On November 1, 2022 Apollo Endosurgery, Inc. ("Apollo") (NASDAQ:APEN), a global leader in less invasive medical devices for gastrointestinal and bariatric procedures, reported financial results for the third quarter ended September 30, 2022 and recent corporate highlights (Press release, Apollo Endosurgery, NOV 1, 2022, View Source [SID1234622689]).

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Third Quarter and Recent Corporate Highlights

Grew third quarter 2022 U.S. revenue by 29% and OUS revenue by 9% (18% in constant currency) over the same period in 2021;
Grew third quarter 2022 Endoscopic Suturing System (ESS) revenue 41% (45% in constant currency) over the same period in 2021;
Increased third quarter 2022 revenue from the Company’s top 10 direct accounts by approximately 80% over the same period in 2021;
Secured FDA marketing authorizations for Apollo ESGTM and Apollo REVISETM, new endoscopic systems for treatment of patients with obesity (BMI 30-50 kg/m2); and
Announced publication of the landmark MERIT study for the Endoscopic Sleeve Gastroplasty procedure in The Lancet, demonstrating significant, durable weight loss results and an outstanding patient safety profile.
Said Chas McKhann, president and CEO, "The third quarter delivered record revenue and our seventh consecutive quarter of double-digit revenue growth. Our strong growth demonstrated continued acceleration in endobariatrics, where medical professionals are achieving clinically meaningful weight loss for patients with greatly reduced recovery time and side effect risk compared to traditional surgeries. We also expanded adoption in our G.I. defect closure business, particularly with our innovative X-Tack line, which has nearly doubled in revenue over last year and surpassed Orbera in third quarter revenue in the U.S."

"We also secured FDA marketing authorizations for our Apollo ESGTM and Apollo REVISETM endoscopic systems and announced publication of the landmark MERIT study in The Lancet," added McKhann. "These two milestones position Apollo to play a significant role in addressing the global obesity epidemic with clinically validated and relevant solutions backed by thousands of cases in the published clinical literature demonstrating excellent weight loss and safety profiles. Based on our strong operating results and important strategic milestones, we feel that Apollo is well positioned to revolutionize patient care in both G.I. health and obesity with advanced endoscopic solutions."

Financial Results for Third Quarter 2022

Total worldwide revenues increased 20% to $19.6 million for the third quarter of 2022, compared to $16.4 million in revenue during the third quarter of 2021. Revenue results in the third quarter include $0.7 million of foreign currency impact. On a constant currency basis, total revenue in the third quarter of 2022 increased 24% compared with the prior year third quarter. Compared to the third quarter of 2021, U.S. product sales increased 29% and OUS increased 9% (or 18% on a constant currency basis).

Compared to the third quarter of 2021, total ESS product sales increased $4.2 million, or 41%, due to the continued strong global demand for OverStitch and X-Tack products. Total IGB product sales decreased $0.9 million compared to the prior year quarter primarily due to summer seasonality and macroeconomic conditions impacting patient demand.

Gross margin was 55% for the third quarter of 2022, compared to 56% in the third quarter of 2021, reflecting foreign exchange headwinds, a lower revenue mix from IGB products, which have a higher gross margin profile, and a higher revenue mix from OUS distributors, which have a lower gross margin profile.

Total operating expenses increased $3.3 million compared to the third quarter of 2021. The increase primarily was due to the expansion of the U.S. salesforce and increased marketing to drive revenue growth as the Company scales the business and targets sales growth and product utilization.

Net loss for the third quarter of 2022 was $11.4 million compared to $6.7 million for the third quarter of 2021, including changes in unrealized foreign exchange of $3.3 million between periods.

Non-GAAP adjusted EBITDA, which excludes interest, taxes, depreciation, amortization, unrealized foreign exchange and stock-based compensation, in the third quarter 2022 was a loss of $3.6 million, compared to a loss of $2.5 million in the third quarter 2021.

The Company had $132.9 million in cash and committed cash at September 30, 2022, including cash, cash equivalents and restricted cash of $67.9 million and $65.0 million of future draws available under the Company’s credit facility with Innovatus Capital Partners should the Company meet certain milestones.

2022 Outlook

The Company is raising its fiscal year 2022 revenue guidance to be in the range of $75 million to $76 million, inclusive of up to $3 million in foreign currency headwinds. The Company continues to monitor the potential and uncertain impact of adverse economic conditions in the U.S. and OUS. Continued or sustained COVID-19 pandemic, inflationary or recessionary pressures could impact the Company’s ability to achieve these financial projections.

Conference Call

Apollo will host a live webcast audio call with slides today at 3:30 p.m. CT / 4:30 p.m. ET. Investors are invited to join the live call via webcast from the Investors section of the Company’s corporate website at www.apolloendo.com. An audio-only option is available is available by dialing +1-973-528-0011 and referencing access code 399827 or the "Apollo Endosurgery Third Quarter 2022 Earnings Call." Investors who opt for audio-only will need to download the related slides at www.apolloendo.com.

A replay of the webcast will be made available on Apollo’s website, www.apolloendo.com, shortly after completion of the call.

Non-GAAP Financial Measures

To supplement the Company’s financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company reports certain non-GAAP financial measures, including non-GAAP adjusted operating expenses, non-GAAP Adjusted EBITDA and non-GAAP product sales percentage change in constant currency. Adjusted operating expense is calculated as operating expense less stock-based compensation. Adjusted EBITDA is calculated as GAAP net loss, plus depreciation and amortization, interest expense, net, income tax expense, stock-based compensation, unrealized foreign exchange, and gain on forgiveness of PPP loan. Product sales percentage change in constant currency is calculated by translating current foreign currency sales at last year’s exchange rate. These supplemental measures of the Company’s performance are not required by, and are not determined in accordance with GAAP. The Company believes that these non-GAAP financial measures provide investors with an additional tool for evaluating the Company’s core performance, which management uses in its own evaluation of continuing operating performance, and a baseline for assessing the future earnings potential of the Company. The Company’s non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in the Company’s industry, as other companies in the industry may calculate non-GAAP financial results differently. Non-GAAP financial results should be considered in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Included in the supplemental tables to this press release is a reconciliation of non-GAAP adjusted EBITDA to GAAP net loss.