Good afternoon, ladies and gentlemen and welcome to Apollo Endosurgery Second Quarter 2022 Results. 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, Matthew, and thank you everyone for joining today's call to discuss Apollo's second quarter 2022 financial and operating results. Joining me are Chas McKhann, Chief Executive Officer, and Jeff Black, Chief Financial Officer. Today's call will feature slides to accompany the audio presentation. For those joining by phone, you can download the slides from our Investor Relations site, ir.apolloendo.com, under Events and Presentations. Before we begin, I want to remind listeners that management's comments during this call will include forward-looking statements as defined by federal securities laws, which cover Apollo's major outlook and plans for product development and sales timing. Additionally, there remains uncertainty regarding the ongoing spread of the COVID-19 virus and its potential effects on our operations, product demand, global supply chains, and the economy as a whole. These forward-looking statements carry material risks and uncertainties, and actual results may differ significantly. I recommend reviewing the company's most recent annual report on Form 10-K and our latest Form 10-Q for a discussion of these risk factors. The information shared during this conference call is time-sensitive and accurate only as of the live broadcast on August 2, 2022. Unless required by law, Apollo has no obligation to revise or update any statements in light of events or circumstances that occur after this call. Moreover, today's discussion will include specific non-GAAP financial measures, which we believe serve as an additional tool for assessing the company's core performance. Management utilizes these metrics in evaluating ongoing operating performance and as a basis for determining the company's future earnings potential. Supplemental tables reconciling non-GAAP figures to their nearest GAAP equivalents are included in today's press release with our financial results and the corresponding 8-K filing. Now, I would like to hand the call over to Chas.

Thanks, Matt and good afternoon everyone, thank you for joining us. On today's call, I'll cover highlights of our Q2 performance. Jeff will then cover our financial results and I'll come back and talk to you in more detail about our recent milestones and launch plans for the Apollo ESG and the Apollo REVISE devices. So starting on Page 3 of our deck, our strategy has been to pursue large market opportunities and build an organization that is primed to capitalize on them. And I'm pleased to say that our recent performance has been good validation of this approach. Q2 was a solid quarter for us. We demonstrated revenue of $19.3 million in reported sales and just under $20 million in constant currency. This performance represents a really nice step-up compared to our recent sales levels and the growth has come ahead of two very recent and important catalysts that we've just announced in the last month, the FDA market authorization for the Apollo ESG and Apollo REVISE devices and publication just last week of the MERIT study in The Lancet. So turning to Page 5, where we've listed both constant currency growth on the left and then GAAP growth on the right. In Q2, we achieved 20% growth in constant currency and 16% year-on-year growth on a GAAP basis. Once again, our growth has been well balanced across both products and geographies. On a GAAP basis, ESS grew 23%, with strong growth in the U.S. of 22% and international growth of 24%. Our IGB franchise grew 6% on a reported basis, 7% in the U.S., 5% outside the U.S. so again, nice balance across the business and across geographies. As with any U.S.-based company that has a significant presence in Europe, foreign exchange has presented a headwind, it's important to note that Apollo unusual for a med tech company of our size has just under 45% of our sales from outside the U.S. and more than half of that is in Europe. Many of you will know that a year ago, the euro was at $1.20, it's now at $1.02. And so it has a significant impact. But again, we're pleased with the reported 16% and the 20% year-on-year growth from a constant currency standpoint. So, again, I'll come back to you with an update from a business and strategic standpoint but let's allow Jeff to walk through the financials. Jeff?

