ReShape Lifesciences - Earnings Call - Q4 2024

Transcript

Operator (participant)

Good afternoon, and thank you for joining the ReShape Lifesciences earnings highlights and strategic update conference call. I would now like to turn the call over to Michael Miller from RX Communications.

Michael Miller (Managing Director of Investor Relations)

Good afternoon, and thank you for joining the ReShape Lifesciences earnings highlights and strategic update call. I'm pleased to be joined today by Paul Hickey, President and Chief Executive Officer, and Tom Stankovich, Chief Financial Officer. During the call, Paul will provide an overview and update on the company's activities, and Tom will provide highlights of the financial results for the year-end 2024. As a reminder, this conference call, as well as ReShape Lifesciences 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, 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 Lifesciences. Paul?

Paul Hickey (President, CEO, and Director)

Thank you, Mike, and thanks to all of you for joining us this afternoon. As Mike noted, I will provide a strategic update on ReShape's activities and at the same time review the financial performance. Let's start with an overview of our activities over the past year. We remain committed to a disciplined approach, strategically leveraging resources to execute our 2024 cost reduction plan while executing our growth initiatives. As Tom will detail, we reduced operating expenses by almost 42%, excluding M&A-related costs, compared to the previous year. To help strengthen our financial position, we successfully closed a $6 million public offering in February, positioning us for continued growth. Most excitingly, on April 9th, just yesterday, we signed an exclusive agreement with Israel-based Motion Informatics to import and distribute their next-generation neuromuscular rehabilitation devices. This marks a significant milestone for ReShape as we expand and diversify our product portfolio.

In fact, this partnership presents a unique opportunity to bring cutting-edge, AI-driven neurorehabilitation solutions to the U.S. market and aligns with our growth pillars and commitment to expand our portfolio with differentiated products and therapies. This is not my first introduction into the complex rehabilitation market. In point of fact, prior to joining ReShape, I was President and CEO of Ultimate Medical Inc., where we worked extensively both with physical and occupational therapists to help those with complex rehabilitation needs. It is a fascinating market and offers tremendous opportunity for ReShape Lifesciences and the differentiated technology that Motion Informatics offers. Now, we recently introduced the Motion Informatics technology at the American Occupational Therapy Association's 2025 Annual Conference and Expo, held in Philadelphia. The feedback I received at this meeting, as well as other engagements with occupational therapists, have made us very excited to distribute the FDA-cleared STIMEL-03 system.

Motion Informatics' innovative devices align well with our commitment to improving the quality of life of patients our products and therapies serve. Our relationship with Motion Informatics will leverage our competencies and complement our existing commercial activity, including the Lap-Band 2.0 FLEX, designed to improve patients' quality of life while driving meaningful clinical and commercial results. Now, let me tell you a bit more about the STIMEL-03 system and Motion Informatics' other exciting products. The STIMEL-03 is a breakthrough system that integrates functional electrical stimulation, or FES, neuromuscular electrical stimulation, NMES, and real-time EMG biofeedback into a single patient-responsive platform, redefining rehabilitation for patients recovering from stroke, injury, or surgery.

In addition, with Motion Informatics' development and future release of their flagship Spatial StimelMD, or SSMD, they are advancing precision neurorehabilitation by harnessing real-time electrophysiological data, biofeedback-driven neuromodulation, and AI-powered intervention protocols to optimize neuroplasticity and accelerate recovery for patients with complex neurological conditions. Now, by integrating biomechanics, predictive analysis, and remote care, they are creating a scalable, intelligent rehabilitation ecosystem, and we are excited to partner with them and bring these important devices to the U.S. market. Clearly, we have reasons to be enthusiastic about this relationship with Motion Informatics, as it will provide an opportunity to drive growth while we continue to execute with a disciplined approach. Our strategy remains consistent with our growth pillar to expand our product portfolio with either organically developed products or with products from strategic partnerships.

Operationally, we will continue to identify cost reduction opportunities and invest in our key growth drivers, including the commercial launch of the next-generation physician-led Lap-Band 2.0 FLEX. Our initial feedback from surgeons during our market release of the Lap-Band 2.0 FLEX in the U.S. has been overwhelmingly positive. As a reminder, the new FLEX technology features a relief valve that helps alleviate discomfort from swallowing large pieces of food. This innovation eliminates the need for in-office band adjustments as the band temporarily relaxes before returning to its resting diameter. In February, we entered into a distribution agreement with Liaison Medical to distribute the Lap-Band 2.0 FLEX in Canada. As one of the largest surgical device distributors in the country, Liaison Medical has strong, well-established relationships with hospitals and surgeons.

This partnership follows the receipt of Health Canada's approval in November 2024 and marks a significant step toward expanding access outside the United States to effective, minimally invasive weight loss solutions for patients seeking alternatives to traditional bariatric surgery. Now, regarding our intellectual property estate, the March 2024 notice of allowance received from the U.S. Patent and Trademark Office, along with the issuance of key international patents from the State of Israel Patent Office, underscores our leadership in pioneering innovative treatments for type 2 diabetes. Specifically, these patents ensure long-term protection for our diabetes neuromodulation system, which utilizes our proprietary vBloc technology platform and vagus nerve stimulation to tackle one of the most urgent global health challenges: diabetes and its strong link to obesity.

