Welcome to the Tivic Health Systems' Second Quarter 2024 Financial Results and Shareholder Update Conference Call. All participants will be in listen-only mode. Please note that the conference is being recorded. Statements made during this call contain forward-looking statements about Tivic's business. You should not place undue reliance on forward-looking statements as these statements are based upon management's current expectations, forecasts and assumptions and are subject to significant risks and uncertainties. Forward-looking statements contained in this press release may be identified by the use of words such as anticipate, believe, contemplate, could, estimate, expect, intend, seek, may, might, plan, potential, predict, project, target, aim, should, will, would, or the negative of these words or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements are based on Tivic Health Systems Inc.'s current expectations, and are subject to inherent uncertainties, risks, and assumptions that are difficult to predict. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including, without limitation, the future development of ncVNS treatment, Tivic Health's ability to commercialize products arising out of the ncVNS treatment, and Tivic Health's plans to seek regulatory approval for such clinical products. Tivic Health's continued focus on developing ncVNS treatment, including in the epilepsy post-traumatic stress disorder and/or ischemic stroke space, expected clinical utility, including which patient populations may be pursued, market and other conditions, supply chain constraints, macroeconomic factors including inflation, Tivic Health's ability to raise additional capital on favorable terms or at all when needed, Tivic Health's ability to maintain its NASDAQ listing and unexpected costs, charges or expenses that reduce Tivic Health's capital resources. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. For a discussion of other risks and uncertainties and other important factors, any of which could cause Tivic Health's actual results to differ from those contained in the forward-looking statements, see Tivic Health's filings with the SEC, including its annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 29, 2024 under the heading Risk Factors, as well as the company's subsequent filings with the SEC. Now, let me hand over the call to Jennifer Ernst, Tivic Health's Chief Executive Officer.

Hello everyone, and thank you for joining us today. I'm Jennifer Ernst, CEO of Tivic. And I'm joined today by our Interim CFO, Kimberly Bambach; and our Chief Scientific Officer, Blake Gurfein. Today's call, the format is going to be a little different than many of our earnings calls. That's because, over the past few months, we've made some important progress in our development of a novel vagus nerve stimulation system. Working with the Feinstein Institutes, at Northwell Health, a leader in bioelectronic medicine, we have shown a new approach that demonstrate a profound biological effect. And this area of development is a critically important part of our strategy to build shareholder value. We also believe that, with the recent announcement, we are at a transformational opportunity for Tivic. So, with that in mind, I'm beginning the call today with Kim going through our Q2 2024 financial results. Then Blake and I will provide a much more in-depth discussion on the vagus nerve, why we care about it, the study result, and the potential for this development area inside Tivic. So, as we start this call, Kim, I'd like to hand it over to you right now to first go through the Q2 financial results, while Blake and I prepare to give the presentation portion of the call.

Thank you, Jennifer. Financial results for the second quarter and the first-half reflect our continued progress on operational expense reductions as we focused our resources and efforts towards the next steps in our VNS research. Obviously, our financial results are primarily focused on ClearUP, our first FDA-approved device in market. ClearUP revenues for the three and six months ended June 30, was $140,000 and $474,000, respectively, a decrease of $63,000 or 12% as compared to the first-half of 2023 primarily due to a 27% decrease in unit sales offset by a 20% increase in the per-unit average sale price as we repositioned the product in 2023. Cost of sales for the three and six months ended June 30 was $110,000 and $277,000, respectively, a decrease of $86,000 or 24% compared to the first-half of '23, primarily driven by the decrease in sales volume, as well as cost improvements. Gross profits in the three and six months ended June 30 was $30,000 and $197,000 respectively, compared to $61,000 and $174,000 in 2023, showing margin improvement of 42% for the six months ended June 30, compared to 32% in 2023. Total operating expenses in the three and six months ended June 30 was $1.2 million and $2.9 million, respectively, compared to $2.2 million and $4.4 million in 2023, with the year-over-year cost reductions of $1.5 million. Cost reductions in the last year include research and development expenses decreasing by $400,000 from reduced headcount and certain expenses incurred in 2023 related to the ClearUP device. R&D in 2024, as you are aware, has focused primarily on completion of the Phase 1 vagus nerve stimulation study and initiation of the Phase 1 optimization study. Sales and marketing expenses decreased by $198,000. The decrease was primarily due to reductions in unprofitable ClearUP advertising spend, as…

Hey, thank you, Kim, for taking us through the Q2 financials. Now, what I'm hoping the numbers are starting to tell, the past year-and-a-half, we have focused intensely on improving the economics of our ClearUP product line. We've made significant progress from where we were a couple of years ago. And we still have work to do. Over that period, we've improved the cost of goods, we've reduced overhead and operating expenses, and we've improved the ratio of revenue to marketing expense, increasing the productivity of every single marketing dollar we spend. A lot has changed though in the macro environment since we started the company. Supply chain and shipping costs have increased. The cost of marketing direct to consumers is steadily increasing, and the platforms we use to reach our customers, including Amazon, Meta, and Google are placing tighter and tighter restrictions on health product marketing due to expansion of HIPAA concerns. Net, we believe there are limits to the profitability that can be achieved with this particular product, particularly in the short-term. And as such, we will continue to target the improved economics -- improving those economics, but we will also be evaluating alternative monetization strategies for the ClearUP product, and for the associated intellectual property. And with that as background, it's particularly important that today's call, we are providing investors transparency about our plans for the future. We lay this as the crux of today's presentation. More than a year ago, we began a program designed to broaden our footprint in bioelectronic medicine. We've taken a number of both technical and market learnings from the first product, and we are applying them instead to the very high-value medical target with a goal of generating much stronger shareholder returns. As a result, the progress we've made in vagus…

