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spk05: Good afternoon, and welcome to Sunendo's fourth quarter earnings conference call. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Matt Baxo from the Gilmartin Group for a few introductory comments. Matt, please go ahead.
spk02: Thanks, operator. Good afternoon, and thank you for participating in today's call. Joining me from Senando are Bjorn Berghain, President and CEO, and Michael Watts, CFO. Earlier today, Senando released financial results for the quarter ended December 31st, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation and Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including those related to our operating trends and future financial performance, the impact of COVID-19 on our business, expense management, expectations for hiring, growth in our organization, market opportunity, revenue guidance, commercial expansion, and product pipeline development are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those implied by these forward-looking statements. Accordingly, you should not place under-reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the risk factor section of our public filings with the Securities and Exchange Commission, including the final perspectives filed with the SEC pursuant to Rule 424 on November 1st, 2021, in connection with our initial public offering. This conference call contains time-sensitive information and is accurate only as of the live broadcast on March 23rd, 2022. Fernando disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I'll turn the call over to Bjarne.
spk04: Hey, thanks, Matt. Good afternoon, everyone, and thank you for joining us. Before I begin, I would like to welcome investors that have joined us since the IPO. We're grateful for your support as we transform dentistry through our mission of saving teeth and improving lives. For today's calls, I will provide opening comments and a business update, followed by Mike, who will provide additional detail regarding our quarterly results and initial 2022 guidance before opening the call to Q&A. Total revenue for the fourth quarter of 2021 was $9.9 million, in line with the high end of the revenue range from our pre-announcement on January 10th. And above our estimates, providing during the Q3 earnings call representing growth of 14% compared to the fourth quarter of 2020 and 25% growth sequentially versus Q3 of 2021. Growth in the fourth quarter was driven primarily by strong console sales and increased procedure instrument utilization. As a reminder, the fourth quarter is typically our strongest quarter as a large number of dentists wait to make capital equipment investments until the end of the year, which is influenced by various factors, including tax benefits. Full year 2021 revenue was $33.2 million, representing growth of 42% compared to full year 2020. We're very pleased with our performance coming out of a challenging COVID environment. As of December 31st, General Wave's ending install base was approximately 820 units. compared to approximately 680 units on December 31st, 2020, representing growth of over 20% for the year. Mike will later provide more detail on our quarterly financial results and additional detail regarding full year 2022 guidance. Before providing a business update, I wanted to address two topics that have had a broad scale impact across the medical device industry. First being COVID. While we did see a slight temporary slowdown in patient volumes in late December and January due to Omicron, this did not appear to materially impact performance. Based upon our estimates and what we're hearing anecdotally from endodontists, patient volumes are currently trending at or near pre-COVID levels. While our growth is heavily predicated on our ability to penetrate the root canal market and sell consoles to new users, durability of patient volumes in dental offices is a positive sign that the end market is strong and there is demand for our technology. As a reminder, our customers are primarily endodontists who operate small businesses and hire staff who work normal business hours. While dental offices have been rescheduling cases that may have been delayed due to recent COVID surges, they are not subject to the same level of clinical fatigue that has plagued the traditional hospital setting. Root canal therapy is a non-elective procedure, and we believe patients will find a way to alleviate their pain. As always, we will continue to monitor the potential for new COVID-19 variants and any impact it may have on our customers. Second are the supply chain headwinds impacting the global economy. As previously shared, the majority of our raw materials and inventory are sourced from North American suppliers, which limits some of our exposure. That said, we did have short-term variability in the supply of certain raw material components, which caused us to incur additional costs late in the fourth quarter and into the first quarter of 2022. As a result, these temporary inefficiencies within our manufacturing and operations unit may negate any benefits realized increased procedure instrument volumes. Thus, we expect first quarter of 2022 gross margins be similar to fourth quarter or 2021 levels. I want to stress that we have not been in a situation where we have been unable to meet requirements for procedures at customer locations, and we do not expect supply chain issues to have an impact on our ability to meet our revenue plans. Now turning to quarterly business updates, starting with product development and clean flow. With more than 800,000 genome-aided root canal procedures completed to date, we have learned a great deal and have taken these learnings and incorporated them