Q1 2024 Sonendo Inc Earnings Call
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Good afternoon, and welcome to Silicon Die spouse quarter earnings Conference call.
Operator: Good afternoon, and welcome to Sonendo's first quarter earnings conference call. At this time, all participants are in listen-only mode. 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 instructional comments.
Louisa Smith: At this time, all participants are in listen only mode.
Louisa Smith: We will be facilitating a question and answer session at the end of today's call.
Louisa Smith: This call is being recorded for replay purposes.
Louisa Smith: I would now like to turn the Culebra Televisa Smith from the Gilmartin group for a few in structuring comments.
Louisa Smith: Thanks, operator. Good afternoon, and thank you for participating in today's call. Joining me from Sonendo are Bjarne Bergheim, President and CEO, and Chris Goh, Interim CFO. Earlier today, Sonendo released financial results for the quarter ended March 31st, 2024.
Louisa Smith: Thanks, operator, good afternoon, and thank you for participating in today's call. Joining me from Fernando are beyond Burger, I'm, President and CEO and Chris <unk> interim CFO.
Speaker Change: Earlier today Fernando released financial results for the quarter ended March 31, 2020 for a copy of the press release is available on the company's website.
Louisa Smith: A copy of the press release is available on the company's website. 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.
Louisa Smith: 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 1095.
Louisa Smith: Statements made on this call that relate to expectations or predictions of future events results or performance are forward looking statements.
Louisa Smith: All forward-looking statements, including those relating to our operating trends and future financial performance, Expense Management, Expectations for Hiring, Growth in our Organization, Market Opportunity, and Revenue Guidance. Commercial expansion and product pipeline development are based on 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.
Louisa Smith: All forward looking statements, including those relating to our operating trends and future financial performance.
Louisa Smith: <unk> management.
Louisa Smith: Spectation for hiring growth in our organization market opportunity Red.
Louisa Smith: Revenue guidance commercial.
Louisa Smith: Expansion and product pipeline development are based on our current estimates and various assumptions.
Louisa Smith: 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.
Louisa Smith: Accordingly, you should not place undue reliance on these statements.
Louisa Smith: For a list and description of the risks and uncertainties associated with our business, please refer to the risk factors section of our most recent quarterly report on Form 10-Q, filed today, May 8, 2024, 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 May 8, 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.
Louisa Smith: For a list and description of the risks and uncertainties associated with our business. Please refer to the risk factors section of our most recent quarterly report on Form 10-Q filed today May eight 2024, with the Securities and Exchange Commission and available on Edgar and then other.
Louisa Smith: Our public reports filed periodically with the SEC.
Louisa Smith: This conference call contains time sensitive information and is accurate only as of the live broadcast on May eight 2024.
Louisa Smith: <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.
Speaker Change: With that I will now turn the call over to be earned.
Bjarne Bergheim: Thanks, Louisa. Good afternoon, everyone, and thank you for joining us today. Today's call will be structured slightly differently than in the past. While we will review the first quarter results, I plan to spend most of my time providing information about a strategic business reset that Sonendo's management and board have undertaken together to drive fundamental change in the organization. Sonendo is truly revolutionizing how tooth decay, the most prevalent chronic disease in the world, is treated.
Speaker Change: Thanks, Louisa and good afternoon, everyone and thank you for joining us today.
Bjarne Bergheim: Today's call will be structured slightly differently than in the past.
Bjarne Bergheim: We will review the first quarter results I plan to spend most of my time, providing information about the strategic business reset.
Bjarne Bergheim: This management and board have undertaken together to drive fundamental change in the organization.
Bjarne Bergheim: So and then there was truly revolutionizing how tusa K the most prevalent chronic disease and the growth is treated we have an incredible technology and recently crossed the milestone of $1 4 million patients treated.
Bjarne Bergheim: We have an incredible technology and recently crossed the milestone of 1.4 million patients treated. Only 20% of endodontists in the United States and Canada have performed a genomic procedure, so the company has significant growth potential going forward. We understand the value of what we have, but a change in strategy is needed. Following several years of outsized initial growth from 2017 to 2021, we decided to initiate a more ambitious and complex commercial plan to try to capitalize on what we believe to be valuable growth opportunities.
Bjarne Bergheim: Only 20% of Endodontist in the United States, and Canada performed a gentleman procedure. So the company has significant growth potential going forward.
Bjarne Bergheim: We understand the value of what we have for the change of strategy as needed.
Bjarne Bergheim: Following several years of outsized initial growth from 2017 to 2021, we decided to initiate the more ambitious and complex commercial plan to try to capitalize on what we believed to be valuable growth opportunities.
Bjarne Bergheim: We made significant investments in programs such as Salesforce bifurcation and consumer marketing. We changed the incentive structure for our sales team, focusing primarily on capital sales and procedure instruments instead of losing focus on helping doctors with utilization and building their practices. We also shifted the attention of much of our sales team to general practitioners and lost focus on our core endodontic customers and care wells. As these changes took effect during 2022 and 2023, we did not realize revenue growth commensurate with the level of investment made in our commercial strategy.
Bjarne Bergheim: We made significant investments in programs, such as Salesforce bifurcation and consumer marketing.
Bjarne Bergheim: We changed the incentive structure for our sales team focusing primarily.
Bjarne Bergheim: Merely on capital sales procedure instruments by loosing focus on helping doctors with utilization and building their practices.
Bjarne Bergheim: We also shifted the attention of much of our sales team to general practitioners and lost focus on our core EBITDAR to customers and Kols.
Bjarne Bergheim: As these changes took effect during 2022 and 2023, we did not realize revenue growth commensurate with the level of investments made in our commercial strategy. For example, excluding our software business sales and marketing expenses increased 61% from 2021 to 2023, while console revenues only in.
Bjarne Bergheim: For example, excluding our software business, sales and marketing expenses increased 61% from 2021 to 2023, while console revenues only increased 10% over the same period. We could not support the associated cash burn with the number of programs we pursued.
Bjarne Bergheim: Kris 10% over the same period, we could not support the associated cash burn with a number of programs we pursued.
Bjarne Bergheim: We needed to make a strong pivot in our approach to return the company to growth, and we have subsequently reset our focus on our core strategy and opportunities. We are adjusting the organization to the current realities of the market and are moderating commercial investments in the near term to achieve financial strength in the long term. As part of the reset, we are providing more transparency around financial milestones like operating expense management, gross margin targets, and timing.
Bjarne Bergheim: We needed to make a strong pivot in our approach to return the company to growth and we have subsequently reset a refocus on our core strategy and opportunities.
Bjarne Bergheim: We're adjusting the organization to the current realities of the market in a moderating commercial investments in the near term to achieve financial strength and the long term.
Bjarne Bergheim: As part of the reset we are providing more transparency around financial milestones like operating expense management gross margin targets and timing.
Bjarne Bergheim: Management and the board have set the 2024 plan with reduced commercial spending and increased focus guided by our learnings over the past three years.
Bjarne Bergheim: Management and the board have set the 2024 plan with reduced commercial spending and increased focus guided by our learnings over the past three years. We decided to capitalize on areas in which we have previously been successful, and early results have supported the shift in our approach. We had a solid first quarter with revenue of $7 million, exceeding our $6 million guide, and we were encouraged by several proof points during the quarter regarding our unfolding strategy.
Bjarne Bergheim: We decided to capitalize scenarios in which we have previously been successful and the early results have supported the shift in our approach.
Bjarne Bergheim: We had a solid first quarter with revenue of 7 million exceeding our 6 million guide and we're encouraged by several proof points in the quarter regarding our unfolding strategy, we reduced sales and marketing expenses by 37% over the first quarter of 2023, yes still had a productive quarter, we received orders for.
Bjarne Bergheim: We reduced sales and marketing expenses by 37% over the first quarter of 2023 and yet still had a productive quarter. We received orders for more consoles than we shipped and built a healthy backlog of capital sales orders. Gap gross margin for the first quarter of 2024 was 28%, compared to 23% for the first quarter of 2023.
Bjarne Bergheim: More consoles than we shipped and built a healthy backlog of capital sales orders.
Bjarne Bergheim: Gross margin for the first quarter of 2024, it was 28% compared to 23% for the first quarter of 2023, non-GAAP gross margin increased from 23% to 30% and more than 700 basis point improvement year over year and non-GAAP operating loss decreased from $12 8 million to $7 5 million.
Bjarne Bergheim: Non-gap gross margin increased from 23% to 30%, a more than 700 basis point improvement year-over-year. And non-gap operating loss decreased from 12.8 million to 7.5 million, a 41% reduction. As a result of these early successes and our confidence in the reset strategy, we're increasing our 2024 full-year revenue guidance to $29 to $31 million from the prior range of $28 to $30 million. While we are happy with our first quarter results, we know there is far more to do. We see this quarter's performance as early indications of a step in the right direction.
Bjarne Bergheim: A 41% reduction.
Bjarne Bergheim: As a result of these early successes and our confidence in the reset strategy, we're increasing our 2020 for full year revenue guidance to 29% to $31 million from the prior range of $28 million to $30 million.
Bjarne Bergheim: While we are happy with our first quarter results. We know there is far more to do we see this quarter's performance as early indications are a step in the right direction.
Bjarne Bergheim: I would now like to spent time outlining the three initiatives or plans, which are commercial execution cash conservation and margin expansion.
Bjarne Bergheim: I would now like to spend time outlining the three initiatives of our plan, which are commercial execution, cash conservation, and margin expansion. I'll provide some details on how and why we're focusing on each of these key targets and some commitments related to improving each going forward. The first focus of our 2024 Strategic Reset is commercial execution. As I mentioned earlier, having experienced rapid growth between 2017 and 2021, we invested heavily in several commercial programs starting in the second half of 2021.
Bjarne Bergheim: I'll provide some details on how and why we are focusing on each of these key targets and some commitments related to improving each going forward.
Bjarne Bergheim: The first focus of our 2024 strategic reset is commercial execution.
Bjarne Bergheim: While these investments did convert into sales, the effectiveness of our ability to place consoles and our ability to drive utilization in 2022 and 2023 was significantly less than we had observed earlier. Sonendo was trying to do too many things at once, scaling initiatives before we were ready, and straying from the selling practices we had been very successful with in earlier years.
Bjarne Bergheim: As I mentioned earlier, having experienced rapid growth between 2017 and 2021, we invested heavily in several commercial programs starting in the second half of 2021, while.
Bjarne Bergheim: While lease investments did convert into sales the effectiveness of our ability to place consoles and our ability to drive utilization in 2022, and 2023 was significantly less than we had observed earlier.
Bjarne Bergheim: So and then there was trying to do too many things at once scaling initiatives before we were ready and straying from the selling practices. We have been very successful with in earlier years.
Bjarne Bergheim: Given what we have learned, we have analyzed every commercial program to ensure we focus efforts on those that will generate a positive return on investment. One of the critical areas we have re-evaluated is the targeting of G3. In 2022, a hurried pivot into the GP channel took focus away from our core customers, the end adopters. While GPs perform many root canal procedures, we have not found an effective way to target high-volume practitioners on a consistent basis.
