Q1 2022 Apollo Endosurgery Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Apollo Endo surgery 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 .
Thanks to everyone for participating in today's call to discuss Apollo's first quarter 2022 financial and operating results.
Joining me on the call are Jonathan Cohen, Chief Executive Officer, and Jeff Black Chief Financial Officer.
Today's call includes slides to accompany the audio presentation for those of you joining us by telephone only you can download a copy of the slides that our investor Relations site IR Dot Apollo Endo Dot com.
And events and presentations.
Before we begin I would like to caution listeners that comments made by management. During this conference call. Today 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 sales.
In addition, there is uncertainty about the continued spread of COVID-19 virus and the ongoing impact it may have on our operations demand for our products global supply chain and economic activity in general.
Forward looking statements involve material risks and uncertainties.
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 concept of the conference call contains time sensitive information that is accurate only as of the data for live broadcast may three 2022.
Except as required by law Apollo undertakes no obligation to revise or update any statements reflect events or circumstances. After the date of this call.
Additionally, todays discussion will include certain non-GAAP financial measures, which we believe provide an additional tool for evaluating core performance.
It uses these metrics and its own evaluation and continuing operating performance and a baseline for assessing the future earnings potential of the company.
Included in our press release issued today with our financial results in a corresponding 8-K filing a supplemental tables reconciling non-GAAP figures to their closest GAAP comparable.
Now I would like to turn the call over to Chad.
Thank you, Matt and thank you everybody for joining us here today.
We really appreciate it.
So look we are about a year into our new strategy to transform Apollo and 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 is 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 really and then other global macroeconomic challenges, which will referred to over the course of the call.
But despite that and I'll have some of the highlights for the quarter, we achieved 20% year on year growth.
And it was well balanced growth it was 24% in our ESF franchise, Thats, our overstitch device and our ex Tac product.
And we also achieved 16% growth with our integrated balloon franchise.
And so again nice balance across our products.
This quarter, our growth was primarily driven by the U S with 33% growth in the U S.
40% for RGB franchise, 34% for USS So really nice performance here in the U S.
An interesting fact here over what we've observed in this as an extension of what we reported on our prior call. Our top 10 accounts grew by 63% year on year and these are not distributors. These are individual accounts and the average sales in those top 10 accounts is right around $1 million annualized so it.
Gives you a sense of what we can achieve when our customers really incorporate apollo's products into their clinical practice and really making a focus of patient care.
And then in addition, we achieved 14% sequential growth in the number of ordering accounts for ex Tac here in the U S and we also achieved sequential sales growth.
In terms of ordering accounts up 14% as well as sequential growth in <unk> Tec sales quarter on quarter.
And so while delivering on a strong quarter. We also remain very focused on a broader set of priorities.
<unk>.
For the overall year, both delivering on the near term, but also building the foundation for the growth in years to come.
And so our four main priorities.
First is to expand our core our.
Core Gi business and defect closure and fixation and that's inclusive of both overstitch and ex Tac.
It involves training new users continued to build adoption and preparing for the approval of ex Tac the CE Mark approval outside of Europe outside the U S.
Second priority is leveraging a resurgence of avera the interim Astro balloon franchise has done very well since I've gotten here and it's been a big important part of our business continues to grow we want to make sure that sustainable growth and we're putting a lot of focus and energy behind that.
And thats, its part and parcel with our third priority, which is preparing for the launch of Apollo ESG and Apollo revise we're working through the process with the FDA for a new regulatory clearance and preparing for the new product launch associated with that.
And all the while building the organization.
We need to have the right capabilities in place to make sure that we can go after those opportunities and we've been making very important adds really top to bottom and I will come back to that.
So just going to provide some updates on the financial results in the quarter and then I will come back and talk through each of these four priorities will give you updates of how we're doing against each of them.
Jeff.
Thank you Chad and thank everybody for joining the call. Today is test 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 Chad for.
More detailed business update.
Starting with slide seven on revenue.
Again, a strong year over year growth across the product portfolio. It was our fifth consecutive quarter of double digit growth and excluding the legacy lap band business. This was the largest revenue quarter on record for Apollo.
33% growth in the U S. So we are beginning to see the impact of our planned investments specifically the expansion of the sales force while still early stages, we're beginning to see traction and increased productivity we.
We saw continued strength in our bureau on the heels of enhanced marketing efforts.
And again still some lingering effects of Covid on hospital access and staffing, particularly in academic hospitals, where core Gi business is typically very strong.
We saw 6% growth outside the U S strong demand and distributor markets offset by continued pressure in the quarter and concentrated direct markets, particularly western Western Europe . We also believed to be lingering pandemic effects.
Significant foreign.
Foreign currency impacts, particularly for the euro which had a nearly $300000 impact on year over year growth on a constant currency basis, our O U S growth growth was 10% global growth was 22%.
And just as a reminder, because international sales represent more than 40% of our overall revenue.
Disproportionately impacted by negative foreign currency impacts compared to similarly sized med tech companies. They typically don't have such a large oes footprint.
Other revenue, while it's not material was impacted by our planned wind down of Apollo care for a bearer, which we outsource to a third party beginning in 2022. This will ensure we can properly skilled support for a bearer.
As that business continues to expand without a material financial impact to Apache.
Hello.
Overall, we're again pleased with our revenue performance in the first quarter and our ability to successfully navigate a generally slow start for med Tech and.
In terms of outlook for 2022, we continue to expect 2020 revenue of $73 million to $75 million, while we're cognizant of potential global recessionary impacts.
Lingering pandemic headwinds and foreign currency pressures from a strengthening dollar, particularly for the euro which currently represents nearly half of our <unk> revenue.
Moving to gross margin on slide eight.
Gross margin improved by 210 basis points over a year ago.
In the U S. Our margin increased from a higher <unk> mix as well as margin expansion on our <unk> product lines.
We're seeing the impact of 2021, Overstitch Cogs improvement projects, we're seeing improved overhead efficiencies and we also saw some price increase impact for both overstitch and ex Tac.
The margin expansion that we saw in the U S was offset by a higher mix of distributor sales O U S, which have a lower gross margin profile.
We remain focused on continued gross margin improvement, particularly with overstitch, which has a lower gross margin profile than our barra and ex Tac.
So major drivers continue to be in gross margin expansion in the future will be product mix improved overhead absorption direct cogs improvement programs like I said focus primarily on overstitch.
And at the same time, we're navigating supply chain and manufacturing scale scale up complexities, but we remain confident that we will drive blended gross margin to the mid 60% range in the next three to five years.
Moving to Opex.
Slide nine.
As you look at operating spend profile as we've done in the past we think it is important to exclude noncash stock based compensation to get just a clearer picture of what our non-GAAP core operating run rate is.
And as we previously said 2022 as an investment year for us in the near term we remain focused on building capabilities following historical underinvestment in the business.
The most significant area of increased investment is in sales and marketing in the United States. For example, in the fourth quarter Youll see our non-GAAP sales and marketing Opex ran at about 48% of revenue. This reflects our planned investments and growth initiatives, primarily building out the channel marketing programs as we prepare for the <unk>.
Anticipated launch of our ESG products.
As we've said before in the U S. We still have a very small commercial team relative to the size of our opportunities. We made substantial progress a year ago or last year, expanding our footprint. We continue to do so.
At the end of 2021, we had a commercial team of just under 30 in the field.
We grew that to 32 territory managers and two regional Endo bariatric managers at the end of the first quarter. This team is ramping up we anticipate further improvements in rep productivity as they gain additional time and territory and experience with our products and customers.
Going forward, we continue to evaluate the appropriate scale of our commercial team and we will invest as necessary.
Other focused areas of our planned investments are in R&D medical education clinical reimbursement product development.
And gross margin improvement.
On the G&A side, we will continue to thoughtfully invest in infrastructure and staff to properly support the business, but we expect to see the heaviest investment in both sales and marketing and R&D.
Importantly that we have the ability to modulate the spend is appropriate and we're well positioned from a balance sheet perspective to make these investments.
So with that said before I turn it over just a couple of comments on cash use in and.
And burn moving to our balance sheet Slide 10, as you may recall last year, we secured over $175 million in new capital and borrowing capacity enabled us enabling us to begin making investments required to capitalize on the opportunities in front of us without really create a concern about cash runway.
This positions us very well with a multiyear runway to execute the business, which is especially important now and what has turned out to be an uncertain and volatile capital markets environment.
As we expected we saw planned uptick in cash burn in the first quarter relative to 2021.
Particular note nearly a third of that burn was $2 9 million in working capital, which represents the paydown of 2021 year end accruals as well as inventory build to support the expected growth in demand for our products.
Even with our planned increase in average quarterly burn, we're extremely well positioned to execute on our planned growth initiatives with nearly $150 million in cash and committed cash at the end of the first quarter.
And with that I'll turn the call back over to Jeff.
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 ex Tac product overstitch.
And the <unk> barrel inter gastric balloon and Thats really focused across two different therapeutic areas are advanced Gi.
Focus as well as endo bariatric, our endoscopic weight loss.
And as Youll see on slide 13, we continue to be focused on large market opportunities and developing from a product standpoint, but also clinical development and reimbursement otherwise all of the different elements that we think will be required to go after these opportunities.
Yes.
I mentioned, our four priorities across the business for the year.
And so lets provide an update here on each of them.
First on the core Gi defect closure and fixation side of our business.
We've got overstitch, which really is a unique one of a kind product.
Primarily focused on full thickness suturing and the upper Gi.
We're continuing to work to build and develop a defect closure side of the business with overstitch that involves training new users as well as expanding the different applications that users.
That our customers use overstitch for.
