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Operator: Good day, everyone, and welcome to the Vivos Therapeutics First Quarter 2024 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 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.

Julie Gannon: 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 first quarter 2024 as well as more recent developments and Vivos’ plans for the rest of 2024. 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 risks, uncertainties and contingencies, many of which are beyond the Company’s 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 savings plans and plans to generate revenue as well as future potential results of operations or operating metrics, such as the potential for Vivos to achieve future positive cash flows or profitability 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 31, 2023, and our other filings with the SEC, including our first quarter 10-Q filed with the SEC today, all of which are or will be accessible on the Investor Relations section of 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 has given certain Vivos appliances 510(k) clearance to treat mild to severe OSA.

With the FDA clearance for severe last November, treatment of patients with severe OSA no longer needs to be performed off-label at the clinical discretion of the treating doctor as it is now an integral part of the Vivos treatment protocol. Now at this time, it is my pleasure to introduce Brad Amman, CFO of Vivos. Brad, please go ahead.

Brad Amman: Thank you, Julie, and good afternoon, everyone. Today, I will review the highlights of our financial results for the first quarter of 2024. For further information on our results for the 3-month period ended March 31, 2024, please see 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 our website, as Julie mentioned, vivos.com/investor-relations. Today, we report first quarter of 2024 total revenue of $3.4 million compared to $3.8 million for the first quarter of 2023. The year-over-year decrease was due to $400,000 lower revenue generated from VIP enrollments and $200,000 less in appliance sales, offset by an increase of approximately $100,000 in Pediatric and Lifeline product sales to VIPs and an increase of approximately $100,000 from revenue generated by our home sleep test ring lease program.

While revenue was essentially flat, we were pleased that the expansion of our product offerings, which were introduced last year, including the Pediatric and Lifeline products, have started to become additive to revenue. During the first quarter of 2024, we enrolled 50 VIPs and recognized VIP enrollment revenue of approximately $900,000 compared to 36 VIPs for a total of approximately $1.3 million in revenue during the same period last year. While the number of VIP enrollments increased, revenue was impacted by updates to key inputs in our revenue recognition methodology, primarily estimated customer lives and the addition of new entry levels into the VIP program at a lower price point. We sold 1,996 oral appliance arches during the first quarter of 2024 for a total of approximately $1.7 million compared to 2,369 during the first quarter of 2023 for $1.8 million.

The decrease in revenue is due in part to fewer product discounts in the first quarter of 2024 than in first quarter of 2023. Lastly, during the first quarters of 2024 and 2023, our Billing Intelligence Services and Myofunctional Therapy Services revenue remained relatively unchanged at $200,000 in each of these areas during these respective periods. During the first quarter of 2024 and 2023, we also recognized $100,000 in sponsorship, seminar and other revenue. Our revenue during the first quarter of 2024 was impacted by increases in estimated VIP customer lives, which are calculated separately each year and was estimated to be 27 months in 2024, an increase of 17% compared to 23 months in 2023. This impacts the amortization of revenue to be spread over a longer period of time, thus decreasing the revenue that is recognized over the same period when compared to 2023.

Although this negatively impacts our revenue recognition, it is a result of VIP staying active for a longer period of time, thus increasing our customer retention year-over-year. Additionally, our revenue was impacted by new entry levels into the VIP program, ranging from $2,500 to $50,000 and adding an $8,000 Pediatric program, which was received positively by our VIPs. However, it also results in lower revenue per contract. This, coupled with fewer enrollments in 2023, resulted in lower revenue for the first quarter of 2024. As Kirk will talk about in just a bit, in the near term, we are planning on launching a new strategic revenue initiative based upon collaborations to better align our interest with referring medical professionals, which we expect to materially broaden the number of OSA patients who have access to our products and make our revenue less on VIP enrollments going forward.

Gross profit was $1.9 million for the first quarter of 2024 compared to gross profit of $2.3 million for the comparable period in 2023. The decrease was primarily attributable to the decrease in revenue and partially offset by a decrease in cost of sales driven by lower VIP enrollment and appliance sales. Gross margin for the first quarter of 2024 was 57% compared to 61% for the first quarter of 2023. Sales and marketing expense were $700,000 for the first quarter of 2024 compared to slightly over $600,000 in the comparable prior year period. The slight increase represents higher sales commissions as well as sales related and digital marketing expenses. As most of you are aware, we have been significantly lowering our burn rate over the past 1.5 years to make our company more efficient as we seek to achieve cash flow positive operations.