into CleanFlow, our next-generation procedure instrument, which we believe is simpler for the doctor and better for the patient. As a company, our goal is to not only provide superior clinical outcomes and a positive patient experience, but to drive increased efficiencies at the practice level. With CleanFlow, we have improved the genome-aided procedure by removing certain steps, with the practitioner now only needing to open and prepare the tooth to allow the procedure instrument to be put in place. It is also important to point out that the clean foot procedure instrument will work off the existing consoles, so there is no need for existing customers to buy a new machine to access this latest technology. This will allow us to ship clean foot procedure instruments to new customers and convert existing customers Another reason why we're so excited about clean flow is that we have a clear pathway to improve our contribution margin for consumables. Given the simplicity of clean flow compared to the previous generation procedure instrument, there are fewer components, which lowers material costs and allow for easier assembly, which we believe will drive increased production efficiencies at higher volumes. Over the last few quarters, we have made meaningful progress in anticipation of our full market release of CleanFlow later this year. From an operations standpoint, we are readying our suppliers for larger volumes and expanding manufacturing capacity. To date, we have done more than 5,000 cases through a limited market release and have received positive feedback from active CleanFlow users, citing benefits such as ease of use and increased efficiency. To maintain these promising trends, Our full market release will ensure our commercial and clinical education teams can provide a world-class onboarding experience for new customers. We will continue to manufacture and sell our current generation procedure instrument for current General Wave customers with the goal of educating and converting them over time and allowing them to transition at their own pace. Conversely, with new customers, our strategy will be to primarily train using CleanFlow to ensure immediate adoption. Given this dynamic and the fact that we have approximately 820 gentlemen of customers, we expect full adoption of CleanFlow to take up to 24 months as we expand the commercial use in a responsible and considerate manner. On the operations side, we continue to strive to manufacture the highest quality product for our customers. To ensure a successful rollout to CleanFlow, we have been working to optimize every step of the supply chain. From molds to final assembly and packaging process, all of our efforts are focused on scaling processes to manufacture at higher volumes. In fact, we are in the later stages of full-scale operations, having recently tested production runs, which yielded great results. Turning to our commercial strategy. In the United States and Canada, there are approximately 17 million root canal procedures performed annually. representing a market opportunity of approximately $1.9 billion. The General Way system product offering consists of a General Way console, a single-use procedure instrument, and accessories, and an annual service contract. We believe our razor-razor blade business model with capital equipment and recurring consumables enables an efficient commercial model. Our initial commercial strategy is focused on targeting the specialists in root canal therapy called endodontists. By our estimates, there are roughly 5,000 endodontists in the U.S. and Canada who perform approximately 4 million root canal procedures annually, or roughly 25% of all procedures. Given this extremely concentrated customer base, our commercial approach has been to bring together a team consisting of capital sales reps whose function is to drive new business through market penetration of the general wave system and consumable reps who act as practice consultants and are focused on educating and training doctors to ensure successful onboarding and to drive increased utilization within the practice. As of December 31st, we have expanded our team of capital sales reps to 24 and our team of consumable reps to 17, up from 16 and 2, respectively, as of June 30th, 2021. We believe these consumable reps will be an integral part of our growth and execution in 2022 and beyond. Given the number of consumable reps we have hired, our plan is to maintain the size of our commercial team at this level for the near term as we focus on Salesforce effectiveness initiatives and sales execution before expanding further. Following the recent expansion of our sales organization, we held our national sales meeting at our headquarters in Laguna Hills, California in early February. Being able to hold an in-person national sales meeting for the first time in two years, dedicated to ensuring clarity in our strategy and confidence in our key sales programs and initiatives, could not have come at a better time following the expansion of our team. The energy amongst our group was extremely positive and contagious all week long. In addition to holding breakout sessions within their organizations to educate and train our sales force, we also invited leading endodontists to host workshops highlighting the General Wave technology. Specifically, these workshops were focused on emphasizing the competitive advantage General Wave brings to their practices from a patient experience and practice management perspective. Additionally, our KOLs offered insight into the patient and customer journey. and how specific training modules lead to increased utilization. Overall, our national sales meeting was a great opportunity for our team to come together