And making sure that they're familiar with and.
Really apply the product in such a wide range of opportunities, which we know it can in fact positively impact patient care.
That's true also in the outside the U S where the core Gi has been a lower percentage of our overall business for overstitch and we've got plans in place that we're executing to build that part of the business outside the U S.
We then add an ex Tac, which as you can see on the chart is a really nice complement to overstitch. It fills an important therapeutic gap between through the scope clips.
And overstitch in terms of complexity of the defect and size of the defect and the durability of the fixation.
And again, we continue to make very good progress we just.
Launched ex Tac right around this time last year and so we're seeing still.
Still very good progress with customers.
Continue to refine our targeting and focus on high volume centers.
We continue to develop our sales training as Jeff mentioned, we have a relatively new sales force with more than half the reps in the U S hired within the last year.
We continue to build the supporting body of clinical evidence.
And I'm going to come back in a minute to the upcoming <unk> meeting, which is the digestive disease week meeting so largest Gi meeting in the world and we expect both overstitch and ex Tac to be very well represented at that meeting.
We're expanding our peer to peer marketing programs both through things like webcast. We just did an outstanding one with Dr. During default from Duke University.
As well as old fashioned face to face meetings, where colleagues can hear from each other in terms of how they are applying this new device into their clinical practices.
And then finally, we are absolutely working on preparing for the O U S launch of ex Tac.
We are we already have a presence in a few select markets outside the U S. The most recent one has been Australia, which we are just getting going here as of this month.
But the key one will be getting CE, mark clearance for ex Tac and we're still working through that regulatory process.
But preparing commercially for when that occurs and it will be excited when it does.
The next slide just shows.
Some of the just the complement surround overstitch Nx Tac.
You can see.
Blue dots on the page and for those you arent.
I don't have the slides in front of you basically what it's showing is that ex Tac opens up the right side of the colon the lower Gi for us and that's where the predominant of procedures are in the lower Gi and these are polyp removal procedures, so thinking about when youre colonoscopy and they find a large polyp defect that needs to be removed.
If its over about two centimeters theres a lot of evidence that those are the defects that need to be prophylactically closed and thats, an important target market for ex Tac, but in addition.
Our customers are finding many other core applications for the device, which is great to see many of them are listed on the page. So.
Fistulas and perforations.
Poland procedure, which is more of an upper Gi procedure mucosal Terra is a whole range and so we're pleased to see the progress there and continue to build and capitalize on that.
Next slide.
Sure.
So next up is <unk>.
Again, we want to continue to maintain the momentum with our bare and really ensure that it is sustainable because it's.
It's been a tremendous turnaround for a product in a category that frankly struggled for a number of years, but we've seen very nice growth.
With avera, we've seen it globally.
We continue to capitalize on some macro factors in terms of weight gain during the pandemic and coming out of the pandemic I think has been favorable to a product that has a lot of evidence of at least 10% total body weight loss right around this time last year, we have the new <unk> clinical practice guidelines.
First time ever that a major society endorsed into Gaslog balloon therapy.
And that's kind of a seal of approval is there were four for intercostal balloon therapy. We are proud of the fact that <unk> has by far the most clinical evidence of any Andrew gastric balloon on the market.
And it's an important element to our safety and trust element around the product.
We've seen an increase in physician interest we've done more training or <unk> in the U S. In the past few months and we've done and a number of years and we're putting more focus on it from a sales and marketing standpoint, which is helping to contribute to.
The sustainability of those results and then importantly, we're seeing some very important competitive wins outside the U S and the U S. We are primarily the.
The main product available for inter gastric balloons theres a recent market entrant that's still in the very early stages of the two having to do a post post approval trial. So we're really in the U S outside the U S. It is a very competitive market, but we are seeing nice wins outside the U S that are helping to contribute to our ongoing growth and it comes back to you that we've got a really good product.
A long track record of safety and efficacy.
And then that ties right into our broader strategy around endo bariatric and our preparation for the launch of Apollo ESG and Apollo revised.
So we showed the slide on the last earnings call.
And I'll just use this as an opportunity to provide some important updates as we are working.
Across a broad comprehensive launch plan for these for these products. We are still working through the de Novo 500, 10-K clearance with the FDA.
And we'll look forward to providing input.
An update on that as things progress.
We are actively engaging with leading physician societies on both the Gi and the surgery side on the Gis side. There is groups like the American Gastroenterology Association in the ESG two of the leading societies as well as <unk>.
So a lot of GI societies. There is also a major surgical societies. So stages and then the ASM MBS, which is the metabolic surgery society and we've been spending a lot of time with them describing our plans around the new indications talking to them about where we see endoscopic therapies fitting within the.
Broader continuum of care and making sure that we've got good alignment across <unk> and surgeons and then talking about ways. We can best work together on important elements of things like training and education and support on efforts on things like reimbursement and market access and those have been very productive discussions and I think a big part of.
