Q4 2023 Sonendo Inc Earnings Call
Operator: Good afternoon, and welcome to Sonendo's fourth-quarter earnings conference call. At this time, all participants are in listen-only mode.
Good afternoon, and welcome to Shenandoah fourth quarter earnings Conference call. At this time, all participants are in listen only mode.
Operator: We will be facilitating a question and answer session at the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Louisa Smith from the Gilmartin Group for a few introductory comments. Thanks, operator. Good afternoon, and thank you for participating in today's call. Joining me from Sonendo are Bjarne Bergheim, President and CEO, and Michael Watts, CFO. Earlier today, Sonendo released financial results for the quarter and year and did December 31, 2023. A copy of the press release is available on the company's website.
We'll be facilitating a question answer session at the end of today's call. As a reminder, this call is being recorded for replay purposes.
I would now like to turn the call over to Luisa Smith from Nikhil Matson group for a few introductory comments.
Thanks, operator, good afternoon, and thank you for participating in today's call.
Joining me person endo or be Orange bar, Kahn, President and CEO and Michael Watts CFO.
Earlier today <unk> released financial results for the quarter and year ended December 31st 2023, a copy of the press release is available on the company's website.
Louisa Smith: Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements made on this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including those relating to our operating trends and future financial performance, the impact of COVID-19 on our business, expense management, expectations for hiring, growth in our organization, Market Opportunity, and Revenue Guidance. Commercial Expansion and Product Pipeline Development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Any statements made on this call that relate to expectations or predictions of future events results or performance are forward looking statements.
All forward looking statements, including those relating to our operating trends and future financial performance.
The impact of COVID-19 on our business expense management expectations for hiring growth in our organization market opportunity revenue guidance commercial expansion and product pipeline development are based upon our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements for a list and description of the risks and uncertainties associated with our business.
Louisa Smith: For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factor section of our most recent annual report on Form 10-K filed today, March 11, 2023, with the Securities and Exchange Commission and available on EDGAR and in other public reports filed periodically with the FCC. This conference call contains time-sensitive information and is accurate only as of the live broadcast on March 11, 2024. Sonendo disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. Thanks, Louisa.
Please refer to the risk factors section of our most recent annual report on Form 10-K filed today March 11th 2023, with the Securities and Exchange Commission and available on Edgar and in other public reports filed periodically with the SEC.
This conference call contains time sensitive information and is accurate only as of the live broadcast on March 11 2024.
<unk> disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
And with that I will now turn the call over to be on.
Thanks, Luisa and good afternoon, everyone and thank you for joining us.
Bjarne Bergheim: Good afternoon, everyone, and thank you for joining us. I will start the call today by providing a high-level fourth quarter and full year update for 2023. I will then give a business update detailing how we've considerably sharpened our focus on specific key organizational priorities. Mike will conclude with a more detailed discussion of our financial performance and outlook for 2024. We will then open the call for questions.
I will start the call today by providing a high level fourth quarter and full year update for 2023.
Then give a business update.
Failing how we've considerably sharpen our focus on specific key organizational priorities.
Mike will conclude with a more detailed discussion of our financial performance and outlook for 2024.
We will then open the call for questions.
Bjarne Bergheim: As we enter 2024, our three key priorities for the organization are one, commercial execution, two, cash conservation, and three, margin expansion. We are progressing in all three areas and are committed to continuing this work. Q4, as an example, reflects positive progress on cash and gross margin. Finally, I'll highlight two additional steps we've taken to strengthen Sonendo's balance sheet, including the recently announced divestiture of TDO, our practice management software platform, and a revised debt agreement to provide greater flexibility for the organization. That's for our fourth quarter and four-year results. 2023 full-year revenue was $43.9 million, representing growth of 5% year over year. While revenue of $11.7 million for the fourth quarter was down 4% year-over-year, the results were in line with our previously issued guidance. Non-GAAP gross margin for the fourth quarter of 2023 was 35%, a significant improvement from 27% in the same period of 2022.
As we enter 2020 for our three key priorities for the organization or one commercial execution.
<unk> cash conservation and three margin expansion.
We're progressing in all three areas and are committed to continuing this work.
Q4, as an example reflects positive progress on cash and gross margin.
Finally, I'll highlight two additional steps, we've taken to strengthen <unk> balance sheet, including the recently announced divestiture of GTO, Our practice management software platform and a revised debt agreement to provide greater flexibility for the organization.
As for our fourth quarter and full year results two.
2023 full year revenue was $43 9 million representing growth of 5% year over year.
While revenue of $11 7 million for the fourth quarter was down 4% year over year. The results were in line with our previously issued guidance.
non-GAAP gross margin for the fourth quarter or 2023 was 35% a significant improvement from 27% in the same period of 2022.
