APEN - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Apollo Endosurgery Third Quarter 2019 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Matt Kreps, Investor Relations, Darrow Associates. Thank you. Please go ahead, sir.

Matt Kreps

Thanks, operator, and thanks, everyone, for participating in today's call to discuss Apollo's third quarter financial and operating results.

call Chief Newton, Financial the and Executive on 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. product 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

For for discussion I XX, you period a the risk of encourage report September with to factors, quarterly company's Securities on review Commission. and XXXX, ending the the filed today Form Exchange XX-Q X-month

of required time-sensitive or XXXX. conference call. of contains events the and by call date broadcast, date Content after information Except statement this undertakes any October or revise law, XX, to accurate circumstances no obligation the only Apollo as is reflect this to live update as the of of

will on term also refer call, Orbera product In which with we'll call, this our term revenues ESS this the and the XXXX. divested vice surgical use term for excludes the and we we revenue, to continuing IGB During December associated OverStitch XX, versa. for interchangeably which products, the

our filed GAAP the A our in today. reconciliation revenue of to will part can still product and XX-Q revenues. GAAP adjustments product revenue historical results traditional other company's report this Continuing surgical differ be GAAP from Form our we'll as any a sales of operating as found and

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

Todd Newton

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

the lines focused of trend our growth in third endoscopy. field by continuing on endoscopy represented continued that product The opportunities therapeutic expanding the sales of quarter year-over-year are high-growth our

endoluminal with and a to who med that programs expanding our our share tech market. on our surgery sheet belief balance represents future promising and -- progress our our improve support made also of the gross margins gross strengthen We investors new

ESS. was The third great our quarter OverStitch, quarter for or System another Suturing Endoscopic

for medical very quarter. increased at been sales were education, by of success, product commercial line we this XX%. XX%. OverStitch constant In sales increased in this our terms busy currency Total which has an to core accelerated rate U.S.

We to request the in events sponsored our Congress Star third quarter. Madrid in supported activities, society or third-party major if these approximately Certification own physician in positions so, with the And world, introductory the XXX connection OverStitch we and training through held advanced supported program. ASGE's and

clinical registry endoluminal obesity. course, adopt continued interest as studies also our the other tremendous defects, such and gastrointestinal other broad various progress approaches These investigator-led to range treat of trial, and to Solid document of to the activities we made the various to develop a disease continued physician including, are on MERIT supporting, suture be programs and research. and

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

Stefanie Cavanaugh

you, and everyone. Thank good Todd, afternoon,

XX% have XXXX. third third in on lines, basis our business $X.X XXXX key IGB. Beginning increased ESS, our ESS versus in quarter focused million is quarter of therapeutic with and As a X we million Todd where endoscopy, mentioned, the of product $X.X the sales on now consolidated to

but to by the of and OverStitch quarter, the driven by expanded and growth increased the X% be our Sx contributed users. remained addition United existing a new sales to XX% the primary sales an continues in device to dual-channel Sales used contributor Sales ESS basis. basis, outside ESS sales from The customers ESS procedure the quarter. currency XX%. XX%, basis currency On ESS constant constant on increased and U.S., a total in increased the on States as-reported

third Though declined U.S. last basis OUS quarter, revenue a on Balloon versus third currency in $X.X sales majority third of in compared the of million third IGB sales of remain third States. constant markets by quarter United affected year, IGB quarter on of were quarter primarily procedures. the the and million Spain, market In pay in and markets ongoing the primarily on X%. last source the in than X% or total sales sales Brazil are Balloon of X% of year, IGB XXXX. as-reported Intragastric $XXX,XXX of less an that and a the were the Intragastric $X.X in our decline basis were weakness sales to the aesthetic-focused United cash versus OUS two IGB States, reflecting focused the lower the down quarter