Our broader market development process that we're working on.
We are aware of efforts that a number of these societies already have underway on things like clinical practice guidelines now those those processes take time.
There's a lot that goes into a new set of practice guidelines, but the fact that they are already working on those efforts as a really good sign that the societies are looking towards where these new procedures will fit in the broader continuum of care.
We are also actively learning from our early adopters there.
There are a number of customers both in and outside the U S as well as in the U S that are already incorporating ESG and revisions.
Into their clinical practice, we are very careful from a promotional standpoint.
Physicians can use overstitch for these procedures and so we are already kind of learning from those customers and we call them internally the quote unquote wave one accounts.
And it's really interesting because what we're seeing is a really nice mix of different models. We see some models that are in academic medical centers.
Some of the leading centers in the world, we see others that are individual private practice physicians or small groups of physicians.
And we're seeing success in either case, we're seeing some models that are surgeon led we're seeing some models that are Gi led we've seen some of them that are integrated to Gis and surgeons working together.
There are commonalities. So the ones that are most successful have a laser focus on clinical outcomes and how they are working to make sure before the procedure during the procedure and after the procedure and patient follow up that they are doing everything necessary to achieve the best possible outcomes for patients.
And so we're kind of going to school on those initial set of customers. We are developing the playbooks that we will be using with the next waves of accounts as they move forward.
Once we get a new indication.
In the meantime, we can gain a lot of practical experience with avera.
And the renewed marketing efforts around our barrel I'll give you an example.
We are doing co marketing programs with some of some of these wave one accounts frankly, who offer the inter gastric balloon as well as some other accounts that have demonstrated the ability to attract patients and talk to them about the procedures and ensure that if youre doing marketing patient marketing that it results in actual procedures and so we've been able to do that with <unk>.
We initiated this late last year and had been moving forward here and having really good outcomes and experienced a measurable results that we can both obviously support the repair business, but also learn in terms of how this will play ultimately in a broader endo bariatric world. So we're excited by those early learnings and we're going to keep building on them.
And then last but certainly not least we are absolutely building out our reimbursement and market access team.
In January we announced the hiring of a new VP of reimbursement and market access. She has since added a director of payer engagement who.
Who is already join in as a full time employee focused specifically on how we will work with payers and we are strengthening our capabilities in areas like health economics and others. So this is a this is a critically important area in the broader market development and a set of skills and capabilities that we are really building here at Apollo.
So a few times now I've already mentioned the upcoming digestive disease week meeting and we're really excited about it. So this is the largest gastroenterology meeting in the world. This is the first time the meeting will be taken place in person for three years, it's been gone to virtual in the last couple of years.
And so as we talk to people in the medical community. They are really excited to get it back together I think the fact that it's in San Diego doesn't hurt.
But.
As.
Of that but were really.
Really looking forward to is that simply put we expect EDW to be an excellent showcase.
Paulos products and procedures.
They've only at this point released the preliminary agenda more details will be coming out in the next week or two so even based off of these preliminary.
Information from the organizers were already aware of over 40 posters and video presentations about Apollo products and procedures and more than 60 lectures and podium presentations, so theres going to be a lot of discussion about Apollo products at the meeting.
And including some important new clinical data.
And new clinical studies, so let me highlight a few that and again this is a preliminary list before the meeting.
We will likely do a press release informing you of others to be on the lookout for ITW.
First is the Merit study many of you know merit is the randomized controlled trial that Apollo sponsored.
Testing, the ESG procedure compared to diet and exercise.
Preliminary results were presented at the <unk> meeting a surgery meeting in a virtual session in October and I'm pleased to report that at GW. The full results of Merit will be released by Dr. Barbara <unk>.
And in two sessions, both in a plenary session.
On Saturday May 21, and then again in more detail and our full session on Tuesday at the meeting so very excited for the full results for Merit and will just be additive to the information we've already that's already been presented.
Another really interesting presentation will come from Dr. Chris Mcgowan Chris's Doctor Mcgowan is based out of Cary North Carolina private practice physician at true U.
Loss.
He doesn't excellent job of following up all of his patients and he is going to be presenting data on patients with class III obesity, meaning patients with a BMI of more than 40.
Yeah.
<unk>.
So we're looking forward to those data in the presentation Dr. Magellan Dr.
Dr. <unk> from Cornell, who is going to be presenting five year follow up data with comorbidity information.
The impact on <unk> and Dr. <unk> is also going to be presenting <unk>.
<unk>.
Systematic review pardon me in a meta analysis, comparing ESG to laparoscopic sleeve and again. This is just a cross section of some of the data that will be presented.
On the revision side, Dr <unk> and a half has a.
Oral presentation focused on combination therapy.
Of.
<unk>.
Revision procedures, along with <unk>.
Inhibitors.
