Good afternoon and welcome to the INVO Bioscience reports First Quarter of Fiscal Year 2021 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joe Diaz from Lytham Partners. Please go ahead.

Thank you and thanks everyone for joining us today for a review of INVO Bioscience’s first quarter 2021 financial results. Joining us on the call today is INVO Bioscience’s Chief Executive Officer, Steve Shum. 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 statements. Certain matters discussed on this conference call by management of INVO Bioscience maybe forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, Section 21E of the Securities Exchange Act of 1934 as amended and such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements regarding the company's expected future financial position, results of operations, cash flows, financing plans, business strategies, products and services, competitive positions, growth opportunities, plans and objectives of management for future operations, as well as statements that include words such as anticipate if, believe, plan, estimate, expect, intend, may, could, should, will and other similar expressions are forward-looking statements. All forward-looking statements involve risks, uncertainties and contingencies, many of which are beyond the company’s control, which may cause actual results, performance or achievements to differ materially from the 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 the Securities and Exchange Commission at www.sec.gov. The company is under no obligation and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. With that said, I’d like to turn the call over to Steve Shum, Chief Executive Officer of INVO Bioscience. Steve, please proceed.

Thank you, Joe and welcome everyone listening on the call today. Mike Campbell, our Chief Operating Officer, who would normally participate on the call, had an important meeting come up last minute and won’t be joining this time. He will be sure to make sure to make the next call. As we noted in the release that went out today, it’s been an exciting start to the year and a very busy one for our team. We worked hard to put the necessary resources and people in place to take advantage of the market opportunity and feel we are starting to see early progress and benefits. Most important, we advanced our INVO Clinic strategy here in the U.S. with the signing of our first two agreements. I would note that we expect to be executing on a third agreement soon. Both Mike and Chris Meyer have been instrumental in moving these efforts forward both in the U.S. and Mexico. With the leadership of Inger Britt Carlson, our VP of Medical Affairs, along with support from the team, including our Scientific Advisory Board members, we have substantially enhanced our training materials and process. It’s important to note that proper training is critical to the success of our distributors and partners. And training is not a one event session it’s generally multiple sessions, with multiple Q&A follow-up activities. We have really experienced a notable increase in these training and support activities this year, which are occurring weekly now. Of course, this is exciting for us to see this activity level as it’s a reflection of our team’s efforts, the growing awareness around INVOcell and the expanding number of international distributors. The most important benefit is we also see this as a precursor or a leading indicator for the business and driving future…

Thank you. [Operator Instructions] The first question today comes from Scott Henry with ROTH Capital. Please go ahead.

Thank you and good afternoon. Just a couple of questions. I guess first, the orders from Ferring, obviously they can be kind of chunky depending where they come in. Could you give us a sense of what kind of cadence we may see throughout the year of – should we expect orders again in second quarter third and fourth or will it be in boluses just trying to get a sense of that and model it?

Sure. Thanks, Scott. Yes, as you know, the purchase requirements are annual requirements. So, we continue to assume there will be volatility quarter to quarter until we and Ferring further establish INVOcell in the market. As I mentioned, Ferring is adding additional marketing efforts this year for the U.S. market. So we will see how quickly that helps accelerate volumes to work through existing stocks such that they will be ready to place their next order. So again, we are still – we would still anticipate some quarter-to-quarter volatility in that.

Okay. So I mean, I probably wouldn’t expect a ton in the second quarter given the big order that went in first quarter, I guess would be my interpretation until you get to that steady state I guess? And then shifting gears, well, actually first, were there any o-U.S. product revenues in Q1 and I know those are near-term, but I don’t know if anything happened in Q1?

Yes. Again, it was small, what we are starting to see on the international side are small, but for us, it’s very important that it’s a start and getting the ball rolling so to speak. But yes, there was a little bit in Q1.

Okay, great.

And as we mentioned before, we would expect that to build as we move through the year.

Okay, great. And then on the 5-day label, I know there was the hope that perhaps you could do it on retrospective analysis, do you have any clarity on whether you will be able to do retrospective analysis within that product?

Yes, we actually do have still have quite a bit of confidence. We can achieve what the FDA is looking for utilizing the retrospective data. It has required us to have to dig a little deeper. Some of that data is not readily available within the SART database, but we have been fortunate to have some really friendly, supportive clinics that are willing to give us access to that deeper dataset that we need to support the submission. So, like I said, at a high level, we actually do have a fair amount of confidence we can achieve the objective utilizing the retrospective data.

