Vivos Therapeutics, Inc. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Vivos Therapeutics is a medical technology and services company that develops and commercializes oral appliances, diagnostic tools, training, and related services for dentofacial abnormalities, obstructive sleep apnea and snoring. Its primary model trains and supports dentists through the Vivos Integrated Practice program and sells appliances and ancillary services to providers.
This unaudited Form 10-Q covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023. The company is a non-accelerated filer, smaller reporting company, and emerging growth company.
Financial performance and key metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $3.419 million | $3.857 million | Down $0.438 million, or 11% |
| Product revenue | $1.674 million | $1.772 million | Down $0.098 million |
| Service revenue | $1.745 million | $2.085 million | Down $0.340 million |
| Gross profit | $1.937 million | $2.337 million | Down $0.400 million |
| Gross margin | 57% | 61% | Down 4 percentage points |
| Operating loss | $3.785 million | $5.005 million | Improved $1.220 million |
| Net loss | $3.763 million | $1.703 million | Worsened $2.060 million |
| Basic and diluted loss per share | $1.63 | $1.72 | Loss per share improved |
| Cash used in operating activities | $2.516 million | $3.539 million | Improved $1.023 million |
Revenue included $1.145 million from appliances and $0.529 million from guides. Service revenue included $0.907 million from VIP programs, $0.225 million from Billing Intelligence Services, $0.307 million from sleep testing, $0.184 million from myofunctional therapy, and $0.122 million from sponsorship, seminars, and other services.
The company enrolled 50 VIPs in Q1 2024 versus 36 in Q1 2023, but recognized VIP enrollment revenue of approximately $0.9 million versus $1.3 million. Management attributed the lower recognized revenue partly to longer estimated customer lives, which increased from 23 months for 2023 contracts to 27 months for 2024 contracts and spread revenue over a longer period. Lower-priced entry programs also reduced revenue per contract.
The company sold 1,996 oral appliance arches versus 2,369 in the prior-year quarter. Cost of sales declined only 3%, resulting in lower gross profit and margin despite reduced revenue.
Balance sheet, liquidity, cash flow, and capital structure
- Cash and cash equivalents were $2.611 million at March 31, 2024, compared with $1.643 million at December 31, 2023.
- Total assets were $11.804 million and total liabilities were $11.222 million. Stockholders’ equity was only $0.582 million.
- Current liabilities were $8.070 million, including $2.499 million of accounts payable, $2.466 million of accrued expenses, and $2.398 million of current contract liabilities.
- Contract liabilities totaled $2.931 million, including $2.398 million expected to be recognized over the following 12 months.
- The filing does not show traditional interest-bearing debt. Lease liabilities totaled approximately $1.882 million, including current and long-term portions.
- Operating cash use was $2.516 million, investing cash use was $0.151 million, and financing cash provided was $3.635 million.
- Financing cash primarily reflected approximately $3.941 million of proceeds from warrant exercises, net of approximately $0.306 million of issuance costs.
- Management states that the $2.6 million of cash at March 31, 2024 will not be sufficient to fund operations and strategic objectives for the next twelve months without additional financing, creating substantial doubt about the company’s ability to continue as a going concern.
Material changes versus the prior comparable period
- Revenue declined 11%, driven primarily by lower VIP enrollment revenue and appliance sales.
- Gross margin decreased from 61% to 57% because revenue declined while cost of sales remained relatively stable.
- General and administrative expense declined 25% to $4.921 million, primarily because of lower professional fees and personnel-related costs following the 2023 reduction in force.
- Operating loss improved, but net loss increased because Q1 2023 included substantial non-cash warrant-related income. Q1 2024 had no comparable warrant fair-value income.
- Operating cash burn improved by approximately $1.0 million, partly because of cost reductions and increases in accounts payable, accrued expenses, and contract liabilities.
- Shares outstanding increased materially following warrant exercises, from 1.834 million at December 31, 2023 to 2.731 million at March 31, 2024. The company had 3.227 million shares outstanding as of May 13, 2024.
- Outstanding warrants totaled approximately 2.887 million shares at March 31, 2024, creating significant potential dilution.
Guidance, outlook, commentary, risks, and unusual items
The filing provides no formal numerical revenue or earnings guidance. Management continues to target increased revenue, profitability, and positive operating cash flow, but states that additional financing is expected to be required and that there is no assurance financing will be available on favorable terms or at all.
- Management reported that approximately 40% of VIPs initiated a new case as of March 31, 2024 and is focused on increasing active VIPs and case starts.
- Products acquired from Advanced Facialdontics, including Vida and Vida Sleep, were among the fastest-growing product segments in Q1 2024. However, the Lincare distribution rollout has progressed more slowly than expected and is no longer expected to materially affect near-term revenue.
- The company expects potential revenue from its Middle East-North Africa distribution agreement later in 2024, subject to pending regulatory approvals.
- A 150-patient Stanford clinical study comparing the DNA appliance with CPAP began enrollment in 2024. The study may not meet its endpoints or result in additional FDA clearances.
- Nasdaq confirmed on May 6, 2024 that the company had regained compliance with the $2.5 million minimum stockholders’ equity requirement, but will monitor compliance for one year. The filing also warns that reported equity of $0.582 million is below the requirement and that renewed delisting proceedings could occur.
- The company disclosed a material weakness in internal control over financial reporting. Management believes remediation has progressed but requires additional testing during 2024 before the weakness can be declared remediated.
- The company is exposed to demand weakness, slow provider adoption, regulatory and FDA risks, inflation, capital-market volatility, supplier concentration, and potential trade-policy and commodity-cost impacts.
- The company has pending litigation involving Ortho-Tain and related claims. A separate arbitration with former executive Dr. G. Dave Singh was settled and closed in January 2024.
- The company carries a $1.220 million employee retention tax credit liability while it continues evaluating IRS-related uncertainty.
Most important facts for investors to verify
- Whether the company can obtain sufficient equity or other financing to address its going-concern uncertainty and fund operations.
- Whether Nasdaq compliance can be maintained despite stockholders’ equity below the stated $2.5 million threshold.
- The pace of VIP enrollment conversion into recurring case starts, appliance orders, and ancillary service revenue.
- The sustainability of the 57% gross margin and the effectiveness of cost reductions in offsetting continuing operating losses.
- The potential dilution from approximately 2.887 million outstanding warrants and future equity financings.
- Progress and results of the Stanford clinical trial and any related FDA clearances.
- Whether the material weakness in internal controls is fully remediated after 2024 testing.
- The resolution and potential financial exposure from pending litigation, the employee retention tax credit liability, and other contingencies.