INVO Fertility Inc (IVF) 2021 Q2 法說會逐字稿

Good afternoon, and welcome to the INVO Bioscience second-quarter 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 Robert Blum with Lytham Partners. Please go ahead.

Thanks very much, Gary, and good afternoon, everyone. Thank you all for joining us for today's INVO Bioscience's second-quarter 2021 financial results conference call. Joining us on the call today is Steve Shum, INVO Bioscience's Chief Executive Officer; the company's Chief Operating Officer and VP of Business Development, Mike Campbell; and the company's Chief Financial Officer, Andrea Goren. 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 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, 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 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 as 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.

Great. Thank you, Robert. Welcome, everyone. Along with Mike Campbell, our Chief Operating Officer, joining us today is our recently appointed CFO Andrea Goren. I would like to welcome Andrea to the call. I'll cover a few highlights for the quarter before passing to Mike and Andrea for additional details.

During the second quarter, we made excellent progress towards our key objectives highlighted by last week's official opening of our first INVO Center practice in Birmingham, Alabama. We consider that event to be one of the most significant milestones in the company's history. I really cannot say enough about all the hard work and dedication by our internal team and our partners to accomplish this milestone.

The center is off to an encouraging start, as we have surpassed our internal expectations for initial patient appointments and expected treatment cycles plan for the first month. More importantly, we have the additional centers opening soon. We expect the Atlanta, Georgia center, where we signed a joint venture agreement with Bloom Fertility, led by reproductive specialist Dr. Sue Ellen Carpenter to open in September 2021. For our joint venture in Monterrey, Mexico with Dr. Arredondo and Dr. Ramiro Ramirez, we expect it to open in the October time frame. And finally, our San Francisco Bay Area center should open shortly thereafter.

As we stated earlier this year, our goal was to have three to five centers open before year end, and we fully expect to meet at least the minimum objective we set. We are certainly looking forward to the impact of the center operations on our revenue and overall results in the second half of this year and beyond.

With the centers, we are now diversifying our business model beyond device sales through distributors to a model where we will capture a share of the revenue generated by the entire INVO patient solution. With the INVO center strategy, we are also advancing our key goal to democratize fertility treatment by bringing care to the vast underserved patient population that experiences infertility challenges. Longer term, we do believe a key to this effort will also involve working with and leveraging the large OB/GYN community.

In July this year, we appointed Dr. Barbara Levy, as our Senior Vice President, Global Clinical Integration. Dr. Levy is a key opinion leader in the community and brings a lifelong passion to improve women's health recognizing that a critical component to that is treatment for infertility. She has been a vocal advocate for women's health and health equity, with appearances on the Oprah Winfrey Show and multiple other media outlets. She really has an impressive resume, I encourage you all to take a look at her background.

Importantly to us, Dr. Levy shares our belief that OB/GYNs can play an important role in helping to democratize fertility care on a global basis by providing accessibility to affordable and effective treatments. The key hallmarks of the INVOcell technology. We look forward to leveraging her experience to accelerate our clinical implementation strategy in this area.

Beyond the progress with our INVO center strategy, we are continuing to make progress with our international distribution activities. As we noted last call, we continue to see increased training activities across our various distributors and partners. And it's generally multiple sessions with multiple Q&A follow-up activities. We do see this as a precursor or leading indicator for the business to begin seeing international revenue expansion something we still expect to occur later this year.

We also have two separate independent abstracts that will be presented on in INVOcell at the American Society of Reproductive Medicine, ASRM Conference in October, which will reflect further real world data around INVOcell. And by the way, when it comes to providing the market with additional evidence-based information around INVOcell, this is another exciting advantage with the INVO Centers. We expect to work with our JV partners to help further build data from our own centers that we can eventually report on and further publish around INVOcell.

Overall, we feel INVO is well positioned for success. We have built out some critical core elements over the past two years. First and foremost is the team, which includes an experienced internal operating team, with key positions filled coupled with a strong and diverse Board of Directors, a scientific advisory board composed of well known and respected fertility industry experts, and key outside opinion leaders and consultants. Second, our partners, which includes a growing list of quality distributors around the world, and experienced and motivated joint venture partners.

And equally important, is our technology. We know how revolutionary INVOcell is, but more recently, we have gained valuable real market usage data, and hence further validation along with a clear understanding of how our technology fits in the industry and the key challenges it helps solve. Although our excitement and description of our position is not yet reflected in our operating results, and specifically, revenues just yet, we can see the market progress and momentum occurring, with both the INVO Centers and distribution activities, and believe this will become more evident in the quarters ahead.

Before I turn this over to Mike and Andrea for comments, let me spend just a minute touching a bit on the industry dynamics and the important aspects of our technology that forms much of the basis for how we think about, and plan, or implement our commercialization strategy.

Over the past 40 plus years since the first IVF baby was born, the fertility market has grown into a $20-billion-plus global industry. Here in the US, according to the most recent 2019 CDC data, the industry performed approximately 330,000 IVF cycles across 448 clinics, which implies a roughly $5 billion domestic marketplace. If we use the average cycle cost often reported.

