Vivos Therapeutics, Inc. (VVOS) Q2 and Q3 2022 Earnings Call Transcript
Vivos Therapeutics, Inc. (NASDAQ:VVOS) Q2 and Q3 2022 Earnings Conference Call December 20, 2022 5:00 PM ET
Julie Gannon – Chief of Staff and Investor Relations
Kirk Huntsman – Chairman and Chief Executive Officer
Brad Amman – Chief Financial Officer
Conference Call Participants
Scott Henry – ROTH Capital
Alexander Nowak – Craig-Hallum Capital Group
Good day, everyone and welcome to the Vivos Therapeutics Second and Third Quarter 2022 Earnings Conference Call. At this time 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 second and third 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 second and third quarter of 2022, as well as more recent developments and Vivos’ plans for 2023. 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 risk, 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, including cost savings plans and plans to generate revenue, future potential results of operations or operating metrics, 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 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, second and third quarter 2022 Form 10-Q, all of which are 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 these 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 are performed off label at the soul 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. Before we begin, I want to thank you all for joining us today and for your patience as we’ve worked through the revenue recognition review that delayed the filings of our second and third quarter financial results. Given the nature of that process, we were unfortunately limited in what we were able to say publicly, which was as frustrating for us as I’m sure it was for — were most of you. However, we can now report that the upshot of our ASC 606 review is that our prior and current results of operations have only minimally been impacted. No revenue was lost, and we will now be recognizing revenue, particularly VIP enrollment revenue over a slightly longer period of time. Additionally, we believe that our controls and procedures will be stronger for having gone through this process.
In a moment, I’ll turn the call over to our Chief Financial Officer, Brad Amman, who will spend some time talking a bit more about this and walking you through the highlights of our financial results for the second and third quarters. After that, my goal today is to tell you about some of the exciting things that are happening at Vivos and to discuss the steps we’ve been taking in order to ensure our company’s continuing development, and most of all, to give everyone on today’s call some more insight as to why we’re so optimistic about our future. Then we’ll be happy to take your questions. When we’re finished, I hope you’ll all leave today’s call with a better sense of why we believe Vivos is succeeding far beyond what is currently being recognized by our valuation in the capital markets and why this company has a very bright future with the potential to lead the market for sleep apnea treatment.
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 and third quarter 2022 financial results. For information on our results for the six months ended June 30th, 2022 and nine months ended September 30th, 2022, I’ll refer you to our earnings release which was distributed earlier today and our 10-Q reports, which will be available on the SEC filings portion of the investor relations section of the Vivos website at vivos.com/investor-relations.
Today, we reported second quarter 2022 total revenue of $4.2 million compared to $4.5 million for the second quarter of 2021. This year-over-year decrease was due to lower revenue from VIP enrollments related to the lingering effects of COVID-19 variant resurgences as well as typical second quarter seasonality in the dental industry, which was offset to a considerable degree by increased appliance revenue we generated during the quarter.
During the second quarter of 2022, we enrolled 58 VIPs and recognized revenue of approximately $1.2 million compared to 73 VIP enrollments for revenue of $2.4 million during the same period last year. Year-over-year enrollments were impacted by COVID-19 variant resurgences that began toward the end of 2021. These resurgences presented challenges for dentists’ offices, which were operating at lower capacity and with limited staff with these hurdles persisting throughout the second quarter of 2022. We began to see this impact subside during the month of June.
Also, as it relates to the ASC Topic 606 revenue recognition protocols, we reevaluated our existing revenue recognition policy for VIP enrollments, and along with our independent audit committee, determined that our existing revenue recognition policy was not consistent with the guidance in ASC 606. After analyzing our VIP contracts using the five-step process of ASC 606, we determined that for VIP enrollment contracts, we were required to separately identify the performance obligations and recognize the revenue as the performance obligations are satisfied or over the customer life as applicable. We now evaluate each contract separately for applicable factors in meeting the definition of a contract under ASC Topic 606.
As Kirk mentioned, however, it is very important to note that the actual impact on our company and our results of operations, both past and going forward, is relatively limited, including that no prior audited financial statements required a restatement.
During the second quarter of 2022, appliance revenue rose 28% due to the price and volume increases as Vivos sold 3,321 total oral appliance arches for a total of approximately $2.1 million compared to 3,082 oral appliance arches during the second quarter of 2021 for a total of approximately $1.6 million. And for the second quarter of 2022, we had approximately $200,000 incentive revenue compared to $100,000 for the second quarter of last year and approximately $200,000 in our orofacial myofunctional therapy revenue compared to virtually none in the prior year due to the introduction of those orofacial myofunctional therapy services late in the first quarter of 2021.
