Good day, everyone, and welcome to the Vivos Therapeutics Third Quarter 2023 Earnings Conference Call. At this time, participants are in a listen-only mode. A question-and-answer session will follow management's remarks.

This conference call is being recorded, and a replay of today's call will be available on the Investor Relations section of Vivos website and will remain posted there for the next 30-days. I will now hand the call over to Julie Gannon, Vivos' Investor Relations Officer for introductions and reading of the safe harbor statement. Please go ahead..

Thank you, operator. Hello, everyone, and welcome to our conference call. A copy of our earnings press release is available on the Investor Relations section of our website at www.vivos.com. With us on today's call are Kirk Huntsman, Vivos' Chairman and Chief Executive Officer; and Brad Amman, Chief Financial Officer.

Today, we'll review the highlights and financial results for the third quarter of 2023, as well as more recent developments and Vivos plans for the remainder of the year. Following these formal remarks, we will be happy to take questions.

I would also like to remind everyone that today's call will contain certain forward-looking statements from our management made within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended, concerning future events.

Words such as aim, may, could, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates, goal and variations of such words and similar expressions are intended to identify forward-looking statements.

These statements involve significant known and unknown risks and are based upon a number of assumptions and estimates, which are inherently subject to significant risk, uncertainties and contingencies and many of which are beyond Vivos' control.

Actual results, including without limitation, the results of Vivos' growth strategies, operational plans, including sales, marketing, product acquisition and integration, research and development, regulatory initiatives, cost saving plans and plans to generate revenue as well as future potential results of operations or operating metrics, such as potential for Vivos to achieve future positive cash flows and other matters to be addressed by Vivos' management in this conference call may differ materially and adversely from those expressed or implied by such forward-looking statements.

Factors that could cause actual results to differ materially include, but are not limited to, the risk factors described and other disclosures contained in Vivos' filings with the Securities and Exchange Commission, including the risk factors and other disclosures in our Form 10-K for the year ended December 31st, 2022, and our other filings with the SEC, including our 10-Q filed with the SEC today, all of which are accessible on the Investor Relations section of the Vivos' website, as well as the SEC's website.

Except to the extent required by law, Vivos assumes no obligation to update statements as circumstances change. Finally, please be aware that the U.S. Food and Drug Administration have already given Vivos' appliance's 510(k) clearance to treat mild to moderate OSA.

Any reference herein regarding Vivos treatment or the Vivos method should be viewed in that context. Treatment of patients with severe OSA is performed off-label at the sole clinical discretion of the treating doctor and are not part of the Vivos' treatment protocol.

Now at this time, it is my pleasure to introduce Kirk Huntsman, Chairman and CEO of Vivos. Kirk, please go ahead..

Thank you, Julie. I want to thank you all for joining us on today's conference call. In just a moment, I'll turn the call over to our Chief Financial Officer, Brad Amman, who will walk you through the highlights of our third quarter 2023 financial and operating results.

Once Brad is finished, I'll come back and speak with you about the highlights of what we accomplished at Vivos during the third quarter and more recently after the quarter end.

This includes some key strategic relationships that we formed with a number of new commercial partners, including our recently announced distribution agreement with Lincare, who is a recognized durable medical equipment company or DME.

We are especially excited about this relationship because Lincare serves close to 2 million patients nationwide, many of whom are unsatisfied with using CPAP machines and are seeking alternative methods of treatment, something we can certainly advise them with.

In addition to Lincare, I'll talk -- I'll also talk a bit about some other agreements we've signed with partners such as with Ormco, a division of publicly-traded Envista Holdings Corporation, On Demand Orthodontist, which represents an exciting new service, we can now offer our Vivos providers and Noum in the Middle East region, who has developed and maintained a number of strategic relationships and accounts for diagnostic testing with sleep physicians, sleep centers, hospitals and other healthcare providers across the MENA region.

Together, these relationships have expanded our product line and distribution channels and created new revenue opportunities for our company.

