Sonendo (SONX) 8 Nov 232023 Q3 Earnings call transcript

Hello, and welcome to Sonendo's Third 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 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. financial the released XX, ended Sonendo XXXX. today, results quarter for September Earlier the available release website. copy press A of is on company's the

implied Before to call in expansion to our current make or or impact like development trends federal securities Accordingly, reliance COVID-XX actual expectations within we that are business, on estimates of on harbor begin, statements. will materially made differ provisions which that statements our could and future various of Securities management and on pursuant Any the assumptions. These remind meaning are All statements including opportunity, those cause these safe based statements this include results call material our risks that XXXX. growth management, future statements. you Reform predictions made or that place this events undue organization, of laws, to forward-looking relate should the guidance, statements are uncertainties not by Act revenue Litigation product performance, during operating expectations forward-looking I'd the of those Private our to forward-looking relating performance events, on and market statements, and pipeline forward-looking commercial results the of these involve expense hiring, from financial you for statements. to

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

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

thank Good afternoon, and Louisa. Thanks, everyone, joining today. us you for

some third strategy before regarding turning with and detail start provide will I commentary call, results. additional performance, business highlights financial Mike quarter this about over to the to call For forward-looking

with will finish We Q&A.

and totaling quarter. quarter third million $X.X with capital line was and Console revenue placements growth representing of saw $XX.X steady initial for X% with year-over-year. Instrument year estimates in growth XXXX. totaling our revenue revenues in grew million to the prior the year-over-year The third the of quarter third in line Procedure $X.X million X%

sales for up As we we have annual cadence of our shaping to XXXX be is the seen seasonality reflective in years, prior encounter. typically

and third first patterns quarters QX console The tech buying common in lighter med to and capital than equipment. in are QX, attributable placements generally

XXXX effects vacation no addition and different. slowdowns. The extended third was quarter summer We of the lingering pressures macroeconomic of to typical in saw schedules

years, we proved of of quarter. Consumable unlike from consumable part slowing rebound September latter be terms However, experienced this a the of the volumes. utilization sales seasonality, but previous and summer in the sales lighter to in often

many across at dental patient to decline as procedures. broadly just numbers we've reduction in GentleWave As customers, a the we our in believe practice of we was our seen reported of visibility areas the procedures level, experienced of in decline doctors endodontist the other a have not Many market.

demand. move we but procedures we continue QX seeing will As QX, exit, into the from stabilize we're monitor to

console relation certain may are ultimately patient GentleWave that which continue were a I'll procedure. continued optimistic Despite and expand of general lengthening counter adoption remain of these there remains new a asymptomatic, a about cycle result to majority implemented treatment we we that In later. are trends, dynamics, figures procedures to number solid in sales and volumes. to programs shift and therefore patients with delaying the see placement the While in endodontic nonelective, effects pleased have sales upon these

Going growing to improving I'd line stated, one, those forward, drive are: moment prioritizing to success. pillars cash spend Simply two, a X preservation. to margin revenue; like fundamental profiles; top Sonendo's committed we're and detail the taken initiatives X they internal against the each our the XXXX. pillars to and remainder plans we of these ensure steps we to relate and for our as to into execute have year of three,

the industry partnership groups. an to As the recently will revenue the GentleWave announced DSOs greatly agreements specialist segment DSO offices expand with in represents we signing the of and for an growth, nationwide. X and into expansion these DSO agreements partnership important access procedure endodontic channel within

sell a initiative, we're moving build our noting on catalysts more shorten practice nearly impact GentleWave limited GentleWave to the and sales Outside purchase. We're important doctors This continuance the and a technology the target benefits stages staff interest the X strategy, at offices us as momentum or early pipeline these trial basis. the committing patient initial the will these your realize now firsthand the enable into For accounts. system believe customers evaluation to DSO XXX fully experience periods cost. of in before significant this trial upfront allows still go-forward clinical in new cycle agreements to upon no program practitioners their to and to funnel rapidly. of We on begun example, positive selling serve we've for the in for through of and

