Vivos Therapeutics, Inc. (NASDAQ:VVOS) Q3 2024 Earnings Call Transcript

Vivos Therapeutics, Inc. (NASDAQ:VVOS) Q3 2024 Earnings Call Transcript November 14, 2024

Operator: Good day, everyone, and welcome to the Vivos Therapeutics Third 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 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 Brad Amman, Chief Financial Officer for instructions and the reading of the Safe Harbor statement. Please go ahead.

Brad Amman: Thank you, Lovely. Hello, everyone, and welcome to our third quarter 2024 conference call. A copy of the earnings press release is available on the Investor Relations section of our website at, www.vivos.com/investor-relations. On today’s call are Kirk Huntsman, Vivos’ Chairman and Chief Executive Officer; and me, Brad Amman, Chief Financial Officer. Today, we’ll review the highlights and financial results for the third quarter 2024 as well as more recent development and Vivos’ plan 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 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, distribution, product acquisition, integration, research and development, regulatory initiatives, cost savings plan 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 flow 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 third 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. Given these risks, uncertainties and contingencies, you should not place undue reliance on our forward-looking statements. Finally, except to the extent required by law, Vivos assumes no obligation to update our forward-looking statements as circumstances change.

Finally, please be aware that the U.S. Food and Drug Administration has given certain specific Vivos appliances 510(k) clearance to treat mild to severe OSA and adults. With the FDA clearance for severe OSA last November and more recently, the pediatric FDA clearance for treating moderate to severe OSA in children ages 6 to 17. The treatment of patients with severe OSA with Vivos specific appliances is now no longer needed to be performed off-label at the clinic discretion of the treating doctor and is now an integral part of the Vivos treatment protocol. Treatment of OSA of any severity or any other sleep, breathing, or other condition with any other Vivos’ FDA-cleared devices remains at the clinical discretion of the treating doctor. Now, I will review the highlights of our financial results for the third quarter of 2024.

For further information on our results for the three and nine-month periods ended September 30, 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. Today, we reported third quarter 2024 total revenue of $3.9 million, compared to $3.3 million for the third quarter of 2023. This is a 17% increase quarter-over-quarter. The quarter-over-quarter growth was due to an increase of approximately $0.5 million in product revenue from higher sales of Vivos appliances and guides and lower discounts on Vivos appliances coupled with an increase of $100,000 in service revenue, reflecting early recognition of deferred enrollment revenue and increase in sponsorship, seminar and other service revenue, partially offset by a decrease in myofunctional therapy revenues.

Billing Intelligence Service revenue, VIP enrollment and home sleep testing service revenue remained relatively unchanged quarter-over-quarter, keeping in mind that VIP enrollment revenue will be significantly less important for Vivos going forward, given the June 2024 shift in our marketing and distribution model, which we will discuss in detail today. For the nine months ended September 30, 2024, total revenue was $11.3 million, compared to $10.6 million in the comparable period in 2023, an increase of approximately 7%. During the third quarter of 2024, we enrolled five VIPs recognized VIP enrollment revenue of $900,000, a revenue decrease of 6% compared to the third quarter of 2023 when we enrolled 29 VIPs for $1 million in revenue. The revenue decrease was impacted by our shift in sales and marketing strategy to focus on sleep provider affiliations, offset by higher incidence of breakage in contracts.

Approximately $0.5 million in revenue was attributed to accelerated revenue recognition on several contracts for VIPs who did not complete their required training during the first 90 days of their enrollment. Please refer to our 10-Q for further details on this, particularly on our revenue recognition policy for enrollment revenue. For the nine months ended September 30, 2024, we enrolled 87 VIPs and recognized VIP enrollment revenue of $2 [ph] million of revenue decreases [indiscernible] compared to the same period last year when we enrolled 110 VIPs for $3.2 million. In addition to the lower number of enrollments, revenue was impacted by updates to key inputs in our revenue recognition methodology, primarily estimated customer lives, the addition of new entry levels into the VIP program at lower price points, and a new pay per class training program.

As stated earlier, as VIP enrollment will be much less of a focus for us going forward, these metrics and revenue recognition methodologies will become less important for us in future periods. We sold 1,954 oral appliance arches during the third quarter of 2024 for a total of $2 million, a 34% increase in revenue compared to 1,809 oral appliance arches during the third quarter of 2023 for $1.5 million. The increase in revenue is directly attributable to an 83% decrease in discounts offered during the third quarter of 2024, compared to the same period last year. For nine months ended September 30, 2024, we sold 5,993 oral appliance arches for a total of $5.6 million, a 17% increase in revenue compared to the same period in 2023, when we sold 6,261 oral appliance arches for $4.8 million.