We believe these new strategic relationships will generate a substantial number of patient referrals for our existing and extensive network of Vivos' trained dentists, which should bring significant new growth and revenue opportunities to Vivos. We also believe these initiatives will help to augment and accelerate our VIP enrollment efforts.

Along with these positive developments, I'll talk about some of our progress in reducing staff and trimming costs, where we achieved a 32% year-over-year reduction in operating expenses. Unfortunately, those cost-cutting measures came with some near-term trade-offs, as top line revenue declined on both a quarter-over-quarter and year-over-year basis.

We've worked hard throughout this process to avoid staffing and other reductions that would impact revenue, but we now believe the new Vivos Integrator -- we now believe new Vivos Integrated Providers or VIP enrollments and appliance sales have been negatively impacted because of those measures.

Fortunately, since the quarter closed, we have seen strong positive trends in appliance sales, as other revenue growth measures have kicked in.

So the key takeaway here is that we believe our responsible cost-cutting measures over the past year helps set a financial foundation that will support our revenue growth initiatives, as we seek to improve our operating results going forward.

I also want to highlight the steps we've been taking to improve our liquidity, as well as our capital structure.

This includes the recent closing of a $4 million private placement, our reverse stock split and the actions we've taken throughout the past year to increase operational efficiencies, reduce expenses, which position Vivos to capitalize on the growth opportunities available to us.

With all the progress that we've made and what we expect to accomplish, as we move forward, we continue to plan for becoming cash flow positive from operations by the end of 2024. After talking a bit more about our plans for the rest of this year and what we are planning for 2024, we will be happy to take your questions.

Now, let me turn it over to Brad for a review of our financials. Brad, please go ahead..

Thank you, Kirk, and good afternoon, everyone. Today, I'll review the highlights of our financial results for the third quarter and the first nine months of 2023.

For further information on our results for the three and nine month periods ended September 30, 2023, I'll refer you to our earnings release, which was distributed earlier today and our quarterly report on Form 10-Q, which is available on the SEC filings portion of the Investor Relations section of the Vivos website at vivos.com/investor-relations.

Today, we reported third quarter 2023 total revenue of $3.3 million compared to $4.2 million for the third quarter of 2022. The quarter-over-quarter decrease was due to lower revenue generated quarter-over-quarter from appliance sales, revenue from VIP enrollments, as well as the impact from staffing and cost reductions.

This was partially offset by increased sleep testing services and Myofunctional Therapy revenue. During the third quarter of 2023, we enrolled 29 VIPs and recognized VIP revenue of approximately $1 million compared to 56 VIPs for a total of $1.6 million in revenue during the same period last year.

Revenue growth was impacted by new entry levels into our VIP program, ranging from $2,500 to $50,000 and adding an $8,000 pediatric program, which was received positive -- positively by our providers.

Average enrollments during the period increased from approximately 28,000 during the three months ended September 30, 2022, to 34,000 during the three months ended September 30, 2023, and VIP enrollment Right to Buy revenue was recognized over a longer period of time, 23 months in 2023 versus 18 months in 2022.

We sold 1,809 oral appliance arches during the third quarter of 2023 for a total of approximately $1.5 million compared to 3,057 during the third quarter of 2022 for $2 million.

During both the third quarters of 2023 and 2022, we recognized approximately $200,000 in billing intelligence service revenue compared to $300,000 during the same period in 2022. Myofunctional Therapy Services remained flat period-over-period at $200,000.

Lastly, during our third quarter of 2023, we recognized $300,000 in revenue from our ring lease program compared to $100,000 in our comparable 2022 period. For the nine months ended September 30, 2023, revenue was $10.6 million compared to $12.1 million for the nine months ended last year.

The decrease was attributable to the same factors I mentioned earlier. During the first nine months of 2023, we enrolled 110 VIPs for revenue of $3.2 million compared to 146 VIPs in revenue of $3.6 million for the same period in 2022.

During the nine months ended September 30, 2023, we sold 6,261 oral appliance arches for revenue of $4.6 million compared to 9,343 oral appliance arches for revenue of approximately $5.8 million.

