Sign in

You're signed outSign in or to get full access.

SI

Sonendo, Inc. (SONX)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 revenue from continuing operations was $7.0M, above the company’s ~$6.0M outlook, as management tightened discounts, prioritized utilization, and built a healthy console backlog; GAAP gross margin reached 28% and non-GAAP 30% (up >700 bps YoY) while non-GAAP operating loss improved 41% YoY to $7.5M .
  • Sonendo raised FY24 revenue guidance to $29–31M from prior $28–30M, citing early success from a strategic reset focused on commercial execution (refocusing on endodontists), cash conservation, and margin expansion; management targets exiting 2024 with non-GAAP GM in the high-30% range and double‑digit growth in 2025 .
  • Mix was console-upgrade heavy (37 consoles placed, 29 G3 trade-ins; ASP ~ $50k), with PI ASPs increased from $71.60 in Q4’23 to $75.00 in Q1’24; PI revenue declined YoY as shipments were intentionally managed to utilization amid discount tightening .
  • Balance sheet actions: divested TDO for ~$16M gross proceeds, made $16.8M principal repayments in Q1, ended with $33.6M in cash and short-term investments; amended credit facility now requires $900k monthly amortization beginning April 2024 .
  • Estimates context: S&P Global consensus (EPS/Revenue) was unavailable due to data access limits; however, the company beat its own Q1 revenue outlook and raised FY revenue guidance (a likely stock catalyst). S&P Global consensus data could not be retrieved at this time.

What Went Well and What Went Wrong

  • What Went Well

    • Beat internal outlook and raised FY revenue guidance: Q1 revenue $7.0M vs ~$6.0M company outlook; FY24 guide raised to $29–31M from $28–30M .
    • Margin and cost progress: GAAP GM 28% and non-GAAP GM 30% (up >700 bps YoY); non-GAAP operating loss improved to $7.5M from $12.8M (41% better) . Quote: “Non‑GAAP gross margin increased… to 30%… and non‑GAAP operating loss decreased… a 41% reduction” .
    • Strategic focus and ASP discipline: Shifted back to endodontists, reworked comp to incentivize utilization, limited discount programs; PI ASP rose from $71.60 (Q4’23) to $75.00 (Q1’24). Quote: “We are purposefully shifting away from the GP strategy… refocusing exclusively on endodontists” ; “PI ASP increasing from $71.60 in Q4’23 to $75 in Q1’24” .

  • What Went Wrong

    • Top-line pressure YoY: Revenue from continuing operations fell to $7.0M from $8.7M in Q1’23; PI revenue declined to $4.2M from $5.7M YoY .
    • Capital and consumables dynamics: Console revenue $1.8M vs $2.0M YoY; management intentionally constrained PI shipments to align with utilization after limiting discounts .
    • Financing costs remain a headwind: Interest and financing costs were $1.94M in Q1’24; monthly loan amortization rises to $900k from April, tightening cash burn flexibility despite improved liquidity from the TDO sale .

Financial Results

Summary vs prior year and prior quarter (continuing ops where applicable)

MetricQ1 2023Q4 2023Q1 2024
Revenue ($M)$8.678 $9.024 (Product revenue, excl. software) $7.047
GAAP Gross Margin %23% 33% (includes software) 28%
Non-GAAP Gross Margin %23% 35% (includes software) 30%
Operating Loss ($M)$(15.063) $(9.882) $(10.249)
Non-GAAP Operating Loss ($M)$(12.802) $(8.000) $(7.527)
Net Loss ($M)$(15.371) $(10.878) $(6.762)
Net Loss per Share (basic & diluted)$(0.16) $(0.12) $(0.07)

Notes: Q4’23 gross margin metrics include software; Q1’24 and Q1’23 presented as continuing operations excluding software .

Segment Revenue Breakdown

Segment Revenue ($M)Q1 2023Q4 2023Q1 2024
GentleWave Console$2.0 $2.9 $1.8
Procedure Instruments$5.7 $5.1 $4.2
Other Product-related$1.0 $1.0 $1.0

KPIs and Operating Indicators

KPIQ1 2023Q4 2023Q1 2024
Installed Base (units)—1,134 1,142
Consoles Sold (units)—58 37
G3→G4 Upgrades (units)—1 29
Console ASP (approx.)—~$50,000 ~$50,000
PI ASP ($/unit)—$71.60 $75.00
Cash & ST Investments ($M)—$46.8 $33.6
Principal Repayments in Quarter ($M)——$16.8

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2024$28.0M – $30.0M $29.0M – $31.0M Raised
Non-GAAP Gross Margin (Exit)FY 2024 ExitMid- to high-30% (implied from “mid-30s full-year; exit mid-to-high 30s”) High-30% exit 2024 Clarified upward bias
Non-GAAP Operating LossFY 2024— (not provided)~$(28)M target New
Revenue Outlook2025—Return to double-digit revenue growth New directional

