Vivos Therapeutics, Inc.

Good day everyone and welcome to the Vivos Therapeutics Incorporated first quarter 2022 earnings call. At this time all participants are in listen-only mode. A question and answer session will follow management's remarks. This conference call is being recorded and a replay of today's call will be available on the investor relations section of Vivos website and will remain posted there for the next 30 days. I will now hand the call over to Julie Gannon, Vivos Investor Relations Officer for introductions and the reading of the Safe Harbor Statement. Please go ahead.

Thank you, Operator. Hello, everyone, and welcome to Devos Therapeutics' first quarter 2022 earnings conference call. A copy of our earnings press release is available on the Investor Relations section of our website at www.devos.com. With us on today's call are Kirk Huntsman, Devos Chairman and Chief Executive Officer, and Brad Ammon, Chief Financial Officer. Today we'll review the highlights and financial results for the first quarter of 2022, as well as more recent developments. Following these formal remarks, we will be prepared to answer your questions. I would also like to remind everyone that today's call will contain certain forward-looking statements from our management made within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934 as amended concerning future events. Words such as aim, may, could, should, project, expect, intends, plans, believes, anticipates, hopes, estimates, and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the company's control. Actual results, including without limitation, the results of Vivos growth strategies, operational plans, future potential results of operations or operating metrics, and other matters to be addressed by Vivos management in this conference call may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors described and other disclosures contained in vivo filings with the Securities and Exchange Commission, including the risk factors and other disclosures in our Form 10-K for the year ended December 31, 2021, and our first quarter 2022 Form 10-Q, both of which are or will be accessible on the investor relations section of the VEVOS website, as well as the SEC's website. Except to the extent required by law, VEVOS assumes no obligation to update statements as circumstances change. Finally, the FDA has given certain VEVOS appliances 510 clearance to treat mild to moderate OSA. Any reference herein regarding vivos treatment or the vivos method should be viewed in that context. Treatment of patients with severe OSA are performed off-label at the sole clinical discretion of the treating doctor and are not part of the vivos treatment protocol. Now at this time, it is my pleasure to introduce Kirk Huntsman, Chairman and CEO of vivos. Kirk, please go ahead.

Thank you, Julie. Today we're, excuse me, Today we're going to do things a little differently than our past earnings calls. There are a lot of positive and exciting things happening here at Vivos that merit more time and elaboration than we might normally be able to provide. So I'm going to ask our CFO, Brad Ammon, to quickly run through our first quarter financial numbers so we can get that out of the way and leave time for what we consider to be the deeper story happening here. Brad, if you would please take the floor and present our financial and operating results for the first quarter of 2022.