Thank you, Chas, and thank you all for being here today. I will take a few moments to provide a financial update, give some commentary on our guidance for the rest of the year, and discuss our medium-term targets. First, on Slide 7, starting with revenue, as Chas mentioned, we have reported another quarter of strong year-over-year growth across our entire product portfolio. This marks our fifth consecutive quarter with double-digit growth. This quarter was the largest revenue quarter on record for Apollo on a GAAP basis and constant currency. We experienced an 18% growth in the U.S., driven by our planned investments. Growth was primarily led by increased adoption in our endobariatric accounts, which Chas will elaborate on later. We are witnessing benefits from our sales force expansion, increased productivity, and the continued success of Orbera due to enhanced marketing efforts. Procedural volumes showed improvement throughout the second quarter. Although some residual COVID effects remain, they are not as significant as those we faced at the beginning of Q1. We still encounter staffing shortages in certain hospitals, notably academic ones, where our core GI business usually performs well. OUS, we saw a 9% growth on a constant currency basis, with strong demand in both direct and distributor markets, and some competitive victories for both OverStitch and Orbera in key accounts. We also faced foreign currency headwinds, particularly with the euro, which impacted our year-over-year Q2 growth by nearly $600,000. As previously noted, since international sales account for over 40% of our total sales, we are more affected by negative foreign currency trends than similarly sized med tech companies that typically have a smaller OUS presence. Additionally, while not significant, other revenue was affected by the planned winding down of our Apollo Care program for Orbera, which has been outsourced to a third party since 2022. Overall, we are pleased with our revenue results in the second quarter and our ongoing efforts to expand adoption across our portfolio. Moving to revenue guidance on Slide 8, we still expect our 2022 revenue to fall within the $73 million to $75 million range, keeping in mind potential global recession impacts, lingering pandemic challenges, and substantial foreign currency pressures from a strengthened dollar, particularly affecting the euro, which constitutes nearly half of our OUS revenue. Our guidance suggests fiscal year 2022 growth of 16% to 19%, with second-half year-over-year growth around 17%, essentially flat when compared sequentially to the first half on a GAAP basis. Some of this can be attributed to typical Q3 seasonality, which we are beginning to observe in July. However, the most significant impact comes from foreign currency challenges. To put this into context, the euro's foreign currency rate has decreased by 11% since early 2022, and we are facing similar issues across many of our OUS regions. Thus, for the entire year, we anticipate foreign currency headwinds amounting to $2.1 million in the second half and $3 million for the full year. Our guidance on a constant currency basis now indicates fiscal year '22 growth and second half '22 growth in the low to mid-20% range. Now on Slide 9, as we look at gross margin, we are on track with our margin expansion goals. Gross margin increased by 190 basis points compared to the first quarter of last year. On a constant currency basis, it improved by 320 basis points to just over 58%. Sequentially, gross margin rose by 50 basis points from the first quarter. This expansion is attributed to our ESS product line following the 2021 OverStitch cost of goods sold improvement initiatives, along with enhanced overhead efficiencies and price increases for both OverStitch and X-Tack. The main factors contributing to overall gross margin expansion will continue to be product mix, better overhead absorption, and direct cost of goods sold improvement strategies focused primarily on OverStitch. Although we are navigating supply chain and manufacturing scale-up complexities, we remain optimistic about achieving a blended gross margin in the mid-60% range over the medium term. On Slide 10 regarding OpEx, we believe it is important to exclude non-cash stock-based compensation to provide a clearer picture of our non-GAAP core operating expense run rate. As we mentioned, 2022 is an investment year. In the short term, we are concentrating on building capabilities following past underinvestment, particularly in sales and marketing in the U.S. For instance, in the second quarter, our non-GAAP sales and marketing OpEx accounted for about 45% of revenue, reflecting our planned investments and growth initiatives, mainly in expanding our sales channel as we prepare for the launch of Apollo ESG and REVISE products. Our planned investment areas also include R&D, medical education, clinical reimbursement, product development, and further cost of goods sold improvements. In G&A, we will continue to invest thoughtfully in infrastructure and staffing to adequately support the business. As stated, 2022 is an investment year for us, focusing on enhancing our commercial infrastructure in the U.S. to accommodate the growing interest and demand for our technologies, particularly Apollo ESG and REVISE. However, we are adjusting our spending in response to the changing environment, making future-focused initiatives a lower priority. We are setting high standards for these types of investments, opting for a more conservative approach regarding funding longer-term clinical and R&D initiatives that may not be essential for supporting our core business today. While these elements are crucial for our long-term prospects, we maintain significant flexibility regarding how much and when we invest in these initiatives. Thus far in 2022, we haven't made any long-term commitments for funding these types of initiatives. In fact, during the first half of 2022, we were well below our OpEx and CapEx spending plans while still on track with our revenue plan. Importantly, we have the flexibility to adjust spending as needed and are well-positioned from a balance sheet perspective to make these investments. On Slide 11, regarding our balance sheet, in the fourth quarter of last year, we bolstered our balance sheet with a $75 million equity issuance and a new credit facility that can provide an additional $65 million in capital over the upcoming years. By the end of Q2, we had $140 million in cash and committed cash, which includes $75 million in cash and equivalents, plus access to another $40 million based on revenue milestones projected for 2023 and 2024, which are well below our expected base case. We experienced a decrease in total cash use of more than $2 million in the second quarter compared to the first, indicating our disciplined capital use as we continue to invest for growth. We are maintaining a multiyear run rate in line with our plans, geared toward addressing near-term opportunities. For the 2022 outlook, we expect to close the year with $125 million in cash and committed cash, which includes over $60 million in cash and cash equivalents. This indicates a cash use of approximately $30 million for 2022, which we anticipate to be our peak annual burn rate based on our base case model. Now moving to our medium-term business targets, as noted in previous quarters, we have the flexibility in our OpEx and CapEx to significantly enhance our EBITDA and cash burn profile once our organization reaches scale. Based on our current base case model, we anticipate achieving positive EBITDA and cash flow breakeven by the time we reach $150 million in annual revenue. At that stage, we can strategically decide whether to enhance investment for accelerating top-line growth, pursue more future-focused non-core initiatives, or take more aggressive steps toward profitability. Importantly, according to our current base case model, we have the balance sheet and committed capital to support these goals. Now, I'll hand the call over to Chas for our business and strategic update.