and share best practices, which we believe will lay the foundation for strong commercial execution in 2022. In connection with the expansion of the number of consumable reps and bifurcation of our sales force, we're starting to see early signs of increased productivity and pipeline generation from our capital reps. who are now fully focused on selling capital equipment to new customers. As a reminder, prior to the establishment of the consumable rep team, capital reps spent roughly 50% of their time servicing existing accounts. I also want to remind everyone of the seasonality of our business. As mentioned previously, the fourth quarter is typically our strongest quarter. Following this very strong period, the first quarter is typically our lowest seasonal quarter, which Mike will provide more detail on shortly. Regarding procedure instrument trends, we are seeing a positive impact in utilization of newer accounts that have completed our updated training cycle as compared to legacy customers. While still early, we believe this is a positive indicator of future trends as these endodontists are becoming more comfortable, not only with the technology, but also being able to treat a broader range of root canal cases. As our sales force matures, specifically consumable reps, we believe their consistent training with new and existing customers will drive average utilization rates higher as they support our doctors in the development of the clinical workflow, practice workflow, and patient demand generation. Another area of our business we do not talk about enough is our TDO platform and it being an integral piece of our overall commercial strategy. TDO stands for the Digital Office and is the only endodontic practice management software that eliminates all paper records. All clinical charting, scheduling, financial reports are done in TDO software. Even patient registration and health history is completely digital. As a reminder, we acquired TDO in October 2018 and continue to increase our subscription base each year. With TDO and General Wave, we now have a full product suite that allows us to partner with our customers to advance the quality of care for patients and drive practice efficiency. Specifically, our strategy is to combine, one, clinical workflow, two, practice workflow, and three, patient referrals. Starting with clinical workflow, when we partner with a General Wave customer, we're teaching them how to do root canals faster and better with the General Wave procedures. By incorporating both TDO and General Wave, the office can also improve practice workflow. The use of TDO can help the practice streamline, A, communication with patients, B, data management within the office, including back office support, and C, communications with existing referring GP offices. Last but not least, we can help provide more patients to the practice. By promoting the clinical benefit of the General Wave procedure, endodontists can help drive more referrals into their office. We know that 99% of patients will prefer to have a GeloWave procedure, which means that both GPs and patients alike are eager to ensure that a GeloWave procedure is performed. What we have seen is that when you link GeloWave and CDO, endodontists save time, improve clinical efficiencies, and increase revenues. We will also launch the GeloWave Community App for our customers. The General Wave Community App is an industry-first, providing an online forum specifically designed for users of the General Wave system. The committee provides a private, peer-to-peer discussion forum where members can share, ask, and or give help on a variety of topics. Clinical questions, case images, practice economics, practice marketing, or overall practice enrichment. Doctors can also post photos, links, surveys, and more. The platform resides on the doctor's iPhone or Android device and includes engagement features such as push notifications and alerts. The application is only available to general providers and is the latest technology to be brought to market that enhances Sunendo's digital suite of tools. We believe this app will further drive a sense of community among our customers. I also want to highlight that Sunendo will once again be attending the American Association of Endodontists, or AAE, annual meeting in Phoenix from April 27th to the 30th. AAE is our largest industry conference, and we are particularly excited this year, as it is the first year AAE will be in person since the start of the pandemic. It is an important reminder that we typically see seasonally strong capital equipment sales in the second quarter as a result of AAE and our sales reps' ability to build relationships and showcase the genomic technology. Sunendo will be sponsoring various events and lectures throughout the conference with a focus on clinical experience and practice impact for the GEL-MA procedure. Lastly, I would like to point out the exciting news that in late 2021, we appointed Carolyn Beaver, Karen McInnis, Raj Puttipedi, and Sadie Stern to Sunendo's Board of Directors. These individuals bring a breadth of public company experience in the areas of commercial strategy human resource management, and financial analysis to our board. In summary, we have a revolutionary technology backed by compelling clinical data and KOL support. Our focus continues to be investing and expanding our commercial infrastructure to penetrate the endodontist channel to make GelVav the standard of care for root canal therapies. Additionally, we will continue to prioritize cross-margin expansion and clinical practice efficiency with the launch of CleanFlow in 2022. With that, I will turn the call over to Michael Watts, Sunendo's Chief Financial Officer. Mike?