IVF has been the standard of care for advanced infertility treatment. One of the most important elements to these figures, especially how it relates to our strategy and focus, and something we consistently highlight is the very large underserved or untreated patient population. For us, this is the key to our market approach. Our focus is on the massive number of patients who do not receive treatment today.

To put some numbers to this to CDC estimates there are close to 7 million patients in the US with fertility issues. While not everyone is necessarily seeking care, we, along with many other market participants believe we likely should be performing over a million cycles per year, or a three- to four-fold increase in our current volumes to better service the marketplace.

Globally, those figures are even more profound. With an estimated 150 million patients suffering with infertility against an estimated 2.5 million to 3 million cycles of IVF been performed today. There are some real challenges with bridging the gap for treating the volume patients that need care. Patient affordability, and lack of insurance coverage is often the most discussed dynamic in the US.

But that is only one part of the challenge. We see an equal or even greater challenge related to capacity limitations in the industry given the relatively small number of IVF clinics, and limited number of clinicians and other human resources available.

This constraint even more than affordability the key issue, particularly outside the US. These market dynamics are really important to understand when it comes to INVO and our INVOcell product, without question -- and as I just mentioned, we have gained a great deal of added knowledge around our product over the past 18 to 24 months and how we can impact and benefit the industry. Thanks to our expanded team and their collective expertise, the additional real world usage data by clinics and practitioners that have been utilizing INVOcell over the past couple of years, and a far better understanding of the process and workflows around INVOcell within the clinic.

And this last point is, why we also talk so much about efficiencies or scalability within those cell, something we feel very strongly about and have demonstrated in clinical settings, which simply put is the ability to treat more patients with less resources. We have proven this in a real-world clinical setting, which is why we believe INVOcell has the ability to have a profound impact on the industry's capacity challenges.

As I mentioned, conventional IVF has been the advanced fertility treatment marketplace. When most things have advanced fertility treatment, they think IVF. This is why we were also excited to see the IVC term, introduced a couple of years ago, which indicates a new different treatment process and in vivo in the body approach, IVC was introduced because of INVOcell emergence into the marketplace, in INVOcell is what facilitates the IVC process or procedure. In essence, INVOcell is IVC, which now offers an additional advanced fertility treatment method, and we can clearly see that IVC awareness is expanding.

It's also important to note that we do not see IVC or INVOcell as an alternative or replacement to IVF, but rather a compliment, the methods will coexist. Our positioning is very much focused on providing IVC or INVOcell as a solution to address the underserved patient. As the sheer numbers imply there is a massive multi-billion-dollar opportunity to add capacity, increase access, and help treat those who are going untreated today. This is the essence of our strategy and approach, bringing advanced fertility care to the underserved.

So again, the efficiencies of INVOcell can bring much needed capacity additions and access to the market, and we can do so at an affordable price, which is also one of the important challenges for the underserved market. The industry needs to add access, but the underserved patient also needs it to be done at a reasonable price point. INVOcell provides both benefits.

As far as delivering our solution, we see multiple paths now. We can bring our technology into existing IVF clinics, which we have and will continue to do which provides a clinic with that additional option, enabling them to treat more patients within their existing resources. Of course, as I've already highlighted, a key part of our commercialization strategy also involves opening new clinics designed to offer INVOcell, as the primary treatment option, which is now officially underway.

And longer term, we believe an important element to help further the goal of increasing access will be involved in a large number of OB-GYN practitioners. We fundamentally believe there is a pathway to involve this group of practitioners with INVOcell, and we look forward to Dr. Levy's contribution with this effort. Our goals are very clear, and we are very focused at driving INVOcell to address the very large unmet medical need.

I'll turn this over to Mike now for some additional details around the commercialization efforts. Mike?

Thanks, Steve. As he said, really happy to report the business development team continues to make solid progress there with our commercialization activities on a number of fronts. On the JV partnership side, for establishing these new dedicated INVO Centers, we have signed three agreements in the Us, and four in the international markets, including one in Mexico, India, Malaysia, and North Macedonia. As Steve mentioned, our media focus is on US Centers in Mexico, as our other international partners, are still navigating through local product registrations, and some lingering COVID impact. Other than Mexico, we do not expect those international JV partners to become operational until 2022.

In the US, the big news of course, as Steve mentioned, is our first center Innovative Fertility Specialists in Birmingham, Alabama, is now up and running and started seeing patients last week. This is a major milestone for us and something we're extremely excited about. Our clinical partners have roughly 70 patients in process, and they plan to run the first INVOcell treatment cycle the week of September 12. So it's really gratifying to see the significant activity in Birmingham already, especially considering we have not yet implemented our plan local marketing support programs. And we plan to do that in October.

In Atlanta, we announced our newest US agreement to establish an INVO Center with Dr. Sue Ellen Carpenter. There's some very good news here on the timing, as we have identified a great space for the practice that only needs a minimal build out. So this center is moving along very quickly, and we expect that we come operational late September or early October. We will announce the official opening date once we have this confirmed.

And as Steve mentioned, in San Francisco Bay, our partner Lyfe Medical, they're making great progress as well. We believe we have identified the site for the practice. And our partner is in the process of executing a lease on this property. We expect the centers become operational in the fourth quarter this year. And again, we will continue to provide you with updates as we move this process along.

