses during the three months ended March 31, 2014 and 2013, was as follows:

	Three Months Ended
	March 31,
	2014			2013
Cost of goods sold	$	208		$	150
Operating expenses:
Research and development	161			205
Clinical and regulatory affairs	(103		)	403
Marketing and sales	538			578
General and administrative	809			894
Total operating expenses	$	1,405		$	2,080
Total	$	1,613		$	2,230

XML

Balance Sheet Account Detail Amortization (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014
Balance Sheet Related Disclosures [Abstract]
Remainder of 2014	$ 331
2015	641
2016	953
2017	2,250
2018	3,866
2019	4,521
2020 & Thereafter	27,710
Total	$ 40,272

XML

Balance Sheet Account Detail Amortization Expense (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Balance Sheet Related Disclosures [Abstract]
Amortization expense	$ 0.1	$ 0.1

XML

Balance Sheet Account Detail Held to Maturity Marketable Securities (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013 securities	Mar. 31, 2014 Corporate Debt Securities
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost		$ 77,418
Gross Unrealized Gain		8
Gross Unrealized Loss		(12)
Fair Value		$ 77,414
Number of Securities Held	22

XML

Balance Sheet Account Detail Fair Value Measurements (Details) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities	$ 77,418,000	$ 31,313,000
Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Business Acquisition, Contingently Issuable Common Stock, Noncurrent
Fair Value, Measurements, Recurring | Significant other observable inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Long-term Debt, Fair Value	83,300,000
Corporate Debt Securities | Fair Value, Measurements, Recurring | Quoted prices in active markets for identical assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	42,179,000	95,152,000
Business Acquisition, Contingently Issuable Common Stock, Noncurrent	0	0
Corporate Debt Securities | Fair Value, Measurements, Recurring | Significant other observable inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	0	0
Business Acquisition, Contingently Issuable Common Stock, Noncurrent	0	0
Corporate Debt Securities | Fair Value, Measurements, Recurring | Significant unobservable inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	0	0
Business Acquisition, Contingently Issuable Common Stock, Noncurrent	49,100,000	60,900,000
Corporate Debt Securities | Fair Value, Measurements, Recurring | Total
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash and cash equivalents	42,179,000	95,152,000
Business Acquisition, Contingently Issuable Common Stock, Noncurrent	$ 49,100,000	$ 60,900,000

XML

Balance Sheet Account Detail

3 Months Ended

Mar. 31, 2014

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Account Detail

Balance Sheet Account Detail

(a) Property and Equipment

Property and equipment consisted of the following:

	March 31, 2014			December 31, 2013
Production equipment, molds, and office furniture	$	8,254		$	8,033
Computer hardware and software	3,402			3,290
Leasehold improvements	3,055			3,058
Construction in progress (software and related implementation, production equipment, and leasehold improvements)	6,632			2,594
Property and equipment, at cost	$	21,343		$	16,975
Accumulated depreciation	(10,119		)	(9,637		)
Property and equipment, net	$	11,224		$	7,338

Depreciation expense for property and equipment for the three months ended March 31, 2014, and 2013 was $0.5 million, and $0.4 million respectively.

(b) Inventories

Inventories consisted of the following:

	March 31, 2014		December 31, 2013
Raw materials	$	4,080	$	3,793
Work-in-process	7,082		4,539
Finished goods	12,874		11,226
Inventories	$	24,036	$	19,558

(c) Goodwill and Intangible Assets

The following table presents goodwill, indefinite lived intangible assets, finite lived intangible assets, and related accumulated amortization:

	March 31, 2014			December 31, 2013
Goodwill (1)	$	29,101		$	29,103
Intangible assets:
Indefinite lived intangibles
Trademarks and trade names	2,708			2,708
Finite lived intangibles
Developed technology (2)	$	40,100		$	40,100
Accumulated amortization	(105		)	(48		)
Developed technology, net	$	39,995		$	40,052
Patent	$	100		$	100
Accumulated amortization	(100		)	(95		)
Patent, net	$	—		$	5
License	$	100		$	100
Accumulated amortization	(49		)	(41		)
License, net	$	51		$	59
Customer relationships	$	543		$	544
Accumulated amortization	(317		)	(272		)
Customer relationships, net	$	226		$	272
Intangible assets (excluding goodwill), net	$	42,980		$	43,096

(1) Difference in goodwill value between these dates is solely due to a foreign currency translation adjustment.

(2) Was reclassified in the first quarter of 2013 from in- process research and development to finite lived intangibles, which coincided with the European commercial launch of the product (Nellix EVAS System) associated with this intangible asset. A significant portion of this intangible asset will not begin amortization until the U.S. launch of this product, currently scheduled for 2016.

Amortization expense for intangible assets for the three months ended March 31, 2014, and 2013 was $0.1 million, and $0.1 million respectively.

Estimated amortization expense for the five succeeding years and thereafter (which includes amortization of intangible assets which commenced in February 2013 with the commercial launch of the Nellix System in Europe) is as follows:

	Amortization Expense
Remainder of 2014	$	331
2015	641
2016	953
2017	2,250
2018	3,866
2019	4,521
2020 & Thereafter	27,710
Total	$	40,272

(d) Marketable securities

Investments in held-to-maturity marketable securities, which all mature during 2014, consist of the following at March 31, 2014:

	March 31, 2014
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Corporate and other debt securities	$	77,418	$	8	$	(12	)	$	77,414

At March 31, 2014, the Company’s investments included 22 held-to-maturity debt securities in unrealized loss positions with a total unrealized loss of approximately $12 thousand and a total fair market value of approximately $77.4 million. All investments with gross unrealized losses have been in unrealized loss positions for less than 6 months. The unrealized losses were caused by interest rate fluctuations. There was no change in the credit risk of the securities. The Company does not intend to sell the securities and it is not likely that the Company will be required to sell the securities before the expected recovery of their amortized cost bases. There were no realized gains or losses on the investments for the three months ended March 31, 2014.

(e) Fair Value Measurements

The following fair value hierarchy table presents information about each major category of the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2014:

	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At December 31, 2013
Cash and cash equivalents	$	95,152	$	—	$	—	$	95,152
Contingently issuable common stock	$	—	$	—	$	60,900	$	60,900
At March 31, 2014
Cash and cash equivalents	$	42,179	$	—	$	—	$	42,179
Contingently issuable common stock	$	—	$	—	$	49,100	$	49,100

There were no re-measurements to fair value during the three months ended March 31, 2014 of financial assets and liabilities that are not measured at fair value on a recurring basis. There were no transfers between Level 1, Level 2, or Level 3 securities during the three months ended March 31, 2014.

(f) Instruments Not Recorded at Fair Value on a Recurring Basis

We measure the fair value of our Senior Notes carried at amortized cost quarterly for disclosure purposes. The estimated fair value of the Senior Notes is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues. Based on the market prices, the fair value of our long-term debt was $83.3 million as of March 31, 2014 and $84.9 million as of December 31, 2013.