Bjarne Bergheim: The non-GAAP loss from operations was $8 million for the fourth quarter of 2023, a 33% improvement compared to $11.9 million in the fourth quarter of 2022. We've learned valuable lessons over the last few years, and I would now like to discuss how we are driving key priorities through the organization. As for the priority around commercial execution, we are implementing several changes within Sonendo's commercial team. It is all about focus and doing a few things very well.
non-GAAP loss from operations was $8 million for the fourth quarter or 2023 <unk> hundred.
<unk>, 33% improvement compared to $11 9 million in the fourth quarter of 2022.
We've garnered valuable lessons over the last few years and I would now like to discuss how we are driving key priorities through the organization.
As for the priority around commercial execution, we are implementing several changes with incident. This commercial team. It is all about focus and doing a few things very well.
Bjarne Bergheim: We believe we have the best offering for root canal therapy that drives the best quality of patient care. We need, however, to get more efficient in how we sell and showcase the value proposition for the generalist. The first thing we're changing about commercial execution is the way we onboard new customers. We have found that training a customer well, according to our new onboarding playbook, drives higher utilization right out of the gate. Teaching doctors how they can drive better efficiency and economics in their practice with the General Medicine System is hard to unlearn. We have demonstrated that cohorts who have been trained according to our onboarding playbook continue to use it at a high rate going forward. These cohorts also become great advocates for the genocide.
We believe we have the best offering for weeks now therapy that drives the best quality of patient care.
We need however to get more efficient in how we sell and showcase the value proposition for the job my system.
The first thing we're changing around commercial execution is the way we onboard new customers. We have found a training of customer well. According to our new Onboarding playbook drives higher utilization right out of the gate.
<unk> doctors, how they can drive better efficiency and economics in their practice with the Jamba system, it's hard to and learn.
We have demonstrated our cohorts who have been trained according to our Onboarding playbook continue to utilize at a high rate going forward.
These cohorts also become great advocates for the jumbo procedure.
Bjarne Bergheim: And now, with our Genelec G4 console and our next generation clean flow procedure, our sales team has a strong product offering to drive both upgrade opportunities and new console installations. It is worth noting that the reliability of our G4 console is now on par with some of the most reliable capital equipment platforms found in dentistry and in medtech.
And now with our Jamba with G. Four console and our next generation clean flow procedure instrument. Our sales team has a strong product offering to drive both upgrade opportunities and new console placements.
It is worth noting that the reliability of our G. Four console is now on par with some of the most reliable capital equipment platforms found in dentistry and in Med Tech.
Bjarne Bergheim: This is an accomplishment that we are very proud of. Coupled with efficiency improvements for the staff and doctors, we see that upgrades to G4 consoles are energizing users across our installed base. Doctors are very excited as they move from our legacy GEN3 platform to our G4 consoles, driving that focus. In other words, the benefit of our new G4 consoles is key to our sales. We're optimizing productivity by standardizing commercial program playbooks for the entire team.
This is an accomplishment that were very proud of.
Coupled with efficiency improvements for the stock and doctors, we see that upgrades to <unk> four consoles are energizing users across our installed base Dr.
Doctors are very excited as they move from our legacy Gen III platform to our G. Four consoles.
And driving that focus in other words, the benefit of our new G. Four consoles is key for our sales team.
We are optimizing productivity by standardizing commercial program Playbooks for the entire team. We also recognize that our utilization is a key value driver for <unk> overall growth.
Bjarne Bergheim: We also recognize that PI utilization is a key value driver for Sonendo's overall growth, so establishing systems to increase consumable sales among our new and existing patient base remains an area of focus. We have further overhauled our compensation structure for the commercial team, incentivizing the right activities that we need to be focused on at this time. The quality of our sales pipeline remains strong, and we're seeing our commercial team energized by the changes we have made and the opportunities ahead. As for cash conservation, in the fourth quarter, we dramatically reduced our spend, resulting in a 17% sequential decrease in operating costs.
<unk> systems to increase consumable sales among our renew an existing installed base remains an area of focus.
We have further overhaul our compensation structure for the commercial team Incentivising the right activities that we need to be focused on at this time.
The quality of our sales pipeline remains strong and we're seeing our commercial team energized by the changes we've made and the opportunities ahead.
As for cash conservation in the fourth quarter, we dramatically reduced their spend resulting in a 17% sequential decrease in operating costs. We.
Bjarne Bergheim: We have continued to make progress on this front into the start of 2024. Several programs have been completed and no longer require the same level of resources. One example is a program associated with the development of the G4 console.
We have continued to make progress on this front into the start of 2024.
Several programs have been completed and no longer required the same level of resources. One example is a program associated with the development of the <unk> console.
