Movano - Q1 2024

Executive Summary

• Q1 marked first revenue with $0.85M as Movano began shipments (5,305 Evie Rings) but paused orders to fix delivery and service bottlenecks; operating loss narrowed to $5.8M from $7.2M YoY as R&D and SG&A stepped down.
• Management reiterated July 2024 timing for FDA 510(k) decision on the Evie Med Ring pulse oximeter after submitting new “exemplary” SpO2 trial results (RMSE 2.46%) on April 22; engagement with the FDA reviewer is ongoing.
• Balance sheet was bolstered by a $24.1M private placement in early April (including a strategic investment from a tier-1 medtech company), lifting pro forma cash to ~$24.8M versus $2.1M at 3/31/24, enabling D2C relaunch prep, B2B buildout, and RF pipeline studies.
• Key near-term catalysts: 510(k) decision (July 2024), relaunch of Evie D2C with improved inventory and CX, and arterial line blood pressure study in June (precursor to pivotal study); management framed these as potential stock drivers.

What Went Well and What Went Wrong

• What Went Well

  • Initial commercialization: first shipments on Jan 22 drove $0.85M revenue with 5,305 units shipped; operating loss improved YoY as expenses declined.
  • Regulatory momentum: April 22 resubmission included SpO2 RMSE 2.46% (below 3.5% FDA threshold) and accuracy exceeding two hospital-grade references; “continue to expect” July decision; CEO: “We…submitted exemplary clinical trial results… bode very well for us”.
  • Strategic funding: $24.1M raise (incl. tier-1 medtech investor) and move toward turnkey manufacturing to free working capital; pro forma cash ~$24.8M supports D2C and B2B execution.

• What Went Wrong

  • Execution growing pains: high demand but manufacturing delays led to cancellations, pressuring Q1 revenue conversion; management paused orders until inventory buffers and CX are strengthened.
  • Negative gross margin at launch scale: COGS ($1.215M) exceeded revenue ($0.852M) given early inefficiencies; focus is on automation, tooling, and process to raise yields before relaunch.
  • Liquidity tight pre-raise: cash at 3/31/24 was $2.1M (before April financing), highlighting reliance on fresh capital to fund relaunch and regulatory roadmap.

Transcript

Operator (participant)

Greetings, and welcome to the Movano Health Q1 2024 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, J. Cogan. Thank you. You may begin.

J. Cogan (CFO)

Thanks, operator. Good afternoon, everyone, and thank you for joining us today. Movano Health CEO John Mastrototaro will open today's call with prepared remarks about the progress the company has made during the Q1 of 2024 in recent weeks. I will then provide highlights of the company's quarterly operating results and current financial position. Then we'll open up the call for Q&A. John and I will be joined by our Chief Marketing Officer, Tyla Bucher, our Vice President of Business Development, Michael Soule, and Vice President of Product and Strategy, Stacy Salvi. Movano Health issued a news release this afternoon detailing Q1 2024 financial results.

Before we begin, I'd like to remind everyone that the company will make forward-looking statements during today's call based on current expectations. Whether in prepared remarks or during the Q&A session, these forward-looking statements are subject to inherent risks and uncertainties, and actual results may be materially different from such statements. These risks and uncertainties are detailed in the Risk Factors section of Movano Health's filings with the Securities and Exchange Commission, specifically in the company's Forms 10-Q and 10-K. Except as otherwise required by federal securities laws, Movano Health disclaims any obligation to update or make revisions to such forward-looking statements contained herein or elsewhere to reflect changes in expectations with regards to those events, conditions, and circumstances. With that, I'll turn the call over to CEO John Mastrototaro.

John Mastrototaro (CEO)

Good afternoon, everyone. As you are aware, we reported our Q4 2023 earnings just over a month ago on April 4, where we were very excited to share the news of our recent $24 million private placement, which included a strategic seed investment from a tier-one multibillion-dollar medical device company. While we plan to be judicious with our capital spend and methodical in our approach to build out our Evie Ring direct-to-consumer and EvieMED business-to-business market opportunities, we are committed to establishing a solid foundation for both our D2C and B2B businesses so we can successfully serve all our customers. As such, our priorities are threefold. One, to prepare to take D2C orders again for the Evie Ring. Two, to secure FDA 510(k) clearance for its pulse oximeter feature under the EvieMED brand.

And three, to refine our wrist-worn prototype with a millimeter wave RF system on a chip in preparation for additional blood pressure and glucose studies. As to the first priority, we are laser focused on preparing to take orders again for the Evie Ring, which requires that we deliver an excellent product experience, ensure a seamless delivery timeline for all orders, and provide an improved customer service response to any issue. From a product standpoint, we are diligently working to improve the customer experience across both hardware and software. We are developing more robust hardware with improved chemical, environmental, and physical resistance. In software, we are improving our heart rate and motion and sleep algorithms, implementing a more comprehensive AI-driven suite of insights, and are initiating the process to develop an Android version of the app.

On the production side, we are enhancing our automation, tooling, and assembly and test processes to increase yield and throughput as we prepare for relaunch. We are also in conversations with our key production partner to implement a turnkey solution, which would further increase our efficiencies. We have bolstered our customer service capacity and have implemented an AI-powered customer response chatbot on our site, as well as onboarded a new head of customer service with over 25 years' experience in the D2C space. All these efforts will ensure an enhanced customer experience, whether users reach us through D2C or B2B channels. Regarding our second priority, we are working closely with the FDA in anticipation of a 510(k) clearance on the medical device version of the ring, which we will launch under the brand name EvieMED.

We announced last week that we successfully submitted exemplary clinical trial results from a Q1 hypoxia trial to the FDA on April 22, 2024, which is a significant milestone for our organization. During the trial, each subject wore four EvieMED rings, two on fingers and two held on fingertips. When evaluating accuracy versus arterial blood gas levels, the four EvieMED rings achieved a root mean square error of 2.46%, well within the FDA guidance of 3.5%. In addition, our ring's accuracy exceeded that of the two commercially available hospital-grade reference pulse oximeters, one of which failed to meet the FDA standard for accuracy.

We continue to expect an FDA decision regarding our 510(k) in July 2024. In preparation for a positive FDA decision, we remain bullish on the enterprise opportunities that we believe a clearance will unlock for our organization. And as we get closer to securing this distinction, we are already engaged with our strategic partners in the pharmaceutical, medical device, and payer channels. These partners have all expressed the immediate challenge they face in obtaining continuous and secure medical-grade data, and see our solution as an integral part of their future initiatives. We see opportunistic applications in chronic management of cardiovascular, metabolic, obesity, and pulmonary patients, which in aggregate, we've identified as a $20 billion per year market opportunity.

Finally, we continue to focus on the breakthrough technology of our ultra compact and efficient health monitoring system-on-a-chip, which measures just 4 by 6.7 mm, and has yielded breakthrough advances in blood pressure monitoring, enabling accurate, cuffless, and automated tracking. As you'll recall, we previously announced the results of a blood pressure clinical study in October 2023, where our prototype achieved an overall mean absolute difference, or MAD, of 5.9 mm of mercury below the 7 mm of mercury MAD required per an FDA-recognized standard for wearable, cuffless blood pressure measuring devices. We have been making enhancements to this prototype we evaluated in that study, and we expect that our next blood pressure study will take place this June and will be the first study we've done with an arterial line, which is the precursor to an FDA pivotal study.

Unlike a cuff, which provides only one blood pressure value, an arterial line will provide continuous data on a number of patients. In addition, we are also evaluating AI-based individual calibration methods to further enhance the future performance of our platform. Ultimately, we expect blood pressure monitoring will be a significant addition to the suite of analytes we currently offer in Evie, as over half the adults in the U.S. over age 20 are pre-hypertensive or have hypertension. Continuous monitoring of blood pressure holds the promise of dramatically enhancing the management of these conditions. With that, I'll now hand the call over to J. for the financial review.

J. Cogan (CFO)

Thanks, John. We shipped 5,305 Evie Rings in the Q1 of 2024 and reported $852,000 in revenue in the period. The company reported an operating loss of $5.8 million in the Q1 of 2024, versus an operating loss of $7.2 million in the year-ago period. We launched the Evie Ring during the Black Friday 2023 holiday period, and we are reporting revenue for the first time as revenue is tied to the timing of ring shipments, which commenced in January of this year. You'll recall that given capital constraints, we ceased all paid marketing as of December 1, 2023, and temporarily halted taking orders in February 2024.

From December 2023 through March of this year, we prioritized capital preservation and actions to meet production and customer service needs. Not surprisingly, given the limited initial launch, there were some operating inefficiencies and learnings early on. For example, our launch generated a great deal of excitement, and consumers were anxious to receive their rings. Delays that we experienced with delivery timelines generated a number of cancellations that impacted the top and bottom-line results of our initial launch. We intend to avoid this issue going forward, as John noted earlier, by ensuring ample inventory prior to taking orders again. We are already making important strides in additional operational improvements across product, manufacturing, and customer service that should position us well for both an expanded launch of the Evie Ring direct-to-consumer and eventual launch of EvieMED in B2B upon an FDA clearance decision.

