Q2 2023 SANUWAVE Health Inc Earnings Call

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Greetings and welcome to the <unk> Health second quarter 2023 conference call. At this time, all participants are in a listen only mode.

A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

A reminder, this conference is being recorded it is now.

My pleasure to introduce your host Morgan Frank CEO . Thank you Morgan you may begin.

Thanks, Paul.

Just want to welcome everyone to Sandy way of second quarter 2023 earnings call or our Form 10-Q was filed with the SEC last night.

And our earnings release was issued this morning, and we have an updated presentation that was made available on our website in the investors section.

Please refer to that presentation.

Joining me on the call are Tony <unk>, our CFO and Jim Hinrichs, our EVP of wound care sales.

After the presentation, we will open the call to Q&A.

So let me begin with the obligatory forward looking statements disclaimer.

Call may contain forward looking statements such as statements relating to future financial results production expectations and constraints plans for future business development activities.

Passengers 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 included in our SEC filings actual results may differ materially from these projected in the forward looking statements.

Company undertakes no obligation to update any forward looking statements.

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 second.

Second quarter Form 10-Q.

Okay. So as most of you likely know after joining <unk> as chairman last August I became CEO . This past may.

And I'd like to start by speaking to you bit about our current projects and priorities of the company.

As we seek to step up into being a rapidly growing and profitable company that can transform the wound care market. So anyway, if it's fantastic products honestly, the best I've seen in my career and the market for advanced wound care is large growing and hungry for effective treatment modalities in order to position the company to thrive as aggressive as opportune.

One of my first acts as CEO .

West flattened our management and informational structure, so that all of our internal groups are working one data environment and sharing rather than siloed information accompany only moves the speed of its slowest processes and the goal is to have strong autonomous groups supporting one another so that we can identify and solve for a bottleneck.

This is starting to yield significant progress in manufacturing finance and sales. We've made some key hires like new president and head of manufacturing, Andrew VAALCO and are setting up key relationships like Pacific medical that will expand professionalize outreach.

As we reduce and eliminate our manufacturing and supply chain issues, a process, which we expect to continue to show results in Q3, and especially Q4.

We seek to enable our ability to engage with larger customers partners and markets simply lack the capacity to serve previously.

The company has undertaken aggressive moves to streamline operations and to cut costs in pursuit of one simple goal.

Michael its rapid profitable growth our philosophy going forward is to seek to create a self sustaining business that can support itself and therefore gained control of its own destiny without constant reliance on capital markets are.

Our Q2 results show some positive steps in this direction and I'll now turn the call over to Tony to walk you through it Tony.

Thank you Morgan.

Revenue for the three months ended June 30 is 2023.

<unk> 7 million and income.

<unk> of 20% as compared to $3 9 million for the same period up 2022.

This growth falls within the previously provided guidance range of 15% to 25%.

Revenue for the six months ended June 2023 totaled $8 5 million.

The increase of 19% as compared to $7 1 million.

For the same period of 2022.

Gross margin.

Revenue increased for the three months ended June 2023 to 17, 4% from 72% from the same period last year, primarily due to stronger pricing initiatives.

For the three months ended June 32023 operating income totaled.

There were four 9 million, which is an improvement of 4 million compared to the same period last year, which aligns with our initiative to drive profitable growth and manage spend through 2023.

Operating expenses.

And at June 30, 'twenty, 'twenty, three decreased to $2 5 million or 54% of revenue, which we believe Charlie effectiveness.

Our cost and expense management initiatives.

Reis continues to execute its financial strategy.

Both profitability and manage operating expenses.

Net loss for the three months Joan Sweeney for any three seven.

Seven 3 million compared to a net income of $1 6 million for the same theory in 'twenty to 'twenty two.

The increase in our net loss for the three months.

Primarily due to the continued non cash losses on the change in fair value of our derivative liabilities, which totaled $3 8 million of expense area.

Adjusted EBIDTA for the three months ended June 30, 2023 totaled 171000 as compared to a negative $1 9 million during the prior year period.

Adjusted EBITDA removes the impact of interest expense.

<unk> and amortization.

And fair value of derivative liabilities.

It's called our net loss to be very volatile and other noncash onetime charges.

Clothing at one time release of one to 5 million or a reversal of accrued expenses.

Please refer to slide five of the program.

So we're just on our own website for a reconciliation from net loss of jobs.

Uh huh.

Yeah.

So with current asset.

Mom to $6 1 million as of June 30, 2023 versus 6.6 million. That's left December 31, 2022.

Cash totaled $1 2 million.

In July 23, the company closed an additional financing with gross proceeds received told Charlene approximately 3 million.

Which is intended to support operations.

We thank you for your continued support of say anyway, and I'm not translating back to Margaret.

Martin.

Yeah.

Thanks, Tony So next on the call will be our Fearless sales leader, Tim Hendrix, who will give.

To give you an overview of some current market developments and opportunities Tim.

Thank you Mark and good morning, it's great to join you all were running through the dog days of summer and I'm happy to provide a few highlights from the sales perspective.

The sales results in Q2, and overall market interest continue to reinforce that our fastest growing channels are the private offices nursing homes and mobile wound care groups.

