Sanuwave Health - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered record Q1 revenue of $9.34M (+61% YoY) and gross margin of 79.0%, with GAAP operating income of $1.0M; UltraMIST consumables revenue rose 43% to $5.8M and systems sold more than doubled to 98 units.
• The company guided Q2 2025 revenue to $10.0–$10.7M (+40–50% YoY) and reiterated FY 2025 revenue guidance of $48–$50M; Q1 revenue exceeded prior guidance ($8.4–$9.0M) set on the Q4 2024 call.
• Net loss widened to $(5.68)M, driven primarily by a $4.90M non-cash loss from the change in fair value of derivative liabilities; adjusted EBITDA improved to $2.33M, reflecting stronger unit economics and pricing discipline.
• Management highlighted robust pipeline, domestic manufacturing insulating margins from tariffs, and inventory build to support “elephant hunting” with larger customers; debt refinancing options are being explored given high-cost debt.
• Near-term catalysts: sustained margin strength, Q2 revenue trajectory vs guidance and Street, progress on debt refi, and execution with larger enterprise accounts.

What Went Well and What Went Wrong

• What Went Well

  • Record Q1 revenue and margin expansion: $9.34M (+61% YoY) and 79.0% gross margin (+640bps YoY) on stronger systems pricing and manufacturing efficiencies.
  • Commercial momentum: 98 systems placed (+128% YoY) with no unusually large orders; installed base reached 1,145 systems, enabling consumables pull-through.
  • Preparedness for large customers and tariff resilience: inventory built to “comfortably” support large orders; production domestic, so no expected tariff impact (“do not anticipate any material…margin issues resulting from the current tariff situation”).

• What Went Wrong

  • Net loss increased YoY to $(5.68)M, primarily due to non-cash derivative liability fair value change ($4.90M), offsetting operating improvements.
  • Operating expenses rose to $6.40M (+$1.15M YoY), including $0.98M stock-based compensation and a one-time $0.295M NASDAQ uplist fee impacting operating profit and EBITDA.
  • Sequential systems placements fell to 98 from 135 in Q4 2024 due to normal seasonality and sales force transition; consumables usage dips in Q1 given patient cost sharing reset.

Transcript

Operator (participant)

Good day, everyone, and welcome to today's 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. Please note, today's call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Chairman and CEO of SANUWAVE, Morgan Frank. Please go ahead.

Morgan Frank (Chairman and CEO)

Thank you, Chloe. Welcome, everyone, to SANUWAVE's first quarter 2025 earnings call. As many of you probably noticed, the Form 10-Q was filed with the SEC last night, and our earnings release was issued this morning along with an updated presentation, which is made available on our website in the investor section. You can please refer to that during this presentation. It really is useful, promise. Okay, so joining on the call today, we have Peter Sorensen, our CFO, and after the presentation, we will open the call up to Q&A. 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 guarantees of future performance and involve risks and uncertainties, many of which are beyond the company's ability to control. 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 statement. Certain percentages discussed in this call are calculated from the underlying whole dollar amounts and therefore may not be recalculable 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 March 31st, 2025. Okay, thus prefaced, let's get to the interesting part.

Q1 was a strong start to the year, coming in ahead of expectations, and obviously, we're very pleased to put up a 61% year-on-year growth comp in a quarter in which we hired a new Head of Sales and worked through some associated sales force restructuring. Placing 98 new Ultimus systems in Q1 represented a 128% increase from system sales of 43 in Q1 of last year, and we did this without any unusually large orders in the quarter and with no customer representing more than the mid-sixes percentage of our overall revenue. I mean, frankly, the quarter came in a bit stronger than we expected, but never a bad thing to get a good start to the year, especially in Q1, which is typically a quieter time seasonally for SANUWAVE and for medical device in general.

We got going with a number of new customers in the quarter, some of whom we believe have excellent potential for follow-on business and growth. We ended the quarter with 1,145 systems in the field, 429 of which have been placed in the trailing 12 months. Moving on to applicators, sales in the quarter were $5.8 million versus $4.1 million last Q1. This was down very slightly from Q4, which is not unexpected and is actually a pretty typical pattern, albeit one that was swamped by other factors last Q1, and so perhaps warrants a little bit of explanation. Patients see their out-of-pocket maximums reset every January, and thus it's quite common to see people delay treatment in Q1 once they start having to pay out-of-pocket again.

This tends to lead to a bit of reduced usage in Q1 until it starts to catch up in Q2 and later in the year. Applicators constituted 62% of our revenues in Q1, which is toward the high end but within our 55%-65% target. Gross margins increased a bit for the quarter versus Q4 as a result of strong systems pricing and efficiencies with our contract manufacturers. We started cutting steel on our new four-cavity applicator mold back in January, and we are on schedule to complete its qualification and have production commercial product in Q4 of this year. This should both ensure additional capacity and lower production costs for our consumers.

As can be seen from our balance sheet, we used Q1 to build up inventory on both Ultimus systems and of applicators as well, and we also took the opportunity to stockpile a number of longer lead-time components to enable more rapid production ramp-up if needed. We've been doing this both because having lots of razor blades on hand is never a bad thing for those in the razor business and in support of our elephant-hