INVO Fertility, Inc. (IVF) Q4 2022 Earnings Report, Transcript and Summary

Hello and welcome to the INVO Bioscience Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] 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.

Thanks so much. Good afternoon, everyone, and as the operator said thank you for joining us for today's INVO Bioscience fourth quarter and fiscal year 2022 financial results conference call. Joining us on today's call is INVO Bioscience's CEO, Steve 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 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 the 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 first say, we appreciate everyone's patience while we took a few extra days to finalize our annual 10-K. It was a busy end of March period for our accounting group and auditor's primarily due to the significant acquisition transaction announced and the subsequent capital raise. As many of you know, we have previously discussed our intent to make this acquisition. And more broadly incorporate this added approach to our overall strategy. All of which took us longer than originally anticipated. But we are very excited to have reached this event this recent very important milestone. From our vantage point, 2022 was another important year overall for INVO. Our initial three INVO Centers made steady progress throughout their first year of operations. We set the stage and continued our planning to build additional new INVO Centers with Tampa set to open soon. And we further evolved our commercial efforts to build INVO Bioscience by a way of adding an acquisition strategy, where we can synergistically introduce INVOcell into existing IVF clinics that we take ownership of. Finally, we also made significant progress with our five-day label enhancement efforts, although admittedly, that process has also taken longer than we originally expected. Collectively, our efforts remain focused on our core mission expanding patient access, utilizing our INVOcell technology for advanced fertility care to help address the very large underserved marketplace. As many of you know, we have discussed these market dynamics and how we are working to address them extensively in our communications. Commercially speaking and from the standpoint of building the company, the most important development was the very recent announcement of our plans to acquire an existing established and profitable IVF clinic located in Wisconsin. The Wisconsin Fertility Institute led by Dr. Elizabeth Pritts. The clinic has been in operation for approximately 15 years and is well-known and has an excellent reputation not only in the local community, but nationally-recognized as one of the top fertility centers in America. We announced the signing of the binding purchase agreements for this acquisition a few weeks ago, on March 20th. As part of that announcement, we issued 8-K, which provided two years of audited financials along with the nine-month review for the clinic. And then we further reflected those financials on a pro-forma basis as if it had been part of INVO's operations during that historical period. I would encourage you to take a look. You will see that the clinic is very well managed and produces excellent results with about $5.5 million in trailing revenue and generating around $1.9 million in net income, which will most certainly be very positive material to our operations on a go-forward basis. The importance and material nature of Wisconsin's operations required that full financial audit to be performed. And it was a key element that lengthened the timeline to executing the binding agreements. Last year when we had announced our plans to make this acquisition, we had noted that the pending nature of the transaction also restricted our ability to conduct a normal public financing, which forced us to conduct a series of small private transactions during the past four to five months as we work through the necessary steps to sign the binding documents and complete the audit process. And of course raising private funds was particularly challenging given the changing market backdrop. Of course, once we did announce the details of the transaction, we then completed a public offering, maximizing the current availability under our shelf registration currently on file. This acquisition is strategically significant for a number of reasons. First and foremost, it provides meaningful revenue and positive net income to our overall operations, thus adding scale to our operations and accelerating our pathway to overall profitability. It demonstrates our ability to use our public company status as a platform to take a more comprehensive and creative approach to building the company via an acquisition component which we view as additive to our other important development efforts, and we believe that we can structure these types of transactions in a win-win manner. We also believe it helps further our goal of advancing our core technology, the INVOcell 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. Thus it provides another pathway to further our efforts to bring added care to the marketplace and help patients in need. As you can hear, we believe the acquisition approach is very complementary with our ongoing efforts to building new INVO Center practices and represents a third key aspect to our commercial strategy further expanding on our previous multichannel strategy, which now includes supporting servicing and expanding INVOcell across existing IVF practices, building new dedicated INVO Centers and now selectively acquiring existing IVF practices. We will plan to take a measured and methodical approach to seeking out additional acquisition opportunities. And will focus on smaller to midsized established fertility practices in the marketplace. We already have several discussions occurring and we believe there is an attractive universe of potential practices in our defined size and criteria. We will focus on pricing deals attractively and structuring them in a win-win manner. And of course, we want to work with operators that share our mission and approach. Shifting back to our INVO Centers, as mentioned, our three operating centers in Birmingham, Atlanta and Monterrey, all made progress throughout the year. On a combined basis, these centers generated approximately $1.4 million in revenue and we believe they are continuing to trend upwards and will produce strong growth for 2023. Please remember that only the revenue derived from our Atlanta center is consolidated into our results, whereas Birmingham and Monterrey are accounted for under the equity-method. As for new INVO Centers, Tampa is now making good progress towards an opening targeted at around mid-summer time. As we previously noted, we had experienced some delays with the planned project, but we didn't view that as a negative given our focus on our first acquisition. We are excited about Tampa. We engaged a great physician with a strong reputation in the market and the market itself is large and attractive. So we're excited to be on a clear pathway to bringing that center operational on the near horizon. We are also excited by the potential partnering opportunities for the previously mentioned Kansas City INVO center location. We look forward to providing further updates on this location as they become available. As we had previously noted, these partnering arrangements could help drive more rapid patient growth once it is up and running. On the distribution side, as most of you know, we regained full US commercial rights in February of 2022. So we now handle selling direct to the US IVF clinics. We believe we are making steady progress in our efforts to convince other IVF clinics to adopt our technology. Of course, when comparing 2022 to 2021 there is a bit of apples and oranges comparison. The prior year fiscal 2021 purchases of product by the prior distribution partner was required under the agreement and was realistically being bought in as inventory rather than reflective of sell-through in the market. Thus when we look at what we believe is real sell-through in 2022, we believe growth is beginning to occur. Shifting to our clinical activities. As we had previously mentioned, we submitted an updated 510(k) in the third quarter of last year with all the additional data collected over the previous year. We received a response towards the end of the year with some additional questions from FDA. We have recently completed tabulating the additional data related to those questions and expect to submit our final response over the next two to three weeks. We continue to believe the data including the additional tabulations look 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 the financial highlights. Andrea?

