Apollo Endosurgery Reports Second Quarter 2017 Results

AUSTIN, Texas--(BUSINESS WIRE)--Apollo Endosurgery, Inc. ("Apollo") (NASDAQ: APEN), a leader in less invasive medical devices for bariatric and gastrointestinal procedures, today announced financial results for the second quarter ended June 30, 2017.

Second Quarter Highlights

• GAAP total revenues declined 1.2% compared to the second quarter 2016
• Non-GAAP adjusted total revenues, excluding U.S. Orbera® starter kit sales, increased 3.6% compared to the second quarter 2016
• Total Endo-bariatric sales increased 13.0% compared to the second quarter 2016 and 55.5% of total revenues
• Endo-bariatric revenues, excluding U.S. Orbera starter kit sales, increased 25.7% compared to the second quarter of 2016

Todd Newton, CEO of Apollo Endosurgery, said, “The second quarter provided positive signs that we are approaching that inflection point where our growth in Endo-bariatric product sales will overtake the maturation of our Surgical product sales. Endo-bariatric product sales were $9.5 million or 55.5% of our total sales in the second quarter, representing a worldwide growth rate of 13.0% over the second quarter of last year before any adjustments for starter kits sold as part of the U.S. Orbera launch. This is a solid result for Apollo and we are pleased with the momentum that we are building.”

Second Quarter 2017 Financial Results

Total revenues for the three and six months ended June 30, 2017 were $17.1 million and $31.8 million, respectively, compared to $17.3 million and $33.6 million for the same periods in 2016. As part of our U.S. Orbera launch strategy, we sold starter kits to accounts interested in offering Orbera that were shipped following the physician's completion of our Orbera educational training. The first half of 2016 was a very active period for U.S. physician training for Orbera, and as a result starter kit sales were $1.1 million and $3.2 million in the three and six months ended June 30, 2016, respectively. In the first half of 2017, U.S. Orbera starter kit sales were $0.3 million and $0.6 million in the three and six months ended June 30, 2017, respectively. Excluding U.S. Orbera starter kit sales, non-GAAP adjusted total revenues for the three and six months ended June 30, 2017 were $16.9 million and $31.2 million, compared to $16.3 million and $30.4 million for the same periods in 2016, an increase of 3.6% and 2.4%, respectively.

Total Endo-bariatric revenues were $9.5 million for the three months ended June 30, 2017, an increase of $1.1 million, or 13.0% compared to the second quarter of 2016. For the six months ended June 30, 2016, total Endo-bariatric revenues were $16.9 million, an increase of $0.2 million, or 1.4% compared to the six months ended June 30, 2016.

In the U.S., Endo-bariatric product sales, excluding U.S. Orbera starter kit sales were $3.8 million for the three months ended June 30, 2017 versus $2.9 million for the three months ended June 30, 2016, an increase of 30.6%, and $7.0 million for the six months ended June 30, 2017 versus $5.3 million for the six months ended June 30, 2016, an increase of 30.9%. The increase was due to higher Orbera reorder volumes and OverStitch™ sales. In markets outside the United States (OUS), Endo-bariatric product sales were $5.4 million for the three months ended June 30, 2017 versus $4.4 million for the three months ended June 30, 2016, an increase of 22.4%, and $9.3 million for the six months ended June 30, 2017 versus $8.1 million for the six months ended June 30, 2016, an increase of 14.6% primarily due to higher OverStitch sales.

Surgical product sales decreased $1.4 million, or 15.5%, and $2.2 million, or 13.2%, for the three and six months ended June 30, 2017, respectively, when compared to the same periods in 2016. In the U.S., Surgical product sales decreased $1.1 million or 18.1%, and $2.1 million or 18.6%, for the three and six months ended June 30, 2017, respectively, when compared to the same periods in 2016 due to reductions in gastric banding procedures being performed in the U.S. In OUS markets, Surgical product sales decreased by $0.3 million, or 10.5%, and $0.2 million, or 2.8%, for the three and six months ended June 30, 2017, respectively, when compared to the same periods in 2016.

Gross margin as a percentage of revenues was 61.3% and 63.1% for the three and six months ended June 30, 2017 compared to 47.0% and 58.0% for the same periods in 2016. Cost of sales includes inventory impairment charges of $3.2 million for both the three and six months ended June 30, 2016, compared to $0.1 million and $0.2 million for the three and six months ended June 30, 2017. Excluding the impact of the inventory impairment charges, gross margin was 61.8% and 63.6% for the three and six months ended June 30, 2017, compared to gross margin of 65.5% and 67.6% for the three and six months ended June 30, 2016. The decline in gross margin excluding the impact of inventory impairment charges was due to the ongoing shift in our product sales mix from higher gross margin Surgical products to Endo-bariatric products that realize lower relative gross margins.

Total operating expenses were $16.0 million and $32.3 million for the three and six months ended June 30, 2017, respectively, compared to $14.4 million and $28.8 million for the same periods in 2016. The increase is primarily due to higher costs incurred to meet our public company filing and corporate governance obligations. Research and development expenses also increased due to costs associated with new product development efforts.

Interest expense decreased $1.5 million and $2.8 million during the three and six months ended June 30, 2017 when compared to the same periods in 2016 primarily due to the elimination of non-cash interest of $1.2 million and $2.4 million, respectively, associated with convertible notes that converted to equity in December 2016 and reduced cash interest on our senior secured credit facility after principal reductions.

Net loss for the three and six months ended June 30, 2017 was $6.9 million and $15.1 million, respectively, compared to $9.5 million and $15.5 million for the same periods in 2016.

Cash, cash equivalents and restricted cash were $6.2 million as of June 30, 2017.

Capitalization Update

On July 25, 2017, we completed a public offering selling 6,542,453 shares at a price of $5.50 per share, including 853,363 shares sold to the underwriters upon the full exercise of the over-allotment option to purchase additional shares, before the underwriting discount. We estimate that the public offering will generate net proceeds of approximately $33.6 million, after deducting the underwriting discount and estimated offering expenses.

Conference Call

Apollo will host a conference call on Tuesday, August 1, 2017 at 3:30 p.m. Central Time / 4:30 p.m. Eastern Time to discuss the Company's operating results for the second quarter ended June 30, 2017.

To participate in the conference call dial (877) 548-7914 for domestic callers and (719) 457-6931 for international callers. The conference ID number is 2382032.

A telephonic replay of the call will be available until August 8, 2017. The replay dial-in numbers are (844) 512-2921 for domestic callers and (412) 317-6671 for international callers. The replay conference ID number is 2382032. A transcript of the earnings call will be made available on the "Events and Presentations" section of our Investor Relations website: ir.apolloendo.com.