Schools aren't important legacy channel and we will always want to support but the former channels mentioned, we're more current activity is coming from.

We associate that with the continued place to treat patients outside of the hospital walls.

And though it did not occur until Q3, it's worth noting that the recent proposed changes by the Medicare administrative contractors I, even know of a task force coastal CGS could have a significant impact on the marketplace as it relates to the use and insurance coverage for advanced skin substitutes.

These changes would greatly reduce covered products and limit applications of remaining product significantly taking them down from 10 to four applications Poland.

Skin substitutes had about $5 billion space and we anticipate these proposal limits as being a tailwind for ultra mist as low frequency noncontract ultrasound remains a strong and viable option to treat chronic wounds and all of the Max.

Another material development worth, noting is the recently signed distribution deal with Pacific Medical.

This partnership will provide <unk> with a seasoned sales group that has a deep wound care market experience.

If you'll focuses on California and six other western states.

The rest of the direct sales team and distribution partners continue to add new customers and increase brand awareness as inventory ramps up.

So for the balance of the fiscal year and planning for 2024, I will continue to make strategic partnerships for distribution with wound and industry veterans and that's a top priority and we are in the process of finalizing our direct hiring plans for several W. Two sales and clinical personnel.

Mark I'll turn it back to you.

Great. Thanks, Tim so.

A significant part of determining a company's future is really making a termination about just one of the company's core business is.

And what the key measures to which you want to manage our <unk>.

Anyway. This is simple we're in the consumables business, we place ultra mist systems in the field each time they use they consume single use applicator.

Generates a recurring revenue stream and a classic razor razorblade model.

Ultimate consumables were 59% of overall revenues in Q2, and while our anticipated increase in system production over the next couple of quarters may reduce this number slightly in the near term, we expect that number to rise significantly in future years, Indiana. This creates a really simple model I understand it's how many active systems.

Do you have in the field times, how many consumables just each system use. This is a term we call attach rate times the price paid per consumable.

And it's it's really that simple and we think that the trends here are really favorable.

Precise usage rates and pricing are sensitive business data that we can't really share in detail at this time, but what we can share is this.

The higher reimbursement rates for ultra mist are now, enabling much better pricing for consumables.

The company's focus on bigger higher traffic customers is leading to greater usage. So these higher attach rates and better pricing the core of our new customers roughly twice the consumables value per months in.

Terms as our existing base.

Base has the opportunity for improvement both as we increase usage, there and as the old contracts from years ago roll off in pricing starts to catch up.

At the end of Q2, the company had 526 active ultra mist systems in the field you know this.

This is a new metric it is.

When the company hasn't talked about before.

There's no particular comparability here to pass data on full systems count. This this includes only systems.

Owned by customers, who are currently ordering consumables and have done so in the last six months, it's a more limited and restrictive measure than we've used in the past but.

You know this less inclusive nature, we think makes it the best number for really understanding.

B and predicting the consumable stream that represents the core value of standing wave and this is gonna be the figure that we manage to and report going forward.

We expect that pace to increase materially in Q3, and especially in Q4 of this year.

To provide the basis for ongoing growth in consumables revenue.

So on to Q3 guidance.

Similar to Q2, the company is anticipating revenue growth of 15% to 25% year over year in Q3.

We think that Q3 should be.

Sure. There's always one of those interesting words, but the last quarter of significant capacity constraints in our production, but there will as there will still be meaningful limitations in this quarter, we're not going to take our guidance up above 15% to 25% at this time and we still anticipate being unable to meet the <unk>.

Full demand for ultra mist products in the short term.

But if all goes to plan and we're looking forward to this issue soon being behind us.

It's a new way of has fantastic products that alignment needs of patients physicians and payers. This is a very exciting time in the wound care market. We look forward to continuing to rise to the challenge and I just want to thank our employees for all the hard work to enable this transition and I want to thank the investors who have continued to support US I know this is Ben.

Something of a heavy lift, but it's really starting to pay off.

Yes.

With that I will open this up for questions. So.

If we could.

Please open for questions Paul.

Thank you well now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the.

One moment, please while I call for questions.

Okay.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

Thanks, Chris Watson is firm Walter Holden private Investor. Please proceed with your question.

You did not mentioned anything about the.

Is it the Dura Durham.

Our microwave product.

I was wondering what if you have any comments about that.

Yeah.

Thanks for the question so.

Looking at Derma pace. It is a I mean, we are still actively selling different pace units, both domestically and internationally as well as the profile system that.

You serves the orthopedic market in the U S. It hasn't it wasn't focused on the conference call as it's a relatively small portion of <unk> revenue.

It's a product that we are hoping to place renewed focus on in coming quarters, but in the next several we continue to anticipate ultra myths being 95% plus of sideways revenue.

Yeah.

Great.

Yeah.

Yeah.

Okay.

Sure.

Thank you.

Yes.

Thank you there are no further questions at this time I'd like to hand, the floor back over to management for any closing remarks.

Well I'll take that as a sign that our new more inclusive conference call format answered a lot of questions.

Thanks.

Thanks, everyone for dialing in and have a great rest of your August .

Yeah.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

Okay.