Thank you, Kirk, and good afternoon, everyone. We reported total revenue of $3.5 million for the first quarter of 2022 compared to $3.4 million for the first quarter of 2021. Year-over-year increase was due to increased appliance revenue offset by lower revenue from VIP enrollments attributable to the COVID-19 Delta and Omicron variant resurgences, as well as typical first quarter seasonality in the dental industry. During the first quarter, we enrolled 32 VIPs and recognized revenue of approximately $1.2 million compared to 53 VIP enrollments for revenue of $1.7 million during the same period last year. VIP enrollment revenue is recognized as performance obligations are met, which is typically over the 12-month life of the contract. We evaluate each contract separately for the applicable factors in meeting the definition of a contract under ASC Topic 606. Note that the timing of when we have a fully executed contract is after the VIP pays their enrollment fee and the VIP commences training. During the first quarter of 2022, appliance revenue rose 19% due to volume increases as Vivos sold 2,965 total oral appliance arches for a total of approximately $1.5 million, compared to $2,570 during the first quarter of 2021 for a total of approximately $1.3 million. Gross profit was $2.4 million for the first quarter of 2022 compared to gross profit of $2.7 million for the first quarter of 2021, an increase in cost of sales of $300,000. Gross margin for the first quarter was 68% compared to 78% during last year's first quarter, primarily driven by higher costs associated with appliances due to the increase in the cost of raw materials and VIP enrollments from new incentives deployed to increase VIP enrollments. As mentioned on our last earnings call, we continue to refine our sales, marketing, and promotional efforts with potential VIPs, not only to increase revenue, but to improve our overall gross profit and margins. This includes our expanded social media and digital marketing efforts that Kirk will be sharing. Sales and marketing expense decreased by $100,000 to $800,000 for the first quarter of 2022 compared to $900,000 for the first quarter of 2021. The decrease was primarily due to a decrease in sales commissions offset by an increase in sales and marketing activities, including new marketing campaigns, updating marketing materials for investors and consumers, improving the Vivos website, and promotion of conferences and events taking place in 2022. General and administrative expenses were approximately $8.3 million for the first quarter of 2022 compared to $5.1 million for the first quarter of 2021. The year-over-year increase was mainly due to our higher headcount and expenses relating to supporting our sales growth as well as our status as a public company, which started in late 2020. Additionally, these increased expenses are related to higher appliance and center revenues, as well as revenue from our newer products and services offered, including our billing intelligence services, sleep image, home sleep test diagnostic products, myocorrect therapy services, and sponsorship revenue, which accounted for approximately 14% of the first quarter 2022 revenue. Net loss was approximately $5.5 million for the first quarter of 2022. This is compared to approximately $3.4 million for the first quarter of 2021. The year-over-year increase was primarily from higher G&A and sales and marketing expense due to the factors I just mentioned. Cash burn increased approximately $2 million over the first quarter of 2021. This increase is due primarily to the increase in our net loss of approximately 3 million, offset by a decrease of approximately 1.4 million in accounts payable, an increase of approximately $400,000 in accounts receivable, and a decrease of approximately $300,000 in accrued expenses from consulting, legal, and third-party lab fees associated with the increased production of our vivos appliances. As of March 31, 2020, our cash and cash equivalents were approximately $17.8 million, compared to cash and cash equivalents of approximately $24 million at December 31, 2021. With the proceeds from our 2020 IPO and the follow-on offering we completed in the second quarter of 2021, we continue to anticipate having sufficient financial resources to meet our capital requirements, fund our operations, and continue executing on our growth strategy through the first quarter of next year. As we seek to increase our revenues, including with some of the exciting initiatives that Kirk will be discussing, we are also carefully exploring different types of financing strategies to support growth and extend our cash runway, including pure debt financings given the level of our stock price currently. In summary, we are encouraged by recent growth trends. We've seen it over March and April that Kirk will be talking about shortly as COVID hopefully subsides, as well as increased contribution from newer revenue streams. I will now turn the call back over to our CEO, Kirk Huntsman, to share some recent updates and long-term growth prospects.

