Q3 2021 ReShape Lifesciences Inc Earnings Call
Good morning, and thank you for joining the third quarter of 2021 Reshaped life Sciences earnings Webinar I am pleased to be joined by Bart Van <unk>, Chief Executive Officer, a reshaped Lifesciences incorporated who will provide an overview of the company's recent activity during the third quarter of 2021, Tom. Thanks.
<unk> Chief Financial Officer, Reshape will then review the financial results for the recent quarter and then turn the call back over to Bart to finish.
As a reminder, this conference call as well as reshape Lifesciences SEC filings and website, including the Investor information section of the website contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
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 Companys filings with the Securities and Exchange Commission, including those factors identified as risk factors in our most recent annual report on Form 10-K.
In our quarterly report on Form 10-Q, as an additional reminder, our stock is listed on NASDAQ capital market trading under the ticker symbol <unk> I will now turn the call over to our CEO Bart Vandy Bart.
Thanks, Daniel Good morning, everyone and thank you for joining us today.
The third quarter of 2021, we executed several initiatives to further build momentum on the accomplishments we've garnered in the previous quarter, including our merger with <unk> and listing on the NASDAQ.
Im also pleased to report that we continued to strengthen our market position as demonstrated by our growing revenues for the first nine months of 2021, a $10 5 million, representing a 29% increase from the same period last year.
Before I discuss in detail the work we've done to maximize the value of our product portfolio I'd like to provide a brief synopsis of the massive market opportunity to reshape.
Study show that 73% of American adults are overweight or obese with about 50% of that population seeking to lose weight every year.
To capitalize on this multibillion dollar opportunity in the U S market by 2025, we made the strategic decision to allocate our resources towards the Dubuque of the company's first and largest mass media multi platform advertising campaign for our lead product the lap that which has specific weight loss indications approved by the FDA.
And is covered by most insurance plans.
Available across national TV channels, and major print publications. Our goal is to effectively communicate the important benefits of the lap them directly to our targeted audience.
We want to ensure that our price has high visibility in the marketplace for anyone seriously considering weight loss options.
It is essential for the company to promote the differentiators of our product, including its safety and efficacy profiles as well as the ability of this technology to be adjusted for individual needs and the procedure being available in outpatient surgery centers with most patients going home the same day.
Confirmed through recent test marketing programs and cooperated with the historical impact of patient marketing program for the lap band. We are highly encouraged by the substantial consumer engagement and revenue potential of this campaign presents.
To capture and retain patients and our ecosystem of weight loss solutions. We are also promoting reshape care are reimbursed virtual weight management program led by physicians as a non surgical based weight loss program as well as an asset care support model for the bariatric surgeries that are available.
Regarding product demand and interest in Harris poll research day reported that 61% of American adults experienced undesired weight changes during the pandemic with 42%, claiming they gained more weight than intended an average of 29 pounds.
As the go to company for physician that weight loss products. We were approached by a number of health care professionals to help them adapt their practices for patients seeking weight loss treatment. During the pandemic. We responded in two ways.
By citing the functionality overlap band in the outpatient surgery settings, and introducing reshaped care our position manage reimburse virtual health coaching program for their patients.
Along with building a proprietary ecosystem of weight loss solutions that makes us unique we created hub for patients. She can help across the continuum of care a strategy that also supports long term patient and customer retention.
Our decision to launch reshape care was another way of addressing physician and consumer demand for accessible customizable and engaging online medical solutions or.
Our entry into the virtual health care delivery space allows us to tap into a market that is expected to reach $95 billion by 2026.
Given the strong potential of the seamless physician prescribed digital health offering we anticipate to generate increasing revenue for this program in the fourth quarter of 2021 and into 2022.
In July 2021, we launched reshape marketplace as an extension of appreciate care offering consumers an e-commerce option to access a collection of competitively priced and practical weight loss and wellness solutions and products covering the vital areas of nutrition exercise sleep and stress.
To further the promise of reshape marketplace. We recently announced the addition of a new product supplement line comprised of bariatric multi vitamins and supplements by procure health.