Bjarne Bergheim: Given what we have learned we have analyzed every commercial program to ensure refocus efforts on those that will generate a positive return on investment.
Bjarne Bergheim: One of the critical areas. We have reevaluated is the targeting of GPS in 2022, a herd pivot into the GP channel took focus away from our core customers the endodontist.
Bjarne Bergheim: While gp's perform any root canal procedures, we have not found an effective way to target high volume practitioners on a consistent basis.
Bjarne Bergheim: Additionally, a GEP that is only an occasional user of Genelev significantly dilutes our overall consumable utilization and is less likely to build out their practices around the procedure. However, an endodontist that primarily performs root canals is much more likely to be a consistent user of Sonendo's technology.
Bjarne Bergheim: Additionally, a GP that is only an occasional user a general move significantly dilutes, our overall consumable utilization this less likely to build out their practices around the procedure.
Bjarne Bergheim: However, and then adopt us that primarily performance root canals is much more likely to be a consistent user of <unk> technology.
Bjarne Bergheim: We're now 20% penetrated in the end of market in North America, and we believe we can meaningfully increase our presence in those practices going forward. As a result, we are purposefully shifting away from the GP strategy in the near term and refocusing exclusively on endodontists to reestablish touchpoints with both existing and potential customers. We believe this shift will help drive growth for procedure volumes and subsequent PI cells.
Bjarne Bergheim: We are now 20% penetrated in the end market in North America, and we believe we can meaningfully increase our presence in those practices going forward.
Bjarne Bergheim: As a result, we are purposefully shifting away from the GP strategy in the near term and refocusing exclusively Unended office to reestablish touch points with both existing and potential customers.
Bjarne Bergheim: We believe this shift will help drive growth of procedure volumes and subsequent sales.
Bjarne Bergheim: To support our commercial efforts, we have modified our sales compensation plan in the past most compensation dollars were spent incentivize and console placements, which affected doctor relationships and cost utilization to decline.
Bjarne Bergheim: To support our commercial efforts, we have modified our sales compensation plan. In the past, most compensation dollars were spent incentivizing console placement, which affected doctor relationships and cost utilization. We've remedied this by creating an incentive structure that rewards reps for not only selling consoles but also for building partnerships with doctors and driving utilization. In addition, I have spent a lot of time working with the entire commercial team amidst this reset, and I have a good grasp on which programs are vital to driving commercial execution and success going forward.
Bjarne Bergheim: We've remedied this by creating an incentive structure that rewards reps for not only selling consoles, but also for building partnerships with doctors and driving utilization.
Bjarne Bergheim: In addition, I have spent a lot of time working with the entire commercial team amidst this reset.
Bjarne Bergheim: And then I have a good grasp on which programs are vital to driving commercial execution of success going forward.
Bjarne Bergheim: Our senior leadership team has been working very closely with the board to analyze and review these programs. As a result, we are focusing the organization on a few commercial programs that we think will be critical for us going forward. One example of such a program is clinical education.
Bjarne Bergheim: Our senior leadership team has been working very closely with the board to analyze and review these programs as.
Bjarne Bergheim: As a result, we're focusing the organization on a few commercial programs that we think will be critical for us going forward.
Bjarne Bergheim: One example of such a program is clinical education events. These events resonate well with customers as we help them understand the benefits of incorporating <unk> into their practice, providing a multi step plan to increase the referral base and demonstrate how they can improve workflow within their practice.
Bjarne Bergheim: These events resonate well with customers as we help them understand the benefits of incorporating GeneralWave into their practice, provide a multi-step plan to increase their referral base, and demonstrate how they can improve workflow within their practice. These events have shown a good ROI for us and will be prioritized going forward. Driving focus in the commercial team and throughout the entire organization is a key tenet of our strategic reset. This was part of the rationale behind divesting TDO, our software business.
Bjarne Bergheim: These events have shown a good ROI for us and it will be prioritize going forward.
Bjarne Bergheim: Driving focus and the commercial team and throughout the entire organization is a key tenant of our strategic reset. This was part of the rationale behind divesting <unk> our software business for one the sale of CDO helps strengthen our balance sheet and pay down a portion of our debt.
Bjarne Bergheim: For one, the sale of TDO helps strengthen our balance sheet and pay down a portion of our debt. But from an organizational perspective, the sale of TDO now allows us to focus solely on growing awareness of adoption of the general IP. Selling consoles and PIs is very different than selling practice management software.
Bjarne Bergheim: But from an organizational perspective, the sale of CDO now allows us to focus solely on growing awareness of adoption of the gentlemen procedure.
Bjarne Bergheim: Selling consoles of <unk> is very different.
Bjarne Bergheim: <unk> and selling practice management software.
Bjarne Bergheim: From now on, we will focus on doing a few things very well. We are flattening the organization and simplifying the way we operate, and we are intent on returning to double-digit revenue growth in 2025. Make no mistake, though; I have full confidence in this commercial team and that they will be successful as we work together to build a position of leadership in the market.
Bjarne Bergheim: From now on we will focus on doing a few things very well we are flattening the organization and simplifying the way we operate.
Bjarne Bergheim: And we are intent on returning to double digit revenue growth in 2025.
Bjarne Bergheim: Make no mistake, though I have full confidence in this commercial team and that they will be successful as we worked together to build a position of leadership in the market.
