Vivos Therapeutics, Inc. (VVOS) Q2 2023 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to Vivos Therapeutics Second Quarter 2023 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 over the call 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 our 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 quarter of 2023 as well as more recent developments and Vivos' plans for the remainder of 2023. Following these formal remarks, we will be happy to take 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, goal and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve significant known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant risks, uncertainties and contingencies and many of which are beyond the company's control. Actual results including, without limitation, the results of Vivos' growth strategies, operational plans including sales, marketing, product acquisition and integration, research and development, regulatory initiatives, cost saving plans and plans to generate revenue as well as future potential results of operations or operating metrics, such as the potential for Vivos to achieve future positive cash flows, 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, 2022, and our other filings with the SEC, including the 10-Q filed with the SEC today, all of which are already accessible on the Investor Relations section of Vivos' website as well as the SEC's website. Except to the extent required by law, Vivos assumes no obligation to update 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 viewed in that context. Treatment of patients with severe OSA is 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. I want to thank you all for joining us on today's conference call. In just a moment, I'll turn the call over to our Chief Financial Officer, Brad Amman, who will walk you through the highlights of our second quarter 2023 financial and operating results. Once Brad is finished, I'll come back on and speak with you about the highlights of what we've accomplished at Vivos during the first half of 2023 and more recently following the quarter end. I'll discuss our strategic revenue initiatives, including our previously announced acquisition of product rights and patents from Advanced Facialdontics, which has expanded our product offerings into a lesser -- and to address a broader spectrum of patient needs and price points to drive long-term revenue growth. I'll also talk about our progress with our pilot tests with certain dental service organizations, known as DSOs, including the execution of new and existing pilots during the quarter with 8 regional and national DSOs, representing over 1,000 locations nationwide. I'll also talk more about our distribution agreement with a nationally recognized durable medical equipment company, known as a DME, that serves close to 2 million patients nationwide who are seeking alternatives to permanently being on CPAP machines. Then I'll talk about our previously announced actions to improve our organizational infrastructure. This is a series of steps we took to increase operational efficiencies, reduce expenses and to position Vivos to capitalize on the growth opportunities available to us. As our results indicate, we have already seen -- we've already been seeing the benefits of these actions, including a substantially reduced operating expenses on both a sequential quarter and year-over-year basis. As an update, we previously disclosed that our goal was to decrease our costs and increase our revenues during 2023 with the aim of becoming cash flow positive from operations by the first quarter of 2024 without the need for additional financing, if possible. Although we've implemented cost savings measures and significantly reduced our cash used in operations as we seek to achieve the positive cash flow from operations in the foreseeable future, our sales have not grown during 2023 as we desired. As such, in all likelihood, we will be required to obtain additional financing to satisfy our cash needs. After that, I'll talk about our plans for the rest of the year into 2024, leveraging what we've already achieved to accelerate revenue generation in the future. After that, we'll take your questions. 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 quarter and first half of 2023 financial results. For information on our results for the 3- and 6-month periods ended June 30, 2023, I'll refer you to our earnings release, which was distributed earlier today, and our quarterly report on Form 10-Q, which is available on the SEC filings portion of the Investor Relations section of Vivos' website at vivos.com/investor-relations. First, I wanted to provide a little more color around the slight delay we experienced in the filing of our quarterly results. We applied for an employee retention tax credit, or ERTC, under Section 2301 of the Coronavirus Aid, Relief and Economic Security Act. And in fourth quarter of 2022, we applied and received approximately $1.2 million of ERTC funds from the IRS in April and May of this year. On March 7, 2023, the IRS issued a renewed warning regarding the ERTC, urging taxpayers to carefully review the ERTC guidelines. After reviewing the guidance with our independent registered public accountants, we elected to disclose the funds received as a separate line item under long-term liabilities on the balance sheet until more information becomes available. As a result, for the period ending June 30, 2023, approximately $1.2 million was recorded under long-term liabilities. For more information regarding this, I'd like to direct you to our second quarter Form 10-Q filed today with the SEC. Today, we reported second quarter 2023 total revenue of $3.4 million compared to $4.2 million for the second quarter of 2022. The quarter-over-quarter decrease was due to lower revenue generated quarter-over-quarter from appliance sales, revenue from Vivos Integrated Provider, or VIP, enrollments as well as lower center revenue. This was partially offset by increased home sleep testing service revenue and an increase in conference and training-related revenue. Both Billing Intelligence Services and myofunctional therapy revenue were flat quarter-over-quarter. During the second quarter of 2023, we enrolled 43 VIPs and recognized revenue of approximately $900,000 compared to 58 VIPs for a total of $1.2 million in revenue during the same period last year. Revenue growth was impacted by new entry levels into the VIP program ranging from $2,500 to $50,000 and adding an $8,000 pediatric program, which was received very positively by our providers but