Thank you, Steve. Revenue for the year totaled approximately $822,000 compared to approximately $4.2 million in the prior year, which included around $3.6 million from the full and final amortization of the Ferring license. If we exclude the 2021 license revenue in order to make an apples-to-apples comparison, 2022 revenue was up approximately 40% compared to adjusted revenue of $589,000 in 2021. We recorded a net loss of $10.9 million compared to a net loss of $6.7 million in 2021, including the Ferring license revenue. Excluding it, the 2021 loss would have been $10.3 million. Our adjusted EBITDA loss, which is net of non-cash charges, mainly related to equity-based compensation was $8.4 million compared to an adjusted EBITDA loss of $2.8 million last year, including the Ferring license revenue and of $6.4 million excluding it. The $8.4 million 2022 adjusted EBITDA loss for the year included approximately $766,000 attributable to our INVO Center joint-ventures. 2022 revenue consisted of product revenue from INVOcell sales to IVF clinics in the US and to distribution partners abroad as well as consolidated service revenue from our Atlanta INVO Center. Product revenue was down from approximately $545,000 to approximately $207,000 in 2022. But 2021 included a single Ferring order of approximately $501,000 Ferring to meet 2020 the previous year contracted minimums and not reflective of actual end user sales. Excluding the impact of the Ferring license revenue, our gross margin decreased to 60% from 75% due to clinic revenue becoming a larger part of the total business. Excluding license revenue, clinic revenue grew to approximately 75% of revenue in 2022 from only 7% in 2021. As a reminder, while clinic revenue has a lower gross margin than product revenue, it allows us to generate significantly higher revenue and contribution margin dollars since the INVOcell is sold for hundreds of dollars, while each IVC procedure generate thousands of dollars in direct and ancillary revenue. As a reminder, our three operating INVO Center joint ventures, sorry, of our three operating INVO Center joint-ventures, Atlanta is the only one consolidated with our operating results, while Birmingham and Monterrey are accounted for using the equity-method. The Atlanta INVO Center generated approximately $650,000 in revenue in 2022, a significant increase from 2021 in which it was operational starting only in late Q3. Atlanta's operating expenses were approximately $896,000. Our note receivable from the Atlanta joint venture, which stood at $450,000 on December 31st, 2022 was eliminated as an intercompany transaction in consolidation and is not reflected on our balance sheet. In addition to this note, we also made a $385,000 equity contribution in 2022, bringing our total equity investment to approximately $0.9 million as of the end of the year. As Steve briefly noted, we expect that Atlanta to experience further growth and progress in the current year, which combined with the closing of the Wisconsin acquisition and the opening of the Tampa INVO Center is expected to result in a substantial revenue increase in 2023 compared to last year. To date, we have invested $1.7 million and $142,000 in the Birmingham and Monterrey, joint ventures respectively which amounts remain unchanged from the last quarter. These joint ventures generated combined revenue of $1.1 million in 2022 and a combined net loss of $494,000. Our US INVO Centers are approaching self-funding status and we expect them to require limited amounts of additional funding to reach breakeven. We ended the year with approximately $0.1 million in cash and $0.8 million in debt. We have since closed on approximately $500,000 of convertible debt and $3 million from a registered direct offering using our shelf registration. We are working on supplementing these funds through the issuance of additional debt and/or equity securities. In the interim, we are using the cash raised to support operations, the build-out of the Tampa INVO Center and to make progress in reducing accounts payable. As of today, we have approximately 14 million shares of common stock, 2.3 million pre-funded warrants and approximately 7 million unit options and warrants outstanding. Back to you, Steve.