We attribute the decrease in product sales, in part due to a negative CPS news report that came out in March of 2023 regarding an unrelated oral device called the AGGA that was not cleared for use by the FDA and was being used off label.

Although, Vivos care devices are cleared by the FDA, based on our continuing discussions with our dentist customers, we believe that some practitioners paused purchases until they learn more about the issue. Additionally, for the nine months ended September 30, 2023 and 2022, we recognized approximately $700,000 in Myofunctional Therapy revenue.

For the nine months ended September 30, 2023, we had $600,000 in billing intelligence service revenue compared to $900,000 in the prior year period.

Lastly, for the nine months ended September 30 of this year, we recognized approximately $900,000 in sleep testing services compared to $300,000 for the nine months ended last year and $100,000 in center product revenue compared to $500,000 for the nine months ended last year.

Gross profit was $1.9 million for the third quarter of 2023 compared to gross profit of $2.5 million for the comparable period in 2022. Gross margin was 57% for the third quarter of 2023 compared to 59% during the prior year period.

Gross profit for the nine months ended September 30, 2023, was $6.3 million compared to $7.6 million for the nine months ended last year. Gross margin for the nine months ended September 30, 2023, was 60% compared to 63% for the same period last year due to lower revenue. Sales and marketing expenses were lower quarter-over-quarter and year-over-year.

Expenses were $600,000 for the third quarter of 2023 compared to $1.1 million for the third quarter of 2022. For the nine months ended September 30, 2023, sales and marketing expense was $1.9 million compared to $4 million for the nine months ended last year.

Lower spend reflects website development for both vivos.com and vivosinstitute.com that occurred in 2022 and lower sales commissions and sales-related expenses in 2023 commensurate with lower VIP enrollments.

Very importantly, our G&A expenses decreased approximately $2 million or 31% to $4.6 million for the third quarter of 2023 compared to $6.6 million for the third quarter of last year. Year-over-year decrease reflects a substantial impact in our previously announced cost-cutting efforts are making.

We believe these important efforts will cause -- will continue to reduce our cash burn, as we seek to ramp revenues and move toward cash flow positive operations. For the nine months ended September 30, 2023, general and administrative expenses decreased $5.1 million or 23% to $17 million compared to $22.1 million for the nine months ended last year.

The primary driver of this decrease was a change in personnel and related compensation of approximately $2.7 million. Total operating expenses for the third quarter of 2023 decreased by a significant amount, $2.5 million or 32% versus the third quarter of 2022, also reflecting Vivos' cost-cutting initiatives.

For the nine months ended September 30, 2023, operating expenses decreased by $7.3 million or 27% compared to the same period in 2022. Operating loss was approximately $3.5 million and $5.4 million for the three and nine months ended September 30, 2023, compared to $13 million and $19 million for the comparable periods last year.

Year-over-year decrease in operating loss was primarily from lower G&A due to expense cuts and the other factors I just discussed. Net loss was approximately $2.1 million for the third quarter of 2023, a significant year-over-year reduction of $3.3 million or 61% compared to $5.4 million for the third quarter of 2022.

The reduction in net loss was primarily due to the cost-cutting initiatives I described earlier. Net loss for the nine months ended September 30 of 2023 was $9.3 million, a reduction of $8.4 million or 47% compared to $17.8 million for the same period in 2022.

Turning to our statement of cash flows, cash burn from operations for the nine months ended September 30 of this year was $9.2 million, a decrease of approximately $7.4 million compared to $16.6 million during the comparable prior year period. This is further evidence of the positive impact of our expense reduction initiatives.

For the nine months ended September 30, 2023, net cash used in investing activities consisted of capital expenditures for software of $700,000 related to the development of VIP ordering software for internal use, which is expected to be placed in service in late 2023, as well as the purchase of patents and other intellectual property in February of this year.

This similarly compares with cash used in investing activities of $700,000 in the comparable 2022 period, arising from cash capital expenditures for the internally developed ordering software. As of September 30, 2023, we had $1 million in cash and cash equivalents compared to $3.5 million, as of December 31 of 2022.

