0001251769FALSE00012517692022-02-152022-02-15

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 15, 2022
 

Apollo Endosurgery, Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
001-35706
16-1630142
(State or other jurisdiction of incorporation)(Commission File Number)(IRS Employer Identification No.)
 
1120 S. Capital of Texas Highway
Building 1, Suite #300
Austin, Texas 78746
(Address of principal executive offices) (Zip Code)
(512) 279-5100
(Registrant’s telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.001 par value per shareAPENThe Nasdaq Global Market




Item 2.02    Results of Operations and Financial Condition.
On February 22, 2022, Apollo Endosurgery, Inc. (the “Company”) issued a press release reporting, among other things, its financial results for the fiscal quarter and fiscal year ended December 31, 2021. A copy of the Company’s press release is attached hereto as Exhibit 99.1.
This item 2.02 and the press release attached hereto as Exhibit 99.1 are furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or subject to the liabilities of that Section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended. The information contained herein and in the accompanying Exhibit 99.1 shall not be incorporated by reference into any filing with the Securities and Exchange Commission made by the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Item 5.02    Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Director Resignation
On February 15, 2022, Bruce Robertson, Ph.D., a member of the Board of Directors of the Company, informed the Company of his resignation from the Company’s Board of Directors, effective immediately. Dr. Robertson’s decision was not due to any disagreement with the Company.
Performance Bonus Plan
On February 15, 2022, upon the recommendation of the Compensation Committee of the Board of Directors of the Company, the Board of Directors approved the 2022 performance bonus plan (the “2022 Bonus Plan”) for eligible employees, including the Company’s executive officers. The 2022 Bonus Plan allows eligible employees to earn a proportion of their target bonus based on our achievement of corporate performance goals and the remainder of their target bonus based on assessment of their individual performance. The corporate performance goals consist of revenue, gross margin and EBITDA targets, and the individual performance goals consist of specific objectives and goals tailored to each plan participant. The Board of Directors may change the corporate performance goals, or use its judgment when evaluating our results against these goals, and may elect to increase or decrease the amounts payable under the 2022 Bonus Plan at its sole discretion. The following table sets forth the target bonuses for 2022 for each of the Company’s executive officers for 2021, including the Company’s Chief Executive Officer and President and the Company’s current named executive officers for 2021.
Name and Principal PositionTotal 2022 Target Performance Bonus as a Percentage of Base Salary
Chas McKhann
Chief Executive Officer80%
Jeff Black
Chief Financial Officer, Secretary, and Treasurer60%
Christopher J. Gostout, M.D.
Chief Medical Officer35%
John Molesphini
Executive Vice President, Operations40%
The foregoing description of the 2022 Bonus Plan is qualified in its entirety by the terms set forth in the 2022 Bonus Plan attached hereto as Exhibit 10.1 and incorporated herein by reference.
Item 9.01    Financial Statements and Exhibits.
(d)    Exhibits
Exhibit No.
Description of Document
10.1
99.1
104Cover Page Interactive Data File (embedded within the Inline XBRL document)




SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
APOLLO ENDOSURGERY, INC.
Dated:February 22, 2022
By:
/s/ Jeffrey Black
Name:
Jeffrey Black
Title:Chief Financial Officer


Exhibit 10.1
APOLLO ENDOSURGERY 2022 BONUS PLAN
PURPOSE OF THE PLAN
The Apollo Endosurgery Bonus Plan (the “Plan”) is designed to reward eligible employees for their contributions toward the successful accomplishment of specific financial and strategic business objectives, and individual performance.
PERFORMANCE
Bonus amounts are determined based on both corporate performance and individual performance in relation to pre-established objectives.
Corporate Performance
Corporate performance will be measured based on the annual operating plan approved by the board of directors. Exceptions to this and modifications to this Bonus Plan can be made at any time at the board’s sole discretion.
Individual Performance
Individual performance will be measured based on the achievement of written and approved goals prepared for each participant by their manager. Objectives and goals are established at the beginning of each Plan Year and initially documented no later than the end of February of each year, but may be modified throughout the Plan Year as necessary or appropriate, with senior management approval. Objectives and goals will be expressed as specific, measurable performance or achievement in relation to key operating priorities for the participant’s department. Goal achievement is assessed by each individual’s manager and the manager assessment may be subject to executive override.
BONUS POOL CALCULATION AND ALLOCATIONS
The Plan will have two separately funded pools – a Corporate pool (the “Corporate Component”) and Individual pool (the “Individual Component”). The two together form the individual’s final bonus amount.
The bonus pools will have the following levels of achievement defined below:
Individual Threshold – is solely determined at the discretion of the Board upon their end of year review of the overall Company’s financial condition and operating performance.
Corporate Component Threshold – minimum Company financial performance required before any corporate component pool will be funded.
Target – financial performance required before the corporate component is eligible to be funded at 100%.
A multiplier is applied for performance between the Corporate Threshold and Target to determine the percentage of the bonus pool that is funded, as well as performance that is above Target. The Corporate Bonus Pool can be up to 200% of target based on the achievement of above plan performance objectives.
Corporate Component for 2022
Three performance metrics for the corporate component for 2022 are as follows:
50% weighting. Target achievement of 2022 Product revenues
20% weighting. Target achievement of 2022 Gross Margin
30% weighting. Target achievement of 2022 EBITDA*
*EBITDA: Earnings before interest, taxes, and depreciation, and excluding bonus and stock-based compensation.