overall had the impact of decreasing our average enrollment price. We sold 2,083 oral appliance arches during the second quarter of 2023 for a total of approximately $1.5 million compared to 3,321 during the second quarter of 2022 for $2.1 million. During both the second quarters of 2023 and 2022, we recognized approximately $300,000 in revenue from myofunctional therapy services and $200,000 in Billing Intelligence Service revenue. Lastly, during the second quarter of 2023, we recognized less than $100,000 in center product revenue compared to $200,000 during the same period in 2022 and over $300,000 in revenue from our home sleep test ring lease program compared to $200,000 in the comparable 2022 period. For the 6 months ended June 30, 2023, revenue was $7.3 million compared to $7.8 million for the 6 months ended June 30, 2022. This decrease was attributable to the same factors I mentioned earlier for the quarter. During the first 6 months of 2023, we enrolled 81 VIPs for revenue of $2.2 million, an increase of 8% compared to 90 VIPs and revenue of $2.1 million for the same period in 2022. During the first 6 months ended June 30, 2023, we sold 4,452 oral appliance arches for a revenue of $3.2 million, an 18% decrease compared to the 6 months ended June 30, 2022, when we sold 6,286 oral appliance arches for revenue of approximately $3.9 million. We attribute the decrease in product sales, in part, due to a CBS News report that came out in March of this year regarding an unrelated oral device that was not cleared for use by the FDA and was being used off-label. As Kirk will discuss in greater detail, the device created serious issues with a patient's detention -- dentition and jaws resulting in the loss of 4 front teeth. Although Vivos CARE devices are cleared by the FDA, based on our continuing discussions with our dentist customers, we believe that some practitioners paused purchases until they learn more about the issue. Additionally, for both the 6 months ended June 30, 2023 and June 30, 2022, we had approximately $0.5 million in myofunctional therapy revenue. For the 6 months ended June 30, 2023, we had $400,000 in Billing Intelligence Service revenue compared to $700,000 in the prior year period. Lastly, for the 6 months ended June 30, 2023, we recognized $600,000 in home sleep testing service revenue compared to $200,000 for the 6 months ended June 30, 2022, and $100,000 in center product revenue compared to $400,000 for the 6 months ended June 30, 2022. Gross profit was $2.1 million for the second quarter of 2023 compared to gross profit of $2.6 million for the comparable period in 2022. Gross margin remained the same for second quarter of 2023 at 62% when compared to the same period in 2022. Gross profit for the first 6 months of 2023 was $4.4 million compared to $5.1 million for the first 6 months of 2022. Gross margin for the first 6 months of 2023 was 61% compared to 66% for the 6 months of last year. Sales and marketing expense decreased by $1.1 million to $600,000 for the second quarter of 2023 compared to $1.7 million for the second quarter of 2022. This decrease was primarily driven by decreased sales commissions on lower sales and a reduction in associated sales-related expenses. For the 6 months ended June 30, 2023, sales and marketing expense decreased by $1.7 million to $1.2 million compared to $2.9 million for the 6 months ended June 30 last year. Importantly, general and administrative expenses decreased by $1.8 million or 24% to $5.9 million for the second quarter of 2023 compared to $7.7 million for the second quarter of last year. This year-over-year decrease reflects the substantial impact our previously announced cost-cutting efforts are making. We believe these important efforts will reduce our cash burn as we seek to ramp up revenues and move toward cash flow positive operations. For the 6 months ended June 30, 2023, G&A expenses decreased $3.1 million or 20% to $12.4 million compared to $15.5 million for the 6 months ended last year. Total operating expenses for the second quarter of 2023 decreased by a significant amount, $2.9 million or 31% versus the second quarter of 2022, reflecting Vivos' cost-cutting initiatives. For the 6 months ended June 30, 2023, operating expenses decreased by $4.7 million or 25% compared to the same period in 2022. Operating loss was $4.5 million and $9.5 million for the 3 and 6 months ended June 30, 2023, compared to $7 million and $13.6 million for the comparable periods last year. The year-over-year decrease in operating loss was primarily from lower G&A due to expense cuts and the other factors I just discussed. Net loss was $5.5 million for the second quarter of 2023 compared to $7 million for the second quarter of 2022. The reduction in net loss was mainly due to the cost-cutting initiatives I described earlier. Net loss for the 6 months ended June 30, 2023, was $7.2 million compared to $12.3 million for the first 6 months of 2022. Turning to our statement of cash flows. Cash burn from operations for the 6 months ended June 30, 2023, was $6.4 million, a decrease of approximately $4.3 million compared to $10.7 million during the comparable prior year period. This is further evidence of the positive impact of our cost-cutting initiatives. For the 6 months ended June 30, 2023, net cash used in investing activities consisted of capital expenditures for software of $0.5 million related to the development of VIP ordering software for internal use, which is expected to be placed in service in late 2023, as well as a purchase of patents and other intellectual property in February of this year. This compares to net cash used in investing activities of $600,000 in the comparable 2022 period arising from capital expenditures for the internally developed ordering software. As of June 30, 2023, we had $3.9 million in cash and cash equivalents compared to $3.5 million as of December 31, 2022. We previously disclosed that our goal was to decrease our cost and increase our revenues during 2023 with the aim of becoming cash flow positive from operations by the first quarter of 2024 without the need for additional financing if possible. Although we have implemented cost savings measures and significantly reduced our cash used in operations as we seek to achieve positive cash flow operationally, our sales have not grown during 2023 as we desired. As such, in all likelihood, we will be required to obtain additional financing to satisfy our cash needs. Therefore, we are reviewing all options to obtain additional financing. With that, I'll now turn the call back over to Kirk.

