INVO Bioscience, Inc. (NASDAQ:INVO) Q1 2023 Earnings Call Transcript May 15, 2023

INVO Bioscience, Inc. misses on earnings expectations. Reported EPS is $-0.2 EPS, expectations were $-0.19.

Operator: Good day. And welcome to the INVO First Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode [Operator Instructions]. Please note, today’s event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Robert Blum: Thank you so much. Good afternoon, everyone. And as Rocco indicated, thank you for joining us for today’s INVO first quarter 2023 financial results conference call. Joining us on the call today are INVO’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 statements. 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, 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 as the results of new information, future events or otherwise. With that said, let me turn the call over to Steve Shum, Chief Executive Officer of INVO. Steve, please proceed.

Steve Shum: Thank you, Robert, and welcome, everyone. As many of you know, we held our year end call recently just four weeks ago where we covered a number of important updates. For this call, we plan to keep our prepared remarks shorter and highlight the specific quarter developments as well as reiterate some of the key items covered in the last call. In the first quarter, our three existing INVO Centers in Birmingham, Atlanta and Monterrey, all made further progress, reaching new levels. On a combined basis, inclusive of both those accounted for as consolidated and under the equity method, the centers generated approximately 647,000 for the first quarter, an increase of 108% from the year ago quarter and an impressive 46% increase sequentially from the most recent fourth quarter.

We believe they will continue the positive upward trend over the rest of this year. Another key point to make is that the three existing clinics are nearing breakeven and we look forward to each of them generating positive cash flows and profits in the near future. As we mentioned on our recent year end call, our planned new INVO Center in Tampa is progressing with a target opening slated for midsummer this year. We are excited about Tampa. We believe we have assembled an excellent team to operate the practice and they are well into the training and planning phases in preparation for the opening. The Tampa market is large and attractive and we’re looking forward to bringing the center operational. We have begun early preparation work for Kansas City and remain very excited about the potential partnering we expect to do for that market and look forward to providing updates on this location in the near future.

We have decided to put the previously mentioned Bay Area clinic opportunity on hold for now. Both ourselves and our partner mutually agreed this made sense as we are both focused on other key priorities right now. For us, as many of you know, a key new priority revolves around our acquisition strategy and specifically our announced agreement to acquire the Wisconsin fertility Institute. We spent a fair amount of time discussing the transaction and our acquisition approach on our last call, but I do want to mention a few key highlights as a reminder. We believe the acquisition strategy enhances our commercial efforts to build the company and is an activity where we can synergistically introduce INVOcell into existing IVF clinics that we take ownership of.

This effort will remain focused on existing, established and profitable clinics. Our first deal, the clinic located in Wisconsin, has an excellent reputation not only in the local community but nationally is one of the top fertility centers in America. It is well run and profitable. We issued an 8-K regarding the transaction, which provided two years of audited financials along with the nine months review for the clinic. And we then reflected those financials on a pro forma basis as if it had been part of INVO’s operations during that historical period. As reflected in those numbers, the clinic produces excellent results with about $5.5 million and trailing revenue and around $1.9 million in net income, a very material addition to our operations on a go forward basis.

As we’ve mentioned previously, our acquisition efforts are strategically significant for several reasons. It provides immediate revenue and positive net income to our overall operations, adding scale and accelerate our pathway to overall profitability. It highlights our efforts to use our public company status as a platform to take a more comprehensive approach within the fertility marketplace. Although we are now becoming through this activity a broader fertility company in general, acquisitions do still help further one of our key longstanding goals of advancing the INVOcell technology 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.

This provides another pathway to further our efforts to bring added affordable care to the marketplace and help patients in need. Again, we are focused on smaller to midsized established fertility practices in the marketplace with these acquisition efforts. We do have several discussions ongoing and will focus on pricing deals attractively and structuring them in a win, win manner similar to Wisconsin. To summarize our expanded commercial strategy, now includes supporting servicing and expanding INVOcell across existing IVF clinics, building new dedicated INVO Centers and now selectively acquiring existing IVF practices. As noted on our recent call, we’ve also made significant progress with our five day label enhancement efforts. We completed tabulating the additional data related to the follow-up questions from FDA and are submitting those at the end of this week.

We believe the data, including the additional tabulations, looks 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 additional financial highlights. Andrea?

