Sanuwave Health - Earnings Call - Q1 2023

Transcript

Speaker 0

Greetings, and welcome to the SanuWave Health business update conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kevin Richardson, Chief Executive Officer.

Thank you, sir. You may begin.

Speaker 1

Thank you, Christine. Welcome to SANUWAVE's first quarter twenty twenty three earnings call. The Form 10 Q was filed with the SEC Thursday night. Our earnings release was issued this morning and our updated investor presentation was made available on our website in the Investors section. Please refer to that during the presentation.

Joining me on the call today are Tony Reno, our CFO and Tim Hendrix, our Executive Vice President of Wound Care Sales. After the presentation, we will open the call to Q and A. Let me begin with the forward looking statements. This call may contain forward looking statements such as statements relating to financial results and 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.

Actual results may differ materially from those projected in the forward looking statements. The company undertakes no obligation to update any forward statements. With that out of the way, 2023 is off to a positive start. First quarter revenue recorded mid teens growth driven by demand in consumables and systems. We began twenty twenty three first quarter up 18% compared to our guidance of 14 to 20%, which was issued on our last conference call.

Demand for our products remains robust. As we discussed on our last conference call, we are still working through supply chain issues as currently demand is far stripping supply. We are on track to receive over 400 devices this year, which compares to 217 sold last year. This is not to say we will sell all 400, but as we work our way through the year, the supply chain issues will abate, and we will hopefully be able to balance supply and demand. This demand was evident at the three conferences we participated in recently.

At Leaders in Wound Care held in New Orleans, Doctor Johnson, a relatively new user of Ultramist, presented his clinical findings to the invite only crowd. At Symposium of Advanced Wound Care, SAASI, we had six posters presented. And finally, in Milan, at the European Wound Management Associated meeting, two of our KOLs, doctor Meyer and doctor Casino, presented their various use cases for the product. From these events, we can safely say over 20 new accounts with purchasing interests were added to our pipeline. This demand will be fulfilled later in the year when the supply issues mentioned earlier abate.

Let's get into the details of the quarter. Revenue continued mid teens growth in Q1 twenty twenty three despite the challenges we face with our supply chain. Units shipped achieved the highest level for the first quarter in company history. And importantly, the number of treatments reached 43,000 was a record as well as we continued as the continued adoption of Ultramist grows. Gross margins were down in Q1 as compared to the prior year due to cost increases year over year associated with the servicing of refurbished equipment and as part of our push to get more product out to market.

Management continues to have tight management of our supply chain, pushes for higher pricing of our products and continues to execute a host of projects internally, all focused on automation and driving costs lower. Operating expenses increased year over year even though headcount was down. The largest driver of the increase is from professional fees, particularly year end audit being higher in Q1 twenty twenty three as compared to Q1 twenty twenty two. Management plans to continue to focus on leveraging the existing infrastructure as we grow and gain operating leverage to achieve profitable growth. Let me turn the call over to Toni Reno to walk through the numbers.

She will pass it back to me to review more of the update slides. Then Tim, our Head of Sales will speak, and I will conclude with our near term outlook. Toni?

Speaker 2

Thank you, Kevin. Q1 revenues for the three months ending 03/31/2023 amounted to $3,800,000 an increase of 18% over the same period last year and in line with the guidance of 14% to 20% provided prior. Gross margin decreased year over year reaching 67% of revenue for the three months ended 03/31/2023 versus 72% for Q1 of twenty twenty two. Operating expenses for the three months ended 03/31/2023 totaled $4,500,000 This is an increase of 4.7% versus prior year three month period. This is due to an increase in general and administrative expenses incurred in Q1 twenty twenty three.

However, operating expenses decreased as a percentage of revenue and then shows the effectiveness of the cost and expense management initiatives. Operating loss remained flat year over year three months period. Fannie Mae continues to execute on its financial strategy to improve profitability and manage operating expense. Total current assets amounted to $4,500,000 as of 03/31/2023 versus $6,600,000 as of 12/31/2022. Cash totaled 100,000.0 as of March 31.

In May 2023, the company closed an additional private placement with proceeds receiving totaling $1,200,000 to support operations. We thank you for your continued support of SanuMase and I'm transferring back to Kevin. Kevin?

Speaker 1

Thank you, Tony. Next on the call will be Tim Hendrix. Tim joined us in January from Byram Healthcare. He has been in the wound care industry for twenty plus years with experience at firms like Smith and Nephew and Osiris, and he got his early start at Boston Scientific. We're very pleased to have Tim on board.

Tim?

Speaker 3

Thank you, Kevin. Good morning. It's a pleasure to join this call and I'm happy to share my perspective since I joined the organization not quite four months ago when I was asked to come in and lead our U. S. Wound sales efforts.

I first came to SANUWAVE with the exciting prospect of two devices that I knew had a great reputation in the marketplace for clinical efficacy, but also reimbursement possibilities. The number one thing I can share with you months later is that my enthusiasm is only heightened by the reality that we are uniquely positioned with our products that you don't often see in the medical device space. Too often products are in a crowded marketplace where the devices or products are commoditized and it's all about pricing and me too efficacy. Speaking to Ultramist in particular, it really is unique and offers a one two punch of a long history of strong clinical data and feedback that is very positive, but now strong reimbursement in multiple places of service. Simple fact is we are not able to meet the strong demand right now.

This is a great problem to have that speaks to the opportunity to treat a great number of patients with our unique modality. I will turn the call back over to Kevin.

Speaker 1

Thank you, Tim. Before we go to Q and A, I wanted to provide some guidance on Q2. And for those following along, this is Page six on the investor deck from our website. We currently anticipate revenue to grow 15% to 25% in Q2. The gating item governing that growth will be how smoothly the supply rolls in during the remainder of May and June.