Bjarne Bergheim: The second focus area of our 2024 Strategic Reset is cash conservation. Company-wide, we're finding ways to do more with less by creating clarity in priorities and processes across teams. We have discontinued programs that do not show a clear return on our investments, and as a result, we reduced non-GAAP operating losses by approximately 40% in the first quarter. Most of our expense reductions are in sales and marketing. We also eliminated expenses associated with completed projects, such as the design and development of G4 Design and Development of a Clean Folk Procedure Instrument, and the transition to one procedure instrument in the field.
Bjarne Bergheim: The second focus area of our 2024 strategic reset is cash conservation.
Bjarne Bergheim: Companywide, we're finding ways to do more with less by creating clarity and priorities. Some processes across teams. We have discontinued programs that do not show a clear return on our investments and as a result, we reduced non-GAAP operating loss by approximately 40% in the first quarter.
Bjarne Bergheim: Most of our expense reductions are in sales and marketing.
Bjarne Bergheim: <unk> also eliminated expenses associated with completed projects such that the design and development of <unk> for the.
Bjarne Bergheim: The size of the development of our clean full procedure instrument and the transition to one procedure instrument in the field.
Bjarne Bergheim: We're focusing our R&D dollars on improving margins within our existing product portfolio. Additionally, we have eliminated many of the higher fixed and back office costs. We anticipate the current level of operating expenses to become our new normal as we diligently work to find additional efficiencies in the existing business without compromising growth opportunities. As a result, we will likely experience moderated growth throughout the remainder of 2024 as we manage our cash proactively and allow sufficient time for the effects of the strategic reset to take hold.
Bjarne Bergheim: We're focusing our R&D dollars on improving margins within our existing product portfolio. Additionally.
Bjarne Bergheim: Additionally, we have eliminated many of the higher fixed and back office costs.
Bjarne Bergheim: We anticipate the current level of operating expenses to become our new normal as we diligently work to find additional efficiencies in the existing business without compromising growth opportunities.
Bjarne Bergheim: As a result, we will likely experience moderated growth throughout the remainder of 2024 as we manage our cash proactively and allow sufficient time for the effects of the strategic reset to take hold.
Bjarne Bergheim: We expect our non-gap operating loss for 2024 to be approximately $28 million, a 40% decrease or improvement over the prior year. I want to note that we are not just cutting expenses to save cash. Instead, we have analyzed our strategic needs and reallocated resources to areas that will drive growth while trimming unnecessary spending and thereby extending our cash runway. I also want to reiterate that management and the board are exploring multiple viable financing options, including a combination of debt, equity, and non-dilutive sources to secure our balance sheet.
Bjarne Bergheim: We expect our non-GAAP operating loss for 2024 to be approximately 28, million% to 40% decrease or improvement over the prior year.
Bjarne Bergheim: I want to note that we are not just cutting expenses to save cash instead, we have analyzed our strategic needs and reallocated resources to areas that will drive growth, while trimming unnecessary spending and thereby extending our cash runway.
Bjarne Bergheim: I also want to reiterate that management and the board are exploring multiple viable financing options, including in combination of debt equity and non dilutive sources to secure our balance sheet, we will provide more details as those discussions progress.
Bjarne Bergheim: We will provide more details as those discussions progress. The third focus area of our 2024 Strategic Reset is margin expansion. As discussed earlier, we increased our non-GAAP gross margin by more than 700 basis points to about 30% this quarter, but we have more work to do. In prior years, we have always been working in the background to drive incremental margin improvement, but the primary focus of our engineering teams was to develop and manufacture a reliable console capable of being the new standard of care in root canal therapy. Our previous G3 General Web Consoles had some reliability issues that required necessary service calls by our In addition, the cost of making these service calls within 24 to 48 hours of a request proved to be a significant burden on our overall Glass-Martin profile.
Bjarne Bergheim: The third focus area of our 2024 strategic reset this margin expansion.
Bjarne Bergheim: As discussed earlier, we increased our non-GAAP gross margin by more than 700 basis points to about 30% this quarter, but we have more work to do.
Bjarne Bergheim: In prior years, we have always been working in the background to drive incremental margin improvement, but the primary focus of our engineering teams was to develop and manufacture a reliable console capable of being the new standard of care enriching our therapy.
Bjarne Bergheim: Our previous G. III general new consoles had some reliability issues that required necessary service calls by our service team.
Bjarne Bergheim: This created frustration among the installed base and hindered peer to peer referrals and.
Bjarne Bergheim: In addition to cost them, making these service calls within 24 to 48 hours of a request proved to be a significant burden on our overall gross margin profile.
Bjarne Bergheim: As a result, our team undertook a significant redesign of the console, creating the next-generation GeForce Genelec console, launched at the end of 2022. Since then, the team has invested a lot of time to drive reliability through both design and manufacturing optimization, and I'm pleased to say that the G4 console is now exceptionally reliable. For previous generation G3 consoles, we saw an average of two unplanned field service calls per year. In contrast, the service calls for our G4 install base are less than 0.5 per year. This is an outstanding reliability profile.
Bjarne Bergheim: As a result, our team undertook a significant redesign of the console, creating the next generation G. Four general new console launched at the end of 2022.
Bjarne Bergheim: Since then the team has invested a lot of time to drive reliability through both design and manufacturing optimization and I am pleased to say that the G. Four council is now exceptionally reliable.
Bjarne Bergheim: In addition to a significant improvement in reliability, our G4 consoles are also helping our general providers drive better workflow in their office. Many offices report saving more than one hour of doctor and staff time daily with the G4 console. Given the significant improvements in reliability, we have also decided to eliminate third-party service support in the field, which will further reduce our service costs and improve margins. Instead, a dedicated Sonendo field service team allows us to better assist our customers and ensure that their needs are being met as quickly and efficiently as possible.