This trend continued in the first quarter as we again achieved a significant reduction in general and administrative expenses. For the first quarter of 2024, G&A expenses decreased by $1.6 million or approximately 25% to $4.9 million compared to $6.5 million for the first quarter last year. This year-over-year decrease reflects the success of our previously announced cost-cutting efforts and lays a foundation for positive results from operations as we look to increase revenues. Total operating expenses for the first quarter of 2024 decreased by a significant amount, $1.6 million or 22% versus the first quarter of 2023. This represents our seventh consecutive quarter where we have reported year-over-year decreases in operating expenses, and it is mainly due to the cost-cutting initiatives we have undertaken throughout 2023 as well as in 2024.

Operating loss for the first quarter of 2024 was approximately $3.8 million, a $1.2 million or 24% improvement compared to a $5 million loss for the first quarter of last year. The year-over-year decrease in operating loss was primarily from lower G&A due to the cost-cutting initiatives I just mentioned. Net loss for the first quarter of 2024 was $3.8 million compared to a loss of $1.7 million for the first quarter of 2023. Please note, the year-over-year comparison reflects a onetime benefit of $3.2 million of noncash other income that Vivos as recognized in last year’s first quarter. In the absence of the onetime benefit of $3.2 million, our net loss for the first quarter of 2023 would have been $5 million in Q1 2023, which equates to a 24% reduction in net loss on a normalized basis.

To offer some additional details for clarity, the first quarter of 2023, Vivos recognized approximately $6.7 — sorry, $6.5 million as a onetime nonoperating expense related to the difference between excess fair value from warrants issued in our January 2023 private placement and the net proceeds that we received from that transaction. The change in fair value of the warrant liability in the first quarter of 2023 was $9.6 million, net of issuance costs of $600,000. As a result, Vivos recognized $3.2 million of noncash other income in the first quarter of last year, which was the net impact of the private placement warrants. Please refer to our 10-Q for further details regarding this. Now turning to our statement of cash flows. Cash burn from operations for the quarter ended March 31, 2024 was $2.5 million, a $1 million decrease compared to $3.5 million during the comparable period last year.

This decrease is due primarily to the absence of a favorable net change in fair value warrant liability of $10.2 million, offset by day one nonoperating warrant expense of $6.5 million. For the quarter ended March 31, 2024, net cash used in investing activities of $200,000 consisted of capital expenditures for software related to the development of VIP ordering software for internal use, which is expected to be placed into service here in the second quarter of the year. This compares to net cash used in investing activities of $300,000 in the comparable 2023 period, arising from capital expenditures for the same ordering software as well as a $50,000 asset purchase. For the quarter ended March 31, 2024, net cash provided from financing activities of $3.6 million related to our February warrant inducement transaction.

This compares to net cash provided from financing activities in the comparable 2023 period of $7.4 million, reflecting our January 2023 private placement. As previously announced, to augment our liquidity position and stockholders’ equity, in February 2024, Vivos entered into an agreement for the exercise of an outstanding common stock purchase warrant held by an institutional investor to purchase an aggregate of 980,393 shares of Vivos common stock for gross proceeds to the Company of approximately $4 million. This transaction closed on February 20, 2024. As of March 31, 2024, we had $2.6 million in cash and cash equivalents compared to $1.6 million as of December 31, 2023. In conclusion, during the first quarter, we continued taking steps to drive future revenue growth, strengthen our cash position and to improve our cost structure and reduce cash burn.

Our progress gives us renewed confidence in our long-term prospects, and we continue to target becoming cash flow positive from operations by the end of 2024 or first quarter of 2025. I want to thank you all again for joining us on today’s conference call. Now it’s my privilege to turn the call over to Kirk Huntsman, Chairman and CEO. Kirk, please go ahead.

Kirk Huntsman: Thank you, Brad. Good afternoon, everyone, and thank you for joining us on today’s conference call. Today in my remarks, I’d like to do two things: discuss our progress on the concrete initiatives we’ve been actively engaged in here at Vivos, and then give you my perspective on the strategic opportunities that are about to launch that we expect to dramatically impact our revenue and future growth. After that, we’ll be happy to take your questions. As we have previously stated, our primary focus at Vivos for the past couple of years has been to get cash flow positive as soon as possible. Our goal has been to accomplish this through a dual strategy of driving top line revenue growth, coupled with phased-in expense reductions.

