INVO BioScience, Inc.

Good afternoon and welcome to the InvoBioscience second quarter fiscal year 2021 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Robert Bloom with Lithum Partners. Please go ahead.

Thanks very much, Gary, and good afternoon, everyone. Thank you all for joining us for today's InvoBioscience second quarter 2021 financial results conference call. Joining us on the call today is Steve Shum, InvoBioscience's chief executive officer. the company's Chief Operating Officer and VP of Business Development, Mike Campbell, and the company's Chief Financial Officer, Andrea Gorin. 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 InvoBioscience may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 is amended, Section 21E of the Securities Exchange Act of 1934 is 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 disclaim 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, I'd like to turn the event over to Steve Shum, Chief Executive Officer of InvoBioscience. Steve, please proceed.

Great. Thank you, Robert. Welcome, everyone. Along with Mike Campbell, our Chief Operating Officer, joining us today is our recently appointed CFO, Andrea Gordon. I would like to welcome Andrea to the call. I'll cover a few highlights for the quarter before passing to Mike and Andrea for additional details. During the second quarter, we made excellent progress toward our key objectives, highlighted by last week's official opening of our first InvoCenter practice in Birmingham, Alabama. We consider that event to be one of the most significant milestones in the company's history. I really cannot say enough about all the hard work and dedication by our internal team and our partners to accomplish this milestone. The center is off to an encouraging start as we have surpassed our internal expectations for initial patient appointments and expected treatment cycles planned for the first month. More importantly, we have the additional centers opening soon. We expect the Atlanta, Georgia center where we signed a joint venture agreement with Bloom Fertility led by reproductive specialist Dr. Sue Ellen Carpenter to open in September of 2021. For our joint venture in Monterrey, Mexico with Dr. Arredondo and Dr. Ramirez, we expect it to open in the October timeframe. And finally, our San Francisco Bay Area Center should open shortly thereafter. As we stated earlier this year, our goal was to have three to five centers open before year end, and we fully expect to meet at least the minimum objective we set. We are certainly looking forward to the impact of the center operations on our revenue and overall results in the second half of this year and beyond. With the centers, we are now diversifying our business model beyond device sales through distributors to a model where we will capture a share of the revenue generated by the entire INBO patient solution. With the INBO center strategy, we are also advancing our key goal to democratize fertility treatment by bringing care to the vast underserved patient population that experiences infertility challenges. Longer term, we do believe a key to this effort will also involve working with and leveraging the large OBGYN community. In July this year, we appointed Dr. Barbara Levy as our Senior Vice President, Global Clinical Integration. Dr. Levy is a key opinion leader in the community and brings a lifelong passion to improve women's health, recognizing that a critical component to that is treatment for infertility. She has been a vocal advocate for women's health and health equity with appearances on the Oprah Winfrey Show and multiple other media outlets. She really has an impressive resume. I encourage you all to take a look at her background. Importantly to us, Dr. Levy shares our belief that OBGYNs can play an important role in helping to democratize fertility care on a global basis by providing accessibility to affordable and effective treatments, the key hallmarks of the InvoCell technology. We look forward to leveraging her experience to accelerate our clinical implementation strategy in this area. Beyond the progress with our InvoCenter strategy, we are continuing to make progress with our international distribution activities. As we noted last call, we continue to see increased training activities across our various distributors and partners. And it's generally multiple sessions with multiple Q&A follow-up activities. We do see this as a precursor or leading indicator for the business to begin seeing international revenue expansion, something we still expect to occur later this year. We also have two separate independent abstracts that will be presented on InvoCell at the American Society of Reproductive Medicine conference in October, which will reflect further real-world data around InvoCell. And by the way, when it comes to providing the market with additional evidence-based information around InvoCell, this is another exciting advantage with the InvoCenters. We expect to work with our JV partners to help further build data from our own centers that we can eventually report on and further publish around InvoCell. Overall, we feel Invo is well positioned for success. We have built out some critical core elements over the past two years. First and foremost is the team, which includes an experienced internal operating team with key positions filled, coupled with a strong and diverse board of directors, a scientific advisory board composed of well-known and respected fertility industry experts, and key outside opinion leaders and consultants. Second, our partners, which includes a growing list of quality distributors around the world and experienced and motivated joint venture partners. And equally important is our technology. We know how revolutionary InvoCell is, but more recently we have gained valuable real market usage data and hence further validation along with a clear understanding of how our technology fits in the industry and the key challenges it helps solve. Although our excitement and description of our position is not yet reflected in our operating results and specifically revenues just yet, we can see the market progress and momentum occurring with both the InvoCenters and distribution activities and believe this will become more evident in the quarters ahead. Before I turn this over to Mike and Andrea for comments, let me spend just a minute touching a bit on the industry dynamics and the important aspects of our technology that forms much of the basis for how we think about and plan or implement our commercialization strategy. Over the past 40 plus years, since the first IVF baby was born, the fertility market has grown into a 20 plus billion dollar global industry. Here in the US, according to the most recent 2019 CDC data, the industry performed approximately 330,000 IVF cycles across 448 clinics, which implies a roughly $5 billion domestic marketplace if we use the average cycle cost often reported. IVF has been the standard of care for advanced infertility treatment. One of the most important elements to these figures especially how it relates to our strategy and focus, and something we consistently highlight is the very large underserved or untreated patient population. For us, this is the key to our market approach. Our focus is on the massive number of patients who do not receive treatment today. To put some numbers to this, the CDC estimates there are close to 7 million patients in the US with fertility issues. While not everyone is necessarily seeking care, We, along with many other market participants, believe we likely should be performing over a million cycles per year or a three to four fold increase in our current volumes to better service the marketplace. Globally, those figures are even more profound with an estimated 150 million patients suffering with infertility against an estimated two and a half to three million cycles of IVF being performed today. There are some real challenges with bridging the gap of treating the volume patients that need care. Patient affordability and lack of insurance coverage is often the most discussed dynamic in the U.S., but that is only one part of the challenge. We see an equal or even greater challenge related to capacity limitations in the industry given the relatively small number of IVF clinics and limited number of clinicians and other human resources available. This constraint, even more than affordability, is a key issue, particularly outside the US. These market dynamics are really important to understand when it comes to Invo and our InvoCell product. Without question, and as I just mentioned, we have gained a great deal of added knowledge around our product over the past 18 to 24 months and how we can impact and benefit the industry. Thanks to our expanded team and their collective expertise, the additional real-world usage data by clinics and practitioners that have been utilizing InvoCell over the past couple of years, and a far better understanding of the process and workflows around InvoCell within the clinic. And this last point is why we also talk so much about efficiencies or scalability within InvoCell, something we feel very strongly about and have demonstrated in clinical settings, which, simply put, is the ability to treat more patients with less resources. We have proven this in a real-world clinical setting, which is why we believe InvoCell has the ability to have a profound impact on the industry's capacity challenges. As I mentioned, conventional IVF has been the advanced fertility treatment marketplace. When most think of advanced fertility treatment, they think IVF. This is why we were also excited to see the IVC term introduced a couple years ago. which indicates a new, different treatment process, an in vivo, in the body approach. IVC was introduced because of InvoCell's emergence into the marketplace. InvoCell is what facilitates the IVC process or procedure. In essence, InvoCell is IVC, which now offers an additional advanced fertility treatment method, and we can clearly see that IVC awareness is expanding. It's also important to note that we do not see IVC or InvoCell as an alternative or replacement to IVF, but rather a complement. The methods will coexist. Our position is very much focused on providing IVC or InvoCell as a solution to address the underserved patient. As the sheer numbers imply, there is a massive multi-billion dollar opportunity to add capacity, increase access, and help treat those that are going untreated today This is the essence of our strategy and approach, bringing advanced fertility care to the underserved. So again, the efficiencies of InfoCell can bring much needed capacity additions and access to the market, and we can do so at an affordable price, which is also one of the important challenges for the underserved market. The industry needs to add access, but the underserved patient also needs it to be done at a reasonable price point. InvoCell provides both benefits. As far as delivering our solution, we see multiple paths now. We can bring our technology into existing IVF clinics, which we have and will continue to do, which provides a clinic with that additional option, enabling them to treat more patients within their existing resources. Of course, as I've already highlighted, A key part of our commercialization strategy also involves opening new clinics designed to offer InvoCell as the primary treatment option, which is now officially underway. And longer term, we believe an important element to help further the goal of increasing access will be involving the large number of OBGYN practitioners. We fundamentally believe there is a pathway to involve this group of practitioners with InvoCell, and we look forward to Dr. Levy's contribution with this effort. Our goals are very clear, and we are very focused at driving InvoCell to address the very large unmet medical need. I'll turn this over to Mike now for some additional details around the commercialization efforts.

