Good afternoon and thanks for joining the ReShape Lifesciences Third Quarter 2023 Conference Call. I would now like to turn the call over to Michael Miller from Rx Communications.

Good afternoon, and thank you for joining the ReShape Lifesciences third quarter 2023 earnings call. I'm pleased to be joined today 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, which will include a discussion with Dr. Caroline Apovian, a member of ReShape's Scientific Advisory Board. Then, Tom will review the financial results for the period. I'll then turn the call back over to Paul for some closing remarks, after which we'll open the call to a 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's stock is listed on NASDAQ, trading under the symbol RSLS. I'll now turn the call over to Paul Hickey, President and CEO of ReShape. Paul?

Thank you, Mike, and thanks to all of you for joining us this afternoon for our third quarter 2023 earnings call. After I provide an overview and update on ReShape's activities, we will be joined by a member of our Scientific Advisory Board, Dr. Caroline Apovian, Co-Director at the Center for Weight Management and Wellness in the Division of Endocrinology, Diabetes and Hypertension at Brigham and Women’s Hospital in Boston, and a Professor of Medicine at Harvard Medical School. As an expert in key opinion leader in her field, I've asked Dr. Apovian to provide her clinical viewpoint related to GLP-1s and their impact on the care continuum for obesity. So most important takeaway from this call is for all of our investors to understand that we remain dedicated to achieving profitability by executing our growth strategies and maintaining our emphasis on creating a shareholder value. Yesterday, I visited with surgeons from one of our centers of excellence in Louisville Kentucky. Now, next Lap-Band dual vagus. This site has implemented the Hive platform and also is part of our co-op marketing program. Despite the pressures from GLP-1 adoption this center is on pace to have year-over-year Lap-Band procedural growth in 2023, validating that our marketing initiatives are working. There's much look forward to as we move towards 2024 and we are optimistic about the growth potential for the company. Before I recap our third quarter and subsequent highlights, I'd like to comment on important events occurring within the obesity market today. As most of you already understand the global obesity market is growing, at an alarming rates and carries with it significant medical repercussions and associated economic costs, obesity remains a complex lifelong disease that requires personalized treatment to ensure long-term weight loss goals are achieved. I'm sure you are…

Thanks, Paul. Good afternoon. As Paul mentioned, I am the co-director of the Center for Weight Management and Wellness in the Division of Endocrinology Diabetes and Hypertension is Brigham and Women's Hospital. And I'm a Professor of Medicine at Harvard Medical School. My interest in obesity began 35 years ago, when I was a fellow in Nutrition & Metabolism at the New England Deaconess Hospital after completing my internal medicine residency there. I was lucky and honored to have studied under George Blackburn. So he's considered the father of nutrition and obesity medicine. And since that time I have focused completely on obesity and nutrition. Obesity is a disease and its many serious complications exert a heavy toll in both human and economic terms. More than a third of adults in the United States have obesity back in 42% of the population and they are subject to elevated rates of type 2 diabetes, Hypertension, Dyslipidemia and Cardiovascular disease. The 42% of Americans who suffer from obesity with a BMI over 30 will likely go on to develop type 2 diabetes and heart disease. The negative effect on quality of life is enormous. GLP-1 and other, we call them news is nutrient simulated hormonal therapy are having a tremendous positive impact in that more people than ever are asking about treatment for their obesity. We have learned almost all that we know about GLP-1 and other gut hormones from our experience with bariatric surgery, which works by altering the secretion of gut hormone. In addition, we've learned from laparoscopic banding that the use of GLP-1 and other new initiatives would be complementary with the Lap-Band to facilitate long lasting weight loss. We're utilizing as many of the GLP agonists as we can is there analogs of naturally occurring gut hormone that…

Well, thank you, Caroline [ph]. That was -- I think it hit the spot and I think that was appreciated by the listeners and I'm sure there'll be questions for you. But as a leader in your field, I truly appreciate your participation and hearing your opinions firsthand. So before I turn it over time just a few more thoughts, based on what you heard so far. We do remain very confident that with our Lap-Band and expected future offering in the Lap-Band 2.0 Flex. That we as a company are uniquely positioned with the least invasive safest and most durable weight option for those patients that have historically had an aversion to medically managed weight loss and surgery. Given the growing body of evidence pointing to the fact that weight loss due to GLP-1 usage has limitations related co-morbidities and accessibility. We believe that the market opportunity for Lap-Band will increase. And from a continuum of care perspective, these patients are likely potential candidates for bariatric surgery, as a next viable weight loss treatment. I'd now like to turn the call over to Tom Stankovich to provide a recap of our financial performance. Tom?