Bjarne Bergheim: For previous generation G. III consoles, we had seen an Irish of two unplanned field service calls per year in.
Bjarne Bergheim: In contrast, the service calls for our G. Four installed base average is less than 0.5 per year.
Bjarne Bergheim: This is an outstanding reliability profile. In addition to a significant improvements in reliability. Our G. Four consoles are also helping our generally providers drive better workflow in their offices.
Bjarne Bergheim: Many offices report saving more than one hour of doctrine staff time daily with a G for console.
Bjarne Bergheim: Given the significant improvements in reliability. We've also decided to eliminate third party service support in the field, which will further reduce our service cost and improve margins instead of dedicated surrender field service team allows us to better assist our customers and ensure that their needs are being met as quickly and efficiently.
Bjarne Bergheim: Possible.
Bjarne Bergheim: Moving forward, our commercial team will prioritize upgrading existing customers from a G3 to a G4 so that customers can experience the significant improvements we have made. Upgrading customers to G4 consoles will result in fewer service calls, improve customer satisfaction, and help drive peer-to-peer influence as we move forward. These are all critical elements of our reset.
Bjarne Bergheim: Moving forward, our commercial team will prioritize upgrading existing customers from a G. III to EG for so that customers can experience the significant improvements we have made.
Bjarne Bergheim: Grading customers to G. Four consoles will result in fewer service calls improved customer satisfaction and helped drive peer to peer influence as we move forward.
Bjarne Bergheim: These are all critical elements of our reset.
Bjarne Bergheim: In addition to the improvements to the console. We're also committing a lot of resources to consumables related projects I'd like to development and subsequent conversion of customers to a single clean flow procedure instruments.
Bjarne Bergheim: In addition to the improvements to the console, we were also committing a lot of resources to consumable-related projects, like the development and subsequent conversion of customers to a single clean flow procedure and solution. These projects proved to be expensive, but they were necessary to position Sonendo for future margin gains while establishing the satisfaction of our customers. Now that we have ensured the performance and reliability of our product portfolio, we can focus the team on margin improvement projects. We have cost reduction roadmaps that include strategic sourcing, material cost reductions, and value-based engineering projects that put us on a clear pathway to significant margin improvement. These projects are fully staffed and resourced.
Bjarne Bergheim: These projects proved to be expensive, but were necessary to position <unk> for future margin gains, while establishing the satisfaction of our customers.
Bjarne Bergheim: Now that we have ensured the performance and reliability of our product portfolio. We can focus the team on margin improvement projects we have.
Bjarne Bergheim: Cost reduction roadmap that includes strategic sourcing material cost reductions and value based engineering projects that puts us on a clear pathway to significant margin improvements.
Bjarne Bergheim: These projects are fully staffed and resource.
Bjarne Bergheim: From a commercial perspective, we are now incentivizing, our sales team to drive utilization as opposed to selling procedure instruments coinciding with this change we are limiting our prior discount programs in favor of building closer relationships with our doctors, helping them drive clinical efficiencies efficacy and better practice economic.
Bjarne Bergheim: From a commercial perspective, we are now incentivizing our sales team to drive utilization, as opposed to selling procedures. Coinciding with this change, we're limiting our prior discount programs in favor of building closer relationships with our doctors, helping them drive clinical efficiencies, efficacy, and better practice economics with the general rate procedure. This decision resulted in the Procedure Instrument ASP increasing from $71.60 in Q4 of 2023 to $75 in Q1 of 2024. However, implementing these changes resulted in fewer procedure instruments sold in Q1 of this year.
Bjarne Bergheim: With the generally procedure.
Bjarne Bergheim: This decision resulted in procedure instrument asps, increasing from $71 60 in Q4 of 2023% to $75 in Q1 of 2024.
Bjarne Bergheim: Implementing these changes resulted in fewer procedure instruments sold in Q1 of this year in.
Bjarne Bergheim: In the future quarters, we expect the procedure instruments shipments to align with customer utilization. Current CleanFlow procedure instruments have a contribution margin in the mid-60% range. By the end of 2025, we expect CleanFlow contribution margins to be in the low to mid-70% range. As a result of our margin focus, we expect the overall company non-GAAP wealth margin to be in the high 30% range as we exit 2024, and we expect this number to move towards the mid to upper 40% range as we exit 2025. Beyond this forecast horizon, we see clear opportunities to move company gross margins well into the 60% range.
Bjarne Bergheim: In the future quarters, we expect the procedure instruments shipments to align with customer utilization.
Bjarne Bergheim: Current clean flow procedure instruments have a contribution margin in the mid 60% range by the end of 2025, we expect to clean flow contribution margins to be in the low to mid 70% range.
Bjarne Bergheim: As a result of our margin focus we expect to overall company non-GAAP gross margin to be in the high 30% range as we exit 2024, and we expect this number to move towards the mid to upper 40% range as we exit 2025.
Bjarne Bergheim: Beyond this forecast horizon, we see clear opportunities to move company gross margins well into the 60% range.
Bjarne Bergheim: The board shares my conviction about the opportunities ahead, and we believe the strategic reset I have outlined today is an important first step for moving Sonendo towards meaningful growth in the future. We're confident in the technology, our team's ability to execute, and Sonendo's opportunity to revolutionize root canal therapy and the treatment of tooth decay. We're just getting started.
Bjarne Bergheim: The board shares my conviction about the opportunities ahead, and we believe the strategic reset I have outlined today is an important first step for moving some endo towards meaningful growth in the future.
Bjarne Bergheim: We're confident in the technology, our team's ability to execute and so then this opportunity to revolutionize <unk> therapy and the treatment of tooth decay.