We measure the fair value of our held-to-maturity marketable securities carried at amortized cost quarterly for disclosure purposes. The fair value of certain marketable securities is determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar instruments.

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Stock-Based Compensation (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	$ 1,613	$ 2,230
Cost of goods sold
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	208	150
Research and development
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	161	205
Clinical and regulatory affairs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	(103)	403
Marketing and sales
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	538	578
General and administrative
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	809	894
Total operating expenses
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated stock-based compensation expense	$ 1,405	$ 2,080

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014		Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 42,179		$ 95,152
Marketable securities	77,418		31,313
Accounts receivable, net allowance for doubtful accounts of $195 and $399, respectively.	25,448		24,972
Other receivables	690		310
Inventories	24,036		19,558
Prepaid expenses and other current assets	2,537		2,328
Total current assets	172,308		173,633
Property and equipment, net	11,224		7,338
Goodwill	29,101	[1]	29,103	[1]
Intangibles, net	42,980		43,096
Deposits and other assets	2,525		3,027
Total assets	258,138		256,197
Current liabilities:
Accounts payable	11,232		6,265
Accrued payroll	9,796		11,476
Accrued expenses and other current liabilities	4,231		3,094
Contingently issuable common stock	34,800		46,500
Total current liabilities	60,059		67,335
Deferred income tax	1,024		1,135
Deferred rent	3,749		1,585
Contingently issuable common stock	14,300		14,400
Convertible notes	67,901		67,101
Total liabilities	147,033		151,556
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized. No shares issued and outstanding.	0		0
Common stock, $0.001 par value; 75,000,000 shares authorized. 64,050,204 and 63,866,392 shares issued, respectively. 64,004,986 and 63,866,392 shares outstanding, respectively.	64		64
Treasury stock, at cost, 45,218 and 0 shares, respectively.	(644)		0
Additional paid-in capital	323,615		321,756
Accumulated deficit	(210,787)		(216,082)
Accumulated other comprehensive loss	(1,143)		(1,097)
Total stockholders’ equity	111,105		104,641
Total liabilities and stockholders’ equity	$ 258,138		$ 256,197

[1] Difference in goodwill value between these dates is solely due to a foreign currency translation adjustment.

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Description of Business, Basis of Presentation, and Operating Segment

3 Months Ended

Mar. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business, Basis of Presentation, and Operating Segment

Description of Business, Basis of Presentation, and Operating Segment

(a) Description of Business

Endologix, Inc. (the "Company","we","our" or "us") is a Delaware corporation with corporate headquarters and production facilities located in Irvine, California. The Company develops, manufactures, markets, and sells innovative medical devices for the treatment of aortic disorders. The Company's products are intended for the treatment of abdominal aortic aneurysms ("AAA"). The Company's AAA products are built on one of two platforms: (1) traditional minimally-invasive endovascular repair ("EVAR") or (2) endovascular sealing (“EVAS”), the Company's innovative solution for sealing the aneurysm sac while maintaining blood flow through two blood flow lumens. The Company's current EVAR products include the Endologix AFX Endovascular AAA System (“AFX”) and the Endologix Intuitrak Endovascular AAA System (“Intuitrak”). The Company's current EVAS product is the Nellix Endovascular Aneurysm Sealing System (“Nellix EVAS System”). Sales of the Company's EVAR and EVAS platforms (including extensions and accessories) to hospitals in the U.S. and Europe, and to third-party international distributors, provide the sole source of the Company's reported revenue.

The Company's EVAR products consist of (i) a cobalt chromium alloy stent covered by polytetrafluoroethylene (commonly referred to as "ePTFE") graft material (“Stent Graft”) and (ii) an accompanying delivery system. Once fixed in its proper position within the abdominal aorta, the Company's EVAR device 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 the AAA to rupture.

The Company's EVAS product 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 polymer dispenser. The Company's EVAS product seals the entire aneurysm sac effectively, excluding the aneurysm sac and reducing the likelihood of future aneurysm rupture. Additionally, it has the potential to reduce post procedural re-interventions.

(b)Basis of Presentation

The accompanying Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). These financial statements include the financial position, results of operations, and cash flows of the Company, including its subsidiaries, all of which are wholly-owned. All inter-company accounts and transactions have been eliminated in consolidation. For the three months ended March 31, 2014 and 2013, there were no related party transactions.

The interim financial data as of March 31, 2014 is unaudited and is not necessarily indicative of the results for a full year. In the opinion of the Company's management, the interim data includes normal and recurring adjustments necessary for a fair presentation of the Company's financial results for the three months ended March 31, 2014. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations relating to interim financial statements.

The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on March 3, 2014.

(c) Operating Segment

The Company has one operating and reporting segment that is focused exclusively on the development, manufacture, marketing, and sale of EVAR and EVAS product for the treatment of aortic disorders. For the three months ended March 31, 2014, all of the Company's revenue and related expenses were solely attributable to these activities. Substantially all of the Company's long-lived assets are located in the U.S.

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Revenue by Geographic Region (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Schedule of Revenue by Geographic Region [Line Items]
Revenue	$ 33,264	$ 29,784
Geographic Concentration Risk | Sales
Schedule of Revenue by Geographic Region [Line Items]
Revenue	33,264	29,784
Concentration risk percentage	100.00%	100.00%
Europe | Geographic Concentration Risk | Sales
Schedule of Revenue by Geographic Region [Line Items]
Revenue	6,585	3,347
Concentration risk percentage	19.80%	11.20%
Direct | United States | Geographic Concentration Risk | Sales
Schedule of Revenue by Geographic Region [Line Items]
Revenue	23,988	24,727
Concentration risk percentage	72.10%	83.00%
Distributor | Latin America | Geographic Concentration Risk | Sales
Schedule of Revenue by Geographic Region [Line Items]
Revenue	918	572
Concentration risk percentage	2.80%	1.90%
Distributor | Asia/Pacific | Geographic Concentration Risk | Sales
Schedule of Revenue by Geographic Region [Line Items]
Revenue	1,773	1,138
Concentration risk percentage	5.30%	3.90%
Distributor | Total ROW | Geographic Concentration Risk | Sales
Schedule of Revenue by Geographic Region [Line Items]
Revenue	$ 2,691	$ 1,710
Concentration risk percentage	8.10%	5.80%

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Contractual Obligation, Fiscal Year Maturity Schedule

Future minimum payments by year under non-cancelable leases with initial terms in excess of one year were as follows as of March 31, 2014:

Remainder of 2014	$	847
2015	2,026
2016	2,067
2017	2,123
2018	2,186
2019	2,251
2020 and thereafter	24,777
Total	$	36,277

