Good day, everyone, and welcome to the Vivos Therapeutics Second and Third Quarter 2022 Earnings Conference Call. [Operator Instructions] 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, Vivo's Investor Relations Officer, for introductions and the reading of the safe harbor statement. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to Vivos Therapeutics Second and Third Quarter 2022 Earnings Conference Call. A copy of our earnings press release is available on the Investor Relations section of our website at www.vivos.com. With us on today's call are Kirk Huntsman, Vivos Chairman and Chief Executive Officer; and Brad Amman, Chief Financial Officer. Today, we'll review the highlights and financial results for the second and third quarters of 2022 as well as the more recent developments and Vivos plans for 2023. 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, projects, expects, 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 risks, 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, including cost-saving plans and plans to generate revenue, future potential results of operations or operating metrics and other matters to be addressed by Vivos management in this conference call, may differ materially and adversely 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 Vivos 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, second and third quarter 2022 Form 10-Q, all of which are accessible on the Investor Relations section of the Vivos website as well as the SEC's website. Except to the extent required by law, Vivos assumes no obligation to update these statements as circumstances change. Finally, please be aware that the U.S. Food and Drug Administration has given certain Vivos appliances 510(k) clearance to treat mild to moderate OSA. Any reference herein regarding Vivos treatment or the Vivos Method should be reviewed in that context. Treatment of patients with severe OSA are performed off-label at the sole 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. Before we begin, I want to thank you all for joining us today and for your patience as we work through the revenue recognition review that delayed the filings of our second and third quarter financial results. Given the nature of that process, we were unfortunately limited in what we were able to say publicly, which was as frustrating for us as I'm sure it was for most of you. However, we can now report that the upshot of our ASC 606 review is that our prior and current results of operations have only minimally been impacted. No revenue was lost, and we will now be recognizing revenue, particularly VIP enrollment revenue, over a slightly longer period of time. Additionally, we believe that our controls and procedures will be stronger for having gone through this process. In a moment, I'll turn the call over to our Chief Financial Officer, Brad Amman, who will spend some time talking a bit more about this and walk you through the highlights of our financial results for the second and third quarters. After that, my goal today is to tell you about some of the exciting things that are happening at Vivos and to discuss the steps we've been taking in order to ensure our company's continuing development and, most of all, to give everyone on today's call some more insight as to why we're so optimistic about our future. Then we'll be happy to take your questions. When we're finished, I hope you will all leave today's call with a better sense of why we believe Vivos is succeeding far beyond what is currently being recognized by our valuation in the capital markets and why this company has a very bright future with the potential to lead the market for sleep apnea treatment. Now let me turn it over to Brad to review our financials. Brad, please go ahead.

Thank you, Kirk, and good afternoon, everyone. Today, I'll review the financial highlights of our second and third quarter 2022 financial results. For information on our results for the 6 months ended June 30, 2022, and 9 months ended September 30, 2022, I'll refer you to our earnings release, which was distributed earlier today, and our 10-Q reports, which will be available on the SEC filings portion of the Investor Relations section of the Vivos website at vivos.com/investor-relations. Today, we reported second quarter 2022 total revenue of $4.2 million compared to $4.5 million for the second quarter of 2021. This year-over-year decrease was due to lower revenue from VIP enrollments related to the lingering effects of COVID-19 variant resurgences as well as typical second quarter seasonality in the dental industry, which was offset to a considerable degree by increased appliance revenue we generated during the quarter. During the second quarter of 2022, we enrolled 58 VIPs and recognized revenue of approximately $1.2 million compared to 73 VIP enrollments for revenue of $2.4 million during the same period last year. Year-over-year enrollments were impacted by COVID-19 variant resurgences that began toward the end of 2021. These resurgences presented challenges for dentists' offices, which were operating at lower capacity and with limited staff with these hurdles persisting throughout the second quarter of 2022. We began to see this impact subside during the month of June. Also, as it relates to the ASC Topic 606 revenue recognition protocols, we reevaluated our existing revenue recognition policy for VIP enrollments, and along with our independent Audit Committee, determined that our existing revenue recognition policy was not consistent with the guidance in ASC 606. After analyzing our VIP contracts using the 5-step process of ASC 606, we determined that for VIP enrollment contracts, we were required…

