Good afternoon, ladies and gentlemen, and welcome to the Apollo Endosurgery Fourth Quarter and Full-year 2021 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. And thanks everyone for participating in today's call to discuss Apollo 's fourth quarter and full-year 2021 financial and operating results. Joining me on the call today are Charles McKhann, Chief Executive Officer and Jeff Black, our Chief Financial Officer. Today's call will include slides to accompany the audio presentation.

For those joining us by telephone, you can download a copy of the slides at our investor relations site, ir.apolloendo.com and choosing Events and Presentations.

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.

In addition, there is uncertainty about the continued spread of COVID-19 virus and the ongoing impact it may have on our operations, the demand for our products, global supply chains, and economic activity in general. 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 most recent annual report on Form 10-K and our most recent Form 10-Q. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, February 22, 2022.

As required, except as required by law, Apollo undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this call. Additionally, today's discussion will include certain non-GAAP financial measures, which we believe provide an additional tool for evaluating the company's core performance.

Management uses these metrics in its own evaluation of continuing operating performance, and a baseline for assessing the future earnings potential of the company. Included in our press release issued today our financial results and corresponding 8-K filing, our supplemental tables reconciling non-GAAP figures to their closest GAAP comparable.

And now I'd like to turn the call over to Charles..

Thanks, Matt. And thank everyone, good afternoon. Thank you for joining us. Next week will mark one year since I joined Apollo Endosurgery. And I am truly grateful for having the honor of leading this team and this company with such unique products that impact patients' lives. Last year, I laid out a three-phase strategy as described on page 3.

The first phase was to energize the business by building momentum across all three of our product lines while executing on foundational initiatives that can set us up for growth in the years ahead. The second phase is to accelerate the business by developing new indications in markets.

And the third phase is to lead in the fields of advanced defect closure and as endoscopic treatments for weight loss. As we implement this strategy, we have bolstered the Apollo leadership team by bringing in new talent into the organization to join an already strong Apollo team.

And in addition, we are focusing our efforts on developing large market opportunities. I'm pleased to report today that in the past 12 months and in Q4 that we've made tremendous progress, which strengthened the team at Apollo at all levels.

At the leadership team earlier in the year, we brought on new commercial leaders here in the U.S., we brought in Jeff Black as our new CFO who's with me today. And then just in January, we announced the addition of Keely Scamperle to lead our reimbursement and market access efforts.

Keely is an experienced professional and is already working at building her team that will lead our reimbursement efforts in facilitating patient access for our products. We've nearly doubled our sales team in the U.S. and we've added to our OUS team.

We're building our marketing and trading capabilities and becoming a more professional selling organization. We strengthened our R&D and engineering team and are implementing new processes to strengthening our new product pipeline.

And we are addressing a historical underinvestment in other critical functions like operations, supply chain, business analytics, and customer service. Simply put, we have very talented people at Apollo and I'm very proud of the work that they've done. We've just not had a scalable organization.

And so we're strengthening our capabilities across the organization to support our growth plans. We're also building and developing a new culture, focusing on a set of five core values that I'll come back to later in the discussion. And so in summary, at Apollo, we're undergoing substantial change in our team, our processes, and our culture.

And we anticipate that these changes will allow the company that has historically struggled at times and underperformed to become a growth engine. Now, often when a company undergoes this much change, the business often needs to take a step backwards before moving ahead with renewed confidence.

And I'm very pleased that that is not the case for Apollo in 2021. For the year, we delivered 50% revenue growth, and for Q4, we delivered 26% growth.

Despite a meaningful impact of the omicron variant in many markets in Western Europe and the U.S.., our growth has been balanced across product lines with OverStitch, ORBERA, and our newest product, X-Tack, all contributing to growth. And we've seen balanced growth across geographies with strong performance in both the U.S. and international markets.

And while we kick-started the business in 2021, we've also created a foundation for the years ahead. In our advanced GI franchise, X-Tack is an important new product for us. We gained initial traction in the marketplace and published the first clinical data for the product.

In our endoscopic weight loss franchise, obesity is a global epidemic that remains largely unchecked and the opportunity for endoscopic weight loss therapies is tremendous. 2021 was a year of important strategic milestones.

