ProSomnus, Inc.

fourth quarter investor conference call. Earlier today, Prosomnus Incorporated issued a press release announcing the financial results for the quarter-ended December 31, 2022, and describing the company's recent business highlights. You can access a copy of today's announcement on the company's website at investors.prosomnus.com. With me today, we have our Chief Executive Officer, Len Lipak, and our Chief Financial Officer, Brian Dowell. Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our Securities and Exchange Commission filings, including our most recent form S-1 filed on February 10, 2023. Our SEC filings can be found through our company website at investors.prosomnus.com or at the SEC's website. Investors are cautioned not to place undue reliance on such forward-looking statements, and Prosomnus undertakes no obligation to publicly update or release any revisions to these forward-looking statements. Please note that this conference call is being recorded and will be available for audio replay on our website at prosomnus.com on the news and events section under our investor relations page shortly after the conclusion of this call. Today's press release and supplementary financial data tables have been posted to our website. As this is our first investor call, Today's format will consist of providing you with an overview of ProSomus, our products and our business, as well as highlights of our fourth quarter results as described in our press release announced earlier today, followed by a question and answer session. Len will present the quarter's business and follow operational highlights. Brian will provide a review of our financial results and our financial outlook for 2023. And finally, we will host a question and answer session to close the call. And with that, I will turn it over to Len.

Thank you, Mike. Good afternoon, everyone. It is an honor to represent Prasanna Sleep Technologies today, including our team members at our headquarters and around the world, and the growing number of providers who trust Prasanna's devices for the treatment of patients with obstructive sleep apnea. This being our company's first earnings call, I'd like to take a few minutes to introduce myself and provide a brief overview of Persomnus Sleep Technologies. My name is Len Liptak, CEO and one of the co-founders of Persomnus. I've spent almost 20 years working in leadership roles on mission-oriented medical device programs at 3M Healthcare, Stryker Neurovascular, and microdental laboratories. Yet I've never encountered an opportunity to make a difference like the one before Persomnus. Persommus is the leader in precision intraoral devices for the treatment of obstructive sleep apnea, or OSA. By precision, we mean that every Persommus device is individualized for each patient's anatomy and treatment plan. The mechanism of action for Persommus devices is to precisely advance and stabilize the patient's jaw in a position that prevents the airway from collapsing while sleeping. Based on research, we believe that the precise individualization of our devices is clinically meaningful, highly differentiated, and associated with more consistent, predictable, effective outcomes. Our vision is to be the global leader in OSA solutions by providing safe, economical, non-invasive, and patient-preferred precision medical devices for treating and managing OSA. Bersama's precision medical devices have been prescribed for over 200,000 patients have demonstrated excellent health outcomes, are FDA Class II cleared, and are protected by 15 issued patents. 17 completed studies involving over 1,400 patients published in peer-reviewed journals or scientific programs link PROSOMUS devices with efficacy on par with CPAP for mild to moderate OSA patients, better patient adherence and treatment effectiveness, the mitigation of many common side effects, strong patient preference, and an excellent safety record. Every night, 1 billion people worldwide and 54 million adults in the U.S. struggle to breathe during sleep. Their upper airways collapse repeatedly, limiting the flow of oxygen to their vital organs. Untreated, this disease named obstructive sleep apnea reduces life expectancy, diminishes everyday quality of life, and costs the U.S. economy alone an estimated $150 billion annually. For these reasons, the CDC considers sleep disorders, including OSA, to be a major public health epidemic. However, due to low public awareness and the limitations of current therapies like CPAP, over 80% of the people with OSA remain undiagnosed and a higher number remain untreated. For example, based on clinical studies, we estimate that between 35% and 65% of patients fail to tolerate CPAP. These low patient adherence rates limit the overall effectiveness of CPAP treatment and are motivating physicians to evaluate non-CPAP options like prosomus devices. Studies report that an average patient compliance with prosomus devices is over 90% and that patients use the prosomus devices for an average of over seven hours per night versus approximately four hours per night with CPAP. Effectiveness is where we believe that we have an important competitive advantage over other treatments for obstructive sleep apnea, such as CPAP, upper airway stimulation, or the legacy dental products that came before us, all of which have