Vivos Therapeutics, Inc. — FY2022 Form 10-K Summary
Business context and reporting period
Vivos Therapeutics is a revenue-stage medical technology company commercializing The Vivos Method, including FDA-cleared oral appliances, diagnostic tools, myofunctional therapy, billing and practice-management services, and training for dental and medical providers. Its primary commercialization model is the Vivos Integrated Practice (VIP) program. The filing covers the fiscal year ended December 31, 2022; the source does not provide a separate Q4 income statement.
- Approximately 154 full-time and 9 part-time employees at year-end.
- Approximately 60,000 VivoScore home sleep tests were performed during 2022, up 99% from 2021, but the company did not see a corresponding increase in treatment enrollments.
- DNA appliance received FDA 510(k) clearance on December 30, 2022, for jaw repositioning and treatment of mild to moderate OSA and snoring in adults.
Financial performance and liquidity
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $16.0 million | $16.9 million | Down $0.9 million, or 5% |
| Product revenue | $8.4 million | $6.5 million | Up $1.9 million, or 29% |
| Service revenue | $7.6 million | $10.4 million | Down $2.7 million |
| Gross profit | $10.0 million | $12.6 million | Down $2.6 million |
| Gross margin | 63% | 75% | Down 12 percentage points |
| Operating loss | $25.0 million | $20.4 million | Loss increased $4.6 million |
| Net loss | $23.8 million | $20.3 million | Loss increased $3.6 million |
| Net loss per share | $1.04 | $0.96 | Loss per share increased |
| Operating cash flow | $(19.6) million | $(15.7) million | Use increased $3.9 million |
| Cash and cash equivalents | $3.5 million | $24.0 million | Down $20.5 million |
| Total liabilities | $8.9 million | $8.2 million | Up $0.8 million |
Product revenue included approximately $7.8 million from appliance sales to VIPs and $0.6 million from company-owned centers. Service revenue included approximately $4.8 million from VIP enrollments, $1.2 million from Billing Intelligence Services, $0.9 million from myofunctional therapy, $0.1 million from management services, and $0.6 million from sponsorship, seminars, and other activities.
General and administrative expense increased 13% to approximately $29.0 million, primarily from higher personnel, consulting, professional, travel, technology, and corporate costs. Sales and marketing expense declined slightly to approximately $5.3 million. The company recorded approximately $1.3 million of non-operating income from forgiveness of its PPP loan.
The company had no outstanding long-term debt at December 31, 2022; the PPP loan was forgiven in January 2022. However, operating lease liabilities totaled approximately $2.4 million, and contract liabilities totaled approximately $3.0 million, including approximately $2.9 million expected to be recognized within 12 months.
Material changes versus the prior comparable period
- Revenue declined despite 29% growth in appliance revenue because VIP enrollment revenue fell approximately $3.7 million, partly reflecting revised ASC 606 revenue recognition policies and a cumulative prior-period adjustment of approximately $0.4 million.
- The company enrolled 196 VIPs in 2022 versus 197 in 2021, but recognized VIP enrollment revenue of approximately $4.8 million versus $8.5 million.
- Oral appliance arches sold increased to 12,281 from 11,355.
- Gross margin contracted substantially because of higher appliance and raw-material costs, enrollment incentives, and costs associated with the SleepImage program.
- Approximately 48% of VIPs generated all new case starts during 2022, indicating concentration among active providers.
- Management reduced staff, renegotiated vendor contracts, reorganized operations, and replaced many Practice Advisors with the Treatment Navigator program.
- The company adopted ASC 842 lease accounting in 2022, recording approximately $1.9 million of lease liabilities and a $1.2 million right-of-use asset at adoption.
Guidance, outlook, commentary, risks, and unusual items
Management did not provide quantitative revenue or earnings guidance. Its stated objectives are to increase VIP enrollment and case starts, expand Treatment Navigator, broaden medical and dental referrals, improve insurance reimbursement, develop DSO relationships, grow the Medical Integration Division, and pursue international and adjacent-market opportunities.
- Going concern: The company reported an accumulated deficit of approximately $79.5 million, $23.8 million of net loss, $19.6 million of operating cash use, and only $3.5 million of cash at year-end. Management and the auditor stated that substantial doubt exists regarding the company’s ability to continue as a going concern without additional financing.
- Financing: On January 9, 2023, the company completed an $8.0 million private placement and received approximately $7.4 million of net proceeds. The transaction included common stock, pre-funded warrants, and warrants for up to 6.7 million common shares, creating significant potential dilution and restrictions on future financing transactions.
- Internal controls: Management concluded that disclosure controls were ineffective because of a material weakness involving technical accounting review, revenue recognition, order-to-cash, procure-to-pay, payroll, and lease controls. The filing also notes a prior restatement of March 2022 financial statements related to ASC 606 revenue recognition.
- Regulatory: An October 2022 FDA inspection resulted in three Form 483 observations. The company stated that it responded to and corrected the observations; the final FDA report was delivered in January 2023. A prior FDA warning letter was closed on January 31, 2023.
- Clinical and reimbursement risk: The company relies substantially on retrospective clinical data, adoption by dentists and physicians, patient willingness to pay, and third-party reimbursement. Most treatment is paid out-of-pocket or subject to variable insurance coverage.
- Operating risks: Key risks include limited operating history, continued losses, workforce shortages at dental practices, dependence on VIP adoption and case starts, competition from CPAP and other oral appliances, regulatory compliance, third-party manufacturing and supply-chain dependence, product liability, healthcare fraud-and-abuse laws, and stock-price volatility.
- Litigation: The filing describes pending disputes involving Ortho-Tain and former Chief Medical Officer G. Dave Singh, including arbitration scheduled for January 2024 and litigation concerning alleged trade-secret misuse.
- Subsequent acquisition: In February 2023, the company acquired patents, product rights, and other intellectual property from Advanced Facialdontics for $50,000 cash, 250,000 shares, potential earnouts and royalties, milestone payments, and a warrant for up to 400,000 shares.
Most important facts for investors to verify
- Whether the January 2023 financing provides sufficient runway and the extent of dilution from the issued and issuable shares and warrants.
- Progress toward eliminating the going-concern uncertainty and achieving positive operating cash flow.
- Whether revenue recognition changes, contract liabilities, and any future corrections materially affect reported revenue trends.
- Whether gross-margin pressure from manufacturing costs, pricing changes, and enrollment incentives persists.
- Growth in active VIP practices, case starts per VIP, treatment enrollments, and conversion of the large VivoScore testing volume into appliance revenue.
- Remediation of the material weakness in internal control over financial reporting.
- FDA follow-up, additional clearances, clinical-trial results, and compliance with labeling and healthcare regulations.
- Outcome and potential financial exposure from the Ortho-Tain and Singh matters.
- Potential dilution from approximately 3.6 million outstanding options, 3.6 million warrants at year-end 2022, and the substantially larger January 2023 warrant issuance.