During the past few quarters, we made mentioned of proactively revising enhancing our manufacturing and commercial efforts to maximize profitability and ensure operational efficiencies within our business to that effect. We are very happy to welcome <unk>, our newly appointed Vice President of operations and research and development to reshape.
Al is an experienced and successful industry veteran and healthcare operations, who most recently served as EVP of operations. It clearer for incorporated where he oversaw the broad strategic direction of all manufacturing and material management operations.
Emerging from the pandemic. We also added key field personnel to support an engaged practices in preparation for the anticipated patient flow from our patient direct marketing campaign.
Okay.
With respect to Amit augmenting our product line and subsequent to the completion of our merger with <unk>. We continue to explore the option of adding the overlap balloon technology to our commercial offerings.
The FDA approved gastric balloon system offers a nonsurgical minimally invasive approach to helping patients maintain a controlling diet, thereby making weight loss more achievable.
Now I'd like to turn to our product pipeline.
Once we receive necessary approvals from the steady sites, we will be ready to resume our EU based clinical trials for the reshape verse, a laparoscopic implantable technology designed to support and enhance the patient's weight loss journey.
Clinical investigation of the product will continue to be conducted in different locations of Europe, and we are continuing to work with those conditions to remain in a state of preparedness for the reopening of their medical facility access.
With the assistance of a grant from the NIH, we completed and met the necessary endpoints for the preclinical study of the reshape diabetes block scam Neuromodulation technology.
This platform utilizes proprietary simultaneous nerve stimulation and blocking to adjust insulin production and potentially treat type two diabetes.
We remain committed to evaluating potential of this platform through additional non dilutive grant funding.
We have developed strategies and tactics that will build the structural framework for sustainable growth in the medium to long term.
Additionally, continuing from the medical conference taking place this month in Dusseldorf, we will continue to pursue M&A opportunities that align with our current portfolio and present, a sound revenue generating potential.
In summary, we are confident that our enhanced commercial strategy will improve our revenue and profitability position, but we will continue to implement programs that drive demand for our products, while fostering a positive future for reshape.
I look forward to providing further updates on our progress in the quarters to come.
I will now turn the presentation over to Tom for a review of our financial performance Tom.
Thanks, Bart and once again, thank you all for joining our webcast. This morning.
Following our capital raise of $46 million in June of 2021.
Which significantly improved our balance sheet, we embarked on executing our growth initiatives, including the launch of our major advertising campaign.
Before turning to our detailed metrics I'd like to provide some color on our noncash stock based compensation expenses and costs related to the merger with oberland debt drove substantial increases in our operating expenses for the following areas sale.
Sales and marketing general administrative and R&D.
As a company.
We placed employees at the heart of our business understanding that noncash stock based compensation is a proven and effective tool to retain existing staff attract seasoned professionals and enhanced incentive programs.
Subsequent to the merger with Oberland listing on the NASDAQ and our fundraising we issued for the first time since 2017 restricted stock units or stock options throughout the organization.
Considering the height of this expense during the quarter. We believe it is appropriate to call out these metrics.
For the three months ended September 32021, we recorded $10 7 million of total stock compensation expense.
Of note. The majority of this expense includes a onetime charge Cory look back provision for vesting can begin at the one year anniversary date of employment.
Between the relatively higher than normal noncash stock based compensation expense and the 6 million of acquisition related outlay of funds. It is important to note. The metrics reported this quarter are very specific and attributed to the major milestones. We completed this year and are generally considered onetime.
Charges.
However, we expect that our ongoing strategy to build revenue minimized costs streamline expenses will offset these increases over the future quarters.
With that backdrop, let's turn to our revenue and operational results for the third quarter and nine months ended September 32021, beginning with the results for the quarter.
For the three months ended September 32021, we reported $3 7 million of revenues as compared to revenues of $3 6 million in the three months ended September 32020.
Additionally, we had sequential growth in our revenues from $3 5 million to $3 7 million from the second quarter of 2021 to the third quarter of 2021, which marks another period of consecutive sequential growth at 5% for the quarter.
We reported gross profit of $2 1 million in the third quarter of 2021 compared to $2 3 million in the three months ended September 32020. The decrease is attributable to increased department expenses, which includes increased consulting fees payroll related expenses and certain costs related to the <unk> merger.
