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spk00: Good morning and thank you for joining the third quarter 2021 Reshape Life Sciences earnings webinar. I am pleased to be joined by Bart Bandy, Chief Executive Officer of Reshape Life Sciences Incorporated, who will provide an overview of the company's recent activity during the third 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 Securities Litigation Reform Act of 1995. Actual results could differ materially from those discussed due to known and unknown risks, uncertainties, and other factors. These and additional risks and uncertainties are described more fully in the company's filings with the Securities and Exchange Commission, including those factors identified as risk factors in our most recent annual report on Form 10-K and our quarterly report on Form 10-Q. As an additional reminder, our stock is listed on a NASDAQ capital market trading under the ticker symbol RSLS. I will now turn the call over to our CEO, Bart Bandy. Bart?
spk02: Thanks, Daniel. Good morning, everyone, and thank you for joining us today. Throughout the third quarter of 2021, we executed several initiatives to further build momentum on the accomplishments we garnered in the previous quarter, including our merger with Ovalon and listing on the NASDAQ. I am also pleased to report that we continue to strengthen our market position as demonstrated by our growing revenues for the first nine months in 2021 of 10.5 million, representing a 29% increase from the same period last year. Before I discuss in detail the work we've done to maximize the value of our product portfolio, I'd like to provide a brief synopsis of the massive market opportunity to reshape. Studies show that 73% of American adults are overweight or obese, with about 50% of that population seeking to lose weight every year. To capitalize on this multi-billion dollar opportunity in the U.S. market by 2025, we made the informed and strategic decision to allocate our resources towards the debut of the company's first and largest mass media, multi-platform advertising campaign for our lead product, the LabBand, which has specific weight loss indications approved by the FDA and is covered by most insurance plans. Available across national television channels and major print publications, Our goal is to effectively communicate the important benefits of the lap band directly to our targeted audience. We want to ensure that our product has high visibility in the marketplace for anyone seriously considering weight loss options. It is essential for the company to promote the differentiators of our product, including its safety and efficacy profiles, as well as the ability of this technology to be adjusted for individual needs and the procedure being available in outpatient surgery centers, with most patients going home the same day. Confirmed through recent test marketing programs and corroborated with the historical impact of patient marketing programs for the lap band, we are highly encouraged by the substantial consumer engagement and revenue potential this campaign presents. To capture and retain patients in our ecosystem of weight loss solutions, we are also promoting Reshape Care, a reimbursed virtual weight management program led by physicians as a non-surgical based weight loss program, as well as an aftercare support model for the bariatric surgeries that are available. Regarding product demand and interest, a Harris Poll research study reported that 61% of American adults experienced undesired weight changes during the pandemic, with 42% claiming they gained more weight than intended, an average of 29 pounds. As the go-to company for physician-led weight loss products, we were approached by a number of healthcare professionals to help them adapt their practices for patients seeking weight loss treatment during the pandemic. We responded in two ways. By citing the functionality of our lap band in outpatient surgery settings and introducing reshape care, our physician managed, reimbursed virtual health coaching program for their patients. Along with building a proprietary ecosystem of weight loss solutions that makes us unique, we've created a hub for patients seeking help across the continuum of care, a strategy that also supports long-term patient and customer retention. Our decision to launch reshape care was another way of addressing physician and consumer demand for accessible, customizable, and engaging online medical solutions. Our entry into the virtual healthcare delivery space allows us to tap into a market that is expected to reach 95 billion by 2026. Given the strong potential of this seamless physician prescribed digital health offering, we anticipate to generate increasing revenue for this program in the fourth quarter of 2021 and into 2022. In July 2021, we launched Reshape Marketplace as an extension of Reshape Care, offering consumers an e-commerce option to access a collection of competitively priced and practical weight loss and wellness solutions and products covering the vital areas of nutrition, exercise, sleep, and stress. To further the promise of Reshape Marketplace, we recently announced the addition of a new product supplement line comprised of bariatric multivitamins and supplements by ProCare Health. During the past two quarters, we made mention of proactively revising and enhancing our manufacturing and commercial efforts to maximize profitability and ensure operational efficiencies