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Sonendo, Inc. (SONX)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 delivered $11.7M revenue (-4% YoY), in line with prior company expectations, while non-GAAP gross margin expanded to 35% (GAAP 33%) on CleanFlow conversion and in-house G4 assembly; OpEx fell to $13.7M and non-GAAP loss from operations improved to $8.0M .
  • Mix was mixed: Procedure instruments rose modestly to $5.1M, but console revenue fell to $2.9M with 58 placements at ~$50K ASP; installed base ended at 1,134 units (+~16% YoY) .
  • 2024 revenue guidance reset to $28–$30M (ex-TDO) and Q1 2024 ~ $6M; gross margin outlook updated to mid-30s for FY24 (mid-to-high 30s exit), lower than the “>40%” tone discussed in November, reflecting the TDO divestiture and business reset .
  • Balance sheet actions (TDO sale ~$16M gross proceeds; Perceptive term loan restructuring with $15M principal repayment and revised covenants) plus commercial refocus (onboarding playbooks, compensation overhaul, DSO/channel programs) are the main stock reaction catalysts disclosed this print .

What Went Well and What Went Wrong

  • What Went Well

    • Margin and cost discipline: Non-GAAP gross margin reached 35% vs 27% YoY; OpEx reduced to $13.7M (from $18.1M) and non-GAAP loss from ops improved to $8.0M (from $11.9M) .
    • Platform and product transitions: CleanFlow conversion and in-house G4 assembly simplified operations and improved reliability; management expects lower service costs and sustained margin improvement .
    • Strategic sharpened focus: “Our 3 key priorities…commercial execution, cash conservation, and margin expansion,” with onboarding playbooks and comp redesign to drive PI utilization and console upgrades; “It is all about focus and doing a few things very well.” .

  • What Went Wrong

    • Capital softness: Console revenue declined to $2.9M (-24% YoY) on lower ASPs and fewer replacements; management cites lengthening sales cycles despite new programs .
    • Demand headwinds: Management flagged broader endodontic volume softness into late Q3 and ongoing conservatism, implying cautious near-term outlook despite stable utilization in forecast .
    • Guidance reset: FY24 gross margin now mid-30s vs prior commentary “north of 40%” (pre-TDO), and FY24 revenue guided to $28–$30M (ex-TDO), signaling lower near-term growth while executing the commercial reset .

Financial Results

MetricQ4 2022Q2 2023Q3 2023Q4 2023
Revenue ($M)12.230 11.043 10.406 11.692
Gross Margin (GAAP)27% 10% 24% 33%
Gross Margin (Non-GAAP)27% —36% 35%
Operating Expenses ($M)18.093 18.049 18.542 13.714
Loss from Operations (GAAP, $M)(14.763) (16.951) (16.096) (9.882)
Loss from Operations (Non-GAAP, $M)(11.878) (14.356) (10.369) (8.000)
Net Loss ($M)(10.852) (17.690) (16.980) (10.878)
EPS (Basic & Diluted, $)(0.12) (0.19) (0.18) (0.12)

Segment and mix detail

MetricQ4 2022Q2 2023Q3 2023Q4 2023
Product Revenue ($M)9.840 8.763 8.163 9.024
- GentleWave Console ($M)3.9 2.2 2.1 2.9
- Procedure Instruments ($M)5.0 5.6 5.1 5.1
- Other Product ($M)—1.0 0.9 1.0
Software Revenue ($M)2.390 2.280 2.243 2.668

Key KPIs

KPIQ4 2022Q2 2023Q3 2023Q4 2023
Console Placements (units)——37 58
Console ASP (approx, $K)——~60 ~50
Installed Base (units)—1,040 1,076 1,134
Cash & ST Investments ($M)—65.9 55.9 46.8

Notes:

  • Q2 gross margin was depressed by inventory charges (Gen3 console volumes, legacy PI phase-out) totaling ~$2.9M .
  • Q3 non-GAAP results exclude $1.341M impairment in cost of sales and $2.051M in OpEx .
  • Q4 non-GAAP gross margin excludes $0.243M cost-of-sales impairment; non-GAAP loss from ops excludes SBC, D&A, and impairments .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)FY 2024—$28–$30 (excludes TDO) Introduced
Revenue ($M)Q1 2024—~ $6 Introduced
Gross Margin (%)FY 2024“in excess of 40%” (tone from Nov call, pre-TDO) Mid-30s FY; mid–high 30s exit Lowered
Business MixFY 2024Included TDO in prior commentaryExcludes TDO post-divestiture Scope narrowed

Other disclosures with outlook impact

  • TDO divestiture: ~$16M gross proceeds; reported as discontinued ops going forward .
  • Debt facility restructured with Perceptive: $15M one-time principal repayment in March 2024; monthly amortization and revised revenue covenants .