Gross revenue was $2.6 million for the second quarter of 2022 compared to gross profit of approximately $3.6 million for the comparable period in 2021. Gross margin for the second quarter of 2022 was 62% compared to 81% during last year’s second quarter, primarily driven by higher costs associated with appliances due to increase in cost of raw materials and VIP enrollments from new incentives deployed to increase VIP enrollments.
As we mentioned on prior earnings calls, we continue to refine our sales, marketing and promotional efforts with potential VIPs not only to increase revenue, but to improve our gross profit and margins. This includes our expanded social media and digital marketing efforts that Kirk will talk about in more detail later on.
Sales and marketing expense was $1.7 million for the second quarter of 2022 compared to $1.4 million for the second quarter of 2021. The increase was primarily due to new marketing campaigns, updating marketing materials for investors and consumers and enhancements to the Vivos website, offset by a decrease in sales commissions related to lower VIP enrollments.
General and administrative expenses were approximately $7.7 million for the second quarter of 2022 compared to $6.1 million for the three months ended June 30, 2021. The year-over-year increase was mainly due to higher headcount and expenses associated with being a public company as well as increased travel and event expenses related to improving conditions with respect to COVID-19.
Net loss was approximately $7 million for the second quarter of 2022 compared to approximately $4 million for the second quarter 2021. The year-over-year increase was primarily from higher G&A and sales and marketing expense due to the factors I just discussed.
Turning to our third quarter results, we reported total revenue of 4.4 — $4.2 million compared to $4.5 million for the third quarter of 2021. The year-over-year decrease was due to lower revenue from VIP enrollments as well as lower management revenue from the MID clinics, Medical Integration Division clinics, which were offset by increased appliance revenue that we discussed earlier — that we recognized earlier in the quarter.
During the third quarter of 2022, we enrolled 56 VIPs and recognized revenue of approximately $1.6 million compared to 56 VIP enrollments for revenue of approximately $2.3 million during the same period last year. Note that the difference in revenue with the same number of VIPs enrolled is attributable to our new revenue recognition policy, which has the net effect of pushing some VIP enrollment revenue out over a somewhat larger and longer period of time. Year-over-year enrollments were impacted by COVID-19 variant resurgences I mentioned earlier, as well as the change in our revenue recognition methodology that we adopted during 2022.
During the third quarter of 2022, appliance revenue rose 20% due to volume increases as Vivos sold 3,057 total oral appliance arches for a total of approximately $1.9 million compared to 2,996 appliance arches during the third quarter of 2021 for a total of approximately $1.6 million. And for the third quarter of 2022, we had approximately $100,000 incentive revenue, consistent with what we reported in the third quarter of last year, and approximately 400 in our orofacial myofunctional therapy revenue compared to $200,000 in the third quarter of 2021 as those services were introduced during the first quarter of 2021.
Gross profit was $2.5 million for the third quarter of 2022 compared to gross profit of $3.2 million for the comparable period in 2021. Gross margin was 59% for the third quarter of 2022 compared to 70% during last year’s third quarter, reflecting higher costs associated with appliances and VIP enrollments and a longer period over which we are recognizing enrollment revenue.
Sales and marketing expense decreased by $900,000 to $1.1 million for the third quarter of 2022 compared to $2 million for the third quarter of 2021. This decrease is due to approximately $600,000 reduction in digital campaigns and approximately $700,000 decrease in materials and product samples, offset somewhat by expenses related to improving the Vivos website, increased sales commissions and additional print media marketing and marketing supplies.
General and administrative expenses were approximately $6.6 million for the third quarter of 2022 compared to $6.5 million for the third quarter of 2021. The slight year-over-year increase was mainly due to the growth of the company, combined with higher headcount and expenses associated with being a public company, as well as increased travel and event expenses related to improving conditions with respect to COVID-19. Net loss was approximately $5.4 million for the third quarter of 2022, relatively flat compared to the third quarter of 2021. The year-over-year flatness was due to the factors I just discussed.
Now turning to our balance sheet and statement of cash flows. Cash burn from operations for the nine months ended September 30, 2022 increased approximately $5 million over the nine months ended September 30, 2021. This increase is due primarily to the increase in our net loss during the period, an increase of approximately $900,000 in accounts payable and accrued expenses from consulting, legal and third-party lab fees associated with the increased production of our Vivos appliances, an increase of approximately $0.5 million in prepaid expenses, offset by a decrease of approximately $200,000 in accounts receivable and the return of about $0.5 million in a tenant improvement allowance related to the buildout of our Vivos Institute training facility here in Denver.
For the nine months ended September 30, 2022, net cash used in investing activities consisted of capital expenditures for software of about $700,000 related to the development of software for internal use, which is expected to be placed in service in 2023.