In November of 2024, we received a supplementary grant of approximately $241,000 from the NIH in collaboration with the University of Southern California Center for Autonomic Nerve Recording and Stimulation System. This non-dilutive one-year grant is supporting studies evaluating the safety and efficacy of next-generation electrodes for ReShape's proprietary diabetes neuromodulation system. These advanced electrodes have the potential to double the nerve contact area, enhancing the delivery of the neuromodulation signals while reducing the power consumption. Our fourth NIH grant, this award brings our total funding to $1.15 million, reinforcing the strength of our non-dilutive funding strategy and highlighting the NIH's strong and continued interest in our groundbreaking diabetes neuromodulation technology and its potential impact on the global diabetes market.

Most notably, in July, we coordinated both the merger agreement with Vyome Therapeutics and the concurrent asset purchase agreement with Biorad, and we successfully negotiated with our Series C shareholders to substantially lower their liquidation preference. All things considered, we feel strongly these concurrent deals are intended to maximize stockholder value and earnings potential. The transactions have been progressing, and both the ReShape and Vyome teams have been diligently working on all needed aspects of the transactions so that we can set the date for the shareholder meeting. Our board has unanimously recommended merging with Vyome and simultaneously selling assets to Biorad, as we believe this strategic decision will generate significant value and growth for our shareholders in the newly formed entity. I would now like to turn the call over to Tom Stankovich to provide highlights of our financial performance. Tom?

Tom Stankovich (CFO)

Thanks, Paul. Once again, thank you all for joining our webcast this afternoon. As Paul mentioned earlier, during 2024, we implemented a disciplined approach to executing our cost reduction plan. With various cost reductions in all areas, we've achieved a 42% reduction in overall operating costs for 2024 compared to the same period last year, excluding transaction-related costs for our pending merger and asset sale. A full discussion of our actual financials is available in our press release and 10-K, so I will just take a moment to review key financial metrics for the 12 months ended December 31st, 2024. Revenue totaled $8 million for the year-end of December 31st, 2024, which represents a contraction of 8%, or $700,000, compared to the same period in 2023.

The primary reason for this decrease is due to the introduction of GLP-1 pharmaceuticals, as well as our reduction in marketing spend at certain times in 2024. Gross profit for the year-end of December 31st, 2024, was $5.1 million compared to $5.5 million for the year-end of December 31st, 2023, a decrease of $500,000, or 9%. Gross profit as a percentage of revenue for the year-end of December 31st, 2024, was 63.2%, compared to 63.9% for the same period in 2023. The slight reduction in gross profit margin is primarily due to the write-off of certain inventories, offset by the company's allocating resources to increase efficiencies and a slight increase in product pricing. Sales and marketing expenses for the year-end of December 31st, 2024, decreased by $4.6 million, or 60%, to approximately $3 million, compared to $7.5 million for the same period in 2023.

The decrease is primarily due to a decrease of $2.2 million in advertising and marketing expenses, including consulting and professional marketing services, as the company has continued to scale down its marketing efforts to a targeted digital marketing campaign. General and administrative expenses for the year-end of December 31st, 2024, decreased by approximately $3.4 million, or 33%, to approximately $6.9 million, compared to $10.3 million for the same period in 2023. This decrease was primarily driven by a $1.8 million reduction in general, legal, audit, and other professional fees, as the company reduced its reliance on consultants and professional services to conserve cash. In addition, payroll-related expenses, including stock-based compensation, decreased by $1.3 million due to changes in personnel and workforce reductions during the year.

Research and development expenses for the year-end of December 31st, 2024, decreased by $500,000, or 22%, to $1.8 million, compared to $2.3 million for the same period in 2023. The decrease is primarily due to a decrease of $300,000 in consulting and clinical trials, as the company halted clinical trials during 2023 and reduced the use of consultants while the Lap-Band was released in early 2024. Transaction costs for the year-end of December 31st, 2024, were slightly over $1 million. We have incurred transaction costs during 2024 related to our pending merger and asset sale, and we felt it necessary to isolate these costs separately. These expenses primarily consisted of $700,000 of legal fees and $200,000 of audit-related fees incurred with our pending merger and asset sale. Cash and cash equivalents as of December 31st, 2024, were $700,000.

As Paul mentioned earlier, we completed an upsized $6 million public offering on February 18th, 2025. The company had $800,000 in a convertible note payable to an institutional investor at December 31st, 2024, which was repaid on February 18th, 2025. With that, I will now turn the call back over to Paul.

Paul Hickey (President, CEO, and Director)

Thanks, Tom. To remind shareholders, the details of the merger with Vyome are outlined in the S4 registration statement, which includes the proxy statement. When the SEC declares the S4 effective, we will plan and hold a shareholder meeting to approve the transactions. The upcoming merger with Vyome and the concurrent asset sale to Biorad should be a cause for optimism, and it is part of the reason our board unanimously recommended the transactions. In closing, I'd like to extend my heartfelt gratitude to our employees, board members, customers, consultant advisors, suppliers, and both our existing and new shareholders for your steadfast support of ReShape and for believing in our future as Vyome. Thank you all.

Operator (participant)

This conference is now concluded. Thank you for attending today's call. You may now disconnect.