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…

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…

[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…

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.