Sonendo, Inc.
Q4 2021 Earnings Call Transcript

Published: 23 Mar 2022

[Operator:]

Good afternoon. And welcome to Sonendo’s Fourth Quarter Earnings Conference Call. At this time, all participants are in a 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 Bacso from the Gilmartin Group for a few introductory comments. Matt, please go ahead.

[Matt Bacso:]

Thanks, operator. Good afternoon and thank you for participating in today's call. Joining me from Sonendo are Bjarne Bergheim, President and CEO and Michael Watts, CFO. Earlier today's Sonendo released financial results for the quarter ended December 31, 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 Reform Act of 1995. And the 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 and 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 in description of the risks and uncertainties associated with our business, please refer to the risk factors section of our public filings with the Securities and Exchange Commission, including the final perspective filed with the SEC pursuant to Rule 424(b)(4) on November 1, 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 23, 2022. And no 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.

[Bjarne Bergheim:]

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 transformed 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 10 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 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 environments. As of December 31 GentleWave’s ending install base was approximately 820 units, compared to approximately 680 units on December 31, 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 endodontist, patient volumes are currently trending at or near pre-COVID levels. While our growth is heavily predicated on our ability to penetrate to root canal market and sell consoles to new users, durability of patient volumes dental offices is a positive sign that the end market is strong, and there's demand for our technology. As a reminder, our customers are primarily endodontist 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 your 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 our exposure. That said we did have short term variability in the supply of certain raw material components, which cost us incur additional costs late in the fourth quarter and into the first quarter of 2022. As a result, these temporary inefficiencies within our manufacturing operations unit may negate any benefits realized increased procedure instruments volumes. Thus, we expect first quarter of 2022 gross margins to 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 guidance. Now turning to quarterly business updates starting with product development and CleanFlow. With more than 800,000 GentleWave 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 patients. 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 dental 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 CleanFlow procedure instrument will work off the existing consoles, so there's no need for existing customers to buy a new machine to access this latest technology. This will allow us to ship CleanFlow procedure instruments to new customers and convert existing customers. Another reason why we're so excited about CleanFlow is that we have a clear pathway to improve our contribution margin for consumables. Given the simplicity of CleanFlow 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 operation 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 meaningful 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 instruments for current GentleWave customers with the goal of educating and converting them overtime 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 GentleWave 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 operation 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 latest stages of full scale operations having recently test 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 for approximately $1.9 billion. The GentleWave system product offering consists of a GentleWave console, a single used 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 endodontist. By our estimates, there are roughly 5,000 endodontist in the U.S. and Canada, who perform approximately 4 million root canal procedures annually are 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 GentleWave system, and consumable reps who act as practice consultants, and are focused on educating and training adopters to ensure successful onboarding and to drive increased utilization within the practice. As of December 31, we have expanded our team of capital sales reps to 24, and our team of consumable reps to 17, up from 16 and two, respectively, as of June 30, 2021. We believe these consumable reps will be an integral part of our growth and execution in 2022 and beyond. Given a number of consumable reps, we have hired our partners to maintain the size of our commercial team at this level for the near term, as we focus on sales force 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 every group was extremely positive and contagious all week long. In addition to holding breakout sessions within the organizations to educate and train our sales force, we also invited leading endodontist to host workshops highlighting the GentleWave technology. Specifically, these workshops are focused on emphasizing the competitive advantage GentleWave 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're seeing a positive impact in utilization of newer accounts that have completed our updated training cycle as compared to legacy customers. While it’s 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 they're consistent training with new and existing customers will drive average utilization rates higher as to 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's being an integral piece or 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 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 GentleWave, we now have a full product suite that allows us to partner with our customers through advanced 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 GentleWave customer, we're teaching them how to do root canals faster and better with the GentleWave procedure. By incorporating both TDO and GentleWave 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 drive more patients to the practice, by promoting the clinical benefit of the GentleWave procedure endodontist can help drive more referrals into their office. We know that 99% of patients will prefer to have a GentleWave procedure, which means that both GPs and patients alike are eager to ensure that the GentleWave procedure is performed. What we have seen is that when you link GentleWave and TDO endodontists save time, improve clinical efficiencies, and increase revenues. We will also launched the GentleWave Community app for our customers. The GentleWave Community app is an industry first providing an online forum specifically designed for users of the GentleWave system. The community 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 enrichments. 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 dental providers, and it's the latest technology to be brought to market that enhances Sonendo’s digital suite of tools. We believe this app refer to drive a sense of community among our customers. I also want to highlight that Sonendo will once again be attending the American Association of Endodontist or AAE Annual Meeting in Phoenix from April 27 through the 30. AAE is our largest industry conference and we're 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 relationship and showcase the GentleWave technology. Sonendo will be sponsoring various events and lectures throughout the conference with a focus on clinical experience and practice impact with the GentleWave procedure. Lastly, I would like to point out the exciting news that in late-2021, we appointed Carolyn Beaver, Karen McGinnis, Raj Pudipeddi and Sadie Stern to Sonendo’s board of directors. These individuals bring in 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 GentleWave a standard of care for root canal therapy. Additionally, we will continue to prioritize gross margin expansion in clinical practice efficiency with the launch of CleanFlow 2022. With that, I will turn the call over to Michael Watts, Sonendo’s Chief Financial Officer. Mike?