We're also getting extremely close to opening the joint venture project in Mexico. The build out is complete, we're in process of obtaining local license requirements, and we fully expect this facility to become operational within the end of September or early October.

As some of you know, our very first joint venture agreement was established for a member center in Kerala, India. COVID hit right after we established that agreement, and our partner has been severely impacted in the plans to move that slowly. We continue to be engaged with them, and we are doing as much as we possibly can in the current difficult environment there. And our business development manager was flying to Kerala this week to help move that project forward.

So this is still an official project, we hope to get it done late part of this year, early part of next year. And again, we'll continue to provide you with updates as they progress.

We do have additional partnership discussions ongoing in the various [partners] that are in various phases. And one of which I thought I would mention here, as they recently disclosed in a press release in their local market, that they had acquired about a million dollars' worth of INVO stock in the open market, and that they were in discussions with us for our potential joint venture partnership.

This is a fact. This is a publicly traded company located in Warsaw, Poland. But we have not completed our discussions yet, and we will certainly let you folks know when and if that happens. But it's very promising opportunity for us.

Shifting to our distribution side of the business, this is the model where Steve mentioned was selling to distributors who in turn sell into existing established facility practices. Our US partner, Ferring, remains focused on promoting and selling into the existing IVF clinics. They are continuing to expand the clinic and patient awareness through their marketing activities.

As we have stated previously, we believe our strategy around creating INVO clinics here in the US will really help add to the awareness, create market acceleration with INVOcell, and complement Ferring's efforts. We believe that this added go-to market channel strategy is complimentary and will help increase utilization across the board.

And our international markets. we've initiated product trials in Spain, Malaysia, and Pakistan with some of our distribution partners and they are reporting very good outcomes with their initial procedures. I know we have talked about the Pakistan market before but it's worth another mention. It's a fairly small fertility market in terms of current annual procedure volume, but it's a very large potential patient market with a significant opportunity to grow.

Our partner there, Galaxy Pharma, is the fertility market share leader in Pakistan. They have hosted several clinical training programs and have also developed an interesting and creative ideas allowing commercialization for the INVOcell technology in the market. We should have a product registration completed there shortly for official launch. And I'm looking forward to talking more on their launch plans and market strategy once initiated.

Overall, we made significant progress as mentioned. Our product data for validation profile continues to show great outcomes which is critical for our commercial efforts. We have really honed our training proficiency to ensure new users coming online are proficient and have the necessary skills to perform the INVO procedure safely and effectively.

And we have added marketing resources to help support our clinical partners and distribution activities to help tie this altogether. We are confident that these outlets will help penetrate and expand the market to provide the facility options to the best unserved patient population, Steve mentioned that are in need of fertility care.

That's it from my side for now, and I will send it back to you, Steve.

Great, thanks, Mike. Let me pass to Andrea to briefly review the financials. Again, we are excited to have Andrea join the team. To those not familiar, Andrea replaces our past utilization of an outside CFO consulting firm, and he will now lead the company's finance function and support the execution of our strategic business plan, including the operational launch of the INVO Center joint ventures. So, Andrea?

Thank you, Steve. Hello, everybody. I want to start by telling you how excited I am to have joined INVO. I've known Steve for some time and had been following company developments from a distance. But when he asked me to get involved, I did not think about it twice. I share everyone, Mike, Steve, and the whole team's enthusiasm for the opportunity in front of us to dramatically expand access to advanced fertility treatments.

I joined part time about a year ago to start to focus on legal and financial matters, including the launch of our new INVO centers. We've made a lot of progress in that time, and we are rapidly transforming the company with a view to making the INVOcell and IVC as common as IVF is today. With that said, here are a few financial highlights.

Revenue for the quarter totaled $208,000, which compared to $246,000 in the prior year period. We recorded a net loss of $1.8 million, compared to a net loss of $1.3 million in the prior year. Excluding non-cash charges, mainly related to equity based compensation and debt discount amortization, our adjusted EBITDA loss was $1.3 million, compared to $825,000 loss last year.

During the second quarter, in relation to INVO Centers, we expensed almost $100,000 and invest and invested an additional $741,000 that is reflected on our balance sheet in the form of notes receivable and investment in joint ventures.

We closed the quarter with approximately $6.6 million in cash. We expect to maintain our quarterly cash operating expenses at about $1.5 million before any offset from sales and gross profits. This level of expense excludes investment in our INVO Centers, the bulk of which is in the form of notes that will start to be repaid once the INVO Centers become cashflow positive. In addition to repayment proceeds on these notes, INVO will receive its share of equity distributions from the joint ventures, and if we felt it was necessary to generate added liquidity, we believe we can debt finance the notes to bring cash back into the company more quickly.

As of June 30, we have $500,000 outstanding and convertible debt. As a reminder that has a fixed conversion price of $3.20 per share, 223,000 warrants, and approximately 10.5 million shares of outstanding common stock.

Second-quarter revenue was impacted by the large order placed by staring at the end of the first quarter. Since bearings purchase requirements are based on an annual amount, quarterly fluctuations in product revenue can be expected until our INVO Center and global expansion activities are sufficient to smooth out our top line results. We expect to see initial INVO Center revenue starting this quarter and growing international sales as the impact of COVID-10 diminishes and our business development and our business development efforts come to fruition.