Bjarne Bergheim: Spending has also been reduced by focusing on fewer things and doing more with less. We are prioritizing our efforts on activities in sales and marketing that have a higher return on investment and drive focus within our team. Our goal is to be more efficient and effective in the way we sell, and this will put us on a quicker path to profitability. In conjunction with lower spending, we were also pleased with our adjusted gross margin of 35% for the fourth quarter. Contributing primarily to this improvement in margins is the complete transition to clean flow procedure instruments and bringing the production of Genelec G4 consoles in-house. By December 31st, Sonendo was manufacturing only one type of procedure instrument and one type of console, hence significantly simplifying our operation.
Spending has also been reduced by focusing on fewer things and doing more with less.
We're prioritizing our referenced some activities of sales and marketing that have a higher return on investment and drive focus within our team.
Our goal is to be more efficient and effective in the way, we sell and put us on a quicker path to profitability.
In conjunction with lower spending we were also pleased with our adjusted gross margin was 35% for the fourth quarter contributing.
Contributing primarily to this improvement in margins is to complete transition to clean flow procedure instruments, and bringing the production of <unk> for consoles in house.
By December 31. So then there was manufacturing only one type of procedure instruments, and one type of console, hence significantly simplifying our operations.
Bjarne Bergheim: We have been working toward this point for some time, and I'm pleased to have reached this milestone earlier than our original target of April 2024. In addition to our clean fill conversion and in-house assembly of the G4 console, we've also improved the reliability of our console and expect a reduction in the cost to service our install base going forward. Moving on to matters of our balance.
We have been working toward this point for some time and I am pleased to have reached this milestone earlier than our original target of April 2024.
In addition to our clean full conversion and in House Assembly of the G. Four console.
We've also improved the reliability of our console and expect a reduction in the cost to service our installed base going forward.
Moving on to matters of our balance sheet.
Bjarne Bergheim: Last week, we announced the sale of TDO, resulting in gross proceeds of approximately $16 million. TDO was a great acquisition for Sonendo in 2018 and helped us drive significant growth and penetration into endodontic practices. It opened many doors for our sales team, allowing them to educate doctors on the benefits of the general medical procedure. We are pleased that TDO's strategic opportunities can still be accomplished with the new partnership we have formed with Valsoft. CDO customers will be in good hands.
Last week, we announced the sale of CDO, resulting in gross proceeds of approximately $60 million.
<unk> was a great acquisition for us in Endo in 2018, and helped us drive significant growth and penetration into and adopting practices. It's opened many doors for our sales team, allowing them to educate doctors on the benefits of the gentlemen procedure.
We are pleased that TVO strategic opportunities can still be accomplished with the new partnership we formed with while soft CDO customers will be in good hands. This divestiture also allows fernando to focus all our time and efforts on driving the opportunity we have with our general way platform.
Bjarne Bergheim: This divestiture also allows Sonendo to focus all its time and efforts on driving the opportunity we have with our general weight platform. And finally, as it relates to the health of our balance sheet, we have negotiated our debt facility with Perceptive, which includes a revision of revenue covenants that will provide greater flexibility as we execute on our three key company priorities. Ultimately, the sale of TDO and the revised deal with Perceptive will contribute to a stronger capital structure and allow Sonendo to bring its full focus on our core business. I'll now turn the call over to Michael Watts for some commentary on our financial results before opening the call for Q&A. But first, I'd like to take this opportunity to thank Mike for his outstanding contributions to Sonendo and his support and commitment to the organization for the last seven years. We announced last week that Mike will be leaving Sonendo later this month, and I want to recognize that he's been an incredible, valuable member of the executive team. I'm grateful for both the professional and personal relationship we've established, and we wish him and his family the very best in this ongoing endeavor. Bye.
And finally as it relates to the health of our balance sheet.
Negotiated our debt facility with perceptive, which inclusive revision of revenue covenants that will provide greater flexibility as we execute on our three key company priorities.
Ultimately the sale of <unk> and the revised deals with perceptive will contribute to a stronger capital structure that allows <unk> to bring our full focus on our core business.
I'll now turn the call over to Michael what's for some commentary on our financial results before opening the call for Q&A.
But first I'd like to take this opportunity to thank Mike for his outstanding contributions to <unk> and his support and commitment to the organization for the last seven years.
We announced last week that Mike will be leaving <unk> later, this month and I want to recognize that he has been an incredible valuable member of the executive team.
I'm grateful for both the professional and personal relationship we've established and we wish him and his family the very best in his ongoing endeavors Mike.
Michael P. Watts: Thanks, Bjarne. As previously stated, Sonendo total revenue for the fourth quarter of 2023 was $11.7 million, compared to $12.2 million for the fourth quarter of 2022, a decrease of 4%. The decrease was as a result of fewer placements and lower average selling prices of consoles versus the price. The Q4 product segment declined 8% versus the prior year, driven by a decrease in console revenue and offset by
As previously stated <unk> total revenue for the fourth quarter 2023 was $11 7 million compared to $12 2 million for the fourth quarter of 2022, a decrease of 4%.