spk07: Thanks, Bjorn. As previously mentioned, Sunendo total revenue for the fourth quarter of 2021 was $9.9 million compared to $8.7 million for the fourth quarter of 2020, an increase of 14%. which was at the upper end of our guidance range. Growth in the quarter was driven primarily by increased utilization and increased General Wave console sales. In the fourth quarter, General Wave console revenue was $3.1 million compared to $2.8 million in the fourth quarter of 2020. General Wave console average selling prices in the quarter were roughly $60,000 in line with the prior year period. We were pleased with the growth we realized in the fourth quarter which is our strongest seasonal quarter, as Bjorn previously mentioned. Turning to procedure instruments, PI revenue was $3.8 million compared to $3.3 million in the fourth quarter of 2020, an increase of 16%. PI revenue growth was primarily driven by increased utilization among our current install base measured by the procedure instruments sold per account, an increase in install bases compared to the fourth quarter of 2020. Total software revenue for the fourth quarter was $2.2 million as compared to $2 million in the fourth quarter of 2020, an increase of 11%. The increase was primarily driven by revenue growth relating to Endicon, one of the largest in-person endodontic conferences of 2021 in services. Gross margin for the fourth quarter of 2021 was 25% compared to 20% in the fourth quarter of 2020. The increase in gross margin was driven primarily by reduction in inventory charges relating to excess inventory versus fourth quarter 2020 and improved overhead absorption in 2021. Total operating expenses in the fourth quarter of 2021 were $16 million compared to $13.2 million in the same period of the prior year. The increase was driven by increased sales, team hiring, and higher general administrative costs. primarily legal and accounting, as we transitioned to a public reporting company. This was slightly offset by lower research and development costs. Loss from operations was $13.6 million in the fourth quarter of 2021 compared to $11.4 million in the fourth quarter of 2020. Net loss was $13.7 million in the fourth quarter of 2021 compared to $12.5 million in the fourth quarter of 2020. Our cash and cash equivalents at December 31st, 2021 was approximately $85 million, while our long-term borrowings totaled $30 million. We received approximately $84 million of net proceeds from our IPO, which closed on November 2nd. We believe this funding will provide the liquidity and capital resources needed to support and grow our current business. Moving to our financial guidance. We are entering 2022 with several positive structural tailwinds, including a larger sales force, increased underlying demand for General Wave, and the pending full launch of CleanFlow. For 2022, we expect annual revenue to range between $40 to $43 million, representing year-over-year annual growth between 20 and 30 percent. In connection with our annual guidance and what we communicated during the IPO in Q4 2021, our expectation for Q1 2022 revenue is approximately $8.2 million. Given the supply chain issues Bjorn previously mentioned, we expect first quarter 2022 gross margins to be similar to fourth quarter 2021 levels. As we move throughout the year, we expect modest sequential gross margin expansion with a positive contribution from claim flow. At this point, we'd like to open up the call for questions.
spk05: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. The first question today comes from Matthew O'Brien from Piper Sandler. Matthew, please go ahead. Your line is now open.
spk08: Well, thanks, Stephanie, and thanks for taking the questions. You know, I don't know if this is for Mike, but just maybe talk a little bit more about that 22 revenue guidance. It's just a lot of puts and takes. And, you know, you just came out of Q4 at $40 million, you had a COVID headwind, and you still put up, you know, the high end of the range that you had communicated. So just a little more color on, you know, that 40 to 43 and what gets you there and and any kind of conservatism you've built in there or headwinds from supply chain, et cetera.
