Vivos Therapeutics, Inc. — Fiscal 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; the filing was dated March 31, 2022. The request references 2021 Q4, but the filing provides audited full-year results rather than a separate fourth-quarter income statement.
Business Context
Vivos is a revenue-stage medical technology company commercializing The Vivos Method, a dentist-focused treatment model for dentofacial abnormalities and mild to moderate obstructive sleep apnea and snoring. Revenue is generated primarily from VIP enrollment and training, oral appliance sales, recurring provider services, billing services, medical integration activities, and SleepImage home sleep testing.
- FDA-cleared Class II products include the mRNA and mmRNA appliances; the mmRNA received FDA clearance in August 2021 and Medicare PDAC acceptance in December 2021.
- The company treated approximately 25,000 patients worldwide through more than 1,450 trained dentists, according to management.
- Vivos opened its Vivos Institute in Denver in August 2021 and conducted 15 SleepImage training sessions attended by approximately 800 dentists and staff.
Financial Performance and Liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $16.885 million | $13.066 million | +$3.819 million, or 29% |
| Product revenue | $6.520 million | $4.890 million | +$1.630 million |
| Service revenue | $10.365 million | $8.176 million | +$2.189 million |
| Gross profit | $12.604 million | $10.413 million | +$2.191 million |
| Gross margin | 75% | 80% | Down 5 percentage points |
| Operating loss | $20.382 million | $12.040 million | Loss increased $8.342 million |
| Net loss | $20.288 million | $12.057 million | Loss increased $8.231 million |
| Net loss per share | $0.96 | $1.40 | Improved, partly due to share issuance |
| Operating cash flow | $(15.735) million | $(5.680) million | Cash use increased $10.055 million |
- General and administrative expense increased 60% to $25.791 million, driven primarily by personnel growth, public-company costs, professional fees, technology spending, and bad debt expense.
- Sales and marketing expense increased to $5.551 million from $2.314 million, reflecting marketing campaigns, conferences, website initiatives, SleepImage demonstrations, and the Vivos Institute opening.
- Vivos enrolled 197 VIPs net of cancellations in 2021 versus 194 in 2020. Management stated that approximately 40% of dentists enrolling during 2021, primarily on discovery tracks, later canceled.
- Oral appliance arches sold increased to 11,355 from 8,135. Appliance sales to VIPs were approximately $6.0 million, compared with $4.5 million in 2020.
- Cash and cash equivalents were $24.030 million at December 31, 2021, compared with $18.206 million at December 31, 2020.
- Total liabilities were $8.150 million, including $1.265 million of current debt, principally the PPP loan. The PPP loan was forgiven in full on January 21, 2022, and the company expected to record approximately $1.3 million of other income in the first quarter of 2022.
- Investing cash use was $2.608 million, including $2.396 million of property and equipment expenditures, primarily for the Vivos Institute, and $225,000 for the Lyon Dental business acquisition.
- Financing cash inflow was $24.167 million, primarily from the May 2021 follow-on offering, which generated approximately $25.4 million of net proceeds after costs.
Material Changes Versus 2020
- Revenue grew 29%, supported by higher appliance volume, VIP revenue, center and management service revenue, Billing Intelligence Services, MyoCorrect, and SleepImage-related revenue.
- Gross margin declined from 80% to 75%, primarily because of higher costs associated with VIP enrollments and SleepImage deployment.
- Operating losses widened substantially as the company expanded headcount from 93 to 158 full-time employees, increased marketing activity, opened the Vivos Institute, and incurred higher public-company costs.
- The 2020 $3.331 million litigation settlement expense did not recur; however, Vivos recorded a $911,000 impairment loss on a related-party note receivable in 2021.
- Stockholders’ equity increased to $25.539 million from $16.917 million, principally because of the May 2021 equity offering, despite the 2021 net loss.
- Outstanding common shares increased to 23.012 million from 18.209 million at year-end 2020, creating dilution but also funding operations.
Guidance, Outlook, Risks and Unusual Items
- Management stated that existing cash resources were expected to fund contractual obligations and planned operations at least through the first quarter of 2023, subject to unexpected costs, contingencies, and the pace of cash consumption.
- Management expects inflation to increase supplier and product costs and anticipated standard appliance price increases beginning in the second quarter of 2022. The effect on demand and sales was not clear.
- The revised MyCardio agreement converted the SleepImage program from a potential loss leader into a potential recurring revenue center based on leasing ring recorders to VIPs. Management emphasized that the model remained unproven and expected positive results during 2022.
- COVID-19 Delta and Omicron resurgences reduced fourth-quarter VIP enrollments and patient case starts. Canadian travel restrictions delayed training and commencement of cases for some VIPs.
- Management identified a material weakness in internal control over financial reporting relating to review controls, technical accounting resources, VIP contract analysis under ASC 606, and impairment analysis for the related-party note receivable. Disclosure controls were deemed ineffective as of December 31, 2021. No restatement was required, and remediation was ongoing.
- Key risks include continued operating losses and negative cash flow, the need for additional capital, potential dilution or debt obligations, uncertain adoption of The Vivos Method, reimbursement variability, competition, FDA and healthcare-law compliance, off-label use, product liability, reliance on third-party manufacturers, supply-chain disruption, and cybersecurity and data-privacy exposure.
- The company is involved in litigation with Ortho-Tain and disclosed a Washington State Department of Financial Institutions investigation concerning historical stock sales by a former employee and independent contractor. Management stated that no other pending proceedings were expected to materially affect the company.
- Subsequent events included the February 2022 filing of a shelf registration allowing potential offerings of up to $75 million and the February 2022 issuance of additional stock options and warrants.
Most Important Facts for Investors to Verify
- Whether revenue growth and appliance volume can continue while VIP cancellations remain high and only approximately 30% of VIPs generated new case starts in the fourth quarter.
- The company’s cash burn, especially the $15.735 million of operating cash used in 2021, relative to the $24.030 million year-end cash balance and potential need for future financing.
- Progress in remediating the material weakness in internal control over financial reporting.
- Actual recurring revenue, margins, utilization, and profitability of the revised SleepImage/VivoScore program, MID, MyoCorrect, and Billing Intelligence Services.
- Whether Medicare acceptance of the mmRNA appliance and Health Canada registration translate into measurable additional case volume and collections.
- The effect of 2022 price increases, inflation, supply-chain conditions, COVID-19 disruptions, and dental labor shortages on demand and gross margin.
- The status and potential financial exposure from Ortho-Tain litigation, the Washington investigation, regulatory matters, and any product-liability or healthcare-compliance proceedings.
- Potential dilution from the $75 million shelf registration, outstanding options and warrants, and future equity or equity-linked financing.