As of September 30, 2022, the company had approximately $6.7 million of cash and cash equivalents, which may not be sufficient to fund the operations and strategic objectives of the company over the next 12 months. Accordingly, the company has been exploring options for suitable additional financing that will replenish our capital resources and help drive our business in 2023. With additional financing as well as additional cost savings measures we have implemented during the second half of 2022 to address our cash burn, we continue to anticipate having sufficient financial resources to meet our capital requirements, fund operations and continue executing on our growth strategy.
Further, as a result of cost savings initiatives, we expect to achieve permanent SG&A expense reductions on a go-forward basis. Additionally, we work to increase our revenues, which Kirk will speak to in more detail momentarily. We also continue to explore different types of financing strategies to support growth and extend our cash runway, including other debt financings given our recent stock price performance.
In summary, we are encouraged by recent momentum we’ve seen in our business that Kirk will talk about shortly as well as increased contribution from newer revenue streams such as our strategic collaboration with Nexus.
That concludes the financial overview. Now, I’ll turn the call back over to Kirk to share some recent updates and talk about long-term growth prospects.
Thank you, Brad. Today marks the end of a long and arduous journey over the past six months. As almost all of you know and are keenly aware, the net result of our recently completed revenue recognition review was essentially a first quarter revenue adjustment of less than $200,000 in our favor. That’s it. No restatement of prior years, no findings of managerial misconduct, no revelations of wrongdoing. Just a minor revenue adjustment and a new formula for pushing the recognition of a portion of revenue further out into the future.
So, let me be clear about this without going into all the details. In order to satisfy certain highly technical provisions of an accounting standard that even the experts themselves couldn’t always agree upon and which require management to make certain highly subjective estimates, in the end, we spent six long months and significant financial and time resources only to end up pretty much where we began.
While we are grateful that the outcome was a relatively minor adjustment and that our policies and procedures were improved, which will serve us well going forward, it is cold comfort viewed against the time, resources and capital markets credibility, which we lost along the way. Having said all that, this long and arduous process is now behind us. We do not expect to have any further issues related to this topic. So if nothing else, that is cause for celebration.
Now let me briefly review why we believe our core proprietary technology and services platform will continue to disrupt and eventually dominate the global market for breathing and sleep disorders such as obstructive sleep apnea, or OSA. There is broad acceptance of the ultimate potential to address OSA globally. Conservative estimates place in the market at over 1 billion OSA sufferers worldwide or about one out of every eight people. Ironically, as diagnostic technologies improve and become more ubiquitous, those estimates continue to rise. In our own rather extensive sleep testing here in the U.S. and Canada, we see nearly one out of two of all patients testing positive for the condition.
Today, an estimated 90% of OSA patients are prescribed CPAP as the medical gold standard treatment. When used, it can work well, but no one wants to use it every night for the rest of their lives. And most patients eventually stop using it after several months. For patients who are CPAP intolerant or non-compliant, the next step options are even more limited and less appealing. So, there can be no doubt that for whoever puts forward a clinically effective product or treatment solution at an attractive price point that patients actually want, the payday could be substantial.
In short, we have that very thing here today at Vivos. Our products and services meet all the key criteria. They work. They are cost effective. And when patients are given all the options, we find they are preferred over alternative treatments.
In the past, we haven’t been able to prove that to the satisfaction of some. But just this year, we’ve moved beyond small or limited studies published in low impact journals to larger studies in top tier medical journals such as sleep medicine where statistically significant results were achieved.
In the past year, Vivos also presented original research on our flagship CARE, C A R E, oral appliance devices at the top three academic sleep medicine meetings in the world, the World Sleep Congress by the World Sleep Society, SLEEP 2022 by the American Academy of Sleep Medicine and SLEEP Europe 2022 by the European Sleep Research Society as well as at the Greater New York Dental Meeting. At these conferences, Vivos presented two database reviews, demonstrating significant benefits of care device used in treating adult OSA. And regarding use in the management of pediatric OSA and promoting healthy nasal breathing in children. We also presented some of our latest data regarding the use of our CARE devices in the treatment of adult headaches.
Seven additional papers with similarly supporting data showing statistically significant results have either been published or submitted and are pending publication in other peer reviewed journals. Vivos created and has begun enrollment in an academic integrated provider program, providing access to academic researchers to study Vivos’ proprietary products in an open source format. Vivos has also continued its aggressive pursuit of clinical trials, and several potential teams and sites have been identified and are in the planning phases.
One noteworthy and very practical application that has come about through our research and ongoing development has been the introduction of a key diagnostic technology called rhinomanometry. You may recall that Vivos is the exclusive dental market distributor in the United States and Canada for the only FDA cleared rhinomanometer available. So we have highly differentiated products and technologies that actually work and have been working for over a decade in over 31,000 patients.
