Q3 2023 Vivos Therapeutics Inc Earnings Call
Good day, everyone and welcome to the vivo 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 I'll leave us website and will remain posted there for the next 30 days.
I will now hand, the call over to Julie Gannon, Steve US 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 dot in vivo dot com with us on today's call are Curt Huntsman, Nivose, Chairman and Chief Executive Officer.
And Brad and then Chief Financial Officer Today, We will review the highlights and financial results for the third quarter of 2023 as well as more recent developments in vivo 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.
This call will contain certain forward looking statements from our management made within the meaning of section 27, a of the Securities Act of 1933 as amended and section 21 E 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 and many of which are beyond vivo control actual results, including without limitation the results of evils.
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 result of operations, our operating metrics such as.
<unk> for in vivo to achieve future positive cash flows and other matters to be addressed by vivo 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 vivo filings with the security and exchange Commission, including the risk factors and other disclosures in our Form 10-K for the year ended December 31 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 vivo website as well as the Sec's website, except to the extent required by law vivo assumes no obligation to update statements at.
Circumstances change.
Finally, please be aware that the U S food and drug administration have already given vivo appliances, five 10-K clearance to treat mild to moderate OSA and he referenced herein regarding vivo treatment or the vivo 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 vivo treatment protocol now at this time. It is my pleasure to introduce Kirk Huntsman, Chairman and CEO of vivo Hertz. Please go ahead.
Thank you Julie.
I want to thank you all for joining us on today's conference call.
Just a moment I'll turn the call over to our Chief Financial Officer, Brad Ammann, 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 the most 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 Uzi.
It was a recognized durable medical equipment company or <unk>.
We are especially excited about this relationship because lincare served close to 2 million patients nationwide.
Many of whom are unsatisfied with the with using CPAP machines and are seeking alternative methods of treatment something we can certainly obliged them with.
In addition to Lincare I'll talk.
Also talk a bit about <unk>.
Some other agreements we've signed with partners such as with Orange Co. A division of publicly traded in Vista Holdings Corporation.
On demand orthodontist, which represents an exciting new service, we can now offer our <unk> providers.
And known in the Middle East region, who has developed and maintains a number of strategic relationships and accounts for diagnosis diagnostic testing with sleep physicians sleep centers hospitals, and other health care 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 excuse me. These.
These new strategic relationships will generate a substantial number of patient referrals for our existing and extensive network of devos trained dentists.
Which should bring significant new growth and revenue opportunities to leave US. 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 tradeoffs as top line revenue declined on both a quarter over quarter and year over year basis.
We worked hard throughout this process to avoid staffing and other reductions that would impact revenue.
We now believe the new Veeva integrator.
We now believe new vivo integrated providers or VIP enrollments and imply an appliance sales have been negatively impacted because of those measures.
Fortunately since the quarter close 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 R. R.
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 and to position <unk> to capitalize on the growth opportunities available to us.
So all the group 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 'twenty 'twenty four we will be happy to take your questions now.
Now, let me turn it over to Brad for a review of our financials Black Brad. Please go ahead. Thank you Kirk and good afternoon, everyone.
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 months periods ended September 32023, 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.
<unk> of the <unk> website at Veeva Dot com forward Slash Investor Dash relations.
Today, we reported third quarter 2023, total revenue of $3 $3 million compared to 4.2 million for the third quarter of 2020 to.
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 my own functional therapy revenue.
During the third quarter of 2023, we enrolled 29, Vips and recognize 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 2500 to $50000 and adding an $8000 pediatric program, which was received positive positively by our providers.
Average enrollments during the period increased from approximately 28000 during the three months ended September 30th 2022 to 34000 during the three months ended September 30th 2023, and VIP enrollment right to buy revenue was recognized over a longer period of time 23 months in 2020 three versus 18.
Months in 2022.
We sold 1800 and nine oral appliance arches during the third quarter of 2023 for a total of approximately $1.5 million compared to 3057.
During the third quarter of 2020 $242 million.
During both the third quarters of 2023 and 2022, we recognized approximately 200000 in billing intelligence service revenue compared to 300000 during the same period in 2022.
My our functional therapy services remained flat period over period a 200000.
