TransEnterix, Inc. Reports Operating and Financial Results for the Second Quarter 2019

Recent Highlights

• Total revenue of $3.6 million in the second quarter of 2019
• Received Japanese regulatory approval of the Senhance^® Surgical System
• Received broad Japanese reimbursement for 98 different procedures, effective July 31, 2019
• AutoLap asset sale and equity sale to bring in a total of $47 million

“While we were disappointed with our system sales in the quarter, we are encouraged by our operational accomplishments including the monetization of the AutoLap assets and achievement of Japanese regulatory approval and broad reimbursement well ahead of our expectations,” said Todd M. Pope, President, and CEO of TransEnterix. “We are focused on improving commercial execution to drive global system sales in the second half of the year.”

Commercial and Clinical Update

In the quarter ended June 30, 2019, the Company sold one Senhance^® System, in the EMEA region to an end user hospital.

On May 28, 2019, the Company announced that it received Japanese regulatory approval for the Senhance Surgical System. The Senhance Surgical System was approved by the Ministry of Health, Labor and Welfare (MHLW) for use in laparoscopy for general surgery, gynecology, and urology.

On August 1, 2019, the Company announced that the MHLW expert review panel provided reimbursement for procedures performed with the Senhance Surgical System. The reimbursement, which became effective on July 31, 2019, applies to 98 benign and malignant laparoscopic surgeries at reimbursement rates equivalent to traditional laparoscopy in Category A1.

AutoLap Asset Sale

On July 10, the Company announced the sale of certain AutoLap^® image-based laparoscope positioning system (AutoLap) product and intellectual property assets to Great Belief International Limited (GBIL). The total proceeds to be paid to the Company for these assets is $17 million. In addition, GBIL is making an equity investment of $30.0 million in TransEnterix common stock at $2.00 per share. As a part of the sale agreement, the Company retains ownership of the broader intellectual property portfolio it acquired from M.S.T. - Medical Surgery Technologies in October 2018, and will enter into a cross-license agreement with GBIL under which it gains a license to use the AutoLap-related IP sold, and grants GBIL a non-exclusive license to use additional IP in connection with the AutoLap.

Second Quarter Financial Highlights

For the three months ended June 30, 2019, the Company reported revenue of $3.6 million as compared to revenue of $6.4 million in the three months ended June 30, 2018. Revenue in the second quarter of 2019 included $2.7 million in system sales, $560 thousand in instruments and accessories, and $342 thousand in services. The $2.7 million in system sales revenue includes the recognition of $1.3 million from a system sold in 2017 for which revenue was deferred until its first clinical use, which occurred in the second quarter.

For the three months ended June 30, 2019, total net operating expenses were $22.2 million, as compared to $18.5 million in the three months ended June 30, 2018.

For the three months ended June 30, 2019, net loss was $20.2 million, or $0.09 per basic share, as compared to a net loss of $34.2 million, or $0.17 per basic share, in the three months ended June 30, 2018.

For the three months ended June 30, 2019, adjusted net loss was $19.2 million, or $0.09 per basic share, as compared to an adjusted net loss of $11.7 million, or $0.06 per basic share in the three months ended June 30, 2018, after adjusting for the following charges: change in fair value of warrant liabilities, amortization of intangible assets, change in fair value of contingent consideration, loss on debt extinguishment, acquisition-related costs and the loss (gain) on the sale of the SurgiBot assets. Adjusted net loss is a non-GAAP measure. See the reconciliation to GAAP below.

The Company had cash and cash equivalents, restricted cash and short term investments of approximately $34.0 million as of June 30, 2019. The Company believes that existing cash and short term investments and the expected proceeds from the AutoLap transaction are sufficient to support the business into mid-2020.

Conference Call

TransEnterix, Inc. will host a conference call on Wednesday, August 7, 2019, at 4:30 p.m. ET to discuss its second quarter 2019 operating and financial results. To listen to the conference call on your telephone, please dial (844) 804-5261 for domestic callers or (612) 979-9885 for international callers and reference conference ID 4293967 approximately ten minutes prior to the start time. To access the live audio webcast or archived recording, use the following link http://ir.transenterix.com/events.cfm. The replay will be available on the Company’s website.

