INVO Fertility, Inc. (IVF) Q3 2022 Earnings Report, Transcript and Summary

Good day. And welcome to the INVO Bioscience Reports on the Third Quarter 2022 Financial Results Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

All right. Thank you very much, Jason. Good afternoon, everyone. And thank you for joining us for today’s INVO Bioscience third quarter 2022 financial results conference call. Joining us on today’s call is INVO Bioscience’s CEO, Steven Shum; the company’s Chief Operating Officer and VP of Business Development, Mike Campbell; and Andrea Goren, the company’s Chief Financial Officer. At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. Before we begin with the event, we submit for the record the following statement. Certain matters discussed on this conference call by the management of INVO Bioscience 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 and 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 do -- 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 results 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 INVO Bioscience. Steve, please proceed.

Thank you, Robert, and welcome, everyone. Let me start by saying we are pleased with the progress made across each of our key operating objectives during the quarter. On the clinic side, our three operating INVO Centers in Birmingham, Atlanta and Monterrey, all made excellent progress, with revenue from the consolidated and non-consolidated centers combined increasing over the year ago period and sequentially. Please remember that only revenue derived from our Atlanta center is consolidated into our results, whereas Birmingham and Monterrey are accounted for under the equity methods. We also continue to see improved efficiencies within the centers. On the distribution side, since regaining full U.S. commercialization rights in February this year, our year-to-date product sales continue to build, which does now include selling directly to U -- to the U.S. IVF clinics and we expect to see further progress moving forward. So our multichannel strategy of supporting, servicing and expanding across existing IVF clinics, as well as building new dedicated INVO Centers is progressing well and building. As we mentioned on our last earnings call, we also added a very important third key aspect to our commercial strategy regarding an acquisition approach. We are actively working through the necessary components to close our first acquisition, which, again, as we noted last quarter, we put under an LOI. We expect to complete the closing near-term, at which time we will plan to provide all the critical details. We believe this will be extremely positive for a number of reasons. As we highlighted last quarter, when we brought this part of the strategy to your attention, we felt we had the opportunity to potentially acquire smaller to mid-sized established fertility practices in the marketplace. While this wasn’t part of our initial commercial focus, we believe adding an acquisition approach to our strategy makes sense. It advances our mission to help patients and bring care to the market, and it helps accelerate our ability to build scale more quickly in our overall operations by adding immediate revenues and positive EBITDA contributions. The initial acquisition we are working on is a well-established practice and nicely profitable. The clinic primarily offers conventional IVF today, but we will look to work with the physician partner and fully integrate INVOcell and further enhance those operations post closing. As with this first opportunity, our overall acquisition strategy is focused on pricing deals attractively and structuring them in a very favorable win-win manner, and we will seek these out on a selective basis and at a measured pace. We also -- as we also noted last quarter, we executed an LOI to provide the funding necessary to close this first transaction and it represents non-dilutive capital. So we remain excited about closing this first acquisition and based on current active discussions, we believe we will have additional opportunities to acquire other practices as we move beyond this first one. I would also note that existing clinics interested in teaming up with us via an acquisition, see the benefits of our mission and approach, but also see the benefits of doing so within a public company platform as it can offer the benefit of longer term upside and attractive wealth planning for those owner-operators. And we think this effort is very complementary with our ongoing efforts to build new practices, giving us a more comprehensive approach of both building new and buying existing which, again, we believe, brings scale to the business and helps bring the whole company to a profitable operating state more quickly. One important additional item to note, because the current acquisition is pending and is material to the business, it does limit our financing options currently until we can close and provide the audited financials publicly on this acquisition. So we are unable to use our current shelf filing and our other types of public offerings until we complete this process. We have added additional liquidity via simple note from a private family office that is familiar and supportive of our strategy, and we are working to close a small private funding shortly as well. Shifting back to our current INVO Centers. The revenue progress made in the period reflects the patient building activities we discussed in the prior periods and we are seeing further strong growth in the current fourth quarter, where all three clinics have treated their highest number of patients yet. Over the past few months, we have also not needed to provide any funding to the clinics, which represents an important milestone as they are becoming more cash flow self-supportive. It doesn’t mean they are necessarily GAAP profitable just yet as a number of factors impact cash flow, but we view it as important. As they further ramp activities from here, we would expect to see them continue to improve and start generating excess cash flow. We also believe this progress has been supported by the various marketing programs and we are seeking new methods to further enhance those efforts as well. With respect to the previously announced planned new INVO Centers, we can now see that our original goal of opening the Tampa and the Bay Area clinics by year-end will occur a bit later into the New Year. They are underway in terms of planning and build-out. However, these delays are not a negative in our minds, given the focus on the acquisition and the advantage of closing that opportunity first. As we get into the beginning of the year, we will provide more specific updates along with the Kansas City Clinic as well. I would note that the added time has afforded us the opportunity to further advance some great discussions with potential partners that could help drive more rapid patient growth in these new clinics once they are up and running, over what we have experienced with the existing clinics in Birmingham, Atlanta and Mexico. On the distribution front, we continue to see clinics increasingly interested in incorporating the technology into their practices and we expect that will continue to build from here. Shifting to our clinical activities. We are also very pleased to report we submitted the updated 510(k) during the third quarter with all the additional data collected over the past year and a half. We expect to be receiving a response from FDA very soon. As we mentioned on the last call, we believe the data looks very good and we are quite pleased with the outcomes and excited to share those with the market as soon as possible. With that, let me turn this over to Andrea to quickly cover some of the financial highlights. Andrea?