As previously announced, following the end of the third quarter, earlier this November, Vivos completed a private placement for net proceeds of approximately $3.5 million to augment its liquidity position and stockholders' equity. As Kirk mentioned earlier, our goal remains to become cash flow positive from operations by the end of 2024.

With that, I'll turn the call back over to Kirk..

first, a reduction in staffing and support personnel; second, a reduction in marketing expenditures; third, lingering effects of the AGGA news reports and related government investigations, Brad mentioned earlier; and fourth, the unavoidable delay -- and an unavoidable delay in the Lincare project getting off the ground after a successful pilot.

So let me discuss each of these. Throughout 2023, we have executed on broad cost-cutting measures that have included reductions in certain support personnel, which were very influential in assisting VIP dentists to get cases booked and processed as Vivos case starts.

We were keenly aware that curtailing those support functions would tend to decrease case starts and appliance sales, which is exactly what we have experienced. Fortunately, our new product lines have begun to kick in. And here in the fourth quarter, we are seeing appliance sales and Myofunctional Therapy starts rebounding.

As our cash resources declined, we were constrained to cut back on certain marketing expenditures as well. However, we did refocus and redirect our limited marketing spend to only those areas with the potential for the highest near-term returns.

Next, as previously mentioned by Brad, the impact of that negative publicity and news reports regarding the AGGA device went deeper and lasted longer than we expected.

You may recall that in March of this year, a CBS News report broke about a non-FDA-cleared oral appliance called the AGGA that made unsubstantiated claims regarding its ability to treat obstructive sleep apnea.

Government regulators and others set up consumer complaint hotlines and moved aggressively to investigate and curtail any further damage or potential harm to the general public.

Now despite the AGGA being a materially different device with virtually no research to back it up and no required regulatory FDA clearances, the mere suggestion that an oral appliance for treating sleep apnea potentially cause patient harm truly impacted our sales and enrollment efforts.

We took many steps to ensure that our Vivos VIP doctors clearly understood the differences between that device and our Vivos care devices. But the entire episode cause many of them to pause their Vivos production until further clarity and certainty could be provided.

Finally, the previously announced Lincare project was temporarily delayed due to some software configuration and development delays by a third-party charge in facilitating merchant banking and payment arrangements to Lincare.

I am pleased to report that the situation there has now been resolved and the planned expansion into additional markets has resumed in earnest. Obviously, the aforementioned delay also impacted our forecasted top line revenue for Q3. Now that delay is behind us, we do expect to see the Lincare project contributing positively to Q4 and into 2024.

So the takeaway here is that Vivos is operating leaner than ever before, and the revenue headwinds previously discussed appear to be behind us. New product lines are showing great promise and good growth and the new initiatives, such as our boost and kickoff programs are being well received. Now let me touch on those two programs for just a moment.

During the latter part of the third quarter and into the current quarter, we began to offer what we call Boost and Kickoff programs to current and new Vivos providers.

The Boost program requires existing VIP providers to prepay a minimum of $10,000 in appliances in order to have our corporate personnel come to their offices to help set up systems, train staff and close cases. Approximately 40 Boost programs have been sold to-date, with most of them to be delivered in 2024.

The Kickoff program is basically the same, except that it is included in the enrollment fees for new doctors. These programs have now been delivered and executed in just a handful of offices, generating close to $400,000 in new case starts and a ton of positive momentum and provider enthusiasm.

After successful events in their individual offices, a number of doctors have renewed and repurchased additional Boost events. We believe this highly successful new program will continue to drive new case starts and rekindle provider enthusiasm in Q4 and throughout 2024.

Second, why should investors now believe that the growth strategy will finally be realized going forward and that it will actually result in the company getting to cash flow positive? To answer that question, I believe -- the answer to that question, I believe, is that we are pivoting away from a revenue model that is oriented towards new VIP growth with a dependency on dentists, who must generate their own case starts and towards a model that is driven by recruiting new patient sources, such as DME companies, medical doctors, non-vivos dentists, et cetera, and generating new case starts in existing VIP offices, as with our Boost and Kickoff programs.