Following our successful private placement in April, where the company raised $24 million in gross proceeds, including a strategic seed investment from a tier-one multibillion-dollar medical device company, we believe we have the resources to judiciously drive our D2C business, launch EvieMED, target B2B, and accelerate clinical trials related to our proprietary RF technology. Importantly, and as noted before, with these funds now on our balance sheet, we are in conversations with our production partner about a turnkey solution, which should free up both working capital and people resources for Movano Health. A few other financial highlights. Our cash burn in the Q1 of 2024 was $4.1 million, which was inclusive of costs for the Evie Ring launch and expenses related to our FDA submission, as well as other quarter-to-quarter timing considerations.

Whereas we had $2.1 million of cash and cash equivalents on our balance sheet at March 31, pro forma for the early April private placement, we had $24.8 million of cash and cash equivalents at that time. Now I'll turn it back over to John for final remarks.

John Mastrototaro (CEO)

Thanks, J. This past quarter has been a significant one for the company, marked both by valuable lessons from our D2C launch, as well as significant progress in our organizational milestones. We are encouraged on all fronts and look forward to a successful D2C reignition, continued positive momentum around our expected 510(k) clearance, and advancing to the next phase of our blood pressure clinical studies. We are confident that this combination of positive developments will act as a catalyst for success through the balance of the year... and we look forward to keeping you updated as we continue to make headway. As that concludes our formal remarks, we'd be glad to take your questions.

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. For those on the webcast, you can submit your questions via the webcast platform.

J. Cogan (CFO)

Okay, operator. It looks like, well, at least while we're waiting for any questions from the phone lines, it looks like we have a few questions on the webcast, so I can go ahead and begin asking those and directing them to the team. The first one, John, I think this should be for you. Could you provide any updates as it relates to the 510(k) process, beyond what you mentioned in the call today?

John Mastrototaro (CEO)

Sure, J. Yeah, thanks for the question. As I mentioned in the call, we recently refiled with the FDA some new clinical results for another hypoxia study, where we had four rings worn on four different locations for each subject, and we were really pleased with the results, which exceeded our expectations. The rings not only exceeded, far exceeded the FDA benchmarks, but they provided more accurate results than two FDA-approved hospital-grade control devices that were used during the study. So I think those results bode very well for us. We've actually, since putting in the new data, have already had some back and forth communication with our reviewer, and thus far, things are going pretty well. We're gonna continue to work closely with the agency, along the path of, ideally getting this product, cleared for market.

J. Cogan (CFO)

I think Michael Soule can answer the next question, which is: Can you provide some more detail on your plans for the launch of EvieMED with B2B partners?

Michael Soule (CCO)

Hey, J., sure. Yeah, that's a good question. So we continue to engage with all of our beta partners in channels ranging from medical device to pharma, who are looking forward to our FDA clearance, in the July timeframe. We expect a 510(k) clearance that unlocks a host of initiatives across clinical trials and remote patient monitoring, and we're currently building the back-end data systems required for these partnerships, so we can hit the ground running. Coming off our recent announcement of cuffless blood pressure clinical study results, we have another new group of large strategic partners wanting to work with us in channels ranging from pharma to medical device.

J. Cogan (CFO)

Okay, speaking of blood pressure, this next question, I guess, could be for Michael Leabman, or John. Do you want to comment on the progress you've seen, with blood pressure?

John Mastrototaro (CEO)

Sure, I can take that.

Michael Soule (CCO)

Michael?

Michael Leabman (CTO)

Yeah. Yeah, so I think, as John mentioned earlier, our next big step, you know, it, there's two big steps, actually. One is to take our blood pressure reference design and make it more into a product as we get closer to our pivotal study. And as John said, really trying to improve the algorithm and do an arterial line test in June, which is similar to the test we would be doing for FDA pivotal studies. So really just trying to get everything ready and in a form to really facilitate fast tracking blood pressure.

J. Cogan (CFO)

Okay, John, do you want to take this next question? I'll throw a couple of the questions together because they all relate to the shipping of the Evie Rings. Some questions about when we'll start shipping Evie Rings, and then also some questions about features related to Evie, including how far are we from an Android app?

John Mastrototaro (CEO)

Sure, J., thanks. Yeah, this, I'm seeing this question is coming up quite a bit. So, as J. had mentioned in the prepared remarks, we went through a pretty challenging capital situation, the end of last year and into early this year, which kind of hamstrung us a little bit on what we were able to do. However, launching the ring when we did and getting it out there in the marketplace where we could learn really provided a great opportunity for us. And so now that we have the new funding, we are focused on optimizing our production processes and delivery times, as well as working on overall ring improvements and of course, the enhancements that we've already been making to our customer service.

