Good day, and welcome to the Lucid Diagnostics Second Quarter 2023 Business Update Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Michael Parks, VP, Investor Relations. Please go ahead.

Thank you, Betsy. Good morning, everyone. Thank you for participating in today's second quarter 2023 business update call. The press release announcing our business update for the company and financial results for the 3 and 6 months ended June 30, 2023, is available on the Lucid website. Please take a moment to read the disclaimer about forward-looking statements in the press release. The business update, press release, and this conference call include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer in our filings with the U.S. Securities and Exchange Commission. For a list and description of these and other important risks and uncertainties that may affect future operations, see Part I, Item 1A, entitled Risk Factors, and Lucid's most recent annual report on Form 10-Q filed with the SEC and subsequent updates filed and quarterly reports on Form 10-Q and any subsequent Form 8-K filings. Except as required by law, Lucid disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions, or circumstances on which the expectations may be based or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. I would now like to turn the call over to Dr. Lishan Aklog, Chairman and CEO of Lucid Diagnostics. Dr. Aklog?

Thank you, Mike, and thank you all for being here this morning. We appreciate your time and look forward to providing an update on the last quarter. As highlighted in our press release yesterday, we finished the first half of this year strongly. Let's begin with some highlights from the second quarter. We are pleased to report a growth in test volume to just over 2,200 EsoGuard tests, representing a 20% increase quarter-on-quarter and 159% on an annual basis. We'll delve into more details regarding our commercial execution soon, but this growth was primarily driven by improved seller productivity and enhanced activities through our satellite test centers and high-volume testing events. We achieved significant strategic accomplishments in the last quarter that position us well for future growth. A key milestone was the upgrade of our revenue cycle management infrastructure and provider, which was completed after a process that spanned all of May and most of June. This has already led to positive effects on our claims processing and payments, which Dennis and I will discuss in detail regarding July performance. Our prospective clinical utility studies, crucial for our payer engagements, reached and exceeded their first enrollment milestone with over 500 patients participating across two studies. We'll analyze these results and submit our first manuscript later this month. We are excited by the remarkable outcomes from the NCI-funded EsoGuard study conducted for the BETRNet consortium, which reported 100% detection of cancer and over 80% detection of pre-cancer—unprecedented results. Additionally, we have finalized our first direct employer contract, marking the first instance in which a company will offer EsoGuard as an employee benefit. For those of you new to our company, Lucid has two main products: EsoGuard, the esophageal DNA test, and EsoCheck, the cell collection device. Together, they represent the only commercially available testing option capable of preventing cancer deaths through early detection of esophageal pre-cancer. Major gastroenterology associations endorse non-endoscopic biomarker testing, and ours is the only one widely accepted as an alternative to endoscopy. Esophageal cancer is highly lethal but preventable. Highlighting some statistics, the mortality rate for Stage I cancer exceeds 40%, unlike other cancers where early diagnosis typically indicates a chance for a cure. Consequently, detecting pre-cancer is vital, yet less than 5% of those recommended for screening undergo endoscopy. I want to share a personal patient story, as our ultimate goal is to save lives through early detection. This story centers around a patient named Steve, a 70-year-old man who had long suffered from chronic heartburn and had his last endoscopy over 20 years ago. While in his allergist's office, he noticed our educational poster encouraging people to check their symptoms and realized he fit the criteria for testing. After requesting the test from his physician, he underwent the EsoCheck procedure, which returned a positive result. A follow-up endoscopy revealed late-stage pre-cancer. If Steve had not taken the initiative to get tested, his pre-cancer could have progressed to cancer in the coming years. Following his diagnosis, he received a series of curative ablation procedures, which he attributed to having potentially saved his life by acting on the information he saw. The market opportunity we are addressing is expansive, particularly among the 30 million patients suffering from chronic heartburn, who are often recommended for pre-cancer testing. Medicare has established a reimbursement rate of $1,938, which seems to be holding steady as we enhance our activities with payers, indicating a substantial market opportunity. Our gross margin remains robust at over 90% at our current volumes. Regarding our commercial performance this past quarter, EsoGuard testing volume increased by 20% to 2,200 tests, reflecting consistent double-digit growth over the past six quarters. I want to clarify that we do not face capacity issues with our laboratory, which can conduct over 10,000 tests each quarter, backed by sufficient manufacturing capacity. Referrals for this test are stabilizing, with about 50% to 60% coming from primary care physicians, while the remainder is from specialists and institutions. We've also seen more procedures being done by our nurse practitioners at our satellite test centers, allowing for greater geographical reach and more flexibility in patient testing locations. We've recently launched a mobile test unit in Florida, which helps meet regulatory requirements while also extending our capacity to serve patients directly. In our ongoing community outreach initiatives, we've begun the "Check Your Food" pre-cancer detection events, initially targeting firefighters but expanding to police departments and other groups, thus maximizing our reach and providing significant media exposure for our services. With respect to claims processing and coverage, we have made important strides to establish a more robust revenue cycle management system, which enhances our ability to collect payments and secure coverage from commercial payers. The upgrade to our RCM infrastructure has already started yielding positive outcomes, including improvements in claims approval rates and average sale prices. Furthermore, we are pursuing direct contracts with employers and have secured our first contract with an automotive group in Texas, enabling us to offer EsoGuard as an employee benefit via our satellite test program. In conclusion, our clinical utility efforts remain central to our engagement with payers to obtain coverage. We are on track to provide data from our prospective studies, which will demonstrate the impact of our test on medical decision-making and strengthen our negotiations for coverage. We are eager to share more about our ongoing studies and achievements in the near future. Now, I'll hand it over to Dennis for a summary of our financial results.

