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.