SANUWAVE Health, Inc.

Good day, everyone, and welcome to the SanuWave 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 and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star and 2. Please note this call may be recorded, and 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 SanuWave. Please go ahead.

Thank you. Good morning. Welcome to Sanywave's third quarter 2025 earnings call. Form 10-Q 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 the investor section. Please refer to that during the presentation. We really try to make it useful. Thanks. So joining on the call today is Peter Sorensen, our CFO. And after the presentation, we will open the call up to Q&A. So let me begin with the forward-looking statements and other disclosures. This call may contain forward-looking statements, such as statements relating to future financial results, production expectations, and plans for future business development activities. Investors are cautioned that any such forward-looking statements are not guaranteed of future performance and involve risks and uncertainties, many of which are beyond the company's ability to control. Description of these risks, uncertainties, and other factors that could affect our financial results is included in our SEC filings. Actual results may differ materially from those projected in the forward-looking statements. The company undertakes no obligation to update any forward-looking statements. Certain percentages discussed in this call are calculated for the underlying whole dollar amounts and therefore may not recalculate from rounded numbers used for disclosure purposes. As a reminder, our discussion today will include non-GAAP numbers. Reconciliation between our GAAP and non-GAAP results can be found in our recently filed 10Q for the period ended September 30th, 2025. All right, so now we have that out of the way, let's dig into the good part. Q3 was an all-time record revenue quarter for SandyWave, up 22% versus the challenging PigTrip Python quarter last year. When a large order drove 89% year-on-year growth, the quarter was also up 13% sequentially from Q2. This brings year-on-year growth for the first nine months of 2025 to 39% versus the same period last year. We sold 155 ultimate systems in Q3, also an all-time record, and up from 124 last year, again, the pick-your-python quarter, and 116 last quarter. This took us to 1,416 units in the field, 504 of which, that's 36%, have been sold in the trailing 12 months. Applicator revenue was $6.8 million in the quarter, also an all-time record, up 26% year-on-year and 6% sequentially from Q2. At 59% of revenues for the quarter, this was in line with the 55% to 65% target range we have discussed on previous calls. We had two customers of about 5% in the quarter and one customer, a reseller, that slightly exceeded that. No other customers exceeded 3% in the quarter. Gross margins were healthy 77.9% in the quarter, slightly down from 78.2% last quarter, but up from 75.5% a year ago. This was primarily as a result of slightly lower overall ASP for Ultima systems as a result of beginning to work with some larger resellers with whom we deal on a wholesale basis where we sell systems at lower prices and allow them to mark the systems up when resold as opposed to selling at full price and paying commission. This works out about the same, maybe slightly better for us on the operating line, but it does impact gross margins a bit. This was offset by slightly higher prices on applicators and some ongoing cost reductions to the production of the Ultramist system. The qualification of our new four-cavity mold for applicators and the new, more manufacturable applicator process continues. We expect to have that process up and running for commercial production in January. Though, if we do really well, it could be as soon as December. But I think at this point, January is probably a better bet. The clean room and equipment are in and qualified. We just need to get through the design verification performance and shelf life testing stages. And unfortunately, things like shelf life testing are inherently time-based. We use a blended cost basis for calculating our cost of goods sold. So it will take a few quarters for this new process to show through fully. but we expect it to ultimately drive a few extra points of applicator margin as it reaches scale in the back half of 2026. So Q3 has been a productive time for Sanywave. We received a $5 million payment for the exercise of IP licensing related to our intravascular shockwave patent portfolio, and we refinanced our debt, reducing $27.5 million of debt, closer to $29 million with closing costs, to $24 million and our interest rate from $19.5 to so far plus $3.50, which is currently about 7.63%. This placed the company on excellent financial footing and positions it well to pay down this debt-free cash flow as the facility contains no prepayment penalties or fees. We also moved to our new larger headquarters back in August. And one last piece of good news, based on the refi and our ongoing financial performance, I am pleased to announce that Sandy Wave has alleviated its substantial doubt to continuous and ongoing concern for at least 12 months as of this 10Q. So, moving on to the part I'm sure everybody wants to get to, the wound care market was a bit unsettled in Q3, as many practitioners seem to be taking this sort of wait-and-see attitude to What turned out to be some pretty substantial changes in the Skinsub and Allagraft reimbursement market. These have been long mooted by CMS, and this seemed to lead to a widespread taking the foot off the gas in the industry due to the uncertainty. While these changes, which were made final on Friday the 31st, did not affect SanuWave, our reimbursement for the 97-610 code, remains essentially unchanged, perhaps slightly up for 2026. It does affect many of our users, and this in combination, and perhaps particularly because of heightened fears about CMS audits and clawbacks in wound care, led many providers to simply sort of back off a little and to use advanced wound care treatments on fewer patients at the margin. This uptick in audit and price sensitivity seems to be part and parcel to the broader CMS strategy of driving toward something more in the lens of evidence-based medicine requiring more data on efficacy, product differentiation, and value for money in treatment. Regardless of any near-term disruption, we think this is an overall positive trend for SaniWave and for Ultramest. And we suspect that this is a paradigm in which our products can really thrive. It's only been a week since the final rule came out. So it is perhaps a little early making too many strong pronouncements about exactly how this all is going to play out. But in our experience, any certainty is better than huge uncertainty. And with the market having no idea if reimbursement was going to be 2500 or 500 or 127 dollars per square centimeter in skin subs this was simply too much variance for people to make decisions around so now that that answer is known you know we expect people will rapidly adapt to this new reality and get moving but we've had a flurry of calls this week from distributors partners prospective sales people and uh you know we believe that the weeks and months ahead will represent a profound opportunity to make some moves to improve our market, marketing, and our sales positions. I mean, you could really sort of feel the market starting to crack back open again as soon as everybody knew that to which they were planning. During our September all-hands call, I literally threw up a picture of Littlefinger from Game of Thrones and told the team, chaos is not a pit, it's a ladder. And so... We're going to climb it. While perhaps the hope that max disruption was behind us in the last call was a little bit optimistic, this seems like one of those moments in a market where the ones who figure out how to climb fastest can gain a lot of ground. And we're engaged currently with the most qualitatively and quantitatively promising sales funnel I've ever seen in my tenure here. It's been a little bit frustratingly slow to move. but it feels like that may be rapidly starting to change. So this is an exciting time here and one that should be very good for Sandy Wave. With that, I'll turn you over to Peter Sorensen, our CFO, who can walk you through the rest of our financials.

