Tivic Health Systems Inc. Q1 2023 Earnings Call

Welcome to the terrific Health systems, Q1, 2023 shareholder update conference call.

All participants will be in listen only mode.

A question and answer session will follow the formal presentation.

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Statements made during this call contain forward looking statements about <unk> business.

You should not place undue reliance on forward looking statements. As these statements are based upon 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 typically actual results to differ materially from those set forth in any forward. Looking statements include but are not limited to the matters listed under risk factors in the Companys annual report on Form 10-K for the year ended December 31st 2022 filed with the security.

He's an exchange Commission on March 31, 2023, and in its other filings with the Securities and Exchange Commission.

Statements and information, including forward looking statements speak only to the date that they are provided unless an earlier date is 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.

As required by law.

Now, let me hand, the call over to Jennifer earns terrific Health Chief Executive Officer.

Hello, everyone and thank you for joining us today.

Jennifer I'm CEO of tobacco.

As always I am pleased to be here today to review the financial and business results.

With a focus on our first quarter of 2023.

Also joining me today to provide a financial overview as our interim CFO Kimberley bond back.

As we start I want to highlight that this was a particularly important quarter for Tibet.

We saw a number of our major initiatives began to bear fruit.

And while as I mentioned, we've had meaningful commercial announcements is a new manufacturing partnerships have yielded a poor X improvement in our gross margin major initiative for last year.

Those improvements are materializing ahead of plan with continuing improvements expected in the second quarter.

Increased margins allow us to open new channels falling profitably in new areas.

One example is the recently announced business to business portal through the health care professionals.

For the first time this quarter, though I'm also able to talk about one of our key innovation initiatives.

And in our footprint and bio electronic medicine.

At expanding beyond clear up.

Keep in mind. So it makes the overall mission is to harness the power of bio electronic medicine.

Disease improve hope and it creates vibrancy of life.

We're using noninvasive approaches as a platform as a core approach for targeting chronic and inflammatory diseases.

Via different neural pathways, so as well as cellular and biologic response mechanisms.

<unk> works with the nerves in the facial region easily accessible noninvasively and linked to a host of the inflammatory conditions in the head and neck area.

We've also now begun growing the portfolio of product opportunities with additional nerve targets.

Frankly, the vagus nerve.

But they just nerve is one of the most important structures in the body running from the brain through every major Oregon.

However, because of this vagus nerve stimulation.

Also unconcerned with creating off target effects.

We've had a small internal program addressing this exact problem.

Our internal program is piloting a new protocol.

We can more precisely target the signaling of the vagus nerve.

And those efforts have served as the basis for new intellectual property filings.

I'm also thrilled that internal program has now led us to working with some of the leaders the absolute leaders in bio electronic medicine.

This quarter, we announced the partnership with the Feinstein Institute for medical research at North well hope.

Specifically with the team at the Institute for Bio electronic Medicine.

It's like social piloted these new protocols has the potential to unlock a significant number of high value high value product opportunities.

In urology at cardiology, rheumatology and other areas.

Represent both product and licensing opportunities for the company.

We also expanded our collaboration with another internationally renowned northeastern hospital.

The medical system has been sponsoring a double blind randomized sham controlled trial to evaluate the use of our handheld bio electronic device.

That's the way to manage pain following sinus surgery.

Well that study is ongoing and it was also recently expanded to include additional cases and also learned ology and.

Facial plastic surgery patients.

A successful outcome could accelerate offering the non opioid non addictive alternative to traditional postoperative pain management, specifically for facial surgery.

As a result of these types of advancements and in recognition of civics role advancing bio electronic medicine into first line Therapeutics Civic was named to fast company's annual list of the world's most innovative companies 2023.

Specifically in the medical device category.

The company was also named the most pioneering bio electronic medicine company by Global Health and Pharma magazine.

I, particularly want to underscore for our investors that these programs are product oriented in nature.

When we invest in innovation.

We are pursuing meaningful high value commercial opportunities.

Solutions that we believe can contribute significantly to the bottom line as they mature.