Thanks, Jeff. In 2022, we have four main strategic priorities. I will focus most of our time today on the launch of Apollo ESG and Apollo REVISE following our recent announcements. Before that, I want to touch on the other three. First, we are expanding our core GI defect closure and fixation business with our OverStitch and X-Tack products. We had a strong quarter and made significant progress. Many of you are aware that in May, we had a very productive Digestive Disease Week meeting, which featured over 100 presentations on our products, highlighting the X-Tack device prominently. After the publication of initial data from a study last year, we experienced a 16% growth in X-Tack this quarter, and we expect that the awareness generated at DDW and forthcoming publications will continue to drive interest and adoption. There are numerous opportunities for OverStitch across various defect closure and fixation applications. Regarding Orbera, it has performed well and has been a substantial growth driver for us over the last 18 months. We successfully implemented co-marketing programs for Orbera in several target accounts, with MESA contributing significantly to Orbera's growth. We also view these as pilot programs, allowing us to apply successful strategies to Apollo ESG and Apollo REVISE. We've noted that Orbera has thrived particularly in integrated practices offering both Orbera, ESG, and revision procedures, suggesting a sustainable trend. As for advancing our organization, we are building the necessary capabilities to take full advantage of these opportunities in a targeted manner, carefully reviewing every headcount addition and investing only in those we deem essential while making solid progress. I’m also pleased to welcome Sharon O'Keefe to the Apollo Board of Directors, as announced last month. Sharon brings extensive experience from her time as President of the University of Chicago Medical Center, and we are excited about the unique perspective she will bring to our board. Now, focusing on the launch of Apollo ESG and Apollo REVISE, we recently shared two significant milestones that have taken years to achieve. On July 12, Apollo received FDA marketing authorization for Apollo ESG and Apollo REVISE through the de novo process. Notably, the BMI clearance range of 30 to 50 allows us to treat a vast number of patients suffering from obesity, which is very encouraging. This authorization was granted even sooner than we had anticipated, and we are grateful to our FDA reviewers for their responsive engagement throughout the process. Just last week, the MERIT study—a randomized controlled trial on the ESG procedure—was published in The Lancet. The publication summarizes that ESG is scalable and can be safely performed in outpatient endoscopy settings by surgeons or gastroenterologists, without mortality and with manageable adverse events. Being published in The Lancet, now recognized as the leading journal globally, is a significant achievement, and we appreciate the contributions of the study's investigators. The study highlighted significant benefits of ESG, including not just weight loss but also improvements in comorbidities like diabetes and hypertension. It proves the procedure is safe, effective, and can be performed by both GIs and surgeons. We are grateful to the clinical team who undertook the challenging work required for this study amidst the COVID pandemic, and we commend their achievement. To put these announcements into context, for over two decades, professionals have been working on new endoscopic approaches for weight loss, investing hundreds of millions in creating a safe, effective, and less invasive treatment. ESG stands out as the first and only procedure delivering on this promise. I want to highlight the Orbera intragastric balloon, which is an outstanding product and continues to be vital in weight loss treatment, particularly in integrated endobariatric practices. However, when considering the complete value proposition, ESG uniquely combines FDA authorization for primary and revision procedures, Level 1 evidence from the MERIT study, a same-day endoscopic approach with no incisions, proven effectiveness showing an average of 49% excess body weight loss, a solid safety record at around 2% for adverse events, and durability data from MERIT and other literature. The excitement surrounding the recent authorizations and the study's findings is immense, particularly among physicians who have been invested in this field for many years. For those unfamiliar with ESG, it’s a suturing procedure that reduces stomach volume and slows gastric emptying, leading to the benefits we've discussed. We aim to address a large market; over 100 million people in the U.S. have a BMI over 30, but only about 200,000 traditional bariatric surgeries occur annually, translating to a mere 0.2% treatment rate. Recent market research with over 1,100 participants revealed that fear of side effects and complications is the primary barrier to considering bariatric surgery. However, when presented with ESG's benefits, around two-thirds expressed interest, citing factors like no surgical cuts and significant, durable weight loss. Notably, 57% said they would consult a doctor about the procedure, and overall, participants preferred ESG over traditional surgeries. This aligns with