Ladies and gentlemen, thank you for standing by, and welcome to the ReShape Lifesciences Second Quarter Conference Call. I would now like to hand the conference to your speaker today, [ Carol Ruth. ] Please go ahead, ma'am. .

Thank you. Good afternoon, and thank you for joining us on today's call. I am pleased to be joined by Bart Bandy, Chief Executive Officer of ReShape Lifesciences, who will provide an overview of the company's recent activities and business highlights.

Tom Stankovich, Chief Financial Officer of ReShape, will then review the financial results for the second quarter 2020 and then return the call back over to Bart for closing remarks..

As a reminder, this conference call as well as ReShape Lifesciences' SEC filings and website at www.reshapelifesciences.com, including the Investor Information section of the website, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

The 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 our annual report on Form 10-K and in our quarterly report on Form 10-Q that we will be filing later today..

An additional reminder, our stock is listed on over-the-counter, OTC trading under the ticker RSLS. I will now turn the call over to CEO, Bart Bandy.

Bart?.

Thanks, [ Carol. ] Good afternoon, everyone, and thank you for joining us today. The second quarter was a significant one for ReShape, as we delivered on our promise to launch a unique patient after care model that complements and reinforces the entire weight loss continuum.

In June, we introduced our new ReShapeCare service, a telehealth-enabled customizable platform that provides physicians with a reimbursed valuable tool for enhanced patient engagement. ReShapeCare provides live and virtual support for clinicians and their patients regardless of the patient's type of surgical weight loss procedure or therapy.

Not only will this program help patients after weight loss surgery, it provides support to patients who may have lost contact with their previous health care professionals as well as patients enrolled in nonsurgical medically supervised weight loss programs..

The ReShapeCare platform equips bariatric surgeons and physicians with clinically proven resources that optimize patient engagement and outcomes, both short and long term. Furthermore, ReShapeCare is the first program of its kind that provides third-party insurance reimbursement, which we expect will encourage adoption and participation.

This ability for physician-directed health care professionals to interact with their patients virtually has become increasingly important as a result of the COVID-19 pandemic..

Obesity is one of the most prevalent and severe underlying conditions for COVID-19. And it is a great importance that this demographic of patients have access to such a platform and a network of qualified health care professionals to monitor their health and progress.

ReShapeCare is the result of our company's commitment and focus to drive revenue and shareholder value by expanding our strategic offerings through innovative and differentiated program development..

We believe the adoption of this service will further strengthen our relationships with physicians and hence, our overall position in the weight loss market and have an immediate positive impact on our top line..

Despite depressed second quarter revenues, we began to observe improvements in U.S. purchase patterns as evidenced by increasing LAP-BAND numbers towards the end of May with the return of elective procedures in some states, and even greater acceleration towards pre-COVID-19 sales through June..

As LAP-BAND is the only bariatric surgery procedure readily performed in outpatient settings, we believe procedural number recovery will fortunately continue to track with the early return of elective procedures to those facilities.

In fact, we have seen previously withdrawn accounts come back online over the past month to continue offering their patients surgical support at these venue options.

We have also seen increased interest driven by excellent participation levels for our recent educational webinars from clinical leaders on the efficacy and safety profile of the LAP-BAND as well as increased efforts on digital and social media marketing programs..

International sales trends continue to improve as well, with Australia tracking towards the pre-COVID-19 pace just behind the U.S.

Within the EU, we see select countries beginning to emerge from lockdowns, with the Prime Minister of the United Kingdom, Boris Johnson, actually calling out a need for more gastric band procedures to help combat obesity in Britain..

Simultaneous to COVID-19 to turn short-term revenue growth, we have successfully executed on numerous cost reduction initiatives to the extent that our operating expenses were reduced by $10.5 million from the same period last year and by $1.8 million from the first quarter of 2020.

Earlier this year, we announced significant operational infrastructure enhancements, including the integration of our ERP system in all regions with internal quality and product controls..

As a proactive measure, we implemented additional measures at the start of the pandemic to further drive increased efficiencies and reduce cash burn. Through these actions, we have better aligned our spend with revenue growth and more strategically position ReShape for future success..

Clinical work remains a tactical pillar in ReShape's path to becoming a leading clinical weight loss company. At the onset of this year, we announced the initiation of a European trial for CE mark of our ReShape Gastric Vest, with the first patients enrolled in Spain.

Patients currently enrolled in this trial have continued to be monitored virtually and we expect to have these milestone reports in the coming months.

Although increased hospital safety protocols due to COVID-19 have delayed study expansion, we have continued to work with additional sites to expand the trial outside of Spain and are making the necessary preparations to ensure patients are available as soon as elective procedures return to those countries..

