APEN - Earnings call transcript Q2 2019

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Operator

Good afternoon. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Apollo Endosurgery Second Quarter 2019 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator

Relations, begin Investor conference. you Gillings, your may John

John Gillings

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

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

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

call week of I the XXXX, information the quarterly XX, circumstances any XXXX. Apollo the Commission. Exchange For risk date of a of this Securities the or to XX-Q period accurate review three-month date July call. you which after company's we discussion of only conference as and on for revise with of undertakes required contains Form as XX, content that factors, events or this The broadcast law, to encourage reflect expect by June to obligation Except live time-sensitive this the is to no statement the ending report later file update

December product GAAP sales Surgical XX, product historical associated will Continuing of transitional the use revenue, report which we call, excludes the vice we ESS from on versa. the continuing product During we part our XXXX. to revenues, and term with our we will In will for the as Orbera as our still this will products, divested call, which differ interchangeably revenue for and this IGB OverStitch terms terms revenues. GAAP and also refer revenues Surgical

turn over to I'd like the call Now, to Todd.

Todd Newton

today's afternoon, thank good quarter and call results. XXXX everyone, joining and John, discuss our you, second to for you Thank

for which while endoscopy report the a opportunities quarterly also second on company nonstrategic asset. our of our year, the last therapeutic surgical products, in of only our the since done is quarter to was product line sale December This focus monetizing

presentations OverStitch in conference was which The currency sales event XX%. increased second was by of great or quarter more GI OverStitch, including clinical our quarter most suturing with presentations system Week, year, Apollo, the XX to for the procedures levels. incredible constant an papers described significant Disease many for endoscopic for relied a other use regarding use OverStitch is XX% the on ESS, Digestive of the clinical endo than of results providing Orbera experiences. over that that updates on the products, our and related

various learn endoscopic full-thickness a OverStitch have geographies represented and heard itself course, who OverStitch that sessions wanted DDW suturing training offered suturing featured available, OverStitch events system Further, and, the significant of included around event physicians from is the these device. endoscopic since the for about world, to training more. DDW four only

physicians had center our our or we to addition, their allow In to on further spend mobile endo products individual site to to experience lab time our learning devices. introduced with develop be

endoluminal there a could is of gastrointestinal physician defects. and broad seen to adopt disease range to DDW, at and develop treat As be interest approaches tremendous

endo are our to XX%. time, products stated this for At maintaining for grow Our guidance we XXXX previous product sales guidance. was this around

update I'll results financial And back our detail. now then, to turn over greater an with I'll to the call in Stefanie operational come Stef? cover afterwards.

Stefanie Cavanaugh

XX% States XXXX, Thank XXXX. quarter in as-reported versus million ESS increased ESS a you, second constant Sales XX%. second an United basis, U.S. ESS total the of million to everyone. outside the on Todd, the increased and $X.X the sales good sales XX% in increased On in sales increased and basis. afternoon, currency $X.X of XX% quarter

contributor dual-channel to use growth users. resulted of increased by OverStitch the Sales contributed, sales expanded quarter and from ESS was OUS customers new Sx second terms, the from growth. the but currency constant existing ESS primary procedure In XX%. addition device

markets Balloon, were two-third last year. in the XX% constant in million compared Intragastric second second versus on basis XX% of OUS million the in of our and quarter declined a as-reported the $X.X Sales XXXX. quarter of second IGB, roughly or IGB in and an to were revenue currency on second sales quarter $X.X basis quarter total the

due six our On OUS in a to compared gain we this the from OrberaXXX continue and which sales timing stable efforts markets markets direct to were sales active while distributor in these were markets quarter, flat We see is prior being selling thus clearance lower our OrberaXXX sales to in we in to primarily offset essentially remain IGB a in basis, available where effect. constant with Middle QX orders East currency lower by is markets. sales down, balloon our year, for distributor months believe

on In market quarter were XXXX revenue pay cash product the of following currency down approximately in XX% product second continuing constant surgical to versus our million total, quarter XXXX. fourth treatment second defined quarter compared to intragastric United increased sales $XXX,XXX reported of the for weakness XXXX IGB or the second sales divestment Endo-bariatric basis $XX.X of due to XX% a In the quarter year in our the as last U.S. products our of in the as States, the balloon