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Commitments and Contingencies (Details) (USD $)	0 Months Ended	1 Months Ended	3 Months Ended
	Jun. 12, 2013 option facility sqft	Jun. 30, 2013 letters_of_credit	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
Remainder of 2014			$ 847,000
2015			2,026,000
2016			2,067,000
2017			2,123,000
2018			2,186,000
2019			2,251,000
2020 and thereafter			24,777,000
Total			36,277,000
Operating Leases, Rent Expense			700,000	100,000
Operating Leases, Number of Facilities	2
Aggregate Square Feet	129,000
Term of Contract	15 years
Lessee Leasing Arrangements, Operating Leases, Number of Renewal Options	1
Renewal Term	5 years
Initial Base Rent	1,900,000
Operating Leases, Future Minimum Payments Due, Base Rent Increases [Abstract]
2015	3.00%
2016	3.00%
2017	3.00%
2018	3.00%
2019	3.00%
2020 and beyond	4.00%
LandLord Funded Improvements	6,800,000
Number of Letters of Credit		2
Aggregate maximum borrowing capacity					$ 6,400,000

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Description of Business, Basis of Presentation, and Operating Segment (Details)	3 Months Ended
	Mar. 31, 2014 segment
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of reportable segments	1

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Use of Estimates and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Use of Estimates and Summary of Significant Accounting Policies

Use of Estimates and Summary of Significant Accounting Policies

The preparation of financial statements in conformity with GAAP requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, the Company's management evaluates its estimates, including those related to (i) collectibility of customer accounts; (ii) whether the cost of inventories can be recovered; (iii) the value of goodwill and intangible assets; (iv) realization of tax assets and estimates of tax liabilities; (v) likelihood of payment and value of contingent liabilities; and (vi) 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.

For a complete summary of our significant accounting policies, please refer to Note 1, "Summary of Significant Accounting Policies, in Part II, Item 8 of our 2013 Annual Report on Form 10-K for the year ended December 31, 2013, filed March 3, 2014. There have been no material changes to our significant accounting policies during the three months ended March 31, 2014.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Allowance for doubtful accounts	$ 195	$ 399
Common stock, par value (per share)	$ 0.001	$ 0.001
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	64,050,204	63,866,392
Common stock, shares outstanding	64,004,986	63,866,392
Treasury stock, shares	45,218	0
Convertible Preferred Stock [Member]
Convertible preferred stock, par value (per share)	$ 0.001	$ 0.001
Convertible preferred stock, shares authorized	5,000,000	5,000,000
Convertible preferred stock, shares issued	0	0
Convertible preferred stock, shares outstanding	0	0

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Use of Estimates and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Property, Plant and Equipment

Property and equipment consisted of the following:

	March 31, 2014			December 31, 2013
Production equipment, molds, and office furniture	$	8,254		$	8,033
Computer hardware and software	3,402			3,290
Leasehold improvements	3,055			3,058
Construction in progress (software and related implementation, production equipment, and leasehold improvements)	6,632			2,594
Property and equipment, at cost	$	21,343		$	16,975
Accumulated depreciation	(10,119		)	(9,637		)
Property and equipment, net	$	11,224		$	7,338

Schedule of Intangible Assets and Goodwill

The following table presents goodwill, indefinite lived intangible assets, finite lived intangible assets, and related accumulated amortization:

	March 31, 2014			December 31, 2013
Goodwill (1)	$	29,101		$	29,103
Intangible assets:
Indefinite lived intangibles
Trademarks and trade names	2,708			2,708
Finite lived intangibles
Developed technology (2)	$	40,100		$	40,100
Accumulated amortization	(105		)	(48		)
Developed technology, net	$	39,995		$	40,052
Patent	$	100		$	100
Accumulated amortization	(100		)	(95		)
Patent, net	$	—		$	5
License	$	100		$	100
Accumulated amortization	(49		)	(41		)
License, net	$	51		$	59
Customer relationships	$	543		$	544
Accumulated amortization	(317		)	(272		)
Customer relationships, net	$	226		$	272
Intangible assets (excluding goodwill), net	$	42,980		$	43,096

(1) Difference in goodwill value between these dates is solely due to a foreign currency translation adjustment.

(2) Was reclassified in the first quarter of 2013 from in- process research and development to finite lived intangibles, which coincided with the European commercial launch of the product (Nellix EVAS System) associated with this intangible asset. A significant portion of this intangible asset will not begin amortization until the U.S. launch of this product, currently scheduled for 2016.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2014	Apr. 28, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	ENDOLOGIX INC /DE/
Entity Central Index Key	0001013606
Document Type	10-Q
Document Period End Date	Mar. 31, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		64,013,757
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1

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Balance Sheet Account Detail (Tables)

3 Months Ended

Mar. 31, 2014

Balance Sheet Related Disclosures [Abstract]

Property, Plant and Equipment

Property and equipment consisted of the following:

	March 31, 2014			December 31, 2013
Production equipment, molds, and office furniture	$	8,254		$	8,033
Computer hardware and software	3,402			3,290
Leasehold improvements	3,055			3,058
Construction in progress (software and related implementation, production equipment, and leasehold improvements)	6,632			2,594
Property and equipment, at cost	$	21,343		$	16,975
Accumulated depreciation	(10,119		)	(9,637		)
Property and equipment, net	$	11,224		$	7,338

Schedule of Inventory, Current

Inventories consisted of the following:

	March 31, 2014		December 31, 2013
Raw materials	$	4,080	$	3,793
Work-in-process	7,082		4,539
Finished goods	12,874		11,226
Inventories	$	24,036	$	19,558

Schedule of Intangible Assets and Goodwill

The following table presents goodwill, indefinite lived intangible assets, finite lived intangible assets, and related accumulated amortization:

	March 31, 2014			December 31, 2013
Goodwill (1)	$	29,101		$	29,103
Intangible assets:
Indefinite lived intangibles
Trademarks and trade names	2,708			2,708
Finite lived intangibles
Developed technology (2)	$	40,100		$	40,100
Accumulated amortization	(105		)	(48		)
Developed technology, net	$	39,995		$	40,052
Patent	$	100		$	100
Accumulated amortization	(100		)	(95		)
Patent, net	$	—		$	5
License	$	100		$	100
Accumulated amortization	(49		)	(41		)
License, net	$	51		$	59
Customer relationships	$	543		$	544
Accumulated amortization	(317		)	(272		)
Customer relationships, net	$	226		$	272
Intangible assets (excluding goodwill), net	$	42,980		$	43,096

(1) Difference in goodwill value between these dates is solely due to a foreign currency translation adjustment.

(2) Was reclassified in the first quarter of 2013 from in- process research and development to finite lived intangibles, which coincided with the European commercial launch of the product (Nellix EVAS System) associated with this intangible asset. A significant portion of this intangible asset will not begin amortization until the U.S. launch of this product, currently scheduled for 2016.

