Good day, everyone, and welcome to the Vivos Therapeutics First Quarter 2023 Earnings Conference Call. [Operator Instructions] This conference call is being recorded. [Operator Instructions] 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 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 first 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, goals 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 savings plans and plans to generate revenue as well as future potential results of operations or operating metrics such as potential for 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, all of which are or will be 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 discretion -- the sole clinical discretion of the treating doctor and is 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 first 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 accomplished at Vivos during the first quarter, and in the past few weeks following the quarter end, including our acquisition of product rights and patents from Advanced Facialdontics. This has expanded our product portfolio even further, allowing Vivos-trained providers to treat a much larger percentage of their patients, which ultimately increases the revenue potential for Vivos. I'll also talk about our progress with the FDA as well as ongoing R&D efforts. In more recent news, I'll talk about some of the actions we took to improve our organizational infrastructure and highlight how we took steps to increase operational efficiencies, reduce expenses and position us to take advantage of the growth opportunities that are available to us. I'm pleased to say that due to these initiatives, we can reiterate that we remain on target to achieve our goal of positive cash flow for the first quarter of 2024, which is a full quarter earlier than the target we provided to you on our last earnings call in March. Our goal is to achieve this key target without having to raise any further equity capital, if possible. Following that, I'll talk about our plans going forward in 2023, how we intend to build upon what we've already done and what we have planned for the rest of the year as well as into 2024. 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 first quarter 2023 financial results. For information on our results for the 3-month period ended March 31, 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 the Vivos' website at vivos.com/investor-relations. At the outset, I want to say thank you for your patience as we switched auditors for the first quarter, which led to a delay in our 10-Q filing. I am pleased to report that our relationship with our new auditor, Moss Adams, is off to a very positive start, and we are looking for a smooth and productive relationship with them. Today, we report first quarter 2023 total revenue of $3.9 million compared to $3.6 million for the first quarter of 2022. The overall year-over-year increase was due to higher revenue from Vivos Integrated Provider, or VIP enrollments, as well as increased sleep testing service revenue and increase in conference and training related revenue. This was offset by lower revenue generated year-over-year from appliance sales, Billing Intelligence Service and Center revenue. Our VIP enrollments were up in the first quarter with 38 VIPs enrolled versus 32 enrolled in the same period last year. For the first quarter of 2023, we recognized VIP revenue of approximately $1.3 million, an increase of $400,000 or 42% in enrollment revenue compared to $900,000 for the first quarter of 2022. It should be noted that first quarter of 2022 VIP revenue was negatively affected by a $300,000 adjustment that rose from the prior year impact of our change in revenue recognition policy. We also saw an increase of approximately $200,000 in revenue recognized…

Thank you, Brad. The first quarter that we are reporting on here today may seem like a distant memory, but we believe it represents a significant watershed moment for the company and our future. First, in early January, we announced FDA 510(k) clearance for our flagship DNA oral appliance product. This represented the first time in history that the FDA recognized any mechanism of action in an oral appliance other than mandibular advancement for the treatment of mild-to-moderate obstructive sleep apnea. No oral appliance product has ever received such a clearance, and the significance of this breakthrough should not be underestimated. We fully believe that after several years of going back and forth with the FDA, they were finally persuaded by our submission of yet another round of compelling real-world data, this time showing a remarkable 80% of OSA patients seeing their symptoms completely resolved after treatment using the DNA appliance and The Vivos Method. Now to be clear, this data showed that clinical OSA, meaning AHI scores of 5 or higher, was no longer present in 4 out of 5 patients after treatment, and with no further intervention required. As far as we know, such clinical results are unprecedented in sleep medicine, and unparalleled by any other product or therapy. We expect the full financial impact of that regulatory clearance on our sales to be realized over time as doctors alter their treatment plans to include more DNA appliances. Second, on the heels of our announcement regarding the FDA clearance for the DNA appliance, we raised an equity tranche with net proceeds of roughly $7.4 million from a single institutional investor. We immediately put this capital to good use in expanding our intellectual property and product suite through the acquisition of certain patents, trademarks and trade secrets from Advanced…

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

I guess cash flow positive in the first quarter of '24 would be fantastic -- so if you can achieve that goal. So I just wanted to drill a little bit into the assumptions -- I know you expect flattish revenues in the first half of this year. But what sort of revenue run rate do you think would allow you to achieve that goal?

