Q4 2024 ReShape Lifesciences Inc Earnings Call and Business Update

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

Good afternoon, and thank you for joining the ReShape Lifesciences Earnings Highlights and Strategic Update Call.

Speaker Change: 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.

Speaker Change: As a reminder, this conference call, as well as ReShape Life Sciences SEC filings and website, including the Investor Information section of the website, contains forward-looking statements within the meaning of the Private Security's Litigation Reform Act of 1995.

Speaker Change: Actual results could differ materially from those discussed due to known and unknown risks on certainties and other factors.

Speaker Change: 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 10K.

Speaker Change: 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 ReShape Life Sciences. Paul?

Paul Hickey: 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 have time with you at the Natural Performance.

Paul Hickey: Let's start with an overview of our activities over the past year.

Paul Hickey: Remain Committed to a Discipline Approach, Sanctusically Levering Resources to Execute our 2024 Cost Reduction Plan.

Paul Hickey: while executing our growth initiatives. As time will detail, we reduced operating expenses by almost 42% excluding M&A-related costs compared to the previous year.

Paul Hickey: and to help strengthen our financial position, we successfully closed a $6 million public offering in February , positioning us for continued growth.

Paul Hickey: Most excitingly, on April 9th, just yesterday, we signed an exclusive agreement.

Paul Hickey: 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.

Paul Hickey: In fact, this partnership presents a unique opportunity to bring cutting-edge AI-driven, neuroreabilitation solutions to the US market and aligns with our growth pillars and commitment to expand our portfolio with differentiated products and therapies.

Speaker Change: This is not my first introduction into the complex rehabilitation market. In point of fact, prior to Joni 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.

Paul Hickey: It is a fascinating market and offers tremendous opportunity for ReShape Medical and the differentiated technology that Motion Informatics offers.

Paul Hickey: Now, we recently introduced the Motion Informatics Technology at the American Occupational Therapy Associations 2025 Annual Conference and Expo, Health and Philadelphia. The feedback I received this meeting, as well as other engagements with Occupational Therapists.

Paul Hickey: That made us very excited to distribute the FDA-Cleared Stimul 3 system.

Paul Hickey: Motion Informatics, Innovative Devices, Align Well with our commitment to improving the quality of life of patients, our products and therapies serve.

Paul Hickey: Our relationship with Motion Informatics will leverage our competencies and complement our existing commercial activity, including the LAPAN 2.0 Flex designed to improve patients' quality of life while driving meaningful clinical and commercial results.

Speaker Change: Now, let me tell you a bit more about the Stimul 3 system and motion from Manics, other exciting products.

Speaker Change: The STEMIL-3 is a breakthrough system that integrates functional electrical stimulation, or FES.

Neuromusco Electrical Stimulation, N-M-E-S

and real-time EMG biofeedback into a single patient-responsive platform.

Re-defying rehabilitation for patients recovering from stroke

Injury or surgery.

Speaker Change: In addition, with Motion Informatics Development and future release of their flagship

Speaker Change: to optimize neuroplacicity and accelerate recovery for patients with complex neurological conditions.

Speaker Change: 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 US market.

Speaker Change: Clearly, we have reasons to be enthusiastic about this relationship with Motion Informatics as it will provide an opportunity to drive the growth while we continue to execute with a discipline approach.

Speaker Change: Our strategy remains consistent with our growth pillar to expand our product portfolio with either organically developed products or with products from strategic partnerships.

Speaker Change: Operation, we will continue to identify cost reduction opportunities and invest in our key drug drivers, including the commercial launch of the next generation Physician Labs Lab and 2.0 Flex.

Speaker Change: Now initial feedback from surgeons during our market release of the LabBand 2.0 Flex in the US 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.

Speaker Change: as the band temporary relaxes before returning to its resting diameter.

Speaker Change: In February , we entered into a distribution agreement with liaison medical to distribute the Leppand 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.

Speaker Change: This partnership follows the receipt of health candidates approval in November 2024 and marks a significant step toward expanding access outside of the United States to effective and innovative, minimvasive, weight loss solutions for patient seeking alternatives to traditional bariatric surgery.

Speaker Change: Now regarding our intellectual property estate, the March 2024 Notice of Allowance received from the US Patent and Trademark Office, along with the issuance of key international patents from the State of Israel Patent Office, underscores our leadership and pioneering innovative treatments for Type 2 diabetes.

Speaker Change: Specifically, these patents ensure long-term protection for our diabetes nerve modulation system, which utilizes our proprietary V-block technology platform in Vegas nerve stimulation to tackle one of the most urgent global health challenges, diabetes and its strong link to obesity.

Speaker Change: In November of 2024, we received a supplementary grant of approximately 241,000.