Thank you, Brad. It should come as no surprise to those of you who follow Vivos closely that this company has always held the promise of doing great things, the things that could change the world. After all, no company has ever come to market with a technology that has been proven time and time again in both clinical studies and in actual practice to reverse or eliminate sleep apnea in a majority of patients without lifelong nightly intervention. And because sleep apnea either causes or contributes to virtually every major chronic health condition out there, we believe that what we're doing here at Vivos is and will continue to be a very big deal. By practically any measure, our sleep apnea solutions are superior to everything else on the market. Generally speaking, Vivos treatment is less expensive, less invasive, more effective, more comfortable, longer lasting, as safe as CPAP and safer than neurostimulation implants. Yet those technologies, despite being undesirable last resorts, continue to dominate the marketplace, and the companies behind them command multibillion dollar market caps. But we didn't come this far to take second or third place. We're playing to win. We have to win. There are far too many patients counting on us to prevail. So I'm sure the question on everybody's mind is how do you explain the results? With a virtually unlimited blue ocean type of market to work with and tens of millions of suffering patients yearning for an alternative solution to CPAP and surgery, why hasn't Vivos garnered more market share? And what's going to be different this time around? I'd like to take a moment and make the case that the issue is not and never has been our technology or the science behind it or anything of the sort. It has never been our strategy or the effectiveness of management in executing the strategy. Disruptive innovation and new technologies simply take time to dislodge old technologies and old paradigms of thought and practice. But here's why we believe the time has finally come for Vivos. First, we finally have a true national network of Vivos providers armed with a comprehensive suite of products and services that will enable them to serve larger numbers of new patients. It takes lots of dentists who are specially trained and confident who are conveniently located to where the patients really are. It also takes a comprehensive product offering to address a wide range of diverse patient needs from disease prevention to disease management and even rehabilitation. Developing and growing that national dental provider network and the suite of product offerings aimed at treating OSA is what we have spent the last 5 years creating. This was always Phase 1 of our go-to-market strategy because without a national network of competent, committed Vivos oral appliance providers armed with an assortment of evidence-based, highly effective products that patients need and want, nothing else really matters. But dentists cannot do this alone or in isolation from other health care providers, such as primary care physicians, ENTs, neurologists, pulmonologists, pediatricians, cardiologists, functional medicine doctors, chiropractors and physical therapists, all of whom see patients suffering from breathing and sleep disorders such as OSA every single day. And what do all these patients have in common? They dislike or are unable to tolerate their CPAP treatment and are looking for something better. So one way or another, patients must come from and through those other health care providers while making their way into specially trained dental offices such as Vivos' VIP offices to receive treatment. Facilitating the referral of medical patients with sleep apnea into our network of trained Vivos offices thus becomes Phase 2 of our go-to-market strategy. Fortunately, we've been finding new and creative ways to drive failed or disgruntled CPAP patients into Vivos treatment. Our recently executed national distribution agreement with a major durable medical equipment company, or DME company, is a prime example. On June 1, 2023, we entered into a nonexclusive distribution agreement with a leading supplier in the United States of home health and respiratory products such as CPAP equipment. Our new distributor currently provides respiratory products to approximately 1.8 million patients nationwide. Pursuant to this agreement, our distributor has begun to distribute certain of our products in the United States, including the Vida, Vida Sleep and Versa, all of which we acquired earlier this year. The agreement called for an initial 90-day trial period in Colorado and Florida, which made the contract subject to potential cancellation. However, within weeks of starting the trial, our distributor reported an initial 36% positive patient response along with other positive feedback and requested a modification to our agreement that would make it exclusive for a period of 1 year. We are currently negotiating the potential terms of exclusivity. Plans are already underway to extend the scope of the distribution territory beyond the initial 2 markets into Texas, Virginia, North Carolina, New Jersey and at least one other major market. A nationwide rollout is expected to follow soon thereafter. Our hope is to be able to share with the market even more definitive information about this exciting development in the near future. Regardless of the outcome of our present negotiations for exclusivity, we are confident that this new form of arrangement with DME companies will help us increase our product revenues during the second half of 2023 and beyond. There are many more such DME companies out there, some of which are substantial public companies serving millions of patients in the United States and Canada. With widely recognized CPAP adherence rates of just 30% to 60%, every DME company, depending on its size, has the records of thousands or tens of thousands and perhaps hundreds of thousands of known OSA patients who have failed CPAP. Often, these patients have nowhere to go and do nothing further to treat their OSA until they get desperate enough to try neurostimulation implants or surgery. As an authorized Vivos distributor, DME companies can now offer their OSA patients a much more attractive, nonsurgical alternative therapy. Launching our distribution model in the DME space is a milestone achievement. We now have the model, the infrastructure, the product line and the provider network to service large numbers of patients. We believe this model will appeal to many other DME companies as it gives them an easy way to monetize and reengage patients who are not currently receiving treatment for their OSA. Each month in the United States, DME companies distribute roughly 500,000 new CPAP units to freshly diagnosed OSA patients. And every month, about half of that number stop using their CPAP units. If the current rate of 36% of such patients expressing interest in oral appliance treatment holds true over time, then the number of new prospects flowing into Vivos' VIP offices could be substantial. With roughly just 2,500 new case starts per month from DMEs, or about 1% of the total monthly failures -- CPAP failures, Vivos' revenues could easily double, advancing us toward our goal of becoming cash flow positive. In our current DME distribution effort, we don't yet know the final conversion rate of these patients. But what we do know so far is that 36% of the CPAP failed patients contacted by our current DME partners are saying yes to seeking oral appliance therapy at a Vivos provider. Historically, our experience suggests that conversion rates for such patients are around 80%. Within a few weeks, we should have reliable data on conversion rates, which should then allow for more accurate forecasts. In addition to our DME distribution model, a select few Vivos-trained dentists, or VIPs, have seen great success by actively seeking patient referrals from a wide variety of local medical doctors, such as cardiologists, primary care physicians, ENTs, neurologists, pediatricians and other health care providers who see patients with OSA every day. Some of these Vivos-trained dentists, known as VIPs, are generating millions of dollars per year in oral appliance airway treatments from their independent practices. It is a model that we believe is working across multiple offices, and we believe it is therefore replicable and scalable. As a second key part of our Phase 2 go-to-market