As we have mentioned earlier, demand is and has not been our issue. The issue is supply. We have all eyes in the company focused on initiatives to address and fix that issue so we have sustainable supply stream through the remainder of 2023 and into 2024. Many have also asked when we will be more active on the Investor Relations front. The answer is soon, but we have been in somewhat of a quiet period through the first part of the year as the Q4 report is almost the same time that the Q1 quiet period begins.

We plan to attend some investor conference over the next few quarters and work with our new Investor Relations group on a clear communications plan with that regard. We have wonderful products, passionate dedicated team members and demand far exceeding supply. We should be able to achieve record revenue growth and profitability in 2023. Finally, I want to thank our employees for driving our success, shareholders who have invested in us, has allowed us to ramp the product, and most importantly meet our mission, which is about saving limbs and saving lives through healing wounds. With that, I'll open, the call to questions.

Christine?

Speaker 0

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. Thank you. Our first question comes from the line of Setyan Shah, a Private Investor.

Please proceed with your question.

Speaker 4

Hey, Kevin and team. How are you guys doing?

Speaker 1

Great. Thank you, Sachin. How are you doing?

Speaker 4

Good. Good. I had a couple of questions. First, for Tim, congratulations for joining the team. And you had mentioned, that you're seeing good reimbursement in multiple places of service.

Can you expand on that? Like, what does that mean exactly?

Speaker 3

Sure. And hi. Thanks for the question. So in my experience with a device that has strong reimbursement or reimbursement in different places of service, you'll find that it's reimbursed maybe in a hospital and maybe another setting. But what we're finding now is that Ultramist has had reimbursement in the hospital setting, the wound care and inpatient setting.

And it has very strong reimbursement in the private office, which is Medicare designates that as place of service 11. But our fastest growing channels are from home health, where there is a growing number of wound care based mobile practices treating patients in their home, and that's place of service 12 assisted living facilities, which is place of service 13 and nursing homes are quickly becoming our number one channel because they're seeing the results, not only just reimbursement but more importantly what Ultramist can do for chronic wounds but also for deep tissue injuries. So the ability to clinically work and see and have reasonable reimbursement in five places of service is very dynamic and that gives us multiple channels to go after.

Speaker 4

Okay. That's great. And then for you, Kevin, just a quick question. In terms of the supply constraints that you guys are facing, is that is that something that we should anticipate as a year long like, is it gonna be prolonged? Like, gonna continue for a while?

And is it certain products within the mix that are the the supply constraint is within? Like, is it for dermaPACE versus Ultramist, or is it a combination?

Speaker 3

Yeah.

Speaker 1

So I the the supply constraints are primarily around Ultramist, and it was Okay. The line that produced it was, you know, not producing it for a period of time, and the restart of that line has taken longer to get, all the kinks worked out and make sure we have high quality product coming to us on a consistent basis. And we're we're we're getting close to the point where I I'm com comfortable and confident that we have the supply we need on a weekly basis. We're not there yet. It it will hopefully not be a a year long thing.

I can't imagine it be that happening. It it appears that we're getting close to the point where we'll, have that abated. But right now, I

Speaker 4

just

Speaker 1

that's the issue we're working through. I I think we're on track to get the 400 for the year, 400 plus devices for the year, and that's really what we're focused on is making sure we can meet demand for the full year.

Speaker 4

Got you. And just to clarify, I mean, based on your projections guidance for the next quarter, like, did investors assume with some level of confidence that going forward you'll sort of be at a breakeven to profitability at this point? Or is that still a little bit too kind of opt

Speaker 1

No. No. It's a good question, Sachin. I mean, our goal this year is we got to get to profitable growth. You know, we can't, rely on going back back to the markets.

You know, we have to get to that point. For us, as you can see on page six in the slide deck, our breakeven is about $1,000,000 a month to when we have gross margins of 75%. And we're close. That's about 25 plus or minus systems gets us to that level. And right now, we're we're we're tracking close to that.

And as the and and once the supply is there, the demand is there. I mean, there's a backlog of a host of customers that are just waiting for product right now. And and so getting to that breakeven point once we have that supply constraint fixed won't be an issue, and and we should be able to hop over into the profitable section.

Speaker 4

Okay. That's great. And then one last thing, in terms of the operating costs, you had mentioned the increase that was due to professional services. Is that sort of a one time hit that we shouldn't anticipate going forward?

Speaker 1

You know, I'll let Tony address that. You know, we're still year end Yes. Go ahead. Go ahead, Tony. Got

Speaker 2

you. No worries. I can address that, Kevin. So yes, it's more like one time because during the quarters, we had a number of SEC initiatives. We filed the S1 assessment amendment.

We also got back on the OTC QB, and we got back uplisted. So these kind of singular and unique events were driving some of the professional service costs during the quarter, and we don't expect them to be coming back. But I would also like to mention that overall operating expenses are going have been increasing much slower to 4.57% compared to revenue. So it really shows the effectiveness of our control initiatives that we started last year. Back to you, Kevin.

Speaker 4

Great. Thanks, Sebastian. Yes, that's great. Thank you very much.

Speaker 0

Thank you. It appears we have no further questions at this time. I would like to turn the floor back over to management for closing comments.

Speaker 1

Great. Thank you, Christine. Well, first, thank you everyone for your participation in the call. We'll have the recording of this live for the next few weeks. We'll also try to get it on the website, so you can, relisten to it if you want.

Our next update, it will be, for Q2, And hopefully, we'll see some people at some investor conferences moving forward. Thank you, and have a good day.

Speaker 0

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful

Speaker 1

day.