Thanks, Paul. And once again thank you all for joining our webcast this afternoon. As a reminder, a full discussion of our financials is available in our press release and 10-Q. As Paul mentioned earlier, in November, and in response to continued pressure on the company's revenue caused by the adoption of GLP-1, we are reorganizing the company. I've identified cost reductions of approximately $8 million or more than 40%, just for 2024 alone. Specifically, a reduction in force of approximately $1.2 million in November and December and $300,000 more budgeted cost phasing in early 2024, as well as $900,000 of reductions in incentive compensation and other payroll related amounts have been implemented across all expense categories. Core operating costs in total have been reduced by approximately $5.4 million, which includes reductions in selling and marketing costs of $2.4 million without affecting our continued marketing spend optimization, costs related to the pause of ReShape care about $800,000. Expenses related to G&A totaled $1.3 million, primarily in professional consulting fees and insurance costs. R&D expense grew $900,000, which primarily includes consulting and reduced admin fees. Additionally, third quarter 2023 core operating expenses were 37% lower than the third quarter of 2022. Taken it all together, with actions thus far, we've made significant progress reducing our core operating expenses, cutting approximately $22 million or 70% between 2022 and 2024. A full discussion of our actual financials is available in today's press release and 10-Q. So I will just take over a moment. I will just take a moment to review key financial metrics for the third quarter ended September 30, 2023. Our revenue totaled $2.2 million for the three months ended September 30, 2023, which represents a reduction of $600,000 compared to the same period in 2020. Growing popularity of GLP-1 prescription…

Thank you, Tom. Before we open the call up for Q&A, it's important to reiterate as both Tom and I have detail that we have and will continue to significantly reduce operating expenses across all categories, so we can invest in our growth initiatives. The bold steps we have taken to reorganize the company will help to ensure sustainability and scalability. We continue to prioritize investments, including marketing automation to support scalable lead acquisition, segment and consumer centric messaging be an updated website for improved patient engagement and a frictionless booking system with qualified providers while further reducing lead generation costs. Taken together, we expected to increase Lap-Band procedures and ultimately revenue. We will continue to develop and offer a portfolio that is differentiated from the competition with transformative technologies that consist of selection of patient friendly non-anotomy changing lifestyle enhancing products programs and services that provide alternatives to a more invasive bariatric surgeries to help patients achieve healthy durable weight loss. At the same time, we will continue to work with our world-class scientific advisory board to continue to execute on 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 would like to open the call to your questions. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Anthony Vendetti from Maxim Group. Your line is open.

Thank you. Thanks for that overview Paul and for also Dr. Caroline Apovian. That was very helpful to hear your view. Maybe starting with Dr. Apovian, obviously, there's a lot of news around the GLP-1 today Lilly's was approved for weight loss or obesity. And there's also as you discussed there's comorbidities, there is a potential adverse side effects we don't know at what level at this point, right, other than what the studies are showing. And we'll I guess, we'll find out over the next 12 months or 24 months as this rolls out. What is your expectation? It's obviously impacting sales for the Lap-Band from bariatric procedures as patients and consumers decide tried something new. Do you think it's a 12 month process before they realize maybe a the cost or the side effects for some of them are not worth it is it two to three years before some of that sort of data starts to set in or are some of the apathy for GLP-1? Maybe it starts to set in or the initial, sort of, shiny new toy starts to wear off it. What's your best guess on have certainly your guess is much better than mine, but what's your best estimate as to when all this sort of plays out? And then just trying to get a good understanding of that.

