APEN - Earnings call transcript Q3 2017

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Operator

Good day and welcome to the Apollo Endosurgery Third Quarter 2017 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Zack Kubow. Please go ahead, sir.

Zack Kubow

Thanks, operator and thanks everyone for participating in today's call.

Company Chief Newton, Financial the and Executive from Cavanaugh, Stefanie Officer. me are Chief Todd Officer; Joining

differ Before actual we call forward-looking sales. begin, securities plans that and statements comments and I risks the statements laws, would results like by within and materially. products, outlook uncertainties, during involve to including Management timing Apollo's material this and of for These conference meaning will may financial forward-looking made include Apollo's federal caution Apollo's listeners and development

no For XXXX. discussion I call you of a is live of update risk of encourage broadcast, filed conference reflect or the statement or October that events to factors, XX-Q Form the accurate to Apollo today, review of only any required contains after this The this the time-sensitive date call. information undertakes October of to as the obligation date XX, circumstances except revise XXXX, content as XX, by law,

non-GAAP be During this conference adjusted certain will call, discussing revenues. financial including we total measures,

reconciliation Todd. on SEC I'd call over which posted the the on was With A While in with only financial it measures to and understanding found release These press today or prepared comparable should to metric. like a the X-K. non-GAAP be to now GAAP. in of with to financial read substitute Apollo's be consolidated in as turn that considered GAAP helpful we be not meant our the today's GAAP performance, for is measures financial Apollo's the accordance information to measures condensed be conjunction to believe in can Form furnished this statements isolation said, in website

Todd Newton

everyone. good Thank you, and afternoon Zack

Mark August. of to where quarter. also many are in successfully direct our the where the good number direct, this Further, a the OverStitch through enjoys important a Australia, Orbera for Orbera we offering by of doubled of Australia Sleeve year-over-year the maturation the of FDA for a States, for X% a marked Gastroplasty product also leading had the the market close Apollo for very example sales increased continued the decline, market Endoscopic early third an procedure. respects. by CE and products family. to XXX rate are came United million, sales an to is than the States the second work business of outside total our $XX.X second primarily growing are communication we or to Endo-bariatric enterogastric quarter we from XX% Brazil, our XX% the where third worldwide. cases also approval revenues. decline more in down achieved third level in although came for States growth sales and increased inflection in revenue quarter the ESG the equity significant we and the event expands which and Endo-bariatric Outside product States latter market overtook compared a in quarter OverStitch our obtained more sales this The United excellent sales the as an we Endo-bariatric we the these We balloons was regulatory quarter. with than sales momentum United direct, we were that because direct. great strong close cash to markets of quarter. interest in XX% created United both, outside of part in of quarter, is raised OverStitch In in completed now Endo-bariatric revenues quarter and And challenging point bariatrics; where and we by the U.S. total our demand and our surgical And OverStitch sales the international of markets surgical product XX% driven third of decline XX% market of obtained reimbursement. continued quarter Similarly the A from for quarter improve surgical the products XX% markets. in pay

Here in increasing than the with These and sales advanced our OrberaXXX increases very United enterogastric here quarter ESG during and pleased of to the sales the doubling and outside pleased in the of Orbera of will be time Marking in fourth starting for direct announce weight amount We quarter, to most achievement from markets time the third goals. quarter. end-well the European the performed. cases to at countries balloons, CE X dedicate modification are months months, their of is/or third were of in which soon there we with already OrberaXXX established now patients first Orbera Brazil, September OverStitch the loss the generally behavior more full markets available our most international for commercially XXX States were end quarter. sales can of of were XX

are sales. We our to add optimistic to enterogastric it to and markets will that market European balloons are OrberaXXX introduce excited value the share and

more will about doing project how at have tell this is the of the you We year. end to

center. third mobile on in allied XX trained more training than user training which XX the OverStitch third the using quarter. Turning very The with opportunities. one and The was United to Most very sales demand than products. we particularly deal was at in our Apollo consistent staff business these States to this the more strong volatility for quarter supporting experienced our physicians were robust this quarter, sponsored of health a OverStitch and U.S., OverStitch endo-bariatric of great our regards quarter in learning the conducted