Early in the year, in the spring of last year, the AGA implemented new clinical practice guidelines for the first time ever in favor of intragastric balloons therapies. The MERIT investigators presented the initial results at the IPSO meeting in the fall.

We submitted a new De Novo application, De Novo 510(k) application for Apollo ESG and Apollo REVISE. And through the course of the year, we saw an emergence of new endobariatric programs in both academic and private practice settings. In the area of NASH, we received a breakthrough designation for ORBERA for the treatment of NASH in Q1 of last year.

We've also been collecting data on ESG, and working through the best strategy to address this large market opportunity. And then on our balance sheet. In 2021, we secured access to a $175 million in capital. We now have a strong balance sheet to support our growth initiatives. And so Page 5 gives you a sense of the balance that I just mentioned.

On the left side of the page, you can see 50% year-on-year revenue growth, 55% for the ESS franchise. And importantly, 50% for the IGB franchise. And the figures relative to 2019 are shown as well. Another interesting development has been the growth in our top 10 accounts. We saw 85% year-on-year growth in our top 10 accounts.

And the average sales for Apollo in those 10 accounts is more than $600,000. And we think that gives a pretty good indication of the scale that we can drive as we increase penetration into -- of our products into our largest customers. For X-Tack, we continue to gain traction and we saw 40% sequential quarter-on-quarter growth for X-Tack.

And as I mentioned, we're already hit -- we had important milestones for both the MERIT study and the De Novo 510(k). Related to MERIT and clinical data for ESG and revisions, we do expect a conditional presentations of the data at the upcoming DDW meeting. That's the Digestive Disease Week meeting that's in May.

We also expect other publications on -- I'm sorry, presentations at that meeting on ESG and revisions from investigators around the world, sort of important additions to the clinical body of evidence. For MERIT itself, the investigators are working on the publication and we look forward to that in the months ahead.

Jeff will now provide a review of our financial performance, and I will be back to provide additional commentary on our priorities for the year ahead..

Thank you, Charles, and good afternoon, everybody. Thank you all for joining us today. I'll spend a few minutes to recap our financial results and then to hand it back to Charles to discuss our 2022 outlook and strategy. Starting with revenue on Slide 7.

In Q4, we continued to see strong year-over-year growth across the product portfolio, and our fourth consecutive quarter of double-digit growth. And that was against the backdrop of pandemic-related pressure. As we all know, this has been a changing dynamic throughout 2021, and we did see pressure on Q4 volumes.

Outside the U.S., we saw pressure earlier in the quarter in concentrated markets, particularly Western Europe. And inside the U.S., we began to see slowdowns later in the quarter, particularly December, predominantly in academic hospitals and larger community hospitals where access was more limited.

Even with this pressure on procedure volumes, we still maintained a healthy monthly revenue cadence in December, consistent with the rest of the quarter where we didn't see was the ramp that we expected in the last half of December. And that was really difference between hitting the low end of our annual revenue guidance and the high end or better.

Growth in the fourth quarter was balanced between U.S., where we saw 25% growth, and international, which grew 27%. Globally, our endoscopic suturing business was up over 37% in the fourth quarter and that's just highlights continued demand for our OverStitch and X-Tack products across a broad range of indications.

Globally, ORBERA revenue was up 20% and that was below our blended growth rate, really due to volume pressure in the U.S., where growth was about 6%. But we believe this down tick is transitory and that it was mostly attributed to inpatient in hospital settings in the U.S. where access was limited in Q4.

For the full year, we saw revenue growth of 50% and a gained balanced across our U.S. or international businesses and across product lines. Overall, we're pleased with our revenue performance in 2021 and our ability to navigate a challenging fourth quarter for Medtech broadly. Turning to gross margin on Slide 8.

In the fourth quarter, we saw gross margin improved by 40 basis points in -- versus fourth quarter of 2022, 260 basis points on a year-to-date basis. We continue to remain focused on gross margin improvements, particularly with OverStitch, which as we've discussed, had a lower margin profile than ORBERA and X-Tack.

Major drivers of overall gross margin expansion will be product mix, improved overhead absorption, and direct cogs improvement programs, again, focused primarily on OverStitch. During 2022, we should start to see the impact of some of the cost improvement initiatives that we completed in 2021.

