Apollo Endosurgery, Inc. Reports First Quarter 2019 Results

Conference Call to Discuss Results Today at 3:30 p.m. CT / 4:30 p.m.

AUSTIN, Texas–(BUSINESS WIRE)–Apollo Endosurgery, Inc. (“Apollo”) (Nasdaq: APEN), a global leader in
less invasive medical devices for gastrointestinal and bariatric
procedures, today announced financial results for the first quarter
ended March 31, 2019.

First Quarter 2019 Highlights

  • Endo-bariatric sales, representing our core business moving forward,
    increased 5% from $10.3 million to $10.8 million, with ESS sales
    increasing 13% and IGB sales declining 5%
  • On a constant currency basis, endo-bariatric sales increased 9% with
    ESS sales increasing 17% and IGB sales equal to the prior year
  • U.S. ESS sales increased 20% year-over-year in the quarter

Todd Newton, CEO of Apollo, commented, “We were pleased with our ESS
product sales growth this quarter. We are also pleased with our Sx
launch progress to date. The activity and resulting new account pipeline
is encouraging to us that Sx will roll out very well as the year
progresses. Similarly, we think our IGB product is positioned well for a
return to growth.”

First Quarter 2019 Results

U.S. Endo-bariatric sales increased 9% to $4.5 million, while outside
the U.S. (“OUS”) Endo-bariatric sales of $6.4 million increased 3% as
reported and 10% in constant currency. Worldwide, total Endo-bariatric
sales of $10.8 million increased 5% as reported and 9% constant
currency. Of our Endo-bariatric product sales in the first quarter, 60%
related to our Endoscopic Suturing System (“ESS” or “OverStitch”) and
40% related to our Intragastric Balloon (“IGB” or “Orbera”).

U.S. ESS product sales increased 20% to $3.0 million, while OUS ESS
product sales of $3.5 million increased 7% as reported and 14% in
constant currency. Worldwide ESS sales of $6.5 million grew 13% as
reported and 17% constant currency. Growth was due to continuing new
user adoption and greater product utilization in existing accounts.

U.S. IGB product sales decreased $0.2 million, or 9%, to $1.5 million in
the first quarter of 2019. OUS IGB product sales were unchanged at $2.9
million, on an as reported basis, and increased 5% in constant currency
as higher sales of Orbera365™ were partially offset by weaker six-month
balloon sales in other OUS markets. On a worldwide basis, IGB sales of
$4.3 million declined 5% as reported and were flat in constant currency

The divestiture of our Surgical products in December of 2018 affects the
comparability of our total revenues in the first quarter of 2019 versus
2018. Total revenues in the first quarter of 2019 only include Surgical
product sales in certain OUS markets where we continue to temporarily
distribute these products. Total revenues in the first quarter of 2019
were $13.2 million, which included $1.7 million of Surgical product
sales, compared to $15.7 million in the first quarter of 2018, which
included $5.2 million of Surgical product sales, for a decrease of 16%
or $2.5 million.

Gross margin for the first quarter 2019 was 55%, compared to 58% for the
first quarter 2018 due to lower Surgical product sales following their
divestiture and a greater proportion of our overall product sales coming
from our ESS products, which realize a lower gross margin than our other
products. Partially offsetting the gross margin effects of these changes
in our product sales mix were the gross margin improvement projects we
completed in late 2018.

Total operating expenses decreased $7.0 million to $9.8 million in the
first quarter 2019, compared to the first quarter 2018. The decrease was
primarily due to a one-time non-cash settlement gain of $5.6 million
resulting from the resolution of a dispute regarding amounts charged for
inventory purchases and transition services through 2016 following our
December 2013 acquisition of the obesity intervention division of
Allergan, Inc. Excluding this gain, total operating expenses decreased
$1.4 million due largely to lower amortization expense resulting from
the reduction in our intangible assets after the recent divestiture of
our Surgical products.

Net loss for the first quarter 2019 was $2.8 million compared to $8.1
million for the first quarter 2018. The reduction in net loss was
primarily due to the one-time settlement gain. Excluding this one-time
gain, net loss would have been $8.4 million, an increase of $0.3 million
due largely to lower Surgical product sales following our December 2018
divestiture, partially offset by the reduced amortization expense
mentioned previously.

Cash, cash equivalents and restricted cash were $31.0 million as of
March 31, 2019.

Conference Call

Apollo will host a conference call on May 2, 2019 at 3:30 p.m. Central
Time / 4:30 p.m. Eastern Time to discuss Apollo’s operating results for
the first quarter ended March 31, 2019.

To participate in the conference call dial (866) 393-4306 for domestic
callers and (734) 385-2616 for international callers. The conference ID
number is 7094276. A live webcast of the conference call will be made
available on the “Events and Presentations” section of our Investor
Relations website: www.ir.apolloendo.com.

A replay of the webcast will be made available on Apollo’s website, www.apolloendo.com
following the event.

Non-GAAP Financial Measures

To supplement our financial results we are providing a non-GAAP
financial measure, percentage revenue change in constant currency, which
removes the impact of changes in foreign currency exchange rates that
affect the comparability and trend of revenues. Percentage revenue
change in constant currency is calculated by translating current foreign
currency sales at last year’s exchange rate. This supplemental measure
of our performance is not required by, and is not determined in
accordance with GAAP.

