Q4 2022 Tivic Health Systems Inc. Earnings Call

Welcome to the <unk> health system here in shareholder update conference call.

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Statements made during this call contain forward looking statements about our business you should not place undue reliance on forward looking statements. As these statements are based upon our current expectations forecasts and assumptions and are subject to significant risks and uncertainties.

These statements may be identified by words, such as May will should could expect intend plan anticipate believe estimate predict potential forecast continue or the negative of these terms or other words or terms of similar meaning.

Risks and uncertainties that could cause our actual results to differ materially from those set forth in any forward. Looking statements include but are not limited to the matters listed under the risk factors in the company's annual report on Form 10-K for the year ended December 31st 2022 filed with the Securities and Exchange Commission today March 30.

First 2023, and its other filings with the Securities and Exchange Commission.

Statements and information, including forward looking statements speak only to the data that they are provided unless an earlier date has indicated and the company does not undertake any obligation to publicly update any statements or information, including forward looking statements, whether as a result of new information future events or otherwise except as required by law.

Now, let me hand, the call over to Jennifer Ernst <unk>, Chief Executive Officer.

Hello, everyone and thank you for joining us today.

Jennifer Ernst the CEO till like health.

I'm pleased to have this opportunity to review with you our 2022 business and financial progress.

I'll also be talking with you today about the upcoming year and what investors can expect as we move forward.

Joining me on the call today is also our CFO Veronica Cai.

So I'd like to take a step back and look at where we started in 2022.

Fresh to the public market and IPO in November of 'twenty, one with a focus on three key areas of our business.

Increasing direct to consumer sales of our first FDA approved product clear.

<unk> for the treatment of allergies and sinus condition using advanced Neuromodulation known as bio electronic medicine.

Our second area of focus is on improving our gross margins and the third on broadening our commercial pipeline.

In these three areas, we made important progress year over year revenue increased 46% indirect to consumer sale.

Volume increased 104% and revenue increased 114%.

It was due to steady increases in our average order values.

Our gross margin improved nine fold through the course of the year.

Despite unusually high component pricing through the second and third quarters.

And we've recently announced qualification and production starts with new suppliers that will continue to drive costs down.

And broadening our pipeline.

We initiated an investigator laden funded study with one of the northwest leading medical research centers.

Ah study that focuses on using bio electronic technologies for the reduction of pain following sinus surgery.

Alternative to opioids.

The program is ongoing and we will expect to expand that to additional types of surgeries in the coming months.

We also have developed a clinical roadmap for expansion of these treatments into the migraine area. So I'm proud of the progress we've made.

But we've also faced some challenges.

Well, we had estimated at the time of our IPO about in 18 months runway based on the estimated public market expenses and the investments in the initiatives Ive just described.

We also took on significant additional cost to pursue a merger.

But we ultimately did not close given market headwinds.

So as a result, it's no secret for those tracking us, but we incurred an unusually high burn rate and faced a very difficult capital raise in February .

As the new year began we closed $5 million in equity financing on terms that none of us were particularly happy about.

I am pleased though that despite the pricing issues, we were able to keep the cap table clean providing the right structures from which to rebuild.

And that's without mindset that I'd like to talk about the future.

Where do we go next.

First of all I do want to highlight that our revenue opportunities with clear up our significantly enhanced on two fronts. The first is the improvement in gross margins as I mentioned.

In Q1.

We completed the move of our printed Circuit Board Assembly out of the San Francisco Bay area, We moved production to micro art and this partnership is expected to realize 70% savings on the printed circuit board.

And importantly increase our production capacity by 25 fold.

We also completed manufacturing startup at Elan Technologies Corporation, who is managing our final product Assembly and our third party logistics.

As long as a privately held company 25 year history of operational quality and sustainability excellence.

Including two consecutive years with a multichannel merchant pop three P L.

And 2022 manufacturing leadership award from the National Association of manufacturers.

These partnerships are instrumental in positioning us to decrease the overall production cost by approximately 30% to 40%.

And scale, our current and future product lines.

Okay.

At the beginning of the year, we completed a detailed market study that also identified new customer segments segments that are significantly less cost sensitive and I have a higher likelihood to purchase than our traditional audience. That's been so armed with that data, we're implementing new sales programs that more deeply engage the health care community and an ideal target cut.

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You will also be hearing from us about new partnerships and programs to extend our footprint in bioelectronics therapeutics.

And adjacent areas we.

