Good afternoon, ladies and gentlemen, and welcome to the Apollo Endosurgery First Quarter 2022 Results Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Matt Kreps. Sir, the floor is yours.

Thank you, John. And thank you everyone for participating in today's call to discuss Apollo's first quarter 2022 financial and operating results. Joining me on the call are Chas McKhann, Chief Executive Officer, and Jeff Black, our Chief Financial Officer. Today's call will include slides to accompany the audio presentation. For those of you joining us by telephone-only, you can download a copy of the slides at our investor relations site, ir.apolloendo.com, and choosing Events and Presentations. Before we begin, I’d like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of federal securities laws, including Apollo's financial outlook and Apollo's plans and timing for product development and sales. In addition, there is uncertainty about the continued spread of COVID-19 virus and the ongoing impact it may have on our operations, the demand for our products, global supply chains, and economic activity in general. These forward-looking statements involve material risks and uncertainties, and Apollo's actual results may differ materially. For a discussion of risk factors, I encourage you to review the company's most recent annual report on Form 10-K and our most recent Form 10-Q. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 3, 2022. Except as required by law, Apollo undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call. Additionally, today's discussion will include certain non-GAAP financial measures, which we believe provide an additional tool for evaluating the company's core performance. Management uses these metrics in its own evaluation of continuing operating performance, and as a baseline for assessing the future earnings potential of the company. Included in our press release issued today is our financial results and corresponding 8-K filing, our supplemental tables reconciling non-GAAP figures to their closest GAAP comparable. And now I'd like to turn the call over to Chas.

Thank you, Matt, and thank you, everybody, for joining us here today. We really appreciate it. So look, we are about a year into a new strategy to transform Apollo. I'm really excited about the progress that we've made in a relatively short period of time. We've repositioned the company to go after larger market opportunities, and we're building a much stronger organization that's poised to capitalize on those opportunities as we focus on energizing the business and then over the course of this year, moving into an acceleration mode and eventually building leadership positions in the markets we serve. This afternoon, we reported solid performance for the first quarter of the year with sales of $16.7 million, and that was even in the face of the Omicron wave that impacted a lot of companies and procedures around the world, as well as other global macroeconomic challenges, which we'll refer to over the course of the call. But despite that, and I'll highlight some of the key points for the quarter, we achieved 20% year-on-year growth. It was well-balanced growth. It was 24% in our ESS franchise, that's our OverStitch device and our X-Tack product. We also achieved 16% growth with our intragastric balloon franchise, showing nice balance across our products. This quarter, our growth was primarily driven by the US with 33% growth in the US, 40% for the IGB franchise, 34% for ESS, indicating strong performance in the US. An interesting fact here over what we've observed is that our top 10 accounts grew by 63% year-on-year. These are not distributors, they're individual accounts, and the average sales in those top 10 accounts is around $1 million annualized. This highlights what we can achieve when our customers incorporate Apollo's products into their clinical practice and make it a focus of patient care. Additionally, we achieved 14% sequential growth in the number of ordering accounts for X-Tack in the US, as well as sequential growth in X-Tack sales quarter-on-quarter. While delivering on a strong quarter, we remain focused on a broader set of priorities for the year, both delivering on the near term and building the foundation for growth in the years to come. Our four main priorities include first, expanding our core GI business and defect closure and fixation, inclusive of both OverStitch and X-Tack. This involves training new users, continuing to build adoption, and preparing for the CE mark approval of X-Tack outside the US. Second, leveraging the resurgence in ORBERA. The intragastric balloon franchise has done well, and we want to ensure its sustainable growth. Third, preparing for the launch of Apollo ESG and Apollo REVISE and working through the FDA for regulatory clearance. Lastly, building the organization with the right capabilities to pursue these opportunities. Jeff is going to provide some updates on the financial results for the quarter, after which I'll talk through each of these four priorities to provide updates on how we're doing against them.