The decrease was as a result of fewer placements and lower average selling prices of consoles versus the prior year.
Q4 product segment declined 8% versus the prior year driven by a decrease in console revenue and offset ipi revenue.
Michael P. Watts: Q4 PI revenue was $5.1 million, compared to $5 million in the fourth quarter of 2022, an increase of approximately 2%. PI revenue growth was driven primarily by increased install base and average selling, offset by reduced volume in our legacy installed base. In the fourth quarter, January console revenue was $2.9 million, a decrease of 24% when compared to $3.9 million in the fourth quarter of 2022. The average selling price for the General Waste Console was approximately $50,000 in the fourth quarter of 2020. We replaced 58 consoles in Q4 with one G3 trade-in, resulting in a net change of InstallBase at 57. Our InstallBase as of December 31, 2023 was 1,134.
Q4 revenue was $5 1 million.
Compared to $5 million in the fourth quarter of 2022, an increase of approximately 2%.
<unk> revenue growth was driven primarily by increased installed base and average selling prices.
Asset by reduced volume in our legacy installed base.
In the fourth quarter generate console revenue was $2 9 million a decrease of 24% when compared to the $3 9 million in the fourth quarter of 2022.
The average selling price for the generalist console was approximately $50000 in the fourth quarter of 2023.
Replace 58 consoles in Q4 with one G III trading resulting in a net change.
Of install base at 57, our installed base as of December 31, 2023 was 1100 34.
Michael P. Watts: Total Q4 other product related revenue was $1 million in the quarter. Total software revenue for the fourth quarter was $2.7 million, compared to $2.4 million in the fourth quarter of 2022, an increase of 12%. Gap gross margin for the fourth quarter of 2023 was 33% and 35% on a non-gap basis.
Total Q4 other product related revenue was $1 million in the quarter.
Total software revenue for the fourth quarter was $2 7 million.
Third to $2 $4 million in the fourth quarter of 2022, an increase of 12%.
GAAP gross margin for the fourth quarter of 2023 was 33% and 35% on a non-GAAP basis, a significant improvement from 27% in the same period of the prior year, reflecting our continued commitment to improve profitability.
Michael P. Watts: A significant improvement from 27% in the same period of the prior year, reflecting our continued commitment to improve profitability. The transition to in-house assembly of exclusively the G4 console and conversion to CleanFlow PI, along with other operating efficiencies, provided sustained margin improvement. Total operating expenses in the fourth quarter of 2023 were $13.7 million compared to $18.1 million in the same period of the prior year. The decreases were different primary reductions in SG&A, through sales and marketing expenses and R&D spend.
The transition to in House Assembly of exclusively the <unk> console and conversion to clean pool pie along with other operating efficiencies provided sustained margin improvement.
Total operating expenses in the fourth quarter of 2023 with $13 7 million compared to $18 1 million in the same period of prior year.
Decreases were different primarily reductions in SG&A.
Sales and marketing expenses and R&D spending.
Michael P. Watts: Loss from operations was $9.9 million in the fourth quarter of 2023, compared to $14.8 million in the fourth quarter of 2022. Net loss was $10.9 million for the fourth quarter of 2023, compared to a net loss of $15.2 million in the fourth quarter of 2022, when you exclude the employee retention credit we reported in the prior year. Our cash and cash equivalents and short-term investments as of December 31st, 2023 were approximately $46.8 million, while our gross term loan remained at $40 million at year end. As noted in our press release on March 4, 2024, we restructured our term loan with Perceptive with a one-time principal payment of $15 million in March 2024, along with other changes, including monthly principal payments and revisions to our revenue covenants.
Loss from operations was $9 9 million in the fourth quarter of 2023 compared to $14 8 million in the fourth quarter of 2022.
Net loss was $10 9 million for the fourth quarter of 2023 compared to net loss of $15 2 million in the fourth quarter of 2022, when you exclude the employee retention credit we recorded in the prior year.
Our cash and cash equivalents and short term investments as of December 31, 2023 were approximately $46 8 million.
While our gross term loan remained at $40 million at year end.
As noted in our press release on March four 2024, we restructured our term loan with perceptive with a onetime principal payment of $15 million.
In March 2024, along with other changes, including monthly principal payments and revisions to our revenue covenants.
Michael P. Watts: Turning to our full year 2023 results, Sonendo total revenue for 2023 was $43.9 million compared to $41.7 million for 2022, an increase of 5%. The 2023 product segment, for the full year, increased approximately 4% versus the prior year, driven by an increase in PI revenues offset by lower console revenues. Full year PI revenue was $21.6 million compared to $18.9 million in 2022, an increase of 14%. PI revenue growth was driven primarily by an increased installed base and higher ASP. Total PIs sold in the year were approximately $295,000.