feedback from early adopters, who shared that patients treated with both ESG and traditional options favor the ESG procedure. Moreover, ESG is attracting patients who would not consider traditional surgery, expanding the market for intervention. I’d like to address recent inquiries regarding the potential impact of new weight loss medications on our endobariatric business. Recent developments include semaglutide from Novo Nordisk (Wegovy) and tirzepatide from Eli Lilly (currently diabetes-approved but anticipated for weight loss). These new medications significantly outperform traditional options and are expected to become blockbusters. However, they come with challenges; they are costly, often exceeding $1,000 monthly, frequently lack insurance coverage, and long-term compliance can be tough. Nevertheless, their availability is a significant step forward, and we believe they will encourage more people to explore their treatment options, including ESG. The combination of ESG and new medications is quite promising. A recent study combining ESG and a short course of semaglutide showed a total body weight loss of 25.2% compared to 18.7% with ESG alone, achieving results typical of traditional surgeries without the associated downsides. We’re aware of other physicians looking into combination therapies for ESG and revision procedures, leading us to anticipate further data in the future. Some customers are already integrating GLP-1 medications with ESG treatments. Turning to revision procedures, this is another significant opportunity. Over the last decade, 1.4 million individuals underwent primary bariatric surgery in the U.S., with studies indicating that up to a third may need revision procedures. Typically, this involves another invasive surgery, yet revision surgeries are the fastest-growing segment of traditional laparoscopic surgery. With the Apollo REVISE device, physicians can alter anatomy through a suturing technique, gaining benefits without incisions and often in a same-day procedure. A study from Brigham and Women's Hospital showed that an endoscopic approach to revisions could match surgical efficacy while significantly reducing adverse events, emphasizing its strong potential value. We've recently obtained FDA market authorizations, and early adopters have started embracing these procedures in real clinical settings. Notably, the top 10 private endobariatric practices in the U.S. and key academic centers focusing on endobariatrics have seen substantial growth in the past 18 months. Academic centers grew by 28% last year, and private practices’ volume increased by over 60%. The average annualized sales across these 20 accounts in early 2022 are around $600,000. There are various success models identified in private and academic settings, spanning cash-pay and prior authorization approaches. While replicating these successes may take time, the findings stand as a strong starting point, enhancing our confidence moving forward. We are also seeing practices educate patients about endobariatric options through various channels like social media and traditional advertising. These efforts, complemented by our co-marketing programs, will enhance patient awareness of ESG and endoscopic procedures. Our launch plans include marketing initiatives, physician training, sales team preparations, and reimbursement efforts. These activities are progressing well and are expected to contribute to our growth in the latter part of this year and into 2023 and beyond. In our sales organization, we’ve introduced regional endobariatric managers to complement our market development managers and traditional sales reps. This role focuses on supporting emerging practices that incorporate Orbera, ESG, and revision procedures, emphasizing market development, patient identification, and sharing best practices. Additionally, we're enhancing sales effectiveness through improved training and marketing support. Reimbursement and market access are crucial for sustained growth. We've observed that some of the top 20 accounts have thrived using cash-pay models, showing strong patient interest. We continue to communicate with these accounts and are receiving positive feedback regarding demand. Other accounts are pursuing prior authorizations with insurers for ESG and revisions, often securing coverage case-by-case. Achieving broader coding and payment will take time, and we are engaging in three main areas: facility coding and payment opportunities with Medicare, securing Category 1 CPT codes through GI and surgical societies, aiming for implementation by January 1, 2025, and engaging payers to improve coverage over time. We are pleased to maintain a viable cash-pay model, presenting a win-win for both patients and physicians. Patients have personalized treatment options with Orbera, ESG, and revision procedures, whether in dedicated GI-based endobariatric practices or integrated programs. For physicians, this differentiation can enhance practice growth with attractive economics. In summary, with the recent market authorization and The Lancet publication, we maintain our medium-term growth outlook and a path to a cash flow positive business in the future. We are excited about the positive impact our products can have on patient care going forward. Now, I’ll hand it back to Matthew to begin the Q&A.