As many of you may recall that last year. The <unk> meeting Dr. <unk> had one of the top papers at DW focused on combination therapy of ESG plus a magnetite. It was a randomized controlled trial and the headline was basically that when you combine ESG plus a magnet side, which is the brand name.
<unk> you get essentially surgical level of outcomes. It was more than 25% total body weight loss in that study and so we're excited to see the new presentation from Dr half.
And we are well aware that some of the newer medications, including <unk> and our recent results from us from a new medication from Eli Lilly <unk> company. We expect we will have an important impact in addressing the global obesity epidemic, but we see a really interesting role in combination therapies.
So more data on that will be coming out at.
At CDW.
Not to be outdone, the defect closure side of our business. We will also be very well represented at the meeting.
There is a.
Session I think this on Saturday that Dr. Christopher <unk>, who is our chief Medical Officer is co chairing with Dr. Harry is leaning in from Yale University, that's going to be talking about defect closure and everyday practice.
And that will include discussions around suturing with Overstitch and case studies with ex Tac.
There is new data from our multicenter experience on ex Tac.
There is a new.
Another study looking specifically at ex Tac and colonic EMR defects. There's another paper involve with ESD closure. So again. This is just a summary of what we expect to be.
Significant amount of information at the meeting so we're excited about that.
Speaking of clinical data study that was released in Q1 that I'll draw your attention to and I am on slide 'twenty for those who are following along this was in GI gastrointestinal endoscopy, which is one of the leading journals in the field. So our study was authored by Dr. <unk>.
Tani out of Saudi Arabia, and one of the most impressive element one element is just the scale of this study it involves more than 3000 patient payers. It's a propensity matched study of ESG compared to patients who receive laparoscopic sleeve. So thats more than a 6000 patient study.
Which is really unusual in the device world.
Some of the headlines.
Is that it showed durable results with ESG out two three years with a 14% total body weight loss at sustained out to three years. In addition, the.
The comorbidity remission in this study with ESG was very similar to what was found in <unk> patients.
And in fact was slightly better in the areas of Dyslipidemia and in hypertension.
Showed an excellent safety profile for the procedures.
And it's just showing that in real world clinical practice.
ESG is a very safe procedure.
Then also.
Provides good evidence that if patients who needed it they can either get a repeat ESG.
Basically a REIT tightening or they can convert to an LNG and.
And that's important it's an important element to be able to leave all options open to patients.
And we've known that about ESG, but to have additional clinical data that shows the feasibility of that important especially to a surgeon surgical audience, who would like to know that they can still have different options available to them.
Turning now to the organization side of our business and things we're developing.
On the left is a summary of the core values of Apollo that we've really focused on where we are.
We're very focused on building a strong culture of the company a winning culture that is customer focused its patient focused.
And it's a big part of who we are so we've been introducing these internally.
A big part of how we manage our business.
And all the while we are adding to the organization really from top to bottom as it were.
We are very pleased to announce.
Just a few weeks ago, having announced the hiring of Jeanette banks to join our board of directors Jeannette as the President and general manager of the global surgical franchise at Alcon.
And she brings tremendous experience in developing and commercializing new technologies, including in markets around the world. So really good global experience and so we're thrilled to have Jeanette joined our board of directors I mentioned, new hires in the reimbursement and market access side, we promoted a new head of VP of R&D to really renew and re.
Gauge our efforts on the pipeline development and then as Jeff mentioned, we are selectively and very targeted making additions throughout the organization.
To make sure that we've got the right scale to grow.
One of the biggest areas that we're focusing on and you saw it in the financial numbers has been on our commercial team.
So just an update of where we are.
We are as Jeff mentioned, we've grown added a few positions here over the first part of the year in the U S and plan to continue to grow over the course of the year.
We are adding.
New training capabilities.
We do have a relatively new team and we've seen increased productivity as we brought people on board, but we absolutely expect that to continue going forward, we're improving our sales analytics and as I described in some of the launch planning for ESG, We really are building out our marketing capabilities as well.
Importantly on the <unk> side of our business as Jeff mentioned, it is more than 40% of our business and we're making important additions there as well again.
Again selective adds in key markets to drive growth, especially on the ESI side and preparing for the for the <unk> launch.
We really have reignited our physician training programs outside the U S. They did struggle for a while during the Covid period and even into next year because many of those training programs do require travel and as we all know international travel has had its challenges, but where they are up fully running again we've.
We've had great participation.
And we're also developing plans to expand into a large untapped market opportunities.
Just today and the earnings release, we announced in Japan. So we've had.
Some access into Japan through.
Some limited use kind of pathways, but we've just received clearance for overstitch Sx in Japan, which is a nice opportunity for us we still have some work to do on the reimbursement front, but this will allow us to continue to build and grow there. We've got the initial footholds into the Chinese market that also can build and grow and expand over time.
And somewhat ironically given that.
All of our international business in Canada, We currently have clearances for the interim Abstrict balloon.