strategy, we are more sharply focused on establishing medical referrals into our VIP doctor practices on a much broader scale. Along with DME company referrals, we believe these initiatives will bring significant new growth opportunities to Vivos in the months and years ahead. We see them augmenting and accelerating our other VIP and DSO enrollment efforts because as we are able to deliver more and more new patients to Vivos-trained VIPs, the intrinsic value proposition for becoming a VIP or DSO affiliate increases significantly. In the long run, that is how we see our business unfolding over the next 18 to 24 months. Now earlier in this call, we alluded to an unforeseen market event that occurred during the second quarter that had an adverse impact on our revenue. In early March, a televised CBS News story broke about a widely publicized lawsuit and ensuing governmental, including criminal, investigations into an unrelated, non-Vivos, non-FDA-cleared oral appliance called the AGGA, A-G-G-A, purporting to treat sleep apnea. Although Vivos was not named in either the lawsuit or any of the initial publicity, rumors, speculation and viral misinformation created significant confusion and concern among both dentists and patients. This occurred despite our best efforts to counter such misinformation by reminding our customers that all Vivos appliances are duly registered or cleared by the FDA and have been proven both safe and effective in numerous studies as well as in treating over 40,000 patients. Not long after reports of this matter began to circulate, Vivos began to experience declines in both new VIP enrollments and CARE appliance sales. Our CARE devices are the oral appliances most likely to be confused with the AGGA oral appliance noted above. These declines may also have been impacted by certain second quarter personnel cuts to our practice advisor support teams. Regardless, the decline in CARE appliance sales continued throughout the second quarter. Importantly, through the end of the second quarter, units of our Guide appliances for pediatric growth and development rose 89% year-to-date compared to the same period in 2022. Guide appliances are high-margin products but priced much lower than CARE devices. So it takes larger unit growth of Guides to be able to overcome the decrease in CARE unit sales. In addition, our non-Guide, non-CARE devices which we began to introduce in the second quarter also showed tremendous growth. These product lines have continued to grow rapidly here in the third quarter, and we remain very optimistic about the continued growth going forward. During previous calls and filings, we stated that our goal was to decrease costs and increase revenues during 2023 with the aim of becoming cash flow positive from operations by the first quarter of 2024 without the need for additional financing, if possible. As Brad stated earlier, Vivos has successfully implemented cost-savings measures and significantly reduced cash used in operations. However, sales have not grown during 2023 as anticipated due to the external factors just mentioned. As such, Vivos now anticipates that it will likely be required to obtain additional financing to satisfy cash needs as Vivos works towards increasing revenue and achieving cash flow positive operations in the foreseeable future. We are presently working to determine the best path forward to ensure Vivos has the necessary resources to meet the opportunities before us. As previously highlighted throughout this year, we significantly reduced our cash burn, which was aided greatly by the 31% quarter-over-quarter and 25% year-over-year reduction in operating expenses we achieved in the second quarter. At the same time, we strategically expanded our product offerings to address a broader spectrum of patient needs and price points to drive long-term growth -- long-term revenue growth. This included our acquisition of certain key patents, trademarks, product rights and trade secrets earlier in 2023, which filled certain gaps in our product offerings to providers and patients. This strategic move has already shown great promise as these new products prove critical to Vivos' landing this national distribution agreement with the large DME company during the second quarter and which will add significantly to our revenue over time. As we just highlighted, those new product lines have also been growing at a significantly faster rate than our CARE products, which is fully in line with our expectations as those products filled some important gaps in our product line offerings. We believe that we'll continue to see solid revenue improvement here in the second half of 2023. We continue to look at opportunities to expand our product offerings and partnerships and just recently signed an agreement with DEKA to offer DEKA digital lasers to Vivos' clients through The Vivos Institute. DEKA recently introduced new advanced technology that can be used to effectively treat snoring as well as swollen tonsils and other soft tissues that can obstruct the human airway. DEKA is the dental laser subsidiary of the world's largest laser manufacturer, El.En. Group, an $800 million Italian public company. Other product distribution and collaboration agreements are in advanced discussions and will be announced if and as they are consummated. Management believes that such product representation and collaboration agreements will continue to build revenue and growth lines for Vivos in the months and years ahead. So while we face some headwinds in the market on the revenue side, we also see new revenue opportunities emerging as marketplace momentum and sales build across our entire suite of products. The second quarter also saw continued progress in our pilot tests with DSOs, including the execution of new and existing pilots during the quarter with 8 regional and national DSOs, representing over 1,000 locations nationwide. As an indicator of our momentum in the DSO space, since the close of the second quarter, we have progressed to having advanced discussions, including on-site meetings, with an additional 5 DSO groups, with another 12 groups being added to our sales funnel after expressing high levels of interest. We are also pleased to report significant progress from our ongoing efforts to obtain additional FDA clearances and indications of use for our products. We now have submitted several rounds of what we believe to be compelling data to the FDA, pursuant to our applications to expand the scope of authorization for use of our medical devices. We believe such applications and requests are in the latter stages of consideration. If and as any such new clearances are received, we will publish those milestones immediately. In addition, our Clinical Advisory Board led by Dr. Clete Kushida of Stanford University, along with certain independent clinicians and researchers, have continued to work diligently to publish new data and peer-reviewed papers providing further scientific validation of the efficacy and safety of our technology. Currently, 5 new papers have been submitted and accepted for publication and presentation at medical professional conferences over the next few months. At least 2 additional papers have also been submitted and are currently under peer review. Through the combination of our strategic revenue initiatives, internal operating cost reductions and new capital raising initiatives, we believe we have positioned Vivos to achieve revenue growth and ultimately, cash flow positive operations and profitability in the foreseeable future. In summary, while the larger economic and market environment is creating challenges for both medical and dental communities, Vivos has taken steps to address those challenges, and our long-term growth drivers remain in place. With our innovative, evidence-based technology and network of trained providers, we remain committed to our core mission of addressing the crisis of sleep apnea and breathing-related sleep issues. For all of those reasons and more, we are undaunted by the current challenges, and we remain fully committed to our core mission and purpose. We believe Vivos is positioned now better than ever to do great things and to begin to realize its full potential. We thank you for your patience and support. We know it has taken longer to get here than we had expected, but we see a very bright future ahead. This concludes our prepared remarks. Now we'll be happy to take questions.