Thank you, Brad. Today marks the end of a long and arduous journey over the past 6 months. As almost all of you know and are keenly aware, the net result of our recently completed revenue recognition review was essentially a first quarter revenue adjustment of less than $200,000 in our favor. That's it. No restatement of prior years, no findings of managerial misconduct, no revelations of wrongdoing, just a minor revenue adjustment and a new formula for pushing the recognition of a portion of revenue further out into the future. So let me be clear about this without going into all the details. In order to satisfy certain highly technical provisions of an accounting standard that even the experts themselves couldn't always agree upon and which require management to make certain highly subjective estimates, in the end, we spent 6 long months and significant financial and time resources only to end up pretty much where we began. While we are grateful that the outcome was a relatively minor adjustment and that our policies and procedures were improved, which will serve us well going forward, it is cold comfort viewed against the time, resources and capital markets credibility, which we lost along the way. Having said all that, this long and arduous process is now behind us. We do not expect to have any further issues related to this topic. So if nothing else, that is cause for celebration. Now let me briefly review why we believe our core proprietary technology and services platform will continue to disrupt and eventually dominate the global market for breathing and sleep disorders such as obstructive sleep apnea or OSA. There is broad acceptance of the ultimate potential to address OSA globally. Conservative estimates placed the market at over 1 billion OSA sufferers worldwide…

[Operator Instructions] And our first question comes from the line of Scott Henry with ROTH Capital.

Obviously, I'll go through the 10-Q, so I'll keep my questions relatively general. Second and third quarter revenues looked about in the $4 million range, which imply a annual rate of about $16 million. I guess the first question is, what do you think you would expect for an organic growth rate when you think about Q4 of this year and the first half of next year? How do you expect that growth -- what kind of range should we be thinking about?

Well, Scott, thank you for the question. I would say that what we have seen throughout this year has been -- as we mentioned earlier in the year, there were some headwinds associated with what we were doing. It seems to have lightened up. We seem to see sort of a rebounding effect going on here in the fourth quarter, and we hope to see that extend into next year. I would say that the impact of the staffing issues that occurred during COVID continue to plague dental offices. And we think that with our Treatment Navigator program that we'll be able to mitigate some of those effects. We also -- what we don't know yet is how quickly some of these new revenue streams will ramp up for us, but I would expect to see us ramp up over the course of next year in a very organic way to where we would be well above the $4 million threshold certainly by this time next year. And I realize that's what we have going -- that's what it was this past year. But I would expect to see these other revenue streams kick in, and I think they can be somewhat substantial. So...

Okay. And maybe another way to ask a similar question. You talked about cash flow breakeven in 12 to 18 months. What rate of revenue do you think gets you there? If you think about your first breakeven quarter and annualize that revenue number, what do you think that is?

Well, I think the run rate number is probably in the neighborhood of $25 million, perhaps $30 million. I think as we look at our forecast internally, that's probably what it's going to take to get to cash flow breakeven for us. And so again, we've trimmed out a lot of costs. We think we can run pretty lean and still grow revenue. And we'll continue to evaluate this literally on a month-to-month basis as we go forward.

Okay. So would you say -- gross margins kind of trending around 60% right now. That used to be higher than that. What do you think is more reflective going forward, the 60% range, or do you think it would be back to 70%?

My guess would be somewhere in the 60% range going forward. We have some opportunities to improve that. But I think to be safe and conservative, I would say right now that I don't see where the margins will -- I don't see a lot of further erosion, but I think 60% is probably a conservative gross margin forecast.

Okay. So I'm just kind of doing the math in my head, 70% gross margin, $7 million a quarter. Getting to breakeven, it would imply you'd probably have to cut another $2 million out of expenses. Is that a fair assessment? Do you think -- do you have room to cut that out? Or I mean either you cut it out or you grow into it with leverage. But to break even at $7 million a quarter, I think you're going to have to make some cuts. Is that fair?

I think that's fair on the back of the napkin. And so let's see what happens. We have some pretty high-margin revenue streams coming online, which we hope will improve our margins a little bit further. So let's see what happens. We've got room yet to go to cut expenses if we need to, and we're prepared to do that as we evaluate month by month going forward.

And our next question comes from the line of Alex Nowak with Craig-Hallum Capital Group.

Maybe to continue there. Can you expand a little bit more on the cost cuts that you do want to take place, the ones that you have planned, the ones that you take if you absolutely need to? And just the thoughts around those cost cuts and how it would or would not impact revenue growth on the go forward.