Thank you, Brad. The first quarter punctuates a tough two years for the dental industry, which now appears to finally be turning the corner. COVID headwinds that dominated the fourth quarter and most of 2021 persisted into January and February of this year. But by March, we began to see significant improvements that are continuing here into the second quarter. For example, relative to January and February, March saw appliance shipments jump 28% and total home sleep tests also rose sharply by 47% after an 18% decline from last October through January. Throughout 2020 and 2021, as dental offices struggled to keep their doors open and sustain their production capacity, their biggest problems were staff shortages and attrition. Many key dental staff simply quit and have not returned. Such widespread staff turnover in our vivos provider practices meant the loss of familiarity and expertise with vivos treatment. As a result, many of what had been our more productive and well-trained offices saw their vivos case starts drop off dramatically. Fortunately, we recognized this trend last fall and directed our clinical and practice advisors to get back out and into dental offices as much as possible to retrain, encourage, and motivate the new teams. In addition, we dispatched key executives around the country to conduct regional and local training events that we call airway integration tours. Overall, we've now trained or retrained well over 1,000 dentists and team members. Much of the progress in March was attributable to those efforts, as well as the waning of the pandemic. So regardless of the relatively flat overall first quarter revenue, by the end of the quarter and now into the second quarter, we see signs of improvement that are encouraging. In fact, there are several important and exciting topics to which I'd like to now turn our attention and discuss in greater detail. They are, first, our cash position and cash burn. Second, the impact of our DSO sales and marketing campaign on our future growth. Third, recent additions to our senior management team. Fourth, recent clinical research data and its implications. And fifth, an update on our marketing strategy and recent success. As we begin a discussion on available capital resources, I'd like first to comment on the disconnect between our current stock price and what we see happening here within vivos we fully recognize that our growth rate throughout 2021 and into the first quarter has been below what any of us wanted or expected. And yes, there were plenty of reasons why that was the case, some of which were outside our control, like the persistency of coven and its impact on dentistry. But that is not the whole story here at vivos and short term financial performance is not the only indicator of progress towards our larger and more ambitious goals. None of those temporary headwinds change what is truly happening here. The story of vivos is perhaps best captured by a recent phone call I received from one of our employees, Terry, who gave me permission to share this with you today. One morning a week or two ago, Terry called me and with great excitement in her voice said, Kirk, I just wanted to call and let you know what happened with my sleep test last night. I said, sure, Terry, what happened? Well, I took the vivo score sleep test again last night, because the first time I couldn't believe it. But my AHI score is a zero back home here in Dallas. It was a two in Denver last week, but it's a zero now. Of course, I was happy for Terri, and she reminded me that several years ago she lost her husband to sleep apnea. He died in his sleep next to her. And like many of us, Terri never thought she might have sleep apnea as well, but her husband's death was a wake-up call for her. So she got tested, and sure enough, her HI score was over 50. She then started treatment with the Vivos method, and just seven months later, her HI was down to 13 without any appliance in place. Terri went on to complete her Vivos treatment, and she was feeling so much better that she never bothered to take a final sleep test. She finished treatment over a year ago, but it was only recently that she tested her HI score again, and that was why she called me in tears. to tell me that she tested twice with our Vivos score rings and that her AGI had dropped to zero. I share this with you because Terry's story, like so many similar voices we hear all the time, is what drives us and our mission here at Vivos to rid the world of sleep apnea. Recently, at the 2022 World Sleep Congress this past March in Rome, a member of our medical advisory board presented a paper showing that Terry's experience is no outlier. He presented our most recent data showing that more than 34% of vivos patients see their AGI scores fall back to within what is medically considered normal limits, while four out of five patients improve their AGI scores by at least 50%. Just one in five patients saw little or no relief from vivos treatment. Of course, like Terry, all those patients were evaluated post-treatment and with no device in the mouth or activated. So I would simply ask, who else does that? Seriously, who does that? What other company, product, or procedure can completely be removed or shut off and still see four out of five obstructive sleep apnea patients test significantly better with over a third having their AHI score decrease to a normal range? Who does anything even remotely like that? The so-called medical gold standard of CPAP can't do that, and nearly 10 million of those devices were recalled last year by the FDA over fears of causing cancer and other problems. Neurostimulation implant devices can't do that, and at best they are suited for only a small fraction of sleep apnea patients. And finally, traditional oral appliance devices can't do that. So where, I ask, Where can the 54 million Americans in this country and over 1 billion people worldwide with sleep apnea turn for treatment that offers them the same or higher odds than vivos of getting better? Each of those other technologies require a lifetime of nightly intervention and use in order to provide relief. Whereas vivos patients like Terry have been out of treatment for whatever amount of time without further intervention. Simply put, we believe that no one in the market today offers patients what Vivos' treatment offers. And what we are witnessing here is the emergence of the Vivos method as the most clinically effective and soon to be the most preferred treatment option available today. Apparently, the folks at Fast Company Magazine agree. In March, they named Vivos Therapeutics to their prestigious annual list of the world's top 10 most innovative medical device companies of 2022. One key factor in their assessment was the innovative ways Vivos is bringing medical doctors and dentists together to collaborate and coordinate patient care. Since then, a respected and widely circulated dental industry magazine, Dental Product Shopper, independently surveyed Vivos providers and asked them to rate their experience and their patients experience with vivos in a number of areas. The results were so impressive that they named the vivos method, a DPS best product for 2022 and their product review editor editor declared our final score of 4.9 out of five. Was one of was quote