for revenue. focus essentially our have including clinical to the simplifying we to instrument, path the achieving significant improved cost as which consumable of already scale, higher our our in CleanFlow simplified of in-house continue all regarding margin and we X gaining the we success to start. With we CleanFlow portfolio procedures procedure full enhances second, to With XXX chain we these procedure workflow more us consolidation, and version manufactured accelerating product that to interior anticipate programs instrument scale assembly GentleWave our believe With improvements us the provide leverage X transition our to customer existing Gen much drivers: business. utilization clearance Combined, training capabilities conversion the our of benefits ensure recent have supply the contribution important first, announcements from and we our procedure. on in to with Turning completed facilities. results X improvement, which the over to economies as markets. console initiatives XXXX; being control enter ultimately future reductions, GX we now complete in regards Enabling

Moving preservation. to cash

by healthy able committed we spending sequentially XX% cash remains to Sonendo XX% quarterly the QX and third responsible nearly operating to year-over-year. and to a retain quarter, measured sheet. balance burn from were In reduce

announced year, long-term $X will and operational make a way. with more next completed in meaningful months XX $X million week, million this conserve in We to necessary will in growth leverage efficiencies adjustments reduction rightsize earlier to continue the the opportunities. Earlier company approximately to the that we combined compromising a reductions business without to allow the force

While these are environment. this never decisions or appropriate are taken easy in we likely, believe they

not impacted these of will be any customers changes. by Our

we of submission our opportunity worldwide. to millions thrilled quantifying will future tooth market. respect through we platform forward the indication. remain our root Chief and to which to want we're see the the on dental in building after time FDA line time, market technology of closing increase Watts, endodontic in Sonendo's recurrent canal and system for our of the pull announce that Mike? broader cavity use indications. Lastly, even potential application or the solving return about therapy over to of within decay say, comments application now addressable This of a get significant application will then incredibly to session. this the don't sustainable exists A capitalize ourselves for might the At same ahead Officer, the significantly Needless long-term patients call growth for Financial to and question-and-answer GentleWave our and in that is of turn the we're we of opportunities optimistic step terms the in to with Michael beyond some the total cavity XXX(k) for revenue our a the one market. I

Thanks, Bjarne.

the in segment XXXX Sonendo previously million growth third third revenue Products of compared $X.X the one the change previously console average of in X% X%. base selling $XX.X third quarter QX PI year, of X% to price under was QX driven increase As console We XXXX. XXXX, installed in million the consoles an in, for for Bjarne total quarter for resulting GentleWave prior Gen by unit was was The in of versus XX addressed. third stated, in sold quarter was $XX,XXX for revenue PI of offset revenue in with at PI approximately XX. X trade revenue of increase million of of quarter just in XXXX, net primarily increase an XXXX. pricing by increase. to was compared the compared quarter decline PI when the PI placed in with a driven revenue approximately reasons GentleWave the by the instrument $X.X $X.X quarter Total million, a quarter, approximately XX% line million of sold approximately was the third $X.X procedure third an $X.X was growth in X%. of million, $XX,XXX. In

of product-related million XX, third the increase third in base the million for an X%. X,XXX. Total was was other software quarter installed of revenue of Our $X.X Total the as revenue XXXX, was September $XXX,XXX quarter. $X.X in XXXX, compared quarter to

relating Software growth increases increase continues as by to to recurring driven as DSOs in revenue customers. to be an existing well revenue

to quarter. decline taken and in in market impairment expenses, recent margin operating triggered charge I long-lived us would our to goodwill and an perform interim assets impairment to moving like capitalization Before explain third an the The test.

