Tivic Health Systems, Inc.

year-end shareholder update conference call. All participants will be in the listen-only mode. A question and answer session will follow the formal presentation. For those who have joined the webcast, if you'd like to ask a question, you may do so at any point during the presentation by clicking on the Ask Question button on the left of your screen. Type your question into the box and hit the Send button to submit your question. Please note that the conference is being recorded. Statements made during this call contain forward-looking statements about our business. You should not place undue reliance on forward-looking statements, as these statements are based upon our current expectations, forecasts, and assumptions, and are subject to significant risks and uncertainties. These statements may be identified by words such as may, will, should, could, expect, intend, plan, anticipate, believe, estimate, predict, potential, forecast, continue, or the negative of these terms, or other words or terms of similar meaning. Risks and uncertainties that could cause our actual results to differ materially from those set forth in any forward-looking statements include, but are not limited to, the matters listed under the risk factors in the company's annual report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission today, March 31, 2023, and its other filings with the Securities and Exchange Commission. Statements and information, including forward-looking statements, speak only to the date that they are provided, unless an earlier date is indicated, and the company does not undertake any obligation to publicly update any statements or information, including forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Now let me hand the call over to Jennifer Ernst, TIVIC Health's Chief Executive Officer.

Hello, everyone, and thank you for joining us today. I'm Jennifer Ernst, the CEO of Tivic Health. I'm pleased to have this opportunity to review with you our 2022 business and financial progress. I'll also be talking with you today about the upcoming year and what investors can expect as we move forward. Joining me on the call today is also our CFO, Veronica Kai. So I'd like to take a step back and look at where we started in 2022. Fresh to the public market, an IPO in November of 21, with a focus on three key areas of our business. Increasing direct-to-consumer sales of our first FDA-approved product. Clear up for the treatment of allergies and sinus conditions using advanced neuromodulation, known as bioelectronic medicine. Our second area of focus is on improving our gross margins. And the third, on broadening our commercial pipelines. In these three areas, we made important progress. Year over year, revenue increased 46%. Indirect consumer sales, unit volume increased 104%, and revenue increased 114%. It was due to steady increases in our average order values. Our gross margin improved ninefold through the course of the year, despite unusually high component pricing through the second and third quarters. And we've recently announced qualification and production starts with new suppliers that will continue to drive costs down. And broadening our pipeline, we initiated an investigator-led and funded study with one of the Northwest's leading medical research centers, a study that focuses on using bioelectronic technologies for the reduction of pain following sinus surgeries as an alternative to opioids. The program is ongoing and we will expect to expand that to additional types of surgeries in the coming months. We also have developed a clinical roadmap for expansion of these treatments into the migraine area. So I'm proud of the progress we've made, but we've also faced some challenges. We had estimated at the time of our IPO about an 18-month runway based on the estimated public market expenses and the investments in the initiatives I've just described. We also took on significant additional costs to pursue a merger that we ultimately did not close given market headwinds. So as a result, it's no secret for those tracking us that we incurred an unusually high burn rate and faced a very difficult capital raise in February. As the new year began, we closed $5 million in equity financing on terms that none of us were particularly happy about. I am pleased, though, But despite the pricing issues, we were able to keep the cap table clean, providing the right structures from which to rebuild. And it's with that mindset that I'd like to talk about the future. Where do we go next? First of all, I do want to highlight that our revenue opportunities with ClearUp are significantly enhanced on two fronts. The first is the improvement in gross margins, as I mentioned in Q1. We completed the move of our printed circuit board assembly out of the San Francisco Bay Area. We moved production to micro art, and this partnership is expected to realize 70% savings on the printed circuit board, and importantly, increase our production capacity by 25-fold. We also completed manufacturing startup at Alom Technologies Corporation, who is managing our final product assembly and our third-party logistics. Alom is a privately held company, 25-year history of operational quality and sustainability excellence, including two consecutive years as a multi-channel merchant top three TL, and a 2022 Manufacturing Leadership Award from the National Association of Manufacturers. These partnerships are instrumental in positioning us to decrease the overall production costs by approximately 30% to 40% and scale our current and future product lines. At the beginning of the year, we completed a detailed market study that also identified new customer segments that are significantly less cost sensitive and have a higher likelihood to purchase than our traditional audience has been. So, armed with that data, we're implementing new sales programs that more deeply engage the healthcare community and an ideal target customer profile. You will also be hearing from us about new partnerships and programs to expand our footprint in bio-electronic therapeutics and adjacent areas. We believe these initiatives focusing increasingly on more advanced applications of non-invasive neurostimulation are opportunities to build value for investors beyond the revenue streams of our current product. Those I look forward to sharing more information as we make progress. Now, TIVIC is and likely always will be part of my personal DNA. We'll remain acquisition-minded. We are certainly open to discussions not only with partners in the therapeutics area but in complementary areas and are continuing to seek combinations that will be beneficial to our investors. And finally, with many of the initial non-recurring public market and hiring expenses behind us in 2022, We are focused on creating a leaner, more cost-efficient operations, optimizing expenses across the organization. And with that, I'd like to hand it over to Veronica Kai to go over the financial results, and then I'll come back to some of the questions we've received in advance in the Q&A portion.