We believe these initiatives booking focusing increasingly on more advanced applications of noninvasive neuro stimulation or opportunities to build value for investors beyond the revenue streams of our current product.

Those I look forward to sharing more information as we make progress.

Now typically isn't likely always will be part of my personal DNA well remain acquisition minded.

Certainly open to discussions not only with partners in the therapeutics area, but in complementary areas and are continuing to see combinations that will be beneficial to our investors.

And finally.

With many of the initial nonrecurring public market and hiring expenses behind us in 2022.

We are focused on creating a leaner more cost efficient operations optimizing expenses across the organization and with that I'd like to hand, it over to Brian ACA Cai to go over the financial results and then I'll come back to some of the questions. We've received in advance in the Q&A portion.

Thanks, Jennifer and good afternoon, everyone I'm very pleased to walk through our 2022 financial results.

Let me start with revenue our revenue from the sales of clear up net of the total reserves increased 46% to 1.8 million.

Sales volume is the main driver.

The solid 22% increase in unit sales compared to 2021.

We increased the price of clear up modestly in September which also helped in driving up the revenue.

One of our key commercial focus is in in this past year was to expand our direct to consumer sales.

And we increased our revenue in this channel by 114% to one 6 million.

Compared to 2021 or units sold in this channel increased.

I'll hand, getting 4% and the channels average selling price increased 6%.

Our direct to consumer sales made up approximately 80% of the cleanup revenue.

Are we sell a revenue decreased 32% to 416000.

In the early part of the year, we strategically exited several low margin arrangement.

This decrease units sold in the reseller channel by 43%, but let the channels average selling price by 19% along with some savings in operating overhead.

Now lets turn to cost of sale.

Cost of sales increased 19% to one 5 million.

The increase was primarily a result of the 22% increase in overall unit sales.

Yeah.

Our variable costs was $1 3 million or approximately $87 per unit, a 6% per unit increase from 2021.

The increase in our vehicle costs was primarily due to dramatic price increases in several electronic components during the second and third quarters stemming from the global supply chain shortage phenomenon.

Okay.

Our fixed cost with 203000, a 21% decrease from 2021.

The decrease was primarily due to lower indirect overhead costs that we would find a production management process.

I'll just cover all revenue and cost of sales.

Gross profit was 299000 for the year.

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Moving on to our functional area expenses R&D expenses totaled $1 7 million, a 97% increase from 2021 the.

The increase is primarily due to more investments in the area.

2022 we invested in product research, indeed, migraines therapeutic area, we initiated a double blind randomized controlled trial for pain relief following sinus surgery.

And we enhance our intellectual property protection.

Whereas in 2021 we only primarily focused on seeking approval for a second indication for a clear up.

Sales and marketing expenses totaled $2 8 million.

A 56% increase from 2021, the increase is primarily related to various marketing efforts, which include expanding our advertising platform optimizing our e-commerce infrastructure and a number of other marketing initiatives.

G&A expenses totaled $5 9 million.

A 103% increase from 2021.

The increase was primarily due to COVID-19 being a public company for the first full year in building our sales team.

Also included in the G&A expenses are legal and professional fees associated with the attempted acquisition of release them technology.

Our net loss for the year was $10 1 million versus eight 5 million in 2021.

Lastly, we had cash and cash equivalents of $3 5 million at the end of 2022 with no debt on the balance sheet.

I will now hand, the call back to Jennifer for the Q&A portion of the call.

Thank you Veronica.

We have had a few questions come in ahead of time and I will take on a couple of the tough ones right upfront.

The first one is why did the company raise 5 million at a 50% discount to market.

Particularly having seen significant share depreciation immediately ahead of that.

Frankly, the company needed a capital infusion to continue operations at what we deem to be a particularly critical point.

Given our headwinds we've been experiencing in the supply chain as well as the overall market uncertainties, but I think we're all witnessing.

The board made a very difficult decision not without considerable consideration to take on.

Financing at a deep discount to market.

And as I noted earlier, though.

<unk> consideration was that we were keeping the cap table free of the toxic terms for me.

Many others have found to accept it has been a very difficult market, but at this point our cap table hasnt of warrants on it. Besides those that were issued to the underwriters and no anti dilution provisions.

No one was talking about the pricing I fully understand absolutely the feelings of the investors that have been in contact with me.

Being a pretty significant shareholder myself I can only say we are committed to the work ahead to rebuild.

Second question is the company planning on making budget cuts since it's burning so much money.