shortcomings in either adherence or efficacy. Another key differentiator is our proprietary digital manufacturing process with strong IP protections that make our devices more precise and therefore effective. Our manufacturing process also enables Prasamis to scale our proprietary algorithm-driven device design software and proprietary software-driven milling robots, gain efficiencies with volume-enabling leverage while also improving our quality levels and service. Prasamis has an important and substantial opportunity to treat people with mild to moderate OSA and those who cannot tolerate or refuse CPAP. We estimate our immediate actual opportunity to be over $4 billion. Importantly, over 200 million people are already eligible to receive treatment with PROSOMNAS precision devices as a covered reimbursable private medical insurance, Medicare, and government sponsored healthcare benefit. PROSOMNAS is actively developing four key growth initiatives to realize this compelling opportunity. The first is the expansion of our direct sales team in North America. The second is our expansion into Europe and other key countries around the world. The third is clinical studies to further demonstrate and enhance the robustness of our claims and support label expansion into severe OSA. The fourth is our next generation device, which adds remote patient monitoring of physiological health data to objectively, continuously measure compliance and efficacy, enable disease management, and introduce recurring revenue streams into our business model. As you will hear today, PROSOMS is already making significant progress against these initiatives. Thank you for allowing me a few moments to make introductions. Now let's turn to 2022. 2022 was a transformative year for Persomnus, and I'm proud to report that Persomnus has generated results for the full fiscal year and fourth quarter that demonstrate momentum and indicate support for our value proposition. Some highlights include record revenue levels, top decile revenue growth rates, taking the company public in December under the NASDAQ ticker OSA, opening our new headquarters, which offers triple the square footage and quintuples our manufacturing capacity, approximately doubling the number of direct sales representatives, establishing our brand in Germany, UK, Netherlands, and Belgium, advancing key medical affair programs, including our frontline OSA treatment and severe OSA SOS studies. Continuing to develop our next-generation device, feature remote patient monitoring capabilities, building our team with a number of talented professionals and the important addition of Brian Dow, our new CFO, who you'll meet in a few moments. Brian is a highly experienced public company medical technology executive with extensive background in accounting, finance, and investor relations. We look forward to Brian's contributions as Persomnus grows as a public company. And again, you'll hear a little bit more from later on in this call. And we've also made significant progress strengthening our brand and positioning our precision and twirl devices as the leading solution for the mass public health problem of destructive sleep apnea. Lifting Persomnus on NASDAQ in December 2022 is a major achievement. The team was highly focused for much of the year on executing the business combination, and I'm incredibly proud of the hard work and perseverance the team showed in a difficult IPO and macroeconomic environment. We brought the company public to give Persomnus expanded access to the capital markets for the purpose of accelerating our multi-pronged growth strategy. We exited the deal with a cash runway into 2024, and we can now focus our talented team's efforts on bringing what we believe is a better OSA solution to patients and providers around the world. Bersamas is proud to report record revenue levels and top decile revenue growth of 32% for Q4 and 38% on a full year basis. Brian will provide more granularity in our financial section in a few moments. Despite macroeconomic headwinds, uncertain timing around our public transaction, and a relatively modest investment in sales and marketing, these levels of growth reflect healthcare providers' growing acceptance of our differentiated precision devices, the performance of our team, and the favorable impact of our growth initiatives. For example, prescriptions for Persamus devices outpaced hypoglossal nerve stimulation implants by approximately 4x for the full year 2022, despite spending considerably less in sales and marketing. Key drivers during the period include the ongoing commercialization of our Evo family of devices, Medicare coverage verification for our Evo PH line extensions, expansion of our direct sales team, medical and clinical affairs programs, and establishing operations in Europe. The company earned 98% retention of our top 100 providers for the period. The company received 8,850 case feedback forms from therapy providers throughout the year. 97% said their Persommas devices fit the first time. 99% said their devices were received on time and in full. 97% of patients and providers said that they were satisfied with their Persommas device. Over 99% said they would recommend Persommas devices to a colleague. The U.S. Army remained one of Persommas' largest customers in 2022. Persommas is proud to serve and