Thanks, Lishan. The summary financial results for the second quarter and the first half of the year, we reported a press release that was published last night. On these next three slides, I'll emphasize a few key highlights from the quarter, but I encourage you to consider those remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q that was filed with the SEC last night and is available on our website. So on Slide 16, here is our balance sheet. Cash, $32.6 million, reflects a sequential burn rate of $6.9 million. The burn rate in the first quarter was about the same at $6.6 million. Obviously, the simple math suggests that if this rate is sustained, it puts our runway to more than a year. The burn rate is softened by PAVmed's currently deferring payment of the quarterly management services agreement, which creates optionality for paying the outstanding intercompany obligation in stock or cash, which is at PAVmed's future election. Furthermore, as cash collections continue to accelerate, as we'll talk about in a second, this can further throttle the burn rate for the upcoming quarters. Vendor payables were flat for the sequential quarter as was also the case in the first quarter. So the burn rate is not substantially influenced by changes in key net working capital balances. The intercompany debt to PAVmed increased by $3.1 million, for which $2.3 million is the quarterly shared services charges. The shares outstanding, including unvested restricted stock awards as of today, is 43.7 million shares, which is substantially unchanged from the first quarter. The GAAP outstanding shares are reflected on the slide as well as in the face of the balance sheet in the 10-Q. On the next slide, Slide 17, compares this year's second quarter to last year's second quarter and similarly for the 6-month totals on certain key items. Thus, I will review the information in my comments in light of the cautionary disclosure in the bottom of the slide about supplemental information, particularly non-GAAP information. I'm required to say that. Revenue for the second quarter reflects actual cash collections for the quarter, plus invoice EsoGuard test to the VA. With regard to the prior year, you will recall there was a 6 monthly fee received from the third-party lab that we used before setting up our own lab, and that agreement terminated in February of '22. You'll recall from our discussion on the last quarterly call and the comments that Lishan made that we made a major change in upgrade to our revenue cycle management company. We determined the best way to manage that transition was to stop submitting claims for reimbursement at the beginning of May to allow Quadax to come on board, which they did in mid-June, and more effectively handle processing and reporting on the claims we had in our prior lab. So far in the short period of time, just since the beginning of the third quarter, collections for third-party reimbursement claims have tripled what was collected in the entire previous quarter. As a reminder, revenue recognition, a key determinant is the probability of collection. And therefore, due to the fact that we are in the early stages of our reimbursement process, this means revenue recognition occurs when the claim is actually collected. First, when the patient report is invoicing submitted for reimbursement. As you'll see in our 10-Q, this is called variable consideration in the jargon of GAAP ASC 606 revenue recognition guidelines. And presently, there is insufficient predictive data to reflect revenue when the test report is delivered to the referring physician. However, Quadax is developing that database for us to eventually change from cash collection recognition to when the service is delivered. Our non-GAAP loss for the second quarter of $9.6 million reflects a 2.4% sequential decrease compared to the first quarter loss and approximately a 10% decrease from the fourth quarter of last year as a result of the cost control initiatives we put in place at the beginning of the year. The next slide, Slide 18, is the graphic illustration of our operating expenses for the periods reflected. Total non-GAAP OpEx of $9.7 million for the second quarter of '23 reflects a sequential decrease of 11.3%. However, in our last quarterly call, we mentioned that in the first quarter, there were approximately $1.2 million of certain onetime expenses as we rationalized our base expenses. Taking into account these measures, the normalized OpEx levels for both the first quarter and second quarter are about even with each other. And both reflect a 9% decrease from the fourth quarter of last year, again, as a result of the cost controls we put in place at the beginning of the year. Except for cost of revenue, all OpEx categories were flat or lower, contributing to the overall sequentially lower expenses. Cost of revenue primarily consists of EsoCheck devices, lab supplies and fixed lab facility costs. The non-GAAP loss is slightly better sequentially by $0.01 per share and significantly lower than last year's fourth quarter, about $0.10 per share, which was again the last quarter before putting the cost controls in place at the beginning of the year. On a GAAP basis, the net loss per share improved from $0.40 loss per share to $0.27 per share, reflecting a $4.9 million decrease in our sequential net loss. Contributing to this $4.9 million improvement, about half came from financing-related activities in the first quarter, and the remainder was a general reduction in OpEx, mainly stock-based compensation and other noncash charges. Now, as promised, some statistics in the market access. First, the split between commercial and Medicare. Medicaid was in the past about 92%, 8% Medicare and Medicaid. Not significantly higher. It's about 82%, 17% split. So a little bit higher on the Medicare, Medicaid, but not substantial change. Since Quadax took over an indication of some of the statistics that they provide us that we continue to monitor the performance since May 1 through August 14, a period of time that Quadax submitted claims. You remember we stopped submitting with Synergen on May 1. They submitted just over 2,000 claims, 2,100 claims. Of those, less than half, 943 have been adjudicated. And it’s a term we're going to use a lot going forward. Out of the claims that were adjudicated, a decision or an allowance of the amount to be paid was made with 349 claims, or 37%. Importantly, the amount that was allowed when those claims that were adjudicated and determined to be allowed has increased from past quarters. It presently is just under $1,900, $1,890. This represents the insurance company's payment rate. It does not take into account individual patient's deductible or co-pay. It's the allowance. But it's an indication that they are respecting the payment rate, the Medicare level. And so yes, a lot of payments are considered out of network, but we're going to focus on allowance going forward because we think that levels the playing field from quarter-to-quarter to determine progress being made on the insurance level. So with that, operator, let's open it up for questions.