Mike, go to you. Thanks, Steve. As Steve said, really happy to report the business development team continues to make solid progress there with our commercialization activities on a number of fronts. On the JV partnership side, for establishing these new dedicated IMBO centers, we have signed three agreements in the U.S. and four in the international markets, including one in Mexico, India, Malaysia, and North Macedonia. As Steve mentioned, our media focus is on the U.S. centers and Mexico, as our other international partners are still navigating through local product registrations and some lingering COVID impact. Other than Mexico, we do not expect those international JV partners to become operational until 2022. In the U.S., the big news, of course, as Steve mentioned, is our first center, Innovative Fertility Specialist in Birmingham, Alabama, is now up and running. and started seeing patients last week. This is a major milestone for us and something we're extremely excited about. Our clinical partners have roughly 70 patients in process and they plan to run their first InvoCell treatment cycle the week of September 12th. So it's really gratifying to see the significant activity in Birmingham already, especially considering we have not yet implemented our planned local marketing support programs. and we plan to do that in October. In Atlanta, we announced our newest U.S. agreement to establish a NIMBO Center with Dr. Suell and Carpenter. There's some very good news here on the timing, as we have identified a great space for the practice that only needs minimal build-out. So this center is moving along very quickly, and we expect that it will become operational late September or early October. We will announce the official opening date once we have this confirmed. And as Steve mentioned, in San Francisco Bay, our partner Life Medical, they're making great progress as well. We believe we have identified the site for the practice, and our partner is in the process of executing a lease on this property. We expect the center to become operational in the fourth quarter this year. And again, we will continue to provide you with updates as we move this process along. We are also getting extremely close to opening the joint venture project in Mexico. The build-out is complete. We're in process of obtaining our local license requirements, and we fully expect this facility to become operational within the end of September or early October. As some of you know, our very first joint venture agreement was established for Nimbus Center in Kerala, India. COVID hit right after we established that agreement, and our partner has been severely impacted in their plans to move that forward. We continue to be engaged with them, and we are doing as much as we possibly can in the current difficult environment there. And our business development manager is flying to Kerala this week to help move that project forward. So this is still an official project. We hope to get it done late part of this year, early part of next year. And again, we'll continue to provide you with updates as they progress. We do have additional partnership discussions ongoing in the various FITNET that are in various phases, one of which I thought I would mention here as they recently disclosed in a press release in their local market that they had acquired about a million dollars worth of Invo stock on the open market and that they were in discussions with us for a potential joint venture partnership. This is a fact. This is a publicly traded company located in Warsaw, Poland, but we have not completed our discussions yet and we'll certainly let you folks know when and if that happens. And it's a very promising opportunity for us. Shifting to our distribution side of the business, this is the model where Steve mentioned we're selling to distributors who in turn sell into existing established fertility practices. Our U.S. partner, Ferring, remains focused on promoting and selling into the existing IVF clinics. They have continued to expand the clinic and patient awareness through their marketing activities. As we have stated previously, we believe our strategy around creating the IMBO-only clinics here in the U.S. will really help add to the awareness, create market acceleration with InvoCell, and complement Farring's efforts. We believe that this added go-to market channel strategy is complementary and will help increase utilization across the board. In our international markets, we've initiated product trials in Spain, Malaysia, and Pakistan with some of our distribution partners, and they are reporting very good outcomes with their initial procedures. I know we have talked about the Pakistan market before, but it's worth another mention. It's a fairly small fertility market in terms of current annual procedure volume, but it's a very large potential patient market with a significant opportunity for growth. Our partner there, Galaxy Pharma, is the fertility market share leader in Pakistan. They have hosted several clinical training programs and have also developed some interesting and creative ideas around commercialization for the InvoCell technology in the market. We should have our product registration completed there shortly for our official launch, and I'm looking forward to talking more on their launch plans and market strategy once initiated. So overall, we made significant progress, as mentioned. Our product data for validation profile continues to show great outcomes, which is critical for our commercial efforts. We have really honed our training proficiency to ensure new users coming online are proficient and have the necessary skills to perform the in-vote procedure safely and effectively. And we have added marketing resources to help support our clinical partners in distribution activities to help tie this all together. We are confident that these efforts will help penetrate and expand the market to provide the fertility options to the best unserved patient population, Steve mentioned, that are in need of fertility care. That's it from my side for now, and I will send it back to you, Steve.