The increase is directly attributable to a 66% decrease in discounts offered during the nine-month period in 2024 compared to comparable period in 2023. As Kirk will discuss in more detail, we began to see patients from our strategic marketing and distribution alliance model announced in June with Rebus Health, an operator of several sleep testing and treatment centers here in Colorado. As a result, the fourth quarter of this year will be the first full quarter of operations under this new model, which is based on collaborations with sleep and breathing disorder treatment providers to better align our interests with referring medical professionals. We expect this will broaden the number of OSA patients who have access to Vivos products and make our revenue far less reliant on VIP enrollments.

As Kirk will also explain, we are excited by the shift in our sales and marketing model, and we see opportunities to scale this model through similar alliances or collaborations. Gross profit was $2.3 million for the third quarter of 2024, an increase of $600,000, or 34% compared to third quarter of 2023. The increase was primarily attributable to an increase in revenue. Gross margin for the third quarter of 2024 was 60% compared to 53% the third quarter of last year. For nine months ended September 30, 2024, gross profit was $6.9 million, an increase of $700,000, or 12% compared to the same period in 2023, attributable to the increase in revenue. Gross margin for the nine-month period ended September 30, 2024 increased 2 percentage points to 61% from 59% in the same period in 2023.

Sales and marketing expenses decreased by about $300,000, or 46% to $300,000 compared to the third quarter of 2023. The decrease was primarily driven by lower sales commissions as well as sales related and digital marketing expenses. For the nine months ended September 30, 2024, sales and marketing expense decreased 29% to $1.3 million compared to the same period in 2023. As we’ve said previously, we are committed to increasing efficiencies and significantly lowering our burn rate as we seek to prudently use our capital resources and achieve our main goal of becoming cash flow positive from operations. Trend continued in the third quarter as we again achieved a significant reduction in general and administrative expenses. Importantly, the third quarter marks the ninth straight quarter in which we’ve been able to continue with this trend.

For the third quarter of 2024, general and administrative expenses decreased to $4.5 million from $4.6 million in the third quarter of last year. For nine months ended September 30, 2024, G&A expenses decreased $3.5 million to $13.5 million, or approximately 20% compared to the $17 million for the nine months ended September 30, 2023. The decrease reflects lower professional fees and a reduction in personnel and related compensation. Total operating expenses for the third quarter of 2024 decreased $400,000 compared to the third quarter of 2023. As noted, this represents our ninth consecutive quarter where we have reported year-over-year decreases in operating expenses and it is mainly due to continued cost cutting initiatives that we have taken on since the middle part of 2022, throughout 2023, and as well as in 2024.

For the nine months ended September 30, 2024, operating expenses decreased by $4.1 million or 21% compared to the same period last year. Our cost cutting initiatives and lower G&A also contributed to a significant year-over-year reduction in operating loss, which decreased $1 million or 27% versus the third quarter of 2023. For the nine months ended September 30, 2024, operating loss decreased $4.8 million or 36% compared to the same period in 2023. Net loss for the third quarter of 2024 increased by 25% to $2.6 million compared to the same quarter in 2023 due to primarily a third quarter change in the fair value of a warrant liability. For the nine months ended September 30, 2024, net loss decreased by $1 million, or 11% to $8.3 million compared to the same period in 2023.

Now turning to our statement of cash flows, cash burn from operations for the nine months ended September 30, 2024 was $9.8 million, compared to $9.2 million during this comparable period last year. This increase is due primarily to the $1.2 million decrease in accounts payable, prepaid expenses, and other assets. For the nine-month period ended September 30, 2024, net cash used in investing activities of $400,000 consisted of capital expenses for our software related to the development of our ordering software, which is expected to be placed in service by the end of the year. This compares to net cash used in investing activities of $700,000 in the comparable 2023 period arising from capital expenditures for the ordering software as well as an asset purchase of intellectual property in 2023.

For nine months ended September 30, 2024, net cash provided from financing activities of $14.8 million is related to our February warrant inducement transaction, our June strategic private equity backed pipe transaction, and our September registered direct offering. This compares to net cash provided from financing activities in the comparable 2023 period of $7.4 million, reflecting our January 2023 pipe. As previously announced to augment our liquidity position in stockholders’ equity in June 2024, we closed on a $7.5 million equity growth investment from an affiliate of New Seneca Partners, a leading middle market private equity firm. This investment along with our September 2024 registered direct shelf offering of $3.8 million net proceeds is more than sufficient for us to demonstrate compliance with NASDAQ’s minimum equity requirement as of the end of the quarter and materially bolsters our Vivos cash on hand to facilitate the rollout of new strategic alliance based sales and marketing model, which is expected to positively impact Vivos revenue growth.