one of the highest scores ever close quote that rating and the accompanying article are pending publication in the next few weeks. but they illustrate the point that people are starting to take notice. And that is a big story of the, that is a big part of the real story here at vivos. It's the story of patients like Terry seen their breathing, their sleep and their health improved. But it's not just patients who are telling the vivos story. It's also the ever growing number of dentists, physicians and other healthcare providers who are spreading the word as they see for themselves how our technology is affecting their patients for good. One such vivos trained dentist just presented another paper showing similar clinical case outcomes to what Terry experienced this past weekend at the top dental sleep medicine conference in the world, the American Academy of Dental Sleep Medicine's annual conference in Dallas, Texas. Our medical and clinical advisory boards include some of the most prominent figures in sleep medicine, cardiology, dentistry, and a broad cross-section of medical specialties. They are here because they share our passion and vision for vivos, and because they all deal with sleep apnea issues every day with their patients. These doctors are actively and aggressively conducting new research, writing papers and protocols, presenting at national and international medical conferences, and generally getting the word out to the medical community about vivos. Next month, select members of our medical advisory board will attend and present new research at the AASM annual meeting in Charlotte, North Carolina, demonstrating further support for the efficacy of vivos technology. Then there are the rapidly growing number of vivos trained dentists handing off their general dentistry obligations to associates in order to focus on treating airways and sleep apnea patients full-time. Not only do they enjoy it more, but many of them are making more money treating airway issues with vivos than they ever did doing general dentistry. We know of some dentists very happily producing as much as $2 to $3 million a year or more doing mostly vivos cases and following our systems. That sort of single-doctor clinical production in general dentistry is almost unheard of. So we're just spreading in both the dental and medical communities. And very soon, we firmly believe that vivos will become the viral story of large employers, insurance payers, and government entities who have already begun to see what our technology can do to lower healthcare costs and improve the quality of life of their constituents. Those talks are already underway. So stay tuned there. Every day we are winning mindshare and market share as we tell our story. And as more and more patients, providers, and researchers tell it for us, as evidence of that, we are currently seeing exponential growth across social media platforms and digital channels. For example, traffic to our new website nearly doubled in the first quarter to more than 60,000 site visits, with provider locator inquiries also up 140% for the quarter to nearly 13,000. Already here in the second quarter, our YouTube channel views have increased by 101,000 versus all of Q1. Meanwhile, Twitter, LinkedIn, and Facebook views and engagements were all up exponentially. We believe each of these social media metrics is meaningful and, when taken together, point in a very positive direction. Now, despite all of this, some have questioned whether we have sufficient cash on hand to get to positive cash flow. and whether any additional capital might be excessively diluted. Let me directly address this and state unequivocally that if we do take on additional capital at some point, it will be for the express purpose of accelerating our growth by executing on the numerous and significant revenue opportunities I'm about to share with you. At the end of the first quarter, as Brad mentioned, we had $17.8 million in cash on hand. Our cash burn rate during the quarter was higher than what we had forecast due to five primary factors. First, additional personnel and related travel costs to retrain VEVO's VIP offices. Second, additional personnel costs attributable to VSO sales, pilot tests, and implementation. Third, lower than expected collections from enrollment contracts. And fourth, prepaid items to Sleep Image, much of which will be billed back out to VIPs and recouped. Fifth, increased marketing spend on new campaigns, updated materials for investors and consumers, and promotion events taking place later in 2022. Therefore, beginning around the middle of Q1 and throughout the present time, we proactively began to make operational and personnel realignments in order to reduce the burn and extend the use of available resources. A comprehensive evaluation of personnel and individual performance was conducted, and underperformers were released. In addition, we reevaluated and reset our corporate budget and cut out projects and actions that did not meet a certain near-term return on investment. Generally, these cuts included conferences and trade shows that we do not view as critical to our near-term strategic priorities and the number of personnel required to support those events. Based on our current budget forecasts, we believe we have sufficient capital to conservatively get us through the foreseeable future and possibly beyond if we stay disciplined. And as Brad mentioned, we are currently looking at several financing strategies, which may include pure debt to try to mitigate dilution. But regardless of what type of financing we may choose to do when needed, we expect to use it to gear up to accelerate and deliver on the revenue opportunities that are already in process from our sales efforts across the board. but particularly in the DSO market. Now, some of you will recall that in the fall of 2021, we first reported our initial sales and marketing efforts into the DSO space. As a brief reminder, the term DSO stands for Dental Support Organization. DSOs are professionally managed dental group practices, typically backed by private equity and having anywhere from 5 to 1,500 locations. DSOs represent the fastest growing segment of dentistry, and many believe the DSO business and practice model will one day dominate the landscape. Today, there are over 2,600 independent DSO groups operating in the U.S. and Canada, representing tens of thousands of general and specialty dental offices with millions of patient visits per year. Some of you may recall from my personal background that back in 1995, I founded one of the very first DSOs. And along with several members of our current Nivos management team, by 2010, built that company into a very profitable $250 million a year enterprise with over 165 locations and 1,600 employees operating across 15 states. After exiting that venture, I ran a Morgan Stanley private equity-sponsored DSO, where I first worked with Dr. Ralph Green, a current member of our Vivos board of directors, and another experienced resource with deep DSO industry roots. We are thus very well-versed in the dynamics of the DSO business model and are currently in high-level talks with many of the larger DSOs. We have also been reaching out directly to the private equity sponsors of these DSOs, and have found them to be open