We have broad out-of-network insurance coverage for medical payers as well. What we haven’t had is a therapeutic product line that could address the needs of patients at lower price points. To address that need, we recently announced several exciting new additions to our product line and services to allow far more patients to receive treatment through our provider network. These new products allow us entry into several new product and equipment categories where we’ve never before had a presence. We now have a broader range of price point offerings that are being rolled out that significantly decreases the friction per patient and makes it easier for dentists to get patients into the Vivos ecosystem and that stimulates our growth.
With product lines now ranging from diagnostics to CPAP, to mandibular advancement and treatment with all the devices and the Vivos Method, we now have a product and path for treatment for the vast majority of patients.
We often hear the question, if Vivos treatment is so great, why haven’t many more dentists integrated Vivos into their practice? That’s a great question. We often ask ourselves the same. So, it’s important to note that our Vivos integrated practice or VIP enrollment efforts to date have been focused on attracting only the very best dentists available, those who had the clinical confidence and success to adopt and integrate something like Vivos into their practice. They are typically the ones who get the overall picture of what this can mean for their practice and their patients and who see the value in our initial training and enrollment fees that can be as high as $50,000.
Now that we’ve established a broad core network of over 1,650 Vivos trained dentists across North America, we can now begin bringing in more dentists at lower introductory prices for limited programs that will attract many more doctors and allow them to test the waters with our company and our products. As a direct result of creating many more lower cost points of entry, in 2023 we expect to see more dentists than ever before becoming customers of Vivos and purchasing products and services.
Keep in mind also that Vivos is still relatively new to dentistry. We are roughly where aligned technology was in their early days as they rolled out Invisalign. And recall that their stock likewise dropped nearly 90% from their IPO price before rebounding and eventually peaking out at over $600 a share.
Adoption of any new medical technology takes time and perseverance. Inspire Medical was first spun out of Medtronic back in 2007. And while both companies currently enjoy much greater valuations than we have, we believe our overall market opportunity, our products and our technology are superior and will ultimately prevail in the market. Keep in mind that important growth pivots for each of these companies came when they began driving patients who are asking specifically for their products to train providers.
We are continuing to get our name out so that more and more patients specifically ask for our products. In that regard, we recently successfully piloted and rolled out a new program called Treatment Navigator, which is already showing great promise. This program supports dental offices and provides each new patient and advocate who assist them in navigating the many different steps involved in the patient journey, coordinating medical and dental diagnostic appointments, insurance pre-authorizations, furthering education and treatment planning and generally coaching the patients through treatment.
The Treatment Navigator’s role is effectively to act as an extension of the VIP practice, taking a significant load off the provider’s team. Under the guidance of the appropriate health care professional, Treatment Navigators assist and motivate patients to obtain the right treatment for them. Treatment Navigators also leverage the power of our Vivos AireO2 EHR, which is electronic health record software platform, to facilitate communication and collaboration amongst providers to file medical and dental insurance claims and to record patient progress throughout.
You may recall that our Vivos AireO2 EHR software program is the only full-featured medical dental practice management system on the market today, configured specifically to accommodate the treatment of breathing and sleep disorders.
Doctors pay additional fees to Vivos for our Treatment Navigator service. Over the course of 2023, we expect to see this program evolve into a significant revenue and profit source for the company. Currently, we have taken over 70 applications from VIPs to join this program, and we are systematically rolling this program out across the country.
Our initial results from our Treatment Navigator pilot tests demonstrate that we can deliver a valuable service to our VIP offices, solving one of their primary issues of staff shortages and turnover. Now all they have to do is screen patients coming through their hygiene departments and then allow the Treatment Navigator to manage the logistics and get the patient ready for treatment. In addition, our Treatment Navigators assist patients who come through our social media website or other marketing campaigns to find answers and get into the Vivos ecosystem.
Now I’d like to turn some attention to our Q2 and Q3 results, starting with our two key metrics of VIP enrollments and plans to [indiscernible]. During the second and third quarters of 2022, macroeconomic factors, including heightened inflation and rising interest rates, continued to put pressure on our business and the practices we serve. These factors, along with the lingering impacts of COVID, led to dentist delaying enrollment with Vivos and fewer patients going through the doors of our VIP offices. This impact has not been limited to Vivos. It’s been felt throughout the dental industry.
Other companies in the dental industry have experienced similar challenges due to the economic environment. For example, Align Technology experienced a significant decrease in their aligner revenue by 8% quarter-over-quarter during Q3 and down 13% over the previous year. Here at Vivos, we saw our appliance sales peak at an all-time record in June, only to fall back somewhat in Q3.