[Operator Instructions] Our first question comes from Scott Henry with ROTH Capital.

Just a couple of questions. First, the negative impact of this AGGA device, do you still -- are you still noticing any impact at this point in time? Or is it kind of blown over?

Good question. It's blown over, but there's a -- good news -- or let's just say, bad news travels fast and good news takes a little while to get out there. So we responded to this situation very proactively, and I think we got out ahead of it as much as we could. But there were still doctors who had been tremendous providers -- I was back in New York a couple of weeks ago, and I met with one of our leading producers. And he said he just completely shut down just out of sheer fear over this whole thing and that he's just now -- I spoke with him again last night, and he's just now getting back into putting patients into Vivos CARE devices. So I think it's blown over, Scott. I would say we are starting to see some rebounds take place, but it was a body blow. There's just no getting around it. It was a body blow that we did not anticipate and could not have foreseen. But I do believe we've weathered the storm. We've made it very clear that this was an unrelated, non-Vivos device that uses a completely different mechanism of action to evoke the changes that it purports to do. And it was not an FDA-cleared device. There's no research that we could find out there about it. It's just some guy hacking these things out of the back of his car type thing. And we just try to distance ourselves as far as we could from it. So I feel good about the fact that it's behind us. There might be some residual doctors out there that we need to still sort of bring back on board. But I think for the most part, we're seeing most of these guys come back around.