Exhibit 10.1
BONUS POOL ADJUSTMENTS AND DIFFERENTIATION BY DEPARTMENT
The bonus pool may be allocated to individual departments by the Company’s Chief Executive Officer based on such matters as he may determine to be appropriate, including but not limited to the department’s contribution to the corporate performance for the year. For example, a department that exceeds its goals may receive a greater share of the total bonus pool than a department that under performs.
At the end of the Plan Year, the Company’s Chief Executive Officer may recommend adjustments to the bonus pool to the board of directors after consideration of key operating results. When calculating corporate performance for purposes of this Plan, the board of directors has the discretion to consider such matters as it determines to be appropriate, including any or all of the following:
Extraordinary financial or corporate transactions that may occur during the plan year
Effects of accounting changes
Expenses for productivity initiatives
Other non-operating items
Integration activities or expense
Performance in relation to pre-established objectives
Any other items of significant income or expense which are determined to be appropriate adjustments
Individual Bonus Calculation
Target bonus awards are expressed as a percentage of the employee’s eligible earnings for each calendar year. Eligible earnings are defined as regular earnings paid during the year, holiday, vacation, and personal leave time. The target percentages will vary by position level. A participant’s actual bonus award may vary above or below the targeted level based on corporate performance, the overall performance of his or her business unit relative to the overall performance of the Company, and the participant’s performance in relation to his or her pre-determined individual objectives.
Position Level
Corporate Component Percentage
Individual Component Percentage
CEO100%Board Discretion
C-Level and VPs80%20%
Directors, Sr. Director50%50%
Managers and Professional Level (Exempt)25%75%
Hourly0%100%



Exhibit 99.1

Apollo Endosurgery, Inc. Reports 50% Revenue Growth in 2021
Increased adoption across all product lines in both U.S. and international
Grew fourth quarter 2021 revenue 26%

AUSTIN, Texas (February 22, 2022) - Apollo Endosurgery, Inc. ("Apollo") (Nasdaq: APEN), a global leader in less invasive medical devices for gastrointestinal and bariatric procedures, today announced financial results for the fourth quarter and year ended December 31, 2021 and corporate highlights.
Fourth Quarter and Full Year 2021 Selected Financial Results
(Numbers in millions, except percentages)Quarter Ended December 31, 2021Year Ended
December 31, 2021
Revenue$16.2 $63.0 
Gross margin56.3 %55.5 %
Operating expenses$14.8 $54.2 
Non-GAAP adjusted operating expenses$13.3 $47.9 
Operating loss$(5.7)$(19.2)
Non-GAAP adjusted EBITDA$(3.5)$(9.9)
Cash, cash equivalents and restricted cash$91.8 
Fourth Quarter and Full Year Financial and Corporate Highlights
Grew fourth quarter 2021 and full year Endoscopic Suturing System (ESS) revenue 37% and 55% over the same periods in 2020;
Grew fourth quarter 2021 and full year Intragastric Balloon (IGB) revenue 20% and 50% over the same periods of 2020;
Increased fourth quarter 2021 and full year revenue from the Company's top 10 direct accounts by over 50% and 85% over the same periods in 2020;
Continued X-Tack penetration in key accounts, with fourth quarter 2021 revenue growth of nearly 40% and an increase in ordering customers of nearly 20% compared to the third quarter 2021;
Secured over $175 million in new capital and borrowing capacity, providing cash runway to fund Apollo's planned growth initiatives;
Announced that investigators in the Multi-Center ESG Randomized Interventional (MERIT) study reported that the study met its primary endpoints for safety and efficacy. Patients undergoing the Endoscopic Sleeve Gastroplasty (ESG) achieved excess body weight loss of 49.2% at 12 months and demonstrated improvements in weight-related comorbidities. The MERIT study reported a serious adverse event rate of 2% for patients undergoing the ESG procedure.
Submitted a De Novo classification request to the U.S. Food and Drug Administration seeking 510(k) classification and clearance for the Apollo ESGTM and Apollo REVISETM devices; and
Announced the publication of a multi-center study of Apollo's X-Tack System, demonstrating high success rates, ease of use, and economic value in the treatment of GI defects.
“The fourth quarter capped a transformative year at Apollo, during which we drove increased utilization of our innovative therapeutic endoscopy portfolio, positioned the Company to expand our reach into new indications such as our recent De Novo 510(k) classification request for Apollo ESG and Apollo REVISE, and significantly enhanced our balance sheet to support our growth runway,” said Chas McKhann, Apollo’s president and CEO. “We remain focused on long-term value creation, expanding our base of trained physicians, working closely with our customers to drive product utilization, and maximizing the impact of our expanded sales team.”