About TransEnterix

TransEnterix is a medical device company that is digitizing the interface between the surgeon and the patient to improve minimally invasive surgery by addressing the clinical and economic challenges associated with current laparoscopic and robotic options in today’s value-based healthcare environment. The Company is focused on the commercialization of the Senhance^® Surgical System, which digitizes laparoscopic minimally invasive surgery. The system allows for robotic precision, haptic feedback, surgeon camera control via eye sensing and improved ergonomics while offering responsible economics. The Senhance Surgical System is available for sale in the US, the EU, and select other countries. For more information, visit www.transenterix.com.

Use of Non-GAAP Measures

The adjusted net loss and adjusted net loss per share presented in this press release are non-GAAP measures. The adjustments relate to the change in fair value of warrant liabilities, amortization of intangible assets, change in fair value of contingent consideration, acquisition-related costs, loss on extinguishment of debt, and the loss (gain) on the sale of the SurgiBot assets. These financial measures are presented on a basis other than in accordance with the U.S. generally accepted accounting principles (“Non-GAAP Measures”). In the tables that follow under “Reconciliation of Non-GAAP Measures,” we present adjusted net loss and adjusted net loss per share, reconciled to their comparable GAAP measures. These items are adjusted because they are not operational or because these charges are non-cash or non-recurring and management believes these adjustments are meaningful to understanding the Company’s performance during the periods presented. These Non-GAAP Measures should be considered a supplement to, not a substitute for, or superior to, the corresponding financial measures calculated in accordance with GAAP.

Forward-Looking Statements

This press release includes statements relating to the current regulatory and commercialization plans for the Senhance Surgical System. These statements and other statements regarding our future plans and goals constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that are often difficult to predict, are beyond our control and which may cause results to differ materially from expectations and include whether improved commercial execution will drive global system sales in the second half of the year, whether payments under the AutoLap sale agreement will be made on a timely basis, whether TransEnterix has sufficient cash, short term investments and the expected proceeds from the Autolap asset sale and equity raise to support the business into mid-2020. For a discussion of the risks and uncertainties associated with TransEnterix’s business, please review our filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 27, 2019 and our other filings we make with the SEC. You are cautioned not to place undue reliance on these forward-looking statements, which are based on our expectations as of the date of this press release and speak only as of the origination date of this press release. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

The non-GAAP financial measures for the three and six months ended June 30, 2019 and 2018 provide management with additional insight into the Company’s results of operations from period to period without non-recurring and non-cash charges, and are calculated using the following adjustments:

a) Gain from sale of SurgiBot assets relates to amounts received from Great Belief International Limited in excess of the carrying amount of the assets sold. Loss from sale of SurgiBot assets relates to additional outside service costs to transfer the assets.

b) Intangible assets that are amortized consist of developed technology and purchased patent rights recorded at cost and amortized over 5 to 10 years.

c) Contingent consideration in connection with the acquisition of the Senhance System in 2015 is recorded as a liability and is the estimate of the fair value of potential milestone payments related to business acquisitions. Contingent consideration is measured at fair value using a discounted cash flow model utilizing significant unobservable inputs including the probability of achieving each of the potential milestones and an estimated discount rate associated with the risks of the expected cash flows attributable to the various milestones. Significant increases or decreases in any of the probabilities of success or changes in expected timelines for achievement of any of these milestones would result in a significantly higher or lower fair value of these milestones, respectively, and commensurate changes to the associated liability. The contingent consideration is revalued at each reporting period and changes in fair value are recognized in the consolidated statements of operations and comprehensive loss.

d) Acquisition related costs were incurred in connection with the MST Medical Surgery Technologies Ltd. purchase agreement and consist of legal, accounting, and other costs.

f) The Company’s Series B Warrants are measured at fair value using a simulation model which takes into account, as of the valuation date, factors including the current exercise price, the expected life of the warrant, the current price of the underlying stock, its expected volatility, holding cost and the risk-free interest rate for the term of the warrant. The warrant liability is revalued at each reporting period or upon exercise and changes in fair value are recognized in the consolidated statements of operations and comprehensive loss.

g) In May 2018 in connection with its entrance into the Hercules Loan Agreement, the Company repaid its existing loan and security agreement with Innovatus Life Sciences Lending Fund I, LP. The Company recognized a loss of $1.4 million on the extinguishment of notes payable which is included in interest expense on the consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2018.

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