Thank you, Morgan. We had a strong third quarter at Saneway with revenue reaching a new all-time quarterly record and up 22% year-over-year. This performance reflects the continued momentum of our commercial strategy and the growing demand for Ultramist. Gross margins expanded meaningfully year-over-year, reflecting both the inherent leverage in our model and our disciplined approach to managing costs. Looking ahead, our focus remains on driving sustainable, profitable growth. So with that, let's take a closer look at the financial results of the quarter. Revenue for the three months ended September 30th, 2025, totaled $11.5 million, an increase of 22% as compared to $9.4 million for the same period of 2024. This growth was below our guidance for the quarter, but right in the midpoint of the preliminary range of results we disclosed on October 6th of 11.4 to 11.6 million. Gross margin as a percentage of revenue for the three months ended September 30th, 2025, came in at 77.9%, up over 240 basis points year over year, driven by lower Ultima system production costs and our strategic pricing initiatives across systems and applicators. For the three months ended September 30th, 2025, operating income totaled $1.5 million, which is down by $0.5 million compared to the same period last year. However, operating expenses for the three months ended September 30th, 2025 amounted to $7.5 million compared to $5.1 million for the same period last year, an increase of $2.4 million. This change was largely driven by an increase in non-cash stock-based compensation expense of $1.4 million versus Q3 2024, in which there was no stock comp expense. increased headcount expenses of $0.8 million, increased marketing expenses of $0.2 million, increased legal expenses of $0.2 million, and R&D increased expenses of $0.1 million, partially offset by decreased commission expense of $0.8 million. Net income for the three months ended September 30, 2025, was $10.3 million, compared to net loss of $20.7 million for the same period in 2024, an increase of $31 million. The increase in net income was primarily driven by the change in fair value derivative liabilities, which resulted in a non-cash gain of $6.1 million in Q3 2025 versus the $18.8 million loss in Q3 2024, representing a $25 million year-over-year variance. In addition, we had a $5 million gain related to a patent sale as noted on a previous AK and in our most recent 10Q. We also had lower interest expense of $1.6 million in Q3 2025, primarily due to the conversion of our previous outstanding notes into common stock in Q4 2024 as part of the note and warrant exchange. These impacts were partially offset by non-recurring costs of $0.5 million related to the repayment of our senior secured debt. EBITDA for the three months ended September 30th, 2025 was $12.4 million. Adjusted EBITDA was $3.5 million versus $2.1 million for the same period last year, an improvement of $1.3 million year over year. Total current assets amounted to $22.6 million as of September 30th, 2025 versus $18.4 million as of December 31st, 2024. Cash totaled $9.6 million as of September 30th, 2025. We're grateful for the continued trust and support of our stakeholders. Q3 2025 is another excellent quarter for Sandy Wave, and we're pleased with the progress we've achieved across our business. As we head into the final quarter of the year, we remain committed to executing with discipline, driving growth, and creating long-term value for our stockholders. So that'll turn the call back over to Morgan.

