Vivos Therapeutics Seeks $20 Million IPO

Vivos Therapeutics (VVOS) intends to raise $20 million in an IPO of its common stock, according to an S-1 registration statement.

Highlands Ranch, Colorado-based Vivos was founded to develop customized oral devices designed to help people who suffer from mild to moderate obstructive sleep apnea [OSA].

Management is headed by co-founder, Chairman and CEO R. Kirk Huntsman, who was previously founder of Dental One Partners, a large dental service organization.

Below is a brief overview video of Vivos Therapeutics:

The company’s primary offering is the Vivos System, composed of a nighttime appliance and a daytime/nighttime appliance.

Vivos has received at least $21 million from investors.

The firm sells its systems to dental practitioners via a direct sales force that targets prospects in the U.S. and Canada.

In the future, and with some of the proceeds from the IPO, the firm intends to develop strategic partnerships, connect with key opinion leaders, attend trade shows and use digital advertising platforms to introduce practitioners to the system.

Sales and Marketing expenses as a percentage of total revenue have dropped as revenues have increased.

The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, dropped 1.4x in the most recent reporting period.

According to a 2019 market research report, the global market for sleep apnea devices is expected to reach a value of $12.6 billion by 2025.

This represents a forecast CAGR of 6.8% from 2019 to 2025.

The main drivers for this expected growth are an increasing prevalence of sleep disordered breathing, growing awareness of the condition and a higher treatment rate in regions such as North America.

Also, therapeutic devices accounted for 65% of the market in 2018 and are expected to grow at a CAGR of 5.1% through 2025, a slow rate than the projected overall industry growth rate.

The diagnostic segment will likely grow at a CAGR of 7.05% through 2025.

Major competitive or other industry participants include:

  • SomnoMed (SOMNF)
  • DynaFlex
  • TAP
  • EMA
  • Herbst
  • ALF
  • Homeoblock
  • FAGGA

Vivos’s recent financial results can be summarized as follows:

  • Growing topline revenue, but at a sharply decelerating rate
  • Increased gross profit and gross margin
  • Reduced operating loss and lower negative operating margin
  • Lowered cash used in operations

Below are relevant financial results derived from the firm’s registration statement:

vivospl

Source: Company registration statement

As of June 30, 2020, Vivos had $413,620 in cash and $7.4 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2020, was negative ($3.9 million).

Vivos intends to raise $20 million in gross proceeds from an IPO of 3.33 million shares of its common stock, offered at a proposed midpoint price of $6.00 per share.

In addition, selling shareholders may sell up to 7.9 million shares related to previous private placement sales ‘or issuable upon the conversion of our outstanding Series B Preferred Stock upon the closing of the initial public offering or underlying common stock warrants issued to the holders of Series B Preferred Stock.’

So, a significant number of additional shares may come on the market after the IPO.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $108.8 million, excluding the effects of underwriter over-allotment options.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 19.41%.

Management says it will use the net proceeds from the IPO as follows:

vivosproceeds

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are Roth Capital Partners, Craig-Hallum Capital Group and National Securities Corporation.

Commentary

Vivos is seeking public investment for its various growth and operational initiatives.

The company’s financials show strong recent revenue growth and gross profit growth but from a low starting point.

Sales and Marketing expenses as a percentage of total revenue have dropped as revenues have increased; its Sales and Marketing efficiency rate was a relatively strong 1.4x in the most recent reporting period.

The market opportunity for treating sleep disordered breathing problems is large and expected to grow at a moderate rate over the near term, so the company has reasonably strong industry trends in its favor.

Roth Capital is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 12.8% since their IPO. This is a middle-tier performance for all major underwriters during the period.

As to valuation, compared to SomnoMed, VVOS’ valuation is significantly higher for certain metrics, but the firm is growing at a higher rate.

However, the financial growth trajectory of the firm has attenuated significantly in the most recent reporting period of 1H 2020, due to the closure of many of its customer offices and the reduction in use of the firm’s products.

While Vivos is still growing its topline revenue despite the Covid-19 pandemic, a question remains as to how long the effects of the pandemic will continue to weigh on its financial results.

It is conceivable that the 2020/2021 winter/spring seasons could continue to see a significant reduction in sales as the pandemic remains in effect in the United States.

Accordingly, with the IPO’s premium price assumption and my concerns on the firm’s revenue ramp, my opinion on the IPO is NEUTRAL.

tstNEUTRAL

Expected IPO Pricing Date: To be announced.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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Author: iwano@_84