This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good afternoon and thank you for joining the Reshape Life Sciences First Quarter 2024 Conference Call. I would like to turn the call over to Michael Miller from RX Communications.
spk00: Good afternoon and thank you for joining the First Quarter 2024 Reshape Life Sciences Earnings Call. I'm pleased to be joined today by Paul Hickey, President and Chief Executive Officer, and Tom Stankovic, Chief Financial Officer. Paul will provide an overview and update on the company's activities and Tom will review the financial results for the period. We will then turn the call back over to Paul for some closing remarks, after which we will open up the call to question and answer session. 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 the company's most recent annual report on Form 10-K. As an additional reminder, reshaped stock is listed on NASDAQ, trading under the symbol RSLS. I will now turn the call over to Paul Hickey, President and CEO of Reshape Life Sciences. Paul?
spk01: Thank you, Mike, and thanks to all of you for joining us this afternoon for our earnings call for the first quarter of 2024. During the first quarter and subsequently, we have remained focused on delivering shareholder value and have reshaped on a path to profitability and long-term sustainability. Key to our success include our efforts to stabilize revenues as well as our disciplined approach to continually leveraging resources and focus on reducing costs as we outlined in March. To that end, we continue to fine-tune our lead generation activities and invest in our growth drivers, including the commercial launch of our physician-led redesign, LapBand 2.0 Flex. At the same time, we continue our high priority search for strategic and synergistic M&A opportunities. As we have mentioned before, we have engaged the Maxim group on an exclusive basis to assist in this process. As one can imagine, we've had a high level of activity and will continue this effort to find the right partner to join us in our mission at Reshape to improve the quality of life for individuals fighting obesity worldwide. With the stigma around obesity and medical intervention being normalized, by the surge of GLP-1 receptor agonist usage, we are steadfast in our confidence that the numbers of people seeking medical professionals, especially bariatric surgeons, will continue to increase. The GLP-1's short-term impact on the market last year made it necessary for us to undertake additional strategic cost reductions, including a further reduction in staff, leading to a projected 55.4% decrease in operating expenses for 2024 as compared to last year. Tom and I will provide further details 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 LapBand. I'm happy to report that the limited launch of the LapBand 2.0 Flex continues to progress well and the initial surgeon feedback has been positive. Added to this, our revamped patient-friendly website is receiving meaningful traffic, while our co-op marketing program involving cost sharing with key lap band centers has proved effective and scalable. Before I recap our first quarter and subsequent highlights, I'd like to remind listeners about the important events occurring within the obesity market today. As most of you already understand, the global 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. I'm sure you're also aware of the growing popularity of GLP-1 receptor agonists that have brought significant benefits to those suffering from type 2 diabetes and that help those who have obesity. We believe that GLP-1 adoption is expanding the medical weight loss market by vastly reducing the stigma that often occurs around obesity and medical intervention, including bariatric surgery. However, it's becoming very clear that weight loss due to GLP-1 drug usage has limitations, especially related to cost, accessibility, and the fact that 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 receptor agonists were adherent after one year. We continue to believe, based on this and other 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 tolerance, they will contemplate bariatric surgery, especially a minimally invasive procedure like the lap band. Furthermore, as the safest and only adjustable and reversible bariatric surgery, The lap band is ideal for simple specific types of patients like women in childbearing years who are not able to utilize GLP-1 drugs. Now let me take a few minutes to update you on our progress related to our primary growth pillars. As I mentioned earlier in the call, I want to provide more specifics on the progress made toward our first pillar to deliver shareholder value and ultimately profitability, specifically As we considered the impact of GLP-1 receptor agonist 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 were channeling investments into the most promising part of our strategy to drive growth and maintain adherence to critical P&L metrics within our organizations. Tom will detail the expense savings we have identified, realized, and are planning for. 