As Brad just highlighted, our cost reduction initiatives have been strategic, methodical and consistently applied over the past seven consecutive quarters, and we were careful not to cut so deep that we impacted our revenues. Such cost reductions continue as we rightsize our business and execute our go-forward plans. On the revenue front, the growth initiatives that we’ve announced in the past have included the following eight key items: one, targeting large and small DSO groups, DSO dental groups; two, signing distribution agreements with DME companies such as Lincare; three, adding enhanced and diverse product lines featuring new technologies and services; four, publishing groundbreaking new peer-reviewed research; five, expanding insurance and Medicare coverage for Vivos products; six, achieving key new regulatory approvals, two of which, by the way, were unprecedented; seven, establishing and refining our Treatment Navigator Program; and eight, executing on our kickoff and boost programs for Vivos’ trained dentists.

Each of these revenue growth initiatives has been at the forefront of our efforts to drive near-term top line revenue growth. And while each of those efforts is progressing, and even though we’ve accomplished many important milestones in each of those areas, frankly, none of them is generating the material top line sales and revenue growth that we need today, given our resources and realistic runway. To be clear, we continue to see great long-term growth potential in all of those areas and fully expect to realize significant revenue accretion over time as those initiatives mature and continue to progress. However, management fully recognizes the hard reality that this company needs to generate substantial and immediate cash flow and eliminate our monthly burn.

Thus, we have been exploring and negotiating several important new and pending channel relationships, whereby Vivos will be able to accomplish the following: one, to gain immediate access to put patients — to put Vivos treatment directly in front of hundreds and potentially thousands of OSA patients each month who have either failed CPAP or who declined CPAP and who are likely — highly likely to enter into Vivos treatment; two, to leverage our proven operational abilities to close nine out of 10 new OSA cases; three, to tap into significant additional gross margin as much as 4x to 5x current levels on each new Vivos case start; four, to expand the scope of our clinical services to access the massive and untapped market for pediatric patients; fifth, to add important new channels with immediate potential access to millions of OSA patients across the United States and Canadian markets; sixth, to fully leverage our highly trained group of assisting professionals we call treatment navigators; seventh, to extend our Vivos brand into both the medical professional community as well as the general public; eighth, to get cash flow positive by the end of 2024 or the first quarter of 2025.

As an indicator of our progress, we’ve already begun initial operational integration activities with our first target affiliation, which we expect to finalize and go live on or during the coming weeks and are in deep discussions with other firms, which will all hold similar kinds of opportunities to accomplish what we’ve listed above. We can’t yet name names or share fine details at this point since the ink isn’t quite dry just yet, but we hope to be able to make a more formal announcement about this in the very near future. Here’s what we can say about this initiative. Under this new and enhanced revenue and operating model with its expanded focus on collaborations with the medical and sleep testing communities, Vivos immediately becomes far less dependent on the single channel of dentistry.

At the same time, Vivos effectively becomes more vertically integrated, allowing us to better influence and improve the patient journey and overall treatment experience while profiting from the multiple levels of patient interaction and value creation. Importantly, this model is not expected to require a lot of capital expenditure by Vivos as it is driven by collaborations focused on the joint success of the parties. In getting to this point, we should note that management spent countless hours working with third-party legal and financial experts in evaluating and analyzing every conceivable aspect of this new endeavor from the financing — from the financial modeling and core assumptions to the specific legal structures required under federal and state health care laws to medical reimbursement rules for both in and out of network coverage to state-level corporate practice of medicine laws to fee splitting provisions and more.

The end result is believed to be a comprehensive and highly profitable model that has been proven in other aspects of health care but to our knowledge, is unprecedented in the world of sleep medicine. We further believe that this gives Vivos a critical first-mover strategic and competitive advantage in the market. Management’s extensive prior experience and successfully operating large multimarket DSOs or dental support organizations was especially useful in conceptualizing and creating this unique new structure. The harsh truth for all oral appliance companies is that working exclusively through the dental channel will never allow this type of advanced technology to reach its full potential. However, without the experiences and insights gained throughout our journey of the past several years here at Vivos, none of what we are about to do would even be possible.

What we’ve learned along the way and how those insights have informed our current go-forward strategy is what is most important now. Of paramount importance in the full realization of our market strategy will always be our intense interest in and focus on the patient journey and optimal clinical outcomes. In the long run, nothing else will matter more. We continue to boldly and unapologetically assert our firm belief that Vivos care oral medical devices and the Vivos method will one day become the new gold standard for treatment of breathing and sleep disorders, such as obstructive sleep apnea. And further, we fully expect our new model will facilitate a degree of renewed health and wellness on a scale never before seen by any other treatment, and that is how we expect to win.

