Good afternoon. My name is Kenzie, and I will be your conference operator today. At this time, I would like to welcome, everyone to the Apollo Endosurgery First Quarter 2019 Results Conference Call. [Operator Instructions]. Thank you. John Gillings, you may begin your conference.

Thanks, Kenzie. And thanks, everyone, for participating in today's call. Joining me on the call are Todd Newton, Chief Executive Officer; and Stefanie Cavanaugh, Chief Financial Officer. Before we begin, I would like to caution listeners that comments made by management during this conference call will include Forward-Looking Statements within the meaning of federal securities laws, including Apollo's financial outlook and Apollo's plans and timing for product development and sales. These forward-looking statements involve material risks and uncertainties and Apollo's actual results may differ materially. For a discussion of risk factors, I encourage you to review the company's quarterly report on Form 10-Q filed today May 2, 2019, with the Securities and Exchange Commission. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, May 2, 2019. Except as required by law, Apollo undertakes no obligation to revise or update any statement to reflect events or circumstances after the date of this call. During this call, we will interchangeably use the terms ESS for OverStitch and the term IGB for Orbera and vice versa. In this call, we will also refer to the term continuing product revenue, which excludes the revenue associated with our Surgical products, which we divested on December 17, 2018. Continuing product revenue will differ from our GAAP revenue as we will still report historical and transitional Surgical product sales as part of our GAAP revenues. Now I would like to turn the call over to Todd.

Thank you, John. And good afternoon, everyone. And thank you for joining today's call to discuss our first quarter 2019 results. We are pleased with our product sales growth this quarter, especially for ESS. The constant currency information that we reported in our press release removes the effects of foreign exchange rate changes and provides a better understanding of our real local currency sales performance in the first quarter versus our GAAP reported revenue, which includes currency effects. Constant currency sales performance, also aligns better to what management expects from our commercial organization worldwide, that being year-over-year growth in the local currency in which our respected teams operate. In the first quarter of 2019, our Endo-bariatric product sales, which represent our continuing product sales increased 9% in constant currency. Worldwide ESS or OverStitch sales increased 17% in constant currency, and we are very pleased with this result. Of these continuing product sales in the quarter, about 60% were from markets outside the United States where our periodic sales reporting has exposure to changing foreign currency rates. In our 2018 year-end call, we said we expected our endo product sales in 2019 to grow around 15%, with a lower growth rate in the first half and higher in the second half. The U.S. dollar continued to strengthen during the first quarter versus the euro, which is our largest sales currency after the U.S. dollar. We will not attempt to forecast currency rates, however, if rates were to remain at current levels, we would expect the impact of currency on our revenue growth rates to decline as the year progresses. And at this time, we see no reason to change our 2019 guidance. I will turn the call over to Stefanie now to cover our financial results in greater detail. Stefanie.

Thank you, Todd. And good afternoon, everyone. ESS sales increased 13% to $6.5 million in the first quarter of 2019 versus $5.8 million in the first quarter of 2018. On a constant currency basis, total ESS sales increased 17%. Sales in the United States increased 20% and outside the U.S., ESS sales increased 7% on an as-reported basis. And in constant currency terms OUS ESS sales increased 14%. ESS growth resulted from expanded procedure use within existing accounts and the addition of new users. Sales from OverStitch Sx contributed, but were not particularly meaningful to sales growth in the quarter. Intragastric Balloon or IGB sales were $4.3 million in the first quarter versus $4.5 million in the first quarter of last year. Sales in OUS markets were roughly 2/3 of our total IGB revenue in the first quarter. And roughly flat on an as-reported basis while up 5% on a constant currency basis when compared to the first quarter of 2018. Constant currency OUS growth was due to increased sales in Europe, where we have available the Orbera365 product, partially offset by declines in the other OUS markets, especially Brazil, where we do not yet have Orbera365. In the United States, IGB sales were down approximately $150,000 versus the first quarter of last year, more or less back to prior year level. Due to financial related issues, one of our largest customers in the first quarter of last year was unable to receive product shipments in the first quarter of this year. This single customer alone resulted in a decline this quarter of more than $200,000. Since the end of the first quarter, it appears that their issues have been resolved, and we expect shipments will resume. In total, our first quarter of 2019 continuing product revenues, which we define…

Thank you, Stefanie. I have several updates that I want to provide you this afternoon, starting with Sx. The Sx launch is going fine and as expected. Its selling process is very similar to the dual-channel compatible OverStitch. First, we obtain approval from a hospital or surgery center to purchase the product, which many times involves a value-analysis committee review. From then it's a medical education lift that will involve more than one touch point as we transition physicians from an introduction to the device, to a confidence level with the device and then to proficiency across a variety of procedure applications. This transition is just time in the lab and time in cases. Training is not a one-and-done effort with either our sales reps or new user. One of our strength as an organization, is that we have a great medical education team with a lot of suturing experience and a well-tested playbook on how to take a prospect from their first training through the steps to become a confident and frequent user of our technology. In addition, we have a solid field sales organization. The important thing at this point is our activity, which consist mostly of working through value-analysis committee evaluations and this pipeline looks good to us. We are confident that Sx is on target to rollout very well as this year progresses. More broadly as we think about endoscopic suturing, there are two significant market opportunities that we are focused on: Core GI use and bariatrics. There are phenomenal core GI cases being reported to us, including cases involving full-thickness resection and treating several complications that would have required surgical intervention in the past but can be addressed endoscopically because of the ability to suture. Core GI will continue to be an area were suturing…

[Operator Instructions]. Our first question comes from the line of Matt Hewitt with Craig-Hallum.