And at the same time, we're navigating supply chain and manufacturing scale-up complexities, but we remain confident in our ability to drive blended gross margin to the mid 60% range over the next three to five years. Moving to Slide 10 -- so moving to Slide 9.

As we look at operating spend profile, we think it's important to exclude non-cash stock-based compensation to get a clearer picture of what our real non-core GAAP operating expense run rate is. In the near-term, we're focused on building capabilities following historical underinvestment in the business.

For example, you'll see in the fourth quarter, our non-GAAP OpEx ran at about 79% of revenue, that reflects our planned investments in growth initiatives, primarily to build out our U.S. sales channel and our marketing programs as we prepare for the anticipated launch of our ESG products.

In the U.S., we have a small commercial team relative to the size of our opportunities, but we made great progress throughout 2021 to expand that footprint. We started the year with 16 direct reps in the U.S. We ended with about 30 by the end of the fourth quarter.

And going forward, we'll continue to evaluate the appropriate scale of our commercial team and invest as necessary. Our other focused areas of planned investment will be medical education, clinical reimbursement, product development, and continued COGS improvement initiatives.

We do expect to see operating expenses increase in both absolute dollars and as a percentage of revenue, particularly in 2022 and we should start to see operating expense leverage in 2023 and beyond. But I think importantly, we have the ability to modulate spend as appropriate.

And we're now well positioned from a balance sheet perspective to make these investments. Moving to Slide 10, you'll see that during 2021, our average quarterly burn was about $4 million a quarter. We ended the year with cash of about $92 million. Until now, Apollo has not been capitalized to adequately fund our long-term plan.

The company historically did a very nice job managing burn, particularly during a very challenging global pandemic. However, due to historical under-investment, the company really has not been well positioned to support even modest growth.

That changed for us in the fourth quarter as we secured over $125 million in new capital and borrowing capacity, which enables us to begin making the investments required to capitalize on the opportunities we see ahead of us, and this -- we can do this without creating a concern about cash runway.

We're now extremely well positioned to execute on our plan growth initiatives. Turning to Slide 11. And before I turn things back over to Charles, just a few comments on our new credit facility with Innovatus Capital Partners, which we executed in December of last year.

Key terms of -- or key strategic reasons for the new term loan is a reduction in our cost of capital, an extension of our amortization by an additional 33 months over our prior-term loan, and a decrease in debt service costs by nearly $30 million over the next three years, we also have now additional borrowing capacity that provides [Indiscernible] and delusive growth capital, and strategic flexibility.

At close, we drew $35 million to repay our prior-term debt, and we now have up to $65 million available for future tranches, $15 million will be available in 2023 and $25 million available in 2024, both based on achievement of revenue milestones.

And another up to $25 million available for approved strategic acquisitions is such opportunities to rise. Borrowings mature in December of 2027, interest-only payments run through January of 2027. This was a great result for us. We couldn't be happier with the outcome of this and we look forward to our new partnership with Innovatus.

And with that, I will turn the call back over to Charles..

we are patient - centric, we're customer-focused, we are innovative, we are passionate, and we care. We care about all of our stakeholders and we care about delivering operational excellence. And we are working to build an organization that can deliver sustainable growth in the years ahead.

So before we move to the Q&A, I'd like to take a moment to recognize Dr. Bruce Robertson from HIG Capital for his tremendous service to Apollo Endosurgery and our Board of Directors for more than 14 years. Bruce participated in the very first institutional investment round for the company in 2008, and has served on our board since then.

He's been instrumental in guiding the company through its formative stages and getting us to the point where we are today. In addition, Bruce has been a fantastic colleague and advisor for me in my first year as CEO. Bruce has decided to step down due to other commitments, and we wish him well.

We're conducting a board search process and look forward to providing updates soon. It's on closing. In 2021, we made excellent progress in energizing the business and building the foundation for future growth. I am -- I anticipate that over the course of 2022, we'll begin to transition from this initial energized phase of our strategy.

We have multiple catalyst s for growth across our product lines and geographies, and we're putting in place the right team, the right processes, the right culture to meet our aspirations. Thank you for your time today and for your interest in Apollo. And we'll now open the line for questions..