spk04: Thank you, Matt. As we alluded to in our prepared remarks here, we feel very good about our Q1 estimate and we also feel very good about our annual 2022 guidance. Let me give you some context in line with your questionnaires. We finished a great Q4. I'm really happy about Q4. We finished it above guidance, and we also finished it in the upper end of our pre-release from early January. We've also accomplished some significant events in Q4. Point one, we're able to build out our sales team ahead of schedule. We added capital sales reps. We also bifurcated our team and added consumable reps. And we ended the year at 24 capital sales reps and 17 consumable reps. So we now have the largest sales team in the history of Sunendo. We also wrapped up the year with a strong balance sheet. And we have the capital to execute on the strategy that we summarized in our IPO. So we really feel good going forward, and as we are entering the year here, we're continuing to see strong underlying demand for procedures despite the COVID headwinds that you're alluding to and that we've all witnessed. So now, for the first time, we have consumable reps that will help us drive utilization as we enter the year. And we're also really excited about the launch of CleanFlow that we have committed to this year. That will be a margin inflection point for the business. And we also think that that will drive further demand for general waves. So as we're sitting here, we've got six days left of Q1. We're excited about Q1, and we feel really good about the year.
spk08: That's helpful. Appreciate that, Bjorn. And then, you know, just maybe teasing out the utilization outlook for the business. How do we think about utilization progressing as we go forward throughout the year? I know Q1 is obviously still a little bit affected by Omicron, but how do we think about utilization and then how does CleanFlow, you know, weave its way into, you know, your utilization expectations? Thank you. Mike, do you want to take it?
spk06: Yeah, sure. So, hey, Matt. So, When we think about utilization, it starts with the great team of considerable reps that we've hired at the end of the year that Jonah just mentioned. We had them here at the national sales meeting in February, had a great start, and really feel a lot of energy and positivity coming out of this team. One thing that we've noted in the past, though, is that we expect six months for this team to become fully effective. So we're not factoring the benefit to utilization of this team until towards the back half of this year. And as far as clean flow goes, clean flow, we think, of course, it's going to be a simple procedure and will help in having the consumable reps able to help customers transition from our current technology to clean flow. So we think clean flow will be an added benefit to the overall utilization. I don't know if you have anything to add.
spk04: I think that's a good summary. You know, I think if you look at the strategy of Sunendo, I think the consumable team has been one of the key missing links for us. Now that we have that consumable team in place, we can really go, you know, move forward and really drive utilization as we move forward.
spk08: Okay. But scaling up throughout the course of the year is what we should be expecting then?
spk06: Yes.
spk08: Yep. Got it.
spk07: Okay.
spk08: Thank you.
spk05: Thank you, Matthew. Thank you, Matthew. The next question today comes from John Block from Stiefel. John, please go ahead. Your line is now open.
spk03: Great. Thanks, guys. Good afternoon. Maybe I'll just sort of pick up on the cadence as well, but I'll shift to gross margins. I think you certainly called out flat as sequentially for 1Q22. Just how do we think about, you know, call it the cadence throughout the year or even the exit rate? for 2022? You know, can it pick up notably exiting the year? Can we exit the year still sort of call it north of 30% as any supply constraints ease and obviously clean flow would become a bigger percentage of the overall mix? Mike, do you want to take that? Sure.
spk06: So thanks, John, for the question. So when we look at just our experience level with gross margins for Q4 and heading into Q1, so we do have some headwinds related to the negative impact that we've had from just raw material disruption and some additional costs that we've incurred to maintain our inventory level. We expect those costs to dissipate as we move through Q2, and then we expect gross margin to improve sequentially as we increase volumes and then eventually with the full commercial launch of clean flow. I think we can expect by Q4 we will have, of course, gone through the headwinds of the Omicron COVID impact of raw materials and will have higher volumes and, of course, get the benefits of clean flow. So I think the estimates that you're putting on the table are things that we're striving for.