within our business. To that effect, we are very happy to welcome Al Diaz, our newly appointed Vice President of Operations and Research and Development to Reshape. Al is an experienced and successful industry veteran in healthcare operations, who most recently served as EVP of operations at Clearfield Incorporated, where he oversaw the broad strategic direction of all manufacturing and material management operations. Emerging from the pandemic, we also added key field personnel to support and engage practices in preparation for the anticipated patient flow from our patient direct marketing campaign. With respect to augmenting our product line and subsequent to the completion of our merger with Ovalon, we continue to explore the option of adding the Ovalon balloon technology to our commercial offering. The FDA-approved gastric balloon system offers a non-surgical, minimally invasive approach to helping patients maintain a controlled diet, thereby making weight loss more achievable. Now I'd like to turn to our product pipeline. Once we receive necessary approvals from the study sites, we will be ready to resume our EU-based clinical trials for the reshape vests, a laparoscopic implantable technology designed to support and enhance the patient's weight loss journey. Clinical investigation of the product will continue to be conducted in different locations of Europe. And we have continued to work with those clinicians to remain in a state of preparedness for the reopening of their medical facility access. With the assistance of a grant from the NIH, we completed and met the necessary endpoints for the preclinical study of the reshape diabetes block stem neuromodulation technology. This platform utilizes proprietary simultaneous nerve stimulation and blocking to adjust insulin production and potentially treat type 2 diabetes. We remain committed to evaluating the potential of this platform through additional non-diluted grant funding. We have developed strategies and tactics that will build a structural framework for sustainable growth in the medium to long term. Additionally, continuing from the Medica conference taking place this month in Dusseldorf, we will continue to pursue M&A opportunities that align with our current portfolio and present a sound revenue-generating potential. In summary, we are confident that our enhanced commercial strategy will improve our revenue and profitability position, and we will continue to implement programs that drive demand for our products while fostering a positive future for Reshape. I look forward to providing further updates on our progress in the quarters to come. I will now turn the presentation over to Tom for a review of our financial performance. Tom?
spk01: Thanks, Bart. And once again, thank you all for joining our webcast this morning. Following our capital raise of 46 million in June of 2021, which significantly improved our balance sheet, we embarked on executing our growth initiatives, including the launch of our major advertising campaign. Before turning to our detailed metrics, I'd like to provide some color on our non-cash stock-based compensation expenses and costs related to the merger with Obalon. that drove substantial increases in our operating expenses for the following areas, sales and marketing, general administrative, and R&D. As a company, we place employees at the heart of our business. Understanding that, non-cash stock-based compensation is a proven and effective tool to retain existing staff, attract seasoned professionals, and enhance incentive programs. Subsequent to the merger with Obalon listing on the NASDAQ and our fundraising, we issued for the first time since 2017, restricted stock units or stock options throughout the organization. Considering the height of this expense during the quarter, we believe it is appropriate to call out these metrics. For the three months ended September 30th, 2021, we recorded 10.7 million of total stock compensation expense. Of note, a majority of this expense includes a one-time charge for a look-back provision for vesting to begin at the one-year anniversary date of employment. Between the relatively higher than normal non-cash stock-based compensation expense and the $6 million of acquisition-related outlay of funds, it is important to note the metrics reported this quarter are very specific and attributed to the major milestones we completed this year and are generally considered one-time charges. However, we expect that our ongoing strategy to build revenue, minimize costs, and streamline expenses will offset these increases over the future quarters. With that backdrop, let's turn to our revenue and operational results for the third quarter and nine months ended September 30th, 2021, beginning with the results for the quarter. For the three months ended September 30th, 2021, we reported 3.7 million of revenues as compared to revenues of 3.6 million in the three months ended September 30th, 2020. Additionally, we had sequential growth in our revenues from 3.5 million to 3.7 million from the second quarter of 2021 to the third quarter of 2021, which marks another period of consecutive sequential growth at 5% for the quarter. We reported gross profit of 2.1 million in the third quarter of 2021 compared to 2.3 million in the three months ended September 30th, 2020. The decrease is attributable to increased department expenses, which includes increased consulting fees, payroll related expenses, and