Kirk will speak more on this shortly. As of September 30, 2024, we had approximately $6.3 million in cash and cash equivalents compared to $1.6 million as of December 31, 2023. Our stockholders’ equity at September 30 was about $7.7 million. In conclusion, we reported solid results for the third quarter. We continue to take actions to improve our cost structure and reduce cash burn while strengthening our cash position. We believe we have come a long way in strengthening our balance sheet and streamlining our operations to get costs under control. Now the table is set to drive revenue and further improve our results of operations. Kirk will further explain our plans to do this. I want to thank you all again for joining us on today’s conference call.

Now, I’ll 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. In the third quarter of 2024, we continued to make significant progress towards our primary corporate objectives. Just to recap and highlight a few financial metrics, quarter-over-quarter same period revenue was up 17% with product revenue up 34%. Quarter-over-quarter same period gross profit was up 34%. Gross margin increased to 60% from 53% in the third quarter of 2023. Quarter-over-quarter same period operating expenses were down 8% and lower than the prior year quarter for the ninth consecutive quarter. Quarter-over-quarter same period operating loss was down 27%. Year-over-year nine-month total revenue was up 7% with product revenue up 17%.

Year-over-year nine months gross profit was up 12%, year-over-year nine months operating expenses were down 21%, year-over-year nine months operating losses were down 36%. And cash and cash equivalents on hand were up nearly 4 times over the levels of December 31, 2023. So the trend lines of our financial performance are good. And as Brad said, we believe the financial structure of our organization has significantly improved from our efforts and our results of operations should continue to improve if we can drive revenue, which we believe we can do with our new alliance based sales and distribution model. Moreover, our latest milestone FDA clearances to treat severe OSA patients in both adult and pediatric populations as well as our new insurance codes awarded by the American Medical Association are proving to be a real asset in providing not only credibility as to the efficacy of our products versus our competition, but the broadening of our shots on goal to achieve the critical corporate initiative of increasing our revenues.

To help in this effort, we have been aggressively taking steps to expand our marketing and outreach efforts by hiring new marketing firms and personnel with deep experience in brand management and bringing products to market. Active efforts are underway to let the world know of our amazing FDA-cleared technology and its potential to positively impact the lives of millions. In that regard, we are creating multimedia content to be delivered directly to both healthcare professionals and also patients seeking solutions and alternative treatment options. Some of that new content is already being disseminated across multiple channels. Ultimately, our goal with these new marketing campaigns is two-fold. First, to make as many healthcare professionals as possible aware of our technology such that they will refer as many patients into our new strategic alliance locations as possible; and second, to have patients requesting Vivos treatment by name from those providers.

As we have previously indicated, our new sales and distribution alliance model is designed to deliver higher total revenue per clinical case along with higher gross profit. We believe this strategic pivot towards affiliation or outright acquisition of medical-based full service breathing and sleep centers represents a key inflection point for us that will materially alter our prospects for growth and profitability. During the third quarter, we launched the initial phase of our first strategic alliance with Rivas Health, a Colorado based multicenter sleep clinic. During the initial two to three-month phase of the new model rollout, the emphasis has been on hiring and training new staff, clinical training for the dentists and MDs and setting up all the systems and support technologies such as practice management software, patient financing, lasers, CBCT scanners, et cetera, et cetera.

That all takes time and effort, but I’m pleased to announce that our team executed well there and we began seeing patient prospects in late August. Our experience thus far at this new model has left us very optimistic about how this new model will perform in the future, such that we have recently decided to expand the operation into two additional Denver area locations, which should begin to come online in December or early 2025. Keep in mind that for every 100 OSA patients per month that start Vivos treatment of some kind under this new model, we expect to realize top line revenues of nearly $8 million annually. Thus, we anticipate top line revenues to continue building as early as the fourth quarter of this year and into 2025. While it takes time and experimentation to pivot any business model, there are several noteworthy key performance indicators that are emerging from our operations with our new model thus far.

These include the following. First, our first strategic alliance partner has nearly 100,000 OSA patients in their database and receives approximately 1,200 new patient referrals per month. Next, we are seeing a remarkable 9% response rate to our partner’s internal patient e-mail marketing campaign. Of those who respond and come in for visits, about 86% desire further evaluation and thus far just over half of those patients are moving forward with treatment. Now, we do expect that figure to continue to increase as more patients work through their personal insurance and financing options. We thus believe that we are barely scratching the surface of what is possible as we continue to roll forward. There are reportedly over 2,500 AASM accredited sleep labs and testing centers across the United States with well over 100,000 new OSA patients being diagnosed each month.

