Sonendo, Inc. (SONX)·Q2 2024 Earnings Summary

Executive Summary

• Sonendo delivered a cleaner execution quarter: revenue of $8.31M (-5% y/y, +18% q/q), GAAP gross margin expanded to 37.5% (from -5.5% y/y; +950 bps q/q), and adjusted gross margin reached 40.7%, driven by lower manufacturing and console warranty costs and better service efficiency .
• The company raised FY24 revenue guidance to $31–$32M (from $29–$31M) and set 2H24 adjusted gross margin expectations to 40%–41%; it also guided FY24 adjusted EBITDA loss to $25–$26M, implying continued operating leverage in 2H .
• Console activity improved (48 units sold; 35 upgrades), installed base grew to 1,155, while PI revenue fell on shipment discipline as sales are intentionally being aligned with utilization; management cited stabilized utilization and expects low-single-digit growth in PI sales and utilization in 2H24 versus 2H23 .
• Liquidity remains a key watch item: cash and short-term investments were $24.2M with $20.5M term loan principal outstanding; management is actively exploring financing (debt, equity, non-dilutive) to strengthen the balance sheet—an important stock narrative catalyst alongside accelerating margins .

What Went Well and What Went Wrong

• What Went Well

  • Margin expansion outsized: GAAP gross margin improved to 37.5% and adjusted GM to 40.7% on lower manufacturing and warranty costs; management raised 2H24 adjusted GM goal to 40–41% and reiterated a path to mid/upper-40s exiting 2025 and 60% longer term .
  • Capital placement momentum: 48 consoles sold (35 upgrades) with a healthy backlog carried into Q3; installed base rose by 13 to 1,155 .
  • Operating discipline: OpEx fell to $9.8M (-$7.1M y/y), operating loss improved to -$6.7M, adjusted EBITDA loss improved to -$5.7M; free cash flow burn improved to -$6.7M .

• What Went Wrong

  • Consumables softness by design: PI revenue declined to $4.7M (vs. $5.6M y/y) as SONX avoided end-of-quarter discounts and deliberately aligned shipments to utilization; PI utilization fell 3.1% y/y in Q2 though management says it has stabilized .
  • Sequential cash draw continues: Cash and ST investments declined to $24.2M; the company still had $20.5M term loan principal outstanding, keeping financing a near-term focus .
  • Limited visibility on breakeven: Management declined to update the revenue level for cash flow breakeven pending more progress, despite materially lower adjusted EBITDA loss y/y .

Financial Results

Segment and revenue mix

KPIs and operating indicators

Notes:

• Service reliability: G3 USC rate decreased from 1.7 in 2023 to <1.0 in Q2; G4 USC rate decreased from 0.6 in 2023 to 0.4 in Q2, supporting lower warranty/service costs and gross margin expansion .
• PI shipments vs utilization: YTD 2024, customers utilized 22,500 more PIs than SONX sold; Q1 and Q2 gaps were ~15,200 and ~7,000, respectively, with July at near equilibrium; mgmt expects low-single-digit growth in 2H24 PI sales/utilization vs 2H23 .

All Q2’24 comparisons exclude discontinued operations (TDO divested March 2024) unless noted .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We are driving commercial discipline through a refined go-to-market strategy and … exceeding our own timelines for delivering on gross margin expansion, all while dramatically reducing operating expenses and free cash flow burn” — CEO Bjarne Bergheim .
• “Adjusted gross margin for the second quarter of 2024 was 40.7%... We are… increasing our expectations to now deliver adjusted gross margins in the 40% to 41% range for the second half of 2024” — CEO .
• “We sold 48 consoles in Q2 2024, 35 of which were upgrades… The average console selling price was approximately $50,000” — CFO John Bostjancic .
• “Year-to-date in 2024, our customers have utilized 22,500 more PIs than we sold… we expect PI shipment and sales to more closely align with customer utilization going forward” — CEO .
• “Management and the Board are continuing to actively explore multiple financing options… to strengthen our balance sheet. This is the #1 priority” — CEO .

Q&A Highlights

• Gross margin trajectory: Management set a 2H24 adjusted GM target of 40–41% and reiterated mid/upper-40s in 2025; longer-term 60%+ remains in view; they characterized 2025 guide updates as premature but under review .
• Breakeven target: Too early to specify revenue required for cash flow breakeven; focus is on sustained execution and margin improvements first (adjusted EBITDA loss down 53% y/y) .
• PI dynamics: The decline in PI sales was largely volume-related as SONX worked through prior years’ overshipments; incentives now emphasize utilization, with early evidence of shipments ≈ utilization (July) .
• Mix and H2 setup: FY revenue guide raised, but management expects 2H24 console revenue below 2H23 and PI sales/utilization to grow low single digits, consistent with a quality-of-revenue focus .

Estimates Context

• We attempted to retrieve S&P Global (Capital IQ) Street consensus for revenue and EPS to compare against reported Q2’24; data was unavailable at the time of analysis due to a request limit. As a result, we cannot quantify beats/misses versus S&P Global consensus for this quarter. We will update when accessible.
• One covering analyst noted gross margin was “well above our estimate” during Q&A, but this is not a substitute for broad consensus comparison .

Key Takeaways for Investors

• Margin inflection is the core thesis near term: faster-than-expected progress to 40–41% adjusted GM in 2H24 and sustained structural drivers (G4 reliability, VBE, sourcing) support continued expansion into 2025 .
• Quality of revenue over volume: disciplined PI shipment alignment to utilization and elimination of discounting should support ASPs, working capital, and cash burn trajectory—even if it pressures reported PI revenue near term .
• Consoles show traction via upgrades: 48 units in Q2 with 35 upgrades and a healthy backlog; strategic prioritization of endodontists and onboarding playbooks should drive future utilization and consumables .
• Liquidity/financing is the swing factor: $24.2M cash/ST investments vs. $20.5M debt principal; financing outcome and terms are likely the principal stock catalyst alongside further margin delivery .
• 2H setup is conservative but executable: revenue guide raised; PI sales/utilization guided to low-single-digit growth vs 2H23 while console revenue expected below 2H23—consistent with reset discipline .
• Watch for software (FlowControl) and operating upgrades: G4 software enhancements expected later this year could further improve practice efficiency and utilization .
• Structural focus remains on endodontists; TDO exit simplifies operations and supports focus on core GentleWave adoption and profitability path .

All figures exclude discontinued operations (TDO) unless noted .