We are currently working with our manufacturing vendors to order all the raw materials that we need to satisfy increased demand that we expect moving forward. We're gonna hold on taking new ring orders until we've ensured that we can establish and maintain an ongoing inventory of about one to two months by SKU at all times. Once we're confident in all these initiatives that we've set up, then we will announce a new ship start date. We are under no huge urgency to do this earlier than when we feel really confident in our ability to fulfill orders. Having inventory built up and maintained before we turn on the spigot again is very important to us as an organization.

J. Cogan (CFO)

Great. And John, I have another one for you. Someone's asking if there's any update on the strategic investor and other potential partnerships?

John Mastrototaro (CEO)

Sure. Oh, well, as it relates to the current strategic investor, it's actually been a very, really collaborative relationship that's only a little more than a month old since we did the fundraise. Already I've had multiple meetings with their team. They've actually offered us some support in a couple of areas where they have more experience and expertise than us, which has been very valuable to us for moving forward. And we've discussed some further opportunities where our ring in its current embodiment could potentially be beneficial to some of the work that they're doing with customers and where they see the market trends going.

Lastly, of course, there's the continued interest in what we're doing with our proprietary millimeter wave RF technology and the future that holds, as I mentioned, as it relates to blood pressure and/or glucose, which are the two big granddaddies of metrics that we could be monitoring. So, a lot of excitement there as well. So, yeah, since this engagement started, it's been nothing but positive, I think, both on our side as well as theirs. And we've shared with them our strategic plan for the rest of this year and going into next, and gotten some feedback from them about what our plans are and our focus, and we're in complete alignment.

J. Cogan (CFO)

Great. And then a couple quick ones here. Blood pressure, do we see the first device, commercial device being, a wristband or a ring? And then, for EvieMED, will that also be for men?

John Mastrototaro (CEO)

Michael, why don't you do the first part of that, and I'll do the second part.

Michael Leabman (CTO)

Sure. So I mean, our chip, as John mentioned, is 4 by 6 mm, so it does have the ability to eventually go into a ring as well. I think in this first go around, given all of our great data so far that we did in our previous clinical studies, we wanna make sure that we, you know, get through the FDA as quick as possible with, you know, what we've already been testing for the last, you know, year and a half. And I think once we, you know, take that a little bit further along, then we'll start looking at putting it into the ring as well.

John Mastrototaro (CEO)

As it relates to EvieMED, I can, I can tell you about a couple of things that are very important. When we've run our clinical trials for SpO2, for example, and heart rate, that was done both men and women. You know, we looked at the entire population as well as very importantly, people with different skin tones, because they're optical sensors for SpO2. And so really, that was not limited to only women, it's for all. And in the discussions that we've had, and Michael Soule perhaps can elaborate on this, but the discussions that we've had with potential partners in the healthcare space, I mean, some of them are developing female-focused solutions, so obviously, that would apply to them. But many others are looking at this for both men and women.

The ring today is worn by some men, albeit a much, much smaller number of men than women. But nothing prohibits the ring from being used by either men or women. And certainly, the men on this call and out in the field are using Evie rings today. And as the medical device comes to market, we will certainly, you know, use it on both men and women. And Michael Soule, I don't know if you have anything you'd like to add.

Michael Soule (CCO)

No, John, you covered it well. Just that, you know, all of our beta partners, while they see what we're doing in the direct-to-consumer world and think it's a really great strategy, in the clinical trial areas and medical device areas, the folks, the large strategics that we're dealing with, see this as a unisex device. So, I just wanted to add that.

J. Cogan (CFO)

Okay, and then it looks like our last question for the webcast, and it doesn't look like we have any on the phone line, so this will be our last question for this call today. You sold $1 million of rings—I'll take this one, by the way—You sold $1 million of rings in the first 10 days of your launch, but netted $850,000 after a full quarter. Can you elaborate on the difference?

Sure. As we mentioned on the call, we had a lot of demand at launch, and we were very committed to fulfilling all the orders as quickly as possible. But we did have a series of unexpected delays on the manufacturing side, which caused some frustration for consumers, and they grew tired of waiting and subsequently canceled their orders. So, while that was disappointing, it was excellent learning for us as an organization. We've since modified our processes and our inventory controls so that when we begin taking orders again in the future, we will have plenty of inventory and be able to deliver all sizes and colors, within 5-7 business days. Okay, operator, that looks like, the end of the Q&A. I will turn it back to you.

Operator (participant)

Thank you, sir. Do you have any closing remarks you would like to say?

J. Cogan (CFO)

Yes, thanks for reminding me. Just one. We appreciate you all being on the call today, and if you'd like to continue to follow Movano Health, for news and, events, please stay tuned to our website at ir.movano.com.

Operator (participant)

Ladies and gentlemen, that concludes this conference. Thank you for joining us. You may now disconnect your lines.