Bjarne Bergheim: We're just getting started.
Bjarne Bergheim: I would now like to introduce Chris Goh, Sonendo's Interim CFO, to review the first quarter's results in more detail. Before stepping into this role in March, Chris had been Sonendo's Vice President of Finance and Corporate Controller since July 2021. He is a certified public accountant with extensive experience in both public and corporate accounting and has brought valuable financial and government discipline to Sonendo since before our IPO in 2021.
Bjarne Bergheim: I would now like to introduce to you Chris go <unk> interim CFO to review the first quarter's results in more detail.
Chris Guo: Before stepping into this role in March Chris had been some windows, Vice President of finance and corporate controller since July 2021.
Bjarne Bergheim: He is a certified public accountant with extensive experience in both public and corporate accounting and this brought valuable financial and governments discipline to some than dose since before our IPO in 2021.
Chris Guo: Thanks beyond and thank you all for joining us today. Please.
Chris Goh: Thanks, Bjarne, and thank you all for joining us today. Please refer to this afternoon's press release and thank you filing for more details on specific financial results, including reconciliations between GAAP and non-GAAP financial results. As previously stated, total revenue of continuing operations for the first quarter of 2024 was $7 million, compared to $8.7 million for the first quarter of 2023. The decrease was driven by lower PI sales volumes and partially offset by an increase in PI average selling price. Q1 PI revenue was $4.2 million compared to $5.7 million in the first quarter of 2023. In the first quarter, Gentle Wave console revenue was $1.8 million. The average selling price during this period was approximately $50,000.
Chris Goh: Please refer to this afternoon's press release and 10-Q filing for more details on our specific financial results, including a reconciliation between GAAP and non-GAAP financial Rethought. As previously stated total revenue of continuing operations for the first quarter of 2024 was $7 million compared.
Chris Goh: $8 7 million for the first quarter of 2023, the decrease was driven by lower sales volumes and partially offset by increased MPI average selling price Q1, <unk> revenue was $4 2 million compared to $5 7 million in the fourth quarter of 2023.
Chris Goh: In the first quarter gentle way of console revenue was $1 $8 million the average selling price during the period with approximately $50000.
Chris Goh: We sold 37 consoles in Q1 2024 with 29 Gen 3 trade-ins, increasing our install base by 8. Our install base as of March 31, 2024 was 1,142. Total other product-related revenue was $1 million in the quarter. During Q1 2024, software revenue was $1.4 million and is reported in the discontinued operation. GAAP gross margin for the first quarter of 2024 was 28 percent as compared to 23 percent in the prior year period, primarily due to higher PI average selling price and lower unit cost. Non-GAAP gross margin for the first quarter of 2024 was 30%.
Chris Goh: 37, <unk> in Q1, 2024 with 29, Jan three trading increasing our installed base by eight our installed base as of March 31, 2024 with 1142.
Chris Goh: Total other product related revenue was $1 million in the quarter.
Chris Goh: During Q1 2024 software revenue was $1 4 million and as reported in the discontinued operations.
Chris Goh: GAAP gross margin for the first quarter of 2024, 28% as compared to a 23% in the prior year period, primarily due to a higher average selling price and lower unit cost.
Chris Goh: non-GAAP gross margin for the first quarter of 2024 was 30%.
Chris Goh: Total operating expenses in the first quarter of 2024 were $12.3 million compared to $17 million in the same period of the prior year. The decrease was primarily driven by a reduction in headcount and lower marketing spend.
Chris Goh: Total operating expenses in the first quarter of 2024 or $12 3 million compared to 17 million in the same period of the prior year. The decrease was primarily driven by a reduction in head count and lower marketing spend.
Chris Goh: Gap operating loss was $10.2 million in the first quarter of 2024, compared to $15.1 million in the first quarter of 2023. Non-gap operating loss was $7.5 million in the first quarter of 2024, compared to $12.8 million in the first quarter of 2023. The net loss from both continuing and discontinuing operations in the period was $6.8 million, including a $5.7 million gain from the sale of our software business, compared to a net loss of $15.4 million in the first quarter of 2023. As of March 31, 2024, our cash, cash equivalents, and short-term investments were approximately $33.6 million. I will now turn the call back to Bjarne. Thanks, Chris.
Chris Goh: GAAP operating loss was $10 2 million in the first quarter of 2024 compared to $15 1 million in the first quarter of 2023 non-GAAP operating loss was seven five in.
Bjarne Bergheim: In the first quarter of 2024 compared to $12 8 million in the first quarter of 2023.
Chris Goh: Net loss from both continuing and discontinued operations in the period was $6 8 million.
Chris Goh: Including a $5 7 million gain from the sale of our software business compared to a net loss of $15 4 million in the first quarter of 2023.
Chris Goh: As of March 31, 2024, our cash cash equivalents and short term investments or approximately $33 6 million.
Chris Goh: I will now turn the call back to BR.
Bjarne Bergheim: Thanks Chris. Sonendo's management and the board are optimistic about Sonendo's forward outlook and are encouraged by the early indications of success in our reset strategy. We are raising our full year 2024 net revenue guidance to $29 to $31 million. Note that this excludes revenue from TDO software, which will be reported as a discontinued operation.
Bjarne Bergheim: Thanks, Chris Synovus management and the board are optimistic about some of those forward outlook and are encouraged by the early indications of success in our research strategy.
Bjarne Bergheim: We are raising our full year 2024, net revenue guidance to $29 million to $31 million.
Bjarne Bergheim: Note that this excludes revenue from <unk> software, which will be reported as discontinued operations.