Comparison of Selected GAAP and Non-GAAP Financial Results for Fourth Quarter 2021 to Fourth Quarter 2020
Total worldwide revenue increased to $16.2 million in the fourth quarter of 2021, a 26% increase compared to the fourth quarter of 2020, despite the impact of the recent surge in COVID-19 cases, which pressured procedural volumes in several key geographies, both domestic and international.
ESS product sales increased $2.8 million, or 37% in the fourth quarter of 2021 compared to 2020. Fourth quarter U.S. ESS product sales increased 42% while OUS ESS product sales increased 29%, highlighting continued demand for Apollo's OverStitch® and X-Tack® products across a range of patient indications. IGB product sales increased $0.9 million, or 20%, during the fourth quarter 2021 compared to the fourth quarter 2020 reflecting continued strength in demand for the ORBERA® balloon. In the U.S., IGB product sales increased 6% while OUS IGB product sales increased 27%.
Gross margin increased by 40 basis points, from 55.9% to 56.3%, and was $9.1 million for the fourth quarter 2021 compared to $7.2 million for the fourth quarter 2020.
Total operating expenses in the fourth quarter were $14.8 million compared to $10.4 million in the fourth quarter 2020. Excluding stock-based compensation, total non-GAAP adjusted operating expenses increased to $13.3 million from $9.8 million in 2020, primarily reflecting increased sales and marketing expenses to support current and anticipated revenue growth.
Loss from operations in the fourth quarter 2021 was $5.7 million compared to $3.2 million in the fourth quarter 2020. Net loss in the fourth quarter of 2021 was $10.4 million compared to $3.5 million in the fourth quarter of 2020, driven largely by an increase in interest expense related to a write-off of deferred financing costs and fees associated with the Company’s debt refinancing in December 2021. Non-GAAP adjusted EBITDA, which excludes stock-based compensation, gain on forgiveness of PPP loan and unrealized foreign exchange was a loss of $3.5 million for the fourth quarter of 2021, compared to a loss of $1.7 million in the fourth quarter 2020.
For more detailed information on non-GAAP calculations, please refer to the tables that follow.
Cash, cash equivalents and restricted cash were $91.8 million as of December 31, 2021, with up to an additional $65.0 million in future draws available under the Company's credit facility with Innovatus Capital Partners should the Company meet certain revenue milestones.
Current and long-term debt at face value as of December 31, 2021 included $35.0 million outstanding under the Innovatus credit facility and $19.5 million in outstanding convertible notes.
Financial Outlook for 2022
Apollo expects full year 2022 revenue between $73 million and $75 million, representing growth of approximately 16% to 19% over 2021. The Company continues to monitor the potential and uncertain impact of the ongoing COVID-19 pandemic. Should hospitals or outpatient centers, where the company’s procedures are performed, experience continued or additional surges in cases, and need to defer elective procedures to preserve capacity for COVID-19 patients, the company’s ability to achieve these financial projections could be adversely affected.
Resignation of Bruce Robertson from Apollo Board of Directors
Apollo also announced today that Bruce Robertson has retired from the Apollo Board of Directors, effective immediately, to focus on other commitments. Dr. Robertson, Managing Director of H.I.G. Capital, LLC, has served as a member of the Apollo Board of Directors since February 2008.
“Bruce has been instrumental in Apollo’s development in his 14 years of service on our Board,” said Chas McKhann. “Personally, he has been a highly valued colleague and advisor in my first year as CEO. We thank Bruce for his unwavering contributions to Apollo’s formation and growth, and we wish him all the best in his future endeavors.”
“Since our initial investment in Apollo, my colleagues at H.I.G. Capital and I have been excited about the Company’s potential to play a transformative role in therapeutic endoscopy,” said Dr. Robertson, “I leave knowing that Apollo is in good hands under a new leadership team, with a sound strategy to realize the full potential of our original vision.”
The Company has engaged Spencer Stuart, a global executive search firm, to lead a search process for Dr. Robertson’s successor.



