ReShape Lifesciences, Inc.

Good afternoon, and thank you for joining the Reshape Life Sciences Year-End 2023 Conference Call. I would like to turn the call over to Michael Miller from RX Communications.

Good afternoon, and thank you for joining the Year-End 2023 Reshape Life Sciences Earnings Call. I'm pleased to be joined today by Paul Hickey, President and Chief Executive Officer, and Tom Stankovich, Chief Financial Officer. Paul will provide an overview and update on the company's activities, which will include a discussion with Dr. Christine Renfielding, a member of Reshape Scientific Advisory Board. Then Tom will review the financial results for the period. We'll then turn the call back over to Paul for some closing remarks, after which we will open the call to a question and answer session. As a reminder, this conference call, as well as Reshape Life Sciences SEC filings and website, including the information, 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 the company's most recent annual report on Form 10-K. As an additional reminder, Reshape stock is listed on NASDAQ trading under the symbol RSLS. I'll now turn the call over to Paul Hickey, President and CEO of Reshape Life Sciences. Paul?

Thank you, Mike, and thanks to all of you for joining us this afternoon for our year-end 2023 earnings call. After I provide an overview and update on Reshape's activities, we'll be joined by a member of our Scientific Advisory Board, Dr. Christine Renfielding, Professor of Surgery at NYU Grossman School of Medicine, Director of the NYU Legone Weight Management Program, and Chief of the Division of Bariatric Surgery. Dr. Renfielding spoke on our second quarter 2023 conference call. She recently performed one of the first surgeries utilizing the Next Generation LapBand 2.0 Flex, and has been kind enough to join us once again to discuss her experience utilizing this new version of the LapBand. Now let me begin. ReShape remains dedicated to achieving profitability by executing our growth strategies and maintaining our emphasis on creating shareholder value by focusing on our three growth pillars. Our story for 2023 is not unlike other businesses that have seen the impact of GLP-1 agonist prescription drugs, but we stand apart with those businesses that have responded quickly, made bold adjustments to the strategies, and stabilized their businesses. The most important takeaway from this call is for our investors to understand that we remain dedicated to our first pillar of growth, which remains paramount for Reshape to achieve profitability and maintain our emphasis on creating shareholder value. Our steadfast focus on cost reductions while continuing to invest in growth drivers is intended to secure the long-term sustainability of the company. While GLP-1 prescriptions are now understood to be a long-term growth catalyst for the bariatric market, their short-term impact made it necessary to make additional strategic cost reductions, including a further reduction in staff, leading to a projected 55.4% decrease in operating expenses for 2024 compared to last year. Tom and I will provide further details later during this call, but this reorganization and decrease in expenses will allow us to focus on and optimize the commercialization of our LapBand 2.0 Flex, created to improve the patient experience while continuing to market our current lap band. The limited launch of the Lap Band 2.0 Flex is progressing, and the initial surge in feedback has been positive. Added to this, our revamped patient-friendly website is receiving meaningful traffic, while our co-op marketing programs with key lap band centers have proved effective and scalable. Now, before I recap our fourth quarter and subsequent highlights, I'd like to discuss and comment on important events occurring within the obesity market today. Whether you've understood the obesity market for years or just heard about it recently on Oprah's televised special, the obesity market is growing at an alarming rate and carries with it significant medical repercussions and associated economic costs. Obesity remains a complex, lifelong disease that requires personalized treatment to ensure long-term weight loss goals are achieved. The growing population of GLP-1 agonists has brought significant benefits to both those with type 2 diabetes and those who are obese. There is no doubt that the GLP-1 adoption is expanding the medical weight loss market by vastly reducing the stigma that often occurs around obesity and medical intervention, and we believe this includes bariatric surgery. However, it is becoming very clear that weight loss due to GLP-1 usage has limitations, especially related to costs, accessibility, and the fact that the weight loss plateaus by 12 to 18 months. Additionally, the real-world long-term tolerability is low. In one large analysis, only 27% of patients prescribed GLP-1 agonists were adherent after one year. We continue to believe, based on this evidence, that the market opportunity for the lap band will increase over time, especially with the newly launched Next Generation Lap Band 2.0 Flex. From a continuum of care perspective, Individuals with obesity on GLP-1 therapy are likely potential candidates for lap band bariatric surgery as the next viable anatomy-preserving weight loss treatment. In other words, once GLP-1 patients get a taste of weight loss, yet have issues with the drug's accessibility, durability, or their tolerance, patients will