Thanks, Steve. Revenue for the quarter totaled approximately $235,000, compared to approximately $219,000 in the prior year period. As highlighted in our earnings release, the full amortization of the Ferring license in 2021 has changed our revenue mix to one that more accurately reflects our business activity. We recorded a net loss of $2.5 million, compared to a net loss of also $2.5 million in the prior year. Excluding non-cash charges, mainly related to equity-based compensation, our adjusted EBITDA loss was $2 million, compared to an adjusted EBITDA loss of $1.6 million last year. The $2 million adjusted EBITDA loss for the quarter included approximately $200,000 attributable to our joint ventures and this was in line with our internal operational goals. Revenue consisted of product revenue from INVOcell sales to IVF clinics in the U.S. and to distribution partner’s abroad as well as consolidated revenue from our Atlanta INVO Center. Most of last year’s Q3 revenue was related to the amortizing -- to amortizing deferred revenue for the Ferring license. Our product revenue grew significantly compared to last year since Ferring mostly made a single order per year to meet contracted minimums, while we recognize revenue every quarter based on customer demand since we have taken over distribution in the U.S. Excluding the impact of the Ferring license revenue, our gross margin increased between periods as a result of the increase in clinic revenue, while our product gross margins remained largely unchanged. As mentioned by Steve, and as a reminder, our three operating -- of our three operating INVO Center joint ventures at Atlanta is consolidated with our operating results, while Birmingham and Monterey are accounted for using the equity method. Atlanta generated $176,000 in revenue for the quarter, a significant increase from last year, as well as this year’s second quarter. Atlanta’s operating expenses were approximately $230,000. Our note receivable from the Atlanta joint venture, which stood at $450,000 on September 30, 2022 was eliminated as an intercompany transaction and consolidation, and is not reflected on our balance sheet. In addition to this note, we also made a 10,000 equity contribution bringing our total investment to approximately $0.9 million as of September 30. As Steve briefly noted, we expect the plant to experience further growth and progress in the current quarter. To-date, we have invested $1.7 million and $200,000 in the Birmingham and Monterrey joint ventures, respectively, which amounts remain unchanged from last quarter. These joint ventures generated combined revenue of $274,000 in the third quarter and a combined net loss of $60,000. Our U.S. INVO Centers have been largely self-funding in 2022 and we have not had to provide any significant amount of funding to either clinic since the second quarter nor to our Mexico INVO Center. We ended the quarter with approximately $300,000 in cash and no outstanding debt. We closed on $350,000 in short-term funding after the end of the quarter and are sourcing additional capital to support our INVO Center expansion plans and corporate needs. We expect to provide updates on specifics in the near future. As mentioned in our last call, we had signed a letter of intent with a funding source for non-dilutive support of our contemplated acquisition and we are working on finalizing definitive agreements with the lender. As of today, we have approximately 12.2 million shares of common stock and approximately 260,000 warrants outstanding. Back to you, Steve.

Great. Thank you, Andrea. We will just go ahead and open up for questions at this point. Operator?

[Operator Instructions] Our first question comes from John Heerdink from Vista Partners LLC. Please go ahead.

Good afternoon, gentlemen. Congratulations on the progress and it’s great to hear that the INVO Centers that we put in over a year ago have started to more than pay for themselves, which is very interesting and to see that you have plans for another to complete the or to extend the rollout. Could you speak to also what’s going on internationally these days? Are you making progress there? I know you have mentioned and announced Malaysia. Can you speak specifically there? Also, are there any other places in Europe or otherwise that you think are right for development and/or where are the things?