Great. Thanks, Mike. Let me pass to Andrea to briefly review the financials. Again, we are excited to have Andrea join the team. To those not familiar, Andrea replaces our past utilization of an outside CFO consulting firm, and he will now lead the company's finance function and support the execution of our strategic business plan, including the operational launch of the InvoCenter Joint Ventures. So, Andrea.

Thank you, Steve. Hello, everybody. I want to start by telling you how excited I am to have joined Invo. I've known Steve for some time and had been following company developments from a distance. When he asked me to get involved, I did not think about it twice. I share everyone, Mike, Steve, and the whole team's enthusiasm for the opportunity in front of us to dramatically expand access to advanced fertility treatments. I joined part-time about a year ago to start to focus on legal and financial matters. including the launch of our new InvoCenters. We've made a lot of progress in that time, and we are rapidly transforming the company with a view to making the InvoCell and IVC as common as IVF is today. With that said, here are a few financial highlights. Revenue for the quarter totaled $208,000, which compared to $246,000 in the prior year period. We recorded a net loss of $1.8 million. compared to a net loss of $1.3 million in the prior year. Excluding non-cash charges, mainly related to equity-based compensation and debt discount amortization, our adjusted EBITDA loss was $1.3 million compared to $825,000 loss last year. During the second quarter, in relation to our INBO sensors, we expensed almost $100,000 and invested an additional $741,000 that is reflected on our balance sheet in the form of notes receivable and investment in joint ventures. We closed the quarter with approximately $6.6 million in cash. We expect to maintain our quarterly cash operating expenses at about $1.5 million before any offset from sales and gross profits. This level of expense excludes investment in our INBO centers, the bulk of which is in the form of notes that will start to be repaid once the INBO centers become cash flow positive. In addition to repayment proceeds on these notes, INBO will receive its share of equity distributions from the joint ventures. And if we felt it was necessary to generate added liquidity, we believe we can debt finance the notes to bring cash back into the company more quickly. As of June 30, we had 500,000 outstanding and convertible debt. As a reminder, that has a fixed conversion price of $3.20 per share, 223,000 warrants, and approximately 10.5 million shares of outstanding common stock. Second quarter revenue was impacted by the large order placed by Faring at the end of the first quarter. Since Faring's purchase requirements are based on an annual amount, quarterly fluctuations in product revenue can be expected until our InvoCenter and global expansion activities are sufficient to smooth out our top line results. We expect to see initial InvoCenter revenue starting this quarter and growing international sales as the impact of COVID-19 diminishes and our business development efforts come to fruition. My new role at CFO, I look forward to getting to know our shareholder base and analyst community in the months and years ahead. That's all for me. Back to you, Steve.