Turning to our full year 2023 results <unk> total revenue for 2023 was $43 9 million.
Compared to $41 $7 million for 2022, an increase of 5%.
2023 products segment.
For the full year increased approximately 4% versus the prior year driven by an increase in <unk> revenues offset by lower console revenue.
Full year Pi revenue was $21 6 million.
To $18 9 million in 2022, an increase of 14%.
Revenue growth was driven primarily by increased installed base and higher asps.
Total pounds sold in the year of approximately $295000.
Michael P. Watts: General Wave Console revenue for the full year was $9.2 million, a decrease of about 14% when compared to $10.8 million in 2022. Turner, other product-related revenue. $3.8 million in 2020.
<unk> console revenue for the full year was $9 2 million a decrease of about 14% when compared to the $10 $8 million in 2022.
Total other product related revenue was $3 8 million in 2023.
Michael P. Watts: Total software revenue for the year was $9.2 million compared to $8.4 million in 2022, an increase of 10%. Gross margin for 2023 was 24% compared to 25% in 2022. In 2023, we recorded a one-time impairment charge of $1.6 million related to long-lived assets and $2.9 million relating to inventory adjustments and cost of sales impacting overall margin. Total operating expenses for 2023 were $68.5 million compared to $68.7 million in 2022. During the year, we recorded a $2.1 million impairment charge on long-lived assets in operating expenses. Decreases were driven primarily by reductions in SG&A, through sales and marketing expenses and R&D spending.
Total software revenue for the year was $9 2 million compared to $8 $4 million in 2022, an increase of 10%.
Gross margin for 2023 was 24% compared to 25% 2022.
In 2023, we recorded a one time impairment charge of $1 $6 million related to long lived assets and $2 9 million relating.
Relating to the inventory adjustments and cost of sales impact on overall margins.
Total operating expenses for 2023 was $68 5 million compared.
Compared to $68 $7 million in 2022.
During the year, we recorded a $2 $1 million impairment charge of long lived assets and operating expenses.
Decreases were driven primarily by reductions in SG&A.
Through sales and marketing expenses and R&D spending.
Michael P. Watts: Loss from operations was $57.7 million for 2023 compared to $58.2 million in 2022. Non-GAAP loss from operations was $45.1 million in 2023 versus $49 million in 2020. Non-GAAP losses from operations exclude stock-based compensation expense, depreciation, amortization expense, and impairment of long-lived assets.
Loss from operations was $57 $7 million for 2023 compared to $58 2 million in 2022 non.
non-GAAP loss from operations was $45 1 million in 2023 versus a $49 million in 2022.
non-GAAP loss from operations excludes stock based compensation expense depreciation amortization expense and impairment of long lived assets.
Michael P. Watts: The net loss was $60.9 million for 2023 compared to $57.1 million in 2020. That's for our 2024 Olympics. We are initiating full year 2024 net revenue guidance in the range of $28 to $30 million. First quarter revenue is expected to be approximately $6 million. Note that this excludes revenue from TDO software, which will be reported as discontinued operations moving forward. Lastly, I want to thank Bjarne and the team for my time here at Synenso. It has been an incredible experience, and I leave knowing the company is very well positioned for continued success. At this point, I'd like to open up the call to questions. Thank you. If you'd like to ask a question, please dial star 1. Lipat.
Net loss was $60 9 million for 2023 compared to $57 $1 million in 2022.
As for our 2024 outlook.
We are initiating full year 2024, net revenue guidance in the range of $28 million to $30 million.
First quarter revenue is expected to be approximately $6 million.
Note that this excludes revenue from <unk> software, which are reported as discontinued operations moving forward.
Lastly, I want to thank Darren and the team from my time here at <unk>.
It has been an incredible experience and I leave knowing the company is very well positioned for continued success.
At this point I'd like to open up the call for questions.
Thank you if you'd like to ask a question. Please dial star one on your telephone keypad and when preparing to ask a question. Please ensure that youll find is unmatched it locally.
John Block: If you're preparing to ask your question, please ensure that your phone is unmuted. Our first question is from the line of John Block of Stiefel. John, your line is now open, please go ahead. Hey guys, good afternoon. Maybe I'll start with the 2024 guidance, which just seems a little low and certainly was below our expectations. So I'll try to sort of pro-form it for the fourth quarter of 2023, and I think I've got these numbers right. Revs were about 11.7 million, and software was 2.7.
And our first question is from the line of Jon Block of Stifel. John Your line is now away from please go ahead.
Okay.
Hey, guys good afternoon.
