Sign in

You're signed outSign in or to get full access.

RL

ReShape Lifesciences Inc. (RSLS)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 revenue declined to $2.155M (down ~$0.6M YoY) as GLP-1 adoption pressured bariatrics; gross margin was 59.8% vs 75.1% a year ago, while Adjusted EBITDA loss improved to $(2.9)M from $(4.2)M YoY .
  • Management announced a 2024 cost reduction program of ~$(8)M (>40% OpEx cut vs 2023), cumulatively ~$(22)M (70%) core OpEx reductions from 2022–2024; cash was $1.5M at quarter-end with an additional $2.8M raised in October to extend runway .
  • Strategic pipeline and commercial catalysts: Lap-Band 2.0 Flex PMA supplement filed in June; approval expected by year-end or early 2024; Obalon balloon licensed to Biorad in South Asia ($200k upfront; 4% royalty) .
  • Near-term stock drivers: FDA decision on Lap-Band 2.0 Flex, execution of >40% 2024 OpEx cuts, proof that AI-driven lead gen (Hive) can offset GLP-1 headwinds, and milestones on Obalon international relaunch and M&A exploration (Maxim mandate) .

What Went Well and What Went Wrong

  • What Went Well

    • Cost discipline accelerated: “cost reductions totaling approximately $8 million for 2024… over 40% reduction in operating expenses,” with core OpEx down 37% YoY in Q3 and ~$22M (70%) trimmed 2022–2024 .
    • Commercial pipeline progress: Lap-Band 2.0 Flex PMA supplement submitted; approval expected by year-end or early 2024; “will be a growth catalyst” per management .
    • International optionality: Biorad Obalon license ($200k upfront; 4% royalty) opens South Asia route; management sees it as a first step toward global relaunch .

  • What Went Wrong

    • Demand headwinds: GLP-1 adoption reduced Lap-Band volumes in U.S. and OUS, driving Q3 revenue down ~$0.6M YoY to $2.155M and compressing gross margin to 59.8% vs 75.1% YoY .
    • Scale pressure on margins: Lower volume was primary driver of gross margin decline; absolute gross profit fell to $1.288M from $2.101M YoY .
    • Liquidity tightness: Cash fell to $1.449M at quarter-end, necessitating October raise; company remains debt-free but reliant on cost actions and future growth catalysts .

Financial Results

MetricQ3 2022Q1 2023Q2 2023Q3 2023
Revenue ($USD Millions)$2.798 $2.287 $2.254 $2.155
Gross Profit ($USD Millions)$2.101 $1.224 $1.194 $1.288
Gross Margin (%)75.1% 53.5% 53.0% 59.8%
Sales & Marketing ($USD Millions)$2.605 $2.182 $2.177 $1.791
General & Administrative ($USD Millions)$3.784 $4.220 $2.445 $2.058
Research & Development ($USD Millions)$0.583 $0.453 $0.581 $0.542
Total Operating Expenses ($USD Millions)$14.402 $6.855 $5.170 $5.168
Operating Loss ($USD Millions)$(12.301) $(5.631) $(3.976) $(3.880)
Net Loss ($USD Millions)$(12.186) $(2.662) $(3.493) $(3.534)
Adjusted EBITDA ($USD Millions)$(4.248) $(5.338) $(3.737) $(2.905)
Cash & Equivalents (period-end, $USD Millions)N/A$8.983 $4.567 $1.449

Notes:

  • Management cited GLP-1 adoption as the primary driver of lower U.S. and international sales and lower gross margin due to volume deleverage .
  • Company raised ~$2.8M net in October and remains debt-free .

Segment breakdown: The company does not provide segment-level revenues in the press releases/8-K; performance is discussed at the consolidated level .

KPIs and non-GAAP

  • Adjusted EBITDA improved YoY to $(2.905)M (from $(4.248)M); 9M’23 Adjusted EBITDA loss $(11.980)M vs $(19.202)M in 9M’22 .
  • Non-GAAP adjustments include interest income/expense, taxes, D&A, stock-based comp, impairments, (gain)/loss on disposal, and warrant fair value changes .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating ExpensesFY 2024 vs 2023Not previously quantified>40% reduction (~$8.0M) via RIF, paused ReShapeCare, reduced consulting/marketing, lower incentives; Board comp –50% Introduced (Reduced)
Revenue OutlookQ4 2023–Early 2024Expect 2H23 growth (Q2 commentary) Expect revenue to increase in Q4’23 and into 2024 as new marketing and calibration tubes gain traction Maintained (directional)
Lap-Band 2.0 Flex FDA TimingLate 2023–Early 2024FDA feedback by YE’23 or early ’24 (Q2) Approval expected by YE’23 or early ’24; U.S. launch to follow Maintained
Cash Runway2024Not statedOctober net proceeds ~$2.8M plus 2024 cost actions extend runway into 2024 Updated
ReShapeCare Program2024In-market and pursuing employer sales Temporarily paused to save ~$0.8M while pursuing self-insured employer contract Reduced/Paused