Yeah. Well what I'm seeing we have five doctors, three nurse practitioners, two PAs and RD in our medical practice obesity medicine. We saw 10,000 new patients last year. What's coming via the decrease in bariatric surgery came from COVID first of all. The COVID numbers went down as you all know are starting to recover and but part of it is most I don't see the decrease in bariatric surgery. I am seeing an increase. Well bariatric surgeons in my practice are telling me there's a decrease, but it takes a while for that 10000 patients we saw last week just in the medical arm. We'll get through the program. We have 4,500 patients on our waiting list just for medical treatment. They're trying to get in and they have to wait eight months to one year. You see one of our medical practice providers. Why is that? There aren't enough obesity medicines specialist in the United States to the quell this is demand. Therefore, all the great new newshes that's fantastic, but the primary care providers can't -- they don't have the resources in your practices to prescribe. Because of the prior authorization headache, which requires new FTE just to process the prior obligations. And then they don't know how to give the drug. They don't know how to provide diet and exercise. So it's a big -- the primary care is just don't have resource. So it's relegated to obesity medicine specialist. There only 6,500, 7,000 obesity medicine specialists in the United States. So what I'm trying to say here is that we all have a backlog. And once the patient gets in over the past six months what I have seen and my colleagues have seen is that we are able to get them in as…

Okay.

All right. So what's happening, but it's good – yes, you're right it's going to take some time to get the patient through. On top of that we have the laparoscopic adjustable gastric band. I have always wanted to combine the Lap-Band with a GLP-1 and now a news because now we have Zepbound and we have double duals and triples coming down the pike. Because then you get the restriction of the Lap-Band with the change in gut hormone [indiscernible] with the multitude of new shows that are coming down the pike. So this is going to provide a less, let's say, less aggressive form of surgery with a medication that can hopefully achieve weight losses of more than 20% or more than 25%.

That's very helpful. So, in the situations where they want to lose -- the patient's goal is to lose more than 16% or 20%, do you -- how often do you recommend bariatric surgery versus the Lap-Band with the GLP-1? And are there instances right now where you're just recommending the Lap-Band without the GLP and then you can do the GLP-1 later. I'm just wondering how are you right now guiding or advising your patients?

It runs the gamut. Because what you need to understand about our center is we have bariatric surgery, but we also have bariatric endoscopy with Chris Thompson, the world leader in endoscopic devices and procedures. So, -- but within bariatric endoscopy, we are definitely -- and with bariatric surgery, we're definitely adding GLP-1 to both of endoscopic and bariatric surgery procedures. What we are what -- and the Lap-Band. What I do recommend initially is if you're going for bariatric surgery uses a sleeve gastrectomy or the electrostatic adjustable band and certainly not -- or even the endoscopic procedures, we don't add a new right away. We wanted -- because we don't want to get excessive weight loss because you're going to lose muscle and fat. You lose muscle and fat anyway especially with the more aggressive bariatric surgery procedures like the bypass even the sleeve. The sleeve the bypass and the [Indiscernible] diversion, you're losing almost half muscle. Because you're losing it so fast. You don't want to do that that causes sarcopenia and a lower resting energy expenditure and it's there. And those patients don't do well what you want to do is get a good amount of weight loss with one procedure if you're going to use the procedure. And then when you plateau -- either plateau or you don't lose as much as you want it, which is often the case or you do great, but then a year later you regain some weight then you add the news. Okay. So, you don't want to do anything at once.

Anthony, this is Paul and Dr. Apovian, thank you for that -- all the answers you provided. I wanted to add one more point. Maybe you can add to it as well. When -- in terms of the numbers of people that you're saying just kind of reminding and I know we've talked about this before where there's as mentioned during the call, there's only 1% of the people that in prior years, decades, 1% that could have surgery -- are seeking out surgery. And our belief is and I think that's what Dr. Apovian was a firming that there's more people now beyond that 1% that are seeking care, specific with the GLP-1 being as popular with the big marketing push from big pharma. And then it's the timing I know that I love to have an answer to right, but the timing for nationwide on average centers that are unlike Brigham and Women's and the Center of Excellence that Dr. Apovian has formed over the years I'm sure has ways of managing their timetable that are completely different across the board. As you look at smaller centers and centers that are less apt to have all the experience that you get out at the Brigham. And our only counter to kind of the GLP-1 marketing push is our marketing efforts which I think I noted briefly that the one center that was one of our three pilots back in a Louisville, actually coming in with more procedure growth this year than last year with Lap-Band based on the fact that they are now doing the marketing are doing the things that we put in place and it's working. So, that's exciting for us. But Caroline would you agree that you would have more pent-up demand for people that are coming in to see you this year than versus previous years because of what's happened the last six months?