Lastly, during our third quarter of 2023, we recognized $300000 in revenue from our ring lease program compared to a 100000 in our comparable 2022 period.
For the nine months ended September 30th 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 and revenue of $3 6 million for the same period in 2022.
During the nine months ended September 30th 2023 we sold 6261 oral appliance arches for revenue of $4 6 million compared to 9343 year old clients arches for revenue of approximately $5 $8 million, we attribute the deal.
Kris and product sales in part due to a negative CBS news report that came out in March of 2023 regarding an unrelated oral device called the AGA that was not cleared for use by the FDA and was being used off label, although vivo care devices are cleared by the F. D. A.
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 32023 and 2022.
We recognized.
Approximately 700000 in mile functional therapy revenue for the nine months ended September 30th 2023 we had 600000 in billing intelligence service revenue compared to 900000 in the prior year period.
Lastly for the nine months ended September 30th of this year, we recognized approximately 900000 and sleep testing services compared to 300000 for the nine months ended last year and 100000 in center product revenue compared to 500000 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 32023, with $6 3 million compared to $7 6 million for the nine months ended last year.
Gross margin for the nine months ended September 30th 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 $600000 for the third quarter of 2023 compared to $1 1 million for the third quarter of 2022.
For the nine months ended September 30th 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 both vivo dot com and the vivo sensitive dotcom 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%.
Two $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 on our previously announced cost cutting efforts.
Our making.
We believe these important efforts will cause we will continue to reduce our cash burn as we seek to ramp revenues and moved toward cash flow positive operations.
For the nine months ended September 32023, 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.
Yeah.
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 <unk> cost cutting initiatives.
For the nine months ended September 32023, 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 32023, 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.
Yeah.
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 to due to the cost cutting initiatives I described earlier.
Net loss for the nine months ended September 30th 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 30th of this year was $9 $2 million a degree a decrease of approximately $7 4 million compared to $6 $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 32023, net cash used in investing activities consisted of capital expenditures for software of 700000 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 a purchase.
Patents and other intellectual property in February of this year.
This similarly compares with cash used in investing activities of 700000 in the comparable 2022 period arising from cash capital expenditures.
For the internally developed ordering software.
As of September 30th 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, It's November Devos 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.
Thank you, Brad let's jump right into it now and answer what are probably the most pressing questions on your mind regarding our company's performance in the third quarter year to date and our prospects for resuming real growth real revenue growth in 2024.
First.
Why did topline revenue decline when the expectation was that Lincare and other revenue initiatives, we're supposed to begin to impact revenues starting in Q3.
Well I would point to four primary factors here first.
A reduction in staffing and support personnel.
Second.
A reduction in marketing expenditures third lingering effects of the Agi news reports and related government investigations, Brad mentioned earlier.
And fourth the unavoidable delay in and 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 our broadcast on broad cost cutting measures that are included reductions in certain support personnel, which were very influential in assisting VIP Dennis to get cases booked and processed as vivo 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.
<unk>, our new product lines have begun to kick in and here in the fourth quarter, we are seeing appliance sales and mile functional 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 market 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 in news reports regarding the agate device went deeper and lasted longer than we expected you may recall that in March of this year at CBS News report broke about a non FDA cleared oral appliance called the agi that made.
Substantiated claims regarding its ability to treat obstructive sleep apnea.
Government regulators and others setup consumer complaint hotlines and moved aggressively to investigate and curtail any further damage or potential harm to the general public.
Now despite the agi being a materially different device with virtually no research to back it up and no required regulatory FDA clearances.
Your 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 vivo VIP doctors clearly understood the differences between that device and our vivo as care devices.
But the entire episode caused many of them to pause their vivo production until further clarity uncertainty could be provided.
Finally, the previously announced Lincare project was temporarily delayed due to some software configuration and development delays by a third party charged with 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 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 <unk> 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 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 vivo providers.
The boost program requires existing VIP providers to prepay a minimum of $10000 in appliances in order to have our corporate personnel come to their offices to help set up systems trained staff and closed cases.
Approximately 40 boost programs have been sold today.
With most of them to be delivered in 2024.