Thank you, Chas, and thank you everyone for joining the call today. As Chas said, I'll spend a few minutes here on a little bit of a deeper dive into the financials and then turn it back over to Chas for a more detailed business update. Starting with slide 7 on revenue, there was again strong year-over-year growth across our product portfolio, marking our fifth consecutive quarter of double-digit growth. Excluding the legacy Lap-Band business, this was the largest revenue quarter on record for Apollo. We saw a 33% growth in the US, indicating traction and increased productivity from our planned investments, specifically the expansion of the sales force, while still in early stages. However, we also noticed a continued strength in ORBERA on the heels of enhanced marketing efforts, and there remain some lingering effects of COVID on hospital access and staffing, particularly in academic hospitals, where our core GI business is typically very strong. Our growth outside the US was 6%, with strong demand in distributor markets, though it was offset by pressure in concentrated direct markets, especially in Western Europe. Significant foreign currency impacts also played a role; particularly, the euro presented a nearly $300,000 impact on year-over-year growth. On a constant currency basis, our OUS growth was 10%, and global growth was 22%. Given that international sales represent more than 40% of our overall revenue, we're disproportionately impacted by negative foreign currency effects compared to similarly sized Medtech companies that typically don't have such a large OUS footprint. In terms of outlook for 2022, we continue to expect revenue between $73 million to $75 million while being cognizant of potential global recessionary impacts, lingering pandemic headwinds, and foreign currency pressures from a strengthened dollar, especially for the euro, which represents nearly half of our OUS revenue. Moving to gross margin on Slide 8, gross margin improved by 210 basis points over a year ago, driven by a higher ORBERA mix as well as margin expansion on our ESS product lines. We are seeing the impact of our 2021 OverStitch COGS improvement projects, improved overhead efficiencies, and some price increase impacts for both OverStitch and X-Tack. This margin expansion in the US was offset by a higher mix of distributor sales, OUS, which typically have a lower gross margin profile. We remain focused on continued gross margin improvements, especially with OverStitch, which has a lower gross margin profile than ORBERA and X-Tack. Major drivers of gross margin expansion in the future will be product mix, improved overhead absorption, and direct COGS improvement programs concentrated primarily on OverStitch. While we're facing supply chain and manufacturing scale-up complexities, we remain confident that we will drive blended gross margins to the mid-60% range in the next three to five years. Moving to OpEx on Slide 9, we think it's crucial to exclude non-cash stock-based compensation to get a clearer picture of our non-GAAP core operating run rate. As we've said, 2022 is an investment year for us, focusing on building capabilities following historical underinvestment in the business. The greatest area of increased investment is in sales and marketing in the United States. As of the fourth quarter, our non-GAAP sales and marketing OpEx was roughly 48% of revenue, reflecting our planned investments in growth initiatives, primarily building out the channel and marketing programs as we prepare for the anticipated launch of our ESG products. We've made significant progress expanding our commercial team, growing from just under 30 in the field at the end of 2021 to 30 territory managers and two regional Endobariatric managers at the end of Q1. This team is ramping up, and we anticipate productivity improvements as they gain territory and experience with our products and customers. We're continuing to evaluate the scale of our commercial team and will invest as necessary. Other focused areas of planned investments include R&D, medical education, clinical reimbursement, product development, and simply improving our gross margin. On the G&A side, we will continue to thoughtfully invest in infrastructure and staff to properly support the business while expecting the heaviest investment in both sales and marketing and R&D. It's worth noting that we have the ability to modulate spend as appropriate and are well-positioned from a balance sheet perspective to make these investments. Moving now to our balance sheet on slide 10, as you may recall, last year we secured over $175 million in new capital and borrowing capacity, enabling us to begin making the investments required to capitalize on the opportunities in front of us without creating concern about cash runway. As we anticipated, we saw a planned up-tick in cash burn in Q1 relative to 2021, notably, nearly 1/3 of that burn was $2.9 million in working capital representing the pay down of 2021 year-end accruals and inventory builds to support expected growth in demand for our products. Even with our planned increase in average quarterly burn, we're very well positioned to execute on our planned growth initiatives with nearly $150 million in cash and committed cash at the end of Q1. And with that, I'll turn it back over to Chas.

