INVO BioScience, Inc.

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 a touch-tone phone. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Robert Bloom with Lithum Partners. Please go ahead.

Thank you so much. Good afternoon, everyone. And as Rocco indicated, thank you for joining us for today's INVO first quarter 2023 financial results conference call. Joining us on the call today are INVO's CEO, Steve Shum, the company's chief operating officer and VP of business development, Mike Campbell, and Andrea Gorin, the company's chief financial officer. At the conclusion of today's prepared remarks, we'll open the call for a question and answer session. Before we begin with the event, we submit for the record the following statements. 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 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 call over to Steve Shum, Chief Executive Officer of Invo. Steve, please proceed.

Thank you, Robert, and welcome, everyone. As many of you know, we held our year-end call recently, just four weeks ago, where we covered a number of important updates. For this call, we plan to keep our prepared remarks shorter and highlight the specific quarter developments as well as reiterate some of the key items covered in the last call. In the first quarter, our three existing INVO centers in Birmingham, Atlanta, and Monterey all made further progress, reaching new levels. On a combined basis, inclusive of both those accounted for as consolidated and under the equity method, the centers generated approximately 647,000 for the first quarter, an increase of 108% from the year-ago quarter, and an impressive 46% increase sequentially from the most recent fourth quarter. We believe they will continue the positive upward trend over the rest of this year. Another key point to make is that the three existing clinics are nearing break-even, and we look forward to each of them generating positive cash flows and profits in the near future. As we mentioned on our recent year-end call, our planned new InvoCenter in Tampa is progressing with a target opening slated for mid-summer this year. We are excited about Tampa. We believe we have assembled an excellent team to operate the practice, and they are well into the training. and planning phases in preparation for the opening. The Tampa market is large and attractive and we are looking forward to bringing the center operational. We have begun early preparation work for Kansas City and remain very excited about the potential partnering we expect to do for that market and look forward to providing updates on this location in the near future. We have decided to put the previously mentioned Bay Area clinic opportunity on hold for now both ourselves and our partner mutually agreed this made sense as we are both focused on other key priorities right now for us as many of you know a key new priority revolves around our acquisition strategy and specifically our announced agreement to acquire the wisconsin fertility institute we spent a fair amount of time discussing the transaction and our acquisition approach on our last call but I do want to mention a few key highlights as a reminder. We believe the acquisition strategy enhances our commercial efforts to build the company and is an activity where we can synergistically introduce InvoCell into existing IVF clinics that we take ownership of. This effort will remain focused on existing, established, and profitable clinics. Our first deal, the clinic located in Wisconsin has an excellent reputation, not only in the local community, but nationally is one of the top fertility centers in America. It is, it is well run and profitable. We issued an AK regarding the transaction, which provided two years of audited financials, along with the nine months review for the clinic. And we then reflected those financials on a pro forma basis, as if it had been part of Invo's operations during that historical period. As reflected in those numbers, the clinic produces excellent results with about 5.5 million in trailing revenue and around 1.9 million in net income, a very material addition to our operations on a go-forward basis. As we've mentioned previously, our acquisition efforts are strategically significant for several reasons. It provides immediate revenue and positive net income to our overall operations, adding scale and accelerating our pathway to overall profitability. It highlights our efforts to use our public company status as a platform to take a more comprehensive approach within the fertility marketplace. Although we are now becoming, through this activity, a broader fertility company in general, acquisitions do still help further one of our key longstanding goals of advancing the InvoCell technology and the IVC treatment method. We will look to integrate our solution into acquired practices and help to drive new additive revenue and profits in addition to the existing conventional IVF business these established clinics are already providing. This provides another pathway to further our efforts to bring added affordable care to the marketplace and help patients in need. Again, we are focused on smaller to mid-sized established fertility practices in the marketplace with these acquisition efforts. We do have several discussions ongoing, and we'll focus on pricing deals attractively and structuring them in a win-win manner similar to Wisconsin. To summarize, our expanded commercial strategy now includes supporting, servicing, and expanding InvoCell across existing IVF clinics building new dedicated info centers, and now selectively acquiring existing IVF practices. As noted on our recent call, we've also made significant progress with our five-day label enhancement efforts. We completed tabulating the additional data related to the follow-up questions from FDA and are submitting those at the end of this week. We believe the data, including the additional tabulations, looks very good and we are very pleased with the outcomes and excited to share those with the market as soon as possible. Let me turn this over to Andrea to quickly cover additional financial highlights. Andrea?