Great. Thank you, Andrea. I want to reemphasize a comment Andrea made. You know, today when people think of advanced fertility care, they think of IVF. It's interchangeable. If we meet our objectives, InvoCell and IVC will also become just as ubiquitous or commonplace as IVF. and open up a whole new market segment to patients in need. Moving to our clinical efforts, with respect to our five-day label enhancement for the US market, we are making progress at pulling the remaining data together. Admittedly, this process has taken longer than we originally envisioned, but we are keeping our goals to complete that this year, and we will report additional updates as we have them. I'll conclude our prepared remarks by expressing an appreciation to our entire team, including our internal operating team, our board, our scientific advisory board, our partners, and key consultants. They are all working hard and have tremendous passion for INVO's mission. While some of our activities have taken longer than we originally thought, and COVID certainly didn't help, although I would not point to that as the only reason, it has not diminished our collective enthusiasm whatsoever. I would also say that our team is not just motivated by the opportunity to build a very large and significant company, but equally if not more driven by the chance to help so many people around the world. Having a child is one of the greatest joys in life, and improving the chances for that to happen is incredibly rewarding to all of us. With that, we'll open up for questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from Scott Henry with Roth Capital. Please go ahead.

Thank you. Good afternoon. A couple questions. First, on the 2Q results, were there any international product revenues in the quarter, or was it all U.S.-based?

Very small, Scott. It was just a little bit of U.S.-based revenue and a very small mix of some international activity.

Okay. And... When we think about the underlying trends for faring in the U.S. product revenue, obviously it's going to be very chunky based on the annual minimums, but can you give us any color on how you think the rollout is going for them and what kind of organic trends they're seeing on that and perhaps how much COVID is still impacting it?

Yeah, well, first, I would say at a high level, we do recognize it's been a slower build process within the existing practices, and certainly Faring has seen that as well. There's a number of factors contributing to that, and we can go through those. But, you know, the key elements moving forward that we believe will help that effort is the expanded evidence-based data we have on InvoCell, which is critical in a built confidence as well as the start of the InvoCenters, as Mike pointed out. Faring is doing additional marketing efforts to help improve the visibility. But again, we really think the InvoCenters will complement their activities. But again, it's been a slower process with the existing practices. Last year, they were heavily affected by COVID. Many of the practices are reporting being very busy And when a practice is extremely busy, it also becomes a challenge to integrate a new process and procedure. We believe they're making progress. Again, we think our efforts in the US market will help that. But it's hard to see exactly when some of that acceleration could occur within the existing practices.

Okay. Then perhaps shifting gears to the center revenue, when we think about magnitude of revenues there, can you give us a sense of how many procedures annually you would expect a typical center to perform? I know Birmingham is probably going to be stronger than average, but the typical procedures per center, and then an idea of how much revenue we should expect annually you know, per procedure to flow to the INVO income statement.

So I'm going to let Andre take the last part of that question regarding how it's going to affect our P&L. Mike, I'm sure, has got a comment on the build and the ramp within the centers. I'll give you just a high level that, you know, we have built these facilities in terms of uh resources and physical footprint to be capable of doing upwards of a couple initially a couple thousand cycles per year now that'll take time for these centers to to build and we'll obviously need to bring our marketing efforts that we're working on behind the scenes to help broaden out awareness and drive patient flow to those clinics so it'll take some time to build to that If you look at the average, I think we've said this before, the average IVF practice out there runs around 600 cycles per year. Obviously, there's the larger practices that do a lot more. There's smaller practices, but that's kind of the blended average. We've also stated that we we would expect our centers to be self-sustaining and break even at around 200 cycles per year. So 17 or 18 patient per month average would bring them break even. So for us, it's a little hard to gauge just yet since the first center just opened last week to know how fast they can build. But we certainly have expectations they would they would operate well above the break-even point and at minimum reach the average level an IVF practice operates at. And then, like I said, hopefully our marketing efforts will build on top of that and continue to see them expand. Mike, I don't know if you want to add any more to that. I probably went a little deeper than I was expecting.

No, that's exactly what I would have said, Steve. You know, the metrics are 200 on break-even, average about 600, and then our capacity at 2,000. So, I really, you know, the other thing, the only real-world data we have here is the AIRM practice that was in Birmingham, Alabama, that Karen Hammer was formerly at. And I believe they, you know, did about 250 their first year, and then they ramped that up to about 500, 600 their second year. So I'm hoping to see, you know, similar ramps in our facilities as well. That would be rewarding.

Okay, and how should we think about revenue per procedure?

Yeah, I'm going to let Andrea speak to that. He's really done a lot of work on the modeling and how it's going to flow through our P&L. So, Andrea, you're up.

