Sonendo (SONX) 9 Aug 232023 Q2 Earnings call transcript

Good afternoon, and welcome to Sonendo's Second Quarter Earnings Conference Call. [Operator Instructions] 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. Please go ahead.

Thanks, operator. you in thank call. and afternoon, for today's participating Good

quarter current future these expectations hiring, COVID-XX performance results those the are commercial to you to this the not forward-looking actual President our and are to statements. which XXXX. statements and this released upon during forward-looking financial place Reform revenue differ events call reliance results Joining our available safe pursuant XXXX. on the begin, implied opportunity, meaning release are Sonendo could website.Before All our material trends on estimates expansion like expectations to the Bergheim, copy financial June and our or of A federal uncertainties for business, impact relating Accordingly, make the Sonendo and forward-looking guidance, Litigation statements. within that predictions to call for me of performance, statements, product development will from management and statements growth Any provisions is management, today, laws, future to of securities made Bjarne pipeline remind in Securities involve on or including various CEO; operating assumptions.These the cause the harbor press those that organization, include relate or XX, market from of events, of CFO.Earlier on statements these materially forward-looking risks Michael results and statements. based by Private statements made that undue are should of we company's ended I'd expense Watts, you Act

refer our Risk only as information filed March and and the risks to on our annual in section X, accurate report XXXX. of public X, Securities and broadcast uncertainties list on periodically of XX-K contains conference call time-sensitive associated business, Commission with a reports and with XXXX, live Form the recent and most SEC.This August other of the the on description Factors filed and Exchange For EDGAR is available with the please

intention information, by or any that, will or or over new projections revise whether of future disclaims call Sonendo now except to turn as with or events Bjarne. law, forward-looking any because I to otherwise.And the update obligation, statements, financial required

Thanks, you joining with Louisa. today.For start Mike second detail call, will some the quarter over to afternoon, Good additional performance, commentary turning everyone, about and and highlights for thank to us business strategy provide financial results. I before call regarding forward-looking this

the also see Q&A.During our we was increased challenging the in technology to million, quarter Total market revenue of with quarter, finish second continued from our for will expectations. $XX range adoption while We navigating the a environment.

revenue growth a decline projecting over significantly console time XXXX totaled we performance XX% full with we that including $X.X our sheet experienced I'll CleanFlow the lines. pleased very was to of some for targeted that growth the strong preservation.In in placements the challenges at second the are have today, the implementing the we technology conferences. quarter long-term past profile provide experienced bottom like XX% to X% and also detail ahead procedure the was sales of we're of are drive positive to be over case, initiatives of second There instruments year-over-year sequential While already margin the specific to the some in and to address in value.I'd have balance of spend and benefits year-over-year year of dynamics the revenue many quarter, year, QX. highlight I'd that reasons the and now of for moderate remainder increase. delivered and and remain what of uniqueness conversion.Turning like headwinds the which guidance, this investor drivers, foundation the quarterly time top improvements we adoption and several program. our then going we communicated the But second at why reaching a PI line confident new year-to-date capital the line console the quarter are team to low specifically will discussing We're we doing the in million, have pricing begun acknowledge placements. results and improved, regarding as end and we forward. penetration, business, We over to for sales the of capture year-over-year some prior calls ultimately placements top growth. representing

in noted much to GentleWave During delay later previous had second We They of the making related interest potential GentleWave quarter, we have in of we a macroeconomic to year. and our rates.As strong. and are this attribute increasing pipeline and not delay in will uncertainty remains pipeline, to sales out interest chose calls, buyers we falling they decision. where the several the opportunities believe adopt late-stage purchasing

encouraged the the is pipeline higher GP it practice. experience and and exposure proposition strategy great educate than We've will brings has the stages of only trade a dental equally to second continue do new constraints GP we entering There are interest Therefore, with more leads dentist segment We service at by is than lot at the half this that with of of expenditures us to sales signed that at GP-focused opportunity to deals a rollout the a offices we've a example year, implication capital their generation gained in as discussion of within our where The to channel. gave endodontists it of attendance we vast segments around sales opportunities and same known how their dentists we segment, endodontists. quarters timing weighted to console in the high the convention, majority level other to primarily and demand dynamics value have the become that of channel.An the of prior about of some noted on our we're and into of more in for is to other in practices. cultivated GentleWave sales address value GPs and them the the cycle. of and financial within The in our nurture there point an events. the to elongation earliest team, technology the more our similar at recent pipeline their strategy continue long-term considerations. year. When last a and in to GP we know was the seeing new GentleWave future.Associated we of Florida number with Sonendo the of delivers of generating The the this our is We're look untapped have sales of accounts, sales GP integrate initial their limited we measured us previously GPs half learnings funnel these majority An first enthusiasm. provide seeing GP ensure important where practice. shows our how significant proposition Dental be between significant analysis distinct attributed runway customers would not have the that through procedure the is But a team higher-volume with practices. X be particularly proportion for within produce believe strategy. This works the