Schedule of Expected Amortization Expense

Estimated amortization expense for the five succeeding years and thereafter (which includes amortization of intangible assets which commenced in February 2013 with the commercial launch of the Nellix System in Europe) is as follows:

	Amortization Expense
Remainder of 2014	$	331
2015	641
2016	953
2017	2,250
2018	3,866
2019	4,521
2020 & Thereafter	27,710
Total	$	40,272

Marketable Securities

Investments in held-to-maturity marketable securities, which all mature during 2014, consist of the following at March 31, 2014:

	March 31, 2014
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
Corporate and other debt securities	$	77,418	$	8	$	(12	)	$	77,414

Fair Value Measurements, Recurring and Nonrecurring

Fair Value Measurements

The following fair value hierarchy table presents information about each major category of the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2014:

	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At December 31, 2013
Cash and cash equivalents	$	95,152	$	—	$	—	$	95,152
Contingently issuable common stock	$	—	$	—	$	60,900	$	60,900
At March 31, 2014
Cash and cash equivalents	$	42,179	$	—	$	—	$	42,179
Contingently issuable common stock	$	—	$	—	$	49,100	$	49,100

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Condensed Consolidated Statements of Operations and Comprehensive Loss (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Income Statement [Abstract]
Revenue	$ 33,264	$ 29,784
Cost of goods sold	8,969	7,256
Gross profit	24,295	22,528
Operating expenses:
Research and development	4,105	3,519
Clinical and regulatory affairs	2,200	2,364
Marketing and sales	16,143	15,249
General and administrative	7,163	5,885
Total operating expenses	29,611	27,017
Loss from operations	(5,316)	(4,489)
Other income (expense):
Interest income	59	10
Interest expense	(1,390)	0
Other income, net	358	684
Change in fair value of contingent consideration related to acquisition	11,800	(5,200)
Total other income (expense)	10,827	(4,506)
Net income (loss) before income tax expense	5,511	(8,995)
Income tax expense	(216)	(339)
Net income (loss)	5,295	(9,334)
Other comprehensive (loss) income (foreign currency translation)	(46)	328
Comprehensive income (loss)	$ 5,249	$ (9,006)
Basic net income (loss) per share (usd per share)	$ 0.08	$ (0.15)
Diluted net income (loss) per share (usd per share)	$ 0.08	$ (0.15)
Shares used in computing basic net income (loss) per share	63,405	62,189
Shares used in computing diluted net income (loss) per share	66,017	62,189

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Revenue by Geographic Region

3 Months Ended

Mar. 31, 2014

Geographic Areas, Revenues from External Customers [Abstract]

Revenue by Geographic Region

Revenue by Geographic Region

The Company's revenue by geographic region, was as follows:

	Three Months Ended
	March 31,
	2014			2013
United States	$	23,988	72.1%	$	24,727	83.0%
Europe	$	6,585	19.8%	$	3,347	11.2%
Rest of World ("ROW"):
Latin America	$	918	2.8%	$	572	1.9%
Asia/Pacific	1,773		5.3%	1,138		3.9%
Total ROW	$	2,691	8.1%	$	1,710	5.8%
Revenue	$	33,264	100.0%	$	29,784	100.0%

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Credit Facilities

3 Months Ended

Mar. 31, 2014

Line of Credit Facility [Abstract]

Credit Facilities

Credit Facilities

2.25% Convertible Senior Notes

On December 10, 2013, the Company issued $86.3 million aggregate principal amount 2.25% Convertible Senior Notes (the “Notes”). The Notes mature on December 15, 2018 unless earlier repurchased by the Company or converted. The Company received net proceeds from the sale of the Notes of approximately $82.6 million, after deducting underwriting discounts and commissions and offering expenses payable by the Company. Interest is payable on the Notes on June 15 and December 15 of each year, beginning June 15, 2014.

The Notes are governed by the terms of a base indenture (the “Base Indenture”), as supplemented by the first supplemental indenture relating to the Notes (the “First Supplemental Indenture,” and together with the Base Indenture, the “Indenture”), between the Company and Wells Fargo Bank, National Association (the “Trustee”), each of which were entered into on December 10, 2013.

The Notes are senior unsecured obligations and are: (1) senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the Notes; (2) equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; (3) effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; (4) and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries.

The Company may not redeem the Notes prior to December 15, 2016. On or after December 15, 2016, the Company may redeem for cash all or any portion of the Notes, at its option, but only if the closing sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the second trading day immediately preceding the date on which the Company provides notice of redemption, exceeds 130% of the conversion price on each applicable trading day. The redemption price will equal 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.

Holders may convert their Notes at any time prior to the close of business on the business day immediately preceding September 15, 2018 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014, if the closing sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the Notes in effect on each applicable trading day; (2) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price for the Notes for each such trading day was less than 98% of the closing sale price of the Company’s common stock on such date multiplied by the then-current conversion rate; (3) if the Company calls all or any portion of the notes for redemption, at any time prior to the close of business on the second scheduled trading day prior to the redemption date, or (4) upon the occurrence of specified corporate events. On or after September 15, 2018 until the close of business on the second scheduled trading day immediately preceding the stated maturity date, holders may surrender their Notes for conversion at any time, regardless of the foregoing circumstances.

Upon conversion, the Company will at its election pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock.

The initial conversion rate will be 41.6051 shares of the Company’s common stock for each $1,000 principal amount of Notes, which represents an initial conversion price of approximately $24.04 per share. Following certain corporate transactions that occur on or prior to the stated maturity date or the Company’s delivery of a notice of redemption, the Company will increase the conversion rate for a holder that elects to convert its Notes in connection with such a corporate transaction.

If a fundamental change (as defined in the Indenture) occurs prior to the stated maturity date, holders may require the Company to purchase for cash all or any portion of their Notes at a fundamental change purchase price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date.

The Indenture contains customary terms and covenants and events of default with respect to the Notes. If an event of default (as defined in the Indenture) occurs and is continuing, either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Notes may declare the principal amount of the Notes to be due and payable immediately by notice to the Company (with a copy to the Trustee). If an event of default arising out of certain events of bankruptcy, insolvency or reorganization involving the Company or a significant subsidiary (as set forth in the Indenture) occurs with respect to us, the principal amount of the Notes and accrued and unpaid interest, if any, will automatically become immediately due and payable.