Your first question is coming from Chris Cooley from Stephens.

Congratulations on the strong quarter. I have a couple of quick questions. First, Chas, could you share your thoughts on how the recent Lilly results might influence the market from a channel perspective? Specifically, I am interested in both the provider and patient funnel aspects. Will this attract more patients into the funnel over time for surgical procedures? I am curious about your insights, especially considering that the study showed a mean percentage weight loss of about 15% in six months. Secondly, I’ll ask both my questions at once for Jeff. I appreciate your focus on achieving profitability based on the plan you outlined in today's call. However, I'm wondering if your perspective on rep additions has changed. At DDW, you mentioned aiming for upwards of 45 by the end of the calendar year. However, on Slide 27, it indicates approximately 40 reps by year-end. Are you considering a potential adjustment to your headcount? I recall in your opening remarks, you mentioned a more careful evaluation of incremental hires moving forward, so I’m trying to understand your approach better.

I appreciate it. Regarding weight loss medications, both semaglutide and the Lilly results with tirzepatide, there's quite a bit of speculation about how this will unfold. Conversations with physicians who are already treating many patients suggest that we could see a few different scenarios. I believe more individuals who are overweight or obese will reconsider their options. Large pharmaceutical companies will certainly have an influence on this, leading some to seek medications while others will explore various options. We've witnessed some of our customers acting on this already. Additionally, I mentioned patient compliance as a key issue; staying on a long-term injectable medication can be challenging, which has been evident across different categories over the years. We absolutely anticipate an impact, without a doubt. However, considering the current number of patients, our procedures represent only a small fraction of the overall market. Thus, even a modest increase in interest from patients trying these medications and looking for more effective solutions presents excellent opportunities for us given our scale. Jeff?