Despite these headwinds, we are not satisfied with maintaining relatively flat performance here in 2022 and have taken significant steps to get us back on the path to growth. To that end, we have reorganized and downsized staffing at all levels. We have made cuts or renegotiate relationships with vendors. And whenever possible, we have turned expense line items into new revenue streams. I will discuss these efforts in greater detail here in a moment.
Digging deeper into our performance beyond the income statement, there are several noteworthy achievements. In terms of new provider enrollments, we enrolled 58 and 56 new providers in Q2 and Q3, respectively. And while that’s down 12% year-over-year due to the reasons I just mentioned, enrollments in the second quarter increased by 81% over the first quarter. Also, while the total enrollments were relatively flat in Q3, we have increased our sales conversion rate and expect to keep improving upon this trend. One factor in our improved closing rate is a new 0 interest financing program for new VIPs. The cost now for a qualified dentist to become a Vivos integrated provider or VIP is now as low as $750 a month.
Moreover, pre-registrations for the next year in January, February and March for our sleep medicine revolution events are nearly sold out. Having such events fully booked out that far is unprecedented for us and something we see as a favorable trend.
Let’s move on for a moment now to home sleep test and case starts, which are both key performance metrics. The VivoScore home sleep test we offer to our VIPs from SleepImage are a core advantage because they offer an easy and affordable way for patients to obtain a clinically accurate and diagnostic quality assessment of their breathing and sleep. VivoScore home sleep test for Q2 and Q3 of 2022 were two times the rate of the same period in — the same periods in 2021. This means that thousands of patients a month are discovering that they have some form of OSA, and we’ll need to figure out what to do about it.
Our primary test now is to find ways to assist our VIPs to get those patients into meaningful dialogues about their condition and ultimately close more cases and get more of those patients in the treatment. That is precisely why we put together our Treatment Navigator program.
MyoCorrect enrollments for Q2 and Q3 were up two and a half times over the same period last year. The strong growth in this program not only provides a consistent and growing revenue stream for the company, but it also helps patients have a better overall experience with treatment. Overall, new appliance start — new appliance case starts are down slightly from the prior year. To date, our VIPs have treated over 31,000 patients with the Vivos Method.
Vivos continues to make excellent progress in the dental service organization, or DSO channel, with active pilots in three DSO organizations, which represent over 457 practices under management. Pilot programs are starting with four additional DSOs, representing an opportunity of another 519 locations. We are in advanced contract discussions with an additional 17 DSOs, representing another 5,500 locations. That’s 24 distinct DSOs and almost 7,000 practices.
Now as many of you know, I was the founder of one of the very first DSOs and helped to pioneer the DSO model of providing business and clinical support to independent dentists. Over this past summer, I was privileged to speak at one of the largest DSO conferences this year where I shared why Vivos is a significant opportunity to the DSO community. Because the DSO market is so important, I’m going to highlight this again, also sharing the positive impact to Vivos.
First, the DSO corporate model is to acquire practices, increase EBITDA and sell at a higher multiple. Second, sleep dentistry is the biggest opportunity to increase EBITDA since aligners and implants. Third, a typical DSO practice that screens just two patients per day, four days a week would test 32 patients a month. Half of those will test positive, and half of the positive group should start treatment, yielding top line revenue of just under $1 million per practice.
Now to understand the impact of this, you should know that the field of dentistry has largely become a commodity market with little remaining opportunity for new revenue or margin growth. That being the case, nowhere else in all of dentistry is there an opportunity to grow that even comes close to what Vivos is offering.
Point number four, estimated net EBITDA margins of 30% to the DSO per practice would net the practice $300,000 annually. Since DSO multiples are typically about 10x of EBITDA, this one practice could translate to a $3 million increase in the overall DSO valuation. Now for a relatively small 35-location DSO, the integration of Vivos into their workflow could add $100 million to their firm valuation.
Point number five. Now let’s look at the impact to Vivos. Each DSO practice that performs to the above metrics would generate about $192,000 in annual revenue for this company. Point number six. A moment ago, I mentioned the three DSO practices that we were in pilot test with today and that they represent 897 total practices under management. If just 20% of those practices became Vivos’ providers, it would add approximately $34 million of Vivos — annual revenue to Vivos. We see no reason why that number would be limited to 20%. And given the compelling economics outlined above, we expect much greater penetration over time.
What is becoming very clear from our pilot test is that the opportunity for Vivos with respect to DSOs is everything we expected and perhaps even more. When coupled with our Treatment Navigator program, the ROI for both DSOs and Vivos is unparalleled.
Now on the regulatory front, earlier this year Vivos was cleared through the Canadian Ministry of Health and Health Canada to sell devices in Canada with even broader specifications. And as our research and clinical data becomes more widely accepted, more regulatory doors are opening for us.