Thank you. Ladies and gentlemen, the floor is open for questions. [Operator Instructions]. The first question is coming from Josh Jennings from Cowen. Your line is live..

Hi, this is Eric on for Josh. Thanks for taking the questions. I appreciate all the great commentary around the early experience with X-Tack. Just curious, as you get closer to European approval here, could you help us understand what would be included in your CE mark submission. And then is any of your U.S.

regulatory work leverageable for attaining that CE mark. Thank you..

Yeah, no. Thanks, Eric. Yes, under the new NDR requirements, there's obviously additional need for clinical data. So we have been able to leverage some of the data that was included in our initial clinical study that's been published, as well as a lot of the work that went into the U.S. application.

As I'm sure, you know, in the past, having an FDA approval, it'd be almost a slam dunk, right? To quickly follow on in U.S. first. It really, right now, is just a timing element of as our notified body works through a backlog of applications from a lot of companies, but we think we've got the right materials that they need to get the approval..

Understood. That's great. Thank you. And then thinking about guidance for 2022, could you help us understand what COVID assumptions you're baking into the range here. Jeff, your comments around trends in December, especially in the U.S.

How should we be thinking about Q1 revenues relative to the results that you've just delivered here in the fourth quarter? Just any commentary on the cadence of revenue through the year would be really helpful. Thank you..

Sure, Eric. And again, we haven't given quarterly guidance as you know, but I think it's consistent with what -- I think what you're hearing broadly in the industry is certainly early in the quarter, we saw pressured volumes, much like we saw in the fourth quarter. We're starting to see some of that abate. We're seeing nice momentum.

But what we can say about the quarter is that we're certainly comfortable with where the street has us in terms of consensus for Q1. That in case, we start to think about the acceleration of the ramp to that 20% growth. That really happens once we get beyond the COVID impact and we start to see acceleration in some of these endobariatric practices..

That's great. Thank you guys..

Okay. The next question is coming from Matthew Blackman from Stifel. Your line is live..

All right. Good afternoon, everybody. Thanks for taking my questions. Just got a couple. Maybe Charles, just to start with you, I was hoping to get the priorities in 2022 for the U.S. commercial team, whether it's figuring out the sales force size, whether it's focusing on existing accounts or expanding the customer base.

I just want to understand what the focus is in '22. And if you could layer on top of that the folks that you've onboarded over the course of 2021, how they are ramping, how productivity for the whole sales force looks like. And then just a couple of quick follow-ups..

Sure. Matt, as I think, you know, we have our core reps and the vast majority of our sales team in the U.S. carry the full bag of all three products, and then we've now layered on regional endobariatric managers that are focused on the opportunity in that area.

And so for the first group, their priorities, if you look across product lines, we think we still have excellent opportunities to continue to identify and train new users in OverStitch, and they're doing that. But also driving additional usage in our existing base. That's a very important focus.

For X-Tack, it's -- the strategy we laid out last year of continuing to be quite focused on a targeted set of accounts, and really driving the model of increasing adoption remains a priority for us. And as I just alluded to the importance of being able to do that across multiple users in both upper and lower GI is a real focus for that group.

And then another focus, I'd say is to sell the whole bag. We've got some of our reps who are very good at selling ORBERA, and some who've got less experience in it.

And I think given what we're seeing already in the marketplace of a nice bounce for that product, we've got a lot of share learnings on it that I think is going to help our sales organization expand the product across some regions that have had a lot of success, and make that more consistent.

So we're pretty excited about the opportunities across each of those. And then for the -- these already [Indiscernible] roles I mentioned, we have a group of early adopters internally, we refer to as Wave 1 that's reference on one of the slides you saw. And to really learning from them, right? It's a mix of both academic and private practices.

It's a mix of GIs and surgeons. So we got different models that are already having a lot of success across a range of endobariatric. So the balloon is big part of that, but then also some of the other procedures.

So we're learning a lot about everything it takes to build and grow those kinds of practices, and then having a focus on what the next waves are going to look like. And we're just striking the right balance given the fact that we don't have any indication for the suture inside of it.

But we absolutely to do a lot with the balloon, including those co-margin programs I mentioned..