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2023, Q2 2023)Current Period (Q3 2023)Trend
GLP-1 impact and care continuumGLP-1s normalize obesity care; potential combination with Lap-Band; tracking surgeon feedback –GLP-1s pressuring near-term sales; management and SAB physicians argue GLP-1s will expand surgical funnel; backlog at centers; combo therapy emphasized – –Increasing focus; cautiously constructive medium-term
AI/automation marketing (Hive)Signed Hive; test showed +107% QoQ consults at pilot sites; building in-house call center/website – Marketing “working” at advocate sites; optimizing spend; aim to lower lead costs and lift conversions Execution phase; scaling
Cost structure and runwayQ1: 43% OpEx cut YoY (ex one-time); cash into 2024 – 2024 cuts >40% (~$8M); ~70% core OpEx cut 2022–2024; October raise $2.8M net Accelerating cuts; runway extended
Lap-Band 2.0 FlexPMA supplement submitted (June); YE’23/early ’24 feedback expected Approval expected YE’23/early ’24; viewed as growth catalyst Steady; near-term catalyst
Obalon internationalUSPTO IP strengthening; exploring global options Biorad South Asia license ($200k upfront; 4% royalty); ramp expected 2024 Initial monetization; execution next
Strategic alternatives—Engaged Maxim Group to explore M&A/partnerships New initiative

Management Commentary

  • “Cost reductions totaling approximately $8.0 million, representing over 40% reduction in operating expenses for 2024… core operating expense reductions between 2022 and 2024 are estimated at $22 million, or 70%.” — Paul Hickey, CEO .
  • “We anticipate receiving FDA approval for the Lap-Band 2.0 Flex later this year or early in 2024… a growth catalyst for the Lap-Band franchise.” — Paul Hickey, CEO .
  • “Non-GAAP adjusted EBITDA loss was $2.9 million for [Q3 2023]… highest gross margin percentage in any quarter this year as some of our cost reductions had a positive impact on gross margins.” — Tom Stankovich, CFO .
  • SAB view on GLP-1s: “GLP-1s… will ultimately increase the number of patients who would consider surgery… combination therapy… including the Lap-Band.” — Dr. Caroline Apovian –.

Q&A Highlights

  • GLP-1 timeline and demand: SAB physician cited significant patient backlog and limited specialist capacity; GLP-1s help destigmatize obesity and can channel higher-BMI patients to surgery over time; combination therapy with Lap-Band is practiced post-plateau –.
  • Obalon South Asia rollout: Project kicked off; teams engaged; likely first part of 2024 for initial commercialization milestones given knowledge transfer and validation timing .
  • Cost cuts one-time charges: Management does not expect material Q4 charges; some modest severance accruals are anticipated .
  • FDA process: PMA supplement under review; management expects active interaction and approval by YE’23/early ’24 .

Estimates Context

  • Wall Street consensus (S&P Global) for RSLS was not available at the time of analysis; the company has limited/zero analyst coverage. As a result, no vs-consensus comparisons are provided.
  • Company did not issue quantitative revenue or margin guidance; commentary remains directional regarding revenue recovery and cost reductions .

Key Takeaways for Investors

  • Cost-out is the near-term lever: >40% 2024 OpEx cut (~$8M) and cumulative ~70% core OpEx reduction 2022–2024 materially de-risk cash burn; October raise adds runway .
  • Catalyst path: FDA decision on Lap-Band 2.0 Flex (YE’23/early ’24) and visible launch plans could be the principal stock catalyst in the next 1–2 quarters .
  • Commercial execution watchpoints: Demonstrate that AI-led demand gen (Hive) can lift consults/conversions enough to offset GLP-1 headwinds; early anecdotes are constructive, but sustained revenue inflection is key .
  • Strategic optionality: Biorad license offers initial non-U.S. monetization; M&A/partnership exploration via Maxim could accelerate scale if executed prudently .
  • Risk balance: GLP-1 adoption remains a headwind to near-term Lap-Band demand and gross margin via volume; liquidity requires disciplined execution of cost plan and timely catalysts .
  • Monitoring list: (1) FDA outcome & launch timing for Lap-Band 2.0 Flex, (2) Q4’23/Q1’24 revenue progression vs directional guide, (3) OpEx run-rate realization and cash trends, (4) Obalon/Biorad milestones, (5) any M&A updates .