spk03: Okay, great. Helpful caller. Thank you. And then next question, a little bit maybe lengthy, but Can we just talk about new gentle wave adopters, you know, how they're ramping in the early days with the bifurcated sales force with reps now there to call, you know, better handhold of practice out of the gate. Bjorn, it seems like you alluded to that. You know, you're seeing them come up to speed faster. I'm just wondering if there's any numbers that you can put to it. And also, Bjorn, I think I heard you say on the call that that some of the new purchasers or new adopters will be the first to get clean flow, if I heard that correctly. What will that happen, call it on a consistent basis, where, you know, just to make up numbers, hey, you sell 40, 50 systems in a quarter, and we can assume that each one of those adopters were coming out of the gate with clean flow. Thanks, guys.
spk04: Yeah, thank you, John. As, you know, Mike reviewed, you know, the key for us right now is that we have obviously onboarded a number of these consumable reps. We expect them to take roughly six months to get up to speed and become effective. So we'll start seeing, you know, them really helping drive utilization in the second half of this year. That is the key driver of utilization that we're factoring in in our internal models. You know, we're very excited about the clean flow launch. It's going to be an easier procedure. It's going to be a procedure that the doctors can do in a more expedient manner. But in our internal models, we're not factoring in any increases in utilization from clean flow. the key thing for us right now is going to be driving utilization through our consumable team. And that's been the missing link, like I alluded to earlier, that's been the missing link. And I think that's going to be really helpful for us to really help these doctors understand what the benefits are of GelenWave. And we've talked about this a little bit earlier as well, that we have a lot of customers that are doing substantially 100% of their procedures with GelenWave. And that, we're learning from these customers. That is a blueprint that we're now giving and showing to our consumable teams. And I think that's going to be valuable for us as we keep driving utilization across the field.
spk03: Got it. And, Bjorn, just as a clarification there, so in the back part of this year, in the back part of 2022, will that be the time period where you know, call it a new adopters starting with clean flow. Again, I'm just trying to gauge, you know, when that process is going to take place and if I was correct, if the new adopters will be the first ones because you want to train and train, you know, only one time. Thanks for the clarification.
spk04: Yeah, thanks, John. Yeah, so we haven't obviously disclosed the exact timing of when we're going to launch clean flow, but you're thinking about it as correct that we will initially, you know, when we train new Jalva customers that come on after we have launched CleanFlow, those will be the first to receive CleanFlow. But we will simultaneously start rolling it out to customers like we alluded to in our prepared remarks. Got it.
spk03: Understood.
spk04: Thanks for the time. Thank you, John.
spk05: Thank you, John. The next question today comes from Michael Cherney from Bank of America. Michael, please go ahead. Your line is now open.
spk01: Hi, this is Charlotte on for Mike. Thanks for taking my question. You mentioned a focus on increasing Salesforce effectiveness with a bifurcated sales team. Could you just talk a little bit more about this as you're going into 2022? Yeah, sure.
spk04: Like we talked about, we've added a lot of capital sales reps and consumable reps. We are now working, and the focus for us right now is really training those sales reps, making sure that everyone gets up to speed, and make sure that they're effective. I think there's also an element of the bifurcation here because we're bifurcating. Remember previously, our capital sales reps were responsible for both taking care of existing customers and also looking for new accounts. And now with the bifurcation, we can have our capital sales reps be more focused and be fully focused on looking for new general wave sales. And then we can have our consumable team be focused on really driving utilization. So I think there's going to be a win on both sides here. And I think there's another element here. Also, by having the consumable reps in place and having more feet on the street, We can have the consumable reps also help pass leads, obviously, back to the capital sales reps. So we're really excited about that model and that investment that we're putting in place.
spk01: Great. Thank you.
spk05: Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. The next question today comes from Nathan Rich from Goldman Sachs. Nathan, please go ahead. Your line is now open.