which for compared $X.X second transition second of quarter sales the $XX.X the million of $X.X or charges XXXX million product of which product $X.X of Total to a GAAP million were and in decrease million. $X.X million surgical million, XX% surgical revenues included in sales XXXX, surgical of quarter $XX.X included

partially of to sales, which for second fall. due offset margin the both completed gross Gross products XX.X% in the projects XX.X% impact lower margin Gross by for and positive was for the to two improvement products, shift margins we the compared the decline a margin XXXX The than Endo-bariatric last the other ESS carries XXXX was of of to period. quarters was our prior-year our gross margin second XXXX. revenue quarter largely in XX%

distributor second the sales, gross reduction ESS the quarter transition XXXX from completing to product of increasing product of surgical at certain of at markets price. sales mix greater to are and OUS greater that was end-user in due sold surgical the ReShape to the sales to the margin would addition In the to in quarter impact of first sales been a previously quarter, during price have OUS a proportion

projects margin Margin for XXXX this for that consolidated in mid-XX% are guidance our been we to maintaining at continues will the us we has have Our and guidance. time, be gross a low be this to stated range as several underway. focus improvement

continue to will progress. our update on We you

related second of December surgical Total lower expense mainly IGB of sales to quarter marketing U.S. spend of and million XXXX for along XXXX. the business This second compared in with $XX.X to advertising $XX.X operating due to was $X.X expenses sale million $XXX,XXX, sales. primarily last due million were lower amortization the related intangibles quarter decrease the of to reduced to

we million net to quarter and Our for loss and second quarter the million of equivalents. the million $X.X cash with the XXXX $X.X cash for of restricted of $XX.X compared second second quarter XXXX ended was cash,

will I back turn Todd. it to now

Todd Newton

Stefanie. sales we're number the applications. us in use feeling and our and about To start, products. quarter, you, the dual-channel dual-channel suturing health of a majority their product group critical have we very across to scopes of user the continue solid a opportunity have growth experienced good Thank came invested our In of from who second where expand ESS for in our front and

of XX% channel the XX% handle For the dual Sx. were OverStitch quarter, sales and second were

in way second the Sx approach taking first and mount all The a related introduction the are the of Sx we the which deliberate to full market including measured something quarter launch. its about on of was to variety quarter There have them. unique of best the and the platforms product are scope variables in single-channel many

device pearls clinical settings tissue stent in its of to in fixation which then and learn are retroflexion gastroplasty. angles related There are to of range from technique various types. address use various to to There share scope various optimally the esophageal

finding tweaks to product And of we can dual-channel the improve variety the OverStitch. that this technique further needs Sx Because technical additional are course compared user and experience. has of to constantly

repetition and of physician's build times this But education as is built, OverStitch to have many users product result a in it a our device up for as practice. more needs clinical experience DDW is we the the their this investors, those And confidence and the sticky medical dual-channel confidence. mentioned OverStitch more execution good to as shows and with is and find adoption year once shows,

to at will plan a each and rollout, means continue which for moving right the physicians be program Sx our deliberate for education So measured our medical individual. pace through

dual-channel balance devices. of is the for device's XXXX introduction throughout single-channel growth we have same dual and past see the from expect and the solid both and adoption to the we OverStitch this Basically the playbook used

the for than very enabled XX at to more a mentioned in to involving adoption in The which my wide the level patient techniques of remarks, place endoluminal was a was I needs from took by related DDW, range enthusiasm by physicians DDW procedures evidenced As which product. positive meeting. of of OverStitch address abstracts are opening May,

lower single bariatric include surgical described both this patient and ESG data. impressive applications less upper presented is in for an including for This uses revisions treatment in procedure patients, follow-up type tract, one papers on single of failing center's reflux The setting, endoluminal a the company of GI product. showing much that the surgeries, a one and five-year suture-based

was it stellar summary, event. just In a

trial's our in us release the trial press to informed MERIT XXth, completed. principal investors MERIT enrollment quarter June for was the on As this that investigators