keeping were of first GPs The that consists in-house. segment already procedures

result satisfied time a experience, only GentleWave, to dental referrals of chair productivity able As they're patient not a also increase patients. but offer from practice now better reduced potential but and

the to confidently investing RCTs We're stage.Consequently, machine we able we have see referring additional the that in-house endodontic molars, this demand from believe GP in the to the stream early and GPs previously endodontic in our opportunities growth for of those significant practice. resources segments, stages recently that important second GP per canals reallocated confident perform these In do. their adopted moving disinfection at be been historically canal the to channel activities we to who GPs third right now what treat gives potential strategy are increase shared increased system GP that is segment restorative doctors One of who business the to revenue didn't The is been for segment, system and represents also to remain which most and those and produce the events still these GPs, and closing confidence the root segment a root investments procedure and "This specifically quote, are same-day the offer and doctors now perfect patients. for keep time." awareness within GentleWave single to sales leveraging team them on include with our allows into GentleWave previously high-quality we educational initiatives. The that, I while the every new all out that therefore, had both revenue for that chair.The workflows an

several to We doctors programs their have how the workflow. practice to that for to model access allows their fits works GentleWave that get business it system evaluate into them how allow and in-office

This strategy experience has benefiting We're to quarter a recently our professional and account DSO the this for substantial other has corporate the valuable GP a DSOs GP historically through the largest should leader our the a There within includes of and account or and implementation dental States incentives.In the critical initiatives attention focusing we on increased new which approach GP DSO our announce are purchasing due DSOs from this that our specialist hired is out focus trends to drive DSO Canada prove QX DSOs. we're comes channel to reflection market. who is role and been doctors QX, commitment more with market development Additionally, tax market. Building pleased our investments responsibility organization United have company put that for specifically with media, thousands strategy channel to that to into of as opportunity. a of segment. move corporate and conjunction both service in and the direct we

and I'd focus XX% DSO the our expansion. within underpenetrated Canada, market, remains will continue market and of the States not While we're to an strategy about in gain the resources of we to endodontists the over X,XXX line, time to Sonendo on forward Endos one the bottom endodontists. bullish the relented focus the channel discuss utilizing less we It some have to remain and United opportunity traction expand that than GentleWave with moving an margin for the to system. GP to.Moving on like commit important

the gross margins for by quarter accelerating I'd our result were details but improvements we the remarks, plan prepare to charges margins of like second Mike address his of exit during in impacted The to accounting higher XXXX. as adjustments. action specific negatively return and discuss those XXXX will

accelerate on will our exiting Regarding and an of improvement to the XXXX. of one to in a start that chain margins.Turning be Molar PI.Second, use planned instruments, we of margin to expansion GentleWave order on our this the multiple These margins, improve PI, scale, indicated canceling line consoles. contribution higher CleanFlow to achieve margins simplify sourcing on consolidation of PI teeth. requiring all materials. required APM system, charges Until for by adoption milestones and steps use procedure supply the QX mark and relationship results alternative future will also first, took our and of supplier we portfolio, now, CleanFlow Having goal manufacturing the greatly announced gross achieve product interior its PI economies ability the relating separate one the used our the for PI the of in one important to of is teeth interior teeth to for at a now ultimately relates X, and August within

in call, us the units for we line and we made we have quarter bring to The operational, closer GX control the in-house. have not optimizing assembly process, As strategies improvements internal already a to also force resources for ongoing We our preservation anticipate balance units burn. management. July, to to to cut and June cost we therefore, able margin our reduction, In implemented future accelerate fully oversight number console decision our and ensures manufacturing by I'd discussed touch entire will finally, cash and and customers. placed with for assembly like field. making the assembled leverage assembly expenditures we it an XX% in reduction this first In-house change.And of in allows chain that quality supply sheet only be and on supervision reduce the expense of is on internally focus approximate

have now and spending are we term.In will multiple closing Financial for burn.I We the accelerate and some then continually expense reassessing comments the near the Watts, to reduce margin we're and of Mike? ahead initiatives gross improve our allocating Chief adoption program and Michael turn Sonendo's call cash are a prioritizing requirements, GentleWave questions-and-answer session. and over in resources return tighter to to summary, longer Officer,