Thank you, Chris. In response to your question about headcount and operational expense management, it's really about being very careful with every dollar we spend and every new hire. In the sales channel and commercial organization, it's less about controlling expenses and more about strategizing the right composition of our sales team. We are focusing significantly on the REM role, experimenting with how these roles interact with sales representatives. This approach may vary by region. For example, a sales rep might cover a larger territory because they have an REM for support, or we may need to add more sales reps in larger areas while adjusting the number of REMs accordingly. The emphasis is on finding the right mix rather than strictly limiting headcount. Chas, do you have anything to add?

No, I think you summarized it well.

If I could quickly add another question, I know you received clearance for OverStitch in Japan during the first quarter. Could you provide any updates regarding the timing and reimbursement value for the Japanese market? I'll return to the queue after this.

No, we received the clearance in Q1, that's correct. As you may know, having the right distributor in Japan is essential, and it’s important to consider the long-term strategy. We are still in the process of finalizing our distributor relationships in Japan, which will influence our anticipated growth trajectory.

This is Simran on for Adam. Congrats on a great quarter and for the fulsome update on the business. So I know it's very early days but what impact, if any, have you seen on ESG and OverStitch volumes since the FDA approval of the labeling change for ESG and REVISE? And then maybe as a follow-up there, how do we think about the adoption over the remainder of 2022 and maybe even '23 in both existing endobariatric accounts and then now new accounts kind of coming into the funnel?

I appreciate the question. The interest level following the authorizations and especially the publication last week has been extremely high, creating a lot of excitement. However, there will be a time lag before that translates into cases and people being treated. The various elements needed to accelerate practice development take time. We anticipate that this will impact later in the year and certainly contribute to our momentum as we head into 2023. This timeframe highlights our expectation of moving from significant interest to a tangible impact. Additionally, recent announcements came just last month, and as Jeff mentioned, we are experiencing some seasonal slowdown in the summer. With many people traveling and taking vacations, we have noticed this trend among our key customers. This is typical for this time of year, but it seems even more pronounced this year. This may obscure any immediate impact as we work to put all the pieces together. We are also thinking long-term. I want to emphasize that in this next phase, our priority is not speed but quality. We aim to ensure we engage very good customers who achieve excellent outcomes, as this will lead to the most sustainable long-term growth. Sure, happy to. Overall, we had a really good quarter outside the U.S. The ESS business, primarily OverStitch outside the U.S., has only seen X-Tack cleared in a few countries. We reported a 24% growth on a GAAP basis and 35% year-on-year growth, indicating good continued adoption of OverStitch. Most of our business outside the U.S. for OverStitch is in endobariatric, but we are also focusing on expanding our core GI, and the team is doing a great job with that. We are seeing balanced growth between distributor and direct markets, which is pleasing. Additionally, we see good growth on the IGB side as well. We've secured some share wins and are much more competitive outside the U.S., with Orbera having a strong track record. Our business has shown a nice balance, and we are satisfied with our performance, even considering the foreign exchange impact. We believe the underlying fundamentals on the international side are very promising. We are looking forward to X-Tack, but there are no real updates on that regarding the international CE mark. We are still navigating the MDR processes for regulatory approval, which is likely a 2023 event compared to 2022.

And Simran, just to add to that, just to give a little more color when you see our international performance, what you're seeing is growth in predominantly existing geographies. So we really haven't done a lot of expansion into new geographies and are yet seeing growth in new geographies. So we're very encouraged by that because it is predominantly organic growth.