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 equating to approximately $1.2 million. We've decided to temporarily pause our reshaped care program and achieve estimated savings of $0.8 million while we work to augment the reshaped care platform and secure a self-insured employer to provide reshaped care to employees. We have also planned for $0.9 million of reductions for incentive compensation and other payer-related amounts. all a part of streamlining our team significantly, but without affecting revenue. Taken together, these reductions will allow us to focus and invest in our growth drivers, while at the same time extend our cash runway. These changes are bold, necessary, and indicative of our commitment to our first pillar, which I established in late 2022. In point of fact, with these 2024 reductions, the company's core operating expenses reduced between 2022 and 2024 an estimated $24 million, or 75%. In addition to the necessary cost reduction initiatives related to our first growth pillar, we are continuing to make progress with our cost-effective digital lead generation and patient engagement campaign through our partnership with Hive Medical. This platform allows us to access advanced lead optimization software that enhances patient engagement and increases patient volume. The software utilizes AI SMS platform technology along with our direct-to-consumer marketing campaign to help individuals easily book appointments with medical professionals. This has led to an increase in the quality of patient needs and cost reduction in targeted markets. Let's now discuss our progress executing our second growth pillar to expand our portfolio and distribution. In February, the first surgeries using Reshape's enhanced lap band 2.0 flex were successfully performed. Since then, additional surgeries have taken place, and the initial limited launch has gained momentum. This launch represents a significant advancement in improving the overall experience for lap band patients. While we're now only approved to market in the US, we are working to obtain regulatory approvals in both Canada and the EU. The new Flex technology serves as a relief valve, alleviating discomfort caused by swallowing large pieces of food and designed to eliminate the need for in-office band emergent adjustments as the band temporarily relaxes before returning to its original diameter. Now, earlier this year, we had the opportunity to train surgical fellows on the LapBand, and we also introduced them to the LapBand 2.0 Flex. This was an exciting event because the future of LapBand relies on its continued adoption by surgeons and surgical fellows who are the next generation of bariatric surgeons. Based on feedback from current surgeons, including those who have already used the LapBand 2.0 Flex, we believe that the new Flex technology will enable us to engage more surgeons, and attract new and existing lap band patients. In June, in San Diego, at this year's annual American Society for Metabolic and Bariatric Surgery meeting, or the ASMS meeting, we are excited to showcase the FLEX technology to the largest gathering of surgeons and integrated health professionals. All combined, we feel there is momentum building and increasing demand for lap band 2-panel FLEX surgery. making it a true catalyst for growth in LapBan franchise and the company as a whole. Now, it's also important to note that in March, we significantly strengthened Reshape's intellectual property portfolio surrounding the IntegraStick balloon system, having received a notice of allowance from the US Patent Office and Trademark Office, and last week had the patent issued. We will continue to build a defensive moat around our product portfolio, innovation and commercialization efforts, and take offensive action to defend our position utilizing non-dilutive funding. Before I turn the call over to Tom, I want to reiterate that we remain confident that with our LapBand 2.0 Flex and Legacy LapBand, we are uniquely positioned with the safest and most durable organ sparing and reversible weight loss option for those patients that have historically had an aversion to medically managed weight loss and surgery. Given the growing body of evidence pointing to the fact that weight loss due to GLP-1 receptor agonist usage has limitations related to comorbidities and accessibility, we believe that the market opportunity for the lap band 2.0 flex and lap band will increase over time. From a continuum of care perspective, these patients are likely potential candidates for bariatric surgery as the next viable weight loss treatment. I'd like to now turn the call over to Tom Stankiewicz to provide a recap of our financial performance. Tom?
spk02: Thanks, Paul. And once again, thank you all for joining our webcast this afternoon. As Paul mentioned earlier, we provided an update in March that in response to the short-term impact and adoption of GLP-1s, We have reorganized the company and have identified cost reductions of approximately $8 million, or 55%, for 2024 alone. Specifically, reduction in force of approximately $1.2 million, which began in November and December of 2023, and $900,000 of reductions in incentive compensation and other payroll-related amounts have been implemented across all expense categories. Other core operating costs in total have been reduced, which includes reductions in selling and marketing costs of $2.4 million without affecting our continued marketing spend optimization. Costs related to the pause of our reshape care program totaling $800,000. Expenses related to G&A totaling $1.3 million, primarily in professional consulting fees and insurance costs. and R&D expenses of approximately $900,000, which primarily include reduced patent fees and consulting costs. Taken together with actions thus far, we have made significant progress reducing our core operating expenses, cutting approximately $24 million, or 75% between 2022 and 2024. In fact, during the first quarter of this year, We had a significant reduction in overall operating expenses of 51% compared to the first quarter of 2023. A full discussion of our actual financials is available in today's press release and 10Q. I will just take a moment to review key financial metrics from the first quarter ended March 31st, 2024. Our revenue totaled 1.9 million for the three months ended March 31st, 2024, which