Vivos Therapeutics, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three and nine months ended September 30, 2022, although the request metadata identifies “2022 Q1.” The financial statements are unaudited and prepared under U.S. GAAP.
Business Context
Vivos is a medical technology company commercializing The Vivos Method, a patented oral-appliance treatment and related training for dentofacial abnormalities and mild-to-moderate obstructive sleep apnea and snoring. Revenue is generated primarily through the Vivos Integrated Practice (VIP) program, appliance sales, billing and practice-management services, sleep testing, medical integration, and myofunctional therapy.
Financial Performance and Position
| Metric | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 |
|---|---|---|---|---|
| Total revenue | $4.246 million | $4.546 million | $12.074 million | $12.491 million |
| Product revenue | $2.014 million | $1.718 million | $6.357 million | $4.842 million |
| Service revenue | $2.232 million | $2.828 million | $5.717 million | $7.649 million |
| Gross profit | $2.496 million | $3.183 million | $7.635 million | $9.497 million |
| Gross margin | 59% | 70% | 63% | 76% |
| Operating loss | $(5.407) million | $(5.503) million | $(18.968) million | $(12.971) million |
| Net loss | $(5.434) million | $(5.453) million | $(17.756) million | $(12.895) million |
| Basic and diluted loss per share | $(0.26) | $(0.26) | $(0.84) | $(0.62) |
- Cash and cash equivalents were $6.719 million at September 30, 2022, compared with $24.030 million at December 31, 2021.
- Net cash used in operating activities was $16.587 million for the nine months ended September 30, 2022, compared with $11.613 million in the prior-year period.
- Net cash used in investing activities was $0.724 million, primarily for software development and other property and equipment.
- No financing cash flows occurred in the first nine months of 2022; the prior-year period included $24.167 million of net financing cash inflows.
- Total assets were $18.400 million and total liabilities were $8.545 million at September 30, 2022. Stockholders’ equity was $9.855 million.
- The company had no outstanding PPP debt after the SBA forgave approximately $1.3 million in January 2022. The forgiveness was recorded as non-operating income.
- Contract liabilities were $2.581 million at September 30, 2022, including approximately $2.4 million expected to be recognized over the following 12 months.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue decreased 7% year over year, while nine-month revenue decreased 3%.
- Product revenue increased 17% in the third quarter and 31% for the first nine months, reflecting higher appliance sales. The company sold 3,057 appliance arches in the quarter and 9,343 in the first nine months.
- Service revenue declined 21% in the quarter and 25% year to date, primarily because of lower VIP enrollment revenue. The company enrolled 56 VIPs in the quarter versus 56 in the prior year, and 146 VIPs in the first nine months versus 162.
- VIP revenue declined 33% in the quarter and 44% year to date. Management attributed the decline partly to a change in revenue recognition for VIP contracts and continued effects from COVID-19-related staffing and operating challenges in dental practices.
- Gross margin contracted from 70% to 59% in the quarter and from 76% to 63% year to date. Management cited higher appliance input costs, higher VIP enrollment and training costs, SleepImage program costs, and enrollment incentives.
- Year-to-date general and administrative expense increased 25% to $22.118 million, driven by higher personnel, consulting, professional, travel, technology, and public-company costs. Headcount increased from 147 to 170 employees.
- Sales and marketing expense decreased 21% year to date to $3.985 million, primarily due to lower marketing campaigns, materials, product samples, and commissions.
- The company adopted ASC 842 lease accounting on January 1, 2022, recording approximately $2.3 million of lease liabilities and a $1.6 million right-of-use asset related to the VIP program.
Liquidity, Outlook, Risks, and Unusual Items
Management stated that $6.7 million of cash may not be sufficient to fund operations and strategic objectives for the following 12 months. The company has incurred recurring losses, had an accumulated deficit of $73.4 million at September 30, 2022, and used $16.6 million of cash in operations during the first nine months. These conditions raise substantial doubt about the company’s ability to continue as a going concern. Management expects to seek additional financing, primarily through equity or debt, but disclosed that financing may not be available on favorable terms or at all.
- No formal revenue or profitability guidance is provided in the filing. Management’s stated objectives are to expand VIP enrollment, increase active VIP case starts, develop DSO and Airway Alliance relationships, and ultimately achieve profitability and positive operating cash flow.
- Approximately 36% of VIPs accounted for all new case starts during the third quarter, indicating concentration among active providers. The Airway Alliance Program did not contribute meaningfully to third-quarter revenue.
- Inflation increased raw-material and supplier costs, leading to appliance price increases effective May 1, 2022. The impact on demand and sales volume remains uncertain.
- COVID-19-related workforce shortages and patient precautions continued to affect dental practices and revenue. Supply-chain constraints, the war in Ukraine, recession risk, trade policy, commodity prices, and capital-market volatility may further pressure operations or financing access.
- Management disclosed material weaknesses in internal control over financial reporting, including a weakness related to revenue recognition. The company restated previously reported first-quarter 2022 financial statements after determining that VIP enrollment revenue had not been recognized consistently with ASC 606. Remediation includes third-party consultants, additional accounting personnel, enhanced review controls, and technology improvements.
- Subsequent events include arbitration initiated against former Chief Medical Officer Dr. Gurdev Dave Singh on November 3, 2022, and a December 2022 commercial collaboration with Nexus Dental Systems intended to create future billing-service revenue opportunities.
- Legal matters include ongoing litigation involving Ortho-Tain, a regulatory inquiry by the Washington State Department of Financial Institutions concerning historical stock sales, and claims threatened by Dr. Singh. The company believes these matters lack merit, but outcomes are uncertain.
Investor Verification Items
- Verify the correct reporting period, because the filing is for the quarter ended September 30, 2022 rather than the first quarter of 2022.
- Assess the company’s ability to raise sufficient capital before cash is depleted and the potential dilution or debt burden from future financing.
- Review the restated first-quarter 2022 financial statements and the impact of the revised VIP revenue-recognition methodology on future revenue timing.
- Monitor VIP enrollments, active-VIP concentration, appliance case starts, contract liabilities, and service-revenue trends.
- Evaluate whether gross-margin pressure from enrollment incentives, raw materials, and SleepImage costs is temporary or structural.
- Track remediation of the disclosed material weaknesses and any future restatements or control deficiencies.
- Review the status and potential financial exposure of the Singh arbitration, Ortho-Tain litigation, and Washington regulatory inquiry.