SANUWAVE Health, Inc.

Good day, everyone, and welcome to today's Samuel Wave earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star, then the 1 key on your telephone keypad. You may withdraw yourself from the queue by pressing the star 2 key. Please note, today's conference is being recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Morgan Frank, Chairman and CEO of Sanyu Wave.

Thank you, Margo. Good morning, everyone. Welcome to Sanyu Wave's fourth quarter and full year 2024 earnings call. Our Form 10-K was filed with the SEC last night. Our earnings release was issued this morning, and our updated presentation was made available on the website in our investor section. You can please refer to that during the presentation. Joining me on this call is Peter Sorensen, our CFO, and after the presentation, we'll open the call up to Q&A. So let me begin with the obligatory forward-looking statements. This call may contain forward-looking statements, such as statements relating to future financial results and production expectations and plans for future business development activities. Investors are cautioned that any such forward-looking statements are not guaranteed to future performance and involve risks and uncertainties, many of which are beyond the company's ability to control. Description of these risks and uncertainties and other factors that could affect our financial results is included in our SEC filings, and actual results may differ materially from those projected in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements. Okay. As a reminder today, our discussion will include non-GAAP numbers. Reconciliations between our GAAP and our non-GAAP results can be found in our recently filed 10-K for the year ended December 31st, 2024. Okay, with that out of the way, let's get to good stuff. So last conference call, we spoke about pigs and pythons and how engaging with larger and more sophisticated customers who were capable of purchasing large boluses of products and having profound effect on our quarterly numbers was going to be one of the key characteristics of our revenue stream going forward. Q3, as I think many of you noticed, was definitely a pig quarter. Q4 gives us a chance to look at what a non-lumpy, sort of non-pegged quarter looks like, as we had no outsized orders in the quarter, nor any customers exceeding 7% of sales. We're pleased to come in around the high end of our quarterly guidance and slightly above our guidance for the full year, and have set yet another record revenue for revenue and systems in the quarter. Breaking into eight figures at 10.3 million was a meaningful milestone for the company, And it was the result of strong growth in both our systems and our consumables. We sold 135 Ultima systems in the quarter, outpacing even the 124 Pig quarter from Q3 and far exceeding the 79 that we placed in Q4 of 2023. That's 71% growth in systems sold year over year. We ended 2024 with 1,047 systems in the field, up from 647 at the end of 2023. Applicator sales in Q4 were $5.9 million, up 68% from Q4 2023, and up 11% sequentially from Q3. They constituted 58% of our overall revenue in the quarter, in line with our 55% to 65% target for consumable sales, and we're really excited to be performing on model there and with reasonable predictability. Benefits from scale, new manufacturing agreements, and from price discipline have resulted in increased gross margins that have reached 77.9% in the quarter. This extra margin and our focus on cost controls led to expansion in operating and adjusted EBITDA margins for the quarter, and the company was, the second quarter in a row, cash-generative from operations, even after making its cash interest payments. So the last several months have really been a pivotal time for Sanyu Wave, and what has come to be internally referred to as shock and awe Friday, last October 18th, represented a major step in simplifying our cap structure by exchanging our convertible notes and warrants, rationalizing our share price through a reverse split, strengthening our balance sheet with a $10.3 million pipe transaction. We paid off some of our noncompliant debt. We also paid down a $2.8 million revenue factoring facility to zero by the end of Q4. This set the stage for the company to uplift NASDAQ, which occurred on March 7th of this year and represents a major step toward our long-cherished goal of becoming a company that can be valued for the quality of its business instead of the complexities of its cap structure. So now to walk you through some further financials and to help you assess this alleged quality of our business, I will hand you over to Peter Sorensen, our CFO.

Again, achieving 10% sequential growth from last quarter's previous record, as well as strong year-over-year growth at 47%. In addition to top-line expansion, we also saw continued improvement in gross margins both year-over-year and sequentially, reinforcing the strength of our business model. We continue to execute on our goal of rapid, profitable growth. With that, let's take a closer look at the numbers. Revenue for the three months ended December 31st, 2024 totaled $10.3 million, an increase of 47% as compared to $7 million for the same period of 2023. This growth is in line with our previous guidance of 40 to 50%. Gross margin as a percentage of revenue amounted to 77.9% for the three months ended December 31st, 2024 versus 69.1% for the same period last year. For the three months ended December 31st, 2024, Operating income totaled $2.5 million, which is an improvement of $1.5 million compared to the same period last year, which aligns with our continued initiative to drive towards profitable growth and managed spend effectively. Operating expenses for the three months ended December 31st, 2024 amounted to $5.5 million compared to $3.8 million for the same period last year, an increase of $1.7 million. This change was largely driven by an increase in non-cash expense of stock comp of $1.5 million as we granted stock options to our employees and board of directors for the first time in over six years. Net loss for the three months ended December 31st, 2024 was $12.7 million compared to net income of $18.2 million for the same period in 2023. The decrease in net income was primarily due to a change in the fair value of derivative liabilities, which was a $20.3 million gain in 2023 versus a $13.3 million loss in 2024. Most of the derivative tail wagging should be behind us in future quarters as part of the note and warrant exchange that Morgan alluded to that we completed in Q4 2024. EBITDA for the three months ended December 31st, 2024 was negative $9.7 million. However, adjusted EBITDA for the three months ended December 31st, 2024 was a positive $3.7 million versus $0.7 million for the same period last year, an improvement of $3 million year over year. We'd like to take a moment to walk through the bridge from EBITDA to adjusted EBITDA this quarter, particularly to highlight several non-cash infrequent items related to cap table restructuring and cleanup activities completed in October 2024. First, consistent with our historical practice, we adjusted EBITDA for the non-cash change and fair value derivative liabilities, primarily related to the quarterly valuation of warrants. This adjustment reflects the impact of warrants that were exchanged for common stock in October. Additionally, we adjusted for a non-cash gain recognized from the conversion of principal and interest associated with our convertible notes, which were also exchanged for common stock. The gain resulted from our stock price being below the note conversion price at the time of exchange, $12 per share versus the $15 issuance price. We further adjusted EBITDA for legal settlement and severance expense, totaling $156,000 during the fourth quarter. And finally, we adjusted EBITDA to exclude stock-based compensation, which is a non-cash expense, This adjustment was partially offset by the release of certain historical accruals following our Board of Directors' decision to remove their previously accrued cash compensation. Going forward, the Board of Directors' compensation will be paid in stock options as opposed to cash. As previously discussed with our operating expenses, we are pleased to be able to grant stock options to our employees and Board of Directors in Q4 for the first time in over six years. A detailed reconciliation and further breakdown of adjusted EVA that can be found in our recently filed 10-K and accompanying press release. We remain focused on executing our financial strategy, driving operational profitability, and maintaining disciplined management of operating expenses. Total current assets amounted to $18.4 million as of December 31st, 2024, versus $9.8 million as of December 31st, 2023. Cash totaled $10.2 million as of December 31st, 2024. We appreciate the continuous support of Staneway through this transformative past year and look forward to building on this momentum in 2025. With that, I'll turn the call back over to Morgan.