In the second quarter of 2022, Therapeutic Goods Administration, or TGA, in Australia issued clearances for our devices to treat adults and children for all indications inclusive of OSA regardless of severity. For those of you not familiar with the TGA, it is Australia’s equivalent to the U.S. Food and Drug Administration. This is a significant development for us. Not only does this pave the way in many international markets, but this also provides further validation of our technology. We continue to move forward seeking clearance here in the U.S. as well as international regulatory agencies. We are optimistic that our clinical data will continue to be well received and that the necessary regulatory approvals going forward will not be a variant.
Speaking of international markets, we are in late-stage negotiations to take our technology into Dubai and the Middle East and are in the early stages of going into India and Southeast Asia. Our penetration into the Australian market is also going well now that we have full regulatory approval. We note that these opportunities have come to us by way of dentists and others who have come to the U.S. for training at our institute and have now desire to take this life-changing technology back to their home countries and regions.
So there, you have just a glimpse of why we believe the future of Vivos has never been brighter. From the latest research that continues to elevate and substantiate our technology, to our revised and streamlined new business model and product lines, which will accelerate our scale up to new and exciting regulatory approvals in worldwide markets, we continue to make strides and progress.
Now, obviously, we will need additional capital to achieve those objectives and realize the potential I’ve just outlined. Along the same lines, our primary focus throughout this year has been to ensure we position ourselves to achieve positive cash flow as soon as possible. To accomplish this, we have taken a series of steps to streamline expenses while also creating new revenue opportunities. Our internal structures and process — processes have been significantly revamped with a focus on near-term ROI.
On the cost cutting front, we disassembled the company and reorganized in new ways that we believe will be more efficient and cost effective going forward. Vendor relationships have been reassessed and/or renegotiated. What were once expense line items have now been turned into revenue opportunities wherever possible?
The net effect of all these efforts has been a reduction approaching $1 million per month and our cash burn from its peak in the first quarter to where we are today. Also, we expect to see the impact of our new revenue streams gradually take shape throughout 2023 and contribute significantly to our profitability. As previously mentioned, our goal is to achieve cash flow breakeven in the next 12 to 18 months. Meanwhile, we are doing everything we know how to be great stewards of the capital we have available. And as Brad mentioned, we have been exploring additional financing options. We believe we have a good solution available, and we hope to announce something in the near future.
Another important result of the reorganizing of our business from the ground up has been a general simplification in what we do and how we do it. Our training is more streamlined and intently focused on the essentials, so that ramp-up times for new providers are as brief as possible. Our messaging to the world at large is crisper and clearer. Patients in search of real solutions are finding us and being directed into Vivos trained practices.
Over the past several months, we have been aggressively pursuing additional capital financing options. And as I said, we hope to have something to announce on that front very soon. The company has been actively exploring options for suitable additional financing that will replenish our capital resources and help drive our business plan forward in 2023.
In prior earnings calls, we highlighted our strategic pivot towards direct-to-consumer marketing efforts that began in the latter part of 2021. Today, I am pleased to announce that we’re working in close collaboration with our marketing partners. We have successfully piloted a marketing initiative to drive more new patients into Vivos training provider practices and to generate more case starts. This program has exceeded our forecast and is consistently delivering between 30 and 50 qualified new sleep apnea patients per month into each participating office.
To put that into perspective, that number of total new patients would be above average for a typical general dental office. We are beginning to roll this new consumer marketing program out to our entire VIP provider network. From a company standpoint, we could see a significant financial impact across the board with almost no incremental investment.
Also along the direct-to-consumer front, we are announcing the formation of an independent firm called [indiscernible] that seeks to leverage social media influencers to generate awareness of the many benefits from the use of our highly effective Vivos guides in guiding the craniofacial growth and development of pediatric patients. Their stated goal is to put 25,000 children into treatment using Vivos products. This company is led by some of our most prolific and supportive Vivos doctors and former company executives who have witnessed firsthand over several years just how impactful and life-changing our products can be. Vivos is the exclusive supplier of products to [indiscernible].
Finally, more of our VIPs should begin to receive greater reimbursements going forward because more patients will now be eligible to have coverage for their Vivos treatment. This is due in part to a strategic alliance Vivos recently entered into with a company called Nexus Dental Systems to create what is expected to be one of the most comprehensive medical billing services in the dental industry. This collaboration is expected to provide both companies’ provider networks with greater access to both in or out-of-network billing with all major medical insurance companies, facilitating case acceptances, insurance billing procedures and reimbursement. Again, this creates additional important revenue stream for Vivos. We believe that these combined efforts will create additional awareness with dentists, improve VIP enrollments, case starts and revenue.