Okay, great. And final question, SG&A was higher in the quarter, you mentioned lot of that was through the build-out of the clinics, but you should continue to build out clinics, I guess through 2021. Should I expect SG&A to sort of stay around that $2 million level or do you think that will pull back?

Well, I would want to note that we incurred some costs in terms of JV activities that were expensed in the period and which we are not part of the specific – a specific facility build-out our equipment purchase, which would appear as assets on our balance sheet and those costs were primarily some of the legal costs and working through the agreements. So, we would like to think those will dissipate a bit, Scott. And of course, to your point, we will be making these investments in those activities, but they will be reflected a little differently rather than coming through the P&L. But we would anticipate, there still might be some of that occurring, but I think maybe not at the level we saw in the first quarter.

Okay, perfect. Well, thank you for the clarity and thank you for taking the questions.

Thanks, Scott. Appreciate it.

[Operator Instructions] The next question comes from Kyle Bauser with Colliers Securities. Please go ahead.

Great, thanks. Hey, Steve. Thanks for all the update.

Hi, Kyle.

Maybe I will just start on the peer-reviewed publication, it looked like favorable outcome and the conclusion was that this INVOcell is a pretty nice alternative given the economics and the outcomes of that clinical data. I am just kind of wondering how the pregnancy rate per transfer or per cycle start kind of compares to traditional IVF? And maybe you could just kind of highlight some of the key takeaways anyways from that peer review?

Yes. We think that that peer-review reflected what we have seen in most of our other data. In that, it’s fairly equivalent to what you see in IVF, I mean, within a few percentage points and again, when you are doing proper apples-to-apples comparison. But so from our vantage point, we say we get high-quality outcomes and we view those as comparable. And when you look at it from a cost of procedure, this is where we often say we think we are even leading the way on having more economical solutions to achieving a high-quality outcome at an affordable price, really especially in some of the higher cost markets like we see here in the U.S.

Got it. And I think about 95% of the cases in that study use the 5-day incubation period and appreciate the comments on your confidence that we could potentially use retrospective data. Just curious, what’s your sense out in the field for, I guess the percentage of sites that are doing a 5-day incubation off-label on their own? I know, you can’t market it for 5-day in the U.S., but just kind of curious how the rate of using 5-day has trended maybe over the past 12 months or so? Has it gone up?

Yes, I would say that we continue to see probably be conservative by saying at least 80% if not even higher of INVOcell cycles being done at using 5-day transfers for the U.S. market. So, that continues to be at a very high rate. We only see a couple of sites that still sometimes tend to do 3-day.

Got it. Yes, makes sense. And appreciate the color on timing in terms of having INVOcell Clinics up and running, I think 3 to 5 by later this year. In Alabama, I think you said July-August timeframe we will start seeing patients and in Mexico in September-October timeframe. Did you mention it for the San Francisco clinic was like, I am curious on timing there?

We did. We are not as deep in some of the planning process with them. So we are a little deeper into planning and getting – make the space and leases and equipment on the other two facilities and that’s still a little. We just started some of those conversations in San Francisco. So of course, as a result, we would anticipate that a little later in the year the hope to get it maybe even right towards the end. So, we didn’t really give as much clarity on that one as what we did with Birmingham and Mexico for exactly that reason that we are just farther along with those other two.

Okay, great.

And I would say, Kyle, I am not sure if you caught the comment, we feel we are close on another agreement. And that one, there has been some pre-work done to that, that might move that timetable up as well, so that could end up being even earlier than potentially a San Francisco operation. So just stay tuned. We will have more to report on that as we are ready.

Interesting. Okay. Well, thanks for taking my questions and congrats on all the progress here.

Thanks, Kyle. Appreciate it.

[Operator Instructions] The next question comes from John Heerdink with Vista Partners. Please go ahead.

Good afternoon, Steve. Thanks for taking my questions today. Congratulations on like advancing the business in the manner that you have, especially layering in the model of these clinics to lead the way. Could you speak a little bit about first of all that model in reference to Birmingham again you had Dr. Hammond out of there is one of the three partners in the LLC that you partnered with there with that 50:50 partnership, I believe and she has had the great deal of success with INVOcell. Could you kind of look at the numbers there? And I believe and as opposed to what you were seeing at Birmingham at our prior practice? There was only really one doctor that was dedicated to it and they did I think 700 plus cycles in a very short period of time. And now I believe you are looking to the ideas to get two doctors out of this one clinic moving forward, once the doors open. Can you speak now that and what that might mean? And then scaling the revenue difference between sort of being the distributor versus a joint venture partner?

