IVF

Good afternoon. And welcome, to the INVO Bioscience Second Quarter Fiscal Year 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Robert Blum of Lytham Partners. Please go ahead.

Great. Thanks so much, Kate. Good afternoon, everyone and thank you all for joining us for INVO Bioscience’s second quarter 2023 financial results conference call. Joining us on the call today are INVO Bioscience’s CEO, Steve Shum; the company’s Chief Operating and VP of Business Development, Mike Campbell; and Andrea Goren, the company’s Chief Financial Officer. At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. Before we begin with the event, we submit for the record the following statement. Certain matters discussed on this conference call by the management of INVO Bioscience maybe forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, Section 21E of the Securities Exchange Act of 1934 as amended. And such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements regarding the company’s expected future financial position, results of operations, cash flows, financing plans, business strategies, products and services, competitive positions, growth opportunities, plans and objectives of management for future operations, as well as statements that include words such as anticipate, if, believe, plan, estimate, expect, intend, may, could, should, will and other similar expressions are forward-looking statements. All forward-looking statements involve risks, uncertainties and contingencies, many of which are beyond the company’s control, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. Factors that may cause actual results to differ materially from those in the forward-looking statements include those set forth in the company’s filings at www.sec.gov. The company is under no obligation to and expressly disclaims any such obligation to update or alter our forward-looking statements, whether as the result of new information, future events or otherwise. With that said, let me turn the event over to Steve Shum, Chief Executive Officer of INVO Bioscience. Steve, please proceed.

Thank you, Robert. And welcome everyone. We are excited to be on the call today just a few days after completing and announcing what we believe is one of the most important developments in the company’s history, and one that we also believe targets the company for operating cash flow breakeven in 2024. The final closing of the acquisition of the Wisconsin fertility Institute announced on Friday not only adds important operating scale to the business, but also further accelerates our transition from purely a medical device company to a healthcare services provider focused on the fertility market. And to remind everyone why this transition is important, it provides us the ability to capture a greater portion of the revenue and profit opportunity associated with treatment in general and with the treatment solution that INVOcell provides. To put that in context and INVOcell device sold on its own creates revenue of approximately $400 per unit. A complete IVC procedure can generate about $4500 to $7,000 per cycle of revenue, with operating profits at scale well in excess of the device profit. This ability to capture greater revenue and profitability scandal, while also expanding the use of INVOcell and the IVC procedure is why we are – we remain excited by the progress being made and as the key driver behind the transition. As background, this transition started in the latter part of 2021 with the opening of our first INVO Center in Birmingham, Alabama. We quickly then added centers in Atlanta, Georgia, and Monterrey, Mexico, which combined with Birmingham recorded revenues of 712,000 during the second quarter, and an increase of 145% compared to the year ago period, which equates to an annualized rate of approximately 3 million. Importantly, these centers are operating close to a breakeven point currently. A significant accomplishment just more than a year since operations with incremental growth expected at these clinics in the future and high contribution margins in here are not in this model. We expected, we expect strong profitability in the years to come. The INVO Center growth potential and profitability model is why we look forward to expanding those efforts. Which brings us back to the acquisition of Wisconsin fertility, which is not only highly profitable, but we believe there are added growth opportunities available as we look to integrate the INVO Cell solution within those existing operations. As we have reported Wisconsin fertility Institute had revenue of more than $5 million at their single location last year with net income of approximately $1.7 million. These are important metrics for a couple of reasons. First, it immediately doubles the existing run rate of our clinic operations. Second, the profitability of the clinic substantially improves our overall operating performance. And finally, it highlights the revenue net income potential that we believe is available with each of our existing INVO Centers. Over $5 million and $1.5 million in net profit per center is a goal we are looking to achieve and all of our centers, when they reach scale. So as we look to the future, our center expansion strategy will be to fold company built centers with our next one center open in Tampa soon and acquisitions where we can synergistically introduce INVOcell into existing IVF clinics that we take ownership of. The why was Wisconsin fertility Institute such a logical choice for our first acquisition beyond the attractive financial profile. First, the clinic has an excellent reputation not only in the local community, but nationally is one of the top Fertility Centers in America, having helped to welcome over 5000 babies since offer opening its doors in 2007 and with approximately 550 conventional IVF procedures completed in 2022. It is led by an internationally renowned and well respected fertility expert Dr. Elizabeth Fritz, who shares in our vision and opportunity to democratize fertility. We look forward to having the Wisconsin clinic and staff now part of our operations. With a fantastic team in place a long established track record in the local market, a shared vision and of course, the highly profitable nature of the operations. There is excitement all around on the completion of this transformative acquisition. Taking a step back to our existing operations, as I mentioned at the onset, our existing clinics continue to make solid progress. Revenue from all clinics during the quarter improved nicely compared to last year. It is our belief that the – this ongoing progress validates the complete build INVO Center model and concept. Further, we have also gained significant experience and insight from these initial centers, which we believe we can apply to future centers to more quickly ramp-down. On the topic of expansion, we are moving closer to opening the new INVO Center in Tampa, which we expect to be ready in the next 60 to 90 days. We are excited about Tampa, which we believe in a large interactive market, we have assembled an excellent team to operate the practice, with that team well into training and planning phases in preparation for the opening. We will keep you updated on the plan opening in the coming months. We are carefully evaluating timing on future INVO Centers, especially given our balanced efforts now between company built and acquired practices. We believe there are a number of existing opportunities for both going forward. In addition to our clinics, we continue to support service and expand in INVOcell craft existing IVF clinics, to that end product revenue increased 82% during the second quarter. The key component that we believe will further drive adoption is the FDA is 5x clearance we received to expand the labeling on the INVOcell device and it's incubate – indication for use to provide for a 5-day incubation period. This occurred in June of 2023. The results demonstrate and validate the improved patient outcomes with longer incubation time, which we believe will help build further credibility in the market around the solution. I cannot say enough what a significant accomplished this was and the importance and value this will bring in our efforts to increase adoption. Importantly, with that effort now successfully completed, we have now been able to eliminate the prior costs associated with this effort on a go forward basis. On that note in connection with our transition to a healthcare services company, we have implemented further corporate expense reductions, which when combined with the profitable acquisition, the ongoing improvements in our existing INVO Centers and the 510(k) cost reductions significantly improves our operating picture and will lead us to a shorter timeframe to reach an overall adjusted EBITDA profit which again we are targeting in 2024. With that, let me turn this over to Andrea to quickly cover added financial details. Andrea?