Sleep clinics typically operate on a high volume, low margin business model, and are very intrigued by the higher margin products and services Vivos can bring to the table. We are currently in active discussions to affiliate with or acquire a number of additional sleep testing groups around the country and we expect to continue to refine the model as it rolls out based on our experiences. On September 20 of 2024, we closed on an equity offering providing net proceeds of $3.7 million to Vivos to purchase 1,363,812 shares of common stock at a purchase price of $3.15 per share. There were no common stock purchase warrants issued to investors in the offering. With this increased liquidity, we have moved ahead with the launch of our new strategic alliance model and potentially other similar alliances, which we expect to positively impact Vivos’ revenue growth.

During the quarter and more recently, we also achieved important milestones to strengthen the foundation for future growth, notably a key FDA clearance for the use of our devices in children and the issuance of new insurance codes covering our medical devices, both of which create the potential for wider adoption of Vivos devices and increasing revenue. In closing, Vivos is closing out 2024 on several very positive notes and is emerging with an exciting new business model that has the potential to provide our FDA-cleared and proven technology to thousands and perhaps tens of thousands of people who may never have seen or heard of Vivos. So thank you for your time today. And on behalf of all of us here at Vivos, I would like to express my gratitude to our shareholders for your continuing support throughout this journey.

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

Q&A Session

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 [indiscernible] from Watertown Research. Your line is now open. Please go ahead.

Unidentified Analyst: Thanks. Hi, guys. Thanks for taking my questions. Kirk, I just wanted to see if you could tell us a little bit more about what you’ve been seeing with this new marketing model at the sleep clinic that you’re in right now, and what is it exactly that’s giving you confidence to expand that into additional locations? Is it the response to the internal marketing campaign? Any direct patient interaction experience that you could talk about?

Kirk Huntsman: Yes. That’s a great question. Thank you for that. So I think in our last quarterly update, I sort of walked everybody through the lengthy process that we went through to evaluate and put together this new model. This wasn’t something that we just stumbled upon. This was something that we did some pilot work out in the field. We did a lot of extensive testing, and we were very confident going in that what we had experienced throughout our efforts of the pilot that we would continue to experience once we actually went live in an actual live scenario. And so while we were very confident, it’s still a little bit different to get actually in there and start producing. And so as we turned on the spigot and got going, we began to see conversion rates, patient acceptance, patient interest, provider excitement and enthusiasm, all at very, very high levels, just as we had hoped for and as we had forecast.

So the challenge to date has just simply been the normal challenges that you would expect as you’re beginning any kind of new business. There’s things to be worked through. There’s just new personnel on the team. They’re coming up to speed on new systems and jobs since and all that type of thing, there is just that type of thing that we’ve encountered. We are starting to open the spigot further. There is a — we have a — I don’t want to say it’s an unlimited number of at bats that we can have here, but we haven’t even begun to really tap the full potential of the patients that reside in the database or in the new patient flow. And to some degree that’s been by design. But now, I think we have satisfied ourselves and the folks at Rivas Health that everything is smoothed out, working according to plan, and it’s time to sort of put the pedal to the metal, if you will.

So in even this next week, as we sort of roll into the second half of November here, additional campaigns are going out via e-mail and otherwise, and certain other avenues are being looped in here so that the top of the funnel becomes more full. And I think as that happens, we’ll be able to open up more days of production. We’ve throughout this time, late August, September and October, we’ve really only had about two days of production per week. So it hasn’t — we’ve been far from having the thing go full tilt while we work through some of the training of our team and all that sort of thing. We’re very satisfied with the way our team has come around and come together. We’ve got the doctors hired for our additional locations here in Colorado, and the teams are being in their final training phases here.

Some of them have already been through some of the training or most of the training. Doctors are ready, staff is prepared. So I think by December for sure, and possibly even a little before then, we’ll be turning on the spigot pretty heavily at a couple of these new locations, and it’ll just add to what we’re doing up there in Longmont.

Unidentified Analyst: Got it. That’s very helpful. And how do you roll in the pediatric population, the one that you got recent FDA clearance for moderate, severe OSA. Is that a seamless addition to the marketing campaign or do you have to go through additional efforts to capture that population?

Kirk Huntsman: Well, the answer is it’s a little bit of both. One of the things that we have experienced and we had sort of alluded to this and we expected this, but we weren’t sure. We didn’t budget for it. But one of the things we’ve always seen in the past is that when the parents come in and see their results of our technology, invariably they will point to their kids and go, I’ve got a child, I’ve got a teen, I’ve got a young adult that has exactly the same problem. What do you have for them? And so to some degree, we have already been treating entire families where we may have, for example, one patient in the database and when they come in for treatment and then we educate them and spend a little time with them and then as we put them into treatment and explain what’s going on, they’ll be right back there within a week or a month or whatever with a child or in some cases the entire group of kids, right?