support the Army and for Persommas to be named in the Army's operational orders for the treatment of sleep apnea. In December, an independent study published in Military Medicine reported an 88% success rate in treating military patients with mild, moderate, and severe OSA with our precision-controlled devices. During the period, we increased the count of direct sales representatives from 10 to 18 globally, 9 to 12 in North America, and 1 to 6 in Europe. Key functions of our direct sales organization are to raise awareness of personas devices and facilitate efficient, trusted referral relationships between sleep physicians and oral appliance therapy providers. We are pleased to report full enrollment of the FLOSAT Frontline OSA Treatment Study, a prospective head-to-head crossover clinical trial evaluating the effectiveness of presomus precision oral devices versus CPAP in patients with moderate and severe OSA. The lead investigators are scheduled to provide a preliminary data readout at the American Thoracic Society meeting this May. Persommus initiated enrollment in the severe OSA or SOS study. The purpose of the SOS study is to expand our FDA labeling to include the treatment of severe OSA. Four of our six investigational centers are actively recruiting and enrolling patients into the study, with another two centers expected to begin enrollment soon. Persommus continues to achieve strong gross margins, with 2022 gross margins surpassing 50%. The key drivers of gross margin were improvements in direct labor and factory overhead costs as a percent of revenue, offsetting inflationary and supply chain headwinds on material costs. Underlying these improvements were our continued investment in our manufacturing technologies, including our proprietary software packages that control our device design process and our milling robots, as well as overall continuous process improvement efforts. Brian will discuss financial results in more detail in just a few moments. During this period, Persomic succeeded 99% on time and in full delivery of our mass individualized precision medical devices. Our average manufacturing times were under seven production days, almost three times faster than legacy dental products. The company also delivered industry-leading quality levels with device fit rates and remaking warranty claims significantly better than competitive benchmarks. One of the characteristics of our digital manufacturing platform is that the proprietary software packages that run our device design and milling robots becomes more efficient with longing. In anticipation of accelerating growth, Prasanna strengthened and expanded our infrastructure with the opening of our new headquarters and manufacturing facility in Pleasanton, California, USA. The new facility provides ample capacity to meet our growth expectations for the next several years while also enhancing efficiencies of our workflows. Looking ahead, Prosomnis continues to make progress developing and commercializing our next-generation device featuring remote patient monitoring capabilities. Our next-generation device incorporates a sensor that tracks the patient's physiologic response to treatment. Data is transferred from our next-generation device to our patient's provider portal via our Prosomnis app on the patient's smartphone. Our next generation device will provide sleep physicians and providers with a safe and effective therapy and also access to medically necessary physiologic data that helps them to monitor and manage patient health by continuously monitoring treatment efficacy and compliance. During the period, the company has made significant progress developing our underlying sensor hardware, our smartphone patient app, our healthcare provider portal, and the backend data system for our next generation device. Versamis conducted several voice-to-customer feedback sessions with leading sleep medicine physicians and therapy providers. Feedback was encouraging, particularly because our next-generation device provides sleep physicians and providers with medically important data that they cannot access anywhere else. The company also investigated the potential for monthly recurring per-patient revenue streams by evaluating the business model of remote patient monitoring devices in adjacent segments. Remote patient monitoring technologies have been associated with reduction in total healthcare costs by reducing appointments, adverse events, and hospitalization and rehospitalization rates. In sum, Persamis is on a mission to be the global leader in OSA solutions. Physician and therapy providers are seeking non-CPAP options for treating OSA. Persamis is well positioned to be that option and is continuing to develop our devices, technologies, processes, and team to realize this important opportunity. We believe our record revenue levels and growth rates reflect our progress and momentum. We will continue to execute against our growth initiatives, building our direct sales team in North America, expanding into Europe and other key markets around the world, investing in clinical studies to improve the robustness of our data and support label expansion, and developing and commercializing our next-generation device with remote patient monitoring capabilities. Thank you. I will now turn the call over to Brian to discuss our financials.