Yeah, the way the joint ventures, at least to date, have been structured is such that it would enable us to consolidate revenue their results into our own. So basically, the top line revenue from these joint ventures will be added to INVO's top line revenue, and then we would have to back out whatever the profit or loss is that does not pertain to our ownership. Obviously, the big driver for the facilities is the INVO cycle revenue, but there's a lot of ancillary services from the initial patient visit to other types of procedures and services, whether it's from the lab or the doctors that would be performed. And so we will be participating as owners of these joint ventures in all of that revenue. So in a much bigger slice of the revenue per cycle that our device generates on top of the actual price of the device itself. I think the amount of revenue per cycle will change a lot by location. You can imagine that what might be charged in Birmingham would be different than what would be charged in San Francisco. I think our current expectation is that for the cycle revenue, Mike, correct me if I'm wrong, we're probably somewhere around $6,000 or thereabouts.

Yeah, I think that's what we're seeing.

I'm just going to give it a call. Birmingham probably would be about $5,000, and then, yeah, San Francisco is going to be in $8,000. So we're looking at an average, an ASP for the in-vote procedure, right around $6,000, which would ASP to that.

And again, Scott, we'll be consolidating all of that and then, you know, in these initial clinics and then backing out the portion on a single line that we don't hold.

And is that revenue, is that per patient or is that per individual cycle per patient? Yeah, per cycle. Per cycle, yeah. Okay, great. Thank you for taking the questions.

You bet. Thank you. The next question is from Kyle Bowser with Collier Securities. Please go ahead.

Great. Thank you. Thanks for all the updates here. Maybe just following up on Scott's question, so appreciate the color on amount per cycle. Maybe you could talk a little bit about the timing of revenue recognition. Do you anticipate patients paying in multiple installments? Do you recognize the revenue at the end, at the outset? I'm just kind of curious the timing on how the money will flow into the income statement.

Yeah, I think recognition... Yeah, go ahead, Andrea. I was going to say recognition would occur when the cycle has been completed, but that's a couple-week process from start to finish with a patient. But go ahead, Andrea. Yeah.

Yeah, that's what that's what I was gonna say. And, and most of these, you know, there really isn't much, you know, I think the team has started, you know, to look at sort of the insurance angle, but really, most of these are all, you know, cash pay. And in most instances, I think, you know, you know, from what has been discussed with our current partners, is that, you know, all those payments would be due upfront, there are some specialty patient lending firms that we have been evaluating to offer financing to the patients that want to spread out payments. But from our perspective and our joint venture partners' perspective, we would get the cash right away.

Got it. Appreciate that. And then on the five-day label enhancement, it sounds like you're continuing to put the data together. At the beginning of the year, we were pretty excited that there's the possibility you wouldn't have to run a clinical trial and just use the data that's already out there. And now we're almost into September, and I'm wondering if you know maybe just doing a trial would have been more favorable maybe that's not the case I'd love your reaction to that and Steve and you know just any I guess updates on the discussions you've had with the FDA and you know any sort of timing yeah yeah I think with the benefit of hindsight it's possible I'm not sure we've crossed over that point just yet

Kyle, but and part of that, I say that because our clinical sites were still a bit consumed with managing just past COVID and the volumes of patients they were seeing. And so, you know, the recruitment process we could have envisioned might have taken a little longer as a result of some of that impact. Hard to say for sure. But we do feel, we continue to feel pretty strongly that we can get the data we need from the retrospective data. It is a lot of data and we had to go into some of these same individual clinics and they've been great at pulling that data but it's definitely taken a while to do. And part of that is I think also a function of them being very busy But we're pretty close having it pulled together. So I would still say I think we will ultimately be ahead, just pressing on and finishing this process than what it would have taken going through a prospective.

Got it. That's helpful. And maybe just on the burn, sorry if I missed this, how are we thinking about that for the balance of the year on a quarterly basis now that we've essentially gotten two to three info centers up and running, so a lot of those startup costs associated, I think, should dissipate, just help for modeling purposes with the quarterly burn.

Well, on the operating side, I think Andrea mentioned that we would expect the cash operating burn to kind of before any gross profit offset, we would expect to continue to maintain around the 1.3 to 1.4 million dollar quarter level before joint venture activities. We actually do have some, you know, spend we'll still have to do for Atlanta as well as both Mexico and the Bay Area. So there still will be some JV investment going on in the third and fourth quarters. So we'll still have that as part of our mix, but we are looking to generally maintain our internal operating levels consistent with where they've been the last couple quarters.

Got it. Okay. Well, congrats on opening these clinics, and thanks for all the updates today. Okay.

The next question is from Rodney Baber with Paulson. Please go ahead.

Hey, Steve. Can you hear me okay? I can hear you just fine. How are you doing, Rodney? Super. Good. Thank you for all the hard work that's going into this. It's going to be really a lot of fun to follow you guys over the next several years. I think it would be important if we had some clarity on how you market this product. In other words... You're putting centers in now when I'm can do five or 600 a year, which reduces a certain amount of revenues. Uh, there's a number of ways I could ask this question, but, but Mike, maybe you jump in here. How do you spend money? I mean, do you go to Facebook? Uh, you get a lot of word of mouth, which is wonderful and all that. Uh, you know, how do you spend money? If you're going to have somebody do two cycles to get a baby and they're paying you $12,000. How much money goes into the marketing of it or sales app or whatever? If you could give us some clarity on that, I'd love to hear that.