charges Products $X.X a $X charge the in of from charge and quarter expenses. of inpayment to related XX%. quarter that our the in of reported is impairment There $X.X was no is charges, intangible third a operating million million in to million of segment. item the the XXXX Note software inventory the fixed noncash for recorded segment. Gross recorded remainder charge the margin of XXXX. was we is As these in the and impairment that Of impairment related cost result, different charge and second we sales noncash impairment the a assets again, asset

third gross margin the impairment period been our the the Excluding year which QX XXXX commitment profitability. and to improve have prior is reflects from for XX%, of of a XX% improvement in would quarter the same charge, significant

costs the GX in continue other the Increases third and compared efficiencies, assembly year. quarter million marketing of same were related providing margin million based $XX.X driven million the million and to improvement CleanFlow of operating in partially lower the $X.X sales expenses million at period million XXXX. increased third $XX.X in loss expenses, the quarter above. to was legal Higher million, administrative in expenses operations third quarter for R&D $XX.X of of adoption spending. Loss and to compensation operating a revenues, in show We compared to console charge were approximately of and by mentioned $XX.X installed from offset prior third quarter the $XX.X primarily the the and higher of and XX% within improvement. Total Net $XX for compared to in quarter sustained quarter third impairment of XXXX XXXX. by general XXXX XXXX was in-house the

XX, our gross cash while as Our equivalents approximately term short-term million [ loan and investments million, $XX of XXXX, ]. cash and at $XX.X September remains

questions. our are XXXX we revising for XXXX guidance revenue be point, close for of our the placements expectation of equipment million. move previous net $XX I'd related we regarding trends lower as guidance, XXXX, open of macro financial and this and is As our like consumable industry the large. At lower at approximately and to primarily year our reflective to of end considers revenue full the expectations This recent with up to call commensurate a capital

question to goes Stifel. Jon first Block, Our Instructions] [Operator

is Stephan on This just on I'll start Jon. off, with you left Mike, for guidance. Tom where

the changed month, million you but capital, any I $XX come it elaborate just $XX can million, more helpful. sounds you a It but some the bit? pre-announcement like down But comments Mike, it to gave last month, a what think, maybe on over on if would reiterated color. bit slightly You there has -- more now. maybe guys the was last be

the through level place now, wanted a of we dialed Yes. nearly what Tom, that the we there to into has out so it quarter. know conservatism given halfway guidance

solid on dial in had make forecast the appropriately. earlier this that programs placements point, we communicate Bjarne can appropriate call. we just the to good had QX. that we the at sure So Street a traction feel in that in But some mentioned good placements, it's We've

this the same would the I some putting macro really really imperative and new in DSO we're bring That's and the in programs also reiterate opportunity recognize we're top other place. are our to momentarium. opportunities We're us to about incumbent to excited new trial time, drive what that what that find in tools the for And we the programs it on the why that different can and we bring sales have in excited also us of of that. We is this on can really about just at environment Tom, environment. and

it. any color then ask to the the Got on And sense. Mike, continue intermediate numbers That maybe of wanted to about there. near give to I some kind up put gross you makes margins term. solid can

have obviously and I expansion, think good any efficiencies that lot drive what about initiatives high-level guys margin around XXXX you that You but think could like? look a of comments can

Yes.

show So reasons progress on I did is charge. for as that's QX, would of APM nearly progress we in onetime the came back molar we position. what XXXX think QX. of pretty you in be QX much the start out XXX% the the we And and that the and to And where move it's exclude in CleanFlow, CleanFlow related if year we good when to the with continue for conversion in mid-XXs, out, that, before we and the we go to showed remainder we was start that, we communicated good XXXX and that to if around that

will end to at margin insourcing, QX that contribution leading of see for was QX, benefits GX consumables, then -- in course. And early from when well. console positive completed the of QX, substantially as be of production, driver and starting now you and look that So leverage we're program CleanFlow a the

PI we have those around single XXXX drivers excess specific and guidance without are in around to move to we XXXX, think a console going And into get moving of system. good single GX north us to be XX% So a for CleanFlow there. into trying

numbers. I think we with those feel comfortable

Bednar question go Jason Piper our of Sandler. And next to

are going a this of any a for Tom's background -- what lot fourth start normal off question for be guide Sorry year. if there fourth despite But us for the softer side capital here. more is in Can a what stronger could than guide on seasonally the quarter. when think to on noise half rate bit into that attributable the you to capital the are a of that building traditionally, for both being maybe you the 'XX implied quarter than you first sales the I quarter means capital thinking sales probably end we exit Endos mentioned then quarter? GPs? concentrated And back relatedly, lighter -- in definitely lengthening particular to front are those in and are the about cycles us Or to versus group? help the seeing tend half, when the be This it