Yes, I understand that Jeff mentioned our focus on driving core businesses. We are now considering NASH as a significant co-morbidity linked to improvements in weight loss, diabetes, and hypertension. Therefore, we are examining it as part of our integrated strategy aimed at maximizing the use of our products. Initially, our NASH strategy was based on Orbera, but we are now also considering it within the context of ESG, especially following the recent clearance. We are conducting extensive research in collaboration with thought leaders in hepatology and diabetology to identify which approaches will have the most significant impact and to determine the appropriate clinical strategy. We are not hurrying into new clinical trials at this moment, particularly given the current economic situation.

Congrats on the quarter and all the progress, I wanted to start off with reimbursement around ESG. More specifically, just if there's any opportunity and apologies if I missed it, around establishing a temporary C code for the outpatient setting a little bit quicker than some of those other time lines that you can start generating data and maybe start to see some partial or one-off reimbursement in the outpatient setting while you await final coverage in the multiyear process?

Yes, no, it's an insightful question, Frank and it's one that our reimbursement team is working through as part of the overall facility payment side of things. So I mentioned things like new technology codes but you're right, C codes could be part of that strategy as well. And we're working through those details right now.

Okay, helpful. And then just back to the marketing authorization. My sense there was a couple last things to complete like developing some new SKUs specific to ESG and REVISE. One, can you provide an update on that? And then two, as it relates to that, can you talk to any potential pricing power for the weight loss indications and how that could impact gross margins over time?

Sure, there are new devices that have received clearance, namely the Apollo ESG and Apollo REVISE devices. However, there are still some logistical aspects related to the packaging and readiness for shipment that we anticipate will take a few more months. We expect to start shipping these new devices early in Q4, which aligns with our original timeline. The FDA's swift action was unexpected, but we are pleased with it. We can continue training physicians and discussing the procedure, but the actual products will not be available for a few months. We are also finalizing our pricing strategy and anticipate some opportunities for premium pricing, which should be beneficial. However, we are still sorting out the final elements of this strategy, as it will have long-term implications for reimbursement and other factors. We will provide updates as we progress. Well just that, I mean, the ability to have some pricing leverage would absolutely improve and help that and then as Jeff mentioned, the OverStitch and the components OverStitch are our primary focus areas of reducing costs as well. So we've factored that into kind of our overall plans of getting into the mid-60s on gross margin but we'll work that as part of the overall mix as we go forward.

Maybe first one and you touched on this a little bit in your prepared remarks but obviously, there was a ton of buzz around DDW for both OverStitch and X-Tack now that we're three months removed. I'm just curious, how has that kind of played out? Obviously, you've gotten the big approvals since then as well as the publication last week. So maybe it's difficult to pull those two pieces apart. But follow-through post DDW would be helpful?

Yes, no, you're right, Matt. The interest level has been very high, increased awareness, especially for X-Tack as a new product and having podium presentations about it really for the first time in a big meeting just because it was one of the first really large in-person meetings has been exciting. And that has played well and helps support the 16% sequential growth that I mentioned. And so our sales team is very much focused on building on that momentum and continuing going forward. And we have a balance, right, of now needing to be able to do that while also focusing on the endobariatric side as well. So that will be an important thing that we're going to need to balance that is part of the rationale for the dedicated endobariatric manager roles. And so, we have a certain subset of our sales force that is 100% focused on the endobariatric side, while our reps are carrying the full bag.

Got it. And then maybe my second question, I think it was Slide 24, where you were talking about your top 10 private practice groups as well as your top 10 academic groups and the growth that they're seeing. I guess that was one of the things that came up at DDW was that some of your top accounts are figuring out ways to navigate the reimbursement with preauthorization? As they get more adopt at doing so until you've got more formal coverage in place, is that something that kind of a road map that your other accounts can follow, especially now that you've got the formal labels. But is that something where they can follow that road map and kind of get reimbursement kind of precharged even ahead of formal coverage?

