Sonendo Inc

Good afternoon, and welcome to Sanendo's third 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 Louisa Smith from the Gilmartin Group for a few introductory comments.

Thanks, operator. Good afternoon, and thank you for participating in today's call. Joining me from Sunendo are Bjorn Burkheim, President and CEO, and Michael Watts, CFO. Earlier today, Sunendo released financial results for the quarter and did September 30, 2022. 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 meeting of federal securities laws. which are made pursuant to the safe harbor provisions of the Private Securities Litigation 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 relating 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 undue 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 most recent annual report on Form 10-K filed with the Securities and Exchange Commission on March 23rd, 2022 and available on EDGAR and in our other public reports filed periodically with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast on November 9, 2022. Sunendo disclaims any intention or obligation, except as required by law, to update or revise any financial projection or forward-looking statements, whether because of new information, future events, or otherwise. And with that, I will now turn the call over to Bjorn.

Hey, thanks, Louisa. Good afternoon, everyone, and thank you for joining us. For today's call, I will provide opening comments and a business update, followed by Mike, who will provide additional detail regarding our quarterly results and guidance for the remainder of the year before opening the call to Q&A. Sunendo had a strong third quarter marked by continued revenue growth, significant product announcements, and a notable financing. We were pleased with our performance, especially in light of the anticipation that Q3 and the second half of 2022 might prove to be sluggish based upon macroeconomic headwinds. On a high level, our operating performance was strong. Revenue for the third quarter of 2022 was $9.8 million, representing growth of 25% over the same period last year. We were pleased to see continued performance in our procedure utilization rates, equating to approximately 72,000 procedures across our install base for the quarter. Coupled with a price increase that was effected July 1st, this equates to roughly a 30% increase in consumable revenue compared to the third quarter of last year. In the third quarter, we sold 38 gel wave consoles compared to 29 in the prior year period, a growth rate of approximately 30% year-over-year. As of September 30th, GelWave's ending install base was approximately 935 units, compared to approximately 766 units on September 30th, 2021. This quarter, we also closed a 63 million follow-on financing with new and existing investors. Earlier in the quarter, we drew down $10 million of our available debt. These additional funds will grant us more financial flexibility to execute on our strategy as we seek to fulfill our mission of saving teeth, improving lives. Overall, Q3 was a quarter during which we achieved milestones that we believe will serve as a positive inflection point for Sunendo as we continue to build a business. Before diving into further business updates, I'd like to address the current macro environment, trends we see within the MedTech sector and their potential impact on our business. The supply chain headwinds we experienced in the first half of this year have eased in Q3, and our internal teams continue to monitor the potential for further disruptions. In response to these challenges, we implemented some design changes during the full commercial launch of CleanFlow to allow for greater stability throughout the supply chain, including a new packaging design. However, our gross margins in Q3 came in less than we had originally anticipated. During the quarter, we incurred certain costs that we'll expand upon later in our financial section, as well as compression of pricing for our prior generation console. The negative impacts were partially offset by price increases for our procedure instruments that became effective July 1st. Mike will provide more detail on gross margin trends during the financial review. We've also observed that the placement of capital equipment has been mixed across the MedTech sector, primarily due to inflationary pressures and news headlines threatening a weakening economy. And while we are closely tracking expenditure trends in the dental market, we still expect system placements to be stronger in the fourth quarter as compared to the third. This has historically been the case due to year-end tax incentives and buying practices of our customers. And finally, as we've previously communicated and consistently observed in years prior to COVID, we saw a moderate seasonal slowdown of procedure utilization during the summer months this year. We believe this was caused by longer-than-average vacations on the part of both practitioners and patients, given that it was the first summer since 2019 that many took extended vacations. But again, this was a trend observed throughout the medtech sector, and we expect utilization to pick up in Q4, which, when paired with anticipated capital placements at the end of the year, should translate to a successful year-end. In summary, we are encouraged by our Q3 utilization and are looking forward to a strong finish to 2022 for both consoles and procedure instruments. Turning to some recent business updates, we're thrilled to have announced the release of the GelWave G4 system. On October 18, we announced the launch of our next-generation General Wave console, which received a great reception when showcased at EndoCon, Sunendo's second annual endodontic conference on innovation. We're