Although we do not have the full 6- and 12-month results as anticipated, we continue to be very optimistic from what we have seen in regards to the ReShape Gastric Vest..

Turning to our internal R&D projects. We have reached the design free stage for these technologies and continued our communications with the FDA on the associated regulatory submission processes.

In line with our cost reduction efforts, we have strategically positioned these projects to have everything prepared for the final stage of the product development once we emerge from the current COVID-19 environment..

Our manufacturing transition of the LAP-BAND as required through the acquisition from Apollo has also continued as a critical project for ReShape and we are very happy to report that this effort has continued to deliver on the internal milestones and time lines set forth..

And with that, I'll now turn it over to Tom for our detailed financial results. .

Thanks, Bart, and good afternoon, everyone. As Bart mentioned, the second quarter reflected a full quarter impact from COVID, but the trends in the back half of the quarter were very encouraging. As such, revenues for the 3 months ended June 30, 2020, was $1.7 million compared to $4.4 million in revenue for the 3 months ended June 30, 2019.

Our second quarter revenue numbers reflect $1.5 million in U.S. shipments and $200,000 from shipments OUS..

Gross profit for the second quarter of 2020 was $800,000, representing a gross profit margin of 49% compared to $2.8 million for the 3 months ended June 30, 2019, and a gross margin of 64%. The lower gross margin is primarily the result of lower sales due to the COVID-19 pandemic..

Sales and marketing expenses for the 3 months ended June 30, 2020, were $800,000 compared to $1.2 million for the 3 months ended June 30, 2019. The decrease is primarily due to a reduction in payroll-related expenses of $100,000 and global sales commissions of $100,000 due to a temporary reduction of staff and sales caused by the COVID-19 pandemic..

In addition, the company had a reduction in stock-based compensation of approximately $100,000 and a reduction in advertising and marketing costs of $100,000 as well. .

General and administrative expenses were $2.5 million for the second quarter of 2020 compared to $5.5 million for the 3 months ended June 30, 2019.

The $3 million decrease is primarily related to decreases in audit, consulting and other professional service providers of $1.5 million, legal fees of $1.2 million and stock-based compensation of $300,000..

Research and development expenses were $500,000 for the second quarter of 2020 compared to $1 million for the 3 months ended June 30, 2019. The $500,000 decrease is primarily related to a temporary slowdown in the clinical trials for the Vest due to the COVID-19 pandemic.

Total operating expenses were $3.8 million for the second quarter 2020 compared to $14.3 million for the 3 months ended June 30, 2019, a reduction of $10.5 million..

It is clear the cost reduction initiatives we implemented during 2019 and at the start of the pandemic have come to fruition. We created significant cost savings in our operating expenses. We'll continue to evaluate for additional cost savings and operating efficiency opportunities and will implement when necessary..

On a non-GAAP adjusted EBITDA basis, where we add back stock compensation expense, depreciation, amortization and warrant expense, amongst other items, the loss was $2.1 million for the second quarter of 2020 compared to a loss of $3.7 million for the 3 months ended June 30, 2019.

This $1.6 million improvement is primarily due to cost-cutting measures that I just highlighted..

Turning to the balance sheet. As of June 30, 2020, cash and cash equivalents and restricted cash were $1.6 million compared to $3 million as of December 31, 2019. On April 24, 2020, the company received proceeds of $1 million under the Paycheck Protection Program as part of the CARES Act.

Additionally, the company received proceeds of $600,000 due to exercised warrants and $500,000 for the first drawdown related to our current credit arrangement during the second quarter of 2020..

We continue to focus on increasing revenue and decreasing our cash burn as we monitor our monthly spend and operations for potential cost reductions..

Looking back at the second quarter, we successfully reduced our cash burn and operating expenses to better position the company for future savings during this time of uncertainty. In the second half of this year, we expect to further strengthen our balance sheet.

We continue to prioritize growing revenues while monitoring operating expenses to improve profitability..

With that, I'll turn the call back over to Bart. .

Thanks, Tom. As COVID-19 continues to impact our industry, our country and the global market, we will remain vigilant in driving ReShape towards our goal of being the preferred clinical weight loss company for clinicians and patients.

As we continue to progress towards this objective, we will continue to monitor this present and fluid situation, adapting as warranted while collaborating with clinical, government and industry leaders to accelerate the recovery and growth of weight loss surgery and care..

In closing, I'm very pleased with our progress, and in the second quarter, we look forward to what lies ahead for ReShape Lifescience sand in the third quarter and fourth quarter as well..

Thank you to our investors, Board, employees and customers for your continued support. We look forward to sharing our future with you. .

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect..