R. Huntsman
Analyst · ROTH Capital
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 or about 1 out of every 8 people. Ironically, as diagnostic technologies improve and become more ubiquitous, those estimates continue to rise. In our own rather extensive sleep testing here in the U.S. and Canada, we see nearly 1 out of 2 of all patients testing positive for the condition.
Today, an estimated 90% of OSA patients are prescribed CPAP as the medical gold standard treatment. When used, it can work well, but no one wants to use it every night for the rest of their lives. And most patients eventually stop using it after several months. For patients who are CPAP intolerant or noncompliant, the next step options are even more limited and less appealing. So there can be no doubt that for whoever puts forward a clinically effective product or treatment solution at an attractive price point that patients actually want, the payday could be substantial.
In short, we have that very thing here today at Vivos. Our products and services meet all the key criteria. They work. They are cost effective. And when patients are given all the options, we find they are preferred over alternative treatments.
In the past, we haven't been able to prove that to the satisfaction of some. But just this year, we've moved beyond small or limited studies published in low-impact journals to larger studies in top-tier medical journals, such as Sleep Medicine, where statistically significant results were achieved.
In the past year, Vivos also presented original research on our flagship CARE, C-A-R-E, oral appliance devices at the top 3 academic sleep medicine meetings in the world, the World Sleep Congress by the World Sleep Society, SLEEP 2022 by the American Academy of Sleep Medicine and SLEEP Europe 2022 by the European Sleep Research Society as well as at the Greater New York Dental Meeting. At these conferences, Vivos presented 2 database reviews, demonstrating significant benefits of CARE device used in treating adult OSA and regarding use in the management of pediatric OSA and promoting healthy nasal breathing in children. We also presented some of our latest data regarding the use of our CARE devices in the treatment of adult headaches.
Seven additional papers with similarly supporting data showing statistically significant results have either been published or submitted and are pending publication in other peer-reviewed journals. Vivos created and has begun enrollment in an academic integrated provider program, providing access to academic researchers to study Vivos' proprietary products in an open-source format. Vivos has also continued its aggressive pursuit of clinical trials, and several potential teams and sites have been identified and are in the planning phases.
One noteworthy and very practical application that has come about through our research and ongoing development has been the introduction of a key diagnostic technology called rhinomanometry. You may recall that Vivos is the exclusive dental market distributor in the United States and Canada for the only FDA-cleared rhinomanometer available. So we have highly differentiated products and technologies that actually work and have been working for over a decade in over 31,000 patients.
We have broad out-of-network insurance coverage for medical payers as well. What we haven't had is a therapeutic product line that could address the needs of patients at lower price points. To address that need, we recently announced several exciting new additions to our product line and services to allow far more patients to receive treatment through our provider network. These new products allow us entry into several new product and equipment categories where we've never before had a presence. We now have a broader range of price point offerings that are being rolled out that significantly decreases the friction per patient and makes it easier for dentists to get patients into the Vivos ecosystem and that stimulates our growth.
With product lines now ranging from diagnostics to CPAP, to mandibular advancement and treatment with all the devices and the Vivos Method, we now have a product and path for treatment for the vast majority of patients.
We often hear the question, if Vivos treatment is so great, why haven't many more dentists integrated Vivos into their practice? That's a great question. We often ask ourselves the same. So it's important to note that our Vivos integrated practice or VIP enrollment efforts to date have been focused on attracting only the very best dentists available, those who had the clinical confidence and success to adopt and integrate something like Vivos into their practice. They are typically the ones who get the overall picture of what this can mean for their practice and their patients and who see the value in our initial training and enrollment fees that can be as high as $50,000.
Now that we've established a broad core network of over 1,650 Vivos-trained dentists across North America, we can now begin bringing in more dentists at lower introductory prices for limited programs that will attract many more doctors and allow them to test the waters with our company and our products. As a direct result of creating many more lower cost points of entry, in 2023, we expect to see more dentists than ever before becoming customers of Vivos and purchasing products and services.
Keep in mind also that Vivos is still relatively new to dentistry. We are roughly where aligned technology was in their early days as they rolled out Invisalign. And recall that their stock likewise dropped nearly 90% from their IPO price before rebounding and eventually peaking out at over $600 a share.