Thank you, Steve. Revenue for the quarter totaled approximately $348,000 compared to approximately $163,000 in the prior year period. Approximately 85% of Q1 revenue, or $297,000, consisted of consolidated service revenue from our Atlanta InvoCenter in comparison to $106,000 in the prior year period. The remaining 15% of revenue represents product sales of the InvoCell to IVF clinics. As a reminder, our operating InvoCenters in Birmingham and Monterey are accounted to for using the equity method. Revenue from all three clinics totaled $646,000 in the quarter compared to $311,000 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 existing clinic revenue to continue to build throughout the year and for INBO's total revenue to increase substantially with the closing of the Wisconsin acquisition as well as the opening of the Tampa INBO Center, both of which are wholly owned and will be consolidated with our own financials. Our gross margin increased to 79% from 60% as a result of improved efficiencies at our Atlanta INBO Center. Our selling general and administrative expenses decreased to approximately $2.5 million from approximately $2.7 million in the prior year period, largely as a result of lower non-cash stock-based compensation. These expenses included approximately $258,000 attributable to our Atlanta InvoCenter compared to approximately $244,000 in the prior year period. On a combined basis, our three InvoCenters had approximately $735,000 in operating expenses compared to $656,000 in the prior year period. Our adjusted EBITDA loss, which is net of non-cash charges mainly related to equity-based compensation, improved to $1.7 million compared to an adjusted EBITDA loss of $2 million last year. These amounts included operating losses of approximately $48,000 and $200,000 respectively attributable to our InvoCenter joint ventures accounted for with the equity method. Our note receivable from the Atlanta joint venture, which stood at $450,000 on March 31st, was eliminated as an intercompany transaction consolidation and is not reflected on our balance sheet. In addition to this note, our equity investment through March 31, 2023, was approximately $0.9 million. To date, our gross investment in the Birmingham and Monterey joint ventures is $1.7 million and $142,000 respectively, which amounts remain unchanged from the last quarter. Our work to close the Wisconsin acquisition remains on track for a closing date in the current quarter. We're also working with the clinic and our auditors to complete the audit of the clinic's 2022 financial results, as well as a review of the first quarter. We expect to file these results in the current quarter. As of March 31st, we had approximately $2.2 million in cash and $1.1 million in debt. We have since repaid approximately $384,000 of convertible debt. As a reminder, we closed on approximately $3 million in gross proceeds during the first quarter from a registered direct offering of common stock and pre-funded warrants, along with a private placement of warrants. For the terms of the $3 million offering, we expect to file a resale registration statement to register the private placement warrants and certain other shares related to our February 2023 convertible debenture and warrant offers. As of today, we have approximately 14 million shares of common stock outstanding, 2.3 million pre-funded warrants, and approximately 6.9 million unit options and warrants outstanding. Back to you, Steve.

Great, thank you, Andrea. Before we open for questions, let me just reiterate, we believe we are off to a strong start for 2023. We are seeing record volumes at our existing clinics, and equally important, they are quickly becoming self-sustaining from a cash flow standpoint. We are close to the opening of the new Tampa INVO Center, which will provide added growth in the year. And perhaps most important, we've evolved our commercial efforts to build INVO by way of adding an acquisition strategy where we can more rapidly build scale in our operations. As a key takeaway to our activities and focus over the past year and a half, we want our investors to understand that we are evolving beyond simply a medical device technology company and selling the InvoCell device. We are and have now become an integrated clinic company focused on offering treatment solutions to patients within the large and growing fertility marketplace. As such, we are a different company today. However, we also believe that this enhanced commercial approach of building our clinic service activities will also naturally increase the utilization and grow InvoCell and the IVC treatment process within the market and thus help us achieve that objective as well. To some, we believe our efforts, along with our technology, put us in a unique position and one that can help bring much-needed affordable care to patients in need. With that, we will now open up for questions. Operator?

Thank you, sir. If you would like to ask a question, please press star then 1 on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from queue, please press star then 2. Today's first question comes from Jason McCarthy with Maxim Group. Please go ahead.

Hi, this is Joanne Lee on the call for Jason McCarthy. Thanks for taking your question and congratulations on the progress this quarter. So I wanted to ask around what were the key drivers behind the 46% sequential increase in Q1 revenues? Was this growth primarily influenced by factors or were there specific events that led to a rapid gain in traction? And then just as a follow-up, can you provide some color on the strategies being implemented to promote the adoption of InvoCell outside of the operating clinics? Thank you.