In closing, we believe our future at Vivos remains bright for the reasons I just outlined above. We continue to grow despite a challenging environment. We have a number of initiatives underway to drive additional revenue growth, increase VIP enrollment, expand our offerings and open up new revenue streams for Vivos, including our recent collaboration with Nexus. At the same time, we are conscious of costs and have taken the necessary steps to generate permanent cost savings while shortening our path to cash flow profitability. We intend to stay the course and look forward to updating you on our progress. Again, we want to thank our shareholders for their patience as we work through our recent rev rec challenges. This is now behind us with a positive outcome, and our eyes are squarely focused on the future.
And with that, we can begin our Q&A session. Operator, please go ahead.
Thank you. And this time, we will be conducting a question-and-answer session. [Operator Instructions]
And our first question comes from the line of Scott Henry with ROTH Capital. Please proceed with your question.
Thank you and good afternoon. Obviously, I’ll go through the 10-Q, so I’ll keep my questions relatively general. Second and third quarter revenues looked about in the $4 million range, which imply annual rate of about $16 million. I guess the first question is, what do you think you would expect for an organic growth rate when you think about Q4 of this year and the first half of next year? How do you expect that growth — what kind of range should we be thinking about?
Well, hello, Scott, thank you for the question. I would say that what we have seen throughout this year has been — as we mentioned earlier in the year, there were some headwinds associated with what we were doing. It seems to have lightened up. We seem to see sort of a rebounding effect going on here in the fourth quarter and we hope to see that extend into next year.
I would say that the impact of the staffing issues that occurred during COVID continue to plague dental offices. And we think that with our Treatment Navigator program that we’ll be able to mitigate some of those effects. We also — what we don’t know yet is how quickly some of these new revenue streams will ramp up for us, but I would expect to see us ramp up over the course of next year in a very organic way to where we would be well above the $4 million threshold certainly by this time next year. And I realize that’s what we have going — that’s what it was this past year. But I would expect to see these other revenue streams kick in, and I think they can be somewhat substantial.
Okay. And maybe another way to ask a similar question. You talked about cash flow breakeven in 12 to 18 months. What rate of revenue do you think gets you there? If you think about your first breakeven quarter and annualize that revenue number, what do you think that is?
Well, I think the run rate number is probably in the neighborhood of $25 million, perhaps $30 million. I think as we look at our forecast internally, that’s probably what it’s going to take to get to cash flow breakeven for us. And so, again, we’ve trimmed out a lot of costs. We think we can run pretty lean and still grow revenue. And we’ll continue to evaluate this literally on a month-to-month basis as we go forward.
Okay. So, would you say gross margins kind of trending around 60% right now? That used to be higher than that. What do you think is more reflective going forward, the 60% range, or do you think it would be back to 70%?
My guess would be somewhere in the 60% range going forward. We have some opportunities to improve that. But I think to be safe and conservative, I would say right now that I don’t see where the margins will — I don’t see a lot of further erosion, but I think 60% is probably a conservative gross margin forecast.
Okay. So, I’m just kind of doing the math in my head, 70% gross margin, $7 million a quarter. Getting to breakeven, it would imply you’d probably have to cut another $2 million out of expenses. Is that a fair assessment? Do you think — do you have room to cut that out? Or I mean, either you cut it out or you grow into it with leverage. But to breakeven at $7 million a quarter, I think you’re going to have to make some cuts. Is that fair?
I think that’s fair on the back of the napkin. And so, let’s see what happens. We have some pretty high margin revenue streams coming online, which we hope will improve our margins a little bit further. So, let’s see what happens. We’ve got room yet to go to cut expenses if we need to, and we’re prepared to do that as we evaluate month-by-month going forward.
Okay. Great. I will wrap it up there and talk after going through the 10-Q. Thank you for taking the question.
Thank you, Scott.
And our next question comes from the line of Alex Nowak with Craig-Hallum Capital Group. Please proceed with your question.
Okay. Great. Good afternoon everyone. Maybe to continue there, can you expand a little bit more on the cost cuts that you do want to take place, the ones that you have planned, the ones that you take if you absolutely need to? And just the thoughts around those cost cuts and how it would or would not impact revenue growth on the go forward.
So, what we’ve done, as I mentioned and I don’t know at this point came across clearly or not, but we’ve really reorganized from the ground up and have taken a sort of a ground up approach of things. So, we’ve — where we had opportunities to eliminate positions or personnel, we did that. And we — largely, we took into account our practice advisory model, which was the source of a lot of our overhead.
Remember — you might remember this, Alex, that we — in Q1, we spent a lot of time gearing up our practice advisory services in order to send people out into the market to retrain some of these staff, people that had been lost by the dental profession, and some of our best providers had just lost their teams and they were just — they stopped producing. So, we geared up. And we probably took on a lot of overhead related to that, that we found a better way with this — with our Treatment Navigator program. We turned that expense line item into a profit center. So, we let some of the — after that initial surge, we let some of the practice advisers go, and we turn the remaining ones over into Treatment Navigators.