Okay. And then I know you made some comments on growth in the second half of '23, but more specifically, Q3, do you expect sequential growth over Q2? I mean Q2 is kind of a lower base. Just want to get a sense if you expect improvement over that number.

We do. We do. Another great question. And I believe in my last earnings call, you'll recall that I said, look, I think Q2 is probably not going to be anything to write home about. It's probably going to be relatively flat. We ended up being down a little bit because of this AGGA debacle. But I think we're seeing some nice things happening here in Q3. I think we can probably expect a much better report in Q3 than we have here in Q2. But I will say that the second half of the year is gaining momentum, and most of the gains are going to be towards the latter part of the year as we move into 2024. This is going to be due to the revenue ramp that we see coming out of this company that we talked about. And so we will be keeping everybody apprised of how that goes.

Okay. And then on the spending side, when we look at the 2Q numbers, do you expect cost cutting beyond there? Or should we think about 2Q as our base?

We're continuing to cut costs. We've implemented some pay cuts. We've implemented some further reductions in staff. We just -- we're continuing to watch this, and we're trying not to cut into the bone of sales. One of the things that I mentioned earlier in this call was that we think some of the loss of revenue was due to some of the cuts we made of our boots on the ground practice advisors. In retrospect, I think we did the right thing. I think we -- the overhead that was associated with having those people on board was just not consistent with what -- it just was unsustainable. But when we did do the staff reductions there, it did have an impact on sales to some degree. So I think we've -- basically, everybody's adjusted to the new reality now, and I think we're going forward. But I think with the routine sort of every day, sort of the automatic feed of patients from the DME distribution companies, I think we're going to see a much more steady and predictable flow of patients, and I think that's going to be good for everyone.

