Sanuwave Health Inc

Good day, everyone, and welcome to the SanuWave Q2 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 SandyWave. Please go ahead.

Thank you very much. Good morning and welcome to SandyWave's second quarter 2025 earnings call. Our Form 10-Q was filed with the SEC last night and our earnings release issued this morning, along with our updated presentation, which was made available on our website in the investor section. It's useful to refer to this during the presentation. It really does provide some useful information, I promise. So joining me on the call this morning is Peter Sorensen, our CFO. And after the presentation, we will open the call up to Q&A. Let me begin with everybody's favorite forward-looking statements and other disclosures. This call may contain forward-looking statements, such as statements referring to our future financial results, production expectations, plans for future business development activities. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the company's ability to control a description of these risks and 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 from the underlying whole dollar amounts and therefore may not recalculate from the rounded numbers used for disclosure purposes. As a reminder, our discussion today will include non-GAAP numbers. Reconciliations between our GAAP and non-GAAP results can be found in our recently filed 10-Q for the period ended June 30th, 2025. All right, so now that we are absolved of any potential sins of prognostication, let's get to the good bits. Q2 was another strong performance for Sanyu Wave up 42% year-on-year on the top line and bringing us to 51% year-on-year for the first six months of 2025. We sold 116 Ultramis systems in Q2, a 61% increase versus a year ago and an 18% increase from Q1. This took us to 1,261 systems in the field. 473 or 38% of which have been sold in the last 12 months. Applicator revenue was 6.4 million in the quarter, 63% of our overall revenues and like last quarter was toward the high end of our 55 to 65% target range. It grew 37% from the same quarter last year and a bit over 10% sequentially from last quarter. Our tone of business and customer adoption remains good, and customer concentration dropped slightly in the quarter, with only one customer exceeding 5% of revenues, and that customer just barely doing so. Gross margins remain strong at 78.3%, up 510 basis points from a year ago, though down slightly from Q1, predominantly as a result of the engineering costs associated with standing up our second source of applicator production. We remain on track to commence commercial production of this new more manufacturable applicator design in Q4 of this year and continue to believe that the four cavity molds and removal of UV cure adhesive steps will both provide us with ample applicator capacity for the foreseeable future and reduce our consumables production costs. As our production is all domestic, we continue to anticipate no material effects from tariffs or trade disruption. So, all in all, it's been a really productive first half of 2025, and the companies are starting to chew up ground. We've described Q1 and Q2 as sort of the period of max disruption, as we've made some very significant changes to our sales leadership, Salesforce, our commercial ops, and our commercial strategy. Internally, we've been using the metaphor of taking apart the airplane and putting it back together while flying it really fast. And the team has more than risen to the challenge. As of mid-July, for the first time in my tenure as CEO, we have all 12 of our national sales territories staffed and have added a full-time national and key accounts manager to focus on our big accounts. this is really a long way to have come from the two reps we had at the beginning of 2024. And even from the nine we had at year end, you know, we filled out the commercial operations team as well and brought in new leadership there also from Audiomed. And the energy, the all hands sales and commercial ops meeting that we had a couple of weeks ago was as striking as it was positive. Like the moods and expectations are high. And, you know, if Q1 and Q2 were, sort of max disruption, Q3 is really shaping up to be the quarter of maximum construction. As we really step up our internal systems, our lead sales management, dashboard and reimbursement support, and as we prepare for our first ever concerted outbound marketing campaign, which we hope to launch in October. We're seeing some very promising increases in inbound inquiry in a couple of markets. where we seem to have crossed the sort of adoption threshold. It appears that once you get enough practitioners using Ultramist and that they've seen others use the product, seen the results, seen the opportunity, we get a profound spike in interest. And in light of this, we are going to focus on expanding this awareness, finding the key users to provide social proof and credibility and really helping the market understand that there's a better way to handle complex wounds. It seems that familiarity here breeds acceptance and adoption, so we really look forward to getting out and spreading the word. We're going to be at SAWC in September, so come and see us if you're there. Obviously, all this sort of max construction is in service of setting up max production, and based on What I saw at the sales meeting, you know, we now have a team that's really committed to getting Sanywave firing on all cylinders. I think we're all pretty excited about seeing what happens when we do. So with that, I will turn you over to Peter Sorensen, our CFO, who can walk you through the rest of our financials.