Sonendo program, was sold compared compared by year revenue selling in the to increase XXXX, XX%. $X.X approximate growth in second by revenue totaled Products stated, resulted the to PI versus quarter million new was offset year, PI segment the the million compared revenue in million in million an the X%. increase which $X.X QX was increase of for second of second Thanks, over partially a XXXX prior for console XXXX, Procedure Bjarne.As $XX.X with of PI to to approximately prices quarter driven pricing an quarter growth of decline an instruments XX% revenue, revenue. the previously PI period. average total quarter X% was of an in $XX increase XX,XXX. prior

during out ahead mix PI the lower increase. million quarter. attributed revenue for second product-related revenue the were quarter As in positive XXXX, decline This margin in the the due the selling PI we second QX buying utilization.In the reflecting to in million XXXX. console. XXXX, call, of pricing price XX%. impacted second special with $X.X pricing and Note commentary. was had X%. practices.Gross earnings group with was million XX% represents traction perform $X.X up of compared console ASP unfavorable QX QX roughly addressed sales other quarter negatively this the XXXX the was compared a revenue same of in X%. gained to $XX,XXX, $X.X for of favorable is $X.X XXXX, customers the the was well second software volumes We reasons Gen sequentially to our an X to on XXXX mentioned TDO in XXXX GentleWave believe our and over million that results in of average Bjarne's revenue increase year-to-date in GentleWave an GentleWave legacy Total by higher quarter, console approximately period for the QX million $X versus for quarter The to XXXX quarter price decline second QX and for was continues Total program

mentioned, Bjarne As X quarter, to we charges within previously the recorded relating inventory.

customers Gen newer X Gen X an and The excess quantity first our charge choosing demand relates million reflects the of GX of lower-than-anticipated to $X.X consoles of legacy console. driven by

for planned. supporting to We our installed quantities are albeit continue X Gen and at X plan than to base offer Gen committed to as customers, an lower option

to retirement The a second and APM termination of $X.X relates those relationship instruments, charge products. of million for of procedure and Molar supplier legacy the the

into margin PI sustained Our plan one transition half to CleanFlow accelerate XXXX. improvements the with the in to lead to of XXXX will second

second offset quarter expenses of $XX.X and $XX.X compared were to the in quarter increased the expenses lower and expenses to million Net sequentially second higher of $XX second these XXXX million shown primarily in second in Excluding spending.Loss prior to million compensation, operating for margin Increases year-over-year gross compared operations million million quarter the and recruiting year.Total adjustments, driven improvement $XX.X period higher of to administrative quarter by related legal were of relating sales and was partially year. by XXXX. costs for second second this was stock-based million to XXXX marketing in the have the of general from $XX.X and same quarter QX in compared loss the of would positive R&D XXXX. of quarter the from XXXX revenues, $XX the

at approximately as approximately XX, and were while long-term XXXX, borrowings million. cash $XX million, cash and equivalents June $XX.X investments of Our remained short-term

seen dynamic we that QX million As rates the cash XXXX million console we lower-than-expected in income cash release, GentleWave to in with our earnings reflects to of to the entire over cycle receipt the sales in USDXX equivalents half revenue of pipeline range other elongation QX respect the includes first an in retention million. This of consoles. and during the our and the the of recognized have noted financial closure guidance $X.X employee expect net now of credit guidance, be year USDXX for XXXX.As

revenue back million million.Now and We are quarter USDXX.X closing to expecting to comments. third Bjarne between USDXX.X for range

value believe end in the care, remain strongly that the revolutionizing commitment we fundamentals lie saying also the to for Thank this as to of growth.At XXXX the like to for the in predictability for proud sound up long-term sustainable has in and only but whole and GentleWave to continue procedure more not to open you, of bring cycle. we Mike.I'd are anticipate our that by this success to encouraged made business a that call half our the committed creation Sonendo sales by steadfast opportunities driving prioritizing ahead. like back industry intend the and We're I'm and progress will endodontic questions. infrastructure point, for I'd growth drivers of shareholders,

Thank Piper today from first of Sandler. comes Jason line the Bednar from Instructions] question you. [Operator Our