Conference Call
Apollo will host a live webcast audio call with slides today at 3:30 p.m. CT / 4:30 p.m. ET. Investors are invited to join the live call via webcast from the Investors section of the Company's corporate website at www.apolloendo.com. An audio-only option is available by dialing +1 973-528-0011 and referencing access code 718442 or the “Apollo Endosurgery Fourth Quarter 2021 Earnings Call.” Investors who opt for audio-only will need to download the related slides at www.apolloendo.com.
A replay of the webcast will be made available on Apollo's website, www.apolloendo.com, shortly after completion of the call.
Non-GAAP Financial Measures
To supplement the Company’s financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company reports certain non-GAAP financial measures, including non-GAAP adjusted operating expenses and non-GAAP Adjusted EBITDA. Adjusted operating expenses is calculated as operating expense less stock-based compensation. Adjusted EBITDA is calculated as GAAP net loss, plus depreciation and amortization, interest expense, net, income tax expense, stock-based compensation, gain on forgiveness of PPP loan, and unrealized foreign exchange. These supplemental measures of our performance are not required by, and are not determined in accordance with GAAP. The Company believes that these non-GAAP financial measures provide investors with an additional tool for evaluating the Company's core performance, which management uses in its own evaluation of continuing operating performance, and a baseline for assessing the future earnings potential of the Company. The Company’s non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in the Company’s industry, as other companies in the industry may calculate non-GAAP financial results differently. Non-GAAP financial results should be considered in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Included in the supplemental tables to this press release is a reconciliation of non-GAAP adjusted EBITDA to GAAP net loss.
About Apollo Endosurgery, Inc.
Apollo Endosurgery, Inc. is a medical technology company focused on the development of next-generation, less invasive devices to advance therapeutic endoscopy designed to treat a variety of gastrointestinal conditions including closure of gastrointestinal defects, managing gastrointestinal complications and the treatment of obesity. Apollo's device-based therapies are an alternative to invasive surgical procedures, thus lowering complication rates and reducing total healthcare costs. Apollo's products are offered in over 75 countries today and include the OverStitch® Endoscopic Suturing System, the OverStitch Sx® Endoscopic Suturing System, X-Tack® Endoscopic HeliX Tacking System and the ORBERA® Intragastric Balloon.
Apollo’s common stock is traded on Nasdaq Global Market under the symbol "APEN". For more information regarding Apollo Endosurgery, go to: www.apolloendo.com.
Cautionary Note on Forward-Looking Statements
Certain statements in this press release are forward-looking statements that are subject to risks and uncertainties that could cause results to be materially different than expectations. In addition, there is uncertainty about the spread of the COVID-19 virus and the impact it may have on the Company’s operations, the Company’s financial outlook for future periods, the demand for the Company’s products, the Company’s liquidity position, global supply chains and economic activity in general. Important factors that could cause actual results to differ materially include: the ongoing effects of the COVID-19 pandemic; reports of adverse events related to the Company's products, outcomes of clinical studies related to the Company's products, development of competitive medical products by competitors, regulatory approvals and extensive regulatory oversight by the FDA or other regulatory authorities, unfavorable media coverage related to the Company's products or related procedures, coverage and reimbursement decisions by private or government payors, the Company's ability to support the adoption of its products and broaden its product portfolio; the potential size of the Company's addressable markets; the execution of our gross margin improvement projects; global supply chain constraints; the effect of inflationary pressure; and the availability of cash for Apollo’s future operations as well as other factors detailed in Apollo’s periodic reports filed with the Securities and Exchange Commission, or SEC, including its Form 10-K for the year ended December 31, 2021. Copies of reports filed with the SEC are posted on Apollo’s website and are available from Apollo without charge. These forward-looking statements are not guarantees of future performance and speak only as of the date hereof, and, except as required by law, Apollo disclaims any obligation to update these forward-looking statements to reflect future events or circumstances.
Disclosure Information
Apollo uses the investor relations section of its website as a means of complying with its disclosure obligations under Regulation FD. Accordingly, we recommend that investors should monitor Apollo's investor relations website in addition to following Apollo's press releases, SEC filings, and public conference calls and webcasts.



