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spk02: Good afternoon and thank you for joining the second quarter 2021 Reshape Life Sciences earnings webinar. I am pleased to be joined by Bart Fandy, Chief Executive Officer of Reshape Life Sciences, who will provide an overview of the company's recent activities and business highlights for the second quarter of 2021. Tom Stankovich, Chief Financial Officer of Reshape, will then review the financial results for the recent quarter and then turn the call back over to Bart to finish. As a reminder, this conference call, as well as Reshape Life Sciences SEC filings and website, including the investor information section of the website, contains forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. Actual results could differ materially from those discussed due to known and unknown risk, uncertainties, and other factors. These and additional risk and uncertainties are described more fully in the company's filings within the Securities and Exchange Commission, including those factors identified as risk factors in our annual report on Form 10-K and in our quarterly report on Form 10-Q that will be filed shortly. As an additional reminder, our stock is listed on the NASDAQ Capital Market trading symbol under ticker symbol RSLS. I will now turn the call over to the CEO, Bart Bandy. Bart?
spk01: Thanks, Daniel. Good afternoon, everyone, and thank you for joining us today. The second quarter of 2021 proved to be a significant inflection point for Reshape, marked by the successful completion of our merger with Oberlin Therapeutics and listing on the NASDAQ capital market. Further driving this momentum, we raised $46 million through a warrant exercise agreement with existing accredited investors. Following the execution of this significant chain of events, we believe we are well positioned to launch a new chapter for Reshape in the weight loss market. Before I dive into the details of the major accomplishments we've made this year, I'd like to take this opportunity to thank the team here at Reshape for their diligent and steadfast efforts over the past year. With this team's support, we have broadened our reach from a company with a singular product focus to one building a robust proprietary ecosystem of weight loss solutions and regained our status as a publicly traded company on a major exchange. In addition to listing on the NASDAQ, this transaction presented Reshape the opportunity to add, yet again, another FDA-approved, innovative, and safe weight loss solution, the Obalon Balloon System. This technology, brought back online, has the ability to complement our suite of products aimed at scaling care options for patients suffering from obesity. While securing the Ovalon transaction was certainly a top priority for us during the pandemic and entering 2021, it was also prudent to bolster our balance sheet to ensure we could sufficiently support our growth initiatives and eliminate debt overhang. In June, We achieved this objective with a $46 million financial raise that has allowed us to recapitalize the company by settling the terms of our previous secured credit agreement, removing all liens on our assets, and increasing our cash runway. Now, we're optimally positioned to leverage our current product portfolio and future growth opportunities to increase our market share in the physician-led weight loss market. Our team is now able to be laser-focused on commercial growth and profitability initiatives without distraction from near-term financing activities, which ultimately translates to increasing shareholder value. At Reshape, we continuously strive to build a dynamic, patient-centric platform. With this goal in mind, we launched Reshape Marketplace. an online warehouse of weight loss and wellness-centric products that assist consumers through readily accessible provisions for nutrition, exercise, sleep, and stress management. Marketplace serves as a supplement to Reshape Care, which is our reimbursed virtual health-based coaching service that supports doctors in optimizing patient care through a personalized service that enhances engagement and health outcomes associated with weight loss treatment. Connected digital health solutions in outpatient settings represent a promising new sector for medical care, and we are confident that the synergies between these two services and our mentally invasive products will truly expand access and improve the quality of care for those who need it most. Driving forward this continuum of care with our integrated product focus, we continue to invest significant resources and efforts towards ensuring the success of Reshape's flagship product, the LapBand. Recognized as the safest bariatric procedure on the market, the FDA-approved lap band is reimbursed by most major insurance providers and often performed in outpatient surgery centers with patients going home the same day as their procedure. Research has shown the COVID-19 pandemic greatly affected the obesity epidemic, with over 61% of adults experiencing undesired weight changes. Additionally, a recent CDC report identified that 78% of COVID-19 hospitalizations and deaths have been attributed to overweight and obese people. With these statistics in mind, it is more important than ever that we drive patient education and awareness on the commendable safety and efficacy profile of this product with over 1 million placements globally. To support our commercial efforts, we are exploring various marketing tactics to promote the merits of our proven product line. we've dedicated a significant amount of time researching avenues that will best support patient direct marketing. To deliver on our commitment of educating and supporting as many patients as possible, and based upon specific indicators from this research, we will invest more dollars and time in consumer direct media to highlight the benefits and advantages of our weight loss solutions. Operationally, we streamlined our lap band manufacturing processes by shifting the process from the previous owners of the technology to a U.S.-based contract manufacturer under our operational oversight. On previous quarterly webinars, we have referenced our intent to reduce operational expenses, and we were able to overcome significant challenges associated with the pandemic to effectively execute upon this manufacturing transition and its cost control objectives. As our country continues to emerge from the disruption of the previous year, we are also pleased with the job opportunities this presents to the American workforce. Now I'd like to provide a status update on our clinical trials. Our reshaped VEST enrollment study in Europe remains delayed by the impact of COVID-19. However, we've continued to sustain protocols with our investigation sites to facilitate patient enrollment in this 95-subject study as soon as hospitals in that region allow the process to commence again. In the interim, we are evaluating alternative enrollment options and regulatory pathways. We will also continue to monitor the outcomes of patients at our Spanish site who had their procedures performed prior to the associated COVID-19 hospital closures in that country. Through existing IP and technology, we have developed investigational reshape dual block stimulation neuromodulation platform, currently being developed as a new treatment for type 2 diabetes mellitus. With non-diluted funding received from the National Institutes of Health, Small Business Innovation Research Grants, we were able to identify and successfully meet the necessary endpoints of a preclinical study. We are currently seeking strategic partnerships and working towards a second NIH grant to generate additional clinical data for this technology. As Tom will discuss in further detail momentarily, we were able to generate $3.5 million in revenue during the quarter, representing an increase of 10% from the first quarter in 2021. The milestones achieved this past quarter were just the beginning of this transformation here at Reshape, and we are now equipped with the resources, portfolio, and people to build a thriving future for patients, physicians, employees, and shareholders. At this juncture, I'd like to turn the call over to Tom to discuss the financial results for the quarter.