Sure. Since Mike is on the call with us. I think I will pass that to Mike. I think we have some pretty exciting piece of news to share on Malaysia, in fact. Mike?

Yeah. Yeah. So we got an email this week from Malaysia that they just announced that their first INVOcell baby has been brought into the world. So we are pretty excited about that. We formed a partnership back in 2020 with the OB/GYN Group that brought the technology to the HUMK (sic) [HUKM] University program in Malaysia. They started a study back in early, back -- excuse me, back to late 2021. They published some of their findings already. And so far, the outcomes are very similar to IVF within their programs and they are continuing on with that study and plan to complete it by the end of the year. So excited to see a milestone in Malaysia and it’s been a great relationship. A couple of other things in that part of the world, as you know, we have previously announced that we have a partnership in China and China takes a long time to get our product registrations to the process, but we have made significant progress and that registration has been initiated. So we expect to continue to provide updates on China as we move forward. We just hosted a group from Indonesia, husband and wife, OB/GYN team down in Birmingham, with Karen Hannon and the team at IFS. They come over to look at the INVO program at IFS. They currently own a hospital in Indonesia and it is six-story building. They provide OB/GYN services and IUI, just minimum fertility services and want to expand that program to include advanced facility services. So we plan to go to visit them before the end of the year. Again, our international product registration process takes time in Indonesia. It’s anywhere from six months to 12 months, but we can get a certificate to start the program before we do commercial release. So a quick update and any other questions, John?

One thing too…

All right.

…John, I would mention that, we recently signed an LOI to do some evaluation with, well, looks like a great group in Italy. So that’s been a recent development as well. They are doing some market evaluation. But like, I said, we signed a non-binding LOI with them as well.

That’s fantastic. And I believe we have some…

Yeah.

You have an agreement in place in Spain as well, right? Or can you speak to Europe in general?

Yeah. So in Europe, we have four clinics that are operating in Spain and four of them are part of one group where we have additional clinic that just started up about two months ago. So it’s early days over there. They are in the process of evaluating the product and our goal is to start developing in-country results in each of these areas. We also had a pretty significant meeting at ASRM, which was a couple of weeks ago with a group from Europe. I can’t really mention them. It’s a non-disclosure type of an application, but very interested in the technology. We believe that we have tremendous synergies and that’s pretty exciting that we are going to continue to follow-up on that.

Yeah. The other thing, John, real quick, too, coming back to the U.S. for a moment, your comment about the progress at the clinics. One thing I would say is that, and we have said this quite a few times on our last call is that, we have really learned a lot and we think we are going to have the advantages of applying that knowledge as we move forward with some of the new centers that we believe can help accelerate their development and progress once they get up and running. So it’s something that is exciting for us as we get closer to opening the next centers is, again, to apply that collective knowledge of what has worked well within the existing centers.

That makes sense. I mean we all learn in the best way business plans are meant to change and it seems like you are evolving, and obviously, learning with turning company -- INVO Centers from scratch essentially with their partners and moving them into the black, if you will, in a relatively short period is truly impressive and the marketing around that must be effective in order to do so. And so I am excited to see that and you apply those as you roll out these further INVO Centers. Switching gears to the acquisition portion of the commercialization process and I apologize because I was running a bit late, but if you haven’t talked about it, but can you speak to sort of the market dynamics like you did in the last call in regards to the 465 or so IVF clinics. Speak to that and the scope and the sort of targets that way you think it’s realistic and the other opportunities that might be in hand? What is the nature of those discussions in addition to the one that you have confirmed through the LOI that you are in the throes of tucking them in very quickly this profitable entity? What does the rest of the market look like? What are these -- where are you at with these other discussions? I find this part of being quite interesting and effective way to grow top and bottomline very quickly and getting into a profitable overall as a company?

Sure. Well, as we mentioned last time, our focus is on smaller to mid-sized clinics with single owner operators or maybe two owner-operator type clinics. And from our analysis, and Mike has really done this with the team, we think that when you look at the landscape, we believe there’s probably something on the order of 80 to 100 clinics that would fall within that sort of targeted size range. So that’s the universe as we see it. Of course, we put this first one under LOI that we are working to close. But we have had, I would say, Mike and the team have had some discussions with a couple of others and these are not just simply casual discussions, I would say, there’s been a fair amount of back and forth with a couple and even talking in specific terms. So we do believe that -- this is what we keep saying, we believe there will be other opportunities. We are not necessarily exactly sure how many, but we do believe there could be other interested parties to do a similar type transaction, and again, we are certainly having detailed discussions with a couple.