Great, thank you, Andrea. Before we open for questions, I just want to reiterate how we believe 2022 was an important year for the company and the most important yet for setting an even greater foundation as we head into this year. Our three initial INVO Centers made steady progress and are continuing to do so in the early part of this New Year. We are working toward building additional new INVO Centers with Tampa set to open soon. And perhaps most important, we further evolved our commercial efforts by a way of adding an acquisition strategy, where we can more rapidly build scale in our operations as well as synergistically introduce INVOcell into those existing acquired IVF practices. Operationally speaking. We also intend to maintain or even modestly reduce our corporate expenses this year. That focus, combined with the added revenue and net income contribution from Wisconsin along with the expected growth in Atlanta and Tampa coming online, we believe we will not just show strong top line growth, but bottom line improvements as well throughout the balance of this year. With that, operator, let's open it up for questions.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] 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 our questions. So firstly, I'm curious about the anticipated impact of the recent acquisition on the company's revenue. Would it be reasonable to expect an increase in the range of five to six times the current income, taking into account any potential subsequent acquisitions. And as a follow-up, I'd like to know if there are any other IVF clinics, the company is considering for acquisition at the moment. Thanks.

Again, when you say five to six times, are you talking about top line impact to the business?

Yeah, in terms of revenue. Yeah.

Revenue. Well, again, Atlanta is growing. We expect to bring Tampa online. As we've noted, the Wisconsin acquisition is going to add a little over $5 million in revenue. So I'm not sure it'd be exactly five to six times, but it certainly has a meaningful impact based on our trailing revenue from our existing operations.

Yeah, if I can add something, Steve.

Go ahead.

We, obviously, we will only benefit from a portion of the annual revenue for Wisconsin, which for the trailing 12 months through the end of September 2022 was around $5.5 million. So in the next fiscal year when we'll have the full year consolidated with our numbers, there will be a higher revenue increase than we will experience in the current 2023.

Got. Thank you. That was helpful. And I'd also like to add on, I guess, yeah, please go ahead.