ESG is this procedure. prospective the first is potentially trial two the followed ESG and control group The years randomized reminder, controlled over can for for to the initial one As XX-patient patient be a arm year. treatment involving cross after treatment XXX

informed exemption, the IDE necessary, investigators forward. believe needs for IDE have to time, an principal IDE. us the have continue the co-principal path The some study's quickest the that Since MERIT device investigational is of from not that is investigators but trial an communications submitting or decided FDA

related not crossovers in delay. and And is approval study's PIs sites principal is will study delayed. administrative matter not issues mostly point it expect investigators long follow-up accordance safety this at patient all at a believe The protocol. which the with In are or the in while this MERIT continuing to pending an any do meantime, the and is be procedures patient

revisions recorded. In the XXX than May that is sites patients suturing over clinical other capture announced surgery registry data revisions OverStitch contracted in to U.S. in bariatric capture build is the it and here GI European is nine XXX GI experience Europe, of of intended users to now key XX core last lower than over in which and core to more year AGA awareness of bariatric core began ESS has September have cases And the ESG has patients data using on In now registry GI the on in registry bariatric last we where enrolled. programs, GI procedures enrolled. and Europe data

ongoing ESG to prior markets outside discussed we and expect from States quarter, news United reimbursement efforts we In continue year-end. in last addition, important the these to

her to put our Stef couple on in quarter wrong a have Balloon I can is additional and periodic Intragastric The our our way discussed activity, times in product at we results. geography, add. sales second break revenue which by comments On and down reporting, of in by emphasis comments the the

happens Intragastric the This Balloon to our sales of to quarter of be timing because the distributor. this case East Middle

clear our very performance year. be we XX% the over distributor sales market very in to But product Endo sales the quarter with pleased prior grew as are

Hong in We launched in gained are and delighted OrberaXXX Kong approval to have to Sx Kuwait. have

there over We the the Middle user we where base with challenges our prior OverStitch these there platform can a also lower these patient very is sales pay preference Balloon of But quadrupled Intragastric balloon in physician or markets have IGB some and cash have East from demand. a in some year. and over strong our are treatment, in competitors ESG low-cost which markets built

to offer we to gain we proposition for loss. them that OrberaXXX can to value maintain it help though, and approvals lose continue patients a get good As weight confident are

this from roughly and of quarter our and Mumbai promising start with Hyderabad distribution more is using markets many technology a have our this centers country Indore, a population excellence distributor of in market. X.X the billion. in normal highlight Another in already OverStitch three accounts of India, We

our stated United some very that attractive, medical which today, for and progress for markets and Strategically, needs ORBERA: some getting we believe the loss a market the a we market, second, IGB believe two the first, here have is is So, in have but this aesthetic to especially States; development market, market which back we quarter. effort. there time weight are

hard is are talk the to medical our of development about often efforts Sometimes use efforts progress. from market outside we see especially difficult objectives, to the our and but see, sometimes evidence tangible and it

more as on labeling some this update contraindication hepatic clarifies patient wanted clarifies loosely the very to pre-cirrhotic that is were the very a cirrhosis. contraindication quarter, June, In updated that with there apply The share ORBERA does labeling announced call. that tangible new NASH and U.S. previously second much we the the to During insufficiency developments on that or not referenced was fibrosis. specific we

it know of treatment Still is not that you either. NASH ORBERA is that important for to the for indicated

However, Association patient and or of weight for liver loss Liver of indicated and as the progression American disease. is AASLD fatty guidelines treatment is the course in of loss to identified most the of Disease by ORBERA for the treatments their the Study one stop effective potentially reverse weight