society supported the led X United outside grant labs In as quarter. as training addition, this States the in or X suturing we third-party through physician requests, States United well of

our on registry track interest suturing in week additional outcomes third-party to physicians. States. announced advance United is and and offerings its labs fact in quarter. XX a fourth funding of to supporting to requests OverStitch effort societies This Association suturing a opinion reimbursement Technology Center led have procedures The training we as our affirming trans-oral are support patient among is that propositions very We training pushing with the third-parties and value for their the the endoscopic Innovation American well to and an This OverStitch. clinical in here for OverStitch evaluate agreement of registry with Gastroenterology GI part important establish after centered

AGA now the be will signed, the obtain step the contract followed which with finalize then by staff detailed and site With the IRB is to next required the approvals selection. protocol

protocols three still being are include the will arms. registry the main While we finalized, anticipate

surgery the after follow-up month with XXX patients approximately reductions [ph] period. XX undergoing First, all a failed a bariatric

of undergoing arm XXX X the with of And station other for variety procedure OverStitch will data that and arm safety month collect participating third to as fixed on also a [indiscernible] a ESG of procedures for a prevent a the may third anticipate We their site. approximately perform procedures period side patients collect migration at then data will patients. is extent Second, this procedure follow-up those as to such [indiscernible] the upto a etcetera. performed

the that that the related decision data to expect payers use flexible and among suturing purchasers of coverage physicians, OverStitch. and procedures making We informed approval, support endoscopic adoption registry will

also multicenter control are In working addition led registry, specific randomized we trial the for an the to AGA procedure. investigator a to to contract ESG finalize

the stated a the level generating include a of support with we've two-year goal one follow-up this of data period the reimbursement procedure. As in will to coverage past, clinical ESG anticipate establishment trial we for

which wrap We a call process review the compatible for report single we early The version of this to OverStitch our still Sx OverStitch we is and To be what visualization on and enhances that XXX(k) filed expectation is is will cleared greater to in provides expect XXX(k) ongoing in XXX(k) maneuverability. Sx, OverStitch more have soon. endoscope up June, channel on a XXXX. that

scopes and number customer of goal compatible We version limitation a be a of quarter scopes In OverStitch the endoscope around or the a in investment suturing already our in requires a channel United we Marking the to that to endoscopes had to and The capital market, to same also remove the to a enable time. acquire surgery with technology Sx States. expect with cases. make this most achieve a that dual on in hardware channel dual to only CE majority Orbera, of is used and owns the challenging of compatibility that regard Sx our center is endoscopic current small hospital

was enterogastric the the X% August and FDA's the this letter balloons effect in of generally FDA conference can missing important balloon and a letter add and the feared, next the we development has see to add negative providers early healthcare which clearly you was quarter Orbera's reported regarding which of fuelled letter. from in we But the the We our reported of inaccurate momentum wave that X,XXX, quarter third United and key context facts FDA the potential to year. the a enterogastric back of still set in of know, had this most issued implant the filled As reporting the its letter FDA day as volumes and up over media of liquid implant call last aftermath States quarter. in Orbera market hosted risks omitted the that their volumes

came Orbera trend abrupt with this month same implant targeted we the product to new Orbera very September, during stop, year trending reported letter, was and were FDA any the an was Similarly, and July month of higher the training XXXX. an second lower the last August, our of implant prior month first the In year. than letter. of this our to of rate for lowest in demand implant quarter for experience following in reported was in However, among which users volumes number experienced consistent immediately XX% which course growth

of moved to regarding quickly provide have our with Orbera. resources and though communicate the to customers safety We

reorders of QX, initial the the a in Upon month a Orbera us; end inaccurate product an of in other investigation never the was of the and then ever accounts Orbera letter for through using that one purchases. a or FDA we able however, XX% received physicians here any we XXX were device. was MedWatch on United or The their alleging As of August have the that these more kit and this to determine of report patient voluntary physicians operational consumer to patient from FDA report FDA's following created death some States placement. since Apollo letter, have an Orbera an starter following the distractions we connected filed treated received also the trained program the