Our new product line, which we acquired earlier this year is already showing promise of higher growth ahead. The agreement with Lincare is already feeding new patients into VIP offices. We expect more such DME distribution agreements will follow throughout 2024 after the Lincare exclusivity period expires in April.

We also -- we have also proven our ability to generate medical referrals into Vivos provider practices and are currently expanding and intensifying those efforts. In November of 2023, we amended our agreement with Lincare, which gives Lincare a six month exclusivity period to distribute certain designated devices of ours.

The agreement -- the agreement follows the successful conclusion of a distribution pilot with Lincare, and we believe there are additional DME opportunities that are aligned with these initiatives, and we are actively engaged in exploring such opportunities.

In addition to Lincare, in October of 2023, we announced 2 key strategic agreements with Ormco, a division of publicly-traded Envista Holdings Corporation and On Demand Orthodontist offer -- or ODO, offering our national network of providers access to Spark Clear Aligners.

The agreements will expand our current product line and are expected to create near-term additional revenue opportunities that should begin to contribute here in the fourth quarter.

Also in October, we announced that we had entered into an exclusive distribution agreement with NOUM DMCC, a Dubai-based company focused on diagnostic testing and treatment product distribution for healthcare providers and hospital networks treating obstructive sleep apnea patients throughout the Middle East, North Africa or MENA region.

Subject to regulatory approvals, Vivos could begin to see revenue from this collaboration in 2024. In addition, we are currently in negotiations for similar distribution agreements in other important international markets. If and as such negotiations come to fruition, we will be sure to announce them.

On the clinical and regulatory front, in October, we announced that our flagship daytime-nighttime appliance, or DNA, will be tested in a clinical trial at Stanford Medicine. The protocol has been finalized and participant enrollment will begin in early 2024.

Study participants with moderate to severe OSA will be randomly assigned to either treatment with Vivos' DNA appliance or CPAP, the current industry standard for OSA treatment.

Sleep studies will be performed prior to and following a course of treatment using in-lab polysomnography, or PSG, to assess changes in the patients' apnea-hypopnea index or AHI. In addition, we continue to actively pursue new regulatory approvals for additional indications of use by the FDA for Vivos oral appliances.

We hope to be able to announce some important regulatory developments in the near future. Although, no assurances can be given that any such approvals will be granted by the FDA, nor can we predict the timing of such grants should they occur. Finally, a word about our capital needs going forward.

Our current forecast suggests that we should be able to turn cash flow positive in 2024. With the recent infusion of $4 million, we took a significant step towards that goal. However, we expect to need additional -- an additional round of capital in a similar amount to achieve that goal.

We are currently working with a number of interested parties to ensure that the capital we need will be there when we need it. That concludes our prepared remarks. Now, we will be happy to take questions.

Operator?.

We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Lucas Ward from Ascendiant Capital Markets. Please go ahead..

Hi, guys, thanks for the overview. My first question is on G&A expenses, those have really been coming down pretty dramatically over the last six quarters really. I was wondering what your expectations are for G&A run rate in Q4 and into next year..

Brad, do you want to take that?.

Yes, you bet. As I said earlier, we cut around $2.7 million of personnel-related costs. We've also cut a number of non-essential vendors and consultants, professional fees have come down substantially. We expect that fourth quarter G&A expenses will be very similar to what we experienced in the third quarter..

I would add to that, that it's important to know that we are constantly evaluating and reevaluating our G&A expenditures relative to our revenue.

And so, we may be making as circumstances dictate additional changes, either up or down depending on how our revenue begins to develop, whether it recovers or whether it continues to go flat for a little bit here. But we fully expect that we will continue to right size our G&A according to our revenue streams.

And I think we've now, as Brad indicated, I think we've now got that just about right, but we're always looking at it and always reevaluating..

Okay, great. And just a follow-up question on the revenue front. In terms of the overall market opportunity, you mentioned, I think, last quarter that if you could convert just 1% of the so-called failed CPAP revenues, from the DMEs, for instance, that might be enough to get you to breakeven.

So clearly, there's a very large sort of penetration opportunity there.