Gastroenterology Gastrointestinal balloons of of or of code Surgery; or Second, Metabolic and an one the we Gastrointestinal ACG; level and that the Gastroenterology American AGA; Society Society of American notified or for for ASGE; submitted CPT intragastric American application or College Association American Society were a sponsorship joint the Bariatric Surgeons the and for Endoscopic Endoscopy was SAGES. under American

for for joint the the our GI hope between website scheduled is editorial reflects will remarkable This of Medical this agenda by and the meet that It of on therapy in to Association's our CPT the American data. strength that a end the that IGB panel one clinical should filing the application the understand a late code communities and posted September. on the of level support is be this meeting CPT consensus in agenda IGB surgeon week. be We for

non-coverage recently decision CMS non-coverage intragastric this Gastric and which a XXXXs to the later therapy way balloon has and pulled Bubble the reevaluating Centers or dates to market. Garren-Edwards that had national have all CMS Medicare We the Medicaid mutually national a related a met plan the for and Services Third, from back the long-standing for agreed with was U.S. decision. on

specific the in quarter purposes. pilot for for a to surgery Within to two began here them ORBERA patients to ORBERA compare patients second study underway with for success in weight enrolling prepare investigator-initiated pre-op of they in separate treatment Downey of. United studies the Kaiser the use Lastly, their be who loss in States the are the whether medically-managed idea lose program. The general from at a medical need obese weight for ORBERA treated to patients being location better better to that would understand need another

of a quarter and our endo of studying a market in greater ORBERA or good efforts recap, in productive also for out drive At products. our and market To very of and particular who are for our critical San build replacement, total the blocks, knee were VA efforts was for for Diego, market streams it otherwise important medical and replacement. development OverStitch developments examples a commercial are for they other ORBERA. have considered data access on patients to the activity candidates building clinical a highly high pre-op but need in Each of for be impact knee these too very of BMI to high-success products

the we'll Operator, line now open for proceed. questions. with please And that,

Operator

Instructions] Your from from Hewitt Craig-Hallum question first Matt [Operator Capital. comes

is Your open. line

Matt Hewitt

you and questions taking update. the Thank for for the

the I'm strong you The that the a how OverStitch, for of you the first that as you've one you you strong of very growth that attribute year? do half curious how training at attribute DDW, to can second had experience a of quarter springboard just kind or maybe been much see could seeing much in QX versus that DDW the to for of and

Todd Newton

right, to to Good Matt. talk All you.

some have really our relates growth think this time. people, OverStitch been So had OverStitch who been introduced using most for to and of quarter to I

in they found users we practice. point, see have But where confident they in education requires now their that at this – product. quarters As different all reach feel over do was have found just pace. that within bring mentioning execution uses remarks, they to once and the we for They'd that and product medical comfortable that the the can several continue that the my we prepared I their along

itself. really we growth the I at think So, very DDW training do much to QX events attribute OverStitch in would of here

of quarters. this that education as would think been in we being particular a now view the on last that I have medical been we in many work executing reflection for things

Matt Hewitt

reach to quickly of That's this and then that training the the that – their What over is out hospital physicians the to and How And Mobile Learning that are year and within the at process? hospital forward? the great. then so with purchasing through process? need a you to the training that And talk move? how doctors and does go remainder going DDW groups be Maybe can walk driver the since you? were is Center. Do they what back

Todd Newton

Yeah.

medical characterize with So, had basically, way. walk of I some for somewhat would the because programs unique, receive their guess I it's that a to level has GI congress their Typically, it include OverStitch. own to will this or prior hospital that suturing. would to going see big physician education we a – you want have through they're conversation that and they DDW is

that's in is OverStitch. typical viable at of a user training a to we level trainee hospital course, we in some particular So know level that example for near-term unique little want that for the already would so have that that bit But engagement been regard. a Apollo-sponsored there

in that it comfortable them them to and ways. use taking different would makes that and regard. course through it's attach just a of scope device of matter bit DDW the So how variety getting the that in steps – the And little with unusual a of to a then,

Matt Hewitt

about couple and I'll the a in back Maybe queue. questions of then hop Okay. ORBERA

And that provided to on by details you that I markets approvals a as little the ORBERA, anticipate Kaiser of you and just the a possibly could when XXX some markets? of there you two patients are ramping? the some you might we decent-sized guess, see the those do and on year. some you if product And see bit as once of question last expect studies? maybe these of approval that far out how color possibility Thank Are XXX quickly you end – as you. you have describe studies. where number more do Maybe more then, approved Regarding mentioned the data the VA anticipate some those that

Todd Newton

about the a we talk the Yes. first on really not do in have just have do country general, We have that But specific first products. we ORBERAXXX, And Orbera ORBERAXXX. which XXX expand to the much goal in markets, Matt. to don't have want today. one any but access for so

it's an at And pace, goal ongoing each market working the just So which that proceed. has different on we're things those a all time.