I off actually purchase up prepared to we the slowed just the pick remarks, want adoption the left current environment. and on macro delays maybe in where maybe in here there the

to cause at you on for year the decisions what could these I quarters. over with been were expect business. if your referencing the in respect XQ the purchase couple you've past of maybe I'm think root But elongation here or the next elaborate now so, of and curious you the least what of

quarters in even of tone a some kind trying deteriorating parts cases, ago, some what other Just maybe sat really you're from the to X versus business, just or your versus on effects equipment seeing stable market. rising where more out of like there what reconcile X having larger seems improving of effect just are any is behavior the extra we or rates color interest

you, Jason. Well, thank

not us that pathway are with QX. change a flow It's by just clear our cash trajectory. in have we start going We're to some making me changes to be for off Let to performance happy to our critical breakeven. saying

acutely cash So you're us on going see focused margins top being preservation. and line to growth,

very a question. you're think I good asking very,

talked will. about if We have purchase the you lates,

try to give a more me let specifically bit So color little this. around

other what like us, think are And I is think fullest now No, extent how have its to to we're don't process slower of significant said realize at business market. the making prospective into to this macroeconomic penetrating is owners. small we're sales we that looked the macro how is decision-making I for economy we that think the I think we've I console customers. these before, seeing, thing conditions

Specifically, endodontic as we move if segment, the segment into or the endodontist will. deeper you

I think And providing. we're way is they're being one, approaching the patient with that endodontists run. two, with they're comfortable they're point care business their happy are currently

As that doctors to a see change. need the approaching many we're result, necessarily don't

we're that sales They're just They're process. us. with time So customers thing have their through to decision going the of say in that is other these would year.Now no. into time seeing deep lot funnel. our delaying a of spent lot a invested They've I say customers sales not the later our

actively things the one that to really of get we've of looked at going So engaged, exactly what's they're that's also and sense on. a

is just will, We effectively thinking, just their understand it customers of also thinking confirms if mechanics, market And correct. you sure understanding make that our in our the our to here. the surveyed to

that's what really in portion, think, similar to want that we of question, last So allude place saw and not this or we go after put to also talk what put or not. we're and hit deteriorating in What I we specific QX, whether just that we in is QX. we can in is something saw your I more this, to QX together seeing some have about.But actions have the

deterioration. in what in a you just seeing stable, We're macro impacting is customer the to will, way if not the we're past. seen we have a our similar seeing that on So

step the a mean Okay. or I took at All here. adjusted maybe right. Very helpful. gross a the reflection. margin forward Maybe is it probably looking nice margin definitely gross better

that about rest story with are these think, quarter So in an improvement. think have consecutive just from here mean in of side. now some on year it accelerate because the probably the margins? third with I we're gross for the now they you but of this any to going step part margins? you've talking thoughts Where you actions, we the I trajectory PI improvement. function is not other gross do just of taken on some forward these now margin on seems still actions that we Or improving the this guess sounds we're of maybe too. is, here, gross other the year, I improvements like like 'XX are sitting path it After a

we would step expecting gross And it's that year mid-XXs. indicate, I'll you of take performance up first plot adjustments Mike. rest if the as the is Jason, and quarter, [ then color. our and Bjarne the see that of what ] part add that was the let you margins we're for in sequentially the But the we a took year-over-year. in

our as So CleanFlow help that into for GX in-house last I from PIs and year. part and strategy our progression having the of an then to benefiting for year, in is the our accelerate XXXX. also over we of definitely to production we PI capacity remainder CleanFlow. us to to one due really movement leveraging scale took and that And mid-XX% our will add here. adjustment have around And also, would the improvement that large QX bring

earlier CleanFlow communicated potentially previously the to much expecting than communicated. with what previously beginning seeing had be year middle now we're in we conversion, at the XXXX of that So year the we're earlier of We and for January.

focused on. me about few something add spot comments and because CleanFlow there. is talking that Mike acutely just a is key that ultimately our that's here margin let we're on driver, just Maybe

that we're will that make also CleanFlow that just to, extra that converted we agreement, Mike this have other CleanFlow the help extricating to And CleanFlow. a one, technology ourselves an means transition CleanFlow XXXX. that simplify beginning be of CleanFlow. Obviously, at we to enhanced as supplier two, interior the customers took us. For alluding customers further launching experience will Point for is sure over from which ultimately teeth. with will simplifies point thing CleanFlow operations we to charge that was an entire just the incredible the for released And effectively

We the sales just we as side, have supplier the a really simplifies be side to training continue one PI, manufacturing margins. side, element drive and it side, will the key

from then And one maybe Great. more my side. Okay.