On your question about potentially additional acquisitions. I would say we're having some very good discussions with a couple of additional potential targets. I think that I would put it in a -- we would put it in a category of good probability that we will be able to selectively do additional acquisitions this year. I would also say that there's we think there's a relatively large universe of potential clinics that are in our targeted size range that we intend to have an active program for reaching out to. So we'll see how that pipeline continues to build. But we're excited about our first and we're excited about the current discussions that we're having and we're excited about the potential universe.

Got it. I appreciate the color. I'd like to also see how the company is potentially integrating these INVOcell procedures into these newer clinics to sort of expand the capacity or get a higher conversion rate with patients potentially moving forward with the treatment procedure due to the lower cost associated with INVOcell or are you in terms of just keeping them as IVF clinics and really positioning yourself by EBITDA and just expanding your foothold in the fertility space overall.

Yeah, well, most importantly, we don't want to disrupt any of the existing level of business that's occurring in these clinics. And certainly in our first in Wisconsin, we want to continue to maintain its current activity level. Our goal, of course, is to also bring the INVOcell technology into these clinics and integrate it and make it an additional treatment option to help address patients that maybe do have affordability challenges or well-suited to do an INVOcell or IVC treatment versus conventional IVF. And really make it an additive revenue source to the clinics. We continue to maintain that we think we could without having to add much to the existing practices, add anywhere from 15% to 25%, maybe even a little more of additional patient flow by integrating INVOcell into the practice. So that's our goal and our objective. And as soon as we -- it will take some time to do that integration. Again, we want to make sure there's a continuity to the existing operations and we will look to do that integration over a phased approach with the practitioner and the practice.

Got it. Thank you. I'm also curious, is there the ability to leverage the acquisition strategy in order to gain a foothold in new markets where you might want to open up INVO Centers, maybe share some of the marketing spend by referring patients from acquired clinics to these IVC clinics. Curious on your thoughts around that.

Yeah, we think that's an interesting concept in some of these larger markets where perhaps there are is a large, very large, underserved patient population that where the market could easily handle both acquired practice as well as establishing a dedicated new INVO Center nearby and to help capture the opportunity. So we'll see how that plays out. But I would say we've had that discussion and we think that could be an interesting approach to the market.

Okay. Understood. Well, thanks again and congratulations on all the progress and recent developments in the quarter.

Thank you.

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

Hello, gentlemen, congratulations on advancing INVO Bioscience and pushing us into the acquisition of the Wisconsin IVF clinic. To take on a little bit, take us a little bit further. Could you speak to the IVF clinic and its full array of services that you bought in Wisconsin. And then maybe take us back say the climate has changed a bit around acquisitions. There was another acquisition recently that was highlighted by US fertility. That on the larger side of things, but I believe you spoke at back in August that this was of '22 that this -- there were around 460 or so of these IVF clinics in the US. And about 100 of these sort of fit within a certain range that you thought would be attractive. So on 25% to 30% EBITDA. So can you give us that clarity again about how you see things right now and then you had I believe there was around five different acquisition targets that had come to you including the one that you just announced that you've acquired. And so can you give us an update on that, give us a little more clarity around that?

Sure. Maybe I'll let Mike jump in here, too, about some of the market dynamics. But we see all the reports as well that probably somewhere maybe approaching 40% or maybe even as high as 50% now of the clinics have been consolidated out there. But that still leaves a relatively large universe of individually owned operated practices. Those are obviously the ones we're going to target. We're working through a list of those that are in areas and meet the size criteria that we think are attractive. And Mike and the team are scrubbing that list and plan to kick off an outreach program. As I mentioned in our previous question, we certainly already have some active discussions with a couple of specific potential clinics to acquire, but we want to expand that pipeline and try to engage in additional conversations just to see how much of an opportunity really exists to make additional acquisitions. And that's going to be a key focus of ours as we move forward here. In addition to building our INVO Centers, we're definitely going to have a very targeted approach and focused approach on making it, trying to make strategically additional acquisitions.