Thank you, Jennifer. I'll now walk you through the key results from our collaborative study with the Feinstein Institute, which is considered, as Jennifer mentioned, one of the leading research organizations on the topics of vagus nerve stimulation and bioelectronic medicine. In our study, we applied noninvasive cervical VNS to 20 healthy subjects for a period of 20 minutes, and then we evaluated the biological effects of the intervention on pupillometry, which is an indicator of autonomic nervous system activity, cardiovascular function, and brain activity. We were pleased to announce recently that we saw meaningful changes in all three measures, which are correlated to treatment opportunities in neurology, psychiatry, cardiovascular disease, and autonomic nervous system diseases. Next slide, the first slide I'm showing you is a measure of pupil diameter. We care about pupil diameter because measuring changes in the pupil gives us a strong indication of whether we're engaging the vagus nerve and actually influencing the autonomic nervous system. Here, we measured pupil diameter in subjects before, during, and after the noninvasive intervention and observed sustained reductions in pupil diameter during stimulation. On average, there was a 9.5% reduction in pupil diameter, and this is considered strong evidence of vagus nerve engagement and activation of parasympathetic tone. Next slide, we also used electrocardiography to quantify another key measure of parasympathetic tone called heart rate variability, or HRV. Here, I'm showing a figure of the before and after measures of a type of HRV called RMSSD, or the root mean square of successive differences. Importantly, this is an accepted proxy of vagus nerve activity. Compared with before stimulation, after our noninvasive cervical VNS, study subjects showed a 2x increase in RMSSD after stimulation, and 60% of the subjects who were the high responders had close to a 3x increase in…

I hope it goes without saying thank you, Blake, for sharing that. But I think both of us are quite excited about the potential for this work. So, I'd like to tell you how we see this program unfolding. If you look at this next slide, it really is a catalyst-rich timeline for Tivic. We started with clinical feasibility. That was demonstrated first internally and for our Phase I study at the Feinstein Institute. Now, with clinical feasibility demonstrated and patent filings underway, we are moving into optimization and into validation of market opportunities. Industry experts outside the company will be working alongside our team to validate the precise applications that have the highest likelihood to yield strong commercial results. And I anticipate over the next several quarters, we will be sharing continuous progress on these activities. So, let's summarize. This quarter is the start of a potentially transformational period for Tivic. We announced the results of our successful Phase I trials of a new approach to noninvasive vagus nerve stimulation. We're partnering with the Feinstein Institute of Bioelectronic Medicine, one of the leaders in the field for optimization. And we are continuing to build our intellectual property portfolio in an area of significant potential value to the company and to our investors. Over the last 18 months, we have improved gross margins of our ClearUP product. We've increased the revenue produced per marketing dollar spent. And we've aggressively reduced operating expenses. Just this quarter, we've relocated manufacturing and driven down cost of fulfillment with a new third-party logistics provider; over time, we've evaluated and performed due diligence on potential licensing and acquisition candidates while simultaneously building our organic growth options. And in the organic growth options, we have demonstrated industry-leading clinical results in a new high-value medical target of VNS. Now, I will draw a contrast with some other companies in our space. We are directly making this investment rather than relying solely on investigator-led research, meaning we have very strong working relationships with our partners, access to the data for clinical filings, and meaningful ways that we can shape our development programs and our intellectual property in real time. I really can't underscore strongly enough that the results we've shown and our investment in research that enables and is directed to creating breakthrough products, these are both highly differentiated, and they create significant new opportunities for generating shareholder value. We're not done yet, but I am sure as hell proud of what we have accomplished with a small and very dedicated team. And with appropriate investor support, we believe that we are well-positioned to capitalize on these opportunities. Now, with that, I'd like to turn to the Q&A portion of the call.

So, yes, at a macro level, we've made a number of durable improvements to the business, including some of the transitions I mentioned just this quarter. We have achieved marked improvement, ones that are generally going to stay with us, and as I said earlier, it doesn't mean we're done. Customer acquisition cost is now a focus, and when we're partnerships and some of the alternative monetization strategies I mentioned earlier could play a role. I was also asked along this vein that last year we announced pricing increases to ClearUP that negatively impacted volume as we were going to direct to consumers, and do we foresee any further price increases? The pricing increase itself was based on the sophisticated marketing segmentation and pricing research we conducted with [Intelgo] (ph). The increase was a significant contributor to improving gross margins and improving our overall business. Now, that said, both our market research and our in-market experience suggests we've got the pricing roughly at the sweet spot now to balance sales and profit needs, so I'm not expecting a planned pricing increase for the product in the near future. What is the company planning to do with ClearUP as the company is turning towards VNS? Well, frankly, we hear from our customers that ClearUP is an amazing product. You can see from the reviews, particularly those on our website, that it can be life-changing, and while we work on continuing to improve the economics of the product line, we have begun to explore alternative monetization strategies, which could include licensing, white labeling, international distribution agreements, or other alternatives that would provide much-needed scale or create alternative cash options for the company. So, we can't offer any guarantees that any specific effort in these areas will be successful, but what I can…

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.