Congratulations on the volume. It's encouraging to see the solid sequential increase. I believe I understand the situation with the RCM provider and the changes made, and it looks positive for July moving forward. Could you quantify the volume that was lost in May and June, and perhaps provide some qualitative insights on that? Additionally, can you confirm if there's a possibility to recapture that revenue during the remainder of 2023?

Yes. None of those claims were lost. Quadax just took over all of them; we actually held those claims and waited for Quadax to be operational, and they backtracked to that date. That's why the statistics I provided from May 1 to August 14 reflect the claims they submitted, some of which were from May to June 30, with the remaining submissions since then. The total during that period was slightly over 2,000. So, even though we didn't submit on May 1, the claims were picked up on June 12, and they submitted all of the backlog.

Yes. So no, just to use your term, no claims were lost and no test volume was lost. Obviously, those...

That resulted in the timing of collections but not in loss tests.

Right. I should have said shifted to the, I guess, second half of the year. But I heard your stat at the end there, Dennis. I was just confirming if that was what you were talking about? That's perfect. That's great. In terms of the high-volume testing impact in the quarter, maybe just walk through that and maybe talk about how we're thinking about that going forward? If it's recurring and organic revenue kind of growth stores? Or is it still to subside and we shouldn't really expect any of what's happening going forward?

I think it's upside, but it's also a key part of our growth. So in the first quarter, the first quarter total had about 450 tests from those high-volume events, check your food tube events, and it was slightly higher in the second quarter, about 8% or 9% growth. So to get to your question, the organic growth of non-test events was around 23%, for an overall blend of 20%.

Yes, and that aligns with our current strategy. I want to reiterate that we are not transitioning from one strategy to another. We are employing a comprehensive approach. We are actively seeking opportunities to facilitate patient access, and these high-volume events serve as an effective tool for us. They represent a different method, typically involving one physician. We identify physician champions and groups; for instance, we began working with firefighters but have since expanded our outreach. There is significant interest and demand for these tests, which we can administer efficiently, as our nurse practitioners can conduct 30 tests per day. This will continue to play a crucial role. We've also refined our compensation plans to ensure we're not undermining one area for another. Thus, there remains an incentive for individual, physician-driven referrals, and we anticipate growth in both areas.

