Good afternoon, and thank you for joining the ReShape Lifesciences' Year-End 2022 Conference Call. I would like to turn the call over to Michael Miller from Rx Communications. Please go ahead.

Thank you. Good afternoon, and thank you for joining ReShape Lifesciences' year-end 2022 Earnings Call. I'm pleased to be joined by Paul Hickey, President and Chief Executive Officer; and Tom Stankovich, Chief Financial Officer. Paul will provide an overview and update on the company's activities, and Tom will review the financial results for the year. He will then turn the call back over to Paul for some closing remarks, after which we'll open the call to question-and-answer session. As a reminder, this conference call as well as ReShape Lifesciences' SEC filings and website including the Investor Information section of the website, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 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 10-K. As an additional reminder, ReShape stock is listed on the NASDAQ, trading under the symbol RSLS. I'll now turn the call over to Paul Hickey, President and CEO of ReShape Lifesciences. Paul?

Thank you, Mike. I'd like to thank you all for joining us this afternoon for our year-end 2022 earnings call. We appreciate your patience while we completed our year-end close. Since I joined ReShape last August, we have pivoted our business strategy with the intent of ensuring a path of growth and profitability. With that said, I would like to remind you of our 3 growth strategies or pillars for growth. The first is to operate our business with a disciplined metrics-driven mindset to ensure we have predictable in profitability. The second is to continue to develop and launch new products and therapies to augment our best-in-class portfolio of proven products and services that treat obesity and metabolic disease. The last pillar is to continue to drive and gain search and efficacy for our product portfolio, by ensuring that it is backed by compelling evidence showing effectiveness when addressing the continuum of care needed to fight obesity and related comorbidities, which is often a lifelong battle. I'm excited to say that we have continued to make significant progress in achieving our goals. We have meaningfully reduced operating expenses and rightsized investments in quality, regulatory and finance, so we can invest in our growth initiatives, including marketing and R&D. In addition, we are enthusiastic about working closely with our recently formed Global Scientific Advisory Board comprised of internationally recognized experts and surgeons in the obesity and metabolic disease fields. I have worked with advisory boards in the past, and I am extremely proud of the membership on Reshape's SAB with their unrivaled credentials and vast experience gathered through their commitment to fighting obesity. We look forward to leveraging our expertise and feedback on our growth initiatives and expect that will be -- they will be an integral in helping us expand…

Yes, I am, and thanks, Paul. And once again, thank you all for joining our webcast this morning. As a reminder, a full discussion of our financials is available in our press release and 10-K. As we transitioned auditors in the middle of 2022 and during the course of our audit for 2022, we discovered a material misstatement, which occurred during [indiscernible] related to our merger with Obalon in June 2021. And this statement we made to directors and officers of insurance, which was incorrectly classified as an asset. The amount which was incorrectly classified as an asset totaled $1.9 million, and we corrected in the statement in our 2022 10-K of all periods presented. Before I discuss some of our financial details, I want to share some perspective on the necessary transition we have done to become a more disciplined organization and to show our path to becoming cash flow positive and profitable. Our discussion today will focus primarily on our full year 2022 financial results. Additionally, we will also highlight the great strides we have made during the second half of 2022 as we focused our business strategy and significantly reduced costs, which will serve as both our launch pad for growth and path to profitability. As Paul mentioned earlier, we significantly changed our business model to become a more disciplined, sustainable and scalable organization. During the second half of 2022, we pivoted our marketing strategy which has significantly reduced our sales and marketing expenses quarter-over-quarter. We also reduced our G&A and R&D expenses in order to operate more efficiently and reduce our cash earnings. To give you more perspective and before any significant onetime adjustments, our overall operating expenses for the first half of 2022 were $18.1 million compared to $13 million for the second half of…

Thanks, Tom. Before we open the call up for Q&A, it is important to reiterate that we will continue to develop and offer a portfolio that is differentiated from our competition by offering transformative technologies that consists of a selection of patient-friendly, non-anatomy changing, lifestyle enhancing products, programs and services that provide alternatives to more invasive bariatric surgeries and to help patients achieve healthy durable weight loss. We have made significant progress executing our growth pillars to drive revenue and thus, a predictable path to profitability. We reduced operating expenses and rightsized investments in quality regulatory and finance, so we can invest in growth initiatives, including R&D and marketing. We are continuously improving our marketing systems and bringing critical components in-house to ensure optimal lead generation, lead nurturing and lead conversion, while further reducing lead generation costs. And finally, we will work closely with our world-class scientific advisory board to continue our plan for success in a global market that is changing in historic fashion to normalize safe and effective treatments for obesity. This concludes our prepared remarks. So now we'd like to open the call to your questions. Operator?

[Operator Instructions] The first question will come from Anthony Vendetti of Maxim.

So Paul, I was wondering if you could talk about two things for me. So the mandatory 6 months waiting period before getting any type of gastric surgery, bariatric surgery or inserting through your Lap-Band through a minimally invasive procedure. What have been the trends over the last year? What's your current conversion rate? And has that changed at all recently?

Thanks, Anthony. Thanks for joining. It varies. The answer is it varies by accounts. And we have some accounts and based on the health care provider that is dominates or has the market share of large covered in that area, will require the 6-month lead time. We have others that require a 3-month. So the trend has been -- and the answer to the second part of the question, the trend has been to require less and less time. I think that's partly the influence of ASMBS and other health professionals who know that whether or not you wait for 6 months or not, people need the treatment. They need to advance their care path to get more aggressive care, whether it's a Lap-Band placement or other medically prescribed weight loss drugs or whatever. I think another anecdotal data point is Michigan, I think, the -- for the Medicaid employees, I believe, removed their weight loss -- managed weight loss waiting period entirely. So there's a number of individuals under that plan, you can seek out bariatric surgery straight away and not wait. I think that the other answer to, I think going forward, Anthony, I think if you asked that question in another year, we'll have another more detailed answer because I think by accounts, obviously, our goal is to understand and forecast our business and to do so every time we generate a lead and we get more advanced in our lead generation and nurturing systems that we have in place. We'll be able to be more predictive of when that lead may or not to be a candidate for surgery. So we'll be improving over time.