Yeah, Rodney, we are in conjunction with our local partners for their local markets, and we're really not going to roll out a national campaign for sure right now, but what we plan to do is obviously use the social media platforms. We have hired a social media platform expert, a in my opinion. And we're putting those all together. And the other thing we're going to do is just in the local markets themselves. We're going to do an outreach program to the local OBGYNs, to the referring physicians, to the businesses, you know, and potentially we're working on reimbursement as well. So we're looking at some of the private insurance fertility providers and just to get the word out about the technology, the process, the procedure, and the opportunity. So, like I said, you know, they got 70 folks down there just because they all know Karen Hammond down in Birmingham. And we haven't even started our marketing up yet. So, very encouraged about that. But, yeah, I think this is all going to be social media platform and local outreach.

Do you have a cost per patient expenditure that you're going to be willing to make to get a customer? Do you have a thought on what that's going to be? How does it impact your business? your profitability as far as spending the money for all of this to generate the revenues you want?

Yeah, we're actually working with the centers right now on all those metrics right now, Rodney. We have a budget for each of the centers. And, you know, again, I guess you have to divide that by the number of patients that come in. But our initial budget is enough to at least get this social media platform Uh, up and up and going, and then again, uh, includes a local outreach program to the local community. So that's the prime, the pump. It just depends upon, you know, what type of, uh, reaction we get to that, how we move forward.

Okay.

Steve, let me add one thing, too. We absolutely do assume in our planning that we're going to spend a certain percentage of sales on marketing activities. And so to Mike's point, we're going to start in the local markets. But as we do have more and more centers out there that will, over time, will build into more of a national sort of program on some of that activity. And it is part of our planning and our budgeting activities.

On another topic, you've got, what, 445 IVF centers out there, which is a comp on what's already established and the size of the market, and you talk about $5 billion domestically and all that. What do you, in the back of your mind, when you think about the rollout of this company over the next couple, three years – You know, I know we don't know the answers, and I'm not asking for a projection I'm going to hold you to, but I'm just saying roughly how many clinics would we have? And then if you had to guess on how they would be structured, how many would be standalone in those cell centers where you're putting one in like Birmingham? How many of them would be joint ventures where somebody else is doing it? you know, there's several silos of ways that you can roll this thing out with different business models for each one. What do you think you'd have in a couple of years if you had to take a guess on this thing right now about how this company will look in two to three years? How big will, you know, how many clinics would there be? Any color on that? And I know that's a wide open question and it And you may not want to mess with that too much, but I would love to just have a thought about how you can roll this thing out.

Yeah. Well, first of all, it's a huge opportunity. I mean, hopefully that came out loud and clear in our prepared remarks about the size of the underserved patient market out there and really, again, how big that opportunity is to open up a whole new segment of the market. We're not talking about trying to capture share from the existing market, the opportunity here is to really open up a completely new patient market. And that's really our core objective here, as you know. So as far as the in-vote centers, we see those playing out a couple different ways. Obviously, our current ones are in joint venture with partners where we're co-investing or we're putting up even most of the money in conjunction with our partners, and then we get a perpetual carried interest in those centers. And we're happy to keep doing that. We think there's lots of opportunity to expand that initiative. As Mike often says, we've probably given the scalability of InvoCell. We probably don't need to put multiple centers in a particular location. Because we're, like I said, a very efficient and scalable technology, we could do one center, handle a lot of volume, and then just expand that particular center. But we also could envision seeing a scenario where, as that awareness grows, there may be interested parties that want to, in essence, build an Invo center, but really do it on their own under almost like a franchise-type model where they want our support. but we don't really necessarily have to co-invest with them and maybe there's a participation in their revenue under like a franchise type model. We're happy to entertain those kinds of scenarios as well because the way we look at it, whether the technology is delivered through existing practices that simply bring the solution in to offer it as a treatment option or we build new clinics, Or as we keep saying, we think we can ultimately try to leverage the large OBGYN network out there. We see it as there's multiple ways to win as long as we're seeing a growth in utilization of InvoCell. And so that's really the way we see it. And again, we see it as no matter which avenue and channel really develops faster or bigger, we are going to be the beneficiary of that and we think we can build a very significant company regardless of how that really develops. We'll be definitely pursuing additional joint venture opportunities to co-own the building with the practitioner, but we're happy to see our distributors build out their networks within existing practices or practitioners decide to go out on their own and say, I want to build my own info center. I don't need your financial support, but I obviously want your technology and know how support for it. Again, no matter what scenario we think we win and we think we've built a very significant business because the market is just that big of an opportunity. I know that didn't give you details on your question, but hopefully it kind of addresses the big picture of how we see this.

Well, if you answered the details on that, I would be surprised, okay, because there's just no way to know that at this point until things roll out. But hearing the 20,000-foot view like that is very helpful. So thank you for sharing that with me.

Hey, Rodney, it's Mike. I think the important thing Steve said is very important. We are not trying to take share from the current market. That's a different animal. That's a different game. We are opening up an entirely brand new market for an unmet need pent up demand patient population. So, I mean, um, my, my attitude is if, if we, you know, if we build it, they will come because they need a solution and we are, we have the perfect solution for them. So I'm excited to see how this rolls out over the next several years because As Steve said, we have lots of different options, and all of them are good.

Well, thank you, guys. Appreciate it. Thanks, Rodney.