Sure. Well, I think what's happening with the clinics is really something we've talked about over the last number of quarters where we've been building awareness in the markets that the clinics are operating in and we see increasing level of patient interaction, patients coming in to inquire and seek help, but there is inherently a lag effect between when a patient initially reaches out and has an initial conversation or consultation to when they actually go through treatment. And so this is why we've been attempting to say that we've seen building activities that hadn't necessarily been reflected in the operating results or the financial of the clinics, but now we feel like that's starting to develop, which is just, again, the process of building that awareness and building that patient flow into the practice is starting to lead toward increasing volumes that are actually going through treatment within the practices and we expect that will continue to build as you as we move forward from here there wasn't any specific new thing we were doing in the period it's just been again a culmination of that building that's been happening in the clinics for the past year so we're excited to see that start to show up in the numbers and we think that will continue um And I apologize, I forgot the second part of your question, if you wouldn't mind repeating that for me.

Of course. Just, you know, just to follow up, can you just provide some, you know, color on the strategies sort of being implemented to promote InvoCell adoption outside of the operated clinics?

Well, I would say we're just, we're continuing to pursue a number of different strategies, social media, you know, Google AdWords in local markets to drive awareness around INBO. We're certainly supportive of trying to see additional publication done around the technology. We do think that there is a growing awareness that's occurring within the marketplace around INBO and its outcomes and its success rates and so forth. So we're seeing just generally seeing increased levels of activity of both patients as well as referring physicians, OBGYNs that are more familiar with the technology. And again, we're looking forward to continuing to build on that. Mike, I don't know if you want to add any further to that. But again, this has been an ongoing effort.

Yeah, a couple of comments that might help. I think the key issue there with that particular strategy is capacity. So a lot of these clinics, there's about 450 to 500 IVF clinics in the U.S. We know them all well. We've had previous experience with these clinics. And if they're interested in the technology, we certainly are helping them. We're getting in there. We're training them. We're teaching them how to use the technology and increase their use of it. But again, you know, this is why this technology is here. There is a definite capacity issue, not only in the U.S., but everywhere. IVF centers are very busy. They have IVF patients, and, you know, this is why we're changing our tactics a bit to the, you know, adoption of Invo.

Got it. Well, that's all really great to hear. Thanks again, and congrats again on all the progress.

Thank you.

Thank you. And ladies and gentlemen, as a reminder, if you would like to ask a question, please press star then 1. Our next question today comes from Rodney Baber with Paulson Investments. Please go ahead.

Steve, how are you? Can you hear me okay?

I can. How are you doing, Rodney?

Good, good, good. You know, this new strategy of buying these clinics is very intriguing, to say the least. And you're going to close this one, you know, Wisconsin, and the second quarter. So we're getting close to having that. And then that revenue of $6 million and even down to $1.9 million starts coming into play to offset your losses and all that kind of stuff over the next year or so. So that's going to be interesting to see. The thing on my mind, having been here for a couple years with you and watching the challenges that you've had is, That strategy makes sense to me, but the time it takes to execute on it has been so long. I think you've been in negotiations with Wisconsin like for a year. And so what my question is, what are you doing to beef up that aspect of your business? In other words, have you hired new people in the acquisition department for your company to go find clinics and What does the clinic pipeline look like? You know, if you can add three or four clinics at $6 million apiece, you've got a $25 million company. So I'd love to understand better what you think an understandable go-forward thought process would be on that, on how quickly you can execute, hoping that it's going to be faster than it was in the past. So I'd love some clarity on that.

Yeah, well, I think that certainly we have some additional tools that we can leverage that we developed through the Wisconsin acquisition, specifically in the form of the structure and the legal paperwork and so forth that I think will cut down quite a bit on time, because that certainly was one significant element to the length of time it took. There were some other elements unique specifically to Wisconsin that probably created some of the delays that may or may not necessarily be present in the next potential acquisition. But I think that, again, we've learned a lot through that process. We, again, developed a set of documentation that we feel we can reuse and streamline the process for the next acquisition. we will look to ensure that the next potential partner is really ready to go and wants to move the process forward expeditiously. So again, we'll try to do things that would shorten that timeline. We don't disagree that it definitely took quite a bit longer to get to the finish line with Wisconsin than we envisioned. And certainly some of that was a function of us not having or having to create some of the elements from scratch. But like I said, you know, and we have added people, you know, we've added some accounting resources and some operations resources here recently. Those are important. elements to be able to manage the process. And so, you know, we'll look to add, you know, where necessary to ensure that we have enough people resources. You know, we think we do right. We think we have enough people resources right now to focus on the next, you know, potential couple acquisitions. But if we, as we continue to potentially pursue that activity, you're not, you're not wrong. We may need to add some additional resources to ensure we can move it along. Like I said, much more quickly.

