Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sonendo Inc (SONX, Financial) reported a strong second quarter with significant progress in their reset strategy.
- The company achieved a 7% year-over-year growth in console sales, with a healthy unit backlog for the second straight quarter.
- Gross margin improvements were notable, with GAAP gross margin increasing to 37.5% and adjusted gross margin to 40.7% for Q2 2024.
- Operating expenses were reduced by $7.1 million year-over-year, a 42% reduction, contributing to a 53% improvement in adjusted EBITDA loss.
- Revenue guidance for the full year 2024 has been raised to a range of $31 million to $32 million, reflecting confidence in their commercial strategy.
Negative Points
- Total revenue from continuing operations for Q2 2024 decreased to $8.3 million from $8.8 million in Q2 2023, driven by lower PI sales volumes.
- PI sales for the quarter decreased by 15% year-over-year, indicating challenges in volume-related sales.
- The company is still in the early stages of their strategic reset, indicating that there is more work to be done to achieve long-term goals.
- Despite improvements, the company reported a net loss from continuing operations of $7.4 million for Q2 2024.
- Sonendo Inc (SONX) has not yet provided a revenue target for achieving cash flow breakeven, indicating ongoing financial uncertainties.
Q & A Highlights
Q: What were you targeting for gross margin exiting this year, and why wasn't the out-year estimate adjusted given the upside seen this quarter?
A: (Bjarne Bergheim, President, CEO) The target for the end of this year is about 40% to 41%. This is driven by strong leadership in operations and R&D, transitioning to G4, improved reliability, value-based engineering, and reducing material and labor costs. (John Bostjancic, CFO) It's too early to adjust the 2025 guidance, but we are monitoring it closely. We still see a clear path to 60%-plus long term.
Q: Can you provide a revenue target to achieve cash flow breakeven?
A: (Bjarne Bergheim, President, CEO) It's too early to provide a revenue target for cash flow breakeven. Our focus is on showing that we can do significantly more with less, specifically around commercial execution and margin preservation. We have made great progress this quarter, with a 53% reduction in EBITDA loss year-over-year.
Q: The procedure instrument sales were below expectations. Do you see the new strategic plan's focus on utilization playing out in real-time?
A: (Bjarne Bergheim, President, CEO) Yes, the sales force is now incentivized to increase utilization rather than push procedure instrument sales. We sold 29,000 more procedure instruments than were utilized in 2022 and 2023, but this year, utilization exceeded sales by 15,200 in Q1 and 7,000 in Q2. July's data shows utilization was spot-on with sales, indicating we're getting closer to equilibrium.
Q: What are the key drivers behind the improved gross margin performance?
A: (Bjarne Bergheim, President, CEO) The key drivers include transitioning to the G4 system, improved reliability, value-based engineering, and reducing material and labor costs. Strong leadership in operations and R&D has been crucial in executing these plans.
Q: How has the strategic reset impacted your commercial execution and market share?
A: (Bjarne Bergheim, President, CEO) We have reengaged with our core endodontist customer base and realigned our direct sales team incentives to focus on increasing utilization of the GentleWave system. This has led to a 7% year-over-year growth in console sales and a healthy unit backlog. We are also seeing progress in utilization rates and expect PI sales and utilization to increase in the low single digits in the second half of this year.
Q: Can you elaborate on the progress made in cash conservation?
A: (Bjarne Bergheim, President, CEO) We have driven total year-over-year operating costs down by $7.1 million to $9.8 million, a 42% reduction compared to the prior year. This includes reductions in sales and marketing, R&D, and G&A costs. These improvements, combined with gross margin expansion, led to a 53% improvement in year-over-year adjusted EBITDA loss.
Q: What are your expectations for revenue and adjusted EBITDA loss for the full year 2024?
A: (John Bostjancic, CFO) We have increased our revenue guidance for the full year 2024 to a range of $31 million to $32 million. We expect adjusted gross margins in the 40% to 41% range for the second half of 2024 and an adjusted EBITDA loss in the range of $25 million to $26 million for the full year.
Q: How are you addressing the financing needs to strengthen the balance sheet?
A: (Bjarne Bergheim, President, CEO) Management and the Board are actively exploring multiple financing options, including a combination of debt, equity, and non-dilutive sources. This is the number one priority for me and John, and we will provide more details as discussions progress.
Q: What are the key focus areas for the new Vice President of Sales, Brian Chester?
A: (Bjarne Bergheim, President, CEO) Brian Chester will focus on driving higher procedure instrument utilization rates with our existing customer base and ensuring a seamless onboarding of new customers. This will help sustain higher PI utilization from the start and improve clinical outcomes for patients.
Q: What are the long-term goals for gross margin and revenue growth?
A: (Bjarne Bergheim, President, CEO) We aim to reach mid- to upper-40s gross margin as we exit 2025 and well into the 60% range longer term. We remain confident in returning to double-digit revenue growth in 2025, driven by commercial execution, margin preservation, and efficient cash utilization.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