in setback quarter this So the the Orbera. for United quarter States was

and Our is again, moving long can quarter. answer after fourth get to we this goal will take, Orbera how we the hope

believe that XXX,XXX than more are be balloons absolutely will demonstrated transient confident to efficacy We Orbera's been history worldwide. in the distributed impact and has of safety clinical over continue [ph] and we a

markets banding these most Lastly, banding outside the been gastric the In surgical we sales States for our banding gain to however, in product to relatively surgical sales; to were have of procedures. allowed us key decline that our able in market reported markets procedures continue offset share United certain stable. has decline,

For XX% sales XX about from product accessories, physicians were periodic of And the the our are XX% users United States the a but to infrequent to gastric XX% now roughly surgical quarter third over were sales half of surgical with sales in of Chief remaining Stefanie. call sales band. And of Financial banding. active attributive our the Officer, group I'll surgical lab who our turn very in decreased of

Stefanie Cavanaugh

afternoon Todd that they Thank expectations. everyone. QX and to in line with good and financial report our I'm were results pleased review you,

a $XX.X quarter of surgical XX% million million, driven of revenue to increase Endo-bariatric revenue third of Our increased third $X XXXX. XXXX to in increase the to quarter million. $X.X when The compared of decrease the total million revenue $XX.X by to primarily X% was an for for in by total XX% of offset revenue

As by in year, our sales Todd last OverStitch U.S., the of the important higher increase mentioned, the XXXX driven starter sales. third growth exceeded this the same inflection the our where were million, surgical excluding marks quarter $X.X endo-bariatrics of period revenue U.S. sales. Orbera an mainly In decline an of sales kit versus endo-bariatric XX%

U.S., gastric the million. of lower mentioned demand earlier, hindered training were in increased lower primarily Orbera due to new effect and more during among the Todd than sales for XX% Outside quarter. endo-bariatric in As XXXX the letter the users for by U.S. resulting Again, FDA product consumer our demand targeted of sales QX to $X XX% banding endo-bariatric the U.S. increased disruptive to in XXXX demand representing procedures. sales United were the of $XXX,XXX third decline prior same Surgical year. million, market. of in decline decreased $X XX% In States, decrease due of quarter continuing OverStitch the our in the the quarter to direct the surgical to in our sales third a compared period

in to in U.S., XXXX last of year. the sales margin was a to lower third the to quarter gross margin our Our mix surgical higher a the XXXX. of sales of in for surgical result quarter products XX.X% Gross the compared of endo-bariatric growth decline as margin higher The our that from X% compared third realized decreased our our to was gross quarter ongoing of product. the shift third surgical margin compared XX.X% product products

of to a quarter marketing training that associated in cost to and incentive reduction including expense for decrease marketing Research development side, general quarter $XX.X quarter efforts facility the cash, July to primarily of activities after due Orbera $X.X or XXXX We that year. generated and increased million In of year. product higher $X.X of for quarter restricted expense that interest expenses the the million the million cost; Interest third up per increase for $X.X in and $XX.X approximately million million during resulting quarter primarily third we were a quarter. million of and due summary, new equity million two X.X OverStitch offset was expense due in in second and XXXX compared of in non-recurring The which talking reduced to And incurred XXXX to by reduction. million our and loss public net expanded third costs last was last XXXX senior expenses payment the $X.X the offering equivalents OverStitch of approximately campaigns that share quarter we of a the million in quarter our compared third related the for about higher to total to administrative operating compensation cash credit reminder, XXXX shares cash principal as at completed and partially million the which $XX.X due $X.X third expenses increase from and transaction million of $X.XX were quarter merger. year our Todd about the versus filing. third secured million in ended $X.X $X.X with our development expense also last in first price experience were for end transaction as of cash LPath OrberaXXX to on quarter with with $X.X at previously. proceeds program XXXX third was from is On third company the was and of the compared net A due $XX.X first $X.X quarters of fees underwriting in million to the public the included recorded used $X approximately million means third the sales of non-recurring quarter and million XXXX. the that was associated a the an initial

per month our cash around payments cash as reminder, approximately payment, interest funds $X half the the annual development operations that million a while And of product in of new trend efforts used, quarter. And continued just half recurring financial our requirements. this and update. our other of supports concludes capital the our to expenditure Excluding including use third