So what we've done, as I mentioned, and I don't know at this point came across clearly or not, but we've really reorganized from the ground up and have taken a sort of a ground-up approach of things. So we've -- where we had opportunities to eliminate positions or personnel, we did that. And we -- largely, we took into account our practice advisory model, which was the source of a lot of our overhead. Remember -- you might remember this, Alex, that we -- in Q1, we spent a lot of time gearing up our practice advisory services in order to send people out into the market to retrain some of these staff, people that had been lost by the dental profession, and some of our best providers had just lost their teams, and they were just -- they stopped producing. So we geared up, and we probably took on a lot of overhead related to that, that we found a better way with this -- with our Treatment Navigator program. We turned that expense line item into a profit center. So we let some of the -- after that initial surge, we let some of the practice advisers go, and we turn the remaining ones over into Treatment Navigators. And the Treatment Navigators, actually, as they pull patients through the process of getting into treatment, that actually turns into a profit center for us. So we took a raw overhead and turned it into a profit center. So I would say that, that single effort, which is still nascent, and coming out of the gate here, it's not showing up in our third quarter yet because that's when -- that was the quarter we started piloting this. But here in the fourth quarter and going forward, it's got…

Alex, one other -- this is Brad. One other thing to add on -- one other item to what Kirk said was in our VivoScore rings. In 2021, we used VivoScore as a loss leader in really a tool to help VIPs hit the ground running and start up their screenings of their patients. In 2022, we initiated 6 months of no cost lease included with the VIP program, the enrollment program. And then we start charging them after the 6 months $79.95 a month per ring. So we can start to turn that loss leader business model into a revenue generator. And we're starting to see the revenue from those ring leases starting to grow here in the last half of the year.

Okay. Understood. And then maybe refresh us on the big studies to watch here going forward. I know there was a Stanford head-to-head study going against CPAP. Just any update around the big studies? Any other head-to-head studies we should be watching?

Well, we've been supremely frustrated over the Stanford trial progress. And it's a bureaucratic nightmare to get through that. I can't really tell you what the status is because, honestly, we don't know. We keep nudging them along and trying to get everything accomplished through the administrative process that they have there with their internal IRB, et cetera. And it just seems like there's one roadblock after another. So we are -- we're continuing to look at that. We're continuing to -- I mean every day, we effectively compete against alternative treatment modalities. We -- and every day, we take patients out of CPAP, get them off their CPAP machines. We compete in the real world against Inspire and against all these other treatment modalities every day. To get some hard data on that, one of the things we mentioned but we didn't elaborate on is that we're establishing a university-based research network of university researchers that will be able to conduct open-source research using Vivos products, and they can pick and choose how they want to do that. So if they want to put a research project together that compares Vivos against CPAP or against other alternative modalities, then they can certainly do that. We are supremely confident in the efficacy of our treatment and protocols. And so we've opened it up in an open-source format. We've had good response from several different universities, dental departments and others to conduct this research, and we're very excited about that going forward. So I wish I could give you some good news about Stanford because it's one we've talked about. It feels like we've been talking about that every quarter for the last 2 years. And it just seems to just die in the bureaucracy there at Stanford. We had to rewrite the protocol about 6 or 8 months ago, but it just doesn't seem to get any traction. So we're going to continue to look for alternatives. We have some ideas around other institutions. If we can't get that particular study to go through at Stanford, we've had some inquiries from some other institutions to do similar work. So we'll keep that up. And research is an important part of what we want to do here. Obviously, with the 7 pending papers, there's a lot of stuff that's gone on. When you see what we're about to publish and release, I think you'll be very happy with what we'll be able to say. It'll help our regulatory environment. It'll help our credibility with payers. It's just going to lead to a lot of good things. So...

And we have reached the end of the question-and-answer session. I'll now turn the call back over to management for closing remarks.

Well, we would just like to thank everyone for being here this afternoon. I apologize for my voice. I'm a little under the weather today, and I appreciate you bearing with me as I cough through some of these things. Look, we believe that our future of Vivos remains bright for all the reasons that we've just outlined. We continue to grow. We continue to navigate a challenging environment. We look forward to sharing our continued progress with each of you in the future. So thank you, and have a great day, and happy holidays.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.