Yeah, Steve, I'll just throw a little color on that too. And this goes back to what Joanne said in those opportunities, we're just looking at the markets that have the greatest opportunity to expand these services and are sort of focusing on this market specific. So, yes, I think that's again, reflective of what Joanne mentioned. We're looking at the greatest opportunities out there and targeting those. And John, as Steve mentioned, yeah, there's still a good percentage of IVF clinics that are independent owner-operated clinics that we have identified. And we certainly are going to contact all those folks to see if there's opportunities there.

Okay. Thank you. It would seem that we truly are transitioning into a true broadly fertility clinic operating company here that has this exciting technology INVOcell that we all know about and that is being adopted both within these INVO Centers and now hopefully we push directly to the consumer in a more I guess direct way as we work with these physicians that you're acquiring. And it seems nothing has changed from a massive from the massively underserved market that many believe that somewhere between 89% of the world's infertile couples are currently underserved, not being served at all, that we still have this opportunity. And it would seem to me that correct me if I'm wrong and we would just be even if we rolled out another one INVO clinic per state in the US alone, we would just be barely touching this market. And it's the current thinking that we could look to expand as obviously financial support etcetera that would need to come to the table to do that. But is that the opportunity here or is it beyond that? Is that thinking small? What do you think? What do you how do you look at that?

Well, I think, you're right. From a big picture standpoint, we're excited by the ability to pursue acquisitions and add that as part of our commercial approach. But we still see a very significant opportunity to expand the INVO Center footprint and likely over the long-term, a bigger opportunity to actually do that. There's only a finite number of potential clinics that could be acquired. But there's, in our minds, there's a much bigger opportunity to continue to expand INVO Centers and leverage the OBGYN community to help do that from a people resource and with the efficiencies of the INVOcell technology, we think that could be a very efficient way to expand access and help address the underserved market that we talk about so much. So they're very much in our minds. There still remains this very large opportunity to address those that are not getting care today. And we think we can achieve that through multiple approaches now to the marketplace, obviously trying to promote our technology into existing practices and allow them to have another tool to provide more efficient care and more affordable care. Now, the acquiring practices and pulling them under our umbrella and integrating our technology and doing the same and then ultimately and then long-term also continuing to build out our INVO Center concept. We think that's the right multi-channel approach to really, again, at the core of our mission, expand care and help address the many patients that are unable to get care today. I hope that's answering your question, John.

That makes sense. Yeah, it is. I believe it is. I think that the more that I dig into this subject, into the company, I get more and more excited about this opportunity and your ability to be able to come in and buy an IVF clinic. In a sense of, I see it, as we've spoken, as a Trojan horse within this industry. Now you're part of it truly. In the IVF clinic world, you are truly part of it. And that I believe it's going to cause a great deal of excitement and also within the community that might also look into being a partner with you like Wisconsin is and truly bring this access to care beyond what they could do singularly. And I think the combination, your combined approach could be very exciting for patients going forward.

And I would tell you, I think, Mike is very pleased that with very limited efforts at the moment because we are waiting to get Wisconsin done and announced. But even just with some additional select conversations, we are excited to see some additional practitioners very interested in doing something very similar as what Wisconsin did. So now that this is officially part of the strategy and we've signed the binding agreements on our first and can be a little more active in those discussions with additional. We're excited to see how that will continue to progress as Mike and team continue to reach out to additional practitioners and introduce this idea of teaming up with us.

Well, that's definitely exciting. Thanks for addressing my question today and look forward to and excited about what's going to happen over the next few quarters here.

Thank you, John. Appreciate it.

[Operator Instructions] Seeing no further questions in the queue. I would like to turn the conference back over to management for any closing remarks.

Great. Well, thank you, again. We appreciate everyone that joined us today on the call. Please do not hesitate to reach out to us with any additional questions. Thank you.

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