Stefanie Cavanaugh

VA and get Kaiser some can and when I report.

Todd Newton

-- that studies. not these I'm would characterize not sure the I as big

I two they are sent both the that they us, or request just interested think pilot studies. use institutions big are internally. works to as whether how that to information the rightfully more as be any don't to think population. will are evaluate patient what they their that grant studies strategy institutions have studies. the based upon they're they Certainly have And I might se per are Orbera don't big no publishing But I within indication information characterized purely

Operator

McKim from Your question Piper from comes next JP Jaffray.

open. is line Your

JP McKim

of -- surprised was OverStitch and so that on business. by the was most Hi, I the growth normally XX% quarter. growth, of the good I OverStitch Congratulations wanted just to or how touch the much maybe think on Sx XX% great. I being afternoon. legacy To that that. good was was

or about Like don't dual-channel So that I sales out touch on focusing that? to still because the on that maybe can reps accounts jumped talk know scopes, that just have me. you the really just are

Todd Newton

about a and that has practice from applications now in several adding to continuation last OverStitch. and said, think seen a their the we've see good the more there's accounts. of and over quarter that always is for its of the the I to sales more on to product standpoint been of With use. Yeah, all OverStitch And finding focus it new continuing that, been continuing results introducing really we've Sx see value which this what course is definitely with the quarters was user the

with clinical we in in really And just gets procedures run see we those makes that's just also that suturing from reflection and addressed doctor satisfying the a abstracts range where of very abstracts that As comfortable situations saw into what and was it evolve. of DDW. in they were their it's practice us. the for very There just being sense broad so

at see course, level is generally Of this always and use used tool at and going a the saw exactly quarter that's is to to whole introduction OverStitch in general of the they it old to as purpose emphasis where to try the made we But being well. investment like be we support course locations sales dual-channel what customers would but that's of continue endoscope. those new Sx. also, have not course, the of drive the And

JP McKim

in from fair technology it customers existing suture came can with point Is the procedures of they OverStitch it? they bulk mean comfortable they're I use get growth the on say, to more the as more where learning and to your and

Todd Newton

Yeah.

I exactly JP. think right that's

JP McKim

push definitely given Okay. It's from still all then and thus confidence training learning far getting aggressive as need on have so. rollout comment you're feel just the a the like learning the you're and more do on your you broader a do ton product, you that you'll a do just When you perfected? Sx. have And that to you measured still

Todd Newton

all Yeah, to sometimes of I at kind just the that and function think variants. about of people isn't confidence what dedicate confidence and new a tied have skill to to this really product it they a individual really learning building is and for from different time perspective,

to -- continue assisting comfortable. confidence just try physician persistent to to So training be we with persistent with getting and and gaining the our get to

actually making some can doctors he who the that's physician device experienced proctoring, issue. the a that learn kind scheduling for Sometimes very so of another available and with involves is from

sales our something that bring it's Sometimes can rep just themselves. along

It deliberate our physician why because the of reality. of that's the because be we're community nature we will continue that's emphasize targeting. varies it the that will to case-by-case. So be And that deliberate just just roll-out

JP McKim

Got you. Thank it.

Operator

Suraj question next comes from Securities. Northland [Operator Your Instructions] from Kalia

Your line is open.

Suraj Kalia

everyone. all Good afternoon, you me hear right? Can

Todd Newton

hear Yes, Suraj. fine, just we you can

Suraj Kalia

Great.

Maybe Todd, in If chart pie So terms a bunch for of the can today categories? And what talking this. usage were quarter. the in the to If you good a of U.S. primarily, clarify obviously looked would growth OverStitch, different OverStitch like I I'm today, help draw about very look questions.

