Vivos Therapeutics, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Vivos Therapeutics is a medical technology company commercializing The Vivos Method, including customized oral appliances, treatment protocols, dentist training and related services for dentofacial abnormalities, mild to moderate obstructive sleep apnea and snoring. Its business model centers on the Vivos Integrated Practice program for dental providers.
This unaudited Form 10-Q covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. The company had 23.0 million common shares outstanding as of March 31, 2022 and was classified as a smaller reporting company and emerging growth company.
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $3.460 million | $3.448 million | +$0.012 million |
| Product revenue | $1.722 million | $1.387 million | +$0.335 million |
| Service revenue | $1.738 million | $2.061 million | -$0.323 million |
| Gross profit | $2.367 million | $2.690 million | -$0.323 million |
| Gross margin | 68% | 78% | -10 percentage points |
| Operating loss | $6.823 million | $3.406 million | Loss increased $3.417 million |
| Net loss | $5.515 million | $3.399 million | Loss increased $2.116 million |
| Net loss per share | $0.26 | $0.19 | Loss per share increased |
| Operating cash flow | $(6.082) million | $(3.861) million | Cash use increased $2.221 million |
Product revenue represented approximately 50% of total revenue, while service revenue represented approximately 50%. The company sold 2,965 oral appliance arches, compared with 2,570 in the prior-year quarter. It enrolled 32 VIPs, compared with 53 in Q1 2021.
General and administrative expense increased 64% to $8.275 million, primarily due to higher personnel and compensation costs, increased headcount, public-company costs, professional fees, insurance and information technology expenses. Sales and marketing expense declined to $0.753 million from $0.860 million.
The company reported $17.828 million of cash and cash equivalents at March 31, 2022, down from $24.030 million at December 31, 2021. Total assets were $29.556 million and total liabilities were $8.701 million. Accounts receivable were $1.002 million and contract liabilities were $2.344 million.
The PPP loan of approximately $1.3 million was forgiven in January 2022. The company recorded approximately $1.287 million of related income, and no debt balance remained at March 31, 2022. Operating lease liabilities totaled $2.207 million, consisting of $0.357 million current and $1.850 million long term.
Material Changes Versus the Prior Comparable Period
- Total revenue was essentially flat because higher appliance, center, billing intelligence and myofunctional therapy revenue offset lower VIP enrollment revenue.
- VIP enrollment revenue declined approximately $0.5 million, and enrollments decreased 40%, from 53 to 32.
- Appliance sales increased approximately 19% in units and approximately $0.2 million in revenue.
- Gross margin fell from 78% to 68%, primarily due to higher appliance raw-material costs and enrollment incentives.
- Operating expenses increased approximately $3.1 million, driven mainly by general and administrative expenses.
- Net loss increased despite the $1.287 million PPP forgiveness benefit.
- Operating cash usage increased from $3.861 million to $6.082 million.
- The company adopted ASC 842 lease accounting on January 1, 2022, recognizing approximately $2.3 million of lease liabilities and approximately $1.6 million of right-of-use assets.
Outlook, Commentary, Risks and Unusual Items
Management stated that existing cash resources were expected to fund contractual obligations and working capital requirements for at least one year from the filing date. The MD&A separately stated that cash was expected to fund planned operations through at least the first quarter of 2023, subject to unexpected events, costs and contingencies.
Management continued to pursue dentist recruitment, DSO marketing and the Airway Alliance Program, which launched in the first quarter of 2022. Approximately 36% of VIPs accounted for all new case starts during the quarter, indicating concentration among active providers.
- COVID-19 variants, staffing shortages at dental practices, travel restrictions and lower VIP enrollments could adversely affect case starts and revenue.
- Inflation increased supplier and raw-material costs. The company raised standard appliance pricing effective May 1, 2022, but the effect on demand and revenue was not yet known.
- Supply-chain constraints and the Russia-Ukraine war could increase costs, disrupt economic activity and make future capital raising more difficult.
- The company has incurred losses and negative operating cash flow since inception and may require additional equity, debt or strategic financing if cash is consumed faster than expected.
- The company reported a previously identified material weakness in internal control over financial reporting. Disclosure controls and procedures were therefore concluded to be ineffective at March 31, 2022, although remediation efforts were ongoing.
- Outstanding potentially dilutive securities included approximately 2.938 million options and 2.636 million warrants; all were antidilutive for the quarter.
- Material legal matters included an investigation by the Washington State Department of Financial Institutions and litigation involving Ortho-Tain. Management stated that no pending matter was expected to have a material effect, but the outcomes remain subject to uncertainty.
The company collected the $0.5 million tenant improvement allowance receivable on May 9, 2022, after the quarter ended.
Most Important Facts to Verify
- Whether VIP enrollments and case starts recover, given the decline in enrollment revenue and concentration of case activity.
- Whether appliance price increases offset inflation and raw-material cost pressure without reducing demand.
- Whether operating cash burn declines sufficiently to preserve the stated liquidity runway.
- Whether the material weakness in internal control is remediated and controls operate effectively for a sufficient testing period.
- Whether the company can achieve sustainable gross-margin improvement and reduce its substantial operating losses.
- The status and potential financial exposure of the WSDFI investigation and Ortho-Tain-related litigation.