There's no doubt. There's really no doubt. We're seeing patients many more patients than we used to because of the media attention on obesity not just the medications, but just the fact that the patients are finally realizing doctors are, but it's the patients who need to understand what they have is not shameful. That's what I said on 60 Minutes, it's the shame that stops people from going to see the doctor about their obesity and this is finally ending because we're finally understanding that if there is a pill or an injection that can help you lower your body weight set point, it can't be a matter of willpower, because it's not. And that's what's changed. And that's why we can get patients in, because they're looking for medication, but suddenly they're amendable and open to the idea of Bariatric surgery. I'm not hearing any more, like I used to oh, doc, I don't want that surgery. I know I can do it on my own. I'm not hearing that anymore.

Okay. That's great.

And that's a godsend.

Okay, great. That's very helpful. And obviously, it sounds like your center is a center of excellence. And you have a line and a huge backlog of patients. And but shifting gears Paul, maybe just on two other points here. The agreement is signed the Exclusive Royalty-Bearing agreement with Bio-Rad metastasis, The Private Company, for The Orbera Gastric Balloon System, where is that in terms of being rolled out is that something that's going to be rolled out before the end of the year? Or are they going to start selling that in 2024 and maybe just any other expectations around that agreement?

Yeah. I think, a Bio-Rad have aggressive as aggressive goals there. The project has kicked off in terms of we signed the agreement and we've got the two teams from Bio-Rad and from reshape engaging in, as you'd expect sort of the weekly the appropriate cadence of project meetings. And they have aggressive timelines that they've stated. I think the knowledge transfer could take longer, in terms of getting what we know over into their hands so they can execute the production. And then beyond the production, it's about verification validation of their process. So that has the same level of global quality that is needed to pass metastasis with the regulatory bodies worldwide. So I'd expect that I think we're all pushing to do something this year and to have -- I'm sorry we're sitting here now in November, it's we're pushing to get something done this year. I think we're now looking at something that has to be in the first part of next year. But yeah, the both sides are eager to get. So initially Bio-Rad get, this product produced and get it done the right way. So we can start the next Phase of this. But I'll definitely keep you updated on progress and milestones as we define them and have some predictability to it. I'm going to be, I won't be shy about sharing those with you.

Okay, excellent. And then, on the cost cutting $8 million in 2024, is that going to are there going to be some one-time charges in the fourth quarter that we're in right now to account for that? And if so, do you have your time have a hand of what that might be?

Thanks Anthony. Yeah. Sure absolutely. Yeah. I we're not anticipating any big charges in Q4, as a result of all of this. And then, if there were they would be one-time in nature. But as of as right now I'm not expecting anything in the millions of dollars if you will. So the answer your question directly no, I'm not expecting anything material. Will there be some? Yes. You can imagine that there but there would be some costs related to new when you do a reduction in force there's most likely going to be some severance costs and those types of things. So we'll accrue for all of that during Q4 for.

Okay great. Thank you for all that information. And I'll hop back in the queue

Great.

Thank you. And this concludes our question-and-answer session. I would now like to turn the conference back over Paul Hickey, for any closing remarks.

Great. Thank you. I hope that you value our transparency and consistency of what we've expressed during this call. And that's you're able to appreciate are enhancing the efficiency and reliability of our company through the revamping of the organization to continue our quest to grow shareholder value as a sustainable and scalable company. We will continue to work diligently to build on our commitment to provide evidence-based personalized devices and therapeutic. As we remain optimistic about the long-term growth potential for the company. A special thanks to Dr. Apovian for participating in today's call. As always, I want to thank all of our current and past employees. Our Board members, customers, consultant advisers, suppliers existing and new shareholders for your 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 conference has now concluded. Thank you for attending today's call. You may now disconnect. Everyone, have a great day.