and interested. When thinking about the potential market for vivos among DSOs, it is important to note that there are no DSO groups operating today with a fully functioning dental sleep medicine program as a part of their core business model. Not a single one. The reasons for this are well known and frequently discussed among industry leaders. DSOs don't know how to bill medical insurance for procedures performed by dentists. Here at Vivos, we do that every day to the tune of millions of dollars a year. Second, DSOs don't know how to get medical doctors to collaborate with their dentists on treatment. Here at Vivos, we have established medical contacts in both the U.S. and Canadian markets who are ready and willing to collaborate with their dental colleagues. Next, DSOs can't seem to overcome the lack of support medical doctors have for typical dental oral appliances. Here at Vivos, our technology is highly differentiated and is being enthusiastically embraced by physicians. Finally, DSOs don't know how to operationally scale up a sleep program because no one has ever shown them how to do it. At Vivos, that's exactly what we do. And as you're about to see, we do it pretty well. Ultimately, no one has proven to DSO management and their private equity sponsors that there is a tangible and sustainable ROI on a dental sleep program until now. In the fourth quarter of last year, we signed up our very first mid-level DSO with approximately 100 offices. and launched our first DSO sleep medicine pilot test. In the first five months after training and program initiation last December, the average annualized revenue run rate attributable to VBOS treatments has been just over $440,000 per practice, with net EBITDA contributions of between $110,000 and $150,000 per practice. Now, to understand just what this means to that one rather average-sized DSO, let's assume all 100 of their offices eventually integrate the Vivos program. And let's assume further that average production per practice remains constant at today's levels after just five months. They never get any better. At full implementation, that equates to $44 million in new revenue for this DSO. $11 million in EBITDA growth. And at today's DSO valuation multiples, that DSO value would have grown by a staggering $110 million. And all of that return on a financial investment of between $6 and $10 million for training and CapEx. Nowhere else in the entire dental field is there this type of revenue and value accretion opportunity. nor has there been since the introduction of Invisalign or dental implants over 20 years ago. And with nearly half of all dental patients now testing positive for OSA, we believe the financial opportunity for DSOs to treat sleep is even bigger than either clear aligners or implants. Of course, that's just one illustrative example from our initial DSO pilot programs. Actual results and valuation metrics for specific DSOs will vary for each DSO based on their model and actual financial profile. But we believe the central business case remains extremely compelling for the vast majority of DSOs operating today. So what exactly does this mean for vivos? Well, that rather typical 100 location DSO that we were just mentioning operating at the average level they've already achieved in just five months' time would generate program enrollment and training revenue of $1.25 million and annual recurring revenue for vivos at full capacity of nearly $15.2 million from appliance sales and ancillary services such as medical billing and software. And just to put that figure in perspective, There are over 2,600 DSOs currently in operation in the United States and Canada. Here in the second quarter, we signed up and will launch a second DSO pilot in June with a 500 practice Canadian DSO. We have just come to terms with another US-based DSO with over 700 offices where we expect to sign contracts in the next two weeks. These DSOs will typically want to conduct a pilot test for four to six months with anywhere from two to 20 offices before committing to a full-blown rollout for all their offices. Altogether, we are in serious talks with just under 30 DSOs representing well over 5,000 offices in the US and Canada. We clearly have a strong first mover advantage happening here. There is literally no competition that we have found to be targeting this market, perhaps because there is no firm with the technology and the execution ability that Vivos has. In June and July, we will be officially premiering our Vivos DSO sleep program at two of the largest DSO industry conferences in the world. In terms of our total addressable market, just among the DSO groups, If we assume 30,000 DSO offices in the US and Canada, and we achieve even a 10% penetration in the next three to five years with those offices producing at the same really minimal levels that we are currently seeing, we're talking about 3000 offices generating over 455 million in annual revenue for vivos. That figure is from DSO volume alone, and does not account for growth among independent dentists, government contracts, corporate programs, or any other source. In order to handle that growth, we have proactively undertaken an overhaul and restructuring of senior management. Some longtime contributors are gone, and we've replaced them with senior or with seasoned executives with many years of larger corporate and healthcare industry experience in areas such as sleep medicine, medical device sales, medical dental practice operations, national regulatory issues, government contracting, international sales, and more. Most of these new executives have recently started and others will be coming on in the next few weeks. Needless to say, we are very excited to be able to bring these key executives on board and we will be releasing formal announcements regarding these new hires over the next week or two. Our recent payroll and budget reductions made the addition of these new executives not only possible, but a much higher and better use of our resources. Now, I hope the extra time we spent here today explaining and detailing out the many growth opportunities before us has given you a much better picture of where things really stand around here and why our optimism and faith in the future is higher than it's ever been. In closing, I have previously built, I previously founded and built a $250 million company, along with some of the very same executive team members we now have here at Vivos. We know how to execute, and the recent additions to our senior management team are likewise seasoned executives with proven track records. The pandemic that bogged down the whole dental industry the past two years and led to widespread dental staff turnover and shortages impacted our growth as well. But we are now coming out of it. And as we've clearly articulated here today, we've been extremely proactive in laying the foundation for accelerated future growth across multiple channels, but especially through the DSOs. In that particular space, we've already proven our program works and is generating huge returns. What remains for us going forward is focused execution and scaling up our model. Our team is fully engaged and we have all the ingredients in place to win big. So stay tuned. And with that, we can begin our Q&A session. Operator, please go ahead.

Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star 1 on your telephone keypad. Star 1 for questions. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment. Star 1 for questions. We'll pause a moment to assemble the phone queue. We'll take our first question from Alex Nowak. with Craig Helen, Capital Group. Please go ahead.

Craig, good afternoon, everyone. Kirk, thanks for the discussion there. That was extremely helpful. You know, I think when you put all the commentary together, you put together the DSOs, you put together the sleep image from what's possible there, some of the changes that you're seeing, the improvements with just the general market in March and April. You put those all together. How are you thinking about that growth trajectory? throughout this year, second half of this year, and through the end of this year? I mean, just I had to think about how we grow versus 2021 putting it together.

Great question. So, Alex, I think you'll recall that we announced earlier this year an 18-fold increase in the number of home sleep tests being performed by our dental offices. That's a staggering rate of growth and obviously that's not going to be sustainable, but it is indicative of the enthusiastic response that dentists have as they've embraced this new technology and as they've embraced the ability to generate and identify patients in their practices with sleep apnea. So that's the first start of things. You also will recall we We changed our model with the sleep image technology from effectively a loss leader as we were trying to figure out how to make all of that come about in 2020 and 2021. We were trying to figure it all out. And we've flipped it now to a profit center for us. So as we move forward, we'll actually be making – that will be a profit center for us as the dentists continue to embrace it and it continues to grow. Once they get into – Once they get into the DSOs, the DSOs now are going to represent, I think, the most accelerated form of growth that we have on the horizon. I think that's clear from what my narrative was here a few moments ago. And really what we're seeing is the DSOs are – there's a little bit of a ramp to get a DSO to sign a contract and get on board. These are somewhat large DSOs. Tad Piper- bureaucracies they have you know some of these DSOs are multi billion dollar companies now, so they tend to have. Tad Piper- They tend to have a little bit of bureaucracy to work through, but I know all these guys and so we're getting through there, so in terms of your specific question about how does this look going forward. Tad Piper- I would expect to see some some emergence in the second quarter of some improvements over Q1 just simply because. the change in the environment the ending of the pandemic and the beginnings of some of these dsos coming online now typically what happens is that the dsos are going to want to do a a three to six month four to six month test and and and that's gonna now that might that might change once the word gets out and we can demonstrate to more and more of these uh new dso clients What our actual track record has been with our current DSO clients and so it may shorten that runway Quite a bit so I would look for the emergence in the second half of this year To be where we start to see the real coming on board like for example this first DSO Started out with just a handful of offices for their pilot. I gave you the statistics on that They've invited us back now So we've got, it's around 10, 10 to 12 new offices that are coming on board that they wanted us to onboard in June. So they're seeing now, okay, we love what we saw here. First few months look great. Let's get, let's go to June. Let's get the next tranche of, of our offices trained up and ready to go. So we're seeing this start to get some traction. And you know, the good news is we've got all the big boys at the table, so Some of these DSOs have 500, 1,000, 1,500 offices, and we're talking to all of them. All of the big boys are in dialogue with us right now. So as we look at the metrics going forward, there will be a little bit of a ramp to get to the DSO marketplace and get it fully functioning. What we've done is we've actually recently, as part of our reorganization, we've actually – taken the entire DSO implementation and scale up and put it under our executive vice president, Susie McCullough, who has done a spectacular job with a lot of that and developing a lot of the systems and a lot of the internal things that really make what happened at this first DSO possible. She's going to run that entire scale up. Some of the new executives will report to her. And we have... We have an incredible amount of confidence in that team. The sales, on the other hand, of going to the DSOs and also all the new sales executives will be reporting to me. So I think we're going to see, as we've made some of these structural changes, as we dramatically sort of begin to see more empirical data that we can then report and spread around, I think we're going to see that accelerate. But I'm looking for the latter half of this year and into 2023 to be the real ramp that you'll see in us. No, that's perfect, Kirk.

Thank you. And for that DSO that you mentioned with the economics that you provided, obviously very compelling. I could see how they'll want to bring that up quickly. And I know a little bit of this is unknown just because we're going to go through that ramp process, but for that first DSO that you did a pilot with, is it fair to say by the end of this year, you'll be fully online within their 100 centers or just how to think about that? Maybe it's 50 centers that would be online with first, just to think about the ramp.