The Company was not required to separate the conversion option in the Notes under ASC 815, "Derivatives and Hedging", and has the ability to settle the Notes in cash, common stock or a combination of cash and common stock, at its option. In accordance with cash conversion guidance contained in ASC 470-20, "Debt with Conversion and Other Options", the Company accounted for the Notes by allocating the issuance proceeds between the liability and the equity component. The equity component is classified in stockholders’ equity and the resulting discount on the liability component is accreted such that interest expense equals the Company’s nonconvertible debt borrowing rate. The separation was performed by first determining the fair value of a similar debt that does not have an associated equity component. That amount was then deducted from the initial proceeds of the Notes as a whole to arrive at a residual amount, which was allocated to the conversion feature that is classified as equity. The initial fair value of the indebtedness was $66.9 million resulting in a $19.3 million allocation to the embedded conversion option. The embedded conversion option was recorded in stockholders’ equity and as debt discount, to be subsequently accreted to interest expense over the term of the Notes. Underwriting discounts and commissions and offering expenses totaled $3.7 million and were allocated between the liability and the equity component in proportion to the allocation of proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. As a result, $2.9 million attributable to the indebtedness was recorded as deferred financing costs in other assets, to be subsequently amortized as interest expense over the term of the Notes, and $0.8 million attributable to the equity component was recorded a a reduction to additional paid-in-capital in stockholders’ equity.

For the three months ended March 31, 2014, total interest expense related to the outstanding principal balance of the Notes was $1.4 million of which $0.8 million related to accretion of debt discount, $0.5 million related to contractual coupon interest expense, and $0.1 million related to the amortization of debt issuance costs at the effective interest rate of 9.0%. As of March 31, 2014, the Company had outstanding borrowings of $67.9 million, and deferred financing costs of $2.7 million, related to the Notes. There are no principal payments due during the term.

Annual interest expense on these notes will range from $5.7 million to $6.9 million through maturity.

Capped Call Transactions

On December 10, 2013 in connection with the pricing of the Notes and the exercise in full of their overallotment option by the underwriters, the Company entered into privately-negotiated capped call transactions (the “Capped Call Transactions”) with Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Capped Call Transactions initial conversion rate and number of options substantially corresponds to each $1,000 principal amount of Notes. The Company used approximately $7.4 million of the net proceeds from the Notes offering to pay for the cost of the Capped Call Transactions.

The Capped Call Transactions are separate transactions entered into by the Company with Bank of America, N.A., are not part of the terms of the Notes and will not change the holders’ rights under the Notes. The Capped Call Transactions have anti-dilution adjustments substantially similar to those applicable to the Notes. The Capped Call Transactions are derivative instruments that qualify for classification within stockholders’ equity because they meet an exemption from mark-to-market derivative accounting.

The Capped Call Transactions are expected generally to reduce the potential dilution and/or offset potential cash payments that the Company is required to make in excess of the principal amount upon conversion of the Notes in the event that the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, is greater than the strike price of the Capped Call Transactions, which initially corresponds to the $24.04 conversion price of the Notes. If, however, the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, exceeds the initial cap price of $29.02, there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such market price exceeds the cap price of the Capped Call Transactions.

The Company will not be required to make any cash payments to Bank of America, N.A. or any of its affiliates upon the exercise of the options that are a part of the Capped Call Transactions, but will be entitled to receive from Bank of America, N.A. (or an affiliate thereof) a number of shares of the Company’s common stock and/or an amount of cash generally based on the amount by which the market price per share of the Company’s common stock, as measured under the terms of the Capped Call Transactions, is greater than the strike price of the Capped Call Transactions during the relevant valuation period under the Capped Call Transactions. However, if the market price of the Company’s common stock, as measured under the terms of the Capped Call Transactions, exceeds the cap price of the Capped Call Transactions during such valuation period under the Capped Call Transactions, the number of shares of common stock and/or the amount of cash the Company expects to receive upon exercise of the Capped Call Transactions will be capped based on the amount by which the cap price exceeds the strike price of the Capped Call Transactions.

For any conversions of Notes prior to the close of business on the 55th scheduled trading day immediately preceding the stated maturity date of the Notes, including without limitation upon an acquisition of the Company or similar business combination, a corresponding portion of the Capped Call Transactions will be terminated. Upon such termination, the portion of the Capped Call Transactions being terminated will be settled at fair value (subject to certain limitations), as determined by Bank of America, N.A., in its capacity as calculation agent under the Capped Call Transactions, which the Company expects to receive from Bank of America, N.A., and no payments will be due Bank of America, N.A. The capped call expires on December 13, 2018.

Wells Fargo line of credit

In October 2009, the Company entered into a revolving credit facility with Wells Fargo Bank (“Wells”), which was last amended on March 31, 2014, whereby the Company may borrow up to $20.0 million, subject to the calculation and limitation of a borrowing base (the “Wells Credit Facility”). All amounts owing under the Wells Credit Facility will become due and payable upon its expiration on November 15, 2014. A sub-feature in the line of credit allows for the issuance of up to $7.5 million in letters of credit. As of March 31, 2014, the Company issued a total of $6.4 million in letters of credit under the Wells Credit Facility. Any outstanding amounts under the Wells Credit Facility bear interest at a variable rate equal to the Wells prime rate, plus 1.0%, which is payable on a monthly basis. The Wells Credit Facility is collateralized by all of the Company's assets, except its intellectual property.

The Wells Credit Facility contains financial covenants requiring the Company to (i) maintain a minimum current ratio of 2.0, equal to the quotient of modified current assets to current liabilities, as defined in the Wells Credit Facility (the "Modified Quick Ratio Covenant"), and (ii) not to exceed pre-tax net loss (excluding non-cash contingent consideration associated with the acquisition of Nellix) of $11.0 million for the three months ended March 31, 2014; 18.0 million for the six months ended June 30, 2014; $22.0 million for the nine months ended September 30, 2014; and $26.0 million for the year ended December 31, 2014 (the "Net Loss Covenant").  The Wells Credit Facility also included a negative covenant limiting 2013 capital expenditures to an aggregate of $6.0 million and 2014 capital expenditures to an aggregate of $13.0 million. The Company was in compliance with the financial covenants as of and for the three months ended March 31, 2014.  

The Wells Credit Facility also contains a “material adverse change” clause (“MAC”). If the Company encounters difficulties that would qualify as a MAC in its (i) operations, (ii) condition (financial or otherwise), or (iii) ability to repay amounts outstanding under the Wells Credit Facility, it could be canceled at Wells' sole discretion. Wells could then elect to declare the indebtedness, together with accrued interest and other fees, to be immediately due and payable and proceed against any collateral securing such indebtedness. No borrowings were outstanding at March 31, 2014.

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Contingently Issuable Common Stock (Tables)

3 Months Ended

Mar. 31, 2014

Business Combinations [Abstract]

Schedule of Business Acquisitions by Acquisition, Fair Value of Contingent Consideration

Adjustments to the fair value of the Contingent Payment are recognized within other income (expense) in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

	Fair Value of Contingently Issuable Common Stock
December 31, 2013	$	60,900
Fair value adjustment of Contingent Payment for three months ended March 31, 2014	(11,800		)
March 31, 2014	$	49,100

As of March 31, 2014, $34.8 million was presented in current liabilities due to the expected achievement of one of the Nellix Milestones during 2014.