Thanks, Peter. So moving on to guidance, as we stated in our press release, we are guiding to 13 to 14 million in Q3 revenues, up 26 to 36% year-on-year, and also representing, which would represent another all-time high revenue quarter for San Diego. We're starting to see significant cause for optimism Now that the market concern around reimbursement and wound is alleviating, because now that we now finally have some certainty rather than vast uncertainty. Obviously, it's only been a few days since the final rule was announced, but as we said earlier, we can already feel some movement beginning and some of the logjam is breaking free. As ever, I want to express my gratitude to the Sandy Wave team for all the hard work and their commitment and trust. I'd also like to thank them for routinely falling for my the highest reward for good work is more work stick and pretending that that's insightful and motivational. Well done, guys, and thank you.

So with that, thanks, everyone, and we will open the call up to questions.

At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. We'll take our first question from Ian Castle with IFCM. Your line is open.

Yeah, I just had a couple questions, mainly around the reseller model that seems to be picking up some steam. Maybe the first question, though, is due to the disruption in skin substitutes, I was curious if the resellers or distributors of those skin substitutes, now the revenues are probably down 90% versus last year. And I'm curious if you're seeing any inbound interest from those resellers who are now kind of scrambling to pick up additional products to fill that revenue gap in their businesses.

Well, okay. So... I mean, the short answer to that question is yes. It feels like there is a substantial realignment beginning in the space. And obviously, this is a very significant change to a large product category. We've definitely seen some inbound interest. I think a bunch of it started even well before the rule came out. And some were sort of predicating the, well, maybe we'd be interested in picking this up depending on what happens. I think it's a little bit premature to say, well, okay, this is going to result in a ton of new deals. But what I will say is distribution is an important part of this space. Some of these distributors are very sophisticated. They have good accounts. They have good account control. They do good work with the providers to help them, even down to the level of selecting patients and determining care. It's something that we've been sort of stripping down and rebuilding this year. Our average sales through distributors and resellers was about 36% in 2024. In this quarter, it was about 25%. So, you know, that's up a little from last quarter, but still kind of not to levels where it used to be. And so we're kind of assessing what the right level of... We're sort of assessing what the right mix for us is going to be.

And how do you kind of blend that distributor channel with your direct sales force? How do you think about that?

Yeah, it's always... You know, that's always sort of the tricky bit. And we... You know, we're doing it through sort of a deconflicting structure where, you know, if our reps are chasing something, you know, it's theirs. And, you know, what we want to avoid is are the two channels stepping on each other? And so it's sort of, you know, if a distributor wants to go after a customer, they'll come to us and say, hey, we think this is an interesting prospect. And, you know, we'll deconflict it through our internal lists I'd say, yeah, we don't have anybody who's working on that. Go ahead.

And maybe last question on the reseller and distributor model, you know, how do you handle inventory management? You know, are they kind of, you don't want to be stuck, you know, stuffing the channel, so to speak, where they're buying nine months worth of inventory. How do you think about those inventory turns?