My new role as CFO, I look forward to getting to know our shareholder base and analyst community in the months and years ahead. That's all for me.

Back to you, Steve.

Great, thank you, Andrea. I want to re reemphasize a comment Andrea made. Today, when people think of advanced fertility care, they think of IVF. It's interchangeable. If we meet our objectives INVOcell and IVC will also become just as ubiquitous or commonplace as IVF and open up a whole new market segment to patients in need.

Moving to our clinical efforts. With respect to our five-day label enhancement for the US market, we are making progress appointing the remaining data together. Admittedly, this process has taken longer than we originally envisioned. But we are keeping our goals to complete that this year, and we will report additional updates as we have them.

I'll conclude our prepared remarks by expressing an appreciation to our entire team, including our internal operating team, our Board, our Scientific Advisory Board, our partners, and key consultants. They are all working hard to have tremendous passion for INVO's mission.

While some of our activities have taken longer than we originally thought and COVID certainly didn't help, although I will not point to that as the only reason, it has not diminished our collective enthusiasm whatsoever. I would also say that our team is not just motivated by the opportunity to build a very large and significant company, but equally, if not more driven by the chance to help so many people around the world, having a child is one of the greatest joys in life and improving the chances for that to happen is incredibly rewarding to all of us.

With that, we'll open up for questions.

(Operator Instructions) At this time, we will pause momentarily to assemble our roster.

Scott Henry, ROTH Capital.

Thank you, and good afternoon. A couple of questions. First, on the 2Q results, were there any international product revenues in the quarter or was it all US based?

Very small, Scott. It was just a little bit of US-based revenue and a very small mix of some international activity.

Okay. And when we think about the underlying trends for Ferring in the US product revenue, obviously, it's going to be very chunky based on the annual minimums. But can you give us any color on how you think the roll out is going for them, and what kind of organic trends they are seeing on that, and perhaps how much COVID is still impacting it?

Yeah. Well first I would say at a high level, we do recognize it's been a slower bill process within the existing practices, and certainly Ferring has seen that as well. There is a number of factors contributing to that and we can go through those. But the key elements moving forward that we believe will help that effort is expanded evidence-based data we have on INVOcell, which is critical in a build confidence, as well as the start of the INVO Centers, as Mike pointed out.

And Ferring is doing additional marketing efforts to help improve the visibility. But again, we really think the INVO Centers will compliment their activities. But again, it's been a slower process with the existing practices.

Last year, they were heavily affected by COVID. Many of the practicians are reporting being very busy. And when a practician is extremely busy, it also becomes a challenge to integrate a new process and procedure. We believe they're making progress, again, we think our efforts in the US market will help that. But it's hard to see exactly when some of that acceleration could occur within the existing practices.

Okay. Then perhaps shifting gears to this center revenue. When we think about magnitude of revenues there, can you give us a sense of how many procedures annually you would expect a typical center to perform? I know, Birmingham's probably going to be stronger than average. But the typical procedures per center, and then an idea of how much revenue we should expect per procedure to flow to the INVO income statement?

So I want to let Andrea take the last part of that question, regarding how it's going to affect our P&L. Mike, I'm sure it's got a comment on the build and the ramp within the centers. I'll give you just a high-level bet.

We have built these facilities in terms of resource and physical footprint to be capable of doing upwards of a couple of -- initially a couple of 1,000 cycles per year. Now that'll take time for these centers to build. And we'll obviously need to bring our marketing efforts that we're working on behind the scenes to help broaden out awareness and drive patient flow to those clinics. So it'll take some time to build to that.

If you look at the average -- I think we've said this before, the average IVF practice out there runs around 600 cycles per year. Obviously, there's the larger practices and do a lot more, they're smaller practices, but that's kind of the blended average. We've also stated that we would expect our centers to be self sustaining and breakeven and around 200 cycles per year. So that's 17 or 18 patient per month average that would bring that breakeven.

So for us, it's a little hard to gauge just yet, since the first center just opened last week, to know how fast they can build. But we certainly have expectations. They would operate well above the breakeven point, and at minimum reach, the average level and IVF practice operates at. And then like said, hopefully, our marketing efforts will build on top of that and continue to see them expand.

Mike, I don't know if you want to add any more of that. So I probably went a little deeper than I was expecting.

No, that's exactly what I would have said, Steve. The metrics are 200 on breakeven, average about 600, and then our capacity at 2,000. So the other thing, the only real world data we have here is, the AI [air] practice that was in Birmingham, Alabama, that [current ramps] was formerly at. And I believe they did about 250 their first year, and then they ramped that up to about 500, 600 in the second year. So I'm hoping to see similar ramps in our facilities as well, that would be rewarded.

Okay. And how should we think about revenue per procedure?

Yes, I'm going to let Andrea speak to that. He's really done a lot of work on the modeling, and how it's going to flow through our P&L. So, Andrea, you're up.