We have been actively reducing costs and continuing to streamline the business and that is particularly I'm focusing in our G&A area.

Worth, noting we incurred a number of expenses in 2022 that are nonrecurring.

And we have seen some decreases in our public company expense expenses directly such as our D&O insurance premiums would be an example.

We have also recently completed some market testing and are rolling out these initiatives to target customer segments with a higher willingness to pay.

And a higher likelihood to purchase so with that you will see you next month of price increase linked to these segments.

And it's the combination of increased pricing sales to less price sensitive segment improved cost and manufacturing that are expected to markedly improve our cash generation from sales.

This will only be further enhanced through the development of additional channels and partnerships.

Overall running down manufacturing costs, increasing average selling price increasing advertising effectiveness. We believe that these structural improvements along with streamlining the administrative costs of the business.

Should support an overall improvement in our run rate.

Yeah.

No. It does the company intend to explore.

Other areas of the health care sector that may be advantageous to have it.

Absolutely.

If anybody has made me.

I'm definitely opportunistic and my mindset, we are evaluating opportunities.

Both it could enhance directly our therapeutic portfolio and also perhaps expand revenue and build our pipeline in and around those areas. So primarily these opportunities are focused around chronic inflammation and the related diseases that stem from that.

We have been approached though with adjacent opportunities and we will continue to evaluate those on a case by case basis.

I was also asked about the barriers to entry can you provide an update on intellectual property.

The person who wrote the same hunter. Thank you I know you have a number of patents and patent applications, but how much of a focus is on additional IP investment.

So hunter as you noted the date the focus has been on what we describe as our Monopolar Neuromodulation architecture.

That is a core of the clear up product family. That's worthy currently filed IP resides.

We believe that that family is really well protected though with what has been issued them with a pending patents.

We also recently a C recently received allowance of an additional patents in that family.

We have recently started prosecution related to some new areas as well as a new architecture that will have a much broader focus in terms of treatment targets.

Now this was linked to new research partnerships areas that have not been published yet, but I definitely expect to have more to say on this area by our next earnings report. So this is a watch this space this quarter.

But not a lot more I can tell you today.

Given the recent cat. So the next question was given the recent capital raise and tough macroeconomic market. How is the company weighing the focus on growth versus near term profit.

This is always an interesting question on whether it's framed as an either or so I'd like to reframe. This lightly.

We are focusing first on growth through near term profit.

Everything I've described today I hope you hear that we are expecting to turn a corner with clear up delivering positive cash flows from sales.

So our focus is very much unprofitable growth and near term profits.

Now, we also know, though that the greatest opportunities for bio electronic medicine <unk>.

And for increasing the value of the company.

Are likely to come from some of the higher value therapeutic areas that we have been and will be seating over the next six to nine months.

Given the market conditions and the way that that is factoring into our strategy. It was really the focusing in on partnerships.

And a combination of external evaluation so partnerships like the one we have with Mount Sinai.

Where we're able to leverage their infrastructure to run the run trials.

It becomes a low cost non dilutive partnership those type of partnerships will be an important part of building our pipeline.

Yeah.

So given the termination of one of M&A activity and a focus on in house development can you provide more information.

On what areas you are looking to invest further in and what indications.

So specifically no I can't at this time other than as I've described before.

Chronic inflammation is likely to be likely to be a focus area.

We have also previously discussed.

Banding the Monopolar architecture. So we continue to assess the opportunities and ways to test those expansions for example into the migraine area and into some of the other tests opportunities.

The other areas, though are subject to patent filings so until I have the patents filed.

Ill, just say watch the space and I expect to be able to say again more on our next earnings call about some of the new areas.

Where we are building partnerships.

And expanding therapeutic options.

So M&A as well as licensing and partnerships will continue to be cut key strategies for us.

And as the market conditions become more favorable for investment we can accelerate that all those opportunities to invest in future growth.

And finally I'd like to close out today by saying. Thank you again for those that are continuing to support us support and heavier patients as we continue to deliver on both our mission and our ambition.

You know our vision from the beginning has become has been to become a market leader in noninvasive bio electronic medicine, we are seeking to offer a portfolio a complete portfolio of trusted therapeutic solutions that will be preferred both by consumers and by health care practitioners.

All of that in service of improving how fighting disease, and increasing vibrancy of life.

And we deeply deeply appreciate your continued support and patience on that journey.

Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank.

Thank you for your participation.