But do not have yet clearances for ex Tac and overstitch and we're working to address those as well so continued significant growth opportunities outside the U S. While we grow and develop in the U S as well and by the lab when I mentioned, the prelaunch planning around ESG and Apollo revised many of the elements that were gone in.
The U S have broad applicability outside the us as well because we are able to really.
So for example, the reimbursement efforts that we focus on here and other markets, we will focus on as well.
And so to wrap up.
We delivered a solid quarter.
In Q1, despite some of the macroeconomic headwinds.
And we also have made substantial progress across each of our priorities for the year and we remain very excited about the prospects for our products and our procedures and the impact that we can have in markets around the world.
And so with that let me turn it back over to John for the Q&A.
Thank you ladies and gentlemen, the floor is open for questions. If you have any questions or comments. Please press star one on your Touchtone phone pressing star to remove you from the queue should your question to be answered and lastly, posing your question. Please pickup your handset if listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions.
Once again Thats Star one if you have a question or comment.
Okay and the first question.
Here is coming from just one moment.
Matt Hewitt with Craig Hallum Capital Your line is live.
Thank you.
Congratulations on the strong quarter kind of bucking the normal seasonal pattern and especially given the headwinds you faced in January from Covid.
I guess my first question is regarding.
Progress with ex Tac I think last quarter you really.
Started to focus on your desire to drive utilization I think during your prepared remarks, you mentioned, 14% growth if I heard you correctly.
Do you have kind of 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.
Yes, no Matt. Thank you I appreciate the question.
We were pleased with sequential growth both in new accounts as well as an overall utilization with ex Tac that was despite what often when you do see some seasonal patterns as well as.
There was pretty significant COVID-19 impact here in the first part of the quarter. It improved as the quarter progressed, I think thats, a pretty consistent theme with with other med tech companies as well.
And so we will look to continue to build on that same kind of quarter on quarter additional growth.
As we as our newer reps get up to speed as it were as new data comes out all the different elements I mentioned and so we feel good about our prime.
Continued sequential growth quarter to quarter.
And that's what we'll be looking forward from our from our U S sales team and then over time, we'll add on the <unk> side of that as well.
Understood, Okay and then.
One of the questions that I.
Get a lot.
Especially here over the past couple of weeks when others from the on the device side of and reporting is this question about how much of.
Q1, where you're seeing a rebound and just getting back to normal or.
Was there some backlog to kind of work through and maybe if you could walk through what youre seeing even now through April .
Are we getting back to normal that it's not so much a backlog. This is a normal growth rate for the business and what we should be expecting going forward.
Yes, it's a good question and one that.
A little hard to tease out except to say that we.
Certainly saw an impact in late last year and early this year, we did see a nice improvement over the course of <unk>.
Quarter, but.
It varies by different different segments in different markets, we didn't see a sort of snapback rebound that you that I think for example, orthopedic some dead because where we saw the biggest impacts were in some of the larger academic medical centers and the equivalents in places like Europe , and those have come back, but a bit more gradually.
Because you have a combination of both COVID-19, but also and I'm sure you guys have all heard about various staffing related issues that impact a lot of those same institutions. So we're seeing an improvement, but we havent really felt it as a snapback rebound more just a good gradual improvement and think we're tracking.
Tracking the right direction.
Got it and then maybe one last one for me and I'll hop back in the queue and it kind of touches on what Youre, just saying there as far as staff.
Staffing issues and some of that I think at least on the hospital side as we're reading it as is some doctors are just transferring from one hospital. Another in other cases, they are leaving the market but.
Does that I would imagine that that actually can PREPA.
Present, an opportunity for you as well the doctor, that's familiar with overstitch and or bear on ex Tac and leaving one practice and going to another.
Bringing you along gives you a new in a new group to train or bring up to speed or you're seeing some of that.
Some of the issues that health care has been seeing on the hiring side or.
What could what do you think is going to drive that next leg.
Adoption or is it just hitting the pavement and introducing the products.
Yes, let me separate out two things I think the bigger constraint. We've seen has been more on the nurse side than on the physician side.
And again these have been well documented and just in the types of settings that I've mentioned and I think the situation is improving.
But thats been.
Coming out of Covid.
The challenge for certain institutions.
And I think like I said, they're starting to get a handle on it and it's improving on the physician side. There is some movement, but mostly for US. It really is just a matter of continuing to train new users for across our products.
And then doing as you said the legwork is when someone is training, making sure they become totally comfortable with the devices and the procedures and expanding the different kinds of procedures. They can use it for in the case of both overstitch and ex Tac.
And in the case of the vote.
<unk> side of things understanding how to really develop their practices and patient marketing some of those other areas, where we're doing some of the co marketing elements.
Got it thank you very much.
Okay. The next question is coming from Adam <unk> with Piper Sandler Your line is live.
Hi, Chad and Jack.
I'm Ryan on for Adam Congrats on a great quarter guys.
