On March 26, 2020 Apollo Endosurgery, Inc. ("Apollo") (Nasdaq: APEN), a global leader in less invasive medical devices for gastrointestinal and bariatric procedures, reported financial results for the fourth quarter and year ended December 31, 2019 (Press release, Apollo Endosurgery, MAR 26, 2020, View Source [SID1234555866]). The Company will hold a conference call today at 3:30 p.m. CT / 4:30 p.m. ET to discuss its results.

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Highlights
•Fourth quarter U.S. OverStitch Endoscopic Suturing System ("ESS") sales increased 33% to $4.4 million
•Fourth quarter U.S. Endoscopy sales increased 31% to $5.6 million
•Worldwide ESS sales for the full year 2019 increased 21% (23% in constant currency) to $28.3 million, representing 63% of our Endoscopy sales
•Fourth quarter Orbera Intragastric Balloon System ("IGB") sales increased 23% in the U.S. and 11% (13% in constant currency) worldwide
Todd Newton, CEO of Apollo, said, "The Endoscopic Suturing market developed rapidly in 2019 as evidenced by Apollo’s 36% revenue growth for ESS products in the U.S. and 21% growth worldwide. Clinical publications providing evidence of the many applications for our ESS technology continued to expand during 2019, and Apollo’s new single channel OverStitch device introduced in November 2018 is taking our technology to a broader group of physicians and locations. Our strategy in the near term is to withstand the unprecedented challenges presented by the COVID-19 pandemic, and then return our focus as swiftly as possible to increasing the user base of our technology and to improve our operating efficiency as we continue to scale the business."
Due to unprecedented global economic conditions and uncertainty resulting from the COVID-19 pandemic, the Company will not be providing an outlook for 2020 at this time. We are closely monitoring the global impact to the health systems where we conduct business and the slowdown in business activity related to COVID-19, and hope to provide better clarity about our outlook for 2020 on our first quarter results call. In response to the rapidly changing conditions resulting from the COVID-19 pandemic, we have taken steps to limit business activities, to limit spending and maintain only key business functions in order to continue to fulfill product orders and support our customers while also taking proactive measures to protect the health and safety of our employees and their families consistent with local guidelines.
U.S. ESS product sales increased 33% to $4.4 million in the fourth quarter of 2019 and 36% to $14.9 million in the full year of 2019. Outside the U.S. ("OUS") ESS product sales decreased 15% (13% in constant currency) to $3.0 million for the fourth quarter of 2019 due primarily to the timing of distributor orders, while increasing 8% (13% in constant currency) to $13.4 million in the full year of 2019. Worldwide, ESS product sales increased 8% (9% in constant currency) and 21% (23% in constant currency) for the fourth quarter and full year of 2019, respectively.
U.S. IGB sales increased 23% to $1.2 million for the fourth quarter of 2019 and decreased 4% to $5.2 million for the full year of 2019. OUS IGB product sales increased 7% (9% in constant currency) to $3.1 million and decreased 5% (2% in constant currency) to $11.7 million for the fourth quarter and full year of 2019, respectively. Our efforts to expand IGB therapy in the U.S. market and advance twelve-month therapy OUS improved in the fourth quarter leading to reported growth in both regions and lifting our full year results close to break even with the prior year. Worldwide, IGB sales increased 11% (13% in constant currency) and decreased 5% (3% in constant currency) for the fourth quarter and full year of 2019, respectively.
Worldwide Endoscopy product sales increased 9% (10% in constant currency) and 10% (12% in constant currency) for the fourth quarter and full year of 2019, respectively. ESS product sales represented 64% and 63% of total Endoscopy sales for the fourth quarter and full year of 2019, respectively. In the U.S., Endoscopy sales increased 31% to $5.6 million and 22% to $20.1 million for the fourth quarter and full year of 2019, respectively.
The divestiture of our Surgical products in December of 2018 reduced total revenues by $4.1 million and $13.7 million for the fourth quarter and full year of 2019, respectively. We divested the Surgical products line in order to strengthen Apollo’s focus on our Endoscopy products, which we believe have high growth potential.
Gross margin for the fourth quarter of 2019 was 49%, compared to 47% for the fourth quarter of 2018. Gross margin for the full year of 2019 decreased to 51% compared to 55% for the full year of 2018 as a result of a greater proportion of our overall product sales coming from our ESS products, which realize a lower gross margin than our other products. Management has previously discussed its ongoing gross margin improvement initiative.

Total operating expenses decreased $11.2 million to $12.7 million for the fourth quarter of 2019 and decreased $24.1 million to $49.2 million for the full year of 2019 compared to the same periods of 2018. Excluding the one-time $7.8 million loss on divestiture of our Surgical products in December of 2018, the subsequent reduction in intangible asset amortization expense of $1.2 million and $5.0 million for the fourth quarter and full year of 2019, respectively resulting from this divestiture and a one-time $5.6 million settlement gain reported in the first quarter of 2019, total operating expenses decreased $2.3 million and $5.7 million for the fourth quarter and full year of 2019, respectively. This reduction in recurring operating expenses was the result of lower U.S. direct to consumer advertising and lower clinical trial costs as enrollment or other milestones were reached on the clinical studies that the Company is funding.
Net loss for the fourth quarter of 2019 was $7.2 million compared to $18.4 million for the fourth quarter 2018. For the full year, net loss was $27.4 million in 2019 compared to $45.8 million in 2018.
Cash, cash equivalents and restricted cash were $30.9 million as of December 31, 2019.
Conference Call
Apollo will host a conference call on March 26, 2020 at 3:30 p.m. Central Time / 4:30 p.m. Eastern Time to discuss Apollo’s operating results for the fourth quarter and year ended December 31, 2019.
To participate in the conference call dial 844-369-8770 for domestic callers and +1-862-298-0840 for international callers. A live webcast of the conference call will be made available on the "Events and Presentations" section of our Investor Relations website: ir.apolloendo.com.
A replay of the webcast will remain available on Apollo’s website, www.apolloendo.com, following the call.
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 compared to the same period of the prior year. 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 metric.