Yeah, yeah, yeah. That's a great question. And That's something we've given a lot of thought to and something we worry about a lot. When you're dealing with stocking distributors, you always run this risk of, do you have too much inventory in the channel? Will you wind up choking on it? We've been trying to be measured with this and not putting too much inventory into the channel to really avoid that problem. I think the first... major distributor we dealt with on a stocking basis this year was back toward the end of Q2. They took about 15 systems from us into inventory. And at the time, I was actually pretty worried about that. They came back six weeks later and said, yeah, we've sold them. Can we have 10 more? Took 10 more and then went out and sold those again in another eight weeks. And so I think if we can kind of keep those turns in the sort of eight, we can keep the inventory turns there in the sort of eight to 12 weeks range. I think that's healthy. I think once we start seeing it bump up against that kind of, that kind of, you know, like 10 to 12 area, we're just going to get nervous, you know, for any given distributor.

And then, you know, to look at them overall, obviously, I think we'd like to keep it, you know, more toward the sort of eight range. Okay. Thanks for the color on that.

Our next question comes from Kyle Bosser with Roth Capital Partners. Your line is open.

Hi. Good morning. Thanks for all the updates. Maybe just following up a little bit on that. What's the latest rep headcount?

Rep headcount is still 13, the same as it was last quarter. We've rejiggered it a little bit. We changed the shape of a couple of territories, moved it to 12 national territories, and now have two full-time national key account managers, but overall count is the same.

Got it. And how are you feeling about that heading into 26? You've got a pretty good number in addition to having the distributors, as you mentioned.

I think, obviously, given a lot of what's happening in the industry right now, as you can imagine, there are resumes. So I think we're going to kind of do this on a – we're doing this on sort of a – let's do what we see basis. I mean, obviously, we plan to grow this rep headcount as we go forward. Exactly how we do it right now is something that we are doing a lot of work to assess internally. Do we want to start bringing in some reps to just manage distributors? Do we want more key account reps? Do we want more national territories? Do we want to bring in a set of, you know, a set of more kind of inside sales folks to either just handle customers or to just set appointments, right? So that we're having, we can get our closers more time closing. Like that's really, those are really the discussions we're having internally at the moment. I think, you know, we'll be continuing to add to the sales force on kind of a measured basis.

Got it. Yep. Makes sense. And just curious, what sort of annual revenue some of your more productive reps are doing? And maybe also kind of what's the reasonable run rate for reps to achieve?

Yeah. I mean, it's to some extent that's always going to be a little bit territory specific, right? So, you know, and a function of how well developed a territory is. I mean, we had a rep exceed 2 million of sales in Q3. You know, we had a couple of others over a million. And so, you know, as these ramp up, you know, getting to this, you know, kind of $4 to $6 million annual sales rate, I mean, it's certainly not impossible. I think given, you know, the difference between we have a couple of markets that are more developed than others. And so, you know, it's, it's a question of kind of how long does it take to get an undeveloped market to look more like a developed market.

But ultimately, I mean, rep productivity here can be very high. Got it. And, um,

Internationally, were any of the 155 systems sold, were any of those into international markets in the quarter? No. Okay. And maybe just lastly, on that point, how were you thinking about the international opportunity for Ultramis? Would you ever – I know you've got a lot to focus on in the U.S., but just curious if you'd be interested in looking to take on distribution partners in OES markets.

I mean, it's certainly something we'd look at. You know, it's always, I mean, we sort of refer to this internally as the golden retriever in a tennis ball factory problem, where it's like, what are you going to chase? And I think, you know, at the moment, there's so much domestic opportunity that it just, this hasn't really gotten top of the pile. I mean, if there were a if there were a really compelling distributor who could basically handle all of this without a whole lot of intervention from us and, you know, in a market where there was an easy regulatory pathway, I mean, I suppose we'd look at it, but it just isn't something we've spent a lot of cycle time on yet.

Sure.

Okay, got it. Morgan, Peter, thanks for all the updates. Thanks.

Our next question comes from Carl Burns with Northland Capital Markets. Your line is open.