Everybody knows by now the things that we’ve accomplished to date, how we’ve done the heavy lifting of third-party research to prove out the safety and efficacy of our technology beyond any reasonable doubt, how we’ve leveraged that research to obtain mission-critical and, in some cases, unprecedented regulatory approvals from around the world, how we’ve painstakingly established the provider networks that can handle tens of thousands of cases, and how we built the systems and protocols to ensure the very best patient outcomes possible. All of that is now ready. What remains now is for this company to monetize that foundation and begin to reap the financial harvest that is finally at hand. Our team is up to the challenge. And as I said, we look forward to sharing more details soon and also to reporting on our progress over the course of the next several quarters as we reach new milestones and achieve our stated objectives.

That concludes our prepared remarks. Now we’ll be happy to take questions. Operator, do we have any questions?

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Lucas Ward from Ascendiant Capital Markets.

Lucas Ward: Thank you, operator, and good afternoon, gentlemen. Congratulations on your hard work and your business progress.

Kirk Huntsman: Thank you, Lucas.

Brad Amman: Thank you.

Lucas Ward: So regarding the new channel relationships that you’re talking about, I mean, obviously, we’ve heard about the DMEs, the DSOs, can you expound on the nature of these relationships, like what type of entity are we talking about? And how would it be different from the distribution agreements that you’ve already talked about?

Kirk Huntsman: Yes. That’s a great question, and it’s one that — I’ll do the best I can with giving you an answer with what I can say today. But — and one of the reasons for that, Lucas, is that the nature of the organizations that we’re targeting is — will vary somewhat. They could be large medical groups. They could be hospitals. They could be sleep testing centers and facilities. They could be any number of similar or affiliated type groups like that. For example, we have a prospective relationship happening with a large ENT group out in California. We have some testing groups that we’re working with, some sleep testing groups. And so one of the things that all of these groups have in common is that they all have CPAP failure patients that they don’t know what to do with or they have patients that are just beginning their journey who have just tested positive for obstructive sleep apnea and need to know what their treatment options are.

In today’s world of insurance-driven health care, most of these OSA patients are automatically given a CPAP device to go home with. The industry sort of tongue in cheek refers to this as the [slap and pat] model or pat and slap model, I’m not sure which way. I’m not sure whether the pat or the slap comes first. But it’s a model that is — where the patients are basically given very little education about their condition, given very little information about treatment options and alternatives, where they’ve given very little information about the risks that they’re at, given their condition or what the future might hold if they don’t treat it. And so in the current insurance-based model, many patients are left just sort of figure it out on their own, and they feel overwhelmed, they feel ill informed and they feel like they really don’t want what they’re about to use, which is a CPAP device, and yet they don’t know what their other alternatives are.

In our new model, we’ll be bringing a comprehensive panel of treatment options to the table for these patients as well as CPAP. We’ll be introducing our entire line of oral appliance therapy. And in our experience, what we have found is that the vast majority of these patients, when presented with all the options and all the information that’s necessary for them to make a good decision in working with their sleep specialists or their PCP doctor, we find that the patients, almost all the time, will opt to try to get well, which means that they will opt for the Vivos CARE treatment option, even though it costs a little more money, even though the insurance coverage is not 100%, they will opt for that coverage in our experience, probably nine out of 10x.

And so we’ve been testing out these systems and these protocols, these processes. And when we put our teams in front of massive new numbers of these patients, we fully expect to be able to close those cases and receive payment from those cases. And the difference now is that we’ll be realizing the revenue from the deep end of the pool. We’ll be realizing the profit margins that have only heretofore been realized by independent practitioners from wherever they may be and now those — the professionals will work for our MSO or for our DSO, and those professionals will be medical doctors and dentists who will just basically be doing nothing but obstructive sleep apnea full time. So the reason why this is different is because these patients already exist; they’re readily available, they have a need — an immediate need to get treatment.

And now we’re partnering with the very firms that are directing these patients today and we’re saying, “Hey, instead of telling these patients to go down the hall and turn left, have them go down the hall and turn right.” And there, you can get the full measure of education and resources to make a fully informed decision. Those of you who want to go into CPAP, great. Those of you who want to go into mandibular advancement oral appliances, great. Those of you who want to go into Vivos, great. And we’ll — we fully expect to benefit greatly from that relationship. So that’s sort of a lot more information than probably you wanted, but that’s where we’re going.

Lucas Ward: Okay, Kirk. So if I hear you correctly, it sounds like the big difference with these new partners is that they already have live patients. They’re dealing with the end customer.