It's a great question. That's a little bit dependent upon the DSO in terms of how they want to pace it, what other initiatives they have that they're trying to unwind from or or complete, you know, we had one DSO tell us they've got close to a thousand offices. They said, look, we've already loaded our teams up with initiatives on aligners and implants and other things. We're not going to be able to get to this as much as we would like to. We're not going to be able to get to this until Q1 of 2023. Now, that's been the most, you know, the biggest outlier so far. But they're interested. They're excited about it. They see the potential. And... So I would say to your question, Alex, I would say, you know, I'd be really thrilled if we got to half of that DSO by the end of this year. And so whether I doubt that we can get all 100 offices online by the end of 2022, I can promise you we'll be pushing them hard to do that. We're getting on planes and we're going to them. We're not expecting them to come to Colorado. We bring their key executives, we bring their key providers to Colorado for special training, but we take the nuts and bolts of our program out to them to make it easier, more cost effective, and just easier for them to sign up.

Okay, that's perfect. And then this last question here, you made some very good point about the clinical efficacy of vivos, including Terry's story and the prepared remarks. It's a kind of multi-part question here, but when you speak to dentists, when you speak to sleep docs that don't know vivos or aren't aware of it or are not using it but are aware of it, what is ultimately the pushback that you're hearing currently? And then the second part of that question is, what additional clinical studies should we expect here over this year or even next?

Well, we have several papers that have been written and they've been submitted for publication. And it's really in the peer review process right now. And we're excited about the prospect of getting that data published and getting it out there so that people can see it. But it's really, for most of these dentists, the issue for them has been a sense that that has been happening so we've noticed this about the last i would say 12 months maybe but the dentists have been drowning they've been they have they lost a lot of their staff they've been trying to hire new staff look you know in some respects unsuccessfully um when they lost their staff their whole world turned upside down because you know These are small businesses, effectively. Dental practice is just a small business that has people that come and go. And they honestly have been struggling more with staffing issues than anything else. So the biggest question we get is, how am I going to deal with the capacity issues? Because when they lose staff, they lose capacity. And now that the pandemic is waning and staff members are settling back in, and the dental practices are starting to recover, everybody's settling back in and they're starting to get their mojo back again, and they're starting to become more productive and more efficient. That's going to open the door for more vivos production. They're also, you know, when the pandemic hit, a lot of these dental offices who were not able to go in and fully engage in their offices with their patients, They took all of our training online. That's not as effective and not as efficient and they just didn't get it. So now a lot of those guys are circling back through our live training and we're conducting live courses. We had one here this week or last week rather, and it went from Thursday, Friday, Saturday, and we had a full house of doctors coming back to vivos or who had been trained online and were coming for the first time to get the actual real training that allows them to actually start cases. So what we're seeing now is we're seeing as more pay, as more of these doctors bring their staff, we had one office that brought 12 staff members. So we have, you know, some big practices with some big hitter dental offices bringing their teams and getting back here now that, now that they can travel and now that they feel comfortable and they're able to integrate it in. It really has never been about vivos. They love and they want to do this. It's been about show me how to do this, which is where Susie McCullough and her team has shined. So I'll just leave it at that. And that's really where I think we're at. But everything we can do to show forth more clinical validity, the integration of our medical advisory board and the medical doctors that now come to our conferences and speak to our dentists, the credibility factor is going through the roof. The questions that we were asking and dealing with two years ago, they've changed into what we're seeing and out there facing today.

That's great. Well, I appreciate the update. Thank you. You bet. Thank you, Alex.

Ladies and gentlemen, as a reminder, if you'd like to ask a question, you may do so by pressing star 1 on your telephone keypad, star 1 for questions or comments. We'll take our next question from Scott Henry with Roth Capital. Please go ahead.

Thank you. Good afternoon, and thank you, Kirk, for the background you gave us. I just have a couple kind of a little bit more specific questions. First, when we think – obviously, it sounds like the inflection point is coming in the second half of the year with the DSOs, but how should we think about second quarter – I mean, should we expect sequential growth from first quarter? Do you think it may rebound to the levels we saw, you know, in the third and fourth quarter of last year? Just trying to get a sense about 2Q specifically.

Yeah, I think we're going to see, you know, we try to avoid giving too much guidance because there's still a lot of variables we're trying to, you know, digest here and work through. But I would say, Scott, that Q2 will be improved over Q1. sequentially, and by how much yet, it kind of remains to be seen, but we're very positive and optimistic about what we've seen so far in Q2.

Okay. And on the burn in 2Q versus Q1, do you think we'll start to see some of the cost savings coming through already, or is that more in the second half of the year?