So that’s one way. So there’s sort of a cross pollination within families that come in through this treatment. And then I think the other thing is that schools and school districts and other medical professionals that treat kids, they see all the symptoms. Not all of the medical professionals are educated to look at or consider sleep apnea. So they’ll see a child that has an aggressive behavior in school, perhaps there’s attention deficit, there’s other things. And so what we’re doing is educating the professionals to basically say to them, have you considered a sleep and breathing problem for this child? Because it’s easy to test and it’s easy to validate and the solution might just be to correct that child’s breathing and sleep. And we got research that shows that, that when we do correct the sleep and breathing problems that the behavior improves and the academic performance improves and along a spectrum, all kinds of things improve in that child’s life and children begin to thrive.

So as the word spreads and a lot of these parent groups, they’re all especially a lot of these mom groups and chat rooms and stuff, they’re all very well connected. We have a distributor that focuses on — they use nothing but Vivos appliances and they focus solely on pediatrics. They’ve had some Internet posts. I guess, it’s actually Instagram, TikTok videos and the like that have gotten as many individual posts, that have gotten as many as 35 million and 37 million views. And so we’re talking about things that have, they resonate. The opportunity to address some of these childhood health issues resonates with parents. Parents want to know more information. They’re thirsty for information and they’re even more thirsty for solutions to their kids’ problems.

So some of this is just a little bit about pushing that out there and getting that message out, which is why we’ve hired some absolutely stellar top drawer social media, digital media marketing types. We’ve got a book that’s being written underway. We’ve got a full on documentary that we’re in the process of producing. I mean, there’s some things that are really very strategically being done right now behind the scenes to foment the interest level and all that sort of thing. Does that help?

Unidentified Analyst: Yes, yes, absolutely. That definitely makes sense. And it seems like family like you mentioned in the first place be a pretty large component since we know genetics is a factor it is causing OSA.

Kirk Huntsman: It is, yes.

Unidentified Analyst: And last question, maybe this is for Brad. If you could talk about the path to reach positive cash flow from operations by mid-next year. How much are you thinking will come from revenue growth versus additional cost cutting?

Brad Amman: Well, on the cost cutting side, we really did cut back to the bone. Now, we’re starting to increase our cost structure for supporting the strategic alliance so that we can appropriately address the OSA of the patients that will be coming our way. The new model that, that we are doing is we’re selling to directly to the patient, it comes with higher revenue than selling to a doctor. So that really helps us in terms of reducing the number of patients that are required to get to cash flow positive. So it’s really going to be more on the revenue side than cost cutting side going forward.

Unidentified Analyst: Great.

Kirk Huntsman: Let me just add to that really quick here. Remember that I referenced a stat that we came up with that I think we ought to keep our eyes on and that is for every 100 new patients per month, it represents accretive revenue of about $8 million per year. 100 patients a month, guys is for some of these testing centers that are doing 1,000 and 1,500 and whatever a month, it’s really not a big leap to go from where we are now to where we can be. And so with just 200, I think we did a calculation one-time, 200 maybe 250. I can’t remember the exact number of these new patients in the new model per month. I mean, we’re effectively at cash flow breakeven. So we’re not that far away. So to contemplate getting there by the middle of next year, the end of the first quarter, whenever that happens is not that hard to imagine at this point.

Unidentified Analyst: Yes. Well, looking forward to seeing your progress and congrats on the quarter.

Kirk Huntsman: Thank you.

Brad Amman: Thank you.

Operator: Your next question comes from the line of Scott Henry from Alliance Global Partners. Your line is now open. Please go ahead.

Scott Henry: Thank you. Good afternoon. I guess Brad or Kirk, how should we think about fourth quarter sequentially from third quarter? We’re halfway through right now. It sounds like the new model is getting traction, but it’s unclear how much will be impacted in that quarter. What can you tell us how we should think about it sequentially?

Kirk Huntsman: I would think about it, Scott. That’s a good question by the way. I would think about it as a transition quarter for us. I think this is going to be a blended. As Brad referenced in his remarks, we have taken resources and sales resources and promotional resources and outreach and onboarding resources away from our dental channel. And we have refocused and either eliminated those costs or refocused them. So while we have lowered costs rather dramatically, we’ve also lowered some of the revenue potential that was embedded in there. We will begin to see replacement of that revenue as we move through the latter part of the fourth quarter and into 2025. So I would consider this quarter to be a transition quarter for the company as we’re now sort of replacing one source of revenue with another source of revenue.