Yeah. The way the joint ventures, at least the date has been structured, is such that it would enable us to consolidate their results into our own. So basically, the top-line revenue from these joint ventures will be added to INVO's top-line revenue, and then we would have to back out whatever the profit or losses that does not pertains to our ownership.

Obviously, the big driver for the facilities is the INVO cycle revenue, but there's a lot of ancillary services from the initial patient visits to other types of procedures and services, whether it's from the lab or the doctors that would be performed. And so, we will be participating as owners of these joint ventures in all of that revenue. And a much bigger slice of the revenue per cycle that our device generates, on top of the actual price of the device itself.

I think the amount of revenue per cycle will change a lot by location, you can imagine that. What might be charged in Birmingham will be different than what would be charged in San Francisco. I think our current expectation is that for the cycle revenue, Mike, correct me if I'm wrong, but we're probably somewhere around 6,000 or thereabouts.

Yeah, that's what we're --

Yeah, Birmingham (multiple speakers). Birmingham probably be about 5,000, and then, yes, San Francisco is going to be an 8,000. So we're looking at an average, an ASP for the INVO procedure right around $6,000, which are the ASP for that.

And then Scott, we'll be consolidating all of that, and then on these initial clinics, and then backing out of the portion on a single line that we don't hold. So --

And is that revenue -- is that per patient or is that per individual cycle per patient?

Yeah, per cycle.

Per cycle. Yeah

Okay. Great. Thank you for taking the questions.

You bet. Thank you.

Kyle Bauser, Colliers Securities.

Great, thank you. Thanks for the updates here. Maybe just following up on Scott's question. So appreciate the color on amount per cycle. Maybe you could talk a little bit about the timing of revenue recognition? Do you anticipate patient's pain and multiple installments? Do you recognize the revenue at the end, at the outset? Just kind of curious, the timing on how the money will flow into the income statement?

Yes, I think -- (multiple speakers). Yeah, go ahead, Andrea. Yes, recognition would occur when the cycle has been completed. But that's a couple week process from start to finish with a patient. But go ahead, Andrea.

Yes, that's what I was going to say. And most of these -- there really isn't much. I think the team has started to look at sort of the insurance angle, but really most of these are all cash pay. And in most instances, I think from what has been discussed with our current partners is that all those payments would be due upfront. There are some specialty patient lending firms that we have been evaluating to offer financing to the patients that wants to spread out payments. But from our perspective and our joint venture partners perspective, we would get the cash right away.

Got it. Appreciate that. And then on the five-day label enhancement, sounds like you're continuing to put the data together. At the beginning of the year, we were pretty excited that there's the possibility you wouldn't have to run a clinical trial and just use the data that's already out there.

And now, we're almost into September and I'm wondering if maybe just doing a trial would have been more favorable? Maybe that's not the case. I'd love your reaction to that. And, Steve, just any, I guess, updates on the discussions you've had with the FDA and any sort of timing? Yeah.

Yeah. I think with the benefit of hindsight, it's possible. I'm not sure we've crossed over that point just yet, Kyle, but -- and part of that, I say that because our clinical sites were still a bit consumed with managing just past COVID and the volumes of patients they were seeing. And so the recruitment process, we could have envisioned might have taken a little longer as a result of some of that impact, hard to say for sure.

But we do feel -- we continue to feel pretty strongly that we can get the data we need from the retrospective data. It is a lot of data. And we had to go into some of these same individual clinics. And they've been great at pulling that data but it's definitely taken a while to do.

And part of that is, I think, also a function of them being very busy. But we're pretty close having it pulled together. So I would still say I think we will ultimately be ahead -- just pressing on and finishing this process than would have taken going through the prospective.

Got it. That's helpful. And maybe just on the burn, sorry if I missed this, how are we thinking about that for the balance of the year on a quarterly basis, now that we've essentially gotten two to three INVO Centers up and running a lot of those startup costs associated, I think, should dissipate? Just help for modeling purposes with the quarterly burn.

Well, our operating -- on the operating side, I think Andrea mentioned that we would expect that the cash operating burn to run before any gross profit offset. We would expect to continue to maintain around the $1.3 million to $1.4 million quarter level before joint venture activities. We actually do have some spend. We'll still have to do for Atlanta, as well as both Mexico and the Bay Area.

So there still will be some JV investment going on in the third and fourth quarters. So we'll still have that as part of our mix, but we are looking to generally maintain our internal operating levels consistent with where they've been in the last couple of quarters.

Got it. Okay. Well, congrats on opening these clinics. And thanks for all the updates today.

Thanks, Kyle.

Rodney Baber, Paulson.

Hey, Steve. Can you hear me, okay?

I hear you just fine. How you doing Rodney?

Perfect, good. Thank you for all the hard work that's going into this. It's going to be really a lot of fun to follow you guys over the next several years. I think it'd be important if we have some clarity on how you market this product. In other words, you're putting centers in now, one arm can do 500 or 600 a year, which produces a certain amount of revenues. There's another ways I could ask this question.

But, Mike, maybe you jump in here. How do you spend money? I mean, do you go to Facebook? You get a lot of word of mouth, which is wonderful and all that. How do you spend money? If you're going to have somebody do two cycles to get a baby and they're paying you $12,000, how much money goes into the marketing of it, or sales app or whatever, if you could give us some clarity on that? I'd love to hear that.