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs

Stock-based compensation expense included in cost of goods sold and operating expenses during the three months ended March 31, 2014 and 2013, was as follows:

	Three Months Ended
	March 31,
	2014			2013
Cost of goods sold	$	208		$	150
Operating expenses:
Research and development	161			205
Clinical and regulatory affairs	(103		)	403
Marketing and sales	538			578
General and administrative	809			894
Total operating expenses	$	1,405		$	2,080
Total	$	1,613		$	2,230

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Income Tax Expense

3 Months Ended

Mar. 31, 2014

Current Income Tax Expense (Benefit), Continuing Operations [Abstract]

Income Tax Expense

Income Tax Expense

The Company applied an estimated annual effective tax rate (“ETR”) approach for calculating a tax provision for interim periods. The Company recorded a provision for income taxes of $0.2 million for the three months ended March 31, 2014. The Company's ETR was 3.9% for the three months ended March 31, 2014.  The Company's ETR for the three months ended March 31, 2014 differs from the U.S. federal statutory tax rate of 34% primarily as a result of nondeductible expenses (including the Nellix Contingent Payment), state income taxes, foreign income taxes, and the impact of a full valuation allowance on its deferred tax assets.

The Company has evaluated the available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the U.S. and certain foreign jurisdictions. Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a full valuation allowance against substantially all deferred tax assets. If/when the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period(s) such determination is made.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

(a) Leases

The Company leases its administrative, research, and manufacturing facilities located in Irvine, California and an administrative office located in Den Bosch, The Netherlands. These facility lease agreements require the Company to pay operating costs, including property taxes, insurance, and maintenance. In addition, the Company has certain equipment under long-term agreements that are accounted for as operating leases.

Future minimum payments by year under non-cancelable leases with initial terms in excess of one year were as follows as of March 31, 2014:

Remainder of 2014	$	847
2015	2,026
2016	2,067
2017	2,123
2018	2,186
2019	2,251
2020 and thereafter	24,777
Total	$	36,277

Facilities rent expense for the three months ended March 31, 2014 and 2013 were $0.7 million and $0.1 million, respectively.

On June 12, 2013, the Company entered into a lease agreement for two adjacent office, research and development, and manufacturing facilities in Irvine, California.  The premises consist of approximately 129,000 combined square feet. The lease has a 15-year term beginning January 1, 2014 and provides for one optional five year extension. The initial base rent under the lease is $1.9 million per year, payable in monthly installments, and escalates by 3% per year for years 2015 through 2019, and 4% per year for years 2020 and beyond.  The Company is entitled to rent abatement for the first nine months of the lease. These premises will replace the Company's existing Irvine facilities.

The terms of this lease agreement provide for $6.8 million of landlord-funded improvements (and certain other allowances) to this facility, in order to best suit the Company's requirements. In June 2013, the Company had Wells Fargo issue the landlord two letters of credit in the aggregate amount of $6.4 million under its Wells Credit Facility, representing financial collateral while these facility improvements are completed. The Company placed the same amount in a restricted cash account with Wells Fargo, in order to fully support these issued, but undrawn, letters of credit. In July 2013, this restricted cash account was fully released under the July 26, 2013 amendment to the Wells Fargo Credit Facility.

(b) Employment Agreements and Retention Plan

The Company has entered into employment agreements with its executive officers under which payment and benefits would become payable in the event of termination by the Company for any reason other than cause, death or disability or termination by the employee for good reason (collectively, an “Involuntary Termination”) prior to, upon or following a change in control of the Company. The severance payment will generally be in a range of six to eighteen months of the employee’s then current salary for an Involuntary Termination prior to a change in control of the Company, and will generally be in a range of eighteen to twenty-four months of the employee’s then current salary for an Involuntary Termination upon or following a change in control of the Company.

(c) Legal Matters

We are from time to time involved in various claims and legal proceedings of a nature we believe are normal and incidental to a medical device business. These matters may include product liability, intellectual property, employment, and other general claims. Such cases and claims may raise complex factual and legal issues and are subject to many uncertainties, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. We accrue for contingent liabilities when it is probable that a liability has been incurred and the amount can be reasonably estimated. The accruals are adjusted periodically as assessments change or as additional information becomes available.

LifePort Sciences LLC v. Endologix, Inc.

On December 28, 2012, LifePort Sciences, LLC ("LifePort") filed a complaint against us in the U.S. District Court, District of Delaware, alleging that certain of our products infringe U.S. Patent Nos. 5,489,295, 6,117,167, 6,302,906, 5,993,481 and 5,676,696, which are alleged to be owned by LifePort. LifePort is seeking an unspecified amount of monetary damages for sale of our products and injunctive relief. We do not believe that we infringe on any of these patents and we intend to vigorously defend against this matter. As of December 31, 2013 we have filed a motion to transfer the case from Delaware to California. The motion remains pending and we cannot predict when, or on what basis, this matter will be resolved. We do believe, however, that the outcome will not have a material adverse effect on our financial position, results of operations, or cash flow. However, in order to avoid further legal costs and diversion of management resources, it is reasonably possible that we may reach a settlement with LifePort, which could result in a liability. However, we cannot presently estimate the amount, or range, of reasonably possible losses due to the nature of this potential litigation settlement.

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Contingently Issuable Common Stock

3 Months Ended

Mar. 31, 2014

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. As of March 31, 2014, the Company's stock price last closed at $12.87 per share. Thus, had the Nellix Milestones been achieved on March 31, 2014, the Contingent Payment would have comprised 3.7 million shares, representing a value of $47.6 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(f) 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 decreased by $4.57, or (26.2)%, between December 31, 2013 and March 31, 2014. The decrease in the value of the Company's common stock was the primary driver affecting the decrease in the fair value of the Contingent Payment during the three months ended March 31, 2014.

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 and Comprehensive Loss.

	Fair Value of Contingently Issuable Common Stock
December 31, 2013	$	60,900
Fair value adjustment of Contingent Payment for three months ended March 31, 2014	(11,800		)
March 31, 2014	$	49,100

As of March 31, 2014, $34.8 million was presented in current liabilities due to the expected achievement of one of the Nellix Milestones during 2014.

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Description of Business, Basis of Presentation, and Operating Segment (Policies)

3 Months Ended

Mar. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). These financial statements include the financial position, results of operations, and cash flows of the Company, including its subsidiaries, all of which are wholly-owned. All inter-company accounts and transactions have been eliminated in consolidation. For the three months ended March 31, 2014 and 2013, there were no related party transactions.

The interim financial data as of March 31, 2014 is unaudited and is not necessarily indicative of the results for a full year. In the opinion of the Company's management, the interim data includes normal and recurring adjustments necessary for a fair presentation of the Company's financial results for the three months ended March 31, 2014. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations relating to interim financial statements.