Okay. Great. Final question from me. In 2Q, the revenue per VIP sign-up was down a bit from Q1. What do you think is more reflective going forward: Q1 or Q2? Or is it somewhere in between?

Q2 had such an anomaly in it. It's hard to predict right now. I could do a better job of answering that for you -- unless Brad has some color to add, I could do a better job of answering that for you in -- when we get another quarter without this anomaly of this market situation with the AGGA. Do you have any color to add to that, Brad?

Yes. I mean we did lower the entrance prices for certain VIPs doing just pediatric or just doing MAD devices and so forth. So that has the impact of lowering the average sales price...

I think he was asking -- correct me if I'm wrong, Scott, but I think you asked about the productivity per VIP. Is that right?

No, I was talking about the revenue per VIP sign-up.

Oh, okay. Okay. I misunderstood.

If I take that VIP number, divide it by 43...

Yes. So we -- one of the things that we learned -- we have regular interactions with our VIP community, and one of the things we learned is that we were presenting a very binary product offering to the world. And it was either you sign up and you pay relatively high entry fee to play, or we don't really have an option for you. And so we created -- strategically, we created a number of lower entry point -- lower price entry points. So if somebody wanted to just do pediatric Guided Growth and Development appliances, there is an entry point that's $7,000 or $8,000. If somebody wanted to do a -- our midline series of mandibular advancement devices, which we call our Lifeline products, they could do that for the same. So there's different entry points at a fraction of the cost of what we had before, but they don't get access to our CARE devices. So if somebody wants to come in and get access to the full thing, it requires more training. And that means more of a burden on support and systems and training and everything else. So we -- you will see that number continue to decline. We hope to see the actual number, as we go into the second half of this year, the actual number of enrollees accelerate or increase because theoretically, more doctors should come on board at lower price points. And then if they want to expand the scope of what they're able to do, they can always sign up for more programs internally with us. And they can go from Guided Growth to our Lifeline program to our full CARE device program and become a full-fledged VIP. But right now, what we've tried to do is give doctors a chance to put their toe in the water, test drive some of our products and appliances and our systems and our support. And then once they get hooked, then we can bring them on to the full measure of what they want to do. It's really -- it breaks down like this. It breaks down, do you want to do preventive things with the pediatric Guided Growth and Development? That's a preventive type product. Do you want to manage this disease state? Which is our Lifeline products, which are the Vida, the Versa, the Vida Sleep. Those are our Lifeline products that we mentioned earlier. And then do you want to -- or do you want to rehabilitate this condition in your patients? And that's what we call our CARE line of -- that's the mRNA, DNA, mmRNA. That's the full measure of the more complex appliances, the more expensive appliances. And it's really now up to a doctor to say, "Okay. This is how I want to play the game. I want to get trained to do this, and then I'll maybe later do that," or, "Maybe I'll go all in." Now they have a choice. Before, we didn't give them a choice. But now that we have a broader spectrum of products, it makes it a much easier entry point and much easier way for these guys to get started.

There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

Thank you, operator. We're grateful for the opportunity to be where we are. We wish that things had gone a little bit better for us in the second quarter. We wish that, that situation that happened with the AGGA device had never happened. But it did, and we are where we are. But regardless of all that, the future that we see around here with our new relationships and the new opportunities that are before us seems very bright. We are not that far away from cash flow breakeven. We need about 2,500 new units a month, and we -- from our distribution effort with this DME company, which for them, it doesn't seem like it's a big lift. And we're currently, as we mentioned, in discussions for an exclusive relationship there. We hope to have further information and be able to report on that as it goes. But we feel very, very confident and very bright about the future. We know we're going to have to go raise some money. We wish we didn't have to do that. We tried very hard not to have to do that, but here we are. So we're leaning into the wind, and we're headed forward and we're going to make this work. So we appreciate everybody's patience and hanging in there with us, and we'll just -- we'll leave it at that. Thank you, everyone, for being here today and listening to us, and we'll turn it back over to the operator.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.