$X.X third or quarter XXXX continuing XX% lower quarter of last compared as our XXXX revenues in of the result Total the of of of to line and reported in quarter as product constant $X in that million currency GAAP XXXX. compared product third our XX% a million total, the increased XXXX In to occurred of surgical year. quarter were third third December revenues divestiture

the our to partially products, than projects ESS margin which revenue in XXXX XX.X% for fourth the sales, quarter to we other Gross carries The shift the third offset the This period. margin margin XX.X% by was gross the to X largely our year gross years comparability reporting our due between compared margin completed last positive impact was continue in a quarter. the prior lower will fall. of declining issue to in affect

will will represented project lower working impact in such assembly. development projects of Todd One cover that margin shortly estimated unit XXX(k) recently that future anchor we the our our are by of actively that detail. clearance costs. completed ESS on more We the improvement several gross was

X quarter in compared to million operating million million quarter was the due were $XX.X Total primary of expenses third This for factors. to $X.X the third decrease of XXXX. XXXX $XX.X

lower last ESG and higher result enrollment $X.X of research in of third expense as development First, the quarter the MERIT a million was year.

our lower, advertising was were December. Second, on surgical $X.X lower the of third, products marketing costs. intangible amortization and sales lower last And divestiture million U.S. following costs consumer

third million. $X.X And at million compared investors the quarter quarter. quarter for convertible of Our during net million mentioned the Cash third XXXX. in to the quarter $XX loss existing Todd we issued remarks, end of for $X.X XXXX was of notes as million his to the opening third third $XX was the

to As to respect with the sales. our margin with we quarter our of the gross consolidated full of given growth then OverStitch 'XX achieve gross range we fourth year-to-date year-to-date continuing consistent XXXX year gross product to expect XX% in or sales, performance. to margin, XX%, higher mix sales And to be product margin expect

turn now to I'll that, With back it Todd.

Todd Newton

Stephanie. you, Thank

third constant OverStitch increase as period Outside our products ESS States, year-over-year in the date. solid impressive year of As an in XX% was and XX% up you another our the organization a ESS in United U.S. XX% ESS currency, date. sales commercial to amounts now, know which for products or quarter, the were delivered in by strong quarter growth our U.S. XX% to quarter sales to year the

medical Our deliver user success, in my to base. ability our continues excellent education opinion, our to to be

once these to Our device use sticky physician an his continues or her practice. then users ever-growing OverStitch technical that be becomes of a experience clinical number a product. built very level OverStitch in the initial of that to find their And has then proficiency ways

last the work tweaks to further to continue mentioned various and overall quarter, that improve to customers I technique can closely share with experience. As we user identify

is are some associated The Skills, training this education the At medical particularly call, is four Assessment we as with. programs highlights stands hit I four suturing. to the quarter's of the ASGE Reinforcement, and highest-quality Training, of and of one activity. Society for opening acronym events STAR of such which offers noteworthy The the dedicated of American STAR Gastrointestinal of this one Program Endoscopy's

every a structured, highly is And upon consisting online at training facilities contracted This course, curriculum outside faculty. The course from components and of program Those great single-channel of time, station. and sequentially. conducted must hands-on featured dual-channel certificate that both is be ASGE's course successful This participants ASGE skills a and Chicago post-course receive a device live completed with being completion, a OverStitch assessment the an the the X ASGE. with test. at

the trial ESG investors as reimbursement uses trial is MERIT which the OverStitch. procedure, strategy. trial the controlled On linchpin first side, clinical randomized ESG is of our And of the this know, most the

patients investigators was the by FDA patient MERIT study the submitted We received period. in the August. the that in and are all Device IDE of announced, their in Exemption have initial patients trial now or procedure, enrollment arm and in treatment the MERIT previously approved all various As follow-up an for the understand Investigational which trial, in stages principal completed June the of

ESG is and treatment taken be The after crossover treatment can four year, followed XX-patient cross procedures to XXX-patient group control for already potentially the one of initial to have over place. these and number a arm years, two

