On August 4, 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 second quarter ended June 30, 2020.
Second Quarter 2020 and Recent Highlights (Press release, Apollo Endosurgery, AUG 4, 2020, View Source [SID1234562805]).

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•As pre-announced, second quarter revenue was $5.6 million, a decrease of approximately 60% compared to the second quarter of 2019, reflecting the sharp decline in healthcare utilization triggered from the second half of March through April due to the COVID-19 pandemic, followed by progressively recovering market conditions in May and June
•Implemented cost reduction initiatives in anticipation of a decline in second quarter sales due to the COVID-19 pandemic. As a result, second quarter cash used in operating and investing activities was consistent with pre-pandemic quarterly levels
•Submitted a 510k for the X-Tack Endoscopic HeliX Tacking System for the Treatment of Gastrointestinal Defect Closures
•Completed a $25 million equity financing which combined with reduced minimum liquidity requirements under the amended Loan and Security Agreement with Solar Capital Ltd. ("Solar") increased corporate liquidity by $32.5 million
Todd Newton, CEO of Apollo, said, "The COVID-19 pandemic had a significant impact on sales in the second quarter, but after the initial slowdown in April we have been on a recovery path. This recovery was particularly visible in the United States where June 2020 product sales were close to 90% of our June 2019 product sales level. In July, the recovery has continued with sales in our direct markets exceeding sales from July of last year.
"We took immediate actions to preserve the interests of our shareholders by aggressively reducing cash expenditures at the beginning of the second quarter, while still pursuing our most important development programs such as the X-Tack program. X-Tack is designed to enhance an endoscopist’s ability to address the closure challenges of large or irregularly shaped defects, whether encountered in the upper or lower GI tract, and meaningfully expands our addressable market. Additionally during the quarter, the Mayo Clinic published results from an IDE study using Orbera for the treatment of NASH. The Mayo study reported 65% of patients achieved resolution of NASH at 6 months. Lastly, the MERIT study continues to progress although planned activities at certain of the study sites were delayed due to COVID-19 factors. We believe that these and other efforts will open new avenues for revenue growth in the future."
Stefanie Cavanaugh, Apollo’s Chief Financial Officer, said, "We set an aggressive goal to match the anticipated reduction in revenue this quarter with reduced operating expenses as part of our COVID-19 response plan and keep cash use at a level consistent with pre-pandemic quarters. We met this goal. Also, we further reduced our market risk by concurrently raising $25 million of equity and securing beneficial covenant amendments from our lender. We will remain diligent to calibrate our cash expenditures with the pace of our business recovery."
Second Quarter Results
Worldwide Endoscopy product sales were $5.4 million for the second quarter of 2020, a decrease of 56% compared to the second quarter of 2019. The decline reflects the significant disruption of healthcare resource utilization worldwide from the COVID-19 pandemic.
U.S. Endoscopy sales decreased 40% to $3.1 million for the second quarter of 2020 and outside the US ("OUS") Endoscopy sales decreased 68% to $2.2 million. Between our two OUS sales channels, direct market Endoscopy sales decreased 63% while sales to distributors declined 76% compared to the second quarter of 2019.
ESS product sales represented 67% of total Endoscopy sales for the second quarter of 2020, compared with 63% for the second quarter of 2019.
Total revenue for the second quarter of 2020 was $5.6 million, a decline of 60% from $14.3 million in the prior year second quarter. Revenue reported in the second quarter of 2019 included $1.9 million related to transition services rendered in that period for the Surgical product line which was divested in December of 2018. In the second quarter of 2020, revenue from transition services were only $0.2 million.

Gross margin for the second quarter of 2020 was 43% as $0.5 million of unabsorbed overhead costs from reduced production volumes were charged to our cost of sales in the quarter. Gross margin in the second quarter of 2019 was 50%.
Total operating expenses decreased $7.6 million, or 53%, for the second quarter of 2020 due to the liquidity preservation program implemented in response to the COVID-19 pandemic.
Net loss for the second quarter of 2020 declined 29% to $6.3 million compared to $8.8 million for the second quarter of 2019.
Cash, cash equivalents and restricted cash were $19.7 million as of June 30, 2020.
Conference Call
Apollo will host a conference call on August 4, 2020 at 3:30 p.m. Central Time / 4:30 p.m. Eastern Time to discuss operating results for the second quarter ended June 30, 2020. To join the conference call by telephone, please dial +1-862-298-0970. 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 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, Endoscopy product sales percentage change in constant currency, which removes the impact of changes in foreign currency exchange rates that affect the comparability and trend of our Endoscopy product sales compared to the same period of the prior year. Endoscopy product sales percentage 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.