Bjarne Bergheim: As we work through this reset, we will continue to focus on driving efficiency and focus throughout the organization around the pillars of commercial execution, cash conservation, and margin expansion. We therefore have a moderate growth outlook for 2024, which is reflected in our revenue guide. We expect to return to double-digit growth in 2025. We're excited about the opportunity ahead of us and remain confident that the GENLIME procedure and the GENLIME system are well-positioned to transform endodontics and therapy for tooth decay. With that, I will open the call for questions.
Bjarne Bergheim: As we work through this reset we will continue to focus on driving efficiency and focus throughout the organization.
Bjarne Bergheim: The pillars of commercial execution.
Bjarne Bergheim: Cash conservation and margin expansion.
Bjarne Bergheim: We therefore have a moderate growth outlook in 2024, which is reflected in our revenue guide.
Bjarne Bergheim: We expect to return to double digit growth in 2025.
Bjarne Bergheim: We're excited about the opportunity ahead of us and remain confident that the gentleman procedure and a gentleman system is well positioned to transform endodontics and therapy for tooth decay.
Bjarne Bergheim: With that I will open the call for questions.
Speaker Change: Thank you.
Operator: If you would like to ask a question, then please press Starfnode by 1 on your telephone keypad. To withdraw your question, please press Starfnode by 2. Please also ensure that your phone is unmuted vocally.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Your question please.
Operator: Can you. Please ensure that trophy is on mute Anthony.
Operator: Our first question comes from Jon Block with Stifel. Please go ahead.
Speaker Change: Great Thanks, and good afternoon.
Jonathan David Block: Great, thanks, and good afternoon. Bjarne, I think I've got these numbers right, but it seems like net eight new boxes. I think there were also 29 upgrades in the quarter. I know the thought is sort of a more focused and streamlined approach. And, as you mentioned, sort of pulling back from the GPs. But maybe if you could just talk about this split, should we see this sort of split call, you know, a heavy upgrade percentage?
Jonathan David Block: And I think I've got these numbers right, but it seems like net eight new boxes and there were also 29 upgrades in the quarter I know the thought is sort of a more focused and streamlined approach and as you mentioned sort of pulling back from the Gpus.
Jonathan David Block: Maybe if you could just talk about the split should we see this sort of split call a heavy upgrade percentage persist for the balance of 2024, just when we think about the causal and if so I was actually pleasantly surprised by the ASP of almost 50000, considering the mix too.
Jonathan David Block: Persist for the balance of 2024, just when we think about the consoles. And if so, I was actually pleasantly surprised by the ASP of almost $50,000 considering the mix of the upgrades, but maybe you can comment on that as well.
Jonathan David Block: The upgrades, but maybe you can comment on that as well.
Bjarne Bergheim: Yeah. Thanks, John good good questions I think you're assuming on an exactly the things that are important to zoom in on here.
Bjarne Bergheim: Yeah, thanks, John. Good, good questions.
Speaker Change: We are.
Speaker Change: We are.
Bjarne Bergheim: I think you're zooming in on exactly the things that are important to zoom in on here. You know, we are You know, we are, you know, we are specifically. As we discussed in our script, the G4 is significantly more reliable. They cost less to service, and they drive a significant amount of efficiencies for doctors and staff.
Speaker Change: We were specifically.
Bjarne Bergheim: We like we discussed in our script the G. Four is significantly more reliable.
Bjarne Bergheim: They cost us to service they drive significant amount of efficiencies for doctors on staff.
Bjarne Bergheim: And so it's very, very intentional for us that we're prioritizing G4s at this point in time. The world doesn't know the benefit of G4 yet. So for us, it's important to remove older G3s and replace them with next-generation G4s. And one of the things that we did early on, we never went back to our early adopters and KOLs and gave them an opportunity to upgrade earlier until now.
Bjarne Bergheim: And so it is very very intense.
Bjarne Bergheim: Intentional for us that we're prioritizing D force at this point in time, the World doesn't know the benefit of G for yet.
Bjarne Bergheim: So for US it's important to remove older <unk> replace them bid.
Bjarne Bergheim: Next generation G Force.
Bjarne Bergheim: We one of the things that we did early on we never went back to our early adopters.
Bjarne Bergheim: <unk> and gave them an opportunity to upgrade earlier until now so at this point in time were really pushing the <unk> is to ensure that we can drive peer to peer going forward. So this is very much a planned focus.
Bjarne Bergheim: So at this point in time, we're really pushing the G-force to ensure that we can drive peer-to-peer going forward. So this is very much a plan focus. We have specifically initiated activities in Q1 to drive these upgrades, but as you're talking about the upgrade percentage, we expect it to be reduced over time as we move forward. With regard to the ASPs... You know, this is, um... Bjarne Bergheim. You know, I think that the key for us right now is the ASBs. We're very happy with the ASBs going up. We intentionally initially limited discounts to drive additional demand in Q1 of 2024. And in the future, we expect procedure instrument shipments to align more with customer utilization going forward.
Bjarne Bergheim: We have specifically initiated activities in Q1 to drive these upgrades, but thats youre talking about the upgrade percentage, we expect to be reduced over time as we move forward.
Bjarne Bergheim: With regards to the the Asp's.
Speaker Change: This is.
Speaker Change: Apologize Sir.
Bjarne Bergheim: Hi.
Bjarne Bergheim: Yes, I think the key for US is right now as to the Asp's were very happy with the Asp's going up we.
Bjarne Bergheim: We intentionally initially we limited discounts to drive additional demand in Q1 of 'twenty 'twenty four.
Bjarne Bergheim: And in the future, we expect procedure instrument shipments July in more of a customer utilization going forward.