Thank you, Jeff. So turning to Slide 12, just a quick reminder for those who are new to Apollo, we've got our three different product lines: our X-Tack product, OverStitch, and the ORBERA intragastric balloon, which focus on two different therapeutic areas: our advanced GI focus as well as endobariatric or endoscopic weight loss. As you’ll see on Slide 13, we're focused on large market opportunities and developing from a product standpoint, but also clinical development and reimbursement. I mentioned our four priorities across the business for the year. First, on the core GI, the defect closure and fixation side of our business. We've got OverStitch, which is a unique product primarily focused on full thickness suturing in the upper GI. We are continuing to work to build and develop the defect closure side of the business with OverStitch, training new users as well as expanding the different applications that customers use OverStitch for, ensuring they apply this product in a wide range of settings, resulting in positive patient care impacts. This is true also outside the U.S., where the core GI business has been a lower percentage of our overall business for OverStitch. We're executing plans to build that business segment outside the U.S. We then add X-Tack, a product that fills an important therapeutic gap between Through-the-scope clips and OverStitch regarding complexity, size, and durability of fixation. We've launched X-Tack recently and continue to see good progress with customers. We're refining our targeting and focusing on high-volume centers, developing our sales training. As Jeff mentioned, we have a relatively new sales force, with more than half of the reps in the U.S. hired within the last year. We're continuing to build clinical evidence and will be represented at the upcoming Digestive Disease Week Meeting, the largest GI meeting in the world. We're excited about the peer-to-peer marketing programs and international launches for X-Tack, focusing on obtaining CE Mark clearance for commercial use. Furthermore, we want to ensure the momentum with ORBERA is sustainable as it has shown tremendous growth.

We have observed a positive turnaround in ORBERA with increased sales and sustained growth potential. We aim to capitalize on the macro factors post-pandemic as more individuals seek solutions for weight management. Furthermore, the endorsement from major societies has improved product credibility significantly, which is critical in the competitive landscape. We are enhancing our training efforts and marketing strategies, particularly for ORBERA, which has gained momentum. Outside of the U.S., we are also seeing competitive wins that contribute to ongoing growth. Our broader strategy includes preparing for the launches of Apollo ESG and Apollo REVISE, both of which require robust planning and engagement with leading physician societies to integrate these new procedures into the continuum of care. We are actively learning from our early adopters, focused on effective training, educational engagements, and reimbursement strategies. We are successfully collaborating with thought leaders to ensure patient outcomes are optimized. We expect the upcoming Digestive Disease Week (DDW) meeting to showcase Apollo's products significantly, bringing new clinical data to the forefront and highlighting both current and innovative applications for our products.

This is our first opportunity to hold the DDW meeting in person after a couple of years of virtual meetings, and the excitement is palpable, especially as we discuss our significant presence at DDW, with over 40 posters and video presentations and more than 60 lectures featuring our products. Notable presentations will reveal important clinical data, including the MERIT study, which involves testing the ESG procedure compared to diet and exercise. Moreover, we anticipate additional presentations on the impact of ESG on patients with Class III obesity along with comorbidity information. This demonstrates the growing importance and utility of endoscopic therapies in the market. We also expect to have key discussions on defect closure practices with OverStitch and case studies from X-Tack at the meeting, capturing the attention of our medical community participants.

Thank you. Ladies and gentlemen, the floor is open for questions. Okay. The first question is coming from Matt Hewitt with Craig-Hallum Capital. Your line is live.

Thank you. Congratulations on the strong quarter, kind of bucking the normal seasonal pattern, especially given the headwinds you faced in January from COVID. My first question regards progress with X-Tack. Last quarter, you really started to focus on your desire to drive utilization. During your prepared remarks, you mentioned 14% growth, if I heard you correctly. Do you have a target that you're hoping to hit from a utilization standpoint, or how should we be looking at that over the remainder of this year and going forward?

Thank you, Matt. We are pleased with sequential growth, both in new accounts and overall utilization with X-Tack. That growth occurred despite some seasonal patterns and the significant impact of COVID in the first part of the quarter. The environment improved as the quarter progressed, consistent with trends observed across the med-tech industry. We will look to maintain continuous quarter-on-quarter growth, especially as our newer reps gain experience and new data emerges. Our aim for sustained sequential growth remains strong, and we're focused on maximizing productivity.

Understood. In recent weeks, I've heard discussions about how much of Q1 saw a rebound back to normal, or if there was some backlog to work through. Can you clarify what you're observing now through April? Are we back to normal growth rates for the business going forward?