A couple of questions. First, regarding OverStitch and Sx in particular, are there any metrics that you can provide and maybe the number of doctors that you have trained to date or number of facilities, or [indiscernible] that you have gotten through? Any color along those lines?

No. We don't have any metrics for you today other than what we said, which was we feel very good about the pipeline of activity where we are currently engaged in the value-analysis committee answers.

Okay. And shifting gears quick to Orbera. Obviously, there has been some disruption. I hear recently one of your competitors, and I realize it's pretty early, but I'm wondering if you have seen any benefit from them going indirect and obviously, you having the direct sales force. Anything along those lines?

Yes. We feel very optimistic about where we are heading into Q2 with Orbera. We feel like we have put in place a lot of good things here in the last couple of quarters to position us well. And as it relates specifically to any competitor situation, I don't really have any comments for you in that regard. And I wouldn't probably be able to attribute anything that we are seeing within our business to a competitive situation anyway. We just feel like we are making good progress, and we are happy with that.

Okay. And maybe one last one and then I will hop back into queue. And this is more of a big-picture question. It seems like almost every single day, there is a headline, an article, some new data that is pointing to the benefits of treating obesity. Whether it be due to the number of cancers that are being attributed to obesity or some of the other issues that come from having a high BMI, yet, it appears that we are not quite seeing the wheels turn on the reimbursement front maybe as fast as you would expect or would hope. And I'm just curious your take on, what do you think is going to be the trigger? What is going to finally wake the health care community up that this is something that needs to be addressed to reduce health care costs. I mean that seems to be a big as we enter the election cycle, that is a big issue - is reducing health care costs. Well here is, in my opinion, a slam-dunk opportunity, yet, it doesn't seem that the gears are moving quite as fast. What are your thoughts and what do you think it's going to take?

Yes, that is a great question, Matt, and one that I probably will not have a really perfect answer for this afternoon. It's obviously an area where health economic data is critical. We know on the clinician side, we know on the patient's side. For example, there has a great deal of interest on ESG but payers still need to see data that they need to see and they need to see it in a fashion that helps them understand that there is a cost benefit to offering a procedure like the ESG. And I think that is common for any type of area within medicine today. There needs to be a cost benefit because it is with the rising cost of health care, it oftentimes appears to be a zero-sum game as to how many dollars do payers have to, let's call it, cover different procedures with. So you do need to be able to demonstrate that by addressing any disease that it actually is cost beneficial to do so.

Your next question comes from the line of JP McKim with Piper Jaffray.

This is Drew on for JP. And congrats on the nice quarter. I want to say on Sx here, too, and thanks for providing that early feedback. It sounds like the U.S. is starting really nice. They are obviously, pretty early in your launch here. Kind of as we try to get a feel for the rollout. We are just curious though, what mix are you seeing between Sx and Gen 1 today. And kind of how do you see that trending throughout the year? And then sort of to piggyback on that as well. Does that have a margin impact for the company given where Q1 took out?

Yes. Good question. So first of all on the mix here in Q1. Keep in mind, I think it's important to remember that the Sx launch began in February. So in relation to the quarter that we are talking about, even though it's now, 1st - 2nd May, I should say, that is still relatively short period of time that Sx was in the market as it relates to Q1. With respect to Q1, most of our OverStitch sales or ESS sales were still the dual-channel version of OverStitch by far. So we did have sales of Sx in the first quarter, but I would not say that Sx was a big contributor to our growth rates in Q1, that was still the traditional OverStitch product. And when it comes to the, If you will, the rollout later this year, we expect that to, obviously, change. And as we get through value-analysis committees, we have every expectation that we will begin to see orders for product and then with our training, which we feel very good about, our training skills, medical education skills. We are going to turn a lot of those accounts into very proficient users of OverStitch, and so we are excited about that. But it's going to be one of those rollouts that simply is an execution story where we do in fact have to execute. And now on the margin side, I think I will turn that over to Stef to talk about.

Well, I think the question was, is there a margin impact between dual-channel and single-channel OverStitch? And the answer to that is, it's basically the same. There has a slight difference but the bigger issue to our margin is that OverStitch as a whole, both dual-channel and single-channel is lower margin than our other products. And therefore, we have our gross margin improvement projects that we are working on to improve that process or that profile, regardless of whether it's single-channel or dual-channel.

Okay, that is very helpful. And I just want to follow-up one more. I guess, you just mentioned right there in your opening remarks about your progress with your value-analysis committees. I'm like, how long is that process kind of taking from start to finish? And sort of what are they pushing back on the most?

Yes. And just to take the second part, I'm not aware of really a lot of push back that I'm hearing about. The value-analysis committee efforts depend a lot upon the specific hospital, depend a lot on the specific ASC. Yes, it depends a lot upon just when they can get those people together and also depends a little bit about the sponsoring department and how that sponsoring department - how hard that sponsoring department, I should say, wants to push. So the factors are probably just site specific and hard to really give you a feel for. In some cases, it goes really fast and in other cases, they can just simply drag on for a variety of reasons, including just peer scheduling reasons.

[Operator Instructions]. There are no further questions at this time. I turn the call back to our presenters.

Well, thank you, Kenzie. In closing, we just want to thank you for your interest in Apollo Endosurgery today. And if you do have any questions for follow-up, please feel free to contact John Gillings, our Investor Relations Manager. Tap the numbers that were listed on our press release earlier today. Thank you very much.

This concludes today's conference call. You may now disconnect.