Speaker Change: Okay, Great that was great color. Thanks, and then I think I've got you heard Joe's exiting the year with the Gms and the high thirties.
Jonathan David Block: Okay, great. That was a great color.
Jonathan David Block: Thanks for you. And then, um, I think I got you, you know, heard you on exiting the year with the GMs in the high 30s. And, you know, sort of see the progress already, but just curious about how that build occurs. Call it like 2Q, 3Q, 4Q. Obviously, the starting point is about 30%. Do we just think about it somewhat linearly, you know, 200 to 300 bits? per quarter to get us to that exit of the high 30s? Should there be any quarter to quarter variability that we should think about?
Jonathan David Block: As you can see the progress.
Jonathan David Block: Already but just curious on how that build occur recall of <unk> Q3, Q4, you obviously, the starting point of about 30% do we just think about it somewhat linear you know two to 300 bps.
Jonathan David Block: Per quarter to get us to that exited the high thirties should there be any quarter to quarter variability that we should think about.
Speaker Change: No as I get it.
Bjarne Bergheim: When we look at gross margin, like we said in the call, we do expect gross margin to increase during the year. We expect to exit in the upper 30% range. So, that is something that will gradually go up as we move throughout the year here.
Jonathan David Block: <unk> gross margin.
Bjarne Bergheim: You know what risk like we said in the call we do expect.
Bjarne Bergheim: The gross margin to increase during the year, we expect to exit in.
Bjarne Bergheim: In the upper 30% range.
Bjarne Bergheim: So that is something that will gradually go up as we move throughout the year here for for US on margins John I think the key for US is you know at this point in time, we have one P. IV had one console we have obviously converted.
Bjarne Bergheim: For us on margins, John, I think the key for us is, you know, at this point in time, we have one PI, we have one console, we have obviously converted, you know, to move to clean flow. We have two strong senior executives driving these programs here. We're going to continue to focus on cost reductions. For us, it's all about strategic sourcing, material cost reduction through negotiations, and value engineering, and we're going to continue to optimize and reduce costs here as we go forward. So, yes. The short answer is yes, you'd expect that gradual, you know, sequential improvement as we go forward.
Bjarne Bergheim: To move to clean flow.
Bjarne Bergheim: We have two strong senior executives driving these programs here, we're going to continue to focus on cost reductions for us. It's all about strategic sourcing material cost reduction through negotiations value engineering.
Bjarne Bergheim: And we're going to continue to optimize the route reduce costs here as we go forward. So yes. So the short answer is yes, you should expect that gradual.
Bjarne Bergheim: Sequential improvements as we go forward.
Speaker Change: Okay and last one for me and then I can take the rest offline, but it's just more big on the strategic side of things I believe you have.
Jonathan David Block: Okay, and last one for me, and then I can take the rest offline, but it's just more on the strategic side of things. I believe you have what you call a cavity in front of the agency. I think that's where it stands, but, you know, per your commentary, there seems like a de-emphasis on the general dentist. And so how do we balance those two things? I mean, as we think about you guys prioritizing certain initiatives, will the cavity still be one of them?
Jonathan David Block: You know call a cavity in front of the agency I think thats, where it stands but per your commentary there seems like a D emphasis with the general dentist, how do we put those two things I mean, and as we think about you guys prioritizing certain initiatives will cavities there'll be one of them. If so what will that mean when.
Jonathan David Block: If so, what will that mean when you then, you know, take that hopefully future approval and take it to, and take it to the market actually? Thanks for your time, guys. Thanks, John. You know, obviously, we remain super excited about Cavity.
Jonathan David Block: You then take that hopefully future approval and take it to and take it to the market actually thank you for your time guys.
Bjarne Bergheim: Thanks, John. You know, obviously, we remain super excited about cavity, but at this point in time, we don't want to get ahead of ourselves here. I don't want to get ahead of myself, but we're going to continue to focus on endodontics, and so you're not going to hear too much about cavities at this point in time. It is in the agency, and we'll obviously continue to watch for that approval as that comes forth. For us right now, the key is to focus on the key pillars of our strategic resets around commercial execution, cash conservation, and margin expansion.
Speaker Change: Yes, Thanks, John obviously, we remain super excited about cavity.
Bjarne Bergheim: But at this point in time, we don't want to get ahead of ourselves here I don't want to get ahead of myself, we're going to continue to focus endodontics.
Bjarne Bergheim: And so youre not going to hear too much about cavities at this point in time. It is in the agency and we'll obviously continue to watch for that approval at that comes forth for US right now the key is to focus on the key pillars of our.
Bjarne Bergheim: Strategic reset surround.
Bjarne Bergheim: Commercial execution cash conservation and margin expansion.
Bjarne Bergheim: Okay.
Speaker Change: We are.
Speaker Change: Thank you John.
Speaker Change: Thank you we.
Operator: Thank you. We have no further questions, so I'll now hand the microphone over to Bjarne Bergheim for closing remarks.
Speaker Change: We have no further questions. So I'll now hand back over to beyond Black Hawk for closing remarks.
Bjarne Bergheim: Thank you operator, we appreciate everyone's time today, we're excited to continue obviously with this reset strategy here going forward have a great day.
Bjarne Bergheim: Thank you, operator. We appreciate everyone's time today. We're excited to continue, obviously, with this recess strategy here going forward. Have a great day.
Operator: This concludes today's call. Thank you for joining us, everyone. You may now disconnect your lines.
Operator: This concludes today's call. Thank you for joining everyone. You may now disconnect your lines.
Operator: [music].
Operator: Okay.
Operator: [music].