Now turn back I'll it Todd. to

Todd Newton

Stefanie. you, Thank

products. a major our we States setback of questions. discussed the United markets Just of to quarter as for move quarter to the is in topic; OverStitch great quarter States. In onto we've We a gross sales margins but ours of also was United it recap improve we last direct terrific outside for before, had our One goal Orbera. before and a a endo-bariatric had

decline. improve shifts our gross endo-bariatric And expect to from programs identified of mix products, we've decline we number margins. sales surgical our this offset to gross a and to margin As

same goal consolidated which of as Our is gross the XX%. previously margin stated is a

facility. in The in completed a manufacturing transfer first part project with our back this the the June system of program Helix contract to of was the manufacturer OverStitch early from

gross year annual profit item year. next this million at will $X.XX least expect We improve starting by per

include reduce step manufacturing plan. first the to key programs successfully the Additionally, to now XX of our production. Operator? questions. we'll this suture another The ISO believe is is eventually of margin a to our We improvement completed which this for quarter with open anchor certificate expansion cost facility our needle X expected improvement implement part that, gross to are quarters here. from cost line our And take to

Operator

Thank question you. comes Group. with first Our [Operator from Hewitt Instructions] Matt Craig-Hallum Capital

Matt Hewitt

afternoon, Good on and progress. the congratulations

this growth rate if wondering OverStitch maybe the First what can the Stefanie, could versus a contribution calculate one you and and year that there? period was for ago I'm so quarter we breakout

Stefanie Cavanaugh

endo-bariatric stay is will Well, in that OverStitch in products U.S. breakout then and combined U.S. as we And the we contributed focused you'd see Orbera you endo-bariatric and our in as the growth number. release. the press from by the for table indicated, we see primarily rate that growth the over Orbera, in growth U.S., on don't the usually OverStitch both endo-bariatric OverStitch the revenue a But table in to nicely driven rate

Matt Hewitt

finally if or that some you in know the at grow grow to potential Okay. decline how Todd, envision on there there we've And the for for it's that future? slow digits? and and bottoming, Is to point then we -- that to of maybe you again in do to seen opportunity look I of rate but spot as anticipate not even to is low at point Do year the maybe that the maybe regarding the single the some two. you put next Lap-Band, continue mentioned obviously you

Todd Newton

thanks question. Matt, that for Well

but when point, the stabilize they they are I who key. the product, their I that to that and physicians rate they do think I that not get will don't all, Lap-Band it's very at stabilizes, that's be predict good see something can is something get to of going absolutely from and that loyal of decline I some Lap-Band that product, First them changing necessarily think results, -- experience; I believe used expect we

not as far will or As be first. get it a stabilization product, whether let's the growth

Matt Hewitt

the what I demand one year you that a bit, have shifting versus in gears -- OrberaXXX Are six seeing little is months? initial enough. because you with now the guess uptick an Fair then? the maybe reaction

Todd Newton

loss patient are month six but will the the Orbera of can loss product, like non-surgical that to I you that metabolism one boost there are that their in with reset just most to weight their a loss especially been can if year, help is enterogastric is doctors to especially they weight think anecdotally they balloon an a a it can that view the this adds believe for that are very positive. feedback patients it a full Yes, and while many has weight that doctors who compared very of takes that about have for because maintain value, a provide patients on. excited journey fact so have that they lot

Matt Hewitt

-- Why that there Any more it patients what happened? for color queue; as you as is FDA function in training risk of a but would there post Fair little helpful. as side, Orbera a I'll and I'm regarding maybe Thank enough. there that on in the at function One well with last here importantly, perceived? education disappointing one it even of there be bit the happened? look obviously domestically to wondering why the the a education? hop And a physician the them as you understand obviously, help me pullback sounds like isn't then the is component back letter, had you. an Is great U.S. and it,

Todd Newton

is, physician with comes I and the would forward the the in whether that training, put voice or kit move when physician to making is What one not determination starter Orbera. of I it guess say is to

the Orbera we back again, of the the such did to on-track. of a as going discussions committee going get bad we're So renew But what FDA we're letter is we it see which as number what with a normally to expect issued. get result would going letter

Matt Hewitt

great. Thank Okay, you.