But as that builds under the new strategic model where with a blue ocean type opportunity, then I really believe that we’re going to overcome whatever we were losing, whatever we left on the table by not enrolling as many dentists we’ll overcome that and more by actually putting our devices in patients mouths and getting more medical penetration.

Scott Henry: Okay. Thank you for that color. And then, Brad, in the third quarter there was still this big bolus from VIP revenue that came in since the number was flat despite dramatically fewer VIPs. Is that sort of an accounting catch up? And when we get into fourth quarter, should we expect the revenue to reflect the number of VIPs coming in? I mean basically that line should fade to I imagine close to zero over time. And maybe should we start to see that in Q4?

Brad Amman: Yes. You’ll see that over the next 12 months. We have on our balance sheet contract liability, which is really deferred revenue of $1.5 million, $1.3 million of that is current and $200,000 of its long-term. So you’ll see that start to be recognized over the next four to five quarters. Remember, we recognize revenue on the enrollments over the customer life, which in 2024 is 27 months. In 2023, it was 23 months. So it’s a little over two years that we recognize that revenue. So that’s how that will roll out over 2025.

Scott Henry: Okay. Thank you. That’s helpful. And then…

Kirk Huntsman: Scott, Scott?

Scott Henry: Yes.

Kirk Huntsman: A little more color on that.

Scott Henry: Sure.

Kirk Huntsman: One of the offsets to that, so we’re not enrolling VIPs where these guys would pay $40,000, $50,000 to go through a VIP process. But we are — we have lowered the threshold and we divvied it up, so that there are lower price points of entry for dentists who still desire to join Vivos and become a provider. They can just now do it in sort of incremental stages. And the revenue recognition around that, because it’s just a course only is very different from the VIP program that we used to offer. And so some of the loss of revenue from VIPs and as you mentioned, the sort of the accounting revenue recognition reserve, if you will that we have built up as that gets sort of worked through, we do expect to see that we still have dentists that, that reach out to us all the time from all around the world saying, hey, I’d like to get started.

Can I get started with the kids program? We have a guided growth and development program. We have what we call a lifeline program. We have our care devices. So we have different entry points now, something we’ve never offered before. But as we’ve pivoted now away from a focus on dentistry, we’ve lowered the entry points, divvied it all up into bite-sized chunks. And I think some of what we might be losing today in this transition time might just be augmented by doctors who maybe they’ve never joined Vivos before because of the price-point barrier, which we put out there intentionally, but now they might come in and say, I only want to do kids. Well, that’s like $8,000. It’s not $50,000. So it’s very doable for these guys. And I think we might start to see, and we don’t know yet, but I think we might start to see some offset on that.

So just as you think about the model going forward, I don’t think the — I don’t think we’re anticipating the dental training and enrollment model to go to zero. It might go down quite a bit and it’ll be recognized a little differently over time, but we don’t expect it to go to zero. I think that’s a safe bet. Brad, are you?

Brad Amman: Yes, I mean, I think there’s two different things. One is the — I think your question was about in…

Kirk Huntsman: Enrollments.

Brad Amman: In enrollments, and the VIP enrollment model that we have as an incumbent type of legacy program versus the training that doctors that — want additional training now, which is recognized over the performance of the training. Whereas the enrollment was — had a lot of performance obligations that were recognized separate from the right to buy, if you will.

Scott Henry: Okay. Great.

Brad Amman: So there’s two different components there now.

Scott Henry: Okay. Final question, with the new model, obviously Colorado is close proximity to you, but certainly no monopoly on sleep apnea. When would you expect to start venturing out geographically to some other high volume areas?

Kirk Huntsman: We’re already involved in that right now. Telemedicine is basically taking over sleep medicine. And so the opportunity to leverage national networks where you have licensed providers, medical doctors across 50 states or wide swaths of the country, give us opportunities to do that. And without going into any detail, I can tell you we’re already very actively engaged in laying the groundwork for that type of a rollout very, very soon. So I have to say for now, just stay tuned on that. But we’re very excited about what is happening today throughout sleep medicine because of telemedicine opportunities and because of the totally unique value proposition that our technology offers. So it’s a great time to be Vivos, and it’s a great time to have this opportunity to be here, so.

Scott Henry: Okay. Well, thank you for taking the questions.

Kirk Huntsman: You bet.

Brad Amman: Thank you. Scott.

Operator: Your next question comes from the line of Lucas Ward from Ascendiant Capital Markets. Your line is now open. Please go ahead.