Maybe I'll start with the 2024 guidance, which just seems a little low and certainly was below our expectation. So I'm trying to sort of pro forma for the fourth quarter of 2023, and I think I've got these numbers right Raj, we're about $11 7 million.
Software was two seven and Mike It seems like we should take out software for the entire year as the discontinued ops, but anyway call. It pro forma for the sale of software. It looks like <unk> was about $9 million you annualize that you get 36, Sino foreign accused a seasonally stronger quarter.
John Block: Mike, it seems like we should take out software for the entire year as discontinued operations. But anyway, call it pro forma for the sale of software. It looks like 4Q was about $9 million. If you annualize that, you get 36.
Bjarne Bergheim: I know 4Q is a seasonally stronger quarter, but there's a pretty big delta between the 36 million exercise I just went through and the $29 million midpoint. So, Bjorn, maybe you can start there and just walk us through that and help bridge that back to the 24 guide. Yeah, happy to, John.
But it's a pretty big delta between the $36 million exercise I just went through in the $29 million midpoint. So <unk>, maybe you can start there and just walk us through that.
And help bridge that back to the 24 guide thanks.
Yes happy to John.
Bjarne Bergheim: So let me just start off by saying that the goal for us is to put us on a quicker path to profitability, just like we talked about in our prepared remarks. Another way to think about that is that we're aiming to move more money and investments closer to our customers, to focus more on general wave adoption. That's very different than a kind of a more general boil the ocean strategy.
So let me just start off by saying that the goal for us is.
Okay.
And put us on a quicker path to profitability just like we talked about in our prepared remarks.
And then the other way to think about that is we're aiming to move more money in investments closer to our customers to focus more on general <unk> adoption.
That's very different than a kind of a more general boil the ocean strategy.
Bjarne Bergheim: Specifically, as it relates to the quarterly guide here, like we talked about, like you're mentioning, none of these numbers obviously includes TDO. But if I look back now and think about the last two years, we've obviously seen our sales and marketing expenses have been high, and we didn't quite see the growth that we'd like to see. So we're reducing expenses and focusing on a few things. And let me just stress, this is not just about cutting costs; it's about getting growth back into the business and, like I just talked about, really bringing this back to profitable growth. So while we're implementing these changes in the business, we will be a little bit more cautious on the revenue projections. But at the same time, we're really bullish about the commercial opportunities going forward. So you should see growth come back as we continue to move forward here. And let me just quickly run through the list of some of the things that make me excited about the business on the commercial side.
Specifically as it relates to the quarterly guide here.
Like we talked about like you were mentioning none of these numbers obviously includes CDO.
But if I look back now and kind of think about the last two years, we've seen obviously, our sales and marketing expenses have been high.
And we didn't quite see the growth that we'd like to see so we're reducing expenses.
We're focusing on a few things.
Now let me just stress this is not just about cutting cost its about getting growth back into the business.
And if I could just talked about really bringing this back to profitable growth.
So while we're implementing these changes in the business, we will be a little bit more cautious on the revenue projections.
But at the same time really bullish about the commercial opportunities going forward. So you should see growth come back as we continue to move forward here. Let me just quickly run through the list of some of the things that make me excited about the business on the commercial side that really gives I think upside as we go forward on the guide.
Bjarne Bergheim: That really gives us, I think, upside as we go forward on the guide. First of all, obviously, we talked about the great product offering around G4 and CleanFlow. We have significant opportunities to upgrade customers to G4 as we move forward. The DSO opportunity, like we've talked about before, is real, and that's something that we're going to continue to work on. We're going to onboard customers better, driving better utilization, hence better pair to pair. We're going to be focused on specific sales activities that we know lead to results, such as professional education events. We're doing more profit events now than we've done before, and we're going to do that more effectively and efficiently as we go forward. We have a renewed focus on endodontists.
First of all obviously, we talked about great products offering around <unk> and clean flow.
We have significant opportunities to upgrade customers to <unk> as we move forward.
The DSO opportunity is like we've talked about before is real and that's something that we're going to continue to work on.
Going to onboard customers, better driving better utilization and hence better peer to peer.
Let me focus on the specific sales activities that we know lead to results such as professional education events, we're doing more profit events now than we've done before and we're going to do that more effectively and efficiently as we go forward.
Have a renewed focus on the endodontist.
Bjarne Bergheim: And the other thing I just want to say is that the ADA Code Maintenance Committee, at its annual meeting last week in Chicago, the ADA agreed to an..., we believe will help doctors get increased reimbursement for the general aid procedure, and that's another thing that we believe can really help drive upside. So those are just some kind of qualitative perspectives, and Mike, I don't know if you want to... Anything else that you want to add to that? No, I think you covered everything.
And the other thing I've just.
I want to say is that the 80, a code maintenance committee at.