We believe that at $8 million run rate per quarter we can hit that goal, Scott.

Okay. That's helpful. And when I look at the expense items, obviously, sales and marketing was way down. And I know there was layoffs recently. I want to hone in, first, is that sales and marketing level of $600,000, is that what we should think about going forward? And second of all, that G&A of $6.5 million, I imagine that's where the bulk of the cuts are going to come to. What should we think about as a G&A once all the cuts and everything has taken effect?

Well, if you look at quarter-over-quarter, Scott, last year, we were at $8.3 million in the first quarter. We were at $6.5 million in G&A expenses in the first quarter of 2023. The marketing expenses stayed roughly flat. We were down about $100,000 quarter-over-quarter. As those take place, we believe, on the personnel cost, we're going to have $500,000 a quarter go against that G&A expense. So that's roughly what we will save in terms of salaries, wages, taxes and benefits.

Okay. That's helpful. Just a couple of other small questions. Arches were down in the quarter. And if you calculate arches per doc, they were down significantly. How should we think about that number? I mean, I know the business model is always changing and the accounting is changing as well. Just trying to get a sense of how we should think about that number as far as arches? How we should interpret the first quarter '23 results? And how we should think about that number going forward?

Well, first of all, I think there's a certain element of the macroeconomic economy other companies in the dental space have struggled with some of that and some of the results of that. So there's that that plays into it. There is a little bit of seasonality in Q1 that plays into it. But there was also an event that took place. It was a little bit unfortunate towards the middle to later part of Q1, where there was some market confusion over a product that made similar claims to some of our products out there in the marketplace. This product did not have FDA clearances, did not have research, did not have a lot of things behind it. It was a totally different type of product, but there was some market confusion over that. And frankly, a lot of our providers, until we were able to wrap our minds around that and really address that directly, they -- we just saw and we've seen a little bit of the softening in the sales of our arches from that standpoint. But that seems to have passed. Things have picked up again here, and we're optimistic that we weathered that storm a little bit there, and that, that contributed in -- especially in the latter part of the first quarter and into the second quarter. So we are seeing now whereas we drive demand through some of these distribution channels that we're talking about that have never been there before. We have new ways of helping doctors find patients to treat. And it appears to be significant revenue opportunities for the doctors and their new patients. And so we're very optimistic. So it's going to be a point where the old model where we just relied upon dentists to source their own cases through their own practices and to do that, we're taking the bull by the horns and we're driving patients to our very best providers. So we are actively pursuing the -- through our Treatment Navigator, our airway alliance and our distribution networks that we've talked about, we're actively working to drive patients into their offices. And that's a very different kind of a paradigm shift that we've forced into the marketplace. So as you go forward, I think we -- hopefully, we'll see those numbers pick back up as some of these other distribution channels kick in.

Okay. Great. Final question, Kirk. Brad set a pretty high bar for you of getting to $8 million a quarter. How do you expect -- what are the levers you're going to pull to get to there from here? How much do you get from the AFD acquisition? And is it the DMEs? Just in big picture terms, what are the levers you got to pull to get from here to there?

Thank you, Scott. I think that's a great question. And all I can say is that there is a huge challenge in the CPAP community and the CPAP world with patient compliance and with patients abandoning their treatment. And when patients abandon CPAP, which 90% of patients who get -- 90% of patients who are diagnosed with OSA get CPAP machines. In the first 90 days, 1/4 of them will stop using their CPAP, and eventually, about half are known to stop using their CPAP machines. So there is a huge, huge number of people. It's in the millions of people out there in the United States, Canada and around the world who have tried CPAP and are intolerant to it. They don't use it. They won't use it. They can't use it for a variety of reasons, some of them psychological, some of them physiological, some of them just preferential. They just hate having it. But what do those people do? Well, we've now unlocked the secret, if you will, to how to access those patients and what to do. We've established some really clear and very, I think, reasonable and market-based distribution agreements with people that know where those patients reside and who they are, and we're going to be going after them. And there's so much of that out there. It's really hard for us to say at this point how many of those patients will come in and convert into Vivos therapy. But we and our distributors are very optimistic that, that number will far exceed what we've been doing in the past, and we're very optimistic about it. So it's not inconceivable at all for us to hit those numbers or exceed those numbers as we go forward. Now whether that happens in the fourth quarter of this year or the first quarter of next year or the time frames that we've given is hard to say, but we're -- as we look at it, and we're in the trenches every day with these distributors that we're very optimistic about it, and we'll see what happens. I mean, as we've talked before, it's time for this company to put up. And so we're moving every resource we have to make this happen and to demonstrate that we can grow this company. So that's why we're optimistic. So, yes, this is a -- it's a high bar, but we're very optimistic about it right now, and that's our -- that's where we stand today.