Kirk Huntsman: Exactly. [indiscernible]

Lucas Ward: I guess a follow up question…

Kirk Huntsman: I don’t have any [indiscernible]

Lucas Ward: Yes. Yes, go ahead. Go ahead. So a follow-up would be like what do you need to do to execute those opportunities? I mean, how resource-intensive is it for you to be able to actually serve these partners and their patients?

Kirk Huntsman: Well, we have the teams that are trained. We’ve been taking teams and putting them out in the field to gain experience and expertise working with patients all around the country. We’ve done this from coast to coast in north and south throughout the United States. And so we’re very, very well versed in our methodologies and our systems. We know how to close the cases. We know how to get patients into treatment. And now all we have to do is just work with these — so for example, let me just give you an example of a testing company. So a sleep testing company that’s performing sleep test. So they send a patient — a prospective OSA patient, they send them a test, a sleep test, a home sleep test. That home sleep test will yield to that testing company probably, let’s just say, $200.

That’s probably a little bit on the high end. But let’s just say it’s $200. Well, by the time they do all the things that they’ve got to do, they may make $100 on that case. And then they have the contract out for a physician to read it, a sleep physician and the sleep physician may make $50 for reading and interpreting the test. Under our new model, the dentist has historically made, let’s just say circa $5,000 to $6,000, maybe $8,000 on a case. So the order of magnitude that the dentists have been realizing on these cases is dramatically disproportionate to the amount of money being made by the medical community and the testing company. By bringing the testing company into our MSO network, we then can reallocate the amount of money that is being compensated for them.

And so they have an opportunity to make far more money than they ever made before, and that incentive is strong. And so they will work and we will work collaboratively to make sure that patients are given the same treatment options, every opportunity to go to whatever makes the most sense. At the end of the day, we are — from our experience, we know more of them will choose the kind of treatment that we have available.

Lucas Ward: Okay. Got you. If I could, just one more follow-up. You’ve made very two powerful announcements, a very powerful announcements, one that your CARE devices are approved — FDA-approved for severe sleep apnea treatment and also that your eligible — those devices are eligible for Medicare reimbursement. I guess my question is, I mean that sounds great, but how does it — how do you monetize that? Like how does that impact your business model, your revenue opportunities, your sales and marketing?

Kirk Huntsman: Well, the first thing is — thank you for that, by the way, Lucas. The first aspect of that is a certain credibility that comes along with having the world’s only FDA-cleared oral appliance device to treat severe sleep apnea. Roughly 20% of all sleep apnea cases are severe, but probably 80% of all of the comorbidities and severe conditions that OSA causes and creates are among the severe population. So for our ability to treat severe and to treat it very cost effectively is really garnering a tremendous amount of attention among the medical providers and the medical community. So this is elevated Vivos into an entirely new level of respect and an entirely new level of credibility. And the dialogues that are happening today with medical providers around the country as a result of this severe clearance, they never would have happened a year, two years, three years ago, and they’re happening today.

And so we’re seeing more and more medical doctors getting very, very comfortable with recommending our therapy to patients. So that tends to drive more patients to the therapy. It tends to provide patients with a much greater level of confidence in the technology, and it just opens the door for so many different levels of collaboration and opportunities to work with the medical community that have just never been there before. Dentistry has always operated in a silo, and that silo has really been somewhat resented by the medical community historically and never fully embraced. With our clearance, we noticed almost immediately that the medical community sort of sat back and said, “Well, this is really interesting here. How did this happen? And who are these people?

And what is this technology and what does it do? And why is it different?” And all of a sudden, all these questions started to arise. And we see this happening and building a lot of momentum as we go into the future here. So it takes a little bit of time. This isn’t happening overnight. But now on the Medicare front, it’s just another wallet on the table for patients that may need some assistance in terms of how they pay for this. And whether in network or participating Medicare providers, Medicare patients now have additional assistance in paying for their treatment. So it’s another wallet on the table.

Lucas Ward: Thank you very much.

Kirk Huntsman: You bet.

Operator: And speakers, there are no further questions at this time. I would like to hand over the call to Kirk Huntsman, Chairman and Chief Executive Officer. Please continue.

Kirk Huntsman: Thank you, operator. I would just like to thank everyone for joining us on today’s call and for your continued interest and support of Vivos Therapeutics. We know this has been a long journey. And I think it’s safe to say that we have — despite all the adversity and all the opposition and all of the things that we’ve had to overcome, I think it’s safe to say that we’ve never felt more optimistic about our future and about the growth and prospects for this company going forward. And we look forward to sharing our continued progress with you as we continue to execute on our plans that we just announced throughout 2024 and beyond. Thank you all, and have a great evening.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.