We believe the non-GAAP financial measure included herein is helpful in
understanding our current financial performance. We use this
supplemental non-GAAP financial measure internally to understand, manage
and evaluate our business, and make operating decisions. We believe that
making non-GAAP financial information available to investors, in
addition to GAAP financial information, may facilitate more consistent
comparisons between the company’s performance over time with the
performance of other companies in the medical device industry, which may
use similar financial measures to supplement their GAAP financial
information. However, our non-GAAP financial measure is not meant to be
considered in isolation or as a substitute for the comparable GAAP

About Apollo Endosurgery, Inc.

Apollo Endosurgery, Inc. is a medical technology company focused on less
invasive therapies to treat various gastrointestinal conditions, ranging
from gastrointestinal defect repairs to the interventional treatment of
obesity. Apollo’s device-based therapies are an alternative to invasive
surgical procedures, thus lowering complication rates and reducing total
healthcare costs. Apollo’s products are offered in over 70 countries
today and include the OverStitch™ Endoscopic Suturing System, the
OverStitch Sx™ Endoscopic Suturing System, and the ORBERA® Intragastric

Apollo’s common stock is traded on Nasdaq Global Market under the symbol
“APEN”. For more information regarding Apollo Endosurgery, go to: www.apolloendo.com.

Cautionary Note on Forward-Looking Statements

Certain statements in this press release are forward-looking statements
that are subject to risks and uncertainties that could cause results to
be materially different than expectations. Important factors that could
cause actual results to differ materially include: the advancement of
Apollo products; development of enhancements to Apollo’s existing
products and technologies; market acceptance of Apollo’s products; the
execution of our gross margin improvement projects; the ability to
collect future payments from ReShape; and statements relating to the
availability of cash for Apollo’s future operations; Apollo’s ability to
support the adoption of its products and its ability to broaden its
product portfolio as well as other factors detailed in Apollo’s periodic
reports filed with the Securities and Exchange Commission, or SEC,
including its Form 10-K for the year ended December 31, 2018. Copies of
reports filed with the SEC are posted on Apollo’s website and are
available from Apollo without charge. These forward-looking statements
are not guarantees of future performance and speak only as of the date
hereof, and, except as required by law, Apollo disclaims any obligation
to update these forward-looking statements to reflect future events or

Disclosure Information

Apollo uses the investor relations section of its website as a means of
complying with its disclosure obligations under Regulation FD.
Accordingly, we recommend that investors should monitor Apollo’s
investor relations website in addition to following Apollo’s press
releases, SEC filings, and public conference calls and webcasts.

Condensed Consolidated Statements of Operations
(In thousands, except for share data)
Three Months Ended March 31,
    2019     2018
Revenues (1) $ 13,211 $ 15,743
Cost of sales $ 5,970   $ 6,553  
Gross margin $ 7,241   $ 9,190  
Operating expenses:
Sales and marketing $ 7,697 $ 9,245
General and administrative $ 3,717 $ 3,319
Research and development $ 3,428 $ 2,456
Amortization of intangible assets $ 553 $ 1,802
Settlement gain $ (5,609 ) $  
Total operating expenses $ 9,786   $ 16,822  
Loss from operations $ (2,545 ) $ (7,632 )
Other expenses:
Interest expense, net $ 959 $ 960
Other income $ (751 ) $ (516 )
Net loss before income taxes $ (2,753 ) $ (8,076 )
Income tax expense $ 51   $ 58  
Net loss $ (2,804 ) $ (8,134 )
Net loss per share, basic and diluted $ (0.13 ) $ (0.47 )
Shares used in computing net loss per share, basic and diluted (2) $ 21,907,281 $ 17,299,414
(1)   Comparability between periods includes $3.5 million decrease in
Surgical product sales resulting from the divestiture of the
Surgical business in December 2018.
(2) In June 2018, 4.3 million common shares were issued upon completion
of a public offering.
Product Sales by Product Group and Geographic Market
Unaudited (In thousands)
Three Months Ended
March 31, 2019
Three Months Ended
March 31, 2018
% Increase / (Decrease)
U.S.     OUS    


U.S.     OUS    


U.S.     OUS    


ESS $3,007 $3,491 $6,498 $2,497 $3,270 $5,767 20.4 % 6.8% 12.7%
IGB $1,459 $2,863 $4,322 $1,611 $2,918 $4,529 (9.4) % (1.9)% (4.6)%
Total Endo-bariatric $4,466 $6,354 $10,820 $4,108 $6,188 $10,296 8.7 % 2.7% 5.1%
% Endo-bariatric 41.3% 58.7% 39.9% 60.1%
Surgical $— $1,700 $1,700 $2,938 $2,266 $5,204 (100.0) % (25.0)% (67.3)%
Other $683 $8 $691 $233 $10 $243 193.1 % (20.0)% 184.4%
Total revenues $5,149 $8,062 $13,211 $7,279 $8,464 $15,743 (29.3) % (4.7)% (16.1)%

Product sales change in constant currency for the three months
ended March 31, 2019 were as follows:


in Constant



ESS 13.5% 16.5%
IGB 5.0% (0.1)%
Total Endo-bariatric 9.5% 9.2%
Surgical (19.3)% (64.9)%
Other (10.0)% 184.8%
Total revenues 1.8% (12.6)%


Apollo Endosurgery, Inc.
John Gillings, Investor Relations,

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