I guess I'll start off.
Asking about just kind of your business and.
Exiting Q1 your thought there.
There is some momentum with recovery so how should we think about.
Models in Q2 and quarterly cadence throughout the duration of the year.
Sure.
Yeah.
We've been investing as Jeff mentioned in different aspects of growth and so certainly are looking to continue to see that we saw good evidence of results of that in Q1, but do expect to see that progress.
And certainly to achieve.
Our guidance range for the year, we expect that.
Continuing to step up.
And are focused on delivering on that and that will be.
Globally based things like some order patterns outside the U S with some of our distributors as well and so we feel good about a nice progression here.
And reiterating our guidance even with.
And Jeff alluded to this but just to be really clear.
We do have a bit of a headwind on the FX side more than most companies our size, but are still focused on the.
The guidance, we've delivered internally, we want to exceed that.
Okay, perfect should we be seeing.
Any meaningful impact from.
The cadence of new product launches that you could potentially be having this year in terms of ESG revised.
As well over.
As such in Japan, just kind of what.
What can you say about the impact.
These launches and approvals.
Sure Yes.
For over for ESG and revise when we submitted to the FDA, which was back in late in Q3 of last year.
We said that on average de Novo 500, 10-K is take about a year.
That is average.
A wide error bars, and those data because de Novo 510 case, almost by definition has a little bit more uncertainty than a traditional 500 10-K.
So it's a little hard to pinpoint we are preparing for it.
Hope to see that in the second half of the year and doing everything we can to support that process.
Another big launch that we're working on.
Clearly as the ex Tac launch outside the U S.
We have spoken on previous calls about there's a regulatory change in paradigm going on in Europe . There is a transition to the medical device regulations MTR.
You guys may be familiar with it with your other.
Med Tech companies you follow as well.
The net result of that is just things are taking longer.
And so if we do see an impact it would be later in the year, we expect and we said that throughout that.
Is going to take a while and then Japan.
Japan side.
For Overstitch, we're very pleased to get the clearance as I mentioned in my comments there.
There is still some regulatory work to be done to really open up the market around overstitch, but it will I think on the margin have some positive impacts on our business.
Okay, perfect and then if I could squeeze in one more.
Anything to call out.
Supply chain standpoint, and.
Just going off of that how should we think about gross margin trajectory this year with those.
Gross margin improvement projects that you guys are working on for Overstitch in particular.
Yes. This is Jeff Yeah, I think as we've said in the past I think we don't expect that we'll see any sort of step change in margin. It will be a gradual improvement in a lot of what you saw and what you saw in Q1 was really a mix of a number of factors.
<unk> efficiency and is and as we improve the <unk>.
Topline, we will start to see even better efficiencies on overhead absorption.
We did start to see the impact of the cost improvement projects that we that we executed last year, we'll continue to see those.
So I would say expect more of a gradual improvement as opposed to any step change in any single quarter.
Your question on supply chain I would characterize our supply chain complexity is less about supply and more about just ensuring that we are working closely with our contract manufacturers on capacity and staffing.
But we have not run into any any situations, where we're overly concerned about either incremental costs that we're not expecting or significant capacity constraints that we're not able to address.
Okay perfect. Thank you for taking my question.
Thank you.
Once again, if you have a question or comment please indicate so by pressing star one up next we have Chris Cooley with Stephens. Your line is live.
Good afternoon, and congratulations on a great start to the year just two quick ones for me if I may 1st when you think about your.
Your top 10 accounts that was very impressive when you think about the sequential.
All are or the implied annual run rate growth going from about 600000 at the end of the last year or two.
Approximately 1 million now could you help us better understand the characterization of these accounts I'm, assuming you sort of primarily.
<unk> practices, but what.
What's leading to that kind of step up in growth and then how do you scale that beyond those top 10 and I've got one quick follow up after that thank you.
Okay.
Yes, Chris we're excited to see the traction in some of these larger accounts are getting it and its a mix in terms of.
The nature of the accounts some of them are not in a very I mean, they're just kind of broad based users of across the portfolio.
Some of the larger academic centers, but I would say the majority in this.
It's a global list so inclusive of both the U S and internationally or some of these.
These early adopters are really embracing the endo bariatric side of things.
And so for that group that goes back to a bit of.
The homework we're doing on.
How they're approaching the market right they are seeing.
Really good response to.
Frankly, the procedures they are offering right between intercostal balloons and being a part of that for many of them not all but for most.
But then also with ESG and endoscopic revisions.
It's a nice affirmation for us that the value proposition resonates with patients and Thats true today, even in a primarily cash pay environment or as I've mentioned before and the kind of case by case reimbursement situations that some have access to but.
But it's been really nice to see and we.
We will be excited at a time when we do have any indication to say how do we support that are looked at ways that others can follow in their footsteps.
I appreciate the additional color there and then you touched on this a little bit in a prior question, but I just wanted to make sure we fully appreciate.