No, I think you're going to start to see it. I think you're going to start to see the burn decrease It's already decreased. It's going to decrease a little further per our budget forecast. And we're going to try to manage this thing down to a level in which we can find some sustainability. And obviously, long term, that means that we've got to get cash flow positive. So look, we're a scrappy bunch here. We run a company of thrift. We are very, very aggressive in terms of monitoring and measuring our costs. And we're always balancing the activities of our teams and the ROI. So we had to make some adjustments, quite frankly, in Q1. We weren't seeing the ROI from some initiatives that we started. And when we didn't see it, we cut it back. So we're going to continue to manage this very, very tight. We're always evaluating our capital options, whether it's equity or debt, and we're looking at a number of different proposals right now, but that's kind of where we're at. The biggest thing that we've got to make sure we do is we've got to make sure we're ready to gear up for the demand that we could see from the DSOs. I'm going to be in front of 1,500 DSO attendees at the DICOMA conference here in July, and I've got 45 minutes to talk about all things sleep, and these guys are all over this. So the demand coming out of that conference is sort of a coming out party for us, and the demand coming out of that conference could be just overwhelming. So we've got to be careful that we manage our growth, and like I said, if we take additional equity or debt on, it's going to be with the clear intent of delivering on the growth promise there.

Okay, and then, you know, how is pricing both to your customers and from your suppliers, and are there any issues on the supply side?

You know, we, that's one of the reasons for a little bit of a decline in our margins in Q1. We actually implemented and just put into effect a price increase here in the second quarter that had, we hadn't done a price increase in three years. And so the inflationary pressures kind of started eroding some of our margins a little bit, and we began to put a price increase in place. That's going to help as we go forward. And we've also seen a tremendous uptick in our mile correct business that we launched last year. We made that a standard part of our protocols, and it's really made a difference. So a lot of good things happening on that front. And I kind of lost track a little bit of what you asked, Scott. Did I answer your question? I want to make sure I answered it.

Yeah, I think you got most of it there. The final question I just had, I know you give a lot of percentages on the sleep ring and the diagnostic. In terms of absolute numbers, how many diagnostic tests are you running or did you run in the first quarter?

So it's running about 5,000 a month. And it ran that towards the end, and it's now running a little over 6,000. I don't have the latest number in front of me, but when I looked last, it was kind of the mid, over 6,000, 6,500. I can get you that exact number if you'd like. You know, our biggest challenge is to now these doctors have gotten it down. They've figured out how to get their patients tested. Now we've got to retrain them to how to get those cases tested. into treatment, right? They've identified, we're still seeing, by the way, almost half of these tests coming back positive for OSA. So now the challenge was, or the challenge is to get those doctors and their staff to figure out how to close those cases. So we're at, I'm seeing the numbers here. March of 2022 was right around almost 600. April, About 100 less is about 6,500. So somebody just handed me the numbers. So that's where we're at.

Okay, great. Thank you for taking the questions, Kirk.

You bet. You bet.

We'll take our next question from Dave Kruger with Foresight Investing. Please go ahead.

Oh, hi, Kirk. It's Steve Kruger. There are a lot of moving parts that you've talked about on the call today. both on the cost side and the revenue side. And I wonder if you've modeled and can give us some idea of what level of revenue you think you need to get to to be cash flow neutral.

So I'm going to look at Brad for that, but I think we're probably right in the $30 million to $35 million range. Brad, run rate-wise, is that right?

Yeah, and again, we don't provide guidance on that in particular because as we go into the DSOs, the cost structure of the DSOs are a little bit different than they have been for us going directly to the independent dentist as well. You know, that's what we're combating against is, you know, is the cost associated with getting into the DSOs. And we'll know more about that, you know, as the year progresses.

Right. Was that number a quarterly number or an annual number? Annual number. Annual. Okay. Very good. Thanks very much. Yeah, sure.

And, ladies and gentlemen, this will conclude today's question and answer session. At this time, I'd like to turn the conference back to management for closing remarks.

Okay, I've got to get back to my script here. Well, I would like to thank everyone for joining us on today's call and for your continued interest in Vivos Therapeutics. I hope you can get a sense for the enthusiasm, the confidence, the bright future that we have and that we see here in this company. And we want to express our gratitude and appreciation for those of you who have helped us fund this company, helped us grow this company, and helped us bring this company to this point. The future is bright around here. Again, we feel very blessed to be on this mission. We're grateful for those who are out there who are in the trenches working with patients on a daily basis and sharing their stories and their success on social media. and in research, and we just can't say enough how proud we are of what we've accomplished. But the best is yet to come, and we're excited about that. So we look forward to sharing our progress with you as the future unfolds. Thank you very much and have a great day.

Ladies and gentlemen, this concludes today's conference. We appreciate your