Thanks for the question. Again, considering the CMS fixed rate, 127.28 per square centimeter, would you expect that the private position practices would look to Ultramist as an additional line of revenue? And on that, I mean, how long do you think that takes to play out? And then I have a follow-up as well.

Thanks.

I mean, short answer is yes, right? I mean, I think physicians are often maximizing two things, right? They're maximizing their desire to provide good patient care and for the patient to get better. And obviously, you know, they're running a business. And so to the extent that they find both revenue and care gaps, this becomes a very interesting option. I mean, by... On a relative basis, the attractiveness of Ultramist seems to have increased a great deal, particularly if your goal is revenue maximization. Exactly how long that takes to play through is an interesting question. I'm not really sure how to answer it with any rigor. it seems to vary a great deal by folks. I mean, people just, people respond to new realities with differing timeframes. We've certainly seen a change in inbound. And, you know, we've certainly seen, I mean, we've certainly seen people who are sort of like on the fence saying, well, maybe let's see, suddenly get more interested. And so I think there's definitely going to be some of that. Exactly how it plays out is complex.

Got it. Thanks. And then just one follow-up question. You know, looking at mobile wound care, what do you think happens there given the CMS change? And kind of how does that affect your business? What percent of your business is tied into the mobile space? Thanks.

I think, I mean, the mobile is experiencing a lot of the same issues as others. And there are widely divergent practices within mobile. And we've been doing some looking at this and kind of tearing into the CMS data just to get a look at, you know, what we think the interrelationships are between, you know, skin subs and ultra-mesh. One of the things we've discovered is that 55% of the practitioners who bill Ultramist haven't billed any skin sub at all in the last four years. So of the 45% who do, a lot of times it's not the same patient or you can't bill the two in the same visit. So from a standpoint of what's mobile going to do, I think... Some of the folks who were most aggressively using skin subs may see their practices either change dramatically or terminate. But I think, just speaking hypothetically, if my goal as a provider were to do the maximum number of skin sub applications, I wouldn't be using Ultramid. because the wound would heal more quickly and you would wind up doing fewer applications. And so I think there's been sort of an inherent sorting here where the folks most interested in doing the most skin sub have also tended to be the folks who were not using a lot of Ultramest.

Got it. Cool. Thanks so much.

Our next question comes from Alex Silverman with AWM Investments. Your line is open.

Hey, good morning. Thanks for the update. Wondering, two questions. One, can you give us a sense of, you know, what kind of toe holds or trialing you're doing in some of the very, very large wound centers? And then I'll ask my second question after this.

Um, well, um, certainly an interesting question. I mean, we've, we're starting to get, I mean, one of you, we're starting to spread through a couple of hospital networks in particular, or at least these are, these are things that, you know, have been going long enough that I think we can talk about them. Um, you know, one in particular is one of the larger hospital networks in the U S we've been in at a couple of their flagship facilities now for, several months, it's gone really well. I think they are using the product in a similar fashion to some other large hospital chins, predominantly around treating hap eyes and incipient hap eyes. I'm sorry, that's hospital-acquired pressure injury. Essentially, you lay on your hip or your back too long, it turns into a pressure ulcer. You know, in a patient with, you know, suppressed immune system or ill health, those can be very, very serious, even life-threatening. And so, you know, we're starting to spread there. We're starting to, you know, we're starting to work on, you know, how do we become a... We were added to their approved vendor list. And so, you know, they're kind of 150-ish hospitals and 2,200 facilities are now free to buy. We're definitely... working on some other large opportunities. Nothing I can really talk about by name here right now, but give me a little time on that and I may have something for you.

Okay, great. And then second question, have you guys thought about how to get around the capital approval process, which can be so painful at some of these bigger buyers, the hospitals and the large wound care centers that you know, have just painful processes?