The underlying kind of trends here, but when we think about ex Tac.
I realize it's still very early days, there, but just going back to the third quarter of last year.
And then the fourth quarter and then now we've had a.
Truly a decent deceleration sequentially in the growth rate.
And you touched on Covid, obviously, as we started the calendar year, some seasonality there and I'm, assuming a heightened focus on overstitch.
Post the Merit study, but can you just kind of help us unpack a little bit that sequential deceleration in the growth rate from the <unk> to the one two I think it was 40% to 14 five.
That's correct.
70 back in the third quarter, which I would assume would be arbitrarily high as you were ramping up but just help us kind of understand that that trend and how we should think about that going forward here throughout calendar 2022. Thank you.
Yes, I think there are a number of factors going on Chris one is.
There is some things around for example, both seasonality as COVID-19 impacts which impacts.
A bit of what you see in terms of those numbers, we also see.
As you move from an environment early on in our launch for a lot of it has to do with some stocking of new accounts and moving to true utilization.
And so I think our utilize our underlying growth in utilization is probably a little higher.
And so from that standpoint, and then we're continuing I think in the kind of focus with our sales team of building that sustainable growth and certainly we'd like to see.
Continued and even improved quarter on quarter growth and some of that is just some of the newer folks fully getting up to speed and delivering it and producing at the level, we expect them to.
So it is a big focus area for us to make sure we continue to sustain and I do think that additional clinical information.
Critical validation around ex Tac for example of an EDW meeting will help a lot.
Thank you.
Okay. The next question is coming from Mathew Blackman with Stifel. Your line is live.
Hi, This is Colin on for Matt I wanted to focus on ex Tac for a minute.
As you guys mentioned, it's currently underweight in that lower Gi use segment, which is really a much broader market opportunity.
What are what is what are the next steps in addressing and addressing that opportunity are you focused on education is the first priority or is it really accessed practices with a different focus than you.
I know bariatric practices, who use overstitch and or bare a lot or is it really adding that clinical data, which you guys plan to present at CDW. Thanks.
Yes, thanks, Colin it's a little bit of all of the above you've kind of touched on a number of the things that we are in the process of doing and have been but I think are really emphasizing here one.
It's not surprising that we have an established customer base that is more familiar and the upper Gi.
And so really pushing our reps to move beyond kind of established customers in.
<unk> broader set.
That is easier to do as we expand our team and they've got kind of smaller territories.
And so we are absolutely doing that we're also.
Have better targeting data with more recent clinical.
Procedure numbers that allows them to be able to really focus on where the volumes are and make sure. They are engaging the right physicians there.
We're doing more in terms of engaging some of the key kols that really are the experts in the lower Gi.
And having good very good experiences with some of them, but I do think the last piece around clinical data does matter and so some of the datasets in colonic <unk> that I mentioned in my opening comments.
It will be important.
We don't know the outcomes of those studies, but anecdotally we've heard very good things about how people have done so again.
Once we certainly know the outcomes of what is presented in both presentations and posters at EDW being able to leverage that in those conversations.
And a lot of the peer to peer kind of marketing.
Is really important I mentioned doing webcast in face to face just making sure people are hearing from their colleagues about how they are incorporating this new approach into their clinical practice.
She is a powerful thing in medicine, and we're looking to change that.
I appreciate that and then.
On the on the new hires in the U S.
At late 2022 in late late 2021, and during the first quarter I was wondering if they are focused on preparing for either the ex U S launches or or the ESG revise releases and approvals or if they are really focused on selling the full bag of the three products.
Any color there would be helpful. Thanks.
Sure. So we're kind of doing two things simultaneously, we've got our territory managers.
That typically are focused on selling each of the products.
And.
Especially as a new hire getting up to speed on the training around the procedures.
Supporting the accounts and focusing on across all three products.
In parallel.
Jeff and his comments on one of the slides we mentioned this newer role of what we're calling a regional endo bariatric manager.
These are folks that are either been hired.
Or in some cases rehired a come back to Apollo who understand all of the different components that will be required to really have a successful practice kind of from from a patient standpoint before the procedure during the procedure and after the procedure and can really help support and develop those F.
For now it's very much focused on a barrel because it's an on label for us and they can kind of focus on those efforts while getting to know the practices involved and right now as Jeff mentioned at the end of the quarter. We have two of those roles very much was the pilot phase to make sure it's delivering the way we think it can.
And then assuming it does and as we move forward with the indication that's an area that we would plan to enhance and grow. So you have not a splitting of the sales force, but kind of a layering of different capabilities.
Great. Thank you very much.
Okay.
I would now like to turn the floor back to Chaz Mccann for closing remarks.
Well listen thank you all very much for joining us today, we appreciate your time and your support.
On the slide we have.
Upcoming activities and you're welcome to join.
Of them and then otherwise we really appreciate your time today. Thank you very much.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.