Just to curious, the cash XX comfortable just But some if now to Mike over here forward, are balance in say, the taking months, on or but missed move actions remarks. expectations here the protect sheet. Bjarne, up offering cash That burn it, you're was a you very as we if do burn view next, prepared X think moving sorry where I you clear goes again, again, forward?

reducing we're ERC. indicated, So We're sequential that reduction in benefit burn. a expecting exclude cash you Bjarne received we the cash as when burn the committed from to our

the us in QX So million. benefit ERC $X.X a of gave

So to that out that. taken if QX to of in reduction sequential for reduction you also sheet and exclude that, then expense position. one contribute positions other And efforts we'll improvement more we've able QX. an to and the PI, moving inventory leverage see And our get and cash a we're of benefit the flow balance will added in

different as focused to continue add the to forward opportunities preserve go acutely strong I a forward. we're as very just any here going at continue no we stay to we're here. very, we have just look And expenses that to balance sheet going we sheet, looking balance ensure that to to be at would go

line from question of today from Sarah The the Conrad Goldman comes next Sachs.

start first I on I the guess instrument to volumes. procedure wanted

that forward of the is we volumes because increase Looking seen first a price at Or of seeing into pricing? it bit the even Is XX% including just down. might love driving have lower little the sequential the seems would step X% quarter, and a back console like What we pull color. that? pull are still per

and But and and take in double-digit increase year-to-date ask we anything increase, look out add. has again you see year-over-year sales I'll a procedure utilization. on Bjarne he if Mike. when basis, the it's Sarah, question a instrument to then

be X%. I per did you think dip is basis, we X% basis a you on per what when a may to look alluding to utilization that around at in console console, roughly see

had look not Now that pricing that. the surrounding analysis expectations was that procedures. we also make use we've to price anticipated may we're very playing within that when out. the with the then We a the done GentleWave is some X just overall quarters our customers you basis of on pleased increase, combined. still to how And the had certain increase choice on year-to-date when But range utilization the increase

significant of Sarah, utilization looking years, obviously if I or a see significant very done very, may device. just pricing a per looking a year add, back also but And revenue pricing very, at we're go we've will at X so closely, you in we're very number increase. you different increases, if back

on the instrument also to, an increase in So I overall per we in procedural think it is alluding is and in on box. side natural to have a slight revenue revenue an reduction utilization. the Mike increase But like had

helpful. on then expansion. Okay. wanted Really touch And just I the GP to channel I guess

know more Just pipeline. any conversion to equally weighted I around there's said decision? to a compared for endos? that You console sales of how now GPs is wanted the those color just

Yes.

that it's phases the the of look the When we pipeline Sarah, our at are beginning weighted endodontists right with end. time beginning pipeline So Mike. had we look the are the more And now, and at has some weighted us the as and right been GPs towards an for now, a at end.

closure closer they're the to So rate.

GPs capacity. additional a around of where educate allocating we're can big engaging the just are and benefits we're existing focused installed how that's And very resources And to through. have DSOs our more part we second filling move continuing the GentleWave them in helps. half, conversations endodontists that practice, base. them on Hopefully that's So to into now the that see to their

of Block question Instructions] Jon Stifel. [Operator The from from today next the line comes

just This down is to for sales the second million. by $X Joe looks wanted implied about Jon. Federico came start revision. guidance I It with half with the the on guidance, like new

second in we around at had modeled Just console bit million little a $X half looking model, maybe our previously sales. above

more So we I see being is on what could some account the just into to new else get if guidance. taken wanted with color

look So built end also we've in around Joe, sales when and PIs. year console you we just the there low so what out is at guidance, experienced for into what the is then half first of the the

So our add revenues. it installed console we consoles, drives PI as of to course, additional base,

pull hit we PIs of when the also look the down, look start our you're pipeline with ] XXXX, half GPs and consoles in with see at down up in the the limited But where end. we remain But the in [ low convert. conversions in when at come we So to still base we we the start the year, odonto will trends to that. high GP back just specialists. second we to going where continuing placements When end, that's come had to

is tail a it's adjustment relating consoles, PIs. Hopefully, of to with So has all the it that the helps. but course,

taken Okay. there? where the on are earlier, we Yes, give any that sense. actions that can makes color look can cost more on being actions just or for like us cost then what And you those mentioned you

Yes.

team well efforts. and with and the and around management research development were as some the the limited commercial and centered positions to impact largely field reductions sales So general administrative our

split you would G&A this The P&L, aspect the admin at more the weighted R&D. would SG&A that point. on and for then it in be see So of towards

maybe me add let commentary. some Just additional

been hence, console expenses growth. side. why cutting very line commercial important very that's drive top and sales on careful, to obviously, many the too it's we've us, For And

questions no waiting are time. There Instructions] this at [Operator currently additional

to I'd team closing the like remarks. So pass back management for to it any

for Have time great just reiterate Thank everyone's you your want to you, again. interest We day. today. Sonendo. operator. I in appreciate a Thank

your you Thank This call. concludes for participation. conference all today's

may You your disconnect now lines.