Yes.

care dialing maybe So level this health MedTech in Mike X.X environment to think across Jason, be we still the I'll are changing us. spectrum by everyone is on that saying are going strongest now. I like of our start quarter, a conservatism because said, across QX that And the of appreciating off right and

here. around programs really opportunity that And around and a upside are of what place in we're doing especially we're putting We the believing obviously, the think DSO the in trial business. I will we are -- here. drive much Those very still very, lot believing help to the

growth it's level We So what QX. be incumbent point one, growth be. XXXX. continue aspire there's environment. growth a to -- conservatism as we going the of company, us numbers and we drive engine We're dial-in drive a this aspire that's to to go in to really And into to obviously for on in

that's to for trial we're we sales here. solving As program. -- the with cycle the that's the one of things with regards lengthening Again, what that

us. lot this he tools we're really a is to in what that of help example, had across this maybe environment, for can we buying have example, a And funnel. of a sell kind -- us very this trialed more is really the trials sale help multiunit that trial be GentleWave. examples on this anecdotal his but this up wanted drive into is really briefly all to it want console. couple here. the commenting where technology. help And to And we're very offices, them ended late-stage looking in of consoles. move different technology can customers just and being doctor to at interested We can a of is is that them he also program chairs it just here one didn't just really much, so seeing because like are the And doctor standardize have And our all in here that had a where we already This successful. One the drive standardize where to lot his

we effective environment, the us I going example that forward. tools that sales really can we're and this that and using really drive very of be an So drive think productivity helping is rep very, at this in

of we're all very about with business. this, grow excited the this opportunities to So

-- so So quarter. like a we level is conservatism dialing is of this said, into again, this fourth we're that the

the helpful, Bjarne. over lighter. then That's a Okay. shifting And volume maybe Those also bit obviously little seeming point. to

patient taking deferrals on volumes volumes you sensitive a market, you're what's some margin the have of in side. maybe canals consistent and CleanFlow procedure some you [indiscernible] Do to occurring that reflective on PIs think that mentioned might you're be save are or the of seeing do sense You over getting place the lower just to that shifting root away more with [indiscernible] dollars? the cost from and are seeing doctors

Yes, Jason.

affecting is simple So is, space. everyone I the answer across us. is just This substantially, think, endodontic this the not

that we're are endodontic the of the reflective some happening entire and trends seeing across So that are space.

So more little here. maybe to color a you bit give

remarks, talked we some quarter. seeing of our are as I more in So volumes prepared patients less was we're patient last happened probably month that during And about is the the It's in doctors -- seeing of this we here what of but our in elective procedures like And are it practices. not canal we've but across a large nature. what's all portion some portion, of not practices, a small think in observed portion -- the is that definitely universal a happening root QX. small

majority and And them we have that's are you what the of group, couple before, of like talked They som that remember, low-volume are The are nonelective. them, other that asymptomatic. pricing a in size element tiers. choosing are some nature, we've But as the small we elective different in delay. of customers about to

the saw highest low our are the our in are at that the this saw that for we in our entire a reduction slight across, is So knowledge, the we year, that utilization. in saw Except seeing where least volume which endodontic of group, across -- increase this the price ones we're industry. happening is dynamics beginning to effectively that, happening

on that to So well. add just as to

So to to customers show them know back now them low-volume those and who have GentleWave. benefits the we go we are, of full opportunity the and