So if you cant tell I am beyond excited to finally finally be able to talk about some of what's been happening behind the scenes.

Importantly, though.

And also are the advancements in our commercial product line.

I cannot underscore strongly enough that we have hit a critical turning point for profitable revenue growth for clear up.

In 2022 last year.

Were significantly impacted by the global supply chain issues in electronics by surging shipping costs by the extraordinarily high cost of component parts.

All significant factors that negatively impact the company performance.

Hi, purchase price variances and increases but translated into our standard cost.

In 2023, we've now changed our PCB manufacturer of fulfillment vendor and our assembly partner in an effort to decrease our costs and streamline our manufacturing and fulfillment processes.

To achieve price stability.

We opportunistically made advanced purchases in late 2022.

Alps secure improved pricing and should provide protection against that type of erratic supply chain events. We saw before we're tightening we are hardening our supply chain, our inventory management and our overall cost structure.

We are now seeing those results pay off.

This quarter, we have experienced an increase in margins.

From 10% to 40% of older high cost inventory sold through.

Going forward, we expect further gross margin improvements within the second quarter.

That older inventory continues to flush out.

Also.

As we replenish at lower costs.

Additionally, we conducted new price sensitivity testing and as a result, we've.

Have supported and increased pricing by over 60% over the past few quarters.

The combination of lower cost of goods, 60% of increase in pricing.

We are now have margins well.

Although we are expecting to see some drop in the unit sales due to the price increases the pricing structure on the underlying Cogs improvements are expected to more than offset more than offset any negative impact of the pricing increase.

So finally.

Some of our other important commercial developments include we completed product line expansion studies identifying new unmet needs for clear up that we believe are addressable by the existing product.

These are in areas such as sleep.

Headaches migraine Alex.

The allergies.

The other symptoms that effect over 85 million consumers in the U S.

We invested in product improvements to enhance customer experience and to.

To support cost effective product line expansion into those.

I value areas, we described.

And based on our market studies, we are completing a two year product version and plan to increase sales through out of their market segments.

Many with a greater willingness to pay a higher price tolerance and a greater likelihood to purchase.

Then the core markets that we have already attacked.

We also obtained a successful recertification of our ISO 13, 45 quality management system.

And the European medical device CE Mark.

You can open the alternatives for international markets.

So with that I'd like to hand over to Kimberley bond back to Vic health interim CFO to go over the financial results for the quarter ended March 31 2023.

In more detail.

Thanks, Jennifer and good afternoon, everyone I'm very pleased to be working with the team.

We posted first quarter revenue of 376000, a decrease of 52000 or 12% compared to the same quarter last year.

Primarily due to a 27% decrease in unit sales offset by a 17% increase in the per unit average sell price.

Unit sales in our direct to consumer channels decreased 34% while unit sales in our wholesale channel decreased by 9%.

Average sales price in our direct to consumer and wholesale channels increased by 23, 6% and four 8% respectively.

Going forward, we expect to see some continued variability in sales due to a reduction in marketing spend and price point positioning for target market with the net impact, resulting in a higher gross profit and a lower loss from operations.

For the three months ended March 31st 2023 cost of sales decreased by 95000 or 27% compared to the same period in 2022.

Primarily driven by lower cost per unit and a decrease in sales volume.

Variable cost was 192000 or $69 81 per unit for the three months ended March 31, 2023, compared to 310000 or $81 93 per unit for the same periods in 2022.

The decrease in variable costs is primarily driven by lower manufacturing and fulfillment costs.

Fixed costs were 71000 or $25 61 per unit for the three months ended March 31, 2023, compared to 48000 or $12 five seven cents per unit for the same period in 2022.

The increase in the fixed costs was primarily due to lower sales volume to absorb those costs.

As a result of both the micro out an alarm agreement signed within the fourth quarter of 2022, we have significantly reduced the cost per unit for the existing clear up product in the first quarter of 2023.