spk00: Hi. Good afternoon. Thanks for the questions. I just maybe wanted to start by following up on the variability you're seeing in the supply of raw materials. Could you just maybe go into a little bit more detail there in terms of where you're seeing the shortages and, you know, whether that's, you know, more on the PI side or the console side? And I guess, you know, If you can maybe help us think about the impact on gross margin, I guess, like, you know, if not for these shortages, would you have seen gross margin increase sequentially in the fourth quarter?
spk04: Yeah, thank you, Nate. Maybe I'll take the first part of that question. So, as we alluded to in the prepared remarks, we've seen variability in our raw materials, and in order to compensate for that, we have put some more, we've incurred some more costs on the labor side, to ensure continuity in manufacturing, plus we've incurred some costs, for example, in expedite fees to make sure that we have some of these critical parts available to us. You know, also just maybe briefly comment on the fact what we're doing about this. We are increasing our raw material inventory levels of some of these key components. And as Mike alluded to, that will allow this impact to us to dissipate as we enter into Q2. So that's the first part of this. Mike, do you want to comment on the gross margin side of this?
spk06: Yeah. So, Nate, we believe we would have experienced sequential improvement in gross margin, of course, without these headwinds, albeit, you know, in the low single digits.
spk04: Maybe I'll just add one more thing to that.
spk00: Yeah, that's helpful.
spk04: Yeah, sure. Yeah, Nate, I was just going to add that I think the key thing for us going forward, you know, on the gross margin perspective this year, as we've talked about a couple of times here, is clean flow. And that's really what's going to drive the gross margin story as we enter, get further into the year.
spk00: Got it. And that sort of dovetails into the follow-up I wanted to ask. I know you didn't guide to EBITDA or profitability metric for the year, but I guess, could you maybe help us think about how you're thinking about that? It obviously seems like gross margin is going to be impacted in the first half. SG&A in the quarter was also a little bit higher than we anticipated. I think you kind of maybe pulled forward, it sounds like, some of the Salesforce investments that you're making. I don't know, Mike, if there's any kind of guide rails you can help us with from a profitability standpoint as we think about the full year.
spk06: I think you caught some of it. When we look at Q4, we were able to hire into our plans on both the consumable and capital sales reps, which is a great benefit to us. And then additionally in the quarter, we had majority of the uplifting costs that we would expect as a public company. So a lot of those costs are now dialed into Q4. And I think that should give you help to measure your models going forward. as we look into 2022.
spk00: Okay, great. And one last clarification. Yeah, that does. If I could just ask one more quick one. The press release that you put out last week reaching the 800,000 procedures, you know, I think implies a procedure rate of slightly over, you know, 20,000 a month. I guess you obviously went through kind of the period of Omicron during that time, and so I guess I'd be curious if we look at kind of like February and what you've seen most recently relative to that kind of five-month pace, kind of how you're feeling about where the business is towards the end of the quarter.
spk04: Does that make sense? That does make sense. And so let me just give some color maybe initially on Omicron. As we alluded to in the prepared remark, we saw a very small, slight slowdown in utilization towards the end of December and into early January. And we have obviously the opportunity here to see these procedures live because the consuls are reporting in live procedures to us. But we believe that was temporary. And what we're seeing right now is that procedure volumes in general are back to substantially pre-COVID levels. So we're very happy with the way that procedure volumes are progressing and continuing to progress. With the press release, I think the timing, exact timing of those press releases, we announced the 700K and 800K You know, I would not put so much emphasis on the days between those press releases in order to kind of calculate the utilization. I think the way I would view utilization right now is that utilization rates that we're seeing and saw in Q4 is continuing into Q1 of this year. And I would say that substantially we don't feel that there's any impact of COVID in the utilization numbers that we're seeing.
spk00: Thanks. That's helpful. I appreciate the comments. Thank you, Nick.
spk05: Thank you. There are no additional questions waiting at this time, so I'll pass the conference back over to Bjorn Berghain, President and CEO, for closing remarks.
spk04: Well, thank you, Operator. Let me just close out by saying that we appreciate everyone spending time with us today. Mike and I look forward to meeting many of you as we go forward. both at future investor conferences and also for individual meetings. Have a great day.
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