Thank you, Morgan. The second quarter was a strong one for SanuWave, with revenue reaching a new Q2 record and growing 42% year-over-year. This performance reflects continued momentum in our commercial strategy and growing demand for Ultramis. We also delivered meaningful year-over-year improvement in growth margins, which underscored the operating leverage inherent in our model and our disciplined approach to cost management. Overall, we remain focused on driving sustainable, profitable growth. Let's now take a closer look at the financials for the quarter. Revenue for the three months ended June 30th, 2025 totaled $10.2 million, an increase of 42% as compared to $7.2 million for the same period of 2024. This growth was within our previous guidance of 40 to 50%. Gross margin as a percentage of revenue amounted to 78.3% for the three months ended June 30th, 2025 versus 73.2% for the same period last year. This represents an increase of about 510 basis points, which can be attributed to reduced costs on Ultramus system production and a strategic focus on pricing for Ultramus systems and applicators. For the three months ended June 30th, 2025, operating income totaled $1.9 million, which is slightly down by $0.1 million compared to the same period last year. Operating expenses for the three months ended June 30th, 2025 amounted to $6.1 million compared to $3.2 million for the same period last year, an increase of $2.9 million. However, this change was largely driven by an increase in non-cash stock-based compensation expense of $1.1 million versus Q2 2024, in which there was no stock comp expense, as well as there was a release of a historical accrual in Q2 2024 of $579,000, which reduced our reported gap operating expenses by that amount that did not recur this quarter. Net income for the three months ended June 30th, 2025 was $1.1 million compared to net income of $6.6 million for the same period in 2024, a decrease of $5.5 million. The decrease in net income was primarily driven by lower non-cash and infrequent items in Q2 2025 as compared to Q2 2024. As a reminder, we recognize that one-time non-cash gain of $5.3 million related to the payoff of legacy debt in the prior year quarter, which did not recur this quarter. Additionally, the change in fair value of derivative liabilities resulted in a non-cash gain of $1 million in Q2 2025 versus a $3.7 million gain in Q2 2024, representing a $2.7 million year-over-year variance. These impacts were partially offset by lower interest expense in Q2 2025, primarily due to the conversion of our outstanding notes into common stock in Q4 2024 as part of the note and warrant exchange. EBITDA for the three months and the June 30th, 2025 was $3.2 million. Adjusted EBITDA was $3.4 million versus $1.5 million for the same period last year, an improvement of $1.9 million year over year. Total current assets amounted to $20.2 million as of June 30th, 2025 versus $18.4 million as of December 31st, 2024. Cash totaled $8.5 million as of June 30th, 2025. We appreciate the continued support and confidence of our stakeholders. Q2 2025 represents another solid step forward for SanuWave, and we're encouraged by the progress we've made. As we look ahead to the second half of the year, we remain focused on discipline execution and advancing our strategic growth initiatives. With that, I'll turn the call back over to Morgan.

Thanks, Peter. So moving on to guidance, as we stated in our press release, we're guiding to $12 to $12.7 million in Q3 revenues. Obviously, Q3 is a tough comp for us. It's up against the pig through a python quarter last year in which we had one really large sale sort of tip the scales and drive a surge to an 89% year-on-year growth rate. Pigs seem to be somewhat difficult animals to forecast, and while we're certainly out looking for them and see a fair bit of potential, we're not including any of that in the guidance above. We're really still in the learning phase on how to time forecasting with these bigger customers and how they ramp up when they do say yes. I think we'd rather err on the side of conservatism, but our annual guidance remains unchanged. As ever, I want to thank the Sandy Wave team for all of the hard work and the commitment and the trust. Companies exist downstream of their cultures, and this one only exists because of ours. As we have thoroughly outgrown our existing headquarters, especially the warehouse and shipping facilities, we're moving to our new office space about a mile away at the end of next week. And I'm sure the team will desperately miss the old carpets, but we'll manage, as always, to adapt and overcome. So thanks, everyone. And with that, I will open it up to the operator for questions.

At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, to ask a question, that is star one. Our first question will come from Kyle Bowser with Roth Capital Partners. Your line is open.