Okay. Awesome. And Lishan, one for you on the prior authorization process. EsoGuard is such a novel kind of diagnostic. And EsoCheck as well, the procedure itself pretty new, it's been on the market for like 2 or 3 years. How has the receptiveness and the expediency progressed since you started submitting claims to commercial and private payers a few years ago? And what are the points of pushback for these kinds of key gatekeepers here?

It's a complex situation. The commercial payer process can vary significantly in how people interact with it. At the forefront for the larger in-network contracts is the emphasis on clinical utility; we are often told to return when we can demonstrate sufficient clinical utility. However, as Dennis mentioned, we are working with an upgraded provider that assists us in engaging payers on a claim-by-claim basis. Many interactions involve claims being initially denied, but then there is an appeal. We view the appeal as a chance to engage with medical directors one-on-one and educate them on the significance of the test. We are seeing increased engagement, with a rise in interactions with medical directors, and there has been notable progress in the past six weeks regarding these discussions and the resulting lab claims. While it is still early, this trend is promising, and we are quite optimistic for the upcoming quarter.

Quadax has a very sophisticated appeals process, and they are just getting started. I mentioned they have processed just over 2,000 claims since May 1, with only about 200 in the appeals process as they begin to increase that number. We’ve also identified that the top two reasons for denial are that the procedure is deemed medically unnecessary, which we believe is questionable based on the existing guidelines, and the second reason is...

Often those are just being labeled that had an administrative lapse down, and that's an opportunity to have a conversation with a medical director to actually make the case that it is.

And that's where the appeal process comes in. And ultimately, that will be cured by network coverage, right? And then the second is it's noncovered routine screening exam, which again is comprehensible, given the history and the guidelines, the risk factors. These patients have to demonstrate before they can get tested. So that will change in time.

Just one more question before I leave. What is the expected timing for the peer-reviewed publication of the Lucid registry and the multi-tentacle studies? Do you think it will be published within a year from now?

Certainly, it could happen within a year. I appreciate the broad timeframe because predicting the peer review process can be challenging. We are dedicated to good practices, and once we complete the danger script and fully cleanse the data, we will post it on a preprint server during the peer review process. This will give us a manuscript to initiate discussions. However, it's difficult to estimate the time it will take to receive clear approval since clinical utility studies differ from traditional clinical studies. Nonetheless, we will have many opportunities during the peer review process to engage with payers using the preprint manuscript.

How long do you think it will take to shift from recognizing revenue on collections to recognizing revenue on submissions of claims with the new revenue cycle management process or partner?

It's difficult to determine, Mike. From what I know about other companies, the process can take anywhere from 6 months to 2 years, depending on various factors like the speed of the transition from out-of-network to in-network and how contracts are processed. Ultimately, it hinges on the predictability of submitting a claim to a third party, the chances of receiving payment, and applying historical data to inform these decisions. Quadax will provide us with the necessary data, and once it's adequate, we can make the necessary changes, but predicting the timeline is challenging. I can only reference past experiences to give a range for this timeline. However, it's becoming increasingly sophisticated for us, and we'll have more clarity over the next couple of quarters.

Yes, I understand. And once that happens, what just be basically, like you have a history of getting paid on x percent of your submissions. So you're able to record that fraction as revenue or something like that?

That is correct. So when the key determinant of when the service is delivered is when our lab submits the report to the referring physician. That will be the point of recognition. It is now the point of recognition, but there's one other consideration at that point we have to take into account is what is the likelihood of getting paid at the billed amount and that's the unpredictable piece. So going forward, with reimbursement fully matured, where the predictive value of payment is pretty much assured. The recognition will be at the point of delivery of the test from our lab to the referring physician and we'll know based upon carriers, United and Aetna and what we're getting paid by those different entities and we'll develop the statistics by those entities to be able to record the revenue that we bill them or submit to claim for and recognize it at that point of delivery.

Okay. Got it. And then just in terms of the lab operations, can you talk about the kind of gross margins at the current volumes? I mean I know you’re not getting paid on all the tests, but let’s say that you were getting paid on most of them or able to record the revenue, I guess I should say, on most of them, what would that gross margin look like currently?

Our processing costs through the lab are about $125. That does not take into account the cost of the EsoCheck device. An EsoCheck device in full swing with a full transition to coastline is around $60. And the remaining balance of overhead, probably is $200 around it to the cost of revenue. We think that there’s opportunity in the processing cost to bring them down as volume increases. Some of that will be through equipment efficiency and new equipment and higher volume efficiencies and some of it will just be the speed of which it moves through the facility as well as the cost of the lab supplies will go down. So there is some margin improvements, but generally thinking about it as a $200 per test. You have a $2,000 billable test, you’re talking about a 90% margin. Obviously, it will take us some time to get there. That’s probably how it plays itself out.