I'm wondering like what would be the catalysts -- catalyst or catalysts to really convert those sales into Vivos?.

Good question. So the first step in that process is for the DME companies or the other referral sources depending on wherever they are, right, the other places, where these patients are known to identify, who might be a candidate, so to identify and enter into a dialogue with a CPAP failed patient.

Now most of the DME companies monitor their CPAP patients remotely. So they have a good sense of who's using their CPAP and who isn't.

And so, the first outreach effort, whether regardless of the source, the first outreach effort is an engagement with the patient to understand what happened there, why aren't they using their CPAP and would they be interested in an alternative therapy.

Most of the time that they're getting some really good flow through at that level, and that's all handled by the DME company. So Lincare handles that part of it.

They then hand that over to our treatment navigator, those patients that indicate an interest, they hand them over to a Vivos' treatment navigator, who takes that patient provides further education about oral appliance therapy and attempts to get that patient to set up an appointment up. So the process is fairly straightforward.

The numbers of patients that sort of fit that criteria set are vast. I mean, we're talking about in the millions of patients here. And so, it's just -- it just is a matter of time. I didn't know, if you were starting to say -- it's a matter of time.

And I think one of the things that are -- let me just finish with one other thought, and that is that what we've demonstrated with our Boost program, when we go into a dental office, we asked the dentist and his team to set up a full schedule of patients. So between seven -- let's say, seven to 10 patients each day for two days.

They go in to do a Boost program, and they've got probably between 10 and 20 at [Indiscernible] with patients, and our results are just outstanding. I mean, we're getting -- I mean, I think we had one that was 19 for 20 converted into treatment. Another one was 11 for 11 and 10 for 10 and six of nine. And I mean, we keep going down here.

We're getting conversion rates very, very high in our office -- in the offices when we're sending our professional teams in there to show these doctors how to do it. So if the [Indiscernible] are in the chair and the patients are there, we've demonstrated the ability to close it.

We just have to get more doctors with the confidence level and the staff members to be able to close those things and that's what we're working on now..

Okay. Great, Kirk. If I could, just one more question. You had this uptick in the ring lease revenues, up 300% versus last year.

To what extent is that an indicator of future sales in other areas, given that, that's sort of a testing program?.

Well, we always think of the sleep testing kind of being the front end of the process and the more tests that a provider completes with their patients, theoretically, the more case starts should result of that. A lot of our providers are testing a lot of their patients.

We're just working on mechanisms and ways to increase the conversion from the test to a case start..

Yes. So let me add on to that a little bit. The -- I think as Brad just mentioned, the sleep testing program using the sleep image rings that we refer to as Vivos score rings, that's the tip of the spear. It's the first opportunity that a patient has to really begin to understand that they have sleep apnea. And so, it's really the entry point.

Now we do about 75,000 tests a year throughout our network, and most of those patients -- about half of those patients test positive. So there's a large number of patients that are testing positive, but these patients are not being closed by the dental offices.

They're not -- their cases are not being properly explained, and they're not getting the closure on those cases. So when we send our corporate teams out there to, again, show these people step-by-step how to close the cases, and we're closing like 90% of these people, then the dental team start to get it. They start to understand.

And we may have trained them 10 times. But when they see it happening in their own offices, what we found so far and its -- our data set is fairly limited here, but what we see so far is that once we show them the way in their offices, they then are able to pick up and continue that high level of closing.

And that's really something that we've taken great hard in because it's a sea change type event for us to see 10 out of 11 patients being closed. If we had, had that all along in these dental offices, I mean, we'd be having a totally different type of conversation here.

But now that we figured out a little bit of how to generate that kind of confidence and competency in the offices, we think that, that portends very good things to come so..

Great. Thank you very much..

Thank you, Lucas..

I show no further questions in the queue. At this time, I'd like to turn the call over to Mr. Kirk Huntsman, Chairman and CEO, for closing remarks..

Thank you, operator. I would like to thank, everyone again for joining us on today's call and for your continued interest in Vivos Therapeutics. We look forward to sharing our continued progress to you in the coming weeks and months. Thank you and have a great evening..

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