Adoption of any new medical technology takes time and perseverance. Inspire Medical was first spun out of Medtronic back in 2007. And while both companies currently enjoy much greater valuations than we have, we believe our overall market opportunity, our products and our technology are superior and will ultimately prevail in the market. Keep in mind that important growth pivots for each of these companies came when they began driving patients who are asking specifically for their products to train providers.
We are continuing to get our name out so that more and more patients specifically ask for our products. In that regard, we recently successfully piloted and rolled out a new program called Treatment Navigator, which is already showing great promise. This program supports dental offices and provides each new patient and advocate who assist them in navigating the many different steps involved in the patient journey, coordinating medical and dental diagnostic appointments, insurance pre-authorizations, furthering education and treatment planning and generally coaching the patients through treatment. The Treatment Navigator's role is effectively to act as an extension of the VIP practice, taking a significant load off the provider's team. Under the guidance of the appropriate health care professional, Treatment Navigators assist and motivate patients to obtain the right treatment for them.
Treatment Navigators also leverage the power of our Vivos AireO2 EHR, which is electronic health record software platform, to facilitate communication and collaboration amongst providers to file medical and dental insurance claims and to record patient progress throughout. You may recall that our Vivos AireO2 EHR software program is the only full-featured medical dental practice management system on the market today, configured specifically to accommodate the treatment of breathing and sleep disorders.
Doctors pay additional fees to Vivos for our Treatment Navigator service. Over the course of 2023, we expect to see this program evolve into a significant revenue and profit source for the company. Currently, we have taken over 70 applications from VIPs to join this program, and we are systematically rolling this program out across the country.
Our initial results from our Treatment Navigator pilot tests demonstrate that we can deliver a valuable service to our VIP offices, solving one of their primary issues of staff shortages and turnover. Now all they have to do is screen patients coming through their hygiene departments and then allow the Treatment Navigator to manage the logistics and get the patient ready for treatment. In addition, our Treatment Navigators assist patients who come through our social media website or other marketing campaigns to find answers and get into the Vivos ecosystem.
Now I'd like to turn some attention to our Q2 and Q3 results, starting with our 2 key metrics of VIP enrollments and appliances sold. During the second and third quarters of 2022, macroeconomic factors, including heightened inflation and rising interest rates, continued to put pressure on our business and the practices we serve. These factors, along with the lingering impacts of COVID, led to dentist delaying enrollment with Vivos and fewer patients going through the doors of our VIP offices. This impact has not been limited to Vivos. It's been felt throughout the dental industry.
Other companies in the dental industry have experienced similar challenges due to the economic environment. For example, Align Technology experienced a significant decrease in their aligner revenue by 8% quarter-over-quarter during Q3 and down 13% over the previous year. Here at Vivos, we saw our appliance sales peak at an all-time record in June, only to fall back somewhat in Q3.
Despite these headwinds, we are not satisfied with maintaining relatively flat performance here in 2022 and have taken significant steps to get us back on the path to growth. To that end, we have reorganized and downsized staffing at all levels. We have made cuts or renegotiate relationships with vendors. And whenever possible, we have turned expense line items into new revenue streams. I will discuss these efforts in greater detail here in a moment.
Digging deeper into our performance beyond the income statement, there are several noteworthy achievements. In terms of new provider enrollments, we enrolled 58 and 56 new providers in Q2 and Q3, respectively. And while that's down 12% year-over-year due to the reasons I just mentioned, enrollments in the second quarter increased by 81% over the first quarter.
Also, while the total enrollments were relatively flat in Q3, we have increased our sales conversion rate and expect to keep improving upon this trend. One factor in our improved closing rate is a new 0 interest financing program for new VIPs. The cost now for a qualified dentist to become a Vivos integrated provider or VIP is now as low as $750 a month. Moreover, preregistrations for the next year in January, February and March for our sleep medicine revolution events are nearly sold out. Having such events fully booked out that far is unprecedented for us and something we see as a favorable trend.
Let's move on for a moment now to home sleep test and case starts, which are both key performance metrics. The VivoScore home sleep test we offer to our VIPs from sleep image are a core advantage because they offer an easy and affordable way for patients to obtain a clinically accurate and diagnostic quality assessment of their breathing and sleep. VivoScore home sleep test for Q2 and Q3 of 2022 were 2x the rate of the same period in -- the same periods in 2021. This means that thousands of patients a month are discovering that they have some form of OSA, and we'll need to figure out what to do about it.
Our primary test now is to find ways to assist our VIPs to get those patients into meaningful dialogues about their condition and ultimately close more cases and get more of those patients in the treatment. That is precisely why we put together our Treatment Navigator program.
MyoCorrect enrollments for Q2 and Q3 were up 2.5x over the same period last year. The strong growth in this program not only provides a consistent and growing revenue stream for the company, but it also helps patients have a better overall experience with treatment. Overall, new appliance start -- new appliance case starts are down slightly from the prior year. To date, our VIPs have treated over 31,000 patients with the Vivos Method.
Vivos continues to make excellent progress in the dental service organization, or DSO channel, with active pilots in 3 DSO organizations, which represent over 457 practices under management. Pilot programs are starting with 4 additional DSOs, representing an opportunity of another 519 locations. We are in advanced contract discussions with an additional 17 DSOs, representing another 5,500 locations. That's 24 distinct DSOs and almost 7,000 practices.
Now as many of you know, I was the founder of one of the very first DSOs and helped to pioneer the DSO model of providing business and clinical support to independent dentists. Over this past summer, I was privileged to speak at one of the largest DSO conferences this year where I shared why Vivos is a significant opportunity to the DSO community. Because the DSO market is so important, I'm going to highlight this again, also sharing the positive impact to Vivos. First, the DSO corporate model is to acquire practices, increase EBITDA and sell at a higher multiple. Second, sleep dentistry is the biggest opportunity to increase EBITDA since aligners and implants. Third, a typical DSO practice that screens just 2 patients per day, 4 days a week would test 32 patients a month. Half of those will test positive, and half of the positive group should start treatment, yielding top line revenue of just under $1 million per practice.
Now to understand the impact of this, you should know that the field of dentistry has largely become a commodity market with little remaining opportunity for new revenue or margin growth. That being the case, nowhere else in all of dentistry is there an opportunity to grow that even comes close to what Vivos is offering.
Point number four, estimated net EBITDA margins of 30% to the DSO per practice would net the practice $300,000 annually. Since DSO multiples are typically about 10x of EBITDA, this one practice could translate to a $3 million increase in the overall DSO valuation. Now for a relatively small 35-location DSO, the integration of Vivos into their workflow could add $100 million to their firm valuation.
Point number five. Now let's look at the impact to Vivos. Each DSO practice that performs to the above metrics would generate about $192,000 in annual revenue for this company.
Point number six. A moment ago, I mentioned the 3 DSO practices that we were in pilot test with today and that they represent 897 total practices under management. If just 20% of those practices became Vivos' providers, it would add approximately $34 million of Vivos -- annual revenue to Vivos. We see no reason why that number would be limited to 20%. And given the compelling economics outlined above, we expect much greater penetration over time.
What is becoming very clear from our pilot test is that the opportunity for Vivos with respect to DSOs is everything we expected and perhaps even more. When coupled with our Treatment Navigator program, the ROI for both DSOs and Vivos is unparalleled.
Now on the regulatory front, earlier this year, Vivos was cleared through the Canadian Ministry of Health and Health Canada to sell devices in Canada with even broader specifications. And as our research and clinical data becomes more widely accepted, more regulatory doors are opening for us.
In the second quarter of 2022, Therapeutic Goods Administration or TGA in Australia issued clearances for our devices to treat adults and children for all indications inclusive of OSA regardless of severity. For those of you not familiar with the TGA, it is Australia's equivalent to the U.S. Food and Drug Administration. This is a significant development for us. Not only does this pave the way in many international markets, but this also provides further validation of our technology. We continue to move forward seeking clearance here in the U.S. as well as international regulatory agencies. We are optimistic that our clinical data will continue to be well received and that the necessary regulatory approvals going forward will not be a barrier.
Speaking of international markets, we are in late-stage negotiations to take our technology into Dubai and the Middle East and are in the early stages of going into India and Southeast Asia. Our penetration into the Australian market is also going well now that we have full regulatory approval. We note that these opportunities have come to us by way of dentists and others who have come to the U.S. for training at our institute and have now desire to take this life-changing technology back to their home countries and regions. So there, you have just a glimpse of why we believe the future of Vivos has never been brighter.
From the latest research that continues to elevate and substantiate our technology, to our revised and streamlined new business model and product lines, which will accelerate our scale-up to new and exciting regulatory approvals in worldwide markets, we continue to make strides and progress.
Now obviously, we will need additional capital to achieve those objectives and realize the potential I've just outlined. Along the same lines, our primary focus throughout this year has been to ensure we position ourselves to achieve positive cash flow as soon as possible. To accomplish this, we have taken a series of steps to streamline expenses while also creating new revenue opportunities. Our internal structures and processes have been significantly revamped with a focus on near-term ROI.
On the cost-cutting front, we disassembled the company and reorganized in new ways that we believe will be more efficient and cost effective going forward. Vendor relationships have been reassessed and/or renegotiated. What were once expense line items have now been turned into revenue opportunities wherever possible.
The net effect of all these efforts has been a reduction approaching $1 million per month and our cash burn from its peak in the first quarter to where we are today. Also, we expect to see the impact of our new revenue streams gradually take shape throughout 2023 and contribute significantly to our profitability.
As previously mentioned, our goal is to achieve cash flow breakeven in the next 12 to 18 months. Meanwhile, we are doing everything we know how to be great stewards of the capital we have available. And as Brad mentioned, we have been exploring additional financing options. We believe we have a good solution available, and we hope to announce something in the near future.
Another important result of the reorganizing of our business from the ground up has been a general simplification in what we do and how we do it. Our training is more streamlined and intently focused on the essentials, so that ramp-up times for new providers are as brief as possible. Our messaging to the world at large is crisper and clearer. Patients in search of real solutions are finding us and being directed into Vivos-trained practices.
Over the past several months, we have been aggressively pursuing additional capital financing options. And as I said, we hope to have something to announce on that front very soon. The company has been actively exploring options for suitable additional financing that will replenish our capital resources and help drive our business plan forward in 2023.
In prior earnings calls, we highlighted our strategic pivot towards direct-to-consumer marketing efforts that began in the latter part of 2021. Today, I am pleased to announce that we're working in close collaboration with our marketing partners. We have successfully piloted a marketing initiative to drive more new patients into Vivos training provider practices and to generate more case starts. This program has exceeded our forecast and is consistently delivering between 30 and 50 qualified new sleep apnea patients per month into each participating office. To put that into perspective, that number of total new patients would be above average for a typical general dental office. We are beginning to roll this new consumer marketing program out to our entire VIP provider network.
From a company standpoint, we could see a significant financial impact across the board with almost no incremental investment.
Also along the direct-to-consumer front, we are announcing the formation of an independent firm called [ Tooth Pillar ] that seeks to leverage social media influencers to generate awareness of the many benefits from the use of our highly effective Vivos guides in guiding the craniofacial growth and development of pediatric patients. Their stated goal is to put 25,000 children into treatment using Vivos products. This company is led by some of our most prolific and supportive Vivos doctors and former company executives who have witnessed firsthand over several years just how impactful and life-changing our products can be. Vivos is the exclusive supplier of products to Tooth Pillar.
Finally, more of our VIPs should begin to receive greater reimbursements going forward because more patients will now be eligible to have coverage for their Vivos treatment. This is due in part to a strategic alliance Vivos recently entered into with a company called Nexus Dental Systems to create what is expected to be one of the most comprehensive medical billing services in the dental industry. This collaboration is expected to provide both companies' provider networks with greater access to both in or out-of-network billing with all major medical insurance companies, facilitating case acceptances, insurance billing procedures and reimbursement. Again, this creates additional important revenue stream for Vivos. We believe that these combined efforts will create additional awareness with dentists, improve VIP enrollments, case starts and revenue.
In closing, we believe our future at Vivos remains bright for the reasons I just outlined above. We continue to grow despite a challenging environment. We have a number of initiatives underway to drive additional revenue growth, increase VIP enrollment, expand our offerings and open up new revenue streams for Vivos, including our recent collaboration with Nexus. At the same time, we are conscious of costs and have taken the necessary steps to generate permanent cost savings while shortening our path to cash flow profitability. We intend to stay the course and look forward to updating you on our progress.
Again, we want to thank our shareholders for their patience as we work through our recent rev rec challenges. This is now behind us with a positive outcome, and our eyes are squarely focused on the future.
And with that, we can begin our Q&A session. Operator, please go ahead.