Operator

[Operator to next move [indiscernible]. Instructions] We

Unidentified Analyst

Orbera you TWO Todd, -- Good first remind afternoon, my it of us all, looks on OrberaXXX the me. me forgive question, everyone. if like? to profile was the -- what EWO fine can take memory piggyback And just to fails [ph]

Todd Newton

if have to a that for sure some safe you for we is point the have thing don't clinical we been data XX now us for the have to we'll that it's though obtain CE we as Mark. have that done use. Well, critical that clinical human One related the month do know use we is to Orbera for was balloon. event expectation and is Orbera XX work approved to What any that month will being news

Unidentified Analyst

some But have the data presume you registry year, information additional on Got I either loss at some presumably it. profile? -- would point, or some next all weight

Todd Newton

I think that's exactly right.

Unidentified Analyst

in if I quarter mean I'm filled you relative because some us that texture, is heard have X,XXX the ICD maybe talked class letter curious already that effect has U.S. balloon-wide in give you or FDA hopping or in and shift; market, there -- earlier a August latter? is essentially happening between have and letter do ICDs this, entire market gained its a just share about guys of in non-fluid I'm your say total I February, affected calls it that the about for the can so loan thought in you the enterogastric Orbera's the the

Todd Newton

question. you is that great don't have answer a That's I for definitive. the really

say and other read I for think a all we'll we what season, during that. this will get earning see wait better companies

a our me came it's letter would that people it's balloons, more just tell information enterogastric enterogastric give driven, that balloon number view comments. the has market share about don't Our is though we've been -- FDA see. of for necessarily believe today the to said impacted issue of a is What the we that kind since that media, seen but of going will share a in looking is metrics; we've I in the I'd necessarily we'll we from that we out decline call not of know -- type probably and DTC monitoring be do our it disruption market so as you that

Unidentified Analyst

in can someone I'm might guess let's candidate because he the me And it. now other is stand naïve -- but we I say finally categories, deer-dark and about some I OverStitch. great it trying between the is what temporary to Orbera; permanent, see make use be leakage -- a this come refer Todd, say or originally that [indiscernible] out has to is, [ph] the can or the an question for he let's up else or freaked means decision physician is is occurring not this up to letter a into himself showing Got the physician there umbrella the do or patients which showing Apollo the non-balloon are category?

Todd Newton

I that conversation mortality rate we thought without take when about a mortality in be was Suraj, doctor strong is that this talk that that that the may to safety denominator as your of a said find Orbera, Orbera. to from just that with the but numerator if it believe very a not having was a And before; letter one a fair comes answer so associated Orbera and you're reinforce a question to patient, doctor The FDA doctor rate the is about to to to critical X.XXXX%. profile a think is going the with missing I've really I was that patient compelling. patient is And say I the surprising. to factor

negative patients about right is their when different patients obviously doctor find options even more that through. and the course, I the having think our I and internet prevent stops their media/press that you if more is on as conversation; challenge were been, or the and from going will in that of they that's now working news think -- issue has today it and

Unidentified Analyst

questions. for you taking Thank it. Got the

Stefanie Cavanaugh

you. Thank

Operator

back with like the conference now questions further management remarks. the over turn to for I'd no And queue, in to closing

Todd Newton

Well, closing, Endosurgery that any thank as team release listed in The questions follow-up to your have, afternoon. today. please we Should want have you contact in operator. you And Ruth Group this our you Apollo much. you press you Thank very for on thank interest

Operator

We for conclude thank does you ladies That conference. your Thank and gentlemen. participation. you, today's

You may disconnect. now

Apollo Endosurgery (APEN) 28 Oct 172017 Q3 Earnings call transcript