XXX contracted sites here States to in On is year Europe, programs, capture AGA registry now other over on the May ESS key with cases began last using capture to bariatric core XXX which more revisions has that registry, United reported. bariatric in the revisions suturing, than over cases recorded. and intended has In ESG patient GI data patient X of bariatric uses and surgery the clinical

upside OverStitch recorded. the the GI core core view our GI a States, for here data Europe, has than is in Additionally, United of it now and registry in than European represents uses is awareness but cases to GI where area of experience build great XXX lower more still in

gastrointestinal endoscopic primary describe then procedure, were results in there conditions there India. be use continued about to first another published results quarter obesity. clinicians suturing quarter, new by XX ESG clinical papers and OverStitch of meta-analysis procedure in results. new And flow ESG the from other further than the literature a in the were new This this papers variety X of addition, by peer-reviewed published for papers the steady to of published clinicians including of various a XX describing published

involves quarters, This culminated multiple This suture we component anchor is over for multiple of implant the latest system. have project of discussed receipt our the with in for overall effort Finally, polypropylene assembly. margin improvement gross September ongoing initiative. projects OverStitch our FDA's quarters. The the clearance assembly many

XXX(k) million approval occur XXXX. anchor expect costs facilitates to passes our annually once for anchor an This Obtaining is clearance product own within we access $X fully our reduce approximately suture suture to gastrointestinal implemented, also proprietary our global track. new by expected It the markets. to in which

We growth XXXX. from remainder devices, XXXX us both going good into throughout OverStitch momentum and the of dual solid giving expect the single-channel

proposition. products, to think With pursuing we a the development strong is IGB strategically, value are where medical market, we of there our respect

weight where efforts to development have short-term efforts are success. on we comorbidities associated benefit provide selected with obesity where believe the market treatment conditions concentrated of can potential medical for loss Our meaningful reimbursement and

a discussed surgery. be they In able We've or transplant, in the as to a either of these weight disease, replacement NASH general the joint to include past, activities in organ provide advance should prior they these of progress. solid more weight we liver loss loss the and future, or fatty details

X CPT were submitted societies. for five Level We've for we medical been has application quarter, code intragastric learned Last sponsorship of application disclosed consideration an since postponed. under the balloons this of

Lastly, require coverage treatment issued their reimbursement in plan include health Brazil, which next private health Intragastric part insurance bariatric Agency its in in private National July, the guidelines, Balloon Brazil XXXX will to of year. Health as

policy encouraging it but assessing Private decision, health cosmetically cover Balloon pay I this for in We this Currently, a marketplace. focused still XX business think is market. people a development directionally million Intragastric are in approximately Brazil cash very is Brazil. the plans

market To for OverStitch a for highly our efforts. very quarter clinical good was development and productive and sales recap, it quarter a

sheet with solidified from loyal investors. set further a capital balance of our we supportive and Additionally, new

that, lines And open will? now Operator, for if the we'll with questions. you

Operator

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

Matt Hewitt

is quarter it's Or seeing a colorectal? evenly is in color are I'm of seeing little lines. And it color Just could along off, other like opportunities it pretty if those some spread bit strong you to maybe OverStitch. growth? as you it provide very of you're wondering, GERD any the just and Meaning, Or where First these ESG? out? a for

Todd Newton

to The OverStitch. Matt. be well. GI from of uses going core really us Yes, all area to coming growth The appears is

upper just of continue great to see GI GI. or Most will that in We GI. be GI applications, upper core growth lower whether it's

And of standpoint The well for continues good big area we're the of interest continued also to experience be course, with also, OverStitch experiences. do are obesity ESG users, who from offering seeing patient but patient treatment that experience. have good those begets new to it. the of They new procedure of patient very

in as promise very, about surgeries the all that it very and to We So broadly define feel drives was you'd and the board, that. that we're And over is more like today. to case from always market it's coming really satisfying happy of that see the like OverStitch the endoluminal intent that, OverStitch, with as is it's the it.