The accompanying Condensed Consolidated Financial Statements should be read in conjunction with the Company's audited Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on March 3, 2014.

Operating segment

Operating Segment

The Company has one operating and reporting segment that is focused exclusively on the development, manufacture, marketing, and sale of EVAR and EVAS product for the treatment of aortic disorders. For the three months ended March 31, 2014, all of the Company's revenue and related expenses were solely attributable to these activities. Substantially all of the Company's long-lived assets are located in the U.S.

Stock-based Compensation Expense

The Company classifies stock-based compensation expense in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss, based on the department to which the recipient belongs.

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Credit Facilities (Details) (USD $)	0 Months Ended			0 Months Ended		0 Months Ended	12 Months Ended	0 Months Ended							12 Months Ended	0 Months Ended			12 Months Ended	0 Months Ended	3 Months Ended
	Dec. 10, 2013	Mar. 31, 2014	Dec. 31, 2013	Dec. 03, 2013 Revolving Credit Facility Wells Fargo Bank	Dec. 03, 2013 Letter of Credit [Member] Wells Fargo Bank	Dec. 10, 2013 Convertible Senior Notes Issued December, 2013 [Member] Convertible Debt [Member]	Dec. 31, 2013 Convertible Senior Notes Issued December, 2013 [Member] Convertible Debt [Member]	Dec. 10, 2013 Debt Instrument, Redemption, Period One [Member] Convertible Senior Notes Issued December, 2013 [Member] Convertible Debt [Member] D	Dec. 10, 2013 Scenario One [Member] Debt Instrument, Redemption, Period Two [Member] Convertible Senior Notes Issued December, 2013 [Member] Convertible Debt [Member] D	Dec. 10, 2013 Scenario Two [Member] Debt Instrument, Redemption, Period Two [Member] Convertible Senior Notes Issued December, 2013 [Member] Convertible Debt [Member] D	Dec. 10, 2013 Other Assets [Member] Convertible Senior Notes Issued December, 2013 [Member] Convertible Debt [Member]	Dec. 10, 2013 Additional Paid-in Capital [Member] Convertible Senior Notes Issued December, 2013 [Member] Convertible Debt [Member]	Dec. 31, 2013 Minimum Convertible Senior Notes Issued December, 2013 [Member] Convertible Debt [Member]	Dec. 31, 2013 Maximum Convertible Senior Notes Issued December, 2013 [Member] Convertible Debt [Member]	Dec. 31, 2013 Prime Rate [Member] Revolving Credit Facility Wells Fargo Bank	Dec. 03, 2013 Debt Instrument, Measurement Period One [Member] Revolving Credit Facility Wells Fargo Bank	Dec. 03, 2013 Debt Instrument, Measurement Period Two [Member] Revolving Credit Facility Wells Fargo Bank	Dec. 03, 2013 Debt Instrument, Measurement Period Three [Member] Revolving Credit Facility Wells Fargo Bank	Dec. 31, 2013 Debt Instrument, Measurement Period Three [Member] Revolving Credit Facility Wells Fargo Bank	Dec. 03, 2013 Debt Instrument, Measurement Period Four [Member] Revolving Credit Facility Wells Fargo Bank	Mar. 31, 2014 Debt Instrument, Measurement Period Five [Member] Revolving Credit Facility Wells Fargo Bank
Line of Credit Facility [Line Items]
Debt Instrument, Face Amount						$ 86,300,000
Stated interest rate						2.25%
Proceeds from Convertible Debt						82,600,000
Threshold Trading Days								20	20
Threshold Consecutive Trading Days								30 days	30 days
Threshold Percentage of Stock Price Trigger								130.00%	130.00%	98.00%
Stock Issued During Period, Shares, Conversion of Convertible Securities						41.6051
Redemption Price, Percentage						100.00%		100.00%
Threshold Business Days										5
Threshold Consecutive Business Days										5 years
Debt Default, Violation Or Event Of Default, Declaration By Note Holders, Percentage						25.00%
Fair Value Disclosure						66,900,000
Beneficial Conversion Feature						19,300,000
Unamortized Discount						3,700,000					2,900,000	800,000
Interest Expense							1,400,000
Amortization of Debt Discount (Premium)							800,000
Interest Expense, Debt, Excluding Amortization							500,000
Amortization of Financing Costs							100,000
Amortization Of Financing Costs, Effective Percentage							9.00%
Convertible notes		67,901,000	67,101,000				67,900,000
Deferred Finance Costs, Noncurrent, Net							2,700,000
Estimated Annual Interest Expense, Debt													5,700,000	6,900,000
Payments of Derivative Issuance Costs	7,400,000
Debt Instrument, Convertible, Conversion Price						$ 24.04
Derivative, Cap Price						29.02
Aggregate maximum borrowing capacity				20,000,000	7,500,000
Letters of credit outstanding, amount			6,400,000
Debt instrument, basis spread on variable rate															1.00%
Debt Covenant, Minimum Current Ratio				2.0
Debt Covenant, Maximum Operating Loss																11,000,000	18,000,000	22,000,000		26,000,000
Debt Covenant, Maximum Annual Capital Expenditures																			$ 6,000,000		$ 13,000,000

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Revenue by Geographic Region (Tables)

3 Months Ended

Mar. 31, 2014

Geographic Areas, Revenues from External Customers [Abstract]

Revenue by Geographic Region

The Company's revenue by geographic region, was as follows:

	Three Months Ended
	March 31,
	2014			2013
United States	$	23,988	72.1%	$	24,727	83.0%
Europe	$	6,585	19.8%	$	3,347	11.2%
Rest of World ("ROW"):
Latin America	$	918	2.8%	$	572	1.9%
Asia/Pacific	1,773		5.3%	1,138		3.9%
Total ROW	$	2,691	8.1%	$	1,710	5.8%
Revenue	$	33,264	100.0%	$	29,784	100.0%

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Balance Sheet Account Detail Inventories (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Balance Sheet Related Disclosures [Abstract]
Raw materials	$ 4,080	$ 3,793
Work-in-process	7,082	4,539
Finished goods	12,874	11,226
Inventories	$ 24,036	$ 19,558