The reason somebody throws in with you guys versus staying out there independent, uh, what are the, what do they see? What did Wisconsin see? with your company that encouraged them to move into this thing this way? What do they think is going to happen because of that?

Well, I think that we're offering a platform that is interesting to them in two key areas, and Mike can probably further add to this. He's on the front lines of some of these discussions with potential providers. potential new acquisition opportunities. But one is the fact that we can offer a potential strategy in which they can benefit from ongoing growth. Overall, coming into a public platform, we can offer the opportunity to take some of the acquisition in the form of equity in our public company. I think that has a fair amount of appeal to potential partners on this. I think our technology itself is, you know, it's important that when we're talking to potential acquisition partners that they understand our technology and see the merits of the technology because it also, again, provides a potential solution to add growth to the clinic in which they would obviously be a critical part of helping to bring the technology in and integrate it. and help achieve that growth in the clinic. But then by doing a transaction with us, they can potentially get the benefit of what they're doing to help grow the clinic. They can get participation. So I think those are unique elements that we can offer that aren't always available in alternative routes in which they might sell their clinic.

Steve, how do you handle the issue with you've got people buying $15,000 IVF procedures and all of a sudden you've got a product in there that's going to sell for $6,000. How do you handle going forward which product you sell to people without losing IVF sales to $15,000 to a $6,000 product? How do you deal with that? Or do you open up a brand-new market with a $6,000 product that you weren't penetrating before? But how do you integrate that marketing? and sales strategy so that you don't lose revenues in the process of bringing on the new product line.

Well, you did make one important point that we do see the solution and the treatment option as opening up an entirely new and additional patient base, those that maybe have had challenges affording more conventional IVF. You know, I think when you're, and we've seen clinics that outside of our, you know, independent clinics that have integrated our technology have done a pretty good job of, you know, positioning the technology as a solution that maybe doesn't have some of the added bells and whistles or features that they offer with their conventional all IVF program. And so they can, you know, again, positioned as a lower cost option for patients that maybe are ideally suited and don't necessarily need some of those additional features that can add costs. So it really, first and foremost, is about sort of targeting an additional patient market. But what I would also tell you, occasionally there's going to be some overlap, right, that there could be a patient may opt to do one or the other that's, you know, suitable to do either. So, you know, there is some crossover that can occur, but, again, the focus is targeting an additional patient.

Final thing, and then I'll jump out of this. The pipeline right now, how robust do you think the acquisition pipeline is and the timing, you think, for closing some other deals? What does that look like to you?

Well, I would say that we want to take a very measured pace, you know, given our resource constraints. So we're, you know, Mike and I talked about this quite a bit. He's often asking me when can he be more aggressive because I believe that what they've seen is engaging in a conversation like this is often well received. And so they could probably fill the pipeline more robust or faster than maybe we have the ability to manage and handle on the back end. So, you know, that's, I guess, that's the good news. And so we're, you know, again, but we want to take sort of a very measured pace at this.

What would your annualized run rate of acquisitions be with the staff you have now? Could you do three of these a year? I mean, what's an expectation we could have about the timeliness of how much you could add on through this acquisition strategy?

Yeah, I mean, I think as we fit today, doing a couple three acquisitions a year would probably be manageable depending on how big each one is. I think if our opportunities grew faster and it made sense and capital markets were supportive, we could certainly look to you know, increase our resources to help manage something, manage a more active pipeline. So, you know, sort of walk before you run, I guess.

Okay. Well, good. Let me jump out of the queue. Thank you. Good luck with everything.

Thanks, Rodney.

And, ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Steve Shum for closing remarks.

Well, great. Thank you all again for participating in today's call. We appreciate your interest. And as always, please do not hesitate to reach out to us with any additional questions.

Thank you. Ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.