Matt Hewitt

But recently, guess, metabolic and encouraging bariatric of you? kind towards paper, you and -- for I your you out option how are that for surgeries I but is are realize How opportunity would but kids. it's factor American great. what the of a are That's geared more Orbera. the then, OverStitch, I how possibly recent, the thoughts that? And think does adolescents with this Academy Pediatrics of came and more on into --

Todd Newton

a don't se, pediatric Really, at this would per the I say defined point, have pursue to area. that Matt, we strategy

Our focus population. it weight right the among OverStitch loss to and now the ESG to support when reimbursement procedure is comes using adult its

where That's coverage the bariatric today. exists

not going strategy focused do But pediatrics. market in this We there opportunity. know of we're remain current at core is that our And an on to so that's time. that addressable a part

Matt Hewitt

back queue. in Maybe last from one me Okay. hop then I'll the one and

quarter new any there do and very that obviously, you those trained break surgeons down Regarding to the ability new on for a and the strong up quarter in between like OverStitch. running us? getting doctors of Is trained had have versus your and revenues it existing been -- previously doctors sounds or --

Todd Newton

Matt. point, will we but thank that reporting. you, made that consider We, disclosure, future at have Well, not in this

Operator

is Piper with of Your Jaffray. McKim the JP from next question line

Jonathan McKim

-- wanted million, of $X was the OverStitch like, training you're it But just flat to about lot doctors. it's U.S. and it like in a like then looks ask I on and ESS sounds it down internationally,

understand forward? happened to trying internationally will just you contribute sort could of that what when just of growth those revenue help I'm maybe me front? out, going So on to trains lot a figure And

Todd Newton

Yes.

investor some I basically for our you and quite been talking deck think about -- we've now in disclosing this what time.

We And use far of GI to whereas markets is the very that in outside is and United States. healthy of procedure core in way United outside United States, States, OverStitch. have another more for robust a mix use there here weight-loss the far the the less say OverStitch application

as third little quarter, the OverStitch, for States had on just United we outside procedure. result, the markets cash cash where And the our couple that a pay And a -- than headwinds dynamics it of U.S. created the pay dependent does more business in for make have in we the economics bit a

of builds not the the in one ultimately we now why area, GI we're That's on the core to to through identify reasons uses GI focused in registry start core our like Europe so that programs solid, is that established weight like especially would OverStitch in to we loss more business for marketplace the because appear or have that related predictable think us a U.S. really

Jonathan McKim

the I think sort Okay. to think And think about I total -- guidance? business you to And then XX%. an we -- go-forward then, update to should assume there year. of number? an window that there guided I that's is didn't next was update the I how

the you guess, in comfortable I with business XXXX? the here you so And when teens do feel out go-forward to growing look

Stefanie Cavanaugh

update. provide did an we So

too to X in you actuals, be have we results the guide year-to-date similar X QX months of expect year. that Given the months on we to our would first

And past. continue been to rates expect than we at in this that XX% have as continue we would to And very that OverStitch well. year had growth then a the so trends the and to we've provided little perform high the getting less bariatric for bit we've the that's

Jonathan McKim

quarters? us XXX in Or are give base trained if are I'll the FX? QX, on a QX? like could the that those was just QX maybe getting Then they you channel? Like, XXX maybe of you training could what like trained then on And dual level ask, for of on lot -- you a the reference in of Okay. and positions, trained previous getting

Todd Newton

JP. thanks, Yes,

the QX, meetings, We doctor I that also couple to training prepared a was major they remarks. staffing. supported and really we as had product for of quarter, busy so had a And in both wanted conduct where mentioning we with

than And done what so would in in past. that probably makes busier the QX somewhat have we QX

front center in for other. doctor under oftentimes, introduction continued the effort. preference since some available the make Just a the we And products one of training a device both in the it will But falls for in of come events. and have, versus timing of our Sx, these calendar to with

Operator

And no at questions there are this time. other

Todd Newton

Conference Then in at release conferences you. or want any for just Matt investor events, Micro November with and press please the are December. follow-up, to have our in the we that, again. your operator, LD today, number Select for of a should Craig-Hallum questions at And in Thank closing, Darrow Event great. Apollo and Associates, interest the you thank Alpha forward Kreps look Well, with Jaffray that you Main you, meet Piper today. Endosurgery we need upcoming contact thank opportunities And to and occur you in whose in details including Healthcare contact to listed

Operator

and concludes conference Ladies today's Thank this gentlemen, participating. for call. you

You may disconnect. now

Apollo Endosurgery (APEN) 1 Nov 192019 Q3 Earnings call transcript