Our next question comes from the line of Lucas Ward with Ascendiant Capital Markets.

Congratulations on meeting your business goals -- on getting closer to your goals. I'm also interested in the revenue aspect. I was wondering if you could quantify the impact sales through the DME and the DSO channel like near term or in a few quarters, just so we can understand like how big that really is?

Yes. So thank you for that. I think, on the last call, we've been talking about DSOs now for 1.5 years. And what we've learned, and we said in the very beginning that the opportunity with DSOs was huge. There's 40,000 dental offices across the United States that have corporate ownership in these organizations called DSOs. So the opportunity is huge. But these guys are also very cautious and there's -- it's a slow boil for that. And that's been exactly what's happened. The opportunity as we now get into where -- some of our pilot tests are maturing and feedback is percolating up to the C-suite in these DSOs, we expect to start to see more expansion of that. But it is still going to be a very cautious rollout and a slow boil. I expect that to be the case for another probably 12 months. At some point, we'll reach a tipping point with these guys where they will all collectively realize the opportunity that's before them in managing sleep, which is a multibillion dollar opportunity for these DSOs. The fact that we now have a product suite with simpler, easier, better price points for DSO type customers, patients, I think, makes it infinitely easier for us to crack that market. On the DSO front, then I would say expect it to be -- still continue to grow. We're still signing on new relationships. There are innovative new models, such I mentioned ToothPillow. I highlighted that because they're kind of an innovative direct-to-market type DSO or direct-to-consumer type DSO. And I would say that they will continue to contribute. And frankly, the -- if you talk to the guys at ToothPillow, their goals for what the number of children they expect to be able to address in the…

Okay. One more question. You guys have mentioned that the AFD acquisition fills out an important product gap for you guys in terms of having more economical solutions for providers. Could you give us an update on the sales traction of the AFD devices?

Yes. Yes, that's going to be an easy one. Those are not yet reflected in any of our financials or returns. We -- these products are a little bit technical. They're a very different kind of technology than what we have in our -- historically. So what we've had to do is create a whole new training program. And what we do know is that because these products have been used by the Advanced Facialdontics doctors, they've been used for years and years. And there's really several thousand patients that have benefited from the use of these products. So we have a very good grasp of what the products do, how efficacious they are, and now it's time for us to train our doctors, retrain them on certain aspects of how to use products like the pod and the sleep pod and other devices. But these products, they're simpler, they require less chair time than our traditional products do. They don't do all the things that our traditional products do, which is an important distinction. But from a doctor's standpoint, they can fill and meet a need -- they can fill a gap and meet a need at a very, very cost-effective way with minimal chair time and very high levels of patient satisfaction. So as we mentioned, before -- the product offering was a little bit binary in that -- a patient either agreed to an $8,000 to $10,000 treatment plan, or we really didn't have anything to offer. It was really the doctors, if they were going to take the case on, they were going to get paid well for it or they weren't going to do it. Now the doctor can say, "Well, Mrs. Jones, if you're not quite ready for this treatment, we've got several other…

Ladies and gentlemen, there are no further questions at this time. I'd like to turn the call back over to management for closing remarks.

Well, thank you, everyone, for being here today. We -- as you can probably tell, we feel like this is an exciting time in our history. We truly believe that someday we'll look back and see this particular time as a watershed moment in the history of this company. And we're excited about what the future holds in store. We appreciate all of your support and the patience you've had as we've gotten to this point. We look forward to sharing our continued progress with you in the future. So thank you very much, and have a great evening.

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