Contacts
Apollo Endosurgery, Inc.
Jeff Black, 512-279-5126
investor-relations@apolloendo.com
Darrow Associates Investor Relations
Matt Kreps, 214-597-8200
mkreps@darrowir.com



APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except for share data)
 Three Months Ended December 31,Year Ended December 31,
 2021202020212020
 (Unaudited)(Unaudited)  
Revenues$16,171 $12,860 $62,989 $42,048 
Cost of sales7,069 5,670 28,030 19,806 
Gross margin
9,102 7,190 34,959 22,242 
Operating expenses:    
Sales and marketing
7,393 4,582 24,311 17,355 
General and administrative
4,467 3,192 18,448 11,062 
Research and development
2,479 2,186 9,524 7,670 
Amortization of intangible assets
463 477 1,875 1,949 
Total operating expenses
14,802 10,437 54,158 38,036 
Loss from operations
(5,700)(3,247)(19,199)(15,794)
Other expenses:    
Interest expense, net
4,290 1,356 8,318 5,251 
Gain on forgiveness of PPP loan— — (2,852)— 
Other (income) expense
479 (1,150)(139)1,424 
Net loss before income taxes
(10,469)(3,453)(24,526)(22,469)
Income tax expense(64)52 156 142 
Net loss
$(10,405)$(3,505)$(24,682)$(22,611)
Net loss per share, basic and diluted$(0.27)$(0.14)$(0.82)$(.99)
Shares used in computing net loss per share, basic and diluted
38,258,431 25,608,839 30,243,264 22,756,167 





APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Product Sales by Product Group and Geographic Market
Unaudited (In thousands)
 Three Months Ended
December 31, 2021
Three Months Ended
December 31, 2020
% Increase / (Decrease)
 U.S.OUSTotal RevenuesU.S.OUSTotal RevenuesU.S.OUSTotal Revenues
ESS$6,940 $3,536 $10,476 $4,901 $2,744 $7,645 41.6 %28.9 %37.0 %
IGB1,623 3,862 5,485 1,535 3,050 4,585 5.7 %26.6 %19.6 %
Other205 210 599 31 630 (65.8)%(83.9)%(66.7)%
Total revenues$8,768 $7,403 $16,171 $7,035 $5,825 $12,860 24.6 %27.1 %25.7 %



 Year Ended
December 31, 2021
Year Ended
December 31, 2020
% Increase / (Decrease)
 U.S.OUSTotal RevenuesU.S.OUSTotal RevenuesU.S.OUSTotal Revenues
ESS$25,917 $14,048 $39,965 $15,774 $9,955 $25,729 64.3 %41.1 %55.3 %
IGB7,193 14,904 22,097 5,045 9,739 14,784 42.6 %53.0 %49.5 %
Other894 33 927 1,453 82 1,535 (38.5)%(59.8)%(39.6)%
Total revenues$34,004 $28,985 $62,989 $22,272 $19,776 $42,048 52.7 %46.6 %49.8 %





APOLLO ENDOSURGERY, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Adjusted Operating Expenses and Adjusted EBITDA
Unaudited (In millions)

Three Months Ended December 31,Year Ended December 31,
(Numbers in millions)2021202020212020
Operating expenses$14.8 $10.4 $54.2 $38.0 
Less: Stock-based compensation in operating expenses1.6 0.6 6.3 2.1 
Non-GAAP adjusted operating expenses$13.3 $9.8 $47.9 $35.9 

Three Months Ended December 31,Year Ended December 31,
(Numbers in millions)2021202020212020
Net loss$(10.4)$(3.5)$(24.7)$(22.6)
Depreciation and amortization0.7 0.9 3.2 3.7 
Interest expense, net4.3 1.4 8.3 5.3 
Income tax expense(0.1)0.1 0.2 0.1 
EBITDA(5.5)(1.1)(13.0)(13.5)
Add back significant items:
Stock-based compensation1.6 0.6 6.4 2.1 
Gain on forgiveness of PPP loan— — (2.9)— 
Unrealized foreign exchange0.4 (1.2)(0.4)1.2 
Adjusted EBITDA$(3.5)$(1.7)$(9.9)$(10.2)