The short answer is yes. This is something that has been discussed in your conversations at DDW, where certain sophisticated accounts have managed to navigate these situations on a case-by-case basis, independent of Apollo. We didn't previously have labeling or a dedicated team to support these efforts. Now that we have the labeling, we can establish a team to assist with this process and share best practices. It can vary by payer; some payers may respond positively to specific approaches that significantly impact patient coverage. Documenting these insights and helping others navigate the process will be part of our future strategy.

Chas, I wanted to just ask about the label for OverStitch ESG and just the BMI range of 30 to 50, how do you see your customer base and the future customers, physicians utilizing ESG and to BMI patients in between 40 and 50?

I think it's an interesting question regarding how this will unfold. Currently, many people assume that the ideal range will be between 30 and 40, which is where we will likely begin. However, data presented at DDW from one of our customers indicated positive results in patients with a BMI over 40, showing consistent total body weight loss of 20% or more, independent of medications. A major question is whether combination therapies will have a larger impact in the 40-plus BMI range. Some surgeons believe this could be the case, but I think we'll see a progression in that direction. There is still a perception that ESG is somewhat lower in efficacy but has a strong safety profile and significant patient benefits, so the focus will probably start in the 30 to 40 range and may gradually extend upward.

Great. I mean what will be sub utilization that may already be of ESG in patients as a preliminary procedure to make a patient a better candidate for maybe a surgical sleeve?

We have observed some individuals considering a bridge to surgery approach at times, although I am not certain how prevalent that is. We have heard some anecdotal evidence suggesting it may develop over time. One of the advantages of ESG is that it doesn't eliminate future treatment options, which is something that surgeons find appealing. They know they can opt for a sleeve or a bypass later on if they decide to. However, I don't expect the bridge approach to become very common, at least not initially.

I wanted to ask how your team plans to market the durability of the ESG. After two years, MERIT and other publications suggest that durability might be around five years. How do you intend to promote this, and regarding ESG revisions, how do you see a path forward for potential ESG updates with the ESG procedure?

Sure, I appreciate the question. We have substantial data available for up to two years. Recently, there was a study involving 3,000 patients from the Middle East which provided very promising data extending to three years, and there is some limited data available for up to five years. Our experienced customers, who have been engaged in this area before we started discussing it, are cautious about presenting it as a complete solution and highlight the significance of patient follow-up and management in their programs. How they engage in these processes can significantly affect the durability of outcomes. Additionally, it’s important to recognize that obesity is a chronic disease. If individuals understand this and set appropriate expectations, it opens the possibility for future procedures, including retightening or surgical options. These topics are often part of discussions and will also play a role in our marketing strategy.

This is Colin on for Matt, just one quick one for me today, first of all congratulations on the recent approval and the strong quarter. I had a question on the midterm growth target of 20%. Is that step-up largely ESG driven or do you also contemplate potential halo effect from ESG on the rest of the broader portfolio pull-through?

Yes, Colin, I appreciate that. As we've outlined in our strategic plans, we see a solid balance across both products and regions. There appears to be a potential positive impact from ESG and updates to the balloon. This was mentioned in relation to sustainable endobariatric practices. We are still experiencing significant traction and growth with X-Tack, even prior to the CE mark. This can serve as a crucial growth factor outside the U.S., particularly since the economic benefits of X-Tack align well with medical systems. That said, I previously mentioned the opportunity for ESG to establish itself as a leading weight loss procedure. However, that level of optimism is not entirely reflected in the 20% growth target. Achieving that would mean exceeding expectations, and the journey to fully capitalize on the opportunity will take time. Given the positive signs of people recognizing the value and experiencing growth, we remain optimistic. There are excellent opportunities with ESG and revisions, but we are also seeing balanced growth across other products.

That concludes our Q&A session. I will now hand the conference back to Chas McKhann for closing remarks. Please go ahead.

Just want to reiterate our thanks to everybody for joining us today and we look forward to further updates as the year progresses.

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