Kirk Huntsman - Chairman, Chief Executive Officer Brad Amman - Chief Financial Officer Julie Gannon - Investor Relations Officer

Good day, everyone and welcome to the Vivos Therapeutics Incorporated First Quarter 2022 Earnings Call. At this time all participants are in a 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 Vivos’ 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.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 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 in other disclosures contained in Vivos filings with the Securities and Exchange Commission, including the risk factors and other discloses 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 Vivos website, as well as the SECs website. Except to the extent required by law, Vivos assumes no obligation to update statements as circumstances change. Finally the FDA 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 are performed off label at the soul 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, CEO of Vivos. Kirk, please go ahead.

Thank you, Julie. 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 Amman to quickly run through our first quarter financial numbers, so we can get that out of the way and leave times 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 VIP’s and recognized revenue of approximately $1.2 million compared to 53 VIP enrolments 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 and 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…

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 have 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 start to 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…

Thank you. [Operator Instructions]. We’ll take our first question from Alex Nowak with Craig-Hallum Capital Group. Please go ahead.

Great! Good afternoon everyone. Kirk, thanks for the discussion there, that was extremely helpful. You know, I think when you put all the comments here together, you put together the DSO’s, you put together SleepImage 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 altogether, 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 how to think about how we can grow versus 2021, putting everything together?

Great question. So Alex, I think you 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 thing, 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. Now, you also will recall, we changed our model with the SleepImage 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’re trying to figure it all out. And we’ve flipped it now to a profit center for us. So, as we move forward, we will 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 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 – there’s a little bit of a ramp to get a DSO to sign a contract and get on board. These are somewhat large bureaucracies that have, some of these DSOs are multibillion-dollar companies now. So, 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 about how does this look going forward, I would expect to see…

That’s perfect Kirk, thank you. And you know for that DSO that you mentioned with the economics that you provided, obviously very compelling. I could see how they will 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 its 50 centers that would be online with the first, just to think about the ramp?

It’s a great question. You know 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 are trying to unwind from or complete. We had one DSO tell us they’ve got close to 1,000 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, the biggest outlier so far. But they are interested, they are excited about it, they see the potential, and so I would say to you Alex, I would say, 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 more just easier for them to sign up, so.

Okay, that’s perfect. And then just last question here. You made some very good points about the clinical efficacy of Vivos, including Terry’s story in the prepared remarks. This is a kind of multipart question here, but when you speak to dentists, when you speak to sleep doctors that don’t know of 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 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, they’ve 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 prospects of getting that data published and getting it out there, so that people can see it. You know but it’s really, for most of these dentists, the issue for them has been a sense 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 lost a lot of their staff, they’ve been trying to hire new staff, you know in some respects, unsuccessfully. When they lost their staff, their whole world turned upside down, because you know there’s a whole – 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 problem that, 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 are starting to get their mojo back again, and they are starting to become more productive and more efficient. That’s going to open the door for more Vivos production. They’re also, 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…

That’s great. Well, I appreciate the update. Thank you.

You bet. Thank you, Alex!

[Operator Instructions] We’ll take our next question from Scott Henry with ROTH Capital.

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 in the third and fourth quarter of last year? Just trying to get a sense about 2Q specifically.

Yes, I think we’re going to see, we try to avoid giving too much guidance, because there’s still a lot of variables, we’re trying to 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 you know we’re always balancing the activities of our teams and the ROI’s. 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 and we’re always evaluating our capital options, whether its equity or debt, and we’re looking at a number of different proposals right now, but that’s kind of where we’re at. And 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 Dykema's 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 is there any issues on the supply side?

No. 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 MyoCorrect 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’ve 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.

Yes, I think you got most of it there. Just the final question I just had, I know you give a lot of percentages on the sleep ring and the diagnostics. 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 – 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 figured out how to get their patients tested. Now we’ve got to retrain them to how to get those cases 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, the challenge is to get those doctors and their staff to figure out how to close those cases. So. We are - I’m seeing the numbers here. March of 2022 was right around almost 600. April, about 100 less, it’s 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. Just, 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 you give us some idea of what level of revenue you think you need to get 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?

Yes, 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 high, different than they have been for us going directly to the independent dentists as well. So, that’s what we’re combating against as the cost associated with getting into the DSOs. We’ll know more about that 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 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’re very, we fell 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 participation. You may now disconnect.