At their annual meeting last week in Chicago, the Ada agreed to.
We believe will help doctors get increased reimbursement for the gentlemen procedure. That's another thing that we believe can really help drive upside. So those are just some kind of qualitative perspective, Mike I don't know if you want to.
Anything else that you want to add.
Everything we're seeing.
Utilization remains stable and our forecast so really we see that fluctuation is with console placements and Thats, where I think <unk> highlighted that we have the opportunity to do some upgrades.
Michael P. Watts: You know, we're seeing utilization remain stable in the forecast. So really, we see that fluctuation is with console placements. And that's where I think Bjarne highlighted that we have the opportunity to do some upgrades.
So.
John Block: We're, of course, targeting to show as much improvement throughout the year as we can. Okay, thank you. That was helpful, and you know I think my other question will. So to also focus on 24 a little bit, just at the gross margin line, on a normalized basis, it's been pretty much flat for the past three quarters, 35, 36%. You know, how do we think about the GMs in 2024, especially with the higher-margin software business going away? Maybe Mike, if you could just talk us through that a little bit, and then I'll ask one more.
We are of course targeting too.
Show as much improvement throughout the year as we can.
Okay.
Thank you that was helpful.
And then my other question will.
You should also focus on 24, a little bit.
Just at the gross margin line on a normalized basis, it's been pretty much flat for the past three quarters $35, 36%.
How do we think about the Gms in 2024.
Especially with the higher margin software business going away.
Maybe you might give you can just talk us through that a little bit little I'll ask one more.
Yes.
Michael P. Watts: So, when we look at gross margin, if we report the product segment in Q4, as you're able to go through the numbers, you'll see that the product segment had gross margins just under 30% for Q4, and we'll see that continue through Q1, largely due to lower revenue numbers. But as we move sequentially throughout the year, we'll see improvements from the in-house production of Gen 4 start to take hold, and then, of course, we'll be 100% clean flow beyond moving into Q2 and beyond. We've got a little bit of clean flow left in finished goods inventory that will burn through in Q1, maybe a trickle into Q2, but with two products. In house assembly, we should be able to optimize that process, and then we've also got some other initiatives that we're working on to improve efficiencies around how our service model works. Okay, but sorry, just to push you a little bit.
Yes, so when we look at gross margin if we will report the products segment in.
In Q4, as you're able to go through the numbers, you'll see that the product segment.
Gross margins just under 30% for Q4, and we will see that continue through Q1.
Largely in part due to lower revenue numbers, but as we move sequentially throughout the year, we will see improvements from the in house production of Gen. Four start to take hold and then of course, we'll be 100% clean flow.
Beyond moving.
Q2, and beyond we've got a little bit of clean flow left in finished goods inventory that will burn through in Q1, maybe a trickle into Q2.
With two products.
In House Assembly, we should be able to optimize our process and then we've also got some other initiatives that we're working on to improve.
Efficiencies around how we are surface model is.
Okay, sorry, just to push you a little bit I think previously you talked about gross.
Michael P. Watts: I think previously you talked about gross margins being in the 40% range for 2024 last quarter. Of course, that was prior to the sale of TDO. You know, on a pro forma basis, is that now a gross margin that's in the mid-30s for the year, the high-30s for the year? Is there sort of an updated number that we should be thinking about GMs for all of 2024?
And as being in the 40% range for 2024 last quarter of course that was prior to the sale of CDO.
On a pro forma basis is that now a gross margin thats in the mid <unk> for the year the high <unk> for the year is there a sort of an updated.
The number that we should be thinking about gms for all of 2024.
Yeah.
So mid <unk> is where we're targeting for the full year. So we should see that improvement and as we exit the year start to be in the mid to high Thirty's.
Michael P. Watts: So, mid-30s is where we're targeting for the full year, so we should see that improvement, and as we exit the year, start to be in the mid- to high-30s. And the key opportunities for us, right, to drive margins here going forward are obviously continuing to drive manufacturing costs of the PIs and the console down, and now with a significantly more reliable G4 unit that will give us fewer servicing costs. So those are big opportunities for us to continue to drive margins. We still are very, you know, like we have said before. We still have the opportunity to drive this towards more normalized medtech margins as we move forward. Okay, and maybe the final one for me is, I think, a pretty broad question, maybe all encompassing, but, you know, Mike, if I heard you right, you mentioned utilization, sort of stable fluctuations on the capital side, but Bjarne, over the past, like, three to six months, you put in programs to try to stimulate capital. You've announced agreements that should, you know, sort of widen the net, the DSO So, I just feel these are a little bit at odds.
The key opportunities for us right to drive margins here going forward is obviously continuing to drive manufacturing cost of the Pis and the council of them.