We expect that the remainder of the curb inventory previously built under the higher cost structure should sell through in the early second quarter of 2023, resulting in continued reduction of cost of goods sold as a percentage of revenue.

Our first quarter gross margin was 31% as compared to fourth quarter of 2020 to 10, 4% and a 16, 4% in the same quarter of last year.

We expect our gross margin to increase with future price increases continued optimization of our supply chain and product design as well as increased sales volume of which fixed and semi fixed costs are allocated.

Research and development expenses increased by 89000 compared to the same period in 2022, the emphasis of research and development activities. In 2023 has been primarily related to a large segmentation study to identify additional incremental market segments with high willingness to pay.

Product designs and new versions of the device as well enhancement of our intellectual property protection.

Sales and marketing expenses decreased by 226000 compared to the same period in 2022.

The decrease was primarily due to more targeted sales and marketing efforts, while bringing new distribution partners online and managing seasonal variability.

General and administrative expenses increased by 55000 compared to the same period.

In 2022, the increase was primarily attributable to higher staff costs offset by lower overhead costs.

Our first quarter net loss of $2 1 million compared to $2 2 million in the same quarter last year.

On February 13, 2023, we issued and sold 29 shares of our common stock at a public offering price of 25 cents per share less underwriting discounts and commissions, resulting in gross proceeds to the company of $5 million and net proceeds of $3 6 million.

As of March 31, 2023, the company had $5 2 million of cash and equivalents, including proceeds from the offering closed in first quarter 2023.

We also continue to maintain a no debt balance sheet I will now hand, the call back to Jennifer to discuss 2023 outlook.

Thank you Kim I am definitely looking forward to 2023.

Operationally last year involved significant expenses that carried over from the IPO protracted offering associated with an unconsummated transaction and all of the supply chain issues, we've already talked about but now as I look forward into 2023, we.

We are focused on high value target market segments were clear up in four of our commercial product.

Segments with higher return on our marketing investment and I'm able to start talking about our R&D pipeline are initiatives to push through at the target breakthrough opportunities that can contribute meaningfully to the bottom line.

Moving forward. We are also focused on reducing our operational overhead tightening our G&A spend reducing the fixed overhead the fixed infrastructure and optimizing our utilization of third party resources.

We intend to selectively invest in advancing our product candidates, our marketing and our distribution, but includes targeting the high incremental market segments with unmet needs.

The high willingness to pay it.

We've talked about increasing our retail price supported by a brown enhancement to increase gross margins we.

We are continuing to broaden our distribution channels with large commercial contracts.

With a focus on penetrating the health care and wellness centric channels.

Optimizing our marketing investment to focus on lowering our fixed infrastructure and create a higher return on our AD spend in optimizing our total customer acquisition cost.

And strategically broadening our intellectual property and our product pipeline.

Our portfolio is currently supported by currently supports our products with five issued U S patents 96 claims and twin peaks.

Pending patents in the U S and abroad.

So across the board.

Typically has proven our ability to innovate by combining science and technology with our expertise in neuro immunology in medical device development and regulatory affairs and in product development, we have launched commercial product and it is now gaining market traction.

Sheridan our recent announcements we've also secured.

Engaged and brought in the academic research community the community that supports our opportunities for being able to deliver breakthrough innovation.

The F D a to swim lanes breakthrough innovation as areas.

That are life, threatening or irreversibly debilitating condition and views are the conditions for use of the condition.

Create high cost burdens for the health care system and.

Hi life altering doctors for the people that are experienced them.

Those opportunities.

As they mature will contribute significantly to the companys bottom line.

[noise] noninvasive bio electronics, the core of our platform and our ability to manipulate the system electronically has the potential to significantly benefit not only patients today with our commercial products.

But to significantly benefit both patients and healthcare systems with more effective solutions.

As these areas as well as the commercial traction that I continue to look forward to and I am excited about as we move into 2023 as we continue to move through this year I will look forward to.

Coming back and sharing more about our advancements in all of these areas through the coming here.

And with that.

I would love to turn to the Q&A section.