Got it. I appreciate that and I'll just ask one more. I'm curious, you've called out the top ten accounts, something like greater than 600,000 in revenue. Are those accounts using multiple products within the APEN portfolio? Or is it largely driven by one product? I'm obviously trying to get at to what opportunity there may be to cross-sell.

And obviously, as you've mentioned before, how you could turn that into a playbook for the rest of your accounts..

I think you see there's a mix of accounts in there. Some of that are pretty broad-based, some of the larger academic settings that truly are using a whole range of the products, and really incorporating X-Tack into that as well. So you've got all three products that are involved.

And then you've got some that are more endobariatric accounts that absolutely will use both the Balloon and OverStitch, probably not likely to use a lot of X-Tack, because the applications are more limited in that setting..

Got it. Thank you. Appreciate it..

Okay. The next question is coming from Adam Maeder from Piper Sandler. Your line is live..

Hey, Charles, hey, Jeff. Thanks for taking the questions here and congrats on a nice year. Wanted to start with the guidance and see if we can just deconstruct that a little bit further particularly by segment. Just curious to get some additional color on how you think about the ESS franchise versus the balloon business in 2022.

And if you're willing to kind of put any color around contribution from X-Tack, maybe we can start there and then I had a follow-up or two. Thanks..

Yeah, I know. Thanks, Adam. You know what? As we look across, we see each product can continue to contribute to growth. Thinking in order a little bit, I think the -- on the balloon side, I think we're still learning frankly in terms of sustainable elements of growth and what it can deliver, but we're encouraged.

Obviously, we had a very good year last year. I'm not -- we're not planning for another year of 50% growth, but I'd be nice. But we do think it can be a sustainable contributor, which given the history for the product line would be a really good outcome.

And so we're looking at that, and as we implement more of these programs and get more one-way with it, we'll have more to build on to say sort of the level of sustainable growth. And then we see, I think, a good balanced contribution then across the other two products.

Good opportunities with X-Tack here in the U.S., and then layering on depending on the timing of approvals outside the U.S., and so that can absolutely be out there both this year and beyond. And then a lot of excitement, obviously around OverStitch, both the core GI applications we continue to add new users there.

And the opportunities as the year progresses on the weight loss side. And again, that I mentioned before, we really are trying to be appropriate and have the right level of where we're not the folks promoting the aspects around the weight loss side for OverStitch until we have the right indication..

Yes, Adam.

Just to add to that, as you think about it, as we think about our long-term growth play, and we talked about this 20-plus percent long-term CAGR, I think you need to think about it as, yes, as OverStitch and X-Tack being the outsized growers relative to that 20% and ORBERA likely being behind that, but that's really how you get to the blended growth of 20 plus percent.

If that's helpful..

Yes, that's helpful color guys. And maybe just a quick follow-up on that, and then if I could squeeze in a third, I'll try my luck. But for the follow-up, wondering if you guys can put a finer point on ESG in revision, FDA approval timing.

Any finer point or specific quarter where we should expect those to come on label? And then is there anything in terms of the guidance that you've had -- that you have issued $73 million to $75 million that currently contemplates revenue directly associated to those indications? Thanks..

Yes. So when we submitted the application for the De Novo 510(k), I think even in the press release, Adam, we mentioned that, we had one of our outside law firms do an analysis that says on average, the De novo 5 10(K) takes 12 months. And each one is unique because there is no predicate.

And we're working through the process, but we've mentally prepared ourselves for that kind of a timeline, which would put you in the second half of the year from a timing standpoint. But there's uncertainty around that, and we're going to do everything we can to move it along and support the process, hopefully to a successful conclusion.

From that vantage point, given that kind of timeline, we haven't put a hockey stick kind of ramp into the sort of back half of our year, although we do know that even just general awareness in the community is having somewhat of a lift effect.

So again, we're playing our role appropriately, but we do see a broader awareness about weight loss and endoscopic procedures, and people are coming to us interested about it. So -- and we can appropriately do things like training on the suturing techniques. But again, we're trying to be careful here..

Okay. Really helpful, Chas. And just the last one if I may, just gross margin. Jeff, I think you gave some helpful puts and takes in the prepared remarks. But just want to kind of flush that out a little bit more. I think you have the mid 60s number in the slide deck over the next three to five years.