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3’23 and Q4’23)Current Period (Q1’24)Trend
Commercial strategy focusQ3: DSO partnerships; trial/evaluation program to shorten selling cycles . Q4: Onboarding playbook; comp overhaul to drive utilization; product focus on G4 and CleanFlow .Shift away from GPs to refocus on endodontists; incentive plan tied to utilization; prioritize clinical education .Tighter focus on core endodontists; utilization-first execution.
Margin expansionQ3: CleanFlow conversion and G4 insourcing; non-GAAP GM would have been 36% ex-impairment . Q4: Mid-30s full-year, exit mid-to-high 30s .Non-GAAP GM 30% (+700 bps YoY); exit 2024 high-30s; 2025 mid‑ to upper‑40s; G4 reliability reduces service costs .Sequential build expected through 2024; multi-year path upward.
PI pricing/discount discipline—Limited discounting; PI ASP up to $75, shipments to align with utilization .Positive pricing, controlled shipments.
Macro/utilizationQ3: softness in late-quarter patient volumes; elective/asymptomatic deferrals .— (Q1 emphasis on reset, not macro)Macro risk acknowledged; focus on controllables.
Regulatory (Cavity 510(k))Q3: submitted 510(k) for cavity indication .De‑emphasized near-term; focus remains on endodontics during reset .Deferred narrative until approval.
Service model—Eliminated third‑party field service; dedicated in‑house to reduce costs/improve experience .Cost-to-serve down; CX control up.
Balance sheet/financingQ4: TDO divestiture; revised debt covenants .$16.8M principal repaid in Q1; monthly $900k amortization from April; cash + ST inv. $33.6M .Liquidity improved, but higher amortization cadence.

Management Commentary

  • Strategic reset: “We have overhauled our go‑to‑market strategy, created efficiencies within the organization, and pivoted R&D efforts… to drive commercial execution, cash conservation, and margin expansion.”
  • Margin path: “We expect the overall company non‑GAAP gross margin to be in the high 30% range as we exit 2024… and mid‑ to upper‑40% as we exit 2025.”
  • Focus on endodontists/utilization: “We are purposefully shifting away from the GP strategy… refocusing exclusively on endodontists… [and] creating an incentive structure that rewards… building partnerships with doctors and driving utilization.”
  • G4 reliability: “Service calls for our G4 installed base average less than 0.5 per year vs ~2 per year for G3… a significant improvement in reliability” .
  • FY24 growth/2025 goal: “We are raising our full year 2024 net revenue guidance to $29 million to $31 million… We expect to return to double‑digit growth in 2025.”

Q&A Highlights

  • Console mix and ASP: 37 consoles sold (29 upgrades), with ASP ~ $50k; upgrade mix expected to normalize over time .
  • Gross margin cadence: GM expected to increase gradually through 2024, exiting high‑30%; drivers include strategic sourcing, material cost reductions, value engineering, and lower service costs from G4 .
  • Cavity indication: Filed with FDA; management is de‑emphasizing near‑term commentary and focusing on core endodontics during the reset .

Estimates Context

  • S&P Global consensus for Q1’24 (EPS/Revenue) was unavailable to us at time of writing due to data access limits. We cannot validate beats/misses versus Street consensus at this time.
  • Company context: Q1 revenue exceeded its own ~$6.0M outlook and FY revenue guidance was raised to $29–31M from $28–30M, suggesting positive internal estimate momentum .

Key Takeaways for Investors

  • Early validation of the reset: Beating company Q1 revenue outlook and raising FY revenue guidance indicates traction from the endodontist‑first, utilization‑centric strategy .
  • Watch the margin ramp: Non‑GAAP GM is set to build sequentially through 2024 (targeting high‑30% exit), with a multi‑year path into the mid‑/upper‑40s by end‑2025; execution on sourcing and value engineering is key .
  • Mix and pricing: Upgrade‑heavy console mix and disciplined discounting lifted ASPs but weighed on PI units; shipments should align with utilization going forward—monitor PI revenue inflection as utilization programs scale .
  • Liquidity vs amortization: Post‑TDO sale cash provides runway, but $900k/month amortization starting April 2024 is a fixed drain—track cash/working capital and covenant headroom under the amended facility .
  • 2024 is a rebuilding year; 2025 aims for double‑digit growth—progress on installed base upgrades to G4, consumables adoption, and DSO penetration are near‑term operational KPIs .
  • Risk factors: Macro sensitivity in patient volumes (seen in late Q3’23), capital sales cycles, and interest expense remain watch‑outs; execution on cost reductions and service model transition should mitigate margin risk .