very excited about the G4 system and what it offers. Building upon the foundation of General Wave's broad-spectrum acoustic energy and advanced fluid dynamics, G4 has the ability to improve workflow efficiency across the office and will cut down on system preparation time for support staff. Key features of the General Wave G4 system include, one, an improved user interface with auditory cues, two, multi-operatory connectivity, three, battery backup, and four, increased fluid capacity, enabling up to six procedures. Ultimately, the console has the ability to elevate patient care practice efficiency, and become the centerpiece of the endodontic office. The introduction of the GEL-Wave G-force system comes just six months after the commercial launch of the clean flow procedure instrument back in April, and is indicative of Sunendo's commitment to innovation and endodontics. The system is already in the hands of several doctors, and the feedback we're receiving is really exciting. As an example, We've had one doctor share that their staff has saved one hour per day by converting to the general wave G4 system. G4 represents a significant move forward in creating a platform for the general wave procedure to become the standard of care for root canal therapy and tooth decay. We look forward to providing more updates on future calls. As for CleanFlow, we're seeing successful adoption trends since we initially introduced it to the market in the spring. While we're ahead of internal estimates for converting doctors to CleanFlow, we're maintaining a pace to have full conversion within 24 months of launch. As a reminder, converting users to CleanFlow procedure instruments represents a margin inflection point for the business. As we scale CleanFlow and convert users to the new technology, we anticipate margins will improve due to fewer components, ease of assembly, and benefits of scale. In addition to hosting EndoCon in October, Sunendo was honored to sponsor the inaugural Women in Endodontics Summit. This conference, held in Tucson, Arizona, was a two-day event providing educational opportunities highlighting nationally recognized women in the field we were proud to be involved as we recognize the significance of supporting growth and leadership opportunities for women in the industry and is further evidence of how we are supporting the industry across technology service and education turning to our commercial strategy we've been pleased for the positive impact resulting from the bifurcation of our consumable and capital sales teams As a reminder, we significantly expanded the size of our consumable rep team at the end of 2021 in preparation for the launch of CleanFlow and to adjust for the delegation of account management responsibilities. In Q3, our consumable team sold over 72,000 procedure instruments. Clinical education has been a critical component of this sales team strategy, in addition to training practitioners to efficiently incorporate the device into their practices. We believe this hands-on approach will best emphasize the benefits of our technology and maximize the opportunity for increased practice volumes. The shift towards a bifurcated sales force has also benefited our capital sales team, as these reps had previously spent as much as 50% of their time servicing existing accounts. We've already begun to see increased lead generation and pipeline opportunities for this newly focused sales team, and in Q3, we placed 38 systems, despite some of the macro headwinds outlined earlier in my remarks. Additionally, this team is well-situated to expand our focus to include general dentists who perform a large share of their own root canal procedures. We believe the fourth quarter will provide a chance to further realize these synergies as the team focuses on supporting practitioners in placing capital orders at the end of the year. We will continue to drive execution of these two teams into 2023. Additionally, in July, we were pleased to announce the appointment of Joanne Lindberg as Vice President of Sales, North America. As Sunendo continues to scale and further establish a leadership position in the endodontic market, Joanne leads the sales team and oversees sales strategy in the US and Canada. She has already made an impact within the sales organization as she brings significant experience with increasing scale and operational leadership. Joanne's hire is representative of our continued focus on sales expansion and execution. In the third quarter, we also conducted a consumer survey of 500 individuals, which concluded that over 67% of respondents are terrified of getting a root canal procedure. And more than 80% were nervous, anxious, or scared about undergoing treatment. This shows the significant need to bring root canal therapy into the 21st century. We believe that Sanendo's general wave procedure will redefine root canal therapy with a minimally invasive process that preserves tooth structure and promotes pain-free, fast healing. With compelling data, consumer-driven acceptance, and revolutionary technology, we're excited about Sunendo's future. We had an encouraging third quarter and have committed the necessary resources to invest in our commercial infrastructure and continued innovation. With the launch of CleanFlow in the spring and the recent release of the next generation G4 console, we know our technology is well positioned to support doctors in expanding their practices and improving the patient experience. This unique value proposition will allow us to capture a significant share of the almost $2 billion root canal market in the US and Canada. And we're looking forward to the next phase of our growth. With that, I'll turn the call over to Michael Watts, Sunendo's Chief Financial Officer. Mike.