Yeah, Rodney. We are in conjunction with our local partners for their local markets. And we're really not going to roll out a national campaign for sure right now. But what we plan to do is, obviously, use the social media platforms. We have hired a social media platform expert in my opinion, and we're putting those altogether. And the other thing we're going to do is just in the local markets themselves. We're going to do an outreach program, to the local OB-GYN, to the referring physicians, to the businesses, and potentially we're working on reimbursement as well.

So we're looking at some of the private insurance fertility providers, and just to get the word out about the technologies, the process, the procedure, and the opportunity. So like I said, they got 70 folks down there, just because we all know [Karen Hammond] down in Birmingham, and we haven't even started our marketing up in here.

So very encouraged about that. But yeah, I think this is all going to be social media platform and local outreach.

Do you have a cost per patient expenditure that you're going to be willing to make to get a customer? Do you have a thought on what that's going to be? How does it impact your profitability as far as spending the money for all of this to generate the revenues you want?

Yeah. We're working on -- we are actually working with the centers right now on all of those metrics right now, Rodney. We have a budget for each of the centers. And, again, yes we have to divide that by the number of patients that come in.

But our initial budget is enough to at least get this social media platform up and going, and then again, includes a local outreach program to the local community. So that's depend upon -- it just depends upon, what type of reaction we get to that, how we move forward.

Okay, Steve, let me (multiple speakers).

Yeah, Rod, I just want to add one thing, too. We absolutely do assume in our planning that we would that we're going to spend a certain percentage of sales on marketing activities. And so, to Mike's point, we're going to start in the local markets. But as we do have more and more centers out there, that will, over time will build into more of a national program on some of that activity. And it is part of our, our planning and our budgeting.

On another topic, you've got, 445 IVF centers out there, which is a comp on what's already established. And the size of the market, you talked about $5 billion domestically, and all that. What are you -- in the back of your mind when you think about the roll out of this company over the next couple three years, I know we don't know the answers and I'm not asking for a projection I'm going to hold you to, but I'm just saying roughly, how many clinics would we have?

And then, if you had to guess on how they would be structured, how many would be standalone INVOcell centers, where you're putting one in like Birmingham? How many of them would be joint ventures where somebody else is doing it? There's several silos of ways that you can roll this thing out with different business models for each one.

What do you think you'd have on a couple of years, if you had to take a guess on this thing right now? About how this company will look in two to three years? How big will -- how many clinics would there be, any color on that? And I know that's a wide-open question. And you may not want to mess with that too much. But I would love to just have a thought about how you can roll this thing out?

Yeah. Well, first of all, it's a huge opportunity. I mean, hopefully, that came out loud and clear in our prepared remarks about the size of the underserved patient market out there. And really, again, how big that opportunity is to open up a whole new segment of the market.

We're not talking about trying to capture share from the existing market, the opportunity here is to really open up a completely new patient market. And that's really our core objective here as you know. So as far as the INVO Centers, we see those playing out a couple different ways. Obviously, our current ones are in joint venture with partners where we're coinvesting or we're putting up even most of the money with in conjunction with our partners, and then we get a perpetual carried interest in those centers.

And we're happy to keep doing that. We think there's lots of opportunity to expand that initiative. As Mike often says, we've probably -- given the scalability of INVOcell, we probably don't need to put multiple centers in a particular location, because we're -- like I said, very efficient and scalable technology, we could do one center, handle a lot of volume, and then just expand that particular center.

But we also -- could envision seeing a scenario where as that awareness grows, there may be interested parties that want to, in essence, build an INVO Center, but really do it on their own under almost like a franchise-type model where they want our support. But we don't really necessarily have to coinvest with them. And maybe there's a participation in their revenue under like a franchise-type model. We're happy to entertain those kinds of scenarios as well.

Because the way we look at it, whether the technology is delivered through existing practices that simply bring the solution in to offer it as a treatment option, or we build new clinics, or as we keep saying, we think we can ultimately try to leverage, the large OB-GYN network out there, we see it as there's multiple ways to win as long as we're seeing a growth in utilization of INVOcell. And so that's really the way we see it.

And again, we see it as no matter which avenue and channel really develop faster or bigger, we are going to be the beneficiary of that. And we think we can build a very significant company. Regardless of how that really develops, we'll be definitely pursuing additional joint venture opportunities to co-own the building with the practitioner. But we're happy to see our distributors build out their networks within existing practices or practitioners decided to go out on their own, and say, I want to build my own INVO Center, I don't need your financial support. But I obviously want your technology and knowhow support for it.

Again, no matter what scenario, we think we win, and we think we'd build a very significant business, because the market is just that big of an opportunity. I know that didn't give you details on your question, but hopefully it kind of addresses the big picture of how we see this.

Well, if you answer details on that, I haven't been surprised, okay, because there's just no way to know that at this point until things roll out. But here in the 20,000 [foot] view like that is very helpful. So thank you for sharing that with me.

Hey, Rodney, it's Mike. I think the important thing Steve said is very important. We are not trying to take share from the current market. That's a different animal, that's a different game. We are opening up an entirely brand-new market for unmet need, pent-up demand patient population.