Thanks, Jennifer, and good afternoon, everyone. I'm very pleased to walk through our 2022 financial results. Let me start with revenue. A revenue from the sales of ClearUp net of return reserves increased 46% to $1.8 million. Sales volume is the main driver, a solid 22% increase in unit sales compared to 2021. We increased the price of ClearUp modestly in September, which also helped in driving up the revenue. One of our key commercial focuses in this past year was to expand our direct-to-consumer sales, and we increased our revenue in this channel by 114% to $1.6 million. Compared to 2021, our units sold in this channel increased 104%, and the channel's average selling price increased 6%. Our direct-to-consumer sales made up approximately 80% of the clear-up revenue. Our reseller revenue decreased 32% to $416,000. In the early part of the year, we strategically exited several low-margin arrangements. This move decreased unit sold in the reseller channel by 43%. but lift the channel's average selling price by 19%, along with some savings in operating overhead. Now let's turn to cost of sale. Cost of sales increased 19% to $1.5 million. The increase was primarily a result of the 22% increase in overall unit sales. Our variable cost was $1.3 million, or approximately $87 per unit, a 6% per unit increase from 2021. The increase in our variable cost was primarily due to dramatic price increases in several electronic components during the second and third quarters, stemming from the global supply chain shortage phenomenon. Our fixed cost was $203,000, a 21% decrease from 2021. The decrease was primarily due to lower indirect overhead costs as we refined our production management process. I've just covered our revenue and cost of sale. Our gross profit was $299,000 for the year, a ninefold improvement from the gross loss of $38,000 in 2021. Moving on to our functional area expenses, our R&D expenses total 1.7 million, a 97% increase from 2021. The increase is primarily due to more investments in the area. In 2022, we invested in product research in the migraine therapeutic area. We initiated a double-blind randomized controlled trial for pain relief following sinus surgery. and we enhance our intellectual property protection. Whereas in 2021, we only primarily focused on seeking approval for a second indication for clear up. Sales and marketing expenses total 2.8 million, a 56% increase from 2021. The increase is primarily related to various marketing efforts, which include expanding our advertising platforms, optimizing our e-commerce infrastructure, and a number of other marketing initiatives. GNA expenses total $5.9 million, a 103% increase from 2021. The increase is primarily due to Civic being a public company for the first full year and building out our sales team. Also included in the G&A expenses are legal and professional fees associated with the attempted acquisition of relief van technologies. Our net loss for the year was $10.1 million versus $8.5 million in 2021. Lastly, we had cash and cash equivalents of $3.5 million at the end of 2022 with no debt on the balance sheet. I will now hand the call back to Jennifer for the Q&A portion of the call.