Thank you, Steve. Revenue for the quarter totaled approximately $316,000 compared to approximately $146,000 in the prior year period, approximately 81% of Q2 revenue or $254,000 consisted of consolidated service revenue from our Atlanta INVO Center in comparison to $112,000 in the prior year period. The remaining 19% represents product revenue from in INVOcell sales to IVF clinics. As a reminder, our operating INVO Centers in Birmingham and Monterrey are accounted for using the equity method. Revenue from all three clinics totaled $712,000 in the quarter compared to $291,000 in the prior year period. The increase in revenue reflects the cumulative impact of marketing efforts to build awareness for the clinics, their respective services, and INVOcell and IVC in general. We expect 2023 clinic revenue to continue to build throughout the year, primarily from the inclusion of the Wisconsin clinic results and to a lesser degree from the launch of our Tampa INVO Center. Both clinics are wholly owned and will be – excuse me, and will be consulted into our financial statements. Reflect our transition from medical device company to fertility service provider. From this quarter onwards, cost of revenue is presented in the operating expense section of our income statement. Our operating expenses decreased to approximately $2.4 million from approximately $2.8 million in the prior year period, largely as a result of lower personnel marketing, non-cash stock based compensation, and research and development costs. Operating Expenses attributable to Atlanta IVNO Center were approximately $275,000 compared to approximately $186,000 in the prior year period. On a combined basis, our three inverse centers had approximately $799,000 in operating expenses, compared to approximately $680,000 of the prior year period. Our adjusted EBITDA loss which is net of non-cash charges, mainly related to equity based compensation improved to approximately $1.6 million compared to an adjusted EBITDA loss of approximately $2.2 million last year. These amounts included a gain of approximately $4,000 and the loss of approximately $118,000 respectively, attributable to our INVO Center joint ventures accounted for with the equity method. With the inclusion of Wisconsin, along with a recent expense reductions Steve mentioned, we expect to achieve further improvements in our EBITDA performance moving forward. On June 30, 2023, we had approximately $112,000 in cash and $1.3 million in debt. We have since repaid approximately $140,000 of convertible debt in the quarter we raised approximately $4.5 million in gross proceeds in a public offering of common stock and warrants. In advance of the offering we implemented a 1 for 20 reverse split, which allowed us to regain some clients under NASDAQ's minimum bid price requirements. As of today, we have approximately 2.4 million shares of common stock, and approximately $3.5 million warrants outstanding. Back to you, Steve.

Thank you, Andre. Before we open for your questions, let me summarize. As highlighted, we believe the recent events in progress has substantially improved the company's operations on a go forward basis. We finalized and closed a major acquisition adding meaningful revenue and operating profits. Our existing centers are becoming self-sustaining and we expect further growth. We concluded our FDA clinical efforts with a very successful outcome that further validates this success of INVOcell, and we can now eliminate those costs moving forward. We are close to the opening of the new INVO Center in Tampa, which will provide an added growth and we will seek out additional acquisitions to further help accelerate building added scale in our operations. We believe we have now transitioned beyond just a medical device technology company and selling the INVOcell device. We have now become an integrated clinic company focused on offering treatment solutions to patients within the large and growing fertility market. We expect our enhanced commercial approach will also naturally increase the utilization and grow in INVOcell and the IVC treatment process within the market. We believe our efforts along with our technology put us in a unique position. And we have set the foundation from which we believe we can drive shareholder value. With that, we will open up for questions. Operator?

Thank you [Operator Instructions] The first question is from Michael [indiscernible] of Maxim. Please go ahead.

Hey, guys. Congratulations on the progress this quarter and thanks for taking my questions today.