Andrea Goren: Thank you, Steve. Revenue for the quarter totaled approximately $348,000 compared to approximately $163,000 in the prior year period, approximately 85% of Q1 revenue or $297,000 consisted of consolidated service revenue from our Atlanta INVO Center in comparison to $106,000 in the prior year period. The remaining 15% of revenue represents product sales of the INVOcell to IVF clinics. As a reminder, our operating INVO Centers in Birmingham and Monterrey are accounted for using the equity method. Revenue from all three clinics totaled $646,000 in the quarter compared to $311,000 in the prior year period. The increase in revenue reflects the cumulative impact of marketing efforts to build awareness for the clinics, their respective services and INVOcell and IVF in general.

We expect 2023 existing clinic revenue to continue to build throughout the year, and for INVO’s total revenue to increase substantially with the closing of the Wisconsin acquisition, as well as the opening of the Tampa INVO Center, both of which are wholly-owned and will be consolidated with our own financials. Our gross margin increased to 79% from 60% as a result of improved efficiencies at our Atlanta INVO Center. Our selling general and administrative expenses decreased to approximately $2.5 million from approximately $2.7 million in the prior year period, largely as a result of lower noncash stock based compensation. These expenses included approximately $258,000 attributable to our Atlanta INVO Centers compared to approximately $244,000 in the prior year period.

On a combined basis, our three INVO Centers had approximately $735,000 operating expenses compared to $656,000 in the prior year period. Our adjusted EBITDA loss, which is net of noncash charges, mainly related to equity based compensation, improved to $1.7 million compared to an adjusted EBITDA loss of $2 million last year. These amounts included operating losses of approximately $48,000 and $200,000 respectively, attributable to our INVO Center joint ventures accounted for with the equity method. Our note receivable from the Atlanta joint venture, which stood at $450,000 on March 31st, was eliminated as an intercompany transaction in consolidation and is not reflected on our balance sheet. In addition to this note, our equity investments through March 31, 2023 was approximately $0.9 million.

To date our gross investment in the Birmingham and Monterrey joint ventures is $1.7 million and $142,000 respectively, which amounts remain unchanged from the last quarter. Our work to close the Wisconsin acquisition remains on track for a closing date in the current quarter. We’re also working with the clinic and our auditors to complete the audit of the clinic’s 2022 financial results, as well as a review of the first quarter. We expect to file these results in the current quarter. As of March 31st, we had approximately $2.2 million in cash and $1.1 million in debt. We have since repaid approximately $384,000 of convertible debt. As a reminder, we closed on approximately $3 million in gross proceeds during the first quarter from a registered direct offering of common stock and prefunded warrants, along with a private placement of warrants.

For the terms of the $3 million offering, we expect to file a resale registration statement to register the private placement warrants and certain other shares related to our February 2023 convertible debenture and warrant options. As of today, we have approximately 14 million shares of common stock outstanding, $2.3 million prefunded warrants and approximately 6.9 million unit options and warrants outstanding. Back to you, Steve.

Steve Shum: Great, thank you, Andrea. Before we open for questions, let me just reiterate. We believe we are off to a strong start for 2023. We are seeing record volumes at our existing clinics and equally important, they are quickly becoming self sustaining from a cash flow standpoint. We are close to the opening of the new Tampa INVO Center, which will provide added growth in the year. And perhaps most important, we’ve evolved our commercial efforts to build INVO by way of adding an acquisition strategy where we can more rapidly build scale in our operations. As a key takeaway to our activities and focus over the past year and a half, we want our investors to understand that we are evolving beyond simply a medical device technology company and selling the INVOcell device.

We are and have now become an integrated clinic company focused on offering treatment solutions to patients within the large and growing fertility marketplace. As such, we are a different company today. However, we also believe that this enhanced commercial approach of building our clinic service activities will also naturally increase the utilization and grow INVOcell and the IVC treatment process within the market and thus help us achieve that objective as well. In some, we believe our efforts along with our technology put us in a unique position and one that can help bring much needed affordable care to patients in need. With that we will now open up for questions. Operator?

Q&A Session

Operator: [Operator Instructions] Today’s first question comes from Jason McCarthy with Maxim Group. Please go ahead.

Operator: [Operator Instructions] Our next question today comes from Rodney Baber with Paulson Investments.

Operator: Ladies and gentlemen, this concludes your question-and-answer session. I’d like to turn the conference back over to Steve Shum for closing remarks.

Steve Shum: Well, great. Thank you all again for participating in today’s call. We appreciate your interest. And as always, please do not hesitate to reach out to us with any additional questions.

Operator: Thank you. Ladies and gentlemen, this concludes today’s conference call. And we thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful day.