Congrats on another strong sequential volume quarter. We're in the summer here, and I just wanted to ask about potential impacts related to seasonality. Were there any large events in Q2 that occurred that you think may not occur again in Q3 that would put your sequential volume growth trajectory at risk?

I'm glad you asked about that. Let's explore it a bit more. The straightforward answer is no. As we've hinted before, growth has been strong on both the organic direct physician referral side and in testing events. The testing volume varies, with some being smaller events and others involving hundreds of patients. It's an additional channel where we see consistent growth. While it might not show the same quarter-to-quarter uniformity, it isn't so erratic that it would obscure any slowdown elsewhere. I appreciate you bringing this up because I want to elaborate on the increase in productivity. We have maintained our sales team at around 38 to 39 sellers, and this growth aligns with our expectations that as our team gains more experience, productivity would rise. We've seen productivity double this year in terms of tests conducted per seller per week. We have numerous data-driven initiatives aimed at enhancing productivity further. However, this growth in productivity can't continue indefinitely, and we are not sure where that plateau might be. With the positive developments in revenue cycle management, there’s potential for higher average selling prices per test collections. If that happens, we might be able to expand the number of sellers to address any plateauing productivity. Without increasing the sales team, we will eventually reach a point where productivity cannot sustain quarter-on-quarter growth. We will hold off on increasing the number of sellers until we see more stability on the payment front. I hope that clarifies things.

Yes. Yes. Yes, still early days. So yes, so my next question, now that the claims submission and adjudication pause has is over, and it sounds like you witnessed really strong trends in July, I'm curious if we could start to see the average realized prices trends back up almost to like the Q1 levels where you were in over $200 per test on revenue per test or realized revenue per test? So I'm just trying to ask if you expect the sort of the billing and collections to manifest itself in terms of realizing price and seeing that flow into revenue in Q3?

Yes, we believe that to be true, especially since we're noticing the number of claims that are being adjudicated. That's why I provided some of those statistics. The portion of the adjudication that results in an allowed amount is nearly 40%, and we anticipate that will continue to increase with Quadax's involvement. That translates into collections, and I think that number will not only reach the levels seen in the first quarter but will also begin to exceed it at an accelerating rate in the upcoming quarters.

Excellent. Last one for me real quick. As I think about these clinical utility studies, I think in the past, you said you expect to complete them by the end of this calendar year. Is that still on track? And you provided an update on numbers, I think it's somewhere in the 200 range. How many more are you expecting to enroll? And how long will that enrollment go on for?

Thank you for the opportunity to clarify that. These studies are ongoing, and we enroll a certain number of participants to publish results. Unlike prespecified endpoints required in other studies, the CLUE study has enrolled 206 patients so far and is targeted to enroll up to 500 patients, which we expect to complete by the end of the year. The Lucid registry is open-ended and will continue to enroll as long as it's deemed useful, focusing on both clinical utility and clinical validity by collecting endoscopy data from positive cases. Our objective for the first clinical utility study submission is to reach a total of 300 patients by mid-summer, eventually aiming for 500. We are currently analyzing the data from the patients enrolled to date and plan to submit it as separate manuscripts for the CLUE and the registry by the end of this month. Both studies will continue to enroll, and we intend to submit additional data as the numbers grow and we refine our analysis. We've aimed for around 400 participants to ensure we have enough positive cases to demonstrate that a positive result will lead to an endoscopy, and we have reached that number, making it a significant data point.

So basically, this is our first set of tools to engage payers on clinical utility, and we intend to do that. And we continue to evolve that with additional amounts and additional dimensions of clinical utility to engage them even further if there's any pushback at this first level of data.

Yes. More is better. We've learned that from monitoring other companies.

Congratulations on the quarter. My question is on the high-volume testing events. Have any of them been repeat or happened again and again? And do you have plans to make some of these events a regular basis at some of these locations?

Great question, Ed. So yes, the answer is yes, that we've actually gone to have an event, and there are people who couldn't make it. We've had events where retirees wanted to come and get tested, and we set a nurse practitioner back. So I wouldn't yet say that these are sort of recurring events where people will come back and get retested over some period of time. But there have definitely been some repeat customers where the enthusiasm for an event and the positive feedback has led to us going back and just testing more people, with extremely high patient satisfaction.

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

Thank you all for your attention. The questions were great, and we look forward to continuing to update you on our progress through press releases and follow-up calls. Feel free to contact us through Mike at [email protected] and to follow us on social media. Thank you very much, and have a great day.

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