The kickoff program as basic as 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 $400000 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. We 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 then 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 <unk> companies.
Medical doctors, non vivo 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 DMA 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 vivo 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 of the agreement follows the successful conclusion of a distribution pilot with Lincare and we believe there are additional <unk> 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 two key strategic agreements with Orange co a division of publicly traded in Vista Holdings Corporation.
And on demand orthodontist.
Offer or audio offering our national network of providers access to spark clear liners.
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 known DMC or Dubai based company focused on diagnostic testing and treatment product distribution for health care providers and hospital networks treating obstructive sleep apnea patients throughout the middle East North Africa or Mena.
Region.
Subject to regulatory approvals devos 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 or 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 2020 for study participants with moderate to severe OSA will be randomly assigned to either treatment with vivo 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 polysomnogram fee.
Our PSG to assess changes in the patients apnea hypopnea index or Abi.
In addition, we continue to actively pursue new regulatory approvals for additional indications of use by the FDA for vivo 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 and 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 to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Anytime a question has been addressed and you would like to withdraw your question. Please press Star then two.
The first question comes from Lucas Ward from Ascendant capital Capital markets. Please go ahead.
Hi, guys. Thanks for the overview.
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 yeah, you bet.
Yeah.
As I said earlier, we cut around $2 $7 million of personnel related cost. We've also cut a number of nonessential vendors.
Consol.
Consultants professional fees have come down substantially.
We expect that our fourth quarter <unk>.
G&A expenses will be very similar to what we experienced in the third quarter.
I would I would add to that that it's important to know that that we are constantly evaluating and reevaluating our G&A expenditures relative to our revenue and and so we.
We may be making as 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 rightsize 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 where we are.
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 <unk> 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 V boats.
Good questions. So the first the first step in that process is for the <unk> companies or the other referral sources, depending on wherever they are right. The other the other places where these patients are known to identify who might be a candidate so to identify and.
And enter into a dialogue with AC pad failed patients now most of the <unk> 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 that.
They're getting they're getting some really good flow through at that level.
And that's all handled by the <unk> companies, so lincare handle that part of it. They then hand that over to our treatment navigator those patients that indicate an interest to hand them over to a vivo treatment navigator, who takes it takes that patient provides further education about.
Oral appliance therapy and our.
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 said are our vast I mean, we're talking about in the millions of patients here and so it just it just is a matter of time.
Okay.
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 that Dennis and his team to set up a full schedule of patients. So between seven 7% to 10 patients each day for two days they go.
To do a boost program and they've got probably between 10 and 20 at bats with patients and our results are just outstanding I mean, we're getting.
I mean, I think we had one that was <unk>.
<unk> 19 for 'twenty converted into treatment. Another one was <unk> 11 for 11 and 10 for 10 in six of nine I mean, we keep going down here, we're getting we're getting conversion rates very very high in our office in the offices when we're sending our R. R. Professional teams in there to show these doctors how to do it so.
If the butter and the chair and the patients are there we've demonstrated the ability to close we just have to get more doctors with a confidence level and the staff members to be able to close those things and that's what we're working on now.
Okay, great Curt if I could just one more question.
You had this.
Uptick in the ring lease revenues.
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 that 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 a lot of our <unk>.
Providers are testing a lot of their patients.
We're just working on mechanisms and ways to increase that conversion from the test to two a K start.
So let me add onto that a little bit.
The.
I think as Brad just mentioned the sleep testing program using the sleep image rings that we referred to as vivo score rings.
That's the tip of the spear is the first opportunity that a patient has to to really begin to understand that they have sleep apnea and so it's really the entry point now we do about 75000 tests a year throughout our network and most of those patients about half of those.
<unk> 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 there. They're 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 teams start to get it they start to understand and we will we may have trained them 10 times, but when they see it happening in their own offices, what we found so far.
And it's 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 that high level of of closing and that's really something that we've taken great hard and because it's it's a sea change type event for us to see you know 10 out of 11 patients being closed if we had had that all along and these dental offices I mean, we would we'd be having a toll.
A different type of conversation here, but but now that we've 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.
Okay.
Great. Thank you very much.
Yes, 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 vivo 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.