So, I mean, my attitude is, if we build it they will come. Because they need a solution. And we have the perfect solution for them. So I was excited here to see how this rolls out over the next several years because, as Steve said, we have lots of different options and all of them are good.

Perfect. Well, thank you guys appreciate it.

Thanks, Rodney.

Ben Haynor, Alliance Global Partners.

Good afternoon, guys. Thanks for taking the questions. I apologize if I missed some of this earlier, but -- jumping between calls here, but -- what's the new -- well first-off, congrats on opening the first center, just kind of wondering what's attracted women to the first center, was there kind of a backlog or patients when you opened? Is there any surprises on what attracted patients?

Well, I think that -- what it really reflects, and this just goes back to AIRM, I know I might spell a lot of strong perspective on this too, but we think AIRM, which was the previous practice with practitioners that now were partners with in Birmingham under our new INVO Center, they really proved the case that there is a lot of interest in demand in an affordable, high-quality solution in the US market.

And so, they actually had a map in their previous practice where, when they were out in the marketplace offering a full INVOcell cycle for around $5,000 to $6,000, they had patients coming in to their clinic from over 20 different states just by word of mouth. People that have heard about the solution, and the price point.

And to us, that again, that really demonstrated the need, the unmet need the patient that needs access to an affordable solution. And again, we think that dynamic is even more profound in other parts of the world. So Mike, I'm sorry, I didn't mean to talk already -- jump into that.

Yeah, I just going to say exactly what you said. And, Ben, yeah. This is -- I'm going to credit all this to Dr. Karen Hammond. She is a very profound and well recognized clinical practitioner. It's all word of mouth.

The other thing is, there's a Facebook page for imb***** patients. There's about 1,800 members. And yeah, I mean, I learned a lot about the technology from this particular group, and a lot of them talk about Karen Hammond, and say, if you're going to do imb*****, it's worth it to take the trip to Birmingham and have her do it.

So, yeah, we didn't do any advertising down there. We haven't done anything yet, because it's really a soft opening. We're just going to have to work out the things over the next month or two. And these 70 patients that showed up have all showed up for Karen Hammond, in my opinion.

Okay, that's helpful. And then, is there kind of maybe a rule of thumb conversion rate from initial appointment to treatment cycle or is that kind of two or more first to get into --

Yeah, I mean, there obviously is a conversion rate to all the practices -- see that. Sometimes it's a function is it -- does the patient have suitability even to undergo fertility treatment. So you often have patients coming in, they're just -- they're not a good candidate under any circumstances. Sometimes patients don't convert because of the expensive cost. Something we've -- we think that our approach helps address that component to it.

But I don't know what the exact -- I mean, I think every clinic is a little different, depending on what kind of patient flow they're seeing in terms of what their conversion rates are. But yes, you can assume you wouldn't necessarily convert every patient that came in for a consultation, for sure.

Good, it is there -- it kind of, well, 30% of them wind up doing a treatment cycle, or is it just -- it's all over the map?

Yeah, Ben, I don't know if -- I mean, I don't know what the industry conversion number is. But in Birmingham, in the first cycle, we're hoping for somewhere between 20% and 30% conversion. And as Steve mentioned, a lot of the factors have to do with clinical factors. The patients are not ready, or an ABI index issue they present with endometriosis. But this first cycle, yeah, we're not going to get 80 INVO cycles out of this. Our expectation is we do -- like 15 to 20 would be a good number for us.

Okay, that's very helpful. And then lastly, for me just with the strategy overall, I would expect that there might be some kind of halo effect in a given geography or given city. If you open your own center and that's getting some attention and there are other clinics in the area that are offering INVOcell, do you expect volumes to go up there at these other clinics as well, or is that not the case?

No, we're actually seeing that already. (multiple speakers)

Yes, we absolutely think there's going to be a halo effect overall. We already see growing awareness just in the community and the industry around INVOcell. We see it growing within the patient market. There's more and more some of the patient education sites that are referring to INVOcell as a treatment option.

Even the existing IVF clinics out there, some of them we're seeing doing a little better job of presenting and representing INVOcell as well. But without question, we think standalone dedicated center will have an awareness effect and a halo effect for the whole industry. We fundamentally believe that.

Okay, great. Well, that's all I had, gentlemen. Thanks for taking the questions. And congrats on opening that first center.

Thanks, Ben. Appreciate it.

John Heerdink, Vista Partners.

Good afternoon, gentlemen. Thanks for taking my call today. And congratulations on advancing the model. It's exciting to see that you've successfully are weaving in this, what I say is, a three-pronged approach to creating developing your business that seems quite scalable, from the distributorship to now the clinics and next bringing it and putting it in the hands of possibly every reasonable OB-GYN at every community, therefore creating this access to care that seems to be really missing in this extremely underserved patient population.

Would you say that, as you're doing this, you're trying to create sort of a fabric of understanding, maybe similar to other solutions that have that in the market, like say, for example, Invisalign, which has a sidestep, the orthodontists out there that was controlling that market and took it straight to the patients to create awareness and then pull through while educating of physician population.

Could you speak to that, and with this new global marketing team you've put in there from the Board with Rebecca Messina to the new Director of Marketing, Meryle Lynn Chamberlain? So could you speak to that and help me understand that better?

Yeah, well, again, I would say, this is a credit to Mike, when he really got involved in early 2019 and even before that, when he, as a Board Member, had a strong opinion that it would be very important to really help develop the INVOcell technology in the marketplace, to be able to create the concept of a dedicated center. And took us a while to actually develop that strategy, and actually partner up with our first partners and actually finally opened our first center.

So -- but I distinctly remember the conversations he and I had two years ago that this needed to be a central effort to our strategy to help build the market. Whether that's because there's a reluctance with the existing practices to adopt it, I don't know that we would go so far as to say that versus maybe there just needed to be more knowledge, and what we keep saying evidence-based information around INVOcell, because that really does help build confidence with practitioners.

And if you think about it, our first partners in our INVO Centers are practitioners that were the early adopters of INVOcell. So they had their own, evidence, if you will, from their own working with the INVOcell technology.

So we think it's going to take hold and continue to be adopted within the existing practices. We acknowledge it's been a slower process, but as more and more information is available, and we think, of course, the INVO Centers that I just mentioned with Ben, then provide that halo effect of driving awareness and helping to force the industry to pay more attention to this as a solution. And again, not as an alternative to IVF, but something to help open up access to an additional patient market.

We knew this would be critical. We knew it would be important to help cultivate the market. I think we could probably even point back to your separate example -- I don't know if it's the perfect analogy, but that example of Invisalign, I think it -- when they did that, it ultimately became more embraced within the normal practices out there. So we believe that'll happen here as well.

We think that how -- again, having the additional, what be keep referring to the additional channel strategy of our own dedicated centers, will be helpful at building the market and will create that complimentary effect within the existing practices out there. So I apologize, I'm not sure if I'm perfectly answering your question, John, but this was an important part of our strategy, we knew it. As you also pointed to, we brought in marketing expertise into the company earlier this year to help build a program around these activities. But it's not just for the INVO Centers, it's to build marketing around to help support our distributors out there in the marketplace as well as our own INVO Centers.

And as Mike alluded to, that's an active effort that's underway. And we would expect, as we move forward from here, you'll see more and more of that internal activity of marketing support coming to bear into the marketplace to help, again, our overall efforts, whether it's our centers or the existing practices, and our distributors.

All right. Thank you, Steve. I think that answers it toward today, and I think that it seems to be coming off if you check on social media and check that out, you're seeing the discussion going up. And that's what has happened with other products in the medical device and med tech areas that I've seen and had some success with. Follow up another question --

Yeah, yeah. And I would say, John, sometimes markets build in a methodical process. Again, one of the reasons we're so excited about the INVO Centers, especially as we get a few of them up and running, is that we think it'll help accelerate the market and really create kind of a tipping point, if you will, of better adoption across the board.

Agreed. Down another line of questioning here, one of your -- it's my understanding per recent filing that your largest shareholder is special situations run by AWM in New York, a multi-billion-dollar fund. That's been noted for investing in emerging growth companies and having great successful track record as they've grown up over the last couple of decades that I've been in and around the space with them. They, I believe, increase their position from the full quarter from 6.5% to 11.1% of this extremely tight float company of, I think he said, around 10.4 million or 5 million shares outstanding.

One, can you confirm that? And two, also address that this fund as portioned is run by Dr. David Sable, who is a former IVF doc and now runs these particular funds and he's been loud, and as he's spoken and written several times in the biggest conferences in the space, that we were needing a solution that was affordable to fill this gap. And he likened the situation to IVF being the Ritz-Carlton or four seasons, if you will, where someone might pay $1,200 for this luxury stay, but would necessarily want this luxury sort of efficacy, if you will, in our case, but a more affordable, say, like to Marriott or the Hilton, where you go there and you don't have to pay an arm and a leg but you still get amazing stay, good sleep, et cetera. Could you speak to both of those for me?

We saw the filing too. We assume those are up to date and that reflects their position. And we think they're a great investor, and we appreciate their support without question. Yes, you're correct. Dr. Sable actively speaks about the industry out there. He does use that analogy that this industry is predominantly, currently made up of the Ritz-Carlton as the analogy. And what we need to do is build the holiday-inns, where maybe you don't have all the bells and whistles, but you get a great night's sleep and a more affordable price, you treat different segment of the market.

So we completely agree with that perspective. It's a good analogy. And I said, I think that he's someone who recognizes what the needs in industry are. And you really speak to some of the need for efficiencies in the industry as well, which is another requirement in order to really be able to treat the volume of patients that need care.

You simply can't just bring prices down. We also need to find solutions to be more efficient in the care, in order to be able to treat more patients with the existing resources. We absolutely agree with that point too. And we think that's a sweet spot for INVOcell as a technology.

Thank you. Again, congratulations on advancing the business. And happy to be an investor and looking forward to seeing where you guys are taking us.

Great. Thanks, John. Appreciate it.

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Shum for any closing remarks.

Great. We appreciate everyone who joined us on the call today. Please do not hesitate to reach out directly or to our IR firm should you have any additional questions. Thank you again.

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