So something here team. step that's consumable next that's ongoing our with active and sales and our

squeeze Very in on to one Okay. -- wanted debt I helpful. here. to covenants. one Maybe ask last your

about clear this difficult reducing part just revenue some talk expected on the of Can plans to out lenders? end be are you next think middle where to by covenants Have I have given any your discussions year. or looking early admittedly you covenants a that these may your there year, covenants? you revenues minimum address with these little need been there these to removing

had just holds moving getting specifics, scenarios discussing as that them, with to a relationship into our continuing and with So we and with ongoing always there. of our we But evaluate Perceptive continue different forward. we've who and good -- well have are, without to expect course, debt discussions

] [ Morgan And our question Erin go to Stanley. Wright next of

force? extent Can ability on line. this the what color you the in reductions Wang the Justin force affect provide November, is to Erin. for this some regarding how top And This does impact drive does sales in to specifically, more

there I a cuts? any follow-up. Additionally, other And are areas have of

to also that our going Yes, Justin, believe impact the answer to is It's we any this way. customers impact ability grow going simple our don't to is top not in line. the not

organization organization From more kind development to projects give the much We're Development are a done. though, there around around They're CleanFlow, where all me complete. that of are are et areas is to substantially more done. now, GX, cetera. these of perspectives. the example we little a you manufacturing, just the An color, cuts of different that's bit substantially operations, the into of Let that all number right second-generation like efficient also getting done. on put

of stop. So stopping there's now about because project, complete, but starting to because talk of something some areas these it's that we also about can are that, there And a important project. are a

thing But is we about that of but done. ultimately, for this, responded resources we've that's that's this are an to all at more doing That's that to that something other the need something reallocate And perspective really to another going that well exactly on organization do around with now organization. end have Second, an and to the thing team the reduction never and opportunity us execution the That's this all we've and all has during easy, this. the board here the done day, with forward. this, that's us, very going we be with less. everyone from we're over, what

an want also, to but I But still at point focused we're and going and about that. aspire for commercial. same the growth we're initiatives growth this, we're we're, to same manage It forward. company provide to us cavities at we're like critical to cash. can we on really key to that balance going fund emphasize going time, really But We absolutely time, going excited a be are the we're inflection

how this. cuts make know to We pandemic. a through been We've like

we're going We line is question, top and learned to of But have still be not this back the same of I core to the good cash. to -- to in for growing any time, this at stewards this time and grow us the elements a before. customers but way. will step getting us company to continue your impact done And We've at think to right it allow lot. the

very That's helpful.

Additionally, you've year. taken during good a amount of the price

be that we also price XXXX of? vein, pushback regarding on you us if what's in wondering And help So aware on any should store that I price? for can was practitioner understand

Justin, first It's half. take I'll So Mike. the

at on guidance, we're XXXX ready to time, for give So not this XXXX. specifics

tiers course, February. -- in GentleWave, their to part, results through put people and both and our have, the practice clinically that understand pricing behind procedure can help Customers bring in understand the positive overall we that. principles We financially. we them place how most the to of value and the achieve And for

with So that mind, continue is appropriate lever we in a price to evaluate. us to think for is that

full I talked ago, think to the are we'll it that Bjarne there's certain better a just also half customers at adjunct there just of practices but their second work that question and of an your clinical about as fully the GentleWave the customers think practitioner more mentioned about not moment root practice And them. having them workflow. and think therapy, continue more help and utilizing We the can pain, patient canal only the for incorporate to GentleWave, the with lower highest having and out tier. we realize into we efficiencies benefits

bring with just things So back therapy. it X GentleWave with root to overall that mind, canal we in to those the goes value the the

Instructions] appears have to no now I'll closing questions. Bjarne comments. back any hand we for further [Operator It

we Thank fundamentals and you, commitment adoption market of dental the like drive to reiterate care. opportunity to ahead operator. us would To conclude and revolutionize just Sonendo's today's call, our to

Sonendo. providing additional We incredibly Have a today, time you great look We the at future company. forward events. excited everyone's We evening. interest for of are appreciate to in details and your future about the thank

all This joining. now Thank call. for concludes you. Thank today's you

your disconnect now lines. may You