Do we straight-line that from where we currently are to get there? Is it going to be a bit lumpy? Or I guess just trying to figure out exactly how we think about 2022 gross margin if you're willing to quantify to any extent. Thanks so much, guys. Appreciate it..

Sure. Yes, Adam. Thinking about '22, we haven't given specific guidance, but we will see expansion. I think it's more of an evolution of the margin and not a step change. I think that's the way you need to think about it.

There's still a lot that we're working through in terms of the planning for the launch of new products, the configurations, pricing considerations, a lot to really think about in terms of what might drive longer-term margin. I think you think about '22 margin and even really '23 is more of a gradual evolution..

Okay, got it. That's helpful. Thanks, guys..

Okay. The next question is coming from Matt Hewitt from Craig - Hallum. Matt, your line is live..

Good afternoon. Thank you for taking the questions and congratulations on the progress in '21. Maybe first up, and I don't know if this is a metric that you can provide or if you're going to focus on other areas.

But as far as X-Tack accounts, where did the year end up? And as you look at '22, is it more about driving utilization and focusing on the quality of the accounts or is it still about grabbing new greenfield opportunities within new accounts entirely?.

Matt, I think the overall, it's still very much about the quality aspects. We do view this as a product that can be used quite widespread, but there are definitely learnings about the learning curve and nuances to even just, especially for people who aren't used to suturing.

And it's much simpler than OverStitch, but it is for some of the alternative procedures are doing nothing. And so we want to make sure that people understand the product and how to use it well.

And so we've got a heavy focus on a targeted set of accounts that are using the product -- sorry, that are doing these kinds of procedures at high volumes, and they are the primary focus for our sales organization.

It doesn't mean we're not opening other additional accounts, but again, we really are trying to focus on that utilization metric because I think many people who have been involved with launches where you try to get out too quickly, get out to a lot of institutions or you're not getting the traction you want to get from a utilization standpoint, that continues to be a big focus with the team.

We will continue then to build and grow over time by kind of the utilization first strategy in terms of how we do it..

That's helpful. And I guess along those lines and I really, as it might be a little bit early, but as the year progresses or as we maybe start looking at '23, will you start providing some utilization trends even if just high level to help us recognize the ramp that you're seeing within accounts..

Yeah. Matt, it's a fair question. I think the answer is possibly. It's a competitively sensitive product as well. So we're trying to be as guarded as we can around how much we actually offer. But to the extent that we can continue to share more of our key metrics without compromising some of that, we'll do that.

I mean, we try to lay out as an example our sequential percentage growth, 40%, we saw 20% increase in number of ordering accounts. And clearly, you probably don't have a good view on the baseline, but we're trying to give you what we can without sort of compromising some of the competitive sensitivity..

Completely understand, thank you. And then maybe one last one. Is there any update on the status of the Nash trial as far as timing or plans, whether or not there would just be ORBERA or whether we would include OverStitch? Any color on that process will be helpful. Thank you..

Yeah. Now, Matt, it's a good question and one that we are working through, frankly. It's -- we've been with some experts in both the GI side of things and the hepatology side of things to really work through the learnings that have gone into recent trials in the NASH area.

As I'm sure you're aware, there have been tens of trials, multiple trials on the drug side, many of which haven't been very successful.

And so we're really trying to learn from those, while also taking a hard look at the data that we have for both Balloons and ESG, right? As we are collecting some additional data, you know MERIT has data on comorbidities, liver function was not one of them.

But we've got some other studies in Europe that have reported some initial data that looks interesting. And then you wrap in that there is still a whole ongoing set of discussions with CMS about exactly what their coverage policies might be for new technologies.

The previous MCIT doesn't look like it's going forward, but they're talking about new versions of what they might do. So for all those reasons, we're taking a pretty deliberate approach to whether it's one product or both products, it's a one trial or multiple trials.

As a small company, we probably only get one chance to get this right, so we're measuring twice, cut once approach here intentionally because there's just a lot of moving parts..

I completely understand. All right. Thank you..

Okay. The next question is coming from Frank Takkinen from Lake Street Capital Markets. Your line is live..

Chas, Jeff, congrats on all progress. Thanks for taking the questions. I wanted to ask a couple more on the top 10 accounts. First, can you comment on how many of those top 10 are endobariatric -specific. And then 2, my assumption is there's been a little mix in the composition of those top 10 accounts.