We've had a couple of questions come in ahead of time and this is the point, where I transitioned into our Q&A session session.

The first one was is the company planning on making budget cuts since it is burning so much money.

Well I think I've actually addressed during my comments are quite a number of the areas, where we are looking to reduce.

First of all I've already highlighted the manufacturing cost increases to our average selling price, which increased the profit back into the company and increased advertising effectiveness.

We are also focused on reducing fixed infrastructure cost.

To be able to allocate to commercial spend with high returns and we believe that these structural improvements along with streamlining the administrative costs of the business.

Should serve to improve the overall run rate.

Yeah.

You've recently increased prices at a time when inflation concerns dominate the news are you worried about how this will impact sales.

The point, you're making is obviously something we considered when we evaluated the price increases yes. We did look at this question.

What I, what we observed in our pricing studies, though is that a lot has changed over the last few years and how we all of us as consumers think about health and devices.

That's an apple watch or Google or the integrated health applications and our smart devices.

There's a growing preponderance of consumer focused monitors and different types of therapies.

And in that context, we've seen a definite shift in consumer price tolerance.

So we believe that the price increases are well supported and.

And that is what we are seeing early indications of as we are getting into this new quarter.

I had a question come in about migraine.

You've you've previously spoken about the migraine area didn't hear it mentioned today is that still an area you're focused.

Oh, Thank you, yes, yes briefly.

That is an area we have ongoing activity there is significant overlap between sinus pain and inflammation in the migraine triggers.

Also can.

Congestion, which is also a sign of inflammation is one of the.

Onset symptoms with migraine, so quite a bit of overlap it's definitely an area. We are evaluating the marketing evaluating in the market.

And our clinical strategy.

So this is an area, where we are defining the go to market.

Looking at several alternatives as well as the regulatory milestones that are associated with it.

I did not speak to us as of today, because we did not have a specific milestones to report on but definitely an area, where you are still looking to build out the business.

Question I believe you receive notice from NASDAQ about the Companys stock price what are you doing to address that.

Yes, we and many other companies receive notice from the NASDAQ stock market ours came on January 26, 2023, we had 180 days to regain compliance.

Which may be subject to extension by NASDAQ as well.

We are continuing of course to monitor the closing bid price of the common stock and we will be considering all options to resolve that noncompliance.

That includes considering a reverse stock split which to this end. We have included a proposal in our recent proxy statement for.

For shareholder approval at our 2023 annual meeting.

If approved by our shareholders that would enable us to move forward quickly with a reverse stock split if we determine that is necessary in order to regain compliance with the NASDAQ rules.

And to maintain our listing.

So I and the board are committed to taking all steps necessary to maintain compliance.

A question after the termination of the relief band acquisition last fall as the companies still acquisition minded.

Yeah.

Absolutely [laughter] simply put we remain committed to our growth strategy, which includes both organic and inorganic opportunities today I had the opportunity for the first time to speak about some of the organic development activities not only around the hardware product design of our corrupt but be odd moving beyond.

On the facial nerve stimulation and into the vagus nerve area.

So we will continue to evaluate strategic acquisition licensing and partnerships, both inbound and outbound.

And finally, what are your going forward plans to rebuild shareholder value.

Okay. This is a great closing questions. So thank you.

I hope that you've heard today, a number of the steps we are taking to build the shareholder value.

We've increased margins on clear up enabling profitable growth through both direct and indirect channels, we're pushing our marketing dollars harder and harder to get more out of them.

We're focused internally and with our third party partners on reducing our operational overhead.

Strategically and selectively filtering opportunities for inorganic growth, while investing in our organic growth opportunities with a lean precision.

So with all that we are navigating some narrow pathways and it is a very challenging market. So I can't say that success is inevitable.

But we have hit an important turning point.

We have a small strong team.

Powerful blend of short medium and long term catalysts.

And committed partners working with us to propel the company forward.

So I.

I am excited about where we are proud of what we've accomplished and I look forward to reporting even more progress in Q2.

And more questions at that time.

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

Okay.