And the Treatment Navigators, actually, as they pull patients through the process of getting into treatment, that actually turns into a profit center for us. So, we took a raw overhead and turned it into a profit center. So I would say that, that single effort, which is still nascent and coming out of the gate here, it’s not showing up in our third quarter yet because that’s when — that was the quarter we started piloting this. But here in the fourth quarter and going forward, it’s got a nice margin to it. The service has a good margin to it. We have a tremendous amount of interest in it, and we think that’ll be a good thing going forward.
Now having made those cuts, as that program comes back online — as it grows rather, we’re going to need to hire more Treatment Navigators. So — but these Treatment Navigators will be hired to be immediately accretive and profitable to the organization. So, whereas we didn’t have a clear ROI on our practice advisor group, we now have a very definitive and defined ROI on these new Treatment Navigators going forward. And so we think that that’s going to help a lot our new product lines that we brought on board, the growth of our MyoCorrect services, which has pretty good margins, the growth of our billing services, I think those things will allow us to grow organically. And as we add staff going forward in the future, it will be because the demand is there and we can deploy personnel with an immediate ROI attached to that.
So, I’m hopeful that, that is the model we’ll be able to execute on. That’s what our mandate is. Everything has been geared now towards short-term ROI and immediate accretive deployments of resources and personnel. So that’s how I would answer that.
Alex, one other — this is Brad. One other thing to add on …
One other item to what Kirk said was in our VivoScore rings. In 2021, we used VivoScore as a loss leader in really a tool to help VIPs hit the ground running and start up their screenings of their patients. In 2022, we initiated six months of no cost lease included with the VIP program, the enrollment program. And then we start charging them after the 6 months $79.95 a month per ring. So, we can start to turn that loss leader business model into a revenue generator. And we’re starting to see the revenue from those ring leases starting to grow here in the last half of the year.
Okay. Understood. And then maybe refresh us on the big studies to watch here going forward. I know there was a Stanford head-to-head study going against CPAP. Just any update around the big studies? Any other head-to-head studies we should be watching?
Well, we’ve been supremely frustrated over the Stanford trial progress. And it’s a bureaucratic nightmare to get through that. I can’t really tell you what the status is because honestly, we don’t know. We keep nudging them along and trying to get everything accomplished through the administrative process that they have there with their internal IRB, et cetera. And it just seems like there’s one roadblock after another.
So, we are — we’re continuing to look at that. We’re continuing to — I mean every day, we effectively compete against alternative treatment modalities. We — and every day, we take patients out of CPAP, get them off their CPAP machines. We compete in the real world against Inspire and against all these other treatment modalities every day.
To get some hard data on that, one of the things we mentioned but we didn’t elaborate on is that we’re establishing a university based research network of university researchers that will be able to conduct open source research using Vivos products, and they can pick and choose how they want to do that. So, if they want to put a research project together that compares Vivos against CPAP or against other alternative modalities, then they can certainly do that.
We are supremely confident in the efficacy of our treatment and protocols. And so, we’ve opened it up in an open source format. We’ve had good response from several different universities, dental departments and others to conduct this research, and we’re very excited about that going forward.
So, I wish I could give you some good news about Stanford, because it’s one we’ve talked about. It feels like we’ve been talking about that every quarter for the last two years. And it just seems to just die in the bureaucracy there at Stanford. We had to rewrite the protocol about six or eight months ago, but it just doesn’t seem to get any traction. So, we’re going to continue to look for alternatives. We have some ideas around other institutions. If we can’t get that particular study to go through at Stanford, we’ve had some inquiries from some other institutions to do similar work. So, we’ll keep that up.
And research is an important part of what we want to do here. Obviously, with the seven pending papers, there’s a lot of stuff that’s gone on. When you see what we’re about to publish and release, I think you’ll be very happy with what we’ll be able to say. It’ll help our regulatory environment. It’ll help our credibility with payers. It’s just going to lead to a lot of good things. So.
Okay. understood. Appreciate it. Thank you.
And we have reached the end of the question-and-answer session. I’ll now turn the call back over to management for closing remarks.
End of Q&A
Well, we would just like to thank everyone for being here this afternoon. I apologize for my voice. I’m a little under the weather today, and I appreciate you bearing with me as I cough through some of these things.
Look, we believe that our future of Vivos remains bright for all the reasons that we’ve just outlined. We continue to grow. We continue to navigate a challenging environment. We look forward to sharing our continued progress with each of you in the future. So, thank you and have a great day, and happy holidays.
And this concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.