Thank you, Michael.

So I'd like to see if you could expand a little bit more on the importance of gaining that 510(k) clearance for the 5-day incubation period. Obviously, this is a really important development. But can you talk a bit about how this changes your competitive messaging when you are talking to prospective patients, and they are evaluating in both cell versus traditional IVF?

Yes. Sure, great. Well, as a reminder, everyone, our original clearance for the device was for a three-day incubation period, which is similar to IVF has lower outcomes, patient outcomes success rates. And so as we have been in the marketplace, we have to message marketing wise and so forth to both physicians as well as patients, what our label approval was for and the results of that. So, what we often found in the market was that it was really, the comparison that was often occurring was comparing conventional IVF treatment, which was often being done at five-day, compared to our three-day wait to the label approval. Even though many of our early adopters of the technology were using our device off-label and incubating for five days, which is why we had a volume of data that we could use to – real world data that we could use to support a 510(k) submission for label enhancement. So, the advantage of having gone through that multi-year process is that now we can better reflect our technology that we have long known, has a better outcome rate similar to IVF, then you can incubate for a longer period of time. And so in our minds, it really helps to equalize the playing field in the marketplace. So, I would say it’s in our mind, it’s very significant. It’s why we went through that multi-year effort to achieve that improve labeling for the device. And now we can speak more openly and actively to both patients, as well as physicians, and reflect validated data to them that demonstrates the higher quality outcomes for patients based on a five-day incubation period. So, again, it’s very significant for our marketing efforts. We think it’s very significant for potentially partnering with physicians, to team up with us whether we are doing – building new INVO centers, or potentially acquisitions, so it has significance in many aspects of the business for us.

Alright, yes. And so actually, I do want to follow-up a little bit on that last point you are making and just if you could talk about how the five-day incubation approval, how you expect that to benefit the clinics, or is this more about attracting new practitioners, new clinics, or do you see this is something that will actually benefit your existing clinics and their growth rates?

I think it’s hugely beneficial to our existing clinics, again, they can now – even clinics themselves have to be careful about how they are marketing a technology in terms of its official labeled usage. So, now, our own centers and our physicians within those centers can do more proactive marketing to patients and we think that could be very instrumental in helping to attract further build awareness around the technology and bring a higher volume of patients into the clinic. Because obviously, for patients, a successful outcome is one of the most important drivers in their minds, of course, their ability to afford the treatment is important too, but they want to, as we always say, internally, and the most important thing is having a successful outcome and having a baby. So, being able to, again, do bigger picture marketing that can demonstrate those results more proactively, we think could be a very significant driver again in bringing more traffic and more patient volume into the clinics. I thought that Mike Campbell even add to that. I just probably got some thoughts on that too, go ahead Mike.

Yes. Just briefly, Michael, I mean we are at a significant disadvantage competitively because our competitors, who are the IVF clinics are telling their patients that the INVO cell technology is only 29% successful and their outcomes with conventional IVF 50% plus. And again, for the FDA, those were 29% was the day-three data that was approved for the label. And so there is a misconception in the market, that our technology is significantly inferior, when in fact, it isn’t. So, now we are finally able to put the real data out there in front of the community. And again, this is a patient driven market, it’s very important that patients understand that this technology delivers the same outcome for last mile.

Yes. No, it’s certainly a key point here. And then just I guess looking to your breakeven 2020 [ph], could you expand on what sort of assumptions go into that? Does this a factor any additional clinics? What level of growth are existing clinics are factored in there? And what kind of cost savings do you look at when you are making that evaluation?

Sure, great question. So, what our key assumptions are is that we will get some incremental growth out of Wisconsin off of its current baseline as we integrate in both. So, we are not trying to be too aggressive there. Just looking to bring the technology in and add some patient volume into that practice as we go into next year. Obviously, bringing Tampa up and running here this year, we anticipate to be a factor and benefiting that goal for next year. And then of course, our existing centers staying on the same trajectory. That’s really the key components. We are not even factoring in additional acquisitions. We do think there are potential additional acquisitions, but which would only help us accelerate and get there faster in our minds, but it’s not part of how we see the plan to do it with just what I just laid out from a revenue standpoint and growth standpoint. And then on the cost reduction side, we have already implemented those. Again, that really was happening in the beginning of the current quarter that we are in as we concluded the 510(k) costs, and then we made some other corporate adjustments. So, we have taken some costs out of the business to be able to more focused. Now, of course, we are going to be adding in the Wisconsin operation. So, from an absolute standpoint, there will be more substance to the business. And they are sort of costs, but remember, they are profitable. So, when we look at what we have taken out costs from sort of the corporate side and those were pretty meaningful between the 510(k) costs and some of the other corporate costs we have reduced. Those are – we would probably – I would say at ballpark that about 30% of the corporate costs have been reduced. And we expect to maintain those levels as we go into next year.

Alright. Thank you very much.

Thank you.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Great. Thank you everyone that joined the call today. We appreciate your time. As always, please do not hesitate to reach out if you have any follow-up questions. Thank you again.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.