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ReShape Lifesciences Inc. (RSLS)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 revenue was $2.0M, down 12.8% YoY on GLP‑1 headwinds, while gross margin expanded to 57.7% (from 53.0%) on cost cuts; adjusted EBITDA loss improved to $(1.94)M and GAAP EPS was $(0.06) .
  • Management executed 2024 cost reductions, delivering ~45% lower operating expenses in 1H24 YoY and stabilizing gross margins despite lower sales .
  • Strategic pivot: signed a definitive all‑stock merger with Vyome; concurrently agreed to sell substantially all RSLS assets to Biorad Medisys for $5.16M cash; RSLS holders to own ~11.1% of the combined company at close (subject to net cash adjustment) .
  • No formal quantitative guidance; focus remains on OpEx reduction and commercial readiness of Lap‑Band 2.0 FLEX; near‑term catalysts include the S‑4 effectiveness, shareholder vote, and closing of the merger and asset sale .

What Went Well and What Went Wrong

  • What Went Well

    • Gross margin held at 57.7% (+470 bps YoY) as reduced overhead and payroll offset lower volume; CEO credited execution of the 2024 cost plan and headcount actions in late 2023 .
    • Operating expenses fell sharply in Q2 and 1H24; adjusted EBITDA loss narrowed to $(1.94)M vs. $(3.74)M YoY as the 2024 cost program took hold .
    • Positive early surgeon feedback on Lap‑Band 2.0 FLEX under a limited release, with “anticipated widespread commercial launch” following data collection; management emphasized this as a key growth driver .

  • What Went Wrong

    • Revenue declined 12.8% YoY to $2.0M, driven by lower volumes primarily from GLP‑1 adoption in obesity treatment .
    • Cash declined to ~$1.15M (cash + restricted) with working capital of ~$2.9M at 6/30/24, down from ~$2.5M cash and ~$4.4M working capital at 3/31/24, underscoring liquidity constraints pre‑transaction proceeds .
    • R&D was curtailed (paused clinical work) to preserve cash, reducing spend but potentially limiting near‑term pipeline progress outside of Lap‑Band 2.0 FLEX .

Financial Results

MetricQ3 2023Q1 2024Q2 2024
Revenue ($USD Millions)$2.155 $1.944 $1.965
Gross Margin %59.8% 59.9% 57.7%
Adjusted EBITDA ($USD Millions)$(2.905) $(2.131) $(1.940)
Net Loss per Share ($)N/AN/A$(0.06)

Notes:

  • Q2 2024 revenue down 12.8% YoY; gross margin improved due to overhead reductions, primarily payroll .
  • Adjusted EBITDA improvement reflects broad-based OpEx control .

KPIs / Expense Structure

Metric ($USD Millions)Q3 2023Q1 2024Q2 2024
Sales & Marketing$1.791 $1.019 $0.670
General & Administrative$2.058 $1.872 $2.119
Research & Development$0.542 $0.484 $0.399
Total Operating Expenses$5.168 $3.375 $3.188

Liquidity

Metric12/31/20233/31/20246/30/2024
Cash & Equivalents ($M)$4.459 $2.379 $1.053
Restricted Cash ($M)$0.100 $0.100 $0.100
Working Capital ($M)N/A~$4.4 ~$2.9
DebtNone None None

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating Expenses (reduction vs 2023)FY 2024Reduce OpEx by approx. $8.0M (>50%) vs. 2023; plan announced in March/Q1 1H24 OpEx ~45% lower YoY; continuing 2024 cost plan execution Maintained; on track
RevenueFY 2024No formal quantitative guidance No formal quantitative guidance Maintained
Product Launch (Lap‑Band 2.0 FLEX)2024Anticipated full U.S. launch in 2024 Limited market release “nearing completion”; anticipated broader commercial launch Progressing toward launch
Strategic Transactions2H 2024Ongoing search for M&A partners Definitive all‑stock merger with Vyome; asset sale to Biorad for $5.16M cash; RSLS holders ~11.1% of NewCo at close (subject to net cash) Announced transactions; pending close

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23, Q1’24)Current Period (Q2’24)Trend
GLP‑1 impact on demandGLP‑1s pressured 2023 demand; management framed GLP‑1s as ultimately expanding bariatric funnel; highlighted low long‑term adherence GLP‑1s cited as primary driver of lower sales volume; reiterated long‑term opportunity for Lap‑Band Headwind near‑term; long‑term thesis maintained
Lap‑Band 2.0 FLEX launchFDA PMA supplement approval; early surgeries and positive surgeon feedback; targeted 2024 full launch Limited release “nearing completion,” initial feedback “very positive,” expected broad launch post data Execution progressing; next step: wider rollout
Cost reduction/OpEx discipline2024 plan to cut OpEx by >50%; identified RIF and SG&A reductions 1H24 OpEx down ~45% YoY; adjusted EBITDA loss narrowed Delivering as planned
M&A/Strategic pivotActive exploration of synergistic M&A (Maxim engaged) Announced Vyome merger and asset sale to Biorad; RSLS holders ~11.1% post‑close Major strategic shift announced
Marketing/AI automationAI‑supported digital campaigns and SMS platform highlighted Continued optimization of lead generation; emphasis on digital/co‑op programs Ongoing
Liquidity/cash runwayEnded 2023 with $4.5M cash; extended via cost cuts Cash and working capital declined by Q2; transactions expected to bolster net cash at close Tight until transaction proceeds

Management Commentary

  • “We continued to execute on our 2024 cost reduction plan, leading to approximately 45% lower operating expenses for the first half of the year…This…has stabilized our gross profit margin, even with lower sales due to the adoption of GLP‑1s.” – Paul F. Hickey, CEO .
  • “With various cost reductions, we have achieved a 45% reduction in overall operating costs for the first 6 months of 2024…Additionally, we have stabilized and increased our gross profit margins even with the lower sales due to the adoption of GLP‑1s.” – Thomas Stankovich, CFO .
  • On strategic transactions: “Our board of directors unanimously recommended the merger with Vyome, along with a concurrent asset sale to Biorad…We believe this presents a significant opportunity for our shareholders…” – Paul F. Hickey .
  • On merger structure and go‑forward strategy for NewCo: RSLS stockholders will own ~11.1% post‑close (subject to net cash), with Vyome leadership running the combined entity, renamed Vyome Holdings, Inc. .
  • On product ramp: “The limited market release of the Lap‑Band 2.0 FLEX is nearing completion and is going exceptionally well…[supporting] an anticipated widespread commercial launch.” – Paul F. Hickey .

Q&A Highlights

  • The available transcript content emphasizes prepared remarks (strategic transactions, OpEx discipline, and Lap‑Band 2.0 FLEX commercialization). Notably, management reiterated liquidity posture (“we remain debt free”) and working capital at quarter end, framing transactions as value‑maximizing steps ahead of broader Lap‑Band 2.0 FLEX launch .
  • Detailed Q&A exchanges were not included in the retrieved transcript content; the call as captured focused on merger rationale, asset sale mechanics, and the commercialization path for Lap‑Band 2.0 FLEX .

Estimates Context

  • S&P Global (Capital IQ) consensus estimates for Q2 2024 (EPS and revenue) were unavailable for RSLS due to missing SPGI mapping; as a result, we cannot provide a beat/miss comparison versus Street consensus for the quarter [SpgiEstimatesError].

Key Takeaways for Investors

  • Cost actions are working: 1H24 OpEx down ~45% YoY; adjusted EBITDA loss materially narrowed in Q2, helping stabilize gross margin despite volume pressure .
  • Top‑line is stabilizing sequentially but remains GLP‑1‑pressured YoY; watch if broad Lap‑Band 2.0 FLEX launch can re‑accelerate demand into 2025 .
  • Liquidity is tight pre‑close (cash ~$1.15M and WC ~$2.9M at 6/30/24), making timely execution of the $5.16M asset sale and merger critical catalysts .
  • The announced Vyome merger shifts the equity story toward immuno‑inflammatory assets; RSLS shareholders’ ~11.1% stake in NewCo underscores the importance of net cash at close to final allocation .
  • Tactical watch‑items for trading: S‑4 effectiveness and shareholder approvals; asset sale closing and cash receipt; commercialization metrics/feedback from broader Lap‑Band 2.0 FLEX rollout .
  • Near‑term narrative hinges on execution: sustaining OpEx discipline, converting the limited release into a revenue inflection, and closing strategic transactions to de‑risk liquidity .

Supporting Detail

  • Q2 2024 revenue $1.965M (−12.8% YoY); gross margin 57.7%; adjusted EBITDA $(1.94)M; EPS $(0.06) .
  • Q1 2024 revenue $1.944M; gross margin 59.9%; adjusted EBITDA $(2.131)M; WC ~$4.4M .
  • Q3 2023 revenue $2.155M; gross margin 59.8%; adjusted EBITDA $(2.905)M .
  • Strategic transactions: Vyome all‑stock merger; RSLS holders ~11.1% ownership; asset sale to Biorad for $5.16M cash; ownership subject to net cash at close .