The next question is from Ben Hainor with Alliance Global Partners. Please go ahead.

Good afternoon, guys. Thanks for taking the questions. I apologize if I missed some of this earlier, but jumping between calls here, but Um, you know, with the new, well, first off, congrats on opening the, the, the first center, you know, just kind of wondering what's, uh, attracted women to the, the first center, you know, was there kind of a backlog of patients when you opened, um, you know, is there, uh, you know, any surprises on, on, uh, what attracted patients?

Well, I think that, uh, what it really reflects, and this is, goes back to AIRM. I know Mike's got a lot of strong, uh, perspective on this too, but we think AIRM, which was the previous practice with the practitioners that now we're partners with in Birmingham under our new InvoCenter, they really proved the case that there is a lot of interest and demand in an affordable, high quality solution in the US market. And so they actually had a map on their in their previous practice where when they were out in the marketplace offering a full InvoCell cycle for around $5,000 to $6,000, they had patients coming into their clinic from over 20 different states just by word of mouth, people that had heard about the solution and the price point. And to us, again, that really demonstrated the need, the unmet need, the patient that needs access to an affordable solution. And, you know, again, we think that dynamic is even more profound in other parts of the world. So, Mike, sorry, I didn't mean to talk over you, you know, jump in on that.

No, I was just going to say exactly what you said. And, Ben, yeah, this is, you know, I'm going to credit all this to Dr. Karen Hammond. She is a very profound and well-recognized clinical practitioner, and it's all word of mouth. The other thing is there's a Facebook page for Imbracel patients. There's about 1,800 members. And, yeah, I mean, I learned a lot about the technology from this particular group. And a lot of them, you know, talk about Karen Hammond and say if you're going to do Invosol, you know, it's worth it to take the trip to Birmingham and have her do it. So, yeah, we didn't do any advertising down there. We haven't done anything yet because it's really a soft opening. We're just going to have to work out the tanks over the next month or two. And, you know, these 70 patients that showed up have all showed up for, Karen Hammond, in my opinion.

Okay. That's helpful. And then, you know, is there kind of maybe a rule of thumb sort of conversion rate from, you know, kind of initial appointment to treatment cycle, or is that kind of, you know, too amorphous to get into?

I mean, there obviously is a... a conversion rate, all the practices see that. Sometimes it's a function of, does the patient have suitability to even undergo fertility treatment? So you often have patients coming in that just, you know, they're not a good candidate under any circumstances. Sometimes patients don't convert because of the expensive cost Again, that's something we think that our approach helps address that component to it. But I don't know what the exact, I mean, I think every clinic is a little different depending on what kind of patient flow they're seeing in terms of what their conversion rates are. But, yes, you can assume you wouldn't necessarily convert every patient that came in for a consultation, for sure.

But is there, you know, kind of, well, 30% of them wind up doing a treatment cycle, or is it? You know, it's all over the map.

Yeah, Ben, I don't know what the industry conversion number is, but in Birmingham, you know, this first cycle, we're hoping for, you know, somewhere between a 20% and 30% conversion. And as Steve mentioned, a lot of the factors have to do with clinical factors. You know, the patient's just not ready. You know, an ABI index issue, you know, they present with endometriosis. But this first cycle, yeah, we're not going to get 80% in-grow cycles out of this. You know, our expectation is we do, you know, like 15 or 20 would be a good number for us.

Okay. That's very helpful. And then lastly for me, you know, just with the strategy overall, I would expect that there might be some sort of, you know, kind of halo effect in a given geography or a given city if there's if you open your own center and that's getting some attention and there are other clinics in the area that are offering in both cell, do you expect volumes to go up there at these other clinics as well? Or is that not the case?

No, we're actually seeing that already.

Yeah, we absolutely think there's going to be a halo effect overall. You know, we, We already see growing awareness just in the community and the industry around InvoCell. We see it growing within the patient market. There's more and more some of the patient education sites that are referring to InvoCell as a treatment option. Even the existing IVF clinics out there, some of them we're seeing doing a little better job of presenting and representing InvoCell as well. So, but without question, we think standalone dedicated center will have an awareness effect and a halo effect for the whole industry. We fundamentally believe that.

Okay, great. Well, that's all I had, gentlemen. Thanks for taking the questions, and congrats on opening that first center.

Thanks, Ben. Appreciate it. The next question is from John Herbink with Vista Partners. Please go ahead.

Good afternoon, gentlemen. Thanks for taking my call today and congratulations on advancing the model. It's exciting to see that you've successfully are weaving in this sort of what I say is a three-pronged sort of approach to creating, to developing your business that seems quite scalable from the distributorship to now the clinics and next bringing it and putting it in the hands of possibly every reasonable OBGYN in every community, therefore creating this access to care that seems to be really missing in this extremely underserved patient population. Would you speak to, would you say that as you're doing this, you're trying to create sort of a fabric of understanding maybe similar to other solutions that have gotten the market, like say, for example, Invisalign, which had the sidestep, the sort of orthodontics out there that was sort of controlling that market and took it straight to the patients to create awareness and then pull through while educating a physician population. Could you speak to that? And with this new global marketing team you put in there from the board with Rebecca Messina to the new director of marketing, Maryland Chamberlain. So could you speak to that and help me understand that better?

