Sonendo Inc

Good afternoon, and welcome to Sonendo's fourth quarter earnings conference call. At this time, all participants are in listen mode only. 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 Berghain, President and CEO, and Michael Watts, CFO. Earlier today, Sunendo released financial results for the quarter ended December 31, 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 factors section of our most recent annual report on Form 10-K filed today, March 8, 2023, with the Securities and Exchange Commission 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 March 8th, 2023. Sunendo 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 will now turn the call over to Bjorn.

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 and full-year results and guidance for 2023 before opening the call to Q&A. We're pleased with Sunendo's performance in 2022, with this being our first full year as a public company. Revenue for the fourth quarter of 2022 was $12.2 million, representing growth of 24% year over year. Revenue for the full year was $41.7 million, a growth of 25% over 2021. Our fourth quarter was marked by some significant milestones, including the launch of our next generation General Wave G4 console and the one millionth General Wave procedure. Coupled with the launch of our clean flow procedure instrument earlier in the year, we're proud of the advances in innovation we have made since we began commercialization and look forward to continuing to redefine the standard of care for root canal therapy. As of December 31st, General Wave's ending install base was approximately 976 units compared to approximately 820 units on December 31st, 2021. In the fourth quarter, we sold 58 Genwave consoles. Since the initial launch of our Genwave G4 console, we've seen demand shifting primarily towards the newer model over the G3 console, which will ultimately lead to increased practice efficiencies and an improved ASP mix. With respect to procedure instrument, we were encouraged by strong procedure utilization rates, equating to approximately 75,000 procedures across our installed bays for the quarter, and we have also been pleased with the initial adoption trend for the CleanFlow PI that we launched in April 2022. The GEL-Wave system and CleanFlow technology provides a less invasive and less painful alternative to traditional root canal therapy, while also creating a simplified workflow in the operatory. We continue to convert accounts from our legacy PIs to CleanFlow, and we are maintaining our previously stated pace to achieve full conversion by mid-2024. In the fourth quarter, approximately 47% of PI unit sales were clean flow. Customer adoption of our clean flow technology is a critical factor for margin inflection in the business as it uses fewer components and is simpler to assemble. This, coupled with the eventual obsolescence of the previous generation procedure instruments, will improve our gross margin profile. The consumable team of our recently bifurcated sales force is continuing to support the conversion of doctors to clean flow, onboard our new practices, and oversee account management responsibility of our users. Providing support on how to efficiently incorporate the devices into dental practices has been a critical piece of the team's approach, and we expect that throughout 2023, they will be able to expand their opportunity for increased practice volumes. Lastly, on February 1st, we launched a new tiered pricing model for procedure instruments, similar to what we had pre-COVID. PIs will have a set price with discount tiers based upon quarterly procedure volume and purchase quantities. Pricing now begins at a higher base with multiple tiered discounts available, ranging from $74 to $89 per PI. This new pricing model incentivizes higher utilization. Before reviewing additional business updates, I'd like to provide some commentary on our perspectives of the current macro environment and how we foresee potential impacts on the business. In our third quarter call, we observed that supply chain headwinds had negatively impacted our gross margins. We're pleased to have navigated those uncertainties by establishing stability throughout our supply chain and inventory channels. We expect gross margins to improve going forward as the clean flow adoption rates rise and as we realize operational efficiencies related to higher growth, as well as seeing the impacts of our new pricing model. As anticipated, system placements increased in the fourth quarter, sequentially 53% higher than Q3, likely due to year-end tax incentives, the buying habits of our customers, and the general mode G4 launch. As we move into 2023, we expect historical seasonal trends to continue, with Q1 and Q3 being our lowest periods and Q4 being the highest. Still, as we have discussed previously, based upon the macro environment and higher interest rates, we continue to see underlying conservatism around purchases of capital equipment. And as a result, we may experience longer selling cycles throughout the year, although demand remains strong. It is important to point out that we remain steadfast in our value proposition and that our capital sales team is still experiencing strong lead generation and pipeline opportunities. We're confident that our technology is well positioned to support doctors in expanding their practices and improving the patient experience. I'll finish with some recent business highlights before asking Mike to review financial results in more detail. As I briefly mentioned at the start of my commentary, in December, we hit a significant milestone for Sunendo, the one millionth gel-made procedure performed since we started commercialization. This is a testament to Sunendo's commitment to innovation in dentistry and endodontics and the increased adoption and utilization of our revolutionary technology. As underscored by the results of a recent survey, the general way procedure resonates well with consumers because of its ability to preserve tooth structure and enable an enhanced level of cleanliness, all while promoting faster healing with minimal to no pain. The survey conducted in December indicated that 93% of respondents would prefer to undergo the general way procedure over traditional root canal therapy, and that 63% of patients would be willing to search for a new doctor that offers our technology if their existing provider did not. Additionally, 81% would be willing to pay at least $250 to access the technology. So it is clear that we are elevating the patient experience and delivering incredible outcomes through this minimally invasive procedure. We're thrilled to be at the forefront of modern root canal therapy. To that end, We're committed to getting the GEL-Wave system into the hands of many more doctors to help elevate their practice efficiency, patient experience, and become the standard of care for root canal therapy and tooth decay. Our near-term focus continues to be on endodontists who perform root canal therapies for the majority of their treatments, as evidenced by our support of over 20 endodontic residency programs since 2020. We have invested in clinical training and education of emerging and established clinicians, and we remain supporters of the specialty. So NENDO will sponsor the American Association of Endodontics Save Your Tooth Month in 2023 and 2024, and we'll keep advocating for the training of endodontists on the general system as part of their clinical education. With that said, we also recognize that general practitioners represents a significant market opportunity, performing 75% of all root canal therapies across US and Canada. Our General Wave G4 system is well positioned to improve workflow efficiency across all practices. We're beginning to introduce the technology to higher volume GP practices that are less likely to refer to root canal procedures to endodontists. With the General Wave procedure, these GPs will be able to offer their patients an elevated experience while seamlessly incorporating our technology across multiple operatories to experience the benefit of the GeloVac procedure. The initial feedback we received from early GP adopters has been overwhelmingly positive, and we believe this next phase of our commercial strategy has the opportunity to transform the endodontic landscape. We plan to implement a measured and responsible rollout to GPs throughout 2023, to ensure that they receive the same level of industry-leading support from our sales and clinical teams. And finally, we're looking forward to being able to commercialize clean flow technology for anterior teeth towards the middle of the year. Anterior procedures account for approximately 20 to 25% of root canals performed today. Transitioning anterior cases to the clean flow PI will support increased adoption, improved margin profile, and enhanced practice efficiencies. Adding to CleanFO's present clearance for molar and premolar teeth, we're excited about the opportunity to offer customers a single PI for all root canal therapy applications. With that, I will turn the call over to Michael Watts, Sunendo's Chief Financial Officer. Mike?