Can you comment on what's driving that, whether that's the OverStitch account and introduced X-Tack or endobariatric accounts that's growing quicker than the rest of the account base. Just any color around how the composition has changed and why would be great..

Yeah. Then I would say the majority do fall under that category of endobariatric or at least where endobariatric is a significant portion of what they do. And so that's an important element. Some of those will also be doing some of the core GI procedures, so they may, as I said in fact be using X-Tack as well.

And so I think we do have some where it's kind of all in, and you've got both -- all three product lines contributing to that growth. But I would say a number of them, and probably the majority is primarily being driven by the balloon and OverStitch at that level, right. Really driving sort of those, as I mentioned, $600,000 volumes.

Those are typically when you have institutions that really are embracing the role for endoscopic therapies on the weight loss side. Again, with the balloon often being a big part of that..

Got it. Okay. That's helpful. And then two in the operating expense region. First, how do we think about sales force growth for 2022? And then secondly, thinking about just broad business investments sounds like that's going to take up pretty aggressively now that you have the funds to do so.

Where should we expect to see that most in the operating expense structure?.

Yeah, Frank, good question. I think the first question on the sales force growth, we ramped up to about 30 by the end of the year. We've made some incremental hires throughout the course of the first quarter.

I think where we are now is that we were really more focused on making sure that the existing sales force is trained up and that they begin to ramp up and we start to see the programs that are working, the ones that aren't, and adjust.

And so I think you'll definitely see a bit of a ramp in hiring Q1, and we'll probably start to see another ramp later in the year. So I think as as you start to think about sales and marketing expenses ramping in the near term, it is some of the run rate from the larger commercial sales rep footprint.

But then it's also the investment in the marketing type programs around endobariatric s that Charles walked you through.

And then as you think about investments beyond sales and marketing, the reimbursement initiatives, bringing Keely on board and building out that team, some of the clinical initiatives in terms of a deeper dive on X-Tack publications and NASH strategy that we hope we'll get more clarity on by the end of the year, and then across the R&D product portfolio, COGS improvement, it really is in many cases just really making up for some level of under-investment historically..

Just one more thing on the salesforce. Just to give you an order of magnitude, Frank. Last year, we -- this is U.S. I'm talking about. We almost doubled the sales force to about 30. I'd say order of magnitude by the end of the year of 2022 will be in the range of call it 40 to 45. We're not looking to double again. Now, that could change.

Things take off and we're going to evaluate that as we go. But just to give you a sense of our thinking, it's not doubling again. It's continuing to grow and split some of the larger territories continue to get depth in some of the markets where we know we can drive growth with our current footprint.

While in parallel, we're going to evaluate the overall footprint. I mentioned these regional endobariatric managers. That's almost like a pilot, right? To see what that role, how it contributes, how it complements the existing roles, in advance of the newer indication. And so we'll see the exact structure and size as the year goes on..

Got it. That's helpful. I'll stop there. Thanks for taking my questions..

The next question is coming from Chris Cooley from Stephens. Your line is live..

Hi. This is Ben on for Chris. Thanks for taking the question just a quick one for us. Given the current inflationary environment and your prior comments around potentially passing on price, I was just wondering if you could provide some additional color around any potential timing on those price uptakes.

And then really how we can think about volume growth moving forward, if you do implement those. Thank you..

Hi, Ben. So for OverStitch, we did take a price increase at beginning of the year. We have in the past taken a cost of living increase. It was modestly higher this year in light of the inflationary environment that we see, and so that was certainly part of our planning. And so we implemented that really at the start of the year.

Jeff was alluding to also as we get the new indication and the new products, how exactly we price those in the marketplace is still something we're working through when that plays into things like some of our reimbursement strategies and other areas.

So that determination will be more closely tied to the roll-out of the new products, and the systems as it were for ESG and revisions, which will certainly in the back half of the year or even beyond as we kind of think through that aspect of it..

Thank you. I'd now like to turn the floor back to management for any closing remarks..

Awesome. Thanks again, folks for joining us. We really appreciate it. Very gratified with the progress we made in 2021 and looking forward to an exciting year ahead and thank you for your interest and the follow-up..

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..