Great. Thanks, Len, and good afternoon, everyone. Before jumping into the financial results, I'd like to take a moment to express my excitement to be joining the Prosomnus team at this pivotal time in the company's evolution. I look forward to working with you, Len, and the broader Prosomnus team as we build a highly valuable company for our patients, clinicians, and investors alike. Now, turning to the financial results released earlier today for the quarter and year-end of December 31st, 2022. With recent developments in the broader economic environment and our close proximity to Silicon Valley, I'm compelled to start my remarks by noting that Prosomnus' longstanding relationship with Wells Fargo has allowed us to avoid exposure to recent banking events. Let's now discuss our results. The fourth quarter of 2022 was another record-breaking quarter, with revenues totaling $5.8 million, an increase of 32% from $4.4 million realized during the fourth quarter of 2021. and sequential growth of 16% from $5 million for the third quarter of 2022. For the fiscal year 2022, revenues increased 38% year over year, coming in at $19.4 million. We exited the fourth quarter with gross margins improving to 53.6% of revenue, landing gross margin for the full year 2022 at 52.9%, a modest increase from 51.9% for 2021. Turning to operating expenses. Operating expenses for the fourth quarter, including several charges stemming from the completion of our business combination on December 6th, totaled $9.2 million. while operating expenses for the full year 2022 totaled $21.7 million. Sales and marketing expense for the fourth quarter totaled $2.4 million, an increase of 45% from $1.7 million for the same period last year. For the full year, sales and marketing expenses totaled $8.9 million, an increase of 53% from 2021. The increase in sales and marketing expenses reflect increased compensation expense stemming from the addition of sales headcount in the United States and Europe during 2022, along with increased commissions stemming from the increased sales. As Len mentioned earlier, a key use of proceeds raised during the fourth quarter is additional investment in the direct sales team. We anticipate sales and marketing expense to increase as we are making the necessary investments to drive top-line growth. we do remain acutely cognizant of the importance of deriving scale from the investments we make and striking the appropriate balance between investment and results. Research and development expenses for the fourth quarter totaled $1.1 million, up from half a million dollars for the same period last year. For the full year, R&D expenses totaled $3 million, an increase of 58% from 2021. The increase in research and development expenses during 2022 both on an annual and quarterly basis, reflect modest increases in compensation stemming from increased headcount, development activities relating to the Evo Select and Evo PH precision devices introduced during the fourth quarter, clinical expenses relating to the enrollment in our FLOSAT study, and development of our digital-enabled remote patient monitoring device scheduled for introduction in late 2023. G&A expenses, including several transaction-related charges, totaled $5.7 million and $9.9 million for the fourth quarter and full year 2022, respectively. Included in G&A during the fourth quarter is $3.6 million of stock compensation and incentive compensation payments relating to grants and payments in connection with the December business combinations. Although expense elements such as stock compensation will be incurred going forward, the magnitude of single point-in-time charges similar to those surrounding the transaction are not expected to occur. We will incur the added expense burden of being a public company and expect normalized G&A expense to increase during 2023 as we reflect the full expense burden of a public company. Obviously, going public was a seminal moment for prosomnus during the fourth quarter. This process was an interrelated series of transactions simultaneously involving the merger of Prosomnus and the Lakeshore Acquisitions One Corporation Special Purpose Acquisition Company, a pipe, and a convertible debt offering. As a result of the series of transactions, and after paying off previously existing debt and transaction fees for both Prosomnus and the sponsor, cash on the balance sheet as of December 31st totaled $15.9 million. It is this added liquidity that we have already commenced deploying to drive adoption of our devices and grow top line revenue and provides cash runway into 2024. To that end, as we look forward to 2023 and in consideration of the planned investments we have and will be making in our commercial organization, we expect strong top line year over year growth for full year 2023. We have started 2023 strong and expect the first quarter revenue to be closer in line with the fourth quarter rather than what is normally expected to be a seasonally softer start to the year. As we set our expectations for 2023, we expect year-over-year top-line revenue growth of 35%, landing 2023 revenue just over $26 million. Again, I'm excited to be joining the Prosomnus team at this important inflection point. To our shareholders, I look forward to engaging with you over the coming months and years. I will now turn it back to Len for closing remarks.