Lucas Ward: Thank you. Hi guys, congratulations on your progress.

Kirk Huntsman: Thank you.

Brad Amman: Thank you, Lucas.

Lucas Ward: So okay. I had a couple questions on the sleep centers. Just to clarify, how many are you active in now? Is it two?

Kirk Huntsman: So we are actually at one location in Colorado with two additional locations that will be opening up here over the next few weeks as we round out the year.

Lucas Ward: Okay, so two additional. And you had talked last quarter about like a horizon of six or eight that you were targeting. Over what timeframe would that be?

Kirk Huntsman: So we are in active conversations with a number of other sleep groups that do the testing, the diagnostics. So the way this typically works in sleep is a patient will either through their primary care physician, maybe it’s through their dentist, maybe it’s through a chiropractor, whomever, they will get referred to a sleep center or a sleep testing group, which might do home sleep tests, they’ll get referred in and they’ll get a sleep test. And the sleep test will be conducted by the testing group under the auspices of a typically a Board-certified sleep specialist who will do the interpretation and make a script, possibly a letter of medical necessity, whatever is necessary to get that patient figured out. Once they have the diagnosis, the basic issue that the faces the patient is what do I do now?

And that’s where we want the exposure to Vivos to occur. At that point in the patient journey where the patient sits back down with the — their medical doctor or their dentist or whomever and says, okay, what are my treatment options? And the way we work at these sleep centers is, we have our treatment navigators intervene at that juncture with the full knowledge and consent of the physicians and basically say, here’s what you have. Here’s what it means. This is what this can do to you if you don’t treat it and here are your treatment options. And then we go through their treatment options. We go through how they can manage this disease with obstruct with CPAP, how they can manage it with an oral appliance device that does mandibular advancement, or how they might rehabilitate their airway by use of a Vivos treatment using one of our care devices.

And then we let the patients decide. And what we’re excited about is that most patients are selecting the rehabilitation route with Vivos. Some of them are selecting to use another oral appliance, which we also supply them, by the way. We don’t just do the rehabilitation part. Any type of oral appliance device, or in fact, through these sleep centers, any type of CPAP, we can handle all of that. So we basically are giving the patients, the full spectrum of opportunity to make a choice and then to go into treatment and that’s kind of where we’re at. And I totally lost sight of what your question was. I hope I was responsive to it.

Lucas Ward: You’re on track, Kirk, because this gets into my next question, which is the business model for the new marketing strategy. Did you say that typically the patient would buy — would just buy the outright, and therefore you get a higher ASP for that? Or maybe a payer would buy it, like, as opposed to the VIP model, where they would have to go through the dentist and the dentist would take a cut. Can you just clarify like how the sales part of it works?

Kirk Huntsman: Yes. So basically, in our model, the sleep physician is working closely with the dentist. Both of them work under agreements with us as sort of the management company of an MSO. And so the management services organization operates the clinic, and the providers, including the dentist and the physician are both employees of the clinic itself. And so what happens is the patient, as far as the patient knows, they’re working within a medical practice led by a medical doctor who happens to work with a dentist that’s part of their team that actually does what they do. And so in that context, what happens is that the dentist is working. They’re not worried about overhead in a private practice. They’re not worried about running a staff, doing hygiene checks, doing crowns and fillings, anything, they’re focused solely on sleep.

And because of the efficiencies in that model, there’s a lot more profit margin available for distribution and profits that are available for the MSO that eventually come back to Vivos. So we supply the appliances to the dentists who work at the MSO and we supply them with whatever support services that they need, et cetera, et cetera. So in effect, they’re actually getting a — so it’s a win-win for the patients and everybody along the way. Does that make sense?

Lucas Ward: Okay. Yes. So it’s actually similar to the VIP thing where you’re essentially selling to the clinic or the provider and then they’re sort of their resource selling to the patient.

Kirk Huntsman: Yes, that’s correct. That’s correct.

Lucas Ward: Okay. All right. Just switching gears, did you say that you expect revenues to go up in the fourth quarter? Could you give more — could you expand on your outlook for revenues going forward?

Kirk Huntsman: Look, I think because this is a transition quarter, I’m not sure how all the enrollment revenues that Brad and Scott were talking about, I’m not sure how all that is going to play out and I’m not sure how quickly the ramp is going to go in these two new facilities. So I would say, we’re hopeful that it will go up. It’s just such a — there’s so many changes taking place. It’s hard for us to forecast or predict in Q4. I think we are very confident that we will see some accretion, some the beginnings at least, of some accretion in Q4 and some serious accretion, more development of the model in Q1 of next year and then going forward. So I would say, to look at this as either flat or maybe slight growth in this particular quarter of Q4 and then going forward into next year is where we think that we’ll start to see this thing really take off and then the level of growth next year should be significant in our view.

