ReShape Lifesciences Inc. (RSLS)·Q3 2024 Earnings Summary

Executive Summary

• Q3 revenue rose to $2.29M, up 16.6% sequentially and 6.4% YoY, marking a third consecutive quarter of growth; gross margin expanded to 62.8% as cost reductions flowed through .
• Adjusted EBITDA improved to -$1.56M vs -$2.91M last year; net loss narrowed to -$1.58M; EPS was -$3.11 (reflecting the 1-for-58 reverse split effected in September) .
• Strategic catalysts: Health Canada approval for Lap-Band 2.0 FLEX, a $241k NIH supplementary grant for DBSN, and continued progress on the Vyome merger and asset sale to Biorad; the company also executed a $833k senior secured convertible note in October .
• No formal quantitative guidance was issued; management reiterated disciplined cost control and commercial launch plans for Lap-Band 2.0 FLEX while acknowledging demand headwinds from GLP‑1 adoption .

What Went Well and What Went Wrong

What Went Well

• Sequential revenue and YoY growth with improved gross margin: “revenues continued to rebound, increasing 16.6% over the second quarter… and approximately 41% lower operating expenses… increased our gross profit margin to over 60%” .
• Regulatory and R&D milestones: Health Canada approval for Lap-Band 2.0 FLEX and a $241k NIH grant to advance DBSN next‑gen electrodes (fourth NIH award; total $1.15M) .
• Strategic transactions advancing: Vyome merger and concurrent asset sale to Biorad designed to maximize shareholder value; Series C preferred liquidation preference reduced to facilitate value to common holders .

What Went Wrong

• Persistent macro/product headwinds: GLP‑1 pharmaceutical weight‑loss alternatives continue to pressure sales volumes; management cited this as the primary driver of earlier declines and an ongoing market challenge .
• Liquidity tightening: Net working capital declined to ~$1.3M at Q3 (from ~$2.9M in Q2 and ~$4.4M in Q1); cash and equivalents fell to $0.74M, underscoring funding sensitivity .
• Continued losses: Q3 operating loss of -$1.76M and adjusted EBITDA of -$1.56M, albeit improved YoY, highlight the need for sustained margin expansion and revenue growth .

Financial Results

KPIs

Notes: EPS comparability is affected by the 1‑for‑58 reverse stock split effective Sept 23, 2024 .

Guidance Changes

No tax rate, OI&E, margin, dividend, or segment-specific numerical guidance was disclosed in Q3 materials .

Earnings Call Themes & Trends

Management Commentary

• “During the third quarter, our revenues continued to rebound, increasing 16.6% over the second quarter… approximately 41% lower operating expenses… increased our gross profit margin to over 60%.” — Paul F. Hickey, CEO .
• “We completed our early launch phase [of Lap-Band 2.0 FLEX]… received approval for the Lap-Band 2.0 FLEX from Health Canada, which represents yet another important growth catalyst.” — Paul F. Hickey .
• “With various cost reductions, we have achieved a 41% reduction in overall operating costs for the first 9 months of 2024… we also saw increases in our gross profit margin.” — Thomas Stankovich, CFO .
• “We believe this merger will unlock significant value for our shareholders… we regained compliance with Nasdaq after effecting a 1‑for‑58 reverse stock split in September.” — Paul F. Hickey .

Q&A Highlights

• Vyome pipeline visibility: Analysts asked about Vyome’s molecules and targeting of malignant fungating wounds; management indicated details will come via an investor deck and S‑4, outlining catalysts and near‑term priorities .
• Market dynamics and Lap-Band positioning: Discussion on GLP‑1 pressure and potential gravitation back to Lap‑Band; management expects increased bariatric surgical engagement as GLP‑1 limitations (cost, tolerability) emerge over time .
• Transaction readiness and shareholder process: Management reiterated plans to hold a shareholder meeting post S‑4 effectiveness to approve transactions, maintaining confidence in the strategic rationale .

Estimates Context

• Wall Street consensus estimates via S&P Global: Unavailable for RSLS this quarter due to missing CIQ mapping; therefore, no consensus comparisons can be made. If/when S&P Global data becomes available, we will update beat/miss assessments.
• Implication: With no consensus baseline, the focus shifts to sequential and YoY trajectories and margin/expense execution .

Key Takeaways for Investors

• Sequential revenue inflection with third straight quarter of growth amid GLP‑1 headwinds suggests stabilization; gross margin expansion to 62.8% provides operating leverage as volumes recover .
• Cost discipline remains the core driver: ~41% OpEx reduction through nine months is translating into improved adjusted EBITDA and narrowing losses; sustaining this is critical to bridging liquidity .
• Commercial execution is the next catalyst: Completion of early Lap-Band 2.0 FLEX launch and Health Canada approval set the stage for broader commercialization; watch surgeon adoption and DTC lead quality .
• Strategic optionality via the Vyome merger and Biorad asset sale could reset the equity story; track S‑4 effectiveness, shareholder vote timing, and any conditions to close .
• Liquidity tightness raises urgency: Q3 cash of $0.74M and net working capital ~$1.3M highlight the need for careful cash management and timely transaction execution .
• EPS comparability is distorted by the 1‑for‑58 reverse split; use operating metrics and cash trends to gauge performance near term .
• Without Street estimates, trading likely keys off incremental commercialization/regulatory milestones (Lap-Band 2.0 FLEX launches) and merger progress; monitor updates on timelines and capital access .

Sources: Q3 2024 8‑K and press release ; Q3 2024 earnings call transcript ; Health Canada approval ; NIH grant ; Q2 and Q1 trend context .