Kyle, good morning. Good morning. Thanks for all the updates and great progress here. Maybe I'll start on margin. So glad to hear the enhanced production process for the applicators still on track for Q4. Can you give us a sense as to how this might impact gross margin? I mean, you've generated some nice scale. Seems like the business is poised for some pretty nice operating leverage, especially given, you know, commercial infrastructure is in place. This production process is nearing completion. So just kind of trying to get a sense of how much drops to the bottom line at this point for incremental sales from an EBITDA standpoint as well.

Sure. So obviously the purpose in creating the new applicator design is both to increase the capacity to produce applicators and to get the costs down a bit. We suspect, and Peter, correct me if I'm wrong here, but we suspect we can pick up at probably 350, 400 basis points of additional margin on the applicators with the new design. Does that seem right?

Yeah, it will take some time to get to that as well, too, just because we've got – we try to hold about six months of inventory on our applicators, so we need to bleed off our existing costs on our current applicators before we start really seeing that impact. But we should see that in early 2026.

Yeah, so it should be sort of a steady fade-in because we're using a kind of a blended cost as our cost basis. So it'll flow through gradually, but will flow through.

Okay, appreciate that. And 13 reps sounds like that's a pretty good number. Do you envision needing to build that out, or do you feel pretty good about kind of covering the map at this point?

I think we are, at this point, there's a certain amount of, you know, let's get everybody really up, trained, and firing. I think we made a lot of progress there at the two-day sort of all-hands and teach-in. Really feels like a qualitatively strong group now, and folks who are doing a lot to help each other and kind of share best practices. You know, will we potentially add A few more people. Yeah, I think that it's certainly something we're looking at. Are there some sector-specific folks who make sense? Do we want to stir? I mean, we're now getting to a size where we have to start thinking about, do we need regional managers? What is the next step? I mean, obviously, breaking up the US into 12 regions still means you've got some pretty big territories. and so you know ultimately yeah we're looking at it we don't have any it'll be i wouldn't be surprised if we acquire a few more if we acquire a few more reps over the over the rest of the year but i think at this point we're pretty much we're pretty much where we need to be to have real national coverage got it and i'm glad to hear that you're working internally as well on kind of a marketing program i think you mentioned you plan to

bring that live in October. As you kind of map out the opportunity in the U.S. across wound care centers and physician offices and skilled nursing facilities and assisted living facilities, what, I guess, where are you spending most of your time in focus or, you know, the patient types or conditions that Ultramis really resonates with that, you know, you kind of tailor this marketing program towards?

So to a great extent, one of the things we're focusing on in the marketing program is moving more to kind of a market of one marketing stance where we can actually target a bunch of these things individually, create specific plans for specific wound types, for specific patient types, for specific user types. And so a lot of it is going to be starting to really both differentiate and target the offerings so that we can engage with mobile wound care, with nursing homes, with skilled nursing facilities, with increasingly, I think we've probably been neglecting hospitals a bit. We're starting to engage there with a bit more focus. I think there's also, obviously, you have a lot of opportunity in podiatry, in you know, in wound care centers. And so I think it really becomes a question of tailoring the, you know, tailoring the offering such that, you know, tailoring the offering to both the wound and the customer type, you know, beginning to show people, this is really how you can use this product. And then, you know, getting over the hump of, you know, people saying, you know, wound care is not a high trust environment, right? Like there are, you know, When you walk in with a shiny new thing and say, this is the best new wound care since moldy bread, you're met with an understandable amount of skepticism. And I think getting to key folks, getting to high enough usage rates in markets that everyone says, oh, I've heard of this thing. I've seen people use it. I hear they're getting great results. I should go take a look. really matters and so you know some of it is going to be pushing for you know very specific you know uh regional critical mass appreciate that and and maybe just lastly um any any update on the senior secure debt that's coming new thanks so much there we go we had uh we had an internal event on how long we could go on this call about somebody asking that um So, yes, I guess it's probably fitting we give something of an update. I think as we've sort of long discussed, we were looking at the refinancing of our debt as sort of a cost of capital equation. And so we were looking at, do we want to do this as debt? Do we want to do this as equity? What's the choice? And so we ran an internal process to look at what our debt options were. And we received several term sheets that we thought were very attractive. And we chose one and are currently in the process of working to close it. So I can't really get into too much more detail right now. Like I can't name the counterparty, but I think people will be, people will be, favorably inclined towards both the lender and the terms. It's a significant improvement over what we have.

