Apollo Endosurgery, Inc.

Q3 revenue reached nearly $20 million, a record for the company. Global ESS revenue grew nearly $5 million, up 45% in constant currency and about $4 million, or 41%, on a GAAP basis; U.S. revenue grew 29%, with U.S. ESS up nearly $3 million and 41%. U.S. revenue grew 18% in constant currency and 9% on a GAAP basis, while foreign currency created a nearly $700,000 headwind, or 900 bps, to year-over-year growth. Gross margin was flat in Q3 on a constant-currency basis and down about 150 bps on a GAAP basis. Full-year 2022 revenue guidance was raised to $75 million-$76 million, implying 19%-21% growth on a GAAP basis and up to 25% growth in constant currency. Management said it expects to end the year with $125 million in cash and committed cash, including about $60 million in cash and equivalents, and that annual cash use should be around $30 million.

Chas McKhann framed the quarter as evidence that Apollo is becoming a growth company, saying the business is “heading in the right direction” and that 2022 growth is coming before several larger catalysts fully ramp. He emphasized four upcoming drivers: endobariatric expansion with ESG and REVISE, continued U.S. commercial scaling, the new OverStitch NXT product, and international expansion. His tone was confident and methodical, repeatedly stressing execution, training quality, and patient outcomes as the company scales.

Jeff Black said the company posted its highest revenue on record for the second straight quarter, with ESS volume increases as the main growth driver and only a moderate lift from price. He noted Orbera declined by about $200,000 due to seasonality and macro pressure, and that foreign exchange hurt growth by nearly $700,000. On margins, he said gross margin was flat in constant currency and down about 150 bps GAAP, but pricing increases, improved overhead absorption, and COGS initiatives should support margin expansion toward the mid-60% range over time. He also said non-GAAP expenses were 75% of revenue, down from 80% in Q2, and that Apollo ended Q3 with over $130 million in cash and committed cash, expecting about $125 million by year-end and annual cash burn around $30 million.

Analysts focused on whether Apollo can sustain 20%+ growth in 2023, the size of the cash-pay ESG opportunity, the impact of new bariatric society guidelines, physician training capacity, X-Tack penetration, rep productivity, pricing, and OverStitch NXT. Management said it is not giving formal 2023 guidance, but feels good about the outlook given current momentum and expects growth drivers to continue to build, including NXT in the second half of next year. On ESG cash-pay, Chas McKhann said the total business could reach about $450 million over an eight-to-10-year horizon, with cash pay representing roughly 40%-45% of that. He also said training will remain deliberate and quality-focused, rep productivity should mature over six to 12 months, and Japan could become meaningful over the next one to three years as reimbursement work progresses.