It's a good question, Matt. We certainly observed an impact last year and early this year. While we saw an improvement over the quarter, it varies by segments and markets. Unlike the instant rebound seen in orthopedics, our growth came back gradually, particularly in larger academic medical centers and equivalents in Europe. Those centers are improving, albeit slowly, as they manage staffing challenges compounded by the pandemic. So we are seeing good gradual improvements, but not a dramatic snapback.

Got it. One last question from me regarding how staffing issues on the hospital side might create opportunities for you. If doctors are transitioning between practices, does that provide an opportunity for you to bring in new accounts for training on OverStitch, ORBERA, and X-Tack? Are you seeing any benefits from staffing issues among healthcare professionals?

Let me clarify two things. The more significant constraints we've witnessed have been among nurses rather than physicians. This situation has improved, but the impacts post-COVID remain apparent. We have seen some movement among physicians, which offers opportunities as they transition. Our focus remains on training new users across our products and ensuring their comfort while promoting broader usage across diverse procedures.

Next question is coming from Adam Maeder with Piper Sandler. Your line is live.

Hi, Charles and Jeff, this is Simran on for Adam. Congrats on a great quarter. As for the business exiting Q1, there's some momentum with recovery. How should we think about models in Q2 and the quarterly cadence for the rest of the year?

We’ve been investing, as Jeff mentioned, in various growth areas. We're looking to see results from these investments. We witnessed encouraging results in Q1 and anticipate continued progression. To meet our guidance for the year, it's essential that we sustain this growth, including order patterns outside the U.S., and we feel good about the trajectory we are on.

Is there any meaningful impact you expect from new product launches this year regarding ESG, REVISE, or OverStitch in Japan?

For ESG and REVISE, we submitted to the FDA last year, and typical de novo 510(k) processes take about a year. While variations can exist, we are preparing for the launch and hope to see progress in the second half. The X-Tack launch outside the U.S. may take longer due to evolving regulations in Europe; thus, we anticipate an industry shift impacting timelines. We are also pleased to have received clearance for OverStitch in Japan, which we believe will positively influence our U.S. business significantly.

What insights can you share on supply chain dynamics and gross margin expectations this year, especially regarding OverStitch improvements?

We don't expect to see a drastic step change in margin. Instead, the improvement will be gradual. What we observed in Q1 occurred due to a mix of overhead efficiency and the positive impacts of cost improvement projects executed last year. Overall supply chain challenges have mainly been connected to capacity and staffing at our contract manufacturers, rather than shortages or pricing pressures.

Thank you for answering my questions.

Thank you.

Up next, we have Chris Cooley with Stephens. Your line is live.

Good afternoon and congratulations on a strong start to the year. I have two quick questions. First, regarding your top 10 accounts, impressive growth from $600,000 at year-end to approximately $1 million. Can you categorize these accounts? I assume they are mainly endobariatric practices, but what drives this growth, and how do you scale beyond these top 10 accounts?

We're thrilled with the progress from our larger accounts; they're a mix of both endobariatric and more traditional users, including major academic centers. Many early adopters have shown enthusiasm for our brand, particularly as they see positive responses from patients in weight management solutions. We aim to replicate this success beyond the current accounts by expanding training and support for new users, aiming for a similar effect across a broader base.

Regarding X-Tack, there's been a deceleration in growth from 70% in Q3 to 40% in Q4 and now 14%. Can you help explain this trend, especially given the challenges such as COVID and the gains from the MERIT study?

You're right; multiple factors drive fluctuations in growth. Early launch stages often reflect stocking at new accounts, while growth shown later reflects evolving utilization patterns. We see incremental growth in utilization, but the focus remains on improving quarter-over-quarter performance. Enhanced performance, clinical validation, and new information around X-Tack will play crucial roles in sustaining this trajectory.

Thanks, guys.

I would now like to turn the floor back to Chas McKhann for closing remarks.

Thank you all very much for joining us today. We appreciate your time and support. On this slide, we have information on upcoming activities. We look forward to your participation. Once again, thank you for your time today.

Thank you, ladies and gentlemen. This concludes today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.