We have. In fact, it's something we've been giving a lot of thought to. And obviously, you know, starting to have a bit of a balance sheet helps. As we look at a number of hospitals in particular tend to have very difficult capital cycles and, you know, their capital budgets are, highly segregated from their operating budgets. And so, yeah, I mean, you walk into a hospital, you'll see tracking codes, like even on computer monitors, because those are leased, right? Like that's how, that's how aggressive the, like the cap budgets are protected there. And so I think moving to something along the lines of a, you know, a rental model at prices that, you know, make sense for both sides, particularly if you could tie it to, Some sort of usage minimums makes a lot of sense. Some hospitals don't seem to care. I mean, we've seen a number that are just like, great, let us buy the thing. But there are many others from the cap budgets are tight. So it seems to vary a lot hospital to hospital. But yeah, we're definitely starting to consider the, you know, can we rent these to hospitals that we believe will be, you know, sort of high use environments. That can be a great model for us.

I assume with a, I don't know, $5,000-ish cost for a system, the payback of placing one of these could be a pretty quick payback for you.

Obviously, depending on... I'm sure you can do the math, right? If we price it at various points... But the real, you know, I mean, obviously the real fun for us is if you're selling, you know, if you're getting people to use, you know, three, four cases of applicators a month, the value of the consumables rapidly exceeds the price of the capital sale.

Right, right. Okay, great. Thank you. Thanks, Alex.

As a reminder, if you'd like to ask a question, that is star and one to join the queue. We'll take a question from Andrew Rem with Odinson Partners. Your line is open.

Morning, gentlemen. I just wanted to go back to the reseller. And is there a way that you guys can kind of bifurcate the market where maybe direct you go to large accounts, heavy users, and use resellers to get to kind of the fragmented small customers that would be less efficient? to service on a direct basis?

Yeah, so you're speaking very much to an internal discussion we have frequently. We refer to them internally as bunnies, deer, elephants, and whales. And it's hard to have high-priced reps chasing bunnies. And a lot of the distributors know a lot of the smaller customers really well. So it's certainly something we're looking at. And whether that ultimately turns out to be the solution, it's certainly possible. It's an idea we're exploring. I think we're just trying to get some experience with it and see how it works. I mean, we made a lot of changes in our distribution network and sort of tried to move to a you know, more engaged, more hands-on, more value-add channel. And so we're still, you know, we're still getting some experience with it and seeing, you know, how it works and what it's good at and how to integrate it with our Salesforce most productively.

But, yeah, I mean, the idea you discussed is certainly one we've been looking at.

Would applicator sales also run through the reseller, or would you just use them to sell systems?

Ultimately, it depends on the distributor or reseller. Many of the folks we're starting to talk to now have much more sophisticated ERP systems and systems that can integrate with our own. what we're really looking for is to make sure we understand exactly how many applicators would be in the channel and exactly what the flow through to end customers winds up being. We're very sensitive to that attach rate, like how many cases of applicators per week is a given user consuming. And so to the extent that we can sustain adequate visibility to that, Um, you know, we can, you know, we, you know, we can allow sort of applicators into the channel. I mean, predominantly what we've done with these distributors is, you know, at least in the past is to, you know, they'll set up the customer, that customer will then come and order applicators from our portal. You know, so we have the direct relationship with them. We're directly drop shipping to them. And then. we'll pay commission to a distributor based on those applicators. But we're starting to look more at, many of these folks just want to do stocking entirely themselves.

The question just becomes, can we sufficiently integrate it that it makes sense for both sides?

And then maybe lastly, and I'm not sure if this is competitive, so if it is, you don't need to answer, but it does seem like the current environment lends itself to leverage for you guys in terms of negotiating with resellers. And maybe that speaks a little bit to your increased sense of urgency, but maybe can you comment on that at all? Sure.

I don't know that I really want to speak to something like leverage.

This is one of those moments where there's kind of a sorting hat going on. And I think some of the key salience in this market just changed and people are adapting to this new situation. And I think that provides a lot of opportunity. I think it's made a lot of people more interested in engaging with Sandy Wave. We've had a lot of inbound interest, and it feels like this is a great time to make some new friends.

All right. Well, great quarter, guys. Appreciate the time. Thanks.

It appears we have no further questions at this time. I'll turn the program back to the speakers for any additional or closing remarks.

Well, thanks, everyone.

Appreciate your making the time first thing on a Friday morning. And we look forward to updating you further in the future.

Thanks again.

This does conclude today's program. Thank you for your participation, and you may disconnect at any time.