contemplate bariatric surgery, especially a minimally invasive procedure like the lap band. Now let me take a few minutes to update you on our progress related to our primary pillars. As I mentioned earlier in the call, I want to provide more specifics on progress made toward our first pillar, which will help us deliver shareholder value and ultimately profitability. Specifically, as we consider the impact of GLP-1 prescriptions for weight loss treatment, which has put pressure on the bariatric industry, it was imperative to conduct a thorough evaluation of our operations and swiftly implement substantial cost-cutting measures. At the same time, we are channeling investments into the most promising part of our strategy to drive growth and maintaining adherence to critical P&L metrics within our organization. Tom will detail the expense savings we have identified, realized, and are planning for. But in summary, we have identified and implemented additional cost reductions expected to result in lower operating expenses of approximately $8 million in 2024, a more than 50% reduction over 2023, excluding one-time costs. We are optimizing our marketing spending while making additional reductions in consulting services, totaling approximately $2.4 million. We have also executed a reduction in force of approximately $1.2 million and have decided to temporarily pause our reshape care program and achieve an estimated savings of $0.8 million. We have also planned for 0.9 million of reductions for incentive compensation and other pay-related amounts, all part of streamlining our team significantly, but without affecting revenue. Taken all together, these reductions will allow us to focus and invest in our growth drivers, while at the same time extend our cash runway. The changes are bold, necessary, and indicative of our commitment to our first growth pillar, which I established late in 2022. In point of fact, with these 2024 reductions, the company's core operating expense reductions between 2022 and 2024 are estimated at $24 million or 75%. In addition to the necessary cost reduction initiatives related to our first growth pillar, we continue to make significant progress with our cost-effective digital lead generation and patient engagement campaign through our exclusive partnership with Hive Medical. As a reminder, this platform allows us to access advanced lead optimization software that can enhance patient engagement and increase patient volume. The software utilizes an AI SMS patient self-service technology, which, in combination with our targeted direct-to-consumer marketing campaign, helps individuals effortlessly overcome new patient intake challenges. As a result, patients can easily book appointments with medical professionals at any time. We have seen an increase in the quality patient needs while successfully reducing costs in targeted markets where our surgeon advocates operate. Let's now discuss our progress executing our second growth pillar to expand our portfolio or distribution. As previously reported, we continue our high priority search for strategic and synergistic M&A opportunities, having engaged the Maxim group on an exclusive basis to assist in this process. As one can imagine, we have had a high-level activity and will continue this effort to find the right partner for long-term success of Reshape Life Sciences. I'm also pleased to report that we continue to focus on the development and commercialization of new products and therapies. To that end, last month we announced that the first surgeries utilizing the LatBand 2.0 Flex were extremely successful and additional surgeries have already taken place. These first surgeries follow closely on the heels of getting the FDA PMA supplement approval for the LapBand 2.0 Flex. The initial limited launch continues to gain traction and represents a leap forward in improving the overall LapBand patient experience. In a few minutes, Dr. Runfielding will detail her experience with the LapBand 2.0 Flex. And as a reminder, the new Flex technology acts as a relief valve to alleviate discomfort from swallowing large pieces of food, eliminating the need for in-office band adjustments, as the band momentarily relaxes before returning to its resting diameter. In January, we had the opportunity to train surgical fellows on our lap band system during which we also introduced the Lap Band 2.0 Flex. This was an exciting event given that the future of the lap band is inextricably tied to its continued adoption by surgeons and surgical fellows who represent the next generation of bariatric surgeons. We believe based on current surgeon feedback, including those who have already used the LapBand 2.0 Flex, that the new Flex technology will allow us to engage more surgeons as well as new and existing LapBand patients, leading to an increased demand for LapBand surgery and ultimately becoming a true growth catalyst for the LapBand franchise and the company. At this time, I'd like to introduce Dr. Chris Runfielding from NYU. As previously mentioned, Dr. Fielding is a member of our Scientific Advisor Board and has been a key opinion leader and expert in her field of bariatric surgery for decades. As I mentioned earlier, Chris performed one of the first surgeries utilizing our physician-led redesigned lap band Tupinol Flex designed to improve the patient experience. Chris, I'd like to ask you to give everyone your background and then discuss your experience with the lap band Tupinol Flex.