Lucas Ward: Okay. Great. Thanks, Kirk. I know those are tough questions to answer.

Kirk Huntsman: Sure.

Lucas Ward: I guess, last question about some of your other marketing channels that you’ve talked about. The DMEs, the DSOs, the international, how did they fit in with the new focus on the alliances with the physician alliances and the sleep centers?

Kirk Huntsman: We were very disappointed in what happened with our DME initiative. And it just — the DME company just seemed like they just didn’t — they just lost interest after a while, they had a changeover in senior leadership. Their CEO left shortly after our initiative launched. The new CEO came in and just didn’t have the same appetite for everything. And so we were very disappointed in that. The DSO initiatives, I think they sort of reinforced the core conclusion that we came to hear about a year ago, which is, man, these dentists, there are some dentists out there that get this and do so extraordinarily well, but the vast majority of them are just not going to do it and they’re not going to get it. And it’s only because they just get so focused in on their core dentistry that it’s just hard for most of them to pivot.

The ones that do, do exceptionally well both, I mean, by every measure, by quality of life, by income level, by satisfaction, I mean, you just go and survey these guys and they’re just stark raving fans. The problem is that there aren’t enough of those guys out there to scale a business to the degree that this market warrants or needs if you’re solely going down a dental path. So I think the DSOs are no exception. We have a few DSOs that do really well and are excited about what we’re doing. But even they, within their own organizations run into this roadblock of, you know, I’ve got a couple of guys here that really are excited about doing sleep treatments with Vivos. But the vast majority of our dentists are just so-so about it. I mean, it’s just — it’s the same thing all over again.

So I would say to your question, how much do we count on or how much should we expect from those two channels, I would say very little. There’s a couple of large DSOs that are having some incredible success on their pilots with us. And I mean financial success and a lot of noise, but we still can’t get the DSOs to adopt this on a global basis. So look at this juncture in time, we’re deemphasizing the dental community, not eliminating it, not alienating ourselves from it. But we are not — our go forward path is clearly through what we’re talking about in our new affiliation and strategic alliance model using our MSO model. So that’s where we see the future.

Lucas Ward: That makes so much sense, that you would be focusing on the people that are specialists in sleep as opposed to dentistry, where the apnea is kind of tangential…

Kirk Huntsman: Yes, yes. We agree with you. We agree with you. We wish we’d gotten to this conclusion earlier, but here we are, so.

Lucas Ward: Okay. If I could just get one more in the CPT codes.

Kirk Huntsman: Yes.

Lucas Ward: That seems like a really great thing. Like, can you quantify the incremental revenue impact of having those codes?

Kirk Huntsman: Well, okay, not yet. And the reason is because while we have the codes and while they are unique to Vivos products, the category that is covered and defined in the CPT documentation, there’s only — the only products that fit that category are Vivos products. What is not clear yet is how much the payers are going to pay under those codes. And so our next effort is in 2025, and it’s already started is to get in front of the payers and basically make our pitch for them to reimburse at high levels for these codes, these new codes. And so once we have that, then I can answer your question with a greater degree of specificity. But right now, I would just say the cycle is not yet complete. As soon as we complete it, we start to get some indications.

What we really need is one or two of the big boys to sort of fall in line and the others will follow. But we’re still working on that. We’ve retained some pretty powerful people who have influence there with the payers to help us with that. So we feel like we’re in good hands as far as that goes.

Brad Amman: And just to add on to that, there’s a huge value proposition for payers to reimburse Vivos for this because we are looking at — we reduce the cost of care in the healthcare system by we’re the only product out there that actually can remediate this OSA by use of our products. So that’s a huge value proposition because there’s a lot — as we all know, there’s a lot of ancillary health issues that arise from not getting enough oxygen during the night. And so that’s a huge reimbursement value proposition for Vivos.

Lucas Ward: Okay. Fantastic. Thanks, guys. Appreciate it.

Kirk Huntsman: Thank you. Appreciate it.

Brad Amman: Thanks, Lucas.

Operator: There are no further questions at this time. Please continue, Mr. Kirk Huntsman.

Kirk Huntsman: Thank you, operator. I would like to just thank everyone for joining us on today’s call and for your continued interest in Vivos Therapeutics. These are obviously very exciting times and we look forward to sharing our continued progress with you as we move and continue to execute on our plans during the remainder of 2024 and into next year. So thank you very much. Have a great evening and a great holiday season and looking forward to 2025. Thank you so much.

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