Todd Newton

If see U.S., use you in is to and use, both it usage the XX-XX and I split proportion would the endoscopic would use. be think see revisions core you'd primarily which larger ESG be and bariatric revisions. a what would for between XX-XX GI or bariatric gastroplasty would And be bariatric for the bariatric

And so category mostly within that bariatric XX-XX. would be it split

that's instructive. hopefully So

XX% XX% somewhere XX% core and what call be we between Somewhere XX% which use. the GI category would uses bariatric broad and of to between

Suraj Kalia

about last XXX I But to in should confess greatly OverStitch stale U.S. some it? to a a model of pricing? number. minuscule right presume And -- portion. in was us like The give now close on OverStitch over little Todd price account be remember Got would that same help accounts. color the think I Any And the utilization I can would how be us least color time U.S.? does a better component But growth? it. nonetheless you we XXX the especially it at we How models metrics it stand had seems appreciated. our on at

Todd Newton

Yes.

did price have se per we not taking a Just Suraj. This increase OverStitch. question first your pricing, year, for on

Sx. scope, dual-channel of But the a the a are that justification therefore price a are dual-channel I this think who capital the pricing pricing to board our for with for increase adopt was purchase not year Sx doing from the Sx required premium stated slight We economic version. price year that on i.e. premium equipment a compared across is not the to at there's piece OverStitch out and But, new accounts to rationale want our tables. rolling

utilization relates been the metrics, it we're we terms as metrics. about of same those to in have where as And

we be accounts. two terms in take if given are given their XXX that They that would because not both to in within typically base, hospital our a roughly also active probably just in have that user it's consider we in most practice. is utilization we growing clinic a accounts but clinic, physician terms or clinical take We of the ways their single a of

particular what our even come though a soon a because setting physician's interests, generally become practice that there's may part or OverStitch come begin OverStitch been And more experience has begins a into that to is of to into users. clinic more that within it hospital of and the hospital a users be

utilization. is but last talked metric different say those more and a these maybe account of accounts we little about when about we're the roughly more same, the So, from bit think within accounts. let's it, we probably roughly that course definitely seeing XXX physicians But

Suraj Kalia

Two quick queue. jump then questions Todd, I'll in back

to Where gross some get us take get in for was Also, competitors -- up? a OpEx brick-and-mortar can improving route. can some programs First, walk margins of give that on I'd manufacturing love base. going efficiencies. are that. the IGB in about taking The love I to of your model. if there from mentioned And more math seems know to ReShape Thank get specifically your XX%. through internal high-level thoughts we kind OverStitch on XX%, land I'd a the Stefanie or any OverStitch, the Just questions. standalone eventually space, you client and basis pull-through one give suggest especially on down leverage how my for or

Todd Newton

bet. you Yeah,

I'll be it So to to to to not I'm competitors, say, quick gross as margin and do just I But let strategies, speak second appreciate going relates question. the so here I'm just invite the a in elect but very and OpEx going to today. address competitor Stef about

Stef. to I'm to you transfer So going with that,

Stefanie Cavanaugh

good. Very Okay.

shared, actually one and -- projects helping in OverStitch for So the late as improve OverStitch a margin, each. completed project gross margin, both for of that our have each we couple XXXX we are balloon for

that working We the that for at now in product will OverStitch, several that and to on primarily that focused or quarters are in that stages of on over we're continue completion projects complete margin that various have project will are get next improving particular. several the

expect on And And that that. of I then basis once position at XXXX $X.X with operation our from cost expenses these operating annual future. our of using are growth by benefit get a to improve we have you our own on if and operating all where million that think we completed, support the leverage, to projects volumes, shared annual we good helps level, expense in our foreseeable sales that for we pretty think, size the with the an we're

Suraj Kalia

Thank you.

Operator

questions. I'll Instructions] CEO have closing turn call remarks. Todd [Operator Newton, further no We the for to over back

Todd Newton

operator. you, in want or need is Should release any you today. And for Relations contact today. interest thank Investor please Manager follow-up, questions thank just our Gillings, John Thank in have for you who our a closing, press again. you on listed to Endosurgery Well, we Apollo your

Operator

conference concludes today's This call.

disconnect. may You now

Apollo Endosurgery (APEN) 23 Jul 192019 Q2 Earnings call transcript