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities:
Net income (loss)	$ 5,295	$ (9,334)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Bad debt expense	(12)	0
Depreciation and amortization	602	484
Stock-based compensation	1,613	2,230
Change in fair value of contingent consideration related to acquisition	(11,800)	5,200
Accretion of interest on convertible note	800	0
Amortization of deferred financing costs	97	0
Non-cash foreign exchange gain	(367)	0
Changes in operating assets and liabilities:
Accounts receivable and other receivables	(242)	(3,064)
Inventories	(4,360)	(436)
Prepaid expenses and other current assets	(147)	(103)
Accounts payable	4,005	182
Accrued payroll	(1,654)	(7)
Accrued expenses and other liabilities	3,190	1,454
Net cash used in operating activities	(2,980)	(3,394)
Cash flows from investing activities:
Purchases of marketable securities	(53,023)	0
Maturities of marketable securities	6,918	0
Purchases of property and equipment	(3,491)	(1,102)
Net cash used in investing activities	(49,596)	(1,102)
Cash flows from financing activities:
Proceeds from exercise of stock options	246	997
Minimum tax withholding paid on behalf of employees for restricted stock units	(644)	0
Net cash (used in) provided by financing activities	(398)	997
Effect of exchange rate changes on cash and cash equivalents	1	410
Net decrease in cash and cash equivalents	(52,973)	(3,089)
Cash and cash equivalents, beginning of period	95,152	45,118
Cash and cash equivalents, end of period	42,179	42,029
Cash paid for income taxes	129	0
Landlord funded leasehold improvements	$ 2,425	$ 0

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Net Income (Loss) Per Share

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

Net Income (Loss) Per Share

Net Income (Loss) Per Share

Basic net income (loss) per share was calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the three ended March 31, 2014 and 2013. Diluted net income per share for the three months ended March 31, 2014, was calculated by adjusting outstanding shares for the dilutive effects of outstanding, but unexercised, stock options and unvested restricted stock, as calculated under the treasury stock method.

	Three Months Ended
	March 31,
	2014		2013
Net income (loss)	$	5,295	$	(9,334	)
Weighted average shares- basic	63,405		62,189
Weighted average shares- diluted	66,017		62,189
Net income (loss) per share- basic	$	0.08	$	(0.15	)
Net income (loss) per share- diluted	$	0.08	$	(0.15	)

The following outstanding Company securities were included in the above calculations of net income per share because their impact was dilutive:

	Three Months Ended
	March 31,
	2014	2013
Common stock options	2,027	—
Restricted stock awards	152	—
Restricted stock units	433	—
Total	2,612	—

The following outstanding Company securities were excluded from the above calculations of net income (loss) per share because their impact would have been anti-dilutive:

	Three Months Ended
	March 31,
	2014	2013
Common stock options	1,153	2,768
Restricted stock awards	—	492
Restricted stock units	—	457
Total	1,153	3,717

As discussed in Note 6, in December 2013, the Company issued $86.3 million aggregate principal amount of 2.25% convertible senior notes due 2018 (the “Notes”) in an underwritten public offering. Upon any conversion the Notes may be settled, at the Company’s election, in cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock. For purposes of calculating the maximum dilutive impact, it is presumed that the Notes will be settled in common stock with the resulting potential common shares included in diluted earnings per share if the effect is more dilutive. The effect of the conversion of the Notes is excluded from the calculation of dilutive earnings per share because the impact of these securities would be anti-dilutive. The potential dilutive effect of these securities is shown in the chart below:

	Three Months Ended March 31,
	2014	2013
Conversion of the Notes	3,588	—

The effect of the contingently issuable common stock is excluded from the calculation of basic net income (loss) per share until all necessary conditions for issuance have been satisfied. Refer to Note 9 of the Notes to the Condensed Consolidated Financial Statements for further discussion.

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Balance Sheet Account Detail Goodwill and Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014		Dec. 31, 2013
Goodwill, Finite-lived, and Indefinite-lived Intangible Assets [Line Items]
Total	$ 40,272
Intangible assets (excluding goodwill), net	42,980		43,096
Finite lived intangibles
Goodwill, Finite-lived, and Indefinite-lived Intangible Assets [Line Items]
Finite lived intangibles	40,100	[1]	40,100	[1]
Accumulated amortization	(105)		(48)
Total	39,995		40,052
Patent
Goodwill, Finite-lived, and Indefinite-lived Intangible Assets [Line Items]
Finite lived intangibles	100		100
Accumulated amortization	(100)		(95)
Total	0		5
License
Goodwill, Finite-lived, and Indefinite-lived Intangible Assets [Line Items]
Finite lived intangibles	100		100
Accumulated amortization	(49)		(41)
Total	51		59
Customer relationships
Goodwill, Finite-lived, and Indefinite-lived Intangible Assets [Line Items]
Finite lived intangibles	543		544
Accumulated amortization	(317)		(272)
Total	226		272
Trademarks and trade names
Goodwill, Finite-lived, and Indefinite-lived Intangible Assets [Line Items]
Indefinite lived intangibles	$ 2,708		$ 2,708

[1] Was reclassified in the first quarter of 2013 from in- process research and development to finite lived intangibles, which coincided with the European commercial launch of the product (Nellix EVAS System) associated with this intangible asset. A significant portion of this intangible asset will not begin amortization until the U.S. launch of this product, currently scheduled for 2016.

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Income Tax Expense (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Current Income Tax Expense (Benefit), Continuing Operations [Abstract]
Income tax expense	$ (216)	$ (339)
Effective income tax rate	3.90%
Federal statutory income tax rate	34.00%

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Net Income (Loss) Per Share (Tables)

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

Basic net income (loss) per share was calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the three ended March 31, 2014 and 2013. Diluted net income per share for the three months ended March 31, 2014, was calculated by adjusting outstanding shares for the dilutive effects of outstanding, but unexercised, stock options and unvested restricted stock, as calculated under the treasury stock method.

	Three Months Ended
	March 31,
	2014		2013
Net income (loss)	$	5,295	$	(9,334	)
Weighted average shares- basic	63,405		62,189
Weighted average shares- diluted	66,017		62,189
Net income (loss) per share- basic	$	0.08	$	(0.15	)
Net income (loss) per share- diluted	$	0.08	$	(0.15	)

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The following outstanding Company securities were included in the above calculations of net income per share because their impact was dilutive:

	Three Months Ended
	March 31,
	2014	2013
Common stock options	2,027	—
Restricted stock awards	152	—
Restricted stock units	433	—
Total	2,612	—

The following outstanding Company securities were excluded from the above calculations of net income (loss) per share because their impact would have been anti-dilutive:

	Three Months Ended
	March 31,
	2014	2013
Common stock options	1,153	2,768
Restricted stock awards	—	492
Restricted stock units	—	457
Total	1,153	3,717

As discussed in Note 6, in December 2013, the Company issued $86.3 million aggregate principal amount of 2.25% convertible senior notes due 2018 (the “Notes”) in an underwritten public offering. Upon any conversion the Notes may be settled, at the Company’s election, in cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock. For purposes of calculating the maximum dilutive impact, it is presumed that the Notes will be settled in common stock with the resulting potential common shares included in diluted earnings per share if the effect is more dilutive. The effect of the conversion of the Notes is excluded from the calculation of dilutive earnings per share because the impact of these securities would be anti-dilutive. The potential dilutive effect of these securities is shown in the chart below:

	Three Months Ended March 31,
	2014	2013
Conversion of the Notes	3,588	—