Speaker Change: from the NIH in collaboration with the University of Southern California Center for Autotomic Nerve Recording and Stimulation System.

Speaker Change: This non-deludive one-year grant is supporting studies evaluating the safety and efficacy of next-generation electrodes for ReShape's Retiretary Diabetes Neuromodulation System.

Speaker Change: These advanced electrodes have the potential to double the nerve contact area, enhancing the delivery of the nerve modulation signals while reducing the power consumption.

Speaker Change: Our 4th NIH grant, this award brings our total funding to 1.15 million.

Speaker Change: Re-enforcing the strength of our non-delivive funding strategy and highlighting the NEH strong and continued interest in our groundbreaking diabetes nerve modulation technology and its potential impact on the global diabetes market.

Speaker Change: Most notably, in July , we coordinated both the merger agreement with biome therapeutics and the concurrent asset purchase agreement with BIRAD. And we successfully negotiated with our series C shareholders to substantially lower their liquidation preference.

Speaker Change: All things considered, we feel strongly these concurrent deals are intended to maximize stockholder value and earnings potential.

Speaker Change: that transactions have been progressing and both the reshape and biome teams have been diligently working on all needed aspects of the transactions so that we can set the date for the shareholder meeting.

Speaker Change: Our board has unanimously recommended merging with Bio and simultaneously selling assets to Byrad. As we believe this strategic decision will generate significant value and growth for our shareholders in the newly formed entity.

Speaker Change: I would now like to turn the call over to Tom Stankovich to provide highlights of our financial performance. Tom?

Tom Stankovich: Thanks, Paul. And once again, thank you all for joining our webcast this afternoon.

Tom Stankovich: As Paul mentioned earlier, during 2024, we implemented a disciplined approach to executing our cost reduction plan.

Tom Stankovich: With various cost reductions in all areas, we've achieved a 42 percent 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.

Tom Stankovich: A full discussion of our actual financials is available in our press release, N10K, so I will just take a moment to review key financial metrics for the 12 months ended December 31,

Tom Stankovich: Revenue Total $8 million for the year ended December 31, 2024, which represents a contraction of 8% or 700,000 compared to the same period in 2023.

Tom Stankovich: 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.

Tom Stankovich: Gross Profit for the year-end of December 31, 2024, was 5.1 million compared to 5.5 million for the year-end of December 31, 2023, a decrease of half a million dollars or 9%.

Tom Stankovich: Gross Profit has a percentage of revenue from the year-end in December 31, 2024, with 63.2% compared to 63.9% for the same period in 2023.

Tom Stankovich: The site reduction in growth profit margin is primarily due to the right off of certain inventories offset by the company's allocating resources to increase efficiencies and a slight increase in product pricing.

Tom Stankovich: Sales and marketing expenses for the year-end of December 31, 2024, decreased by 4.6 million or 60 percent to approximately $3 million, compared to $7.5 million for the same period in 2023.

Tom Stankovich: The decrease is primarily due to a decrease of 2.2 million in advertising and marketing expenses including consulting and professional marketing services as a company has continued to scale down its marketing efforts to a targeted digital marketing campaign.

Tom Stankovich: General and Administrative Expenses for the Year-End of December 31, 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.

Tom Stankovich: This decrease was primarily driven by $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.

Tom Stankovich: 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.

Tom Stankovich: The decrease is primarily due to a decrease of 300,000 in consulting and clinical trials as a company halted clinical trials during 2023 and reduced the use of consultants on the lap bend was released in early 2024.

Tom Stankovich: Transaction costs for the year ended December 31st, 2020 for were slightly over $1 million.

Tom Stankovich: 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.

Tom Stankovich: 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.

Tom Stankovich: Cash and Cash Equivalence as of December 31, 2024 were 700,000.

Tom Stankovich: As Paul mentioned earlier, we completed an upsized $6 million dollar public offering on February 18th, 2025.

Tom Stankovich: The company had $800,000 in a convertible note payable to an institutional investor at December 31, 2024, which was repaid on February 18, 2025. With that, I'll now turn the call back over to Paul.

Thanks, Tom.

Paul Hickey: To remind shareholders, the details of the merger as volume are outlined in the S4 registration statement, which includes the proxy statement. When the FCC declares the S4 effective, we plan and hold a shareholder meeting to approve the transactions.

Paul Hickey: The upcoming merger with Vion and the concurrent asset sale to Byred should be a cause for optimism, and as part of the reason our board unanimously recommended the transactions.

Paul Hickey: In closing, I'd like to extend my heartfelt gratitude to our employees, board members, customers, consultant advisors, suppliers, and both are existing and new shareholders for your steadfast support of ReShape.

Paul Hickey: and for believing in our future as volume. Thank you all.

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