Now it is significantly more reliable G. Four unit that will give us less servicing costs. So those are big opportunities for us to continue to drive margins, we still are very.
Like we have said before we still we have the opportunity to drive this towards more normalized med Tech margins SP as we move forward.
Okay and maybe the final one for me is I think a pretty broad question, maybe all encompassing but.
Mike If I heard you right you mentioned utilization sort of stable fluctuations on the capital side will be earned over the past three to six months you put in programs to try to stimulate the capital you've announced agreements that should.
Sort of widen the net the DSO opportunity the trial period, I'm, placing capital to stimulate demand. So I just feel these are a little bit at odds had these programs not taken all that you still do mid following the capital why have we not seen those sort of yield returns or pay off we are.
John Block: Had these programs not taken hold? Are you still doing the trial on the capital? Why have we not seen those sort of yield returns or payoff, where we're now talking about stable utilization, and fluctuation on the capital means down with those programs in the background?
We're now talking about stable utilization fluctuation on the capital means down.
With those programs in the background. Thanks, guys.
Bjarne Bergheim: Thanks. Yeah, thanks, John. You know, I think in general, like I alluded to, we have spent a lot of money on sales and marketing over the last two years, and we need to get more efficient about the way we run this business on the sales and marketing side. One of the things that, you know, we alluded to some of that during the call here, but we are making a significant number of changes on the commercial side to drive better efficiencies in the organization but also to drive a much more efficient engine by which we place capital and by which we also respond to doctors around utilization, not just new onboarding, but how we think about utilization across the existing installed base.
Yeah. Thanks, Jon I think in general like I alluded to right. We have spent a lot of money on sales and marketing over the last two years and we need to get more efficient about the way we run this business on the sales and marketing side.
One of the things that we alluded to some of that.
In the call here, but we are making a significant number of changes on the commercial side to drive better efficiencies in the organization, but also to drive.
Have a more a much more efficient engine by which we place capital, which we also respond to doctor surround.
Utilization not just new on boarding, but how we think about utilization across the existing installed base.
Bjarne Bergheim: So the things that we are doing and that we think will meaningfully change the way we can perform here going forward. You know, a significant amount of streamlining within the organization, and a significant round of additional focus. It's all about focusing on sales, and focusing on how we onboard doctors. According to our playbooks, we've seen that if we onboard them well, they will use the platform better, and the cohorts that have been onboarded well stay steady and do not decline. We're focusing our sales team on the most, you know, more effective sales activities, including G4 sales and profit activities. We also are ensuring that we have sufficient activities in the field to drive the close rates we would like to see. We're putting in place standardized playbooks, you know, across the commercial team.
So the things that we are doing and that will we think will meaningfully change the way we can perform here going forward.
A significant amount of streamlining it within the organization significant around of additional focus it's all about focusing on sales.
Focusing on how we onboard doctors according to our Playbooks.
We've seen that if we onboard them well they will utilize better than the cohorts that have been on boarded well.
Stay steady and do not decline.
They are focusing our sales team on the most more effective sales activities, including G for sales profit activities.
We also are ensuring that we have sufficient activities in the field to drive the close rates, we'd like to see.
Putting in place standardized playbooks.
Across the commercial team.
Bjarne Bergheim: Compensation plans are being put in place to much better align with what's important for us and professional education activities. That's something that we're going to do more of. We're going to put those into the regions. We're going to be much more. We're driving more cost-effective events, and we're driving more events, and then we're continuing to work closely with our KOLs on these different things. So I think, you know, I think if I was to summarize, there are a lot of things we're doing to change the commercial team. There are a lot of things that, you know, combined with the different commercial opportunities we have, we're very excited about the opportunities that we have ahead.
Compensation plans are being put in place too much better aligned with what's important for us.
And professional education activities Thats, something that were going to do more of it we're going to put those into new regions, we're going to be much more.
Driving more cost effective events and we're driving more events and then we're continuing to work closely with our Kols on these different things. So I think I think.
To summarize there is a lot of things we're doing to change the commercial team.
There is a lot of.
And that combined with the different commercial opportunities for how we are very excited about the opportunities that we have ahead.
John Block: Thanks, guys. I'll take the rest offline. Thanks for the time. Thank you, and this will conclude today's Q&A session, so I'd like to hand it back to the Sonendo management for any closing remarks.
Thanks, guys I'll take the rest offline thanks for the time.
Thank you. Thank you and this will conclude today's Q&A session. So I'd like to hand back to <unk> management for any closing remarks.
Operator: Thank you, operator. We appreciate everyone's time today. Have a great day. Thank you. This concludes today's call. Thank you all for joining. You may now disconnect your lines.
Thank you operator, we appreciate everyone's time today have a great day.
Thank you. This concludes today's call. Thank you all for joining you may now disconnect your lines.
Okay.
Okay.