Yeah, well, again, I would say this is a credit to Mike. When he really got involved in early 2019 and even before that as a board member, he had a strong opinion that it would be very important to really help develop the InvoCell technology in the marketplace to be able to create, you know, the concept of a dedicated center. And, you know, took us a while to actually develop that strategy and actually, you know, partner up with our first partners and actually finally open our first center. So, but I distinctly remember the conversations he and I had, you know, two years ago that this needed to be a central effort to our strategy to help build the market. Whether that's because there's a reluctance with the existing practices to adopt it, I don't know that we would go so far as to say that versus maybe there just needed to be more knowledge and what we keep saying evidence-based information around InvoCell because that really does help build confidence with practitioners. And if you think about it, our first our first partners in our InvoCenters are practitioners that were the early adopters of InvoCell. So they had their own, you know, evidence, if you will, from their own working with the InvoCell technology. So, you know, we think it's going to take hold and continue to be adopted within the existing practices. We acknowledge it's been a slower process, but as more and more information is available, And we think, of course, the info centers, as I just mentioned with Ben, you know, provide that halo effect of driving awareness and, you know, helping to force the industry to pay more attention to this as a solution. And again, not as an alternative to IVF, but something to help open up access to an additional patient market. Um, you know, we knew this would be critical. Um, we knew it would be important to help cultivate the market. think we could probably even point back to your separate example. I don't know if it's the perfect analogy, but that example of Invisalign, I think when they did that, it ultimately became more embraced within the normal practices out there. So we believe that'll happen here as well. We think that, again, having the additional, what we keep referring to as the additional channel strategy of our own dedicated centers, will be helpful at building the market and it'll create that complimentary effect within the existing practices out there. And I, so I apologize. I'm not sure if I'm perfectly answering your question, John, but, um, this was an important part of our strategy. We knew it. We, as you also pointed to, we brought in marketing expertise into the company earlier this year. to help build a program around these activities, but it's not just for the info centers. It's to build marketing to help support our distributors out there in the marketplace as well as our own info centers. And as Mike alluded to, that's an active effort that's underway. And we would expect as we move forward from here, you'll see more and more of that internal activity of marketing support coming to bear into the marketplace to help, again, our overall efforts, whether it's our centers or the existing practices and our distributors.

All right. Thank you, Steve. I think that answers it for today, and I think that it seems to be coming up. If you check on social media, check that out. You're seeing... the discussion going up and, um, and that's what has happened with other products in the medical device and med tech areas that I've seen and had some success with, um, follow up another question.

And I would say, and I would, and I would say, John, you know, sometimes markets, you know, build in a methodical process. Again, one of the reasons we're so excited about the Invo centers, um, especially as we get a few of them up and running, is that we think it'll help accelerate the market and really create kind of a tipping point, if you will, of better adoption across the board.

Agreed. Shankar, down another line of questioning here. One of your – it's my understanding per recent filing that your largest shareholder, is special situations run by AWM in New York, a multi-billion dollar fund that's been noted for investing in emerging growth companies and have a great successful track record as they've grown up over the last couple decades that I've been in and around the space with them. They, I believe, increased their position from the full quarter from 6.5% to 11.1% of this extremely tight flow company of, I think you said, around 10.4 or 5 million shares outstanding. One, can you confirm that? And two, also address... that this fund, this portion is run by Dr. David Sable, who is a former IBF doc and now runs this particular fund. And he's been loud as he's spoken and written several times at the biggest conferences in the space that we were needing a solution that was affordable to fill this gap and he likened the situation to IBF being sort of the Ritz-Carlton or Four Seasons, if you will, where someone might pay $1,200 for this luxury stay but would necessarily want this luxury sort of efficacy, if you will, in our case, but a more affordable, say, liken it to Marriott or the Hilton, where you go there and you don't have to pay an arm and a leg, but you still get amazing stay, good sleep, et cetera. Could you speak to both of those for me?

Well, yeah, we saw the filing too. We assume those are up to date and that reflects their position. And we think they're a great investor and we appreciate their support without question. Yes, you're correct. Dr. Sable actively speaks about the industry out there. He does use that analogy that this industry is predominantly currently made up of the Ritz Carlton's as the analogy. And what we need to do is build the holiday ends where maybe you don't have all the bells and whistles, but you get a great night's sleep at a more affordable price and you treat, you know, different segment of the market. So we, we completely agree with that perspective to, you know, that, you know, It's a good analogy, and like I said, I think that he's someone who recognizes what the needs in the industry are, and he really speaks to some of the need for efficiencies in the industry as well, which is another requirement in order to really be able to treat the volume of patients that need care. You simply can't just bring prices down we also need to find solutions to be more efficient in the care in order to be able to treat more patients with the existing resources. We absolutely agree with that point, too, and we think that's a sweet spot for InvoCell as a technology.

Thank you. Again, congratulations on advancing the business, and I'm happy to be an investor and looking forward to seeing where you guys are taking this.

Great. Thanks, John. Appreciate it. This concludes our question and answer session. I would like to turn the conference back over to Steve Shum for any closing remarks.

Great. We appreciate everyone that joined us on the call today. Please do not hesitate to reach out directly or to our IR firm should you have any additional questions. Thank you again.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.