Sure. So as a reminder, in the previous practice, Karen and Lisa were a part of – they had figured from a capacity standpoint, they could handle upwards of 700ish cycles a year and that was a very small practice and part time embryologist etcetera. So – and that was actually quite a bit higher from a volume capability than what could have been done simply doing conventional IVF within that practice. So, just as that as a backdrop, you are right, they had pretty good success, they were capable on a run-rate basis of doing pretty good volume in that very small footprint and practice. What we are building in Birmingham is going to be a little bit bigger, a little bit added resources. So, what we have estimated I would say, what Mike and team have estimated is it’s capable of doing up to a couple of thousand cycles before any further expansion would have to happen. We are not suggesting it’s going to immediately get to those numbers out that will take some time to ramp up. And this also ties back to the importance of some of the marketing resources we brought into in anticipating bringing these clinic operations up and running is to help build that kind of volume within those practices. We expect that the practice will on a per procedure basis be similar to what they were doing in the previous practice there in Birmingham, which is around roughly $5,000 to $6,000 per cycle. So, that would be sort of the per procedure revenue approximately and we are at 50:50 joint venture in that practice.

Okay.

Did I cover the main points you are looking forward, John?

Yes, I think that hits it. So if I was pulling that out and if he weren’t half as successful as Max, he would be at 1,000 procedures a year and call it on the low end of 5,000, that’s a $5 million clinic. And if you are a bit more successful, it could be something greater to double that. So, it seems like in the footprint, again, it’s relatively small, right. These footprints of these clinics, can you sort of just speak to that and what that looks like that you are building up?

Yes. I don’t remember the exact square footage. There is obviously the lab. It doesn’t require a huge footprint, a couple of 100 square feet. And then there is two procedure rooms and receptionist area. So again, I don’t recall the exact square footage, the overall facility, but yes, I would certainly at a high level say it’s not huge.

No – and it’s conservative. And the amount of outlay that we have in comparison to an IVF lab that could be tens of millions of dollars in some situations. So, it seems to me that’s pretty efficient model. And again, it’s a reoccurring sort of theme here, right? Once you have this other leg of revenue coming in here in this back half of the year from not only Birmingham, but again, Life Medical, Mexico and these other distributor relationships and possibly, as you mentioned today, one of the new one that’s on the horizon here in the U.S., you start to see that this reoccurring nature starts to really take hold and build year-after-year. You mentioned in the release or in the call today of a new relationship in Thailand. Can you speak a little bit more about that? I was – I am sorry, I was not aware of that? And so that’s something that just came on? Can you – I apologize if I missed it along the way here?

Yes. We didn’t do a separate – by the way, first, on the U.S. side, you are exactly right. That’s how we see. It’s why we have a lot of enthusiasm over bringing these initial INVO Clinics up and running. We think it’s going to be very additive to the overall effort to build INVOcell’s presence within the market. And equally important or even more importantly help this large underserved patient market out there that needs greater access to care. So, like I said we are very excited for these efforts to get underway. As far as Thailand, we didn’t do a separate news release on that distributor that was executed here recently. We – again, our business development folks are active in a number of different markets and talking to potential distributors, we have brought on a couple of new ones. And but this particular partner is a great distribution partner for that market. They have been active at wanting to get training underway. They have provided our team with some fairly, what I would say fairly aggressive objectives and goals for that market, which is like I said before very encouraging to see that. I think that it’s partly same with Malaysian distributor looking to add territories. All of this to us is indications of a growing presence and awareness for INVOcell on the market. When you look at the totality of it of the greater number of training sessions going on, Inger Britt Carlson leads that effort. And she is definitely a lot busier these days over the last several months with active sessions requested from the distributors and clinicians. You look at distributors looking for additional territory, new distributors. All of these things are in our minds indication of the momentum that’s starting to build around awareness of INVOcell. And we think that again is a leading indicator ultimately be a precursor to driving the actual operating results of the business and it will manifest itself in growth in revenues and profitability for the business. So for us, it’s very exciting to see all of this activity going on. It’s head and shoulders above what we saw last year. Obviously last year was certainly impacted by COVID, but part of it takes time for a business development team to cultivate their pipeline and generate their leads, get people paying attention, get through agreements with partners, go through training sessions. All of this has been a very concerted effort over the last year and I think we are making great progress.