represents a contraction of 15% or 300,000 compared to the same period in 2023. The primary reason is a decrease in sales volume, primarily due to GLP-1 drugs. We continue to focus our new marketing strategy through targeted and AI-supported digital media campaigns near bariatric surgical centers around the US. while reducing costs and increasing our efficiencies. We expect that these efforts will continue to come to fruition throughout 2024. Additionally, we anticipate the full U.S. launch of the lap band 2.0 flex in 2024 that should contribute to increased sales going forward during 2024 and into 2025. Gross profit for both the three months ended March 31st, 2024 and 2023 was $1.2 million. Gross profit as a percentage of total revenue for the three months ended March 31st, 2024 was 60% compared to 54% for the same period in 2023. The increase in gross profit percentage is due to the reduction in overhead related costs, primarily payroll, as the company had a reduction of employees late in 2023. Sales and marketing expenses for the three months ended March 31st, 2024, decreased by 1.2 million or 53% to 1 million compared to 2.2 million for the same period in 2023. There was a decrease of $700,000 in advertising and marketing expenses as we re-evaluated our marketing approach and have moved to a targeted and AI-supported direct digital marketing campaign. There were also 500,000 reductions in payroll related expenditures, including commissions, stock compensation expense, and travel of 500,000 due to changes in sales personnel and lower sales. General and administrative expenses for the three months ended March 31st, 2024 decreased by 2.3 million or 56% to approximately 1.9 million compared to 4.2 million for the same period in 2023. The decrease is primarily due to a reduction in professional services such as audit and legal fees of $1.3 million, primarily due to the fiscal year 2022 restatement that occurred during the first quarter of 2023, public stock offering costs, and a reduction in payroll-related expenses, including a reduction in stock-based compensation of approximately $500,000 due to changes within personnel. The company also had a decrease in rent and insurance of $100,000 as it moved to its headquarters during the second quarter of 2023 to a smaller facility to reduce costs. Research and development expenses were $500,000 for the three months ended March 31, 2024, remaining consistent with the same period in 2023, with a slight decrease, primarily in stock-based compensation. Non-GAAP adjusted EBITDA loss was 2.1 million for the three months ended March 31st, 2024, compared to a loss of 5.3 million for the same period last year, a reduction of 3.2 million, primarily due to our continued efforts to reduce overall operating costs. We ended the quarter with a net working capital of approximately 4.4 million, primarily due to cash and cash equivalents of 2.5 million, and 1.6 million of accounts receivable and remain debt-free on our balance sheet. For the remainder of 2024, we anticipate our revenues increasing and a continued reduction in our operating expenses. With that, I will now turn the call back over to Paul.
spk01: Thanks, Tom. Before we open the call for Q&A, it is important to reiterate, as both Tom and I have detailed, that we have and will continue to significantly reduce operating expenses across all categories so we can invest in our growth initiatives, including the full launch of our LapBan 2.0 Flex. The swift and bold steps we have taken to restructure the company will help to ensure sustainability and scalability. We continue to prioritize investments, including marketing automation to support scalable lead acquisition, segmented consumer-centric messaging, being an updated website for improved patient engagement, and a frictionless appointment scheduling system with qualified providers, while further reducing lead generation costs. Taken together, we expect to increase lap band procedures and ultimately revenue. We will continue to work with the maximum group and aggressively search and evaluate our M&A opportunities with intentions of expanding our portfolio that is differentiated from the competition with transformative technologies. We provide a selection of safe non-anatomy changing lifestyle enhancing products that are attractive alternative to pharmacological therapy or more invasive therapies. Lastly, we will continue to work with our world-class scientific advisory board to continue to execute our plan for success in a global market that is changing in a historic fashion to normalize safe and effective treatments for obesity. This concludes our prepared remarks, so now we'd like to open the call to your questions. Operator?
spk03: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Seeing no questions, I would like to turn the conference back over to Paul Hickey for any closing remarks. Please go ahead.
spk01: Thank you. We are on a path to profitability, having restructured the organization, focusing on increased shareholder value and establishing a sustainable and scalable business. And we'll continue our high-priority search for synergistic M&A opportunities while continuing the adoption of the Lapin 2.0 Flex as projected to be a growth catalyst for the company. As always, I want to thank our employees, board members, customers, consultant advisors, suppliers, existing and new shareholders for your continued support of Reshape as we progress on our mission to become the premier physician-led weight loss company. I look forward to continuing to engage with our stakeholders, healthcare partners, and shareholders. Thank you all.
spk03: This conference has now concluded. Thank you for attending today's call.
Disclaimer