Earnings Call Themes & Trends

TopicQ-2 (Q2’23)Q-1 (Q3’23)Current (Q4’23)Trend
Product transition (CleanFlow, G4)CleanFlow indicated for anterior teeth; inventory charges from legacy phase-out ~70% CleanFlow; >100 G4 consoles assembled in-house; margin uplift 100% CleanFlow/G4 in-house by YE’23; reliability “on par” with leading medtech platforms Improving
Demand/macro—Late Q3 softness in endodontic volumes; lengthening sales cycles Cautious stance; stable utilization in forecast; console variability Soft/stabilizing
Channel/DSO & trials—Two specialist DSO partnerships; trial/evaluation program launched Continuing trials; onboarding playbooks; comp redesign to drive adoption Building
Pricing/ASP—PI pricing up ~11% YoY; some low-volume tier pushback Console ASP ~$50K; utilization stable; focus on value messaging Mixed
Manufacturing/COGS—G4 insourcing substantially complete; CleanFlow conversion Single PI/console SKU simplifies ops; service cost reduction expected Improving
Gross margin outlook10% GM (charges) Non-GAAP GM 36%; path discussed “>40%” for 2024 FY24 mid-30s; mid–high 30s exit Moderated
Regulatory—510(k) submitted for cavities indication No update this callWatching
Reimbursement——ADA code change expected to increase reimbursement for GentleWave Positive
Cash/cost actions—RIF; cash burn reduction; OpEx cuts Further spend reductions; TDO sale; debt restructure Strengthening balance sheet

Management Commentary

  • Strategy and priorities: “As we enter 2024, our 3 key priorities…commercial execution; cash conservation; and margin expansion.” “It is all about focus and doing a few things very well.”
  • Product/commercial execution: “Reliability of our G4 console is now on par with some of the most reliable capital equipment platforms… Upgrades to G4 consoles are energizing users across our installed base.”
  • Margin drivers: “Complete transition to CleanFlow… and bringing the production of GentleWave G4 consoles in-house… significantly simplifying our operations.”
  • Balance sheet: “Sale of TDO… ~$16 million gross proceeds… [and] negotiated our debt facility with Perceptive… revision of revenue covenants” .
  • Outlook tone: “While implementing these changes… we will be a little bit more cautious on the revenue projections. But… bullish about the commercial opportunities going forward.”

Q&A Highlights

  • Guidance bridge and conservatism: Street concern on FY24 vs 4Q annualized; management emphasized a reset toward efficiency and profitable growth while acknowledging cautious near-term revenue projections and upside from commercial initiatives (G4 upgrades, DSOs, onboarding, education) .
  • Gross margin outlook: With TDO gone, FY24 GM targeted mid-30s, exiting year mid–high 30s; benefits from single-SKU CleanFlow and in-house G4, and lowering service costs .
  • Demand dynamics: Utilization stable in forecast; capital variability drives margin; trials aimed at shortening sales cycles; anecdotal multi-unit outcomes from trials noted .
  • Reimbursement tailwind: ADA code maintenance action expected to increase reimbursement for GentleWave, a potential adoption tailwind .
  • Covenant concerns addressed: Debt facility renegotiated with Perceptive, increasing flexibility via revised revenue covenants .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2023 revenue and EPS could not be retrieved at this time due to a temporary SPGI access limit; therefore, beat/miss vs consensus cannot be assessed. We will update when S&P Global data is available.
  • Company indicated Q4 results were “in line with our previously issued guidance,” suggesting no internal surprise vs expectations .

Key Takeaways for Investors

  • The print underscores tangible operating progress (mix, manufacturing, cost control) with non-GAAP GM at 35% and OpEx down materially; the core debate shifts to capital demand velocity vs. consumables resilience .
  • FY24 guide reset lowers near-term growth and margin expectations (ex-TDO), but simplifies the story and aligns incentives toward adoption and profitable growth; exiting mid–high 30s GM is the interim marker .
  • Commercial execution levers (onboarding playbooks, comp redesign, DSOs, trials, KOL/education) are numerous; watch conversion rates and console placements as leading indicators .
  • Reimbursement and reliability improvements (ADA code action; G4 reliability; simplified SKU set) are incremental tailwinds for adoption and service cost containment .
  • Balance sheet de-risking (TDO proceeds, debt restructure) extends runway and reduces covenant risk while the company works toward margin expansion and cash burn reduction .
  • Near-term estimate revisions likely trend lower on FY24 revenue and margin reset; upside scenario hinges on faster capital conversion (trials/DSOs) and sustained PI utilization growth .
  • Monitoring list: quarterly console placements/ASP, PI revenue trajectory, GM progression vs mid-30s FY24 target, and any updates on cavity indication 510(k) and reimbursement adoption .

Appendix: Additional Data and Disclosures

  • Non-GAAP adjustments: Q4’23 excludes $0.243M long-lived asset impairment in cost of sales (Non-GAAP GM 35% vs GAAP 33%); full-year 2023 Non-GAAP loss from ops excludes SBC, D&A, impairments .
  • Cash and liquidity: Cash & equivalents + ST investments at 12/31/23 of ~$46.8M; gross term loan at $40M prior to March 2024 $15M paydown .
  • No separate SONX press releases beyond the furnished 8‑K press release were identified in Q4 2023 in the document corpus; Q3 and Q2 2023 earnings materials support trend analyses .