It's excellent. I appreciate all the color here. We'll keep an eye out for that. I'll jump back in queue. Thanks, Cal.

As a reminder, if you would like to ask a question, it is star and one to join the queue. We'll take our next question from Chris Plump with Tall Pines Capital. Your line is open.

Good morning, guys. Chris, good morning. How are you? Pretty good.

Great start to the year. Actually, the last gentleman took my first question on the debt, but I was curious also on how you look at the elephant hunting now with the new team you have in place. I know you said you have a national account manager. Can you maybe talk a little bit about who do you have that maybe you've sold systems to that have a big runway with a couple hundred locations and you maybe the pipeline for maybe new large elephant hunting?

Yeah, I mean, sure. I mean, obviously for competitive reasons, we want to be a little bit careful about naming folks, but there are a number of key initiatives that we've gotten pretty interested in. We were recently... we were recently added to the approved vendor list on one of the largest sort of hospital chains and networks in the U S. And so that's become a very, that's become an interesting hunting ground for us. You know, we're looking at a number of folks who do, you know, who have considerably larger footprints, you know, like people who have several hundred locations. And I think, you know, the, it's sort of early days, right? I mean, we, we hired our, uh, we hired our new key counts rep in, uh, it's like a second week of July. So, you know, I mean, he's been here almost a month now, so yeah, we're going to start expecting things, uh, any day now, but it's, uh, you know, it's always, it's always a little bit difficult to guess exactly how these guys are going to perform, right? The, you know, big customers like this tend to be more careful. They're also structured differently, right? Some of them are kind of tipping point accounts where, you know, there's one, there's one sort of national decision maker. And if they say yes, you know, you're sort of go on a large number of units. You know, others are sort of a, we'll approve this. And, you know, now you have a, now you have a hunting license, but have to go get each one individually, though they seem to get, and they seem to get easier, you know, the more you get on board, right? There's sort of, as you penetrate a network like that, there's kind of like a, you know, there's sort of a flip over point where, you know, the question changes from, you know, why should I, you know, why should I use this thing to, hey, why aren't you using this thing yet? You know, don't you see what the rest of your, the rest of your peers are doing? And so it's, We're building some real momentum there, but I mean, it's obviously, you know, we're kind of a month in, so it's just, it's a little early to be making, you know, much in the way of really concrete, you know, prognostications.

Great. Thanks, guys. Thanks, Chris.

It appears we have no further questions in the queue. I'll turn the program back to the speakers.

I think we might have one more question.

Apologies, we do have a question now from Albert Hanser from Kestrel. Your line is open.

Hi, nice job. Fun to see the execution. In all the momentum and good news, sometimes I think the IP aspect gets overlooked, and I noticed on your website in the deck, which I hadn't seen before, in the broader deck, you now have a slide on the IP and 140 patents. Can you just talk more about the value of those patents and where they lie and just give us a broader landscape of kind of the foundation under which you're building the company?

Well, you couldn't, you couldn't come up with a, you couldn't come up with an easier question. Okay. So I mean, fundamentally, yes, Sanywave is sitting on a large patent portfolio that includes a lot of things to do with both Shockwave and with Ultrasound. Obviously, we view some of them as sort of core protection of our ability to operate. It's something we're also looking to extend as we begin looking at new things we can do with the Ultramis platform. Obviously, we have in the past monetized some of these patents. We have the one relationship with Fascio Wave LLC to potentially utilize some of our, some of our shockwave patents around some vascular conditions. I can't really speak to that any, you know, any further in sort of concrete specifics, you know, beyond what we have out in the public market, which is that, you know, they paid us two and a half million dollars last year to really buy an, you know, to basically buy an option that would allow them to pay sort of a mid single digit millions fee to then, you go out and assert some patents on which there would be a rev share on the back end with any sort of collection. We are always sort of looking at the patent portfolio and saying, what else can we do with this? We get interest from time to time from folks about licensing or acquiring patents, but I don't know that I can really say anything else that's concrete on that topic at this time.

Thank you.

As a reminder, if you would like to ask a question, that is star and one to join the queue. I'm showing we have no further questions over the phone at this time.

Great. Well, thank you, everyone, for joining us this morning, and we look forward to speaking to you next quarter.

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