Vivos Therapeutics, Inc. — FY2023 Form 10-K Summary
Business context and reporting period
Vivos Therapeutics is a revenue-stage medical technology company commercializing oral appliances, diagnostics, myofunctional therapy, provider training and related services for dentofacial abnormalities, snoring and mild-to-severe obstructive sleep apnea. The filing covers the fiscal year ended December 31, 2023, with comparisons to 2022. The company operates as one reportable segment and is listed on Nasdaq under VVOS.
Its principal commercialization model is the Vivos Integrated Practice program, which trains and supports dentists and generates appliance, enrollment, subscription, billing, diagnostic and therapy revenue. During 2023, Vivos acquired additional product rights from Advanced Facialdontics and expanded distribution initiatives, including with Lincare.
Financial performance and condition
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $13.8 million | $16.0 million | Down 14% |
| Product revenue | $6.3 million | $8.4 million | Down $2.1 million |
| Service revenue | $7.5 million | $7.6 million | Down $0.1 million |
| Gross profit | $8.3 million | $10.0 million | Down $1.7 million |
| Gross margin | 60% | 63% | Down 3 percentage points |
| Operating loss | $17.3 million | $25.0 million | Improved $7.7 million |
| Net loss | $13.6 million | $23.8 million | Improved $10.3 million |
| Net loss per share | $11.14 | $25.90 | Loss per share improved |
| Cash used in operations | $11.9 million | $19.6 million | Improved $7.6 million |
| Cash and equivalents | $1.6 million | $3.5 million | Down $1.9 million |
| Total liabilities | $10.3 million | $8.9 million | Up $1.4 million |
| Stockholders’ equity | $0.4 million | $4.8 million | Down $4.4 million |
Appliance sales to VIPs were $6.1 million versus $7.8 million in 2022, and the company sold 8,240 appliance arches versus 12,281. Vivos enrolled 150 VIPs in 2023 versus 196 in 2022, recognizing approximately $3.9 million of VIP revenue versus $4.8 million. Approximately 38% of VIPs initiated a new case as of December 31, 2023.
Operating expense reductions were substantial: general and administrative expense declined 23% to $22.5 million, and sales and marketing expense declined 54% to $2.5 million, primarily due to workforce reductions, lower commissions, reduced marketing activity and lower travel and conference spending.
Financing activities provided $10.9 million of net cash in 2023, primarily from January and November private placements. The filing does not disclose material conventional term debt; reported liabilities principally comprise accounts payable, accrued expenses, contract liabilities, employee retention credit liability and operating lease liabilities. Operating lease liabilities totaled approximately $2.0 million at year-end.
Material changes versus the prior comparable period
- Revenue declined 14%, driven primarily by lower appliance sales, VIP enrollment revenue, company-owned center revenue and Billing Intelligence Services revenue.
- Sleep testing revenue increased to $1.2 million from $0.6 million, and sponsorship, conference and training revenue increased to $0.7 million from $0.1 million.
- Gross margin fell to 60% from 63%, partly due to product mix and higher ring-lease and membership-support costs.
- Cost reductions materially narrowed the operating and net losses, but the business remained significantly cash-flow negative.
- Revenue recognition estimates changed: estimated VIP customer life increased to 23 months from 18 months, which spread recognition over a longer period and reduced revenue recognized during 2023.
- The company completed a 1-for-25 reverse stock split in October 2023. Shares outstanding at December 31, 2023 were 1.8 million, compared with 0.9 million at December 31, 2022, primarily reflecting warrant exercises and financing activity.
- CARE appliances received FDA clearance in November 2023 for treatment of moderate and severe adult OSA when used with positive airway pressure and/or myofunctional therapy, as needed.
- The company reduced headcount significantly and had 114 full-time employees at year-end, compared with a higher prior-year workforce that is not clearly quantified in the filing.
Guidance, outlook, commentary and unusual items
Management previously targeted cash-flow-positive operations by the first quarter of 2024 without additional financing, but the filing states that this objective was not achieved and that additional financing is expected to be required. The company has not provided formal numerical revenue or earnings guidance.
- Management expects Treatment Navigator to transition to a monthly subscription model and become a potentially material revenue stream. There were 57 VIP offices at some stage of onboarding as of December 31, 2023.
- Management expects Lincare, other DME distribution arrangements and the expanded product portfolio to support revenue growth in 2024 and beyond, although the Lincare rollout was slower than anticipated.
- A Stanford-sponsored randomized study comparing the DNA appliance with CPAP in 150 patients with moderate-to-severe OSA was expected to begin enrollment in 2024. Results may not support additional clearances or commercialization claims.
- The company recorded $6.5 million of excess warrant fair value expense and $10.2 million of income from changes in warrant liability fair value. These non-cash warrant items materially affected reported net loss and are not indicators of recurring operating performance.
- The company disclosed a substantial doubt regarding its ability to continue as a going concern because $1.6 million of cash was insufficient to fund operations and strategic objectives for the next twelve months from the financial statement issuance date.
- In February 2024, the company received approximately $4.0 million of gross proceeds from the cash exercise of Series B warrants, but issued new warrants for approximately 1.47 million shares with a $5.05 exercise price. The financing terms restrict certain future fundraising transactions.
- Nasdaq granted continued listing subject to conditions, including regaining compliance with the $2.5 million minimum stockholders’ equity requirement. The company stated that it presented a compliance plan in February 2024, but delisting remained a risk.
- Management identified a material weakness in internal control over financial reporting as of December 31, 2023. Remediation began in 2023, but additional testing in 2024 was required before declaring the weakness remediated.
- The filing reflects a prior-period financial statement correction/restatement related to revenue recognition, including VIP contract performance obligations and ASC 606 application.
- Material business risks include dependence on VIP enrollment and case starts, uncertain insurance reimbursement, competition from CPAP and other oral appliances, regulatory compliance, clinical evidence, product liability, third-party manufacturing, supplier concentration and potential dilution from future equity financing.
Most important facts for investors to verify
- Whether the February 2024 warrant exercise and subsequent financing provided sufficient liquidity, and the company’s expected cash runway after those transactions.
- Whether Vivos regained and maintained Nasdaq’s minimum stockholders’ equity requirement and avoided delisting.
- Whether revenue and appliance case starts stabilize or grow following the 2023 decline, including the conversion of VIPs into active case-starting practices.
- Whether Lincare, NOUM and other DME or distribution agreements generate material, profitable revenue.
- Whether the Treatment Navigator subscription model achieves meaningful adoption and recurring revenue.
- Whether the FDA clearances for moderate and severe OSA translate into increased referrals, reimbursement and appliance sales.
- Whether the Stanford and pediatric clinical studies produce favorable results and support additional regulatory or market claims.
- Whether management fully remediates the material weakness and avoids further revenue-recognition errors or restatements.
- The potential dilution from approximately 2.8 million outstanding warrants and 127,000 outstanding options at December 31, 2023, as well as additional warrants issued in February 2024.
- The status and potential exposure of the disclosed litigation, including the Ortho-Tain matters, and any obligations related to the employee retention credit liability.