Okay. And again, the nature of these, I believe you said, something like a $2 million to $6 million or $2 million to $7 million topline is sort of a broad scope dropping 25% EBITDA is sort of that mix in there. Can you speak to that $80 million to $100 million?

Yeah. The -- yeah. I would say that’s the target. I mean, maybe as low as $1.5 million, $2 million in revenue to as high as $5 million to $6 million of revenue with, generally speaking, anywhere from 20% to 30% EBIT -- net margin contribution or net profit contribution from these operations.

Interesting. That would seem it wouldn’t take very long to get your overall corporation if you tucked in one, two, three of these into breakeven profitability very quickly, it would seem. Is that rational to think?

Yeah. We completely agree. That’s why we -- when we were presented with this first opportunity, we obviously wanted to pursue it and really as we took some time to think about it, determined that this would be really an excellent additional component to our commercial strategy. And again, something that we think we can really, we bring them in and the goal would be to continue to have them operate the way they are operating, but then incorporate the INVOcell technology and really bring something additive to it, so where we could actually grow the practice beyond its current level post closing. So -- and make it really a full service fertility clinic doing both conventional IVF and INVO, and we think that’s going to be a great solution serves the market and it really helps us build scale much more quickly in the company. And as I said in our prepared remarks…

Yeah.

… a great win-win situation for the owner operators. The uniqueness of what we have is a public company platform that allows them to participate in ongoing growth and so there is really potentially upside in their participation with us in doing this, which helps them really ultimately create more wealth from their clinic than what they could do otherwise. So, again, we think we can engineer these transactions in a very win-win -- on a very win-win basis for both us and our shareholders, as well as the owner operators.

That makes sense. And at the end of the day, the overall mission of increasing access to care to this…

Of course. Yeah.

… purely understated marketplace, right? At the end of the day, the direct conversations I have had with owner operators or doctors in the space, they are literally turning patients away, because patients can’t afford it or either in the case of IVF or don’t qualify in the case of IUI. So the alternative today is INVOcell and IVC, and we got to increase access to that and it makes sense to be able to overlay into the same places that patients are already going that may come in there thinking that they are a candidate and then find out the cost of it all and have to walk away when it comes to IVF. It’s truly exciting that to be able to get this out in a grander way, I know we have had these conversations before, but this seems to me very similar to what we have seen in the transformation and change of, for instance, Invisalign in the orthodontic space, where you had a physician population that needed to learn how the weave it into their practice to be shown literally how to bring it in and how they expanded care to a much larger patient population, expanded their revenues and doing so creating this win-win to the patient population, to the technology provider and then also to the physician population increase their revenues that are being squeezed every day in different ways. So that is what I see you are starting to do and I am excited to see that you continue on this journey, and again, I commend you guys on your progress and I will step back in line here today. Thank you so much.

Well, just -- yeah. I will just summarize from a -- where you also just said there, John, because it brings up a bigger point that’s important and we have been saying this for a while now, which is that, the culmination of everything we have been doing over the last several years in terms of trying to build the INVOcell presence in the marketplace, build additional data and outcomes data to validate the technology, additional practitioners wanting to work with our technology, the opening of INVO Centers, all in our minds, and we really saw this at the recent ASRM conference where our team had some great conversations and just further evidence in our mind of what’s happening behind the scenes, which is really a growing desire to work with the technology or incorporated. And we see that with whether it’s an existing IVF clinic wanting to be more proactive about trying to use our technology and asking for our help in training and even marketing in their local communities, to physicians that want to partner up with us and build INVO Centers to now physicians that even want to put their practice under our umbrella and really team up with us in a more extensive way. So all of that activity is just, again, reflective of what we see in the marketplace, which, again, is growing acceptance and a desire to work with the technology and help advance it to really help achieve, again, what we keep saying is the mission, which is opening up and treating the vast number of patients that are going untreated today. So we think it’s terrific and this is what is highly motivating as we said multiple times by our whole team. We see it. So I appreciate that comment. Thank you.

There are no more questions in the queue. This concludes our question-and-answer session. I’d like to turn the conference back over to management for any closing remarks.

Well, great. As always, thank you. Again, we appreciate everyone that joined us on the call today. Please do not hesitate to reach out to us with any additional questions. Thank you very much.

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