[Michael Watts:]

[,:]

In the fourth quarter, GentleWave console revenue was $3.1 million, compared to $2.8 million in the fourth quarter of 2020. GentleWave 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 Bjarne previously mentioned. Turning to procedure instruments, PI revenues 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 instrument sold per account and increased installed base as 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 related to Endocon, one of the largest in person endodontic conferences of 2021 and services. Gross margin for the fourth quarter of 2021 was 25% compared to 20% in the fourth quarter of 2020. 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 dollars in the same period of the prior year. The increase was driven by increased sales team hiring and higher general administrative cost, primarily legal and accounting as we transition to a public reporting company. This was slightly offset by lower research and development cost. Loss from operations was $13.6 million in the fourth quarter 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 31, 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 2. 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 GentleWave independent full launch of CleanFlow. For 2022, we expect to annual revenue to range between $40 million to $43 million representing year-over-year annual growth between 20% and 30%. In connection with our annual guidance and what we communicated during the IPO and Q4 2021, our expectation for Q1 2022 revenue is approximately $8.2 million. Given the supply chain issues Bjarne 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 CleanFlow. At this point, we'd like to open the call for questions.

[Operator:]

Thank you. The first question today comes from Matthew O’Brien from Piper Sandler. Matthew, please go ahead. Your line is now open.

[Matthew O’Brien:]

Well, thanks, afternoon. And thanks for taking the questions. I don't know if this is for Bjarne or for Mike but just maybe talk a little bit more about that ‘22 revenue guidance. There is just a lot of puts and takes. And you just came out of Q4 at $40 million you had a COVID headwind and you still put up the high end of the range if you had communicated. So just a little more color on that 40 to 43 and what gets you there? And any kind of conservativism you've built in there or headwinds from supply chain et cetera.

[Bjarne Bergheim:]

Yeah, thank you. 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 questionnaire. So, we finished a great Q4 and 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 also made some accomplishment significant events in Q4. Point one, we're able to build up 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 Sonendo. 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 will 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 GentleWave. So as we're sitting here, first be --we've had six days left of the Q1. We're excited about Q1, and we feel really good about the year.

[Matthew O’Brien:]

That’s helpful. Appreciate that, Bjarne. And then, 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 obviously still a little bit affected by Omicron. But how do we think about utilization? And then how does CleanFlow, weave its way into your utilization expectations. Thank you.

[Bjarne Bergheim:]

Mike, do you want to take?

[Michael Watts:]

Yeah, sure. So hey, Matt. So when we think about utilization, it starts with the great team of consumer reps that we've hired at the end of the year that Bjarne just mentioned. We have them here at the national sales meeting in February had a great start, and really feel a lot energy and positivity coming out of this team. One thing that we note in the past, though, is that we expect six months for this team to come 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 CleanFlow goes, CleanFlow we think, of course is going to be a simple procedure, and will help in having the consumable reps able to help customers transition from our current technology to CleanFlow. So we think CleanFlow will be an added benefit to the overall utilization. Bjarne I don’t know if you add anything to that.

[Bjarne Bergheim:]

I think that's a good summary. I think if you look at the strategy of Sonendo, 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 -- move forward and really drive utilization as we move forward.

[Matthew O’Brien:]

Okay, but scaling up throughout the course of the year is what we should be expecting them?

[Michael Watts:]

Yes. Yep.

[Matthew O’Brien:]

Got it. Okay. Thank you.

[Bjarne Bergheim:]

Thank you, Matt.

[Operator:]

Thank you, Matthew. The next question today comes from Jon Block from Stifel. Jon, please go ahead. Your line is now open.

[Jonathan Block:]

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 flattish sequentially for 1Q ‘22. Just how do we think about call it the cadence throughout the year, even the exit rate for 2022 can 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 CleanFlow would become a bigger percentage of the overall mix?

[Bjarne Bergheim:]

Mike, do you want to take that?

[Michael Watts:]

Sure. So thanks, Jon, for the question. So when we look at just our expense 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 of course, we expect gross margin to improve sequentially as we increase volumes, and then eventually with the full commercial launch of CleanFlow. So I think we can expect by Q4, we will have, of course, gone through the headwinds of the Omicron COVID impact raw materials. And we'll have higher volumes and of course get the benefits of CleanFlow. So I think the estimates that you're putting on the table the things that we're striving for.