certain costs related to the Obalon merger. Total operating expenses for the three months ended September 30th, 2021 increased by 12.7 million to 17.1 million as compared to 4.5 million for the three months ended on September 30, 2020. The increase is primarily due to the previously mentioned one-time charges for a merger and non-cash stock-based compensation. Sales and marketing expenses for the third quarter of 2021 were $3.5 million as compared to $1.2 million for the third quarter of 2020. Aside from other previously mentioned factors, our increased expenditure stems from the additional marketing and advertising efforts and an increase in related expenses from the expanded commercial organization. General and administrative expenses were $12 million for the three months ended September 30th, 2021, compared to $2.4 million for the three months ended September 30th, 2020. This amount reflects an increase in audit, consulting, legal and professional services related to our merger, payroll related expenses previously discussed and an increase in rent and facility expenses from assuming an entire quarter of lease expense for the Oberlof facility, as well as an increase in insurance expenses. Research and development expenses were $1.6 million for the three months ended on September 30th, 2021, compared to $900,000 for the same period in 2020. Moving to our results for the first nine months of 2021, our revenues came in at $10.5 million compared to $8.1 million for the same period in 2020. The 29% improvement in revenues is due to a $1.9 million increase in U.S. sales and $500,000 million internationally. Between lessened COVID restrictions for elective surgeries in 2021, the rise in obesity awareness during the pandemic, and our revitalized sales and marketing efforts, we are witnessing an increase in sales. Gross profit for the nine months ended September 30, 2021, totaled 6.6 million compared to 4.6 million for the nine months ended September 30, 2020. The increase of 2 million is attributed to increased U.S. procedural volume, reduced period expenses, and an improved product mix with higher domestic sales as a percentage of revenue, which show higher gross profit margins than international sales. With the same reasoning related to our one-time costs presented at the beginning of my financial section, Total operating expenses for the nine months ended 2021 increased by 13.6 million to 27.5 million as compared to 13.9 million for the nine months ended September 30th, 2020. Sales and marketing expenses for the nine months ended September 30th, 2021 came in at 6.2 million compared to 3.5 million for the same period in 2020. The increase reflects our additional spend on advertising and marketing expenses for national direct-to-consumer campaign and added payroll expenses. Our general and administrative expenses for the nine months ended September 30, 2021 were 19.1 million compared to 7.8 million for the same period in 2020. Similar to the three-month analysis provided above, we experienced increases in auditing, consulting, legal, and other professional services directly related to the merger with Obalon. For the nine months ended September 30th, 2021, our research and development expenses decreased by 400,000 to 2.2 million compared to 2.6 million for the same period in 2020. The decrease is largely due to a reduction in consulting and clinical trial expense as a result of the slowdown in clinical trials for the reshaped vest due to the COVID-19 pandemic. On a non-GAAP adjusted EBITDA basis, including the addition of non-cash stock-based compensation expense, depreciation amortization, warrant expense, amongst other items, the loss was $3.6 million for the three months ended September 30, 2021, and $6.6 million for the nine months ended September 30, 2021, compared to an adjusted EBITDA loss of $1.4 million and $6.8 million respectively for the same periods in 2020. Turning to the balance sheet, as of September 30th, 2021, the company's cash and cash equivalents totaled $29.3 million. Of note, we also paid back $10.5 million of debt to an institutional investor to eliminate our debt overhang and $6 million in professional service and investment banking fees related to the Overlawn merger. As mentioned in previous quarters, we continue to save and optimize costs while we strive to increase revenue and scope out significant ROI growth opportunities. With more vaccinations in place and the mitigation of COVID, we are seeing stability in our financials as it relates to revenues, and with our efforts centered around product visibility and demand, we intend to report even greater success in the future. With that, I will now turn the call over back to Bart.
spk02: Thanks, Tom. In conclusion, the third quarter marked another period of robust performance and strengthening of our status as the premier multifaceted physician-led weight loss solutions company positioned for ongoing success through 2021 and beyond. Lastly, I would like to thank our board, executive leadership team, and all Reshape employees for their commitment that has fueled our rapid execution on initiatives that will help us to engage with millions of patients seeking weight loss and an improved quality of life. To our customers and shareholders, we sincerely appreciate your ongoing support and we look forward to delivering future updates on our evolution towards progressive profitability and high
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