Total operating expenses for the three months ended September 32021 increased by $12 7 million to $17 1 million as compared to $4 5 million for the three months ended on September 30 of 2020.
The increase is primarily due to the previously mentioned one time charges for a merger and noncash stock based compensation.
Sales and marketing expenses for the third quarter of 2021% to $3 5 million as compared to $1 2 million for the third quarter of 2020.
Aside from other previously mentioned factors are increased expenditures stems from the additional marketing and advertising efforts and an increase in related expenses from the expanded commercial organization.
General and administrative expenses were $12 million for the three months ended September 32021, compared to $2 4 million for the three months ended September 32020.
This amount reflects an increase in audit consulting legal and professional services related to our merger related expenses.
<unk> previously discussed and an increase in rent and facility expenses from assuming an entire quarter of lease expense for the <unk> facility as well as increased insurance expenses.
Yes.
Research and development expenses were $1 6 million for the three months ended on September 32021, compared to 900000 for the same period in 2020.
Moving to our results for the first nine months of 2021 revenues came in at $10 5 million compared to $8 1 million for the same period in 2020.
The 29% improvement in revenues is due to a $1 9 million increase in U S sales and $500 million internationally.
Between lessen COVID-19 restrictions for elective surgeries in 2021, the rise in obesity awareness during the pandemic and our revitalized sales and marketing efforts, we are witnessing an increase in sales.
Gross profit for the nine months ended September 32021 totaled $6 6 million compared to $4 6 million for the nine months ended September 32020.
The increase of $2 million is attributed to increased U S procedural volume reduced period expenses and an improved product mix with higher domestic sales as a percentage of revenue, which show higher gross profit margins in international sales.
With the same reasoning related to a onetime cost presented at the beginning of my financial section total operating expenses for the nine months ended 2021 increased by $13 6 million to $27 5 million as compared to $13 9 million for the nine months ended September 32020.
Sales and marketing expenses for the nine months ended September 32021 came in at $6 2 million compared to $3 5 million for the same period in 2020.
The increase reflects our additional spend on advertising and marketing expenses for national direct to consumer campaign and added payroll expenses.
Our general and administrative expenses for the nine months ended September 32021 were $19 1 million compared to $7 8 million for the same period in 2020.
Similar to the three months analysis provided above we experienced increases in auditing consulting legal and other professional services directly related to the merger with <unk>.
For the nine months ended September 32021, our research and development expenses decreased by 400000 to $2 2 million compared to $2 6 million for the same period in 2020.
The decrease is largely due to a reduction in consulting and clinical trial expense as a result of the slowdown in clinical trials for the reshaped vest due to the COVID-19 pandemic.
On a non-GAAP adjusted EBITDA basis, including the addition of noncash stock based compensation expense depreciation amortization warrant expense amongst other items. The loss was $3 6 million for the three months ended September 32021, and six months $6 6 million for the nine months.
At September 30 of 2021 compared to an adjusted EBITDA loss of $1 4 million and $6 8 million respectively for the same periods in 2020.
Turning to the balance sheet as of September 32021, the company's cash and cash equivalents totaled $29 3 million.
Of note. We also paid back $10 5 million of debt to an institutional investor to eliminate our debt overhang and $6 million in professional service and the best in banking fees related to the <unk> merger.
As mentioned in previous quarters, we continue to save and optimized costs, while we strive to increase revenue and scope out significant ROI growth opportunities.
With more vaccinations in place and the mitigation of Covid, we are seeing stability in our financials as it relates to revenues and with our efforts centered around product visibility and demand we intend to report even greater success in the future.
With that I will now turn the call over to Bart <unk>.
Tom <unk>.
In conclusion, the third quarter marked another period of robust performance and strengthening of our status as the Premier multifaceted physician led weight loss solutions company positioned for ongoing success through 2021 and beyond.
Lastly, I would like to thank our board and executive leadership team and all reshape employees for their commitment that has fueled our rapid execution on initiatives that will help us to engage with millions of patients seeking weight loss and an improved quality of life.
So our customers and shareholders. We sincerely appreciate your ongoing support and we look forward to delivering future updates on our evolution towards progressing profitability and high sustainability.