[Jonathan Block:]

Okay, great. Helpful color. Thank you. And then next question a little bit maybe lately, but can we just talk about new GentleWave adopters? How they're ramping in the early days with the bifurcated sales force with reps now there to calling for better handhold the practice out of the gate. Bjarne, it seems like you alluded to that, 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 Bjarne, I think I heard you say on the call that some of the new purchasers or new adopters will be the first to get CleanFlow, if I heard that correctly. What will that happen, call it on a consistent basis, where 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 CleanFlow? Thanks, guys.

[Bjarne Bergheim:]

Thank you, Jon. As Mike reviewed, the key for us right now is that we have obviously on boarded 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 them really helping drive utilization in the second half of this year. That is the key driver of utilization that we're factoring in our internal models. We're very excited about the CleanFlow launch. It's going to be an easier procedure. It's going to be a procedure that the doctors can do that more expedient manner. But in our internal models, we're not factoring in any increases in utilization from CleanFlow. 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 literally 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 GentleWave. We 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 GentleWave. 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.

[Jonathan Block:]

Got it. Bjarne just asa clarification there. So in the back part of this year -- the back part of 2022, will that be the time period where call it a new adopters, starting with CleanFlow out of the gate? And I'm just trying to gauge, when that process is going to take place and if I was correct, if the new docs will be the first one as you want to train and train only one time? Thanks for the clarification.

[Bjarne Bergheim:]

Yeah. Thanks, Jon. Yeah, so we haven't obviously disclosed exact timing of when we're going to launch CleanFlow. But your thinking about it is correct that we will initially -- when we train new gentlemen 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.

[Jonathan Block:]

Got it. Understood. Thanks for the color.

[Bjarne Bergheim:]

Thank you, Jon.

[Operator:]

Thank you, Jon. The next question today comes from Michael Cherny from Bank of America. Michael, please go ahead. Your line is now open.

[Unidentified Analyst:]

Hi, this is Charlotte on for Mike. Thanks for taking my question. You mentioned a focus on increasing sales force effectiveness with the bifurcated sales team. Could you just talk a little bit more about this, as you're going into 2022?

[Bjarne Bergheim:]

Yeah, sure. Like we talked about, we've added a lot of capital sales reps and consumable reps. We are now working and that 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 GentleWave 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. Now also, by having the consumable reps in place and having more feet on the street, we can have the consumable reps also helped pass leads, obviously back to the to the capital sales reps. So we're really excited about that model and that investment that we're putting in place.

[Unidentified Analyst:]

Great, thank you.

[Operator:]

Thank you. The next question today comes from Nathan Rich from Goldman Sachs. Nathan, please go ahead. Your line is now open.

[Nathan Rich:]

Hi, good afternoon. Thanks for the question. 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, whether that's, more on the PI side or the console side? And I guess, you can maybe help us think about the impact on gross margin. I guess, like -- if not for the shortages, would you have seen gross margin increase sequentially in the fourth quarter?

[Bjarne Bergheim:]

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 -- incurred some more costs on the labor side to ensure continuity in manufacturing, plus we've incurred some costs for example and expedite fees to make sure that we have some of these critical parts available to us. Also just maybe briefly comment on the fact what we're doing about this, we are increasing our raw material inventory levels. So 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?

[Michael Watts:]

Yeah. So we believe, we would have experienced sequential improvement in gross margin, of course, without these headwinds, albeit in the low-single digits?

[Nathan Rich:]

Yeah, that's helpful. Yeah, sure.

[Bjarne Bergheim:]

Nathan, I was just going to add that I think the key thing for us going forward on the gross margin perspective this year, as we've talked about, a couple of times there is CleanFlow. And that's really what's going to drive the gross margin story, as we enter -- get further into the year.

[Nathan Rich:]

Got it. And that's 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? Obviously, seems like gross margin 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 sales force investments that you're making. So 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.

[Michael Watts:]

Yeah, I think you caught some of it. So 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 uplift in costs that we would expect as a public company. So a lot of those costs are not dialed into Q4. And I think that should give you help to measure your models going forward, as we look into 2022.

[Nathan Rich:]

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, I think implies a procedure rate of slightly over 20,000 a month. I guess that -- 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 the kind of like February and what you've seen most recently, like 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? Is that make sense?

[Bjarne Bergheim:]

That does make sense. And so let me just give some color maybe initially on Omicron. As we alluded to, in the prepared remarks, we saw very small slight slowdown in utilization towards the end of December and in early -- into early January. And we have obviously, the opportunity here to see these procedures live, because the consoles 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 to proceed your volumes are progressing and continuing to progress. With the press release, just -- I think the timing, exact timing of those press releases as we announced the 700k and 800k that 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 to view utilization right now is that the utilization rates that we're seeing in 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.

[Nathan Rich:]

Thanks. That's helpful. Appreciate the comments.

[Bjarne Bergheim:]

Thank you, Nate.

[Operator:]

Thank you. There are no additional questions waiting at this time. So I'll pass the conference back over to Bjarne Bergheim, President and CEO for closing remarks.

[Bjarne Bergheim:]

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.

[Operator:]

That concludes today's conference call. Thank you for your participation. You may now disconnect your line.