Yes. I would say you are, from my perspective, I guess with all of this activity and it’s just naturally organically creating a awareness of the product itself in this massively underserved market. I think it’s some there as you put in your press releases more than 90% of couples in need of fertility treatment each year go without care, it’s shocking. Is there opportunity to fill that gap in some manners is pretty exciting. Around this though, I think the challenge is going to be and I think you guys are up to it is with the new marketing sort of team and emphasis and just global brain trust that you brought in the inform your new board member, Rebecca and also your new Director of Marketing, Meryle Lynn Chamberlain. It seems like you are really ramping that up too to help support these efforts both through distributors, joint ventures and partners to bring up this awareness. Is there currently plans to sort of as you are leading into opening up these clinics, etcetera, we are ramping up what you are doing in addition to these partners to help lift the excitement and awareness and potentially push at least inquiries into those practices? Is that something you guys are working on?

Absolutely. I mean, I would say, Meryle Lynn and working closely with Mike and the team are absolutely that’s front and center of focus is to have a cohesive marketing message and strategy. It’s all about driving awareness and bringing patients into the clinics. So, yes, I mean, that’s absolutely the focus and marketing is something that we more recently added. So, it’s – we are working fast and feverishly to catch up so to speak with the business development activities to make sure that marketing activity and support is ready to go as the distributors are coming online and as they INVO Clinics come online.

Got it. And so this plays in, everything is pretty much the same you are looking to not add as far as headcount at INVO Bioscience. You are not going to add significantly, I would suppose, based on what you have told us again today to that number, therefore keeping your costs and being able to leverage the organization and these partners through this plan, has anything changed in that or is that still consistent with the way you see things?

Yes. We feel we are pretty set on our fixed infrastructure for sure. We have got the key pieces in place to your point. We have built up over the last 1.5. We are not a – but we are, at the same time, we are not a big team, but we have like said we filled in the key areas we felt were important. As we move forward from here and as the business grows, there will be some as I think I mentioned this on our year end call, there will certainly be some variable costs increases as revenues grow, but yes, we are shooting to try to keep our fixed structure fairly stable from here. And then like I said as the business grows, we will add some incremental costs, but we certainly would look to see the revenues grow much faster than any added costs.

Got it. Thank you. And then the last thing is as you are reaching out, increasing this awareness, are you seeing any additional potential partners, joint ventures, distributors, etcetera, calling into you now that this is each one of these you add on each one of these new relationships, each new doctor? Are you seeing anything coming out of the OB/GYN world? Are those doctors coming out? You are now in a sense saying, hey, let us learn more, let us get trained, what do you say?

Yes, we certainly are seeing more inbound. I wouldn’t say attracting new partners is easy, but it’s certainly getting easier, I think as we are making progress and becoming more known and understood. And it’s one of the reasons we keep saying that clinical validation retrospective real market use data that keeps coming out has been incredibly helpful to the commercial efforts, because it adds confidence into the marketplace with potential clinicians and distribution partners. And so yes, we are seeing increasing levels of inbound inquiries coming into us. I think I mentioned to you the other day, we are starting to see more regular e-mails coming in on our website with prospective distributors or potential partners asking about INVOcell. And while it’s not a huge volume, if I do a relative comparison to last year, it’s significantly higher.

That makes sense. And it doesn’t take a whole lot to move the needle for INVO at this stage with your high margins as you roll these clinics out and create this ongoing multi-legged revenue model that has this high margin business underlying the product, which I think you have again confirmed is in the 90% range here on the product side. So I will step back in line and thanks again. Congratulations on the quarter and thanks again for answering the questions I had today.

Thanks, John.

The next question comes from Larry Udall [ph] with Udall [ph] Associates. Please go ahead. Mr. Udall, your line is open.

I think maybe Larry dropped off.

[Technical Difficulty]

Never mind. Go ahead, go ahead.

We would like to turn the call back over to Steve Shum for any closing remarks. Thank you.

Okay, great. Thank you. Again, we appreciate everyone that joined the call today. Please do not hesitate to reach out should you have any additional questions and again thank you for listening.

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