Okay. Great. And then you alluded to the weight loss drugs, maybe, Paul, if you could just go through the pros and cons of the weight loss drugs. I mean it's been obviously on the front page of the Wall Street Journal. It's talked about on CNBC and social media. So maybe just go through how you see that playing out, how you see that either helping or hurting ReShape here in the near term, and then over the next couple of years?

Sure. Sure. Another great question. It started back last November when I attended a weekend meeting for ASMBS in San Antonio. And the discussion section that I attended was specifically on prescription drugs for weight loss. And the speakers that we're taking questions from the audience really had an answer that was not surprising. It felt like the weight loss drugs were going to bring more people that are obese to the table to discuss their weight loss options. So in other words, where each of the drugs are a less invasive way, not as scary as surgery and therefore, more patients will get off the sidelines and seek out medical health, medical intervention. And also felt like it would take -- it's not a 1-year answer, it's a 5-year answer. Like over the next 3 to 5 years, you'll start to see a normalization of the new weight loss drugs and other drugs that may be out of the market. Weight loss drugs are not new to this industry, they have come out in the past and some have been highly touted initially and that have other drawbacks as the usage becomes widespread. What we've done internally is actually ask our top accounts, the surgeons and the practices, what they thought the impact was to their practices. And of, say, roughly 25 accounts that we spoke with, all but one thought that the weight loss drugs were not impacting their accounts and felt long term, it was going to do more for them in a positive way than a negative way by way of what I've just mentioned earlier with bringing more people off the sidelines. And -- which makes sense to me as only 1% of those who qualify for surgery in this country alone, and I'm certain abroad is the same statistic but only 1% are seeking out surgery. And when you put drivers and you put big pharma and marketing dollars in front of -- or behind those drugs to give them more exposure, you'll have more people contemplating the weight loss. And I'm sure, Anthony, you and others who listen to this will have friends who are on these drugs who don't necessarily come across as obese or maybe slightly overweight, but they're still looking at these drugs as a short-term fix. So it will be interesting, but we'll keep the pulse on the effect of these drugs with our customers, and we hope for the better side of their influence.

That's helpful, Paul. And then just one last question on ReShapeCare, because that's -- like you said, that's not just for patients that elect the Lap-Band, what -- it can be for anyone looking for weight loss options as well as after care, right? So if you -- as a physician think a patient can benefit from ReShapeCare, that's something that the physician can recommend and it's currently reimbursable. Maybe just go through the economics behind that.

Yes, sure. Well, the reimbursement side in terms of health care coaching, health coaching, which we have sort of a health coachings with ReShapeCare was pulled back late last year, I believe. So that is something that is pending. And if it's put back on the reimbursable list and it changes the gain considerably for ReShapeCare. So the proposition with ReShapeCare to anyone who's interested is a cash pay proposition. How we've approached it and how we partner with our physicians is many physicians have, as you'd expect, coaches, but most have dieticians if not coaches. Dietitians are used throughout the practice to begin the managed weight loss program before the surgery and then after surgery to counsel and coach the patients. Dietitians are reimbursable. What we found is that we have surgeons who see this as an added service that ReShape offers them in terms of ReShapeCare. And then there are others who have everything in-house they need. So we really don't need to provide any value add to their existing resources, including dietitians and/or coaches they have on staff. So it's going to be a mix of acceptance and adoption by our physician partners. And ultimately, depending on the reimbursement side of the health care coaching, will have a growth curve representative of whether it's cash pay or reimbursable. On the employer side, a different scenario. The employers who are self-insured as I mentioned on the call today, we've had some great feedback. What we found is that the larger the employer, the more time as you'd expect with the large number of employees and with sometimes the -- I'd say politics, but just the slowness of larger employees. It takes a longer time to get them to the finish line. But nonetheless, they've had positive feedback. And we expect that program to work as an upfront cost covered by the employer plus some subscription costs per employee that the employer would cover. So the cash pay part of this equation is burdened by the employer. And then the ROI is there for them, as you'd expect when you start getting people on programs and you incentivize them as an employer, it drops other comorbidities related to obesity. And as I think you've heard on previous calls, at least in this industry, it doesn't take much weight loss to see benefit to that weight loss against 5% of total body weight. So employers understand that, and that's why they're excited about ReShapeCare with all the things that it brings to them.

[Operator Instructions] Okay. That does conclude today's Q&A session. I would like to turn the conference back over to Paul Hickey for closing remarks. Please go ahead.

Well, thank you. I hope you recognize our enthusiasm and share our excitement for the road ahead, given the substantial growth opportunities we have before us and the progress we've made developing and executing our strategies. We believe wholeheartedly that the benefits offered by the FDA approved minimal invasive, safe and effective Lap-Band and our current suite of weight loss solutions will support our growth and most importantly, help those who are fighting obesity. In closing, I want to thank our employees, Board members, customers, consultant advisers, suppliers, existing and new shareholders through continued support of ReShape as we progress on our mission to become the premier physician-led weight loss company. I look forward to continuing to engage with our stakeholders, health care partners and shareholders.

This concludes today's conference call. Thank you for joining. You may all disconnect.