spk00: Thanks, Bart, and good afternoon, everyone. The second quarter of 2021 was a very exciting time for Reshape, with regard to the completion of our merger with Obalon, our listing on NASDAQ, and the strengthening of our balance sheet through a capital raise of $46 million with existing investors. This significant infusion of funding places the company in an ideal position to consider and execute strategic initiatives geared towards growth. For the three months ended June 30th, 2021, we reported revenues of $3.5 million as compared to revenues of $1.7 million in the three months ended June 30, 2020, representing a 107% increase. The $1.8 million increase was primarily due to increased revenues in the U.S. Additionally, our revenues grew 10% sequentially from the first quarter of 2021, representing increases in both U.S. and OUS revenues. We reported gross profit of $2.1 million in the second quarter of 2021, representing a gross margin of 61%. compared to $800,000 in the three months ended June 30th, 2020 with a gross margin of 49%. The higher gross margin is attributed to increased sales volume as revenue increased 107% as we achieved lower overhead department and period expenses. Total operating expenses for the three months ended June 30th, 2021 increased by $2 million to $5.9 million as compared to $3.8 million for the three months ended June 30th, 2020. Sales and marketing expenses for the second quarter of 2021 were 1.4 million as compared to 800,000 for the second quarter of 2020. Our increased expenditure stems from expanded marketing and advertising efforts for the Reshape product portfolio. With our recent capital raise, the company now expects to devote more resources towards sales and marketing activities, and hence, increase sales and marketing expenses as a percent of revenue through the remainder of the year. General and administrative expenses were $4.3 million for the three months ended June 30, 2021, compared to $2.5 million for the three months ended June 30, 2020. The increase is primarily due to an increase in audit, consulting, legal, and other professional services of $2.5 million, of which $2.3 million was directly related to the merger with Ovalon. This increase was offset by a decrease in stock compensation expense of $700,000 as a result of the merger with Opelon. Research and development expenses were $100,000 for the three months ended June 30, 2021, compared with $500,000 for the second quarter ended 2020. The decrease was primarily a result of a slowdown in clinical trials for the reshape vest due to the COVID-19 pandemic. A non-GAAP adjusted EBITDA basis, including the addition of stock-based compensation expense, depreciation, amortization, and warrant expense, amongst other items. The loss was 1.2 million for the three months ended June 30th, 2021, compared to an adjusted EBITDA loss of 2.1 million for the three months ended June 30th, 2020. This 900,000 improvement was primarily due to increased revenue and improved gross profit. Turning to the balance sheet, as of June 30, 2021, the company's cash and cash equivalents totaled $40.2 million. To leverage our runway, we continued to adhere and implement cost savings measures while increasing revenue and seeking out major ROI growth opportunities. A portion of our capital raised was used to repay $10.5 million of debt and $300,000 of accrued interest under our previous secured credit agreement dated March 25, 2020. This repayment also enabled us to remove any and all liens against our assets. Now, with a strengthened balance sheet, we are poised to drive commercial operations that can capture an even greater share of the growing weight loss market and execute on major strategic initiatives while maintaining our focus on increased shareholder value. With that, I would now like to turn the call over to Bart.
spk01: Thanks, Tom. Back in 2020, we identified and initiated the process of completing the merger with Ovalon during the heightened days of the pandemic. Today, we stand soundly fortified. And with the resources we now have available, we are prepared to enter the second half of 2021 with strengths and levels of confidence and capability. Thank you to our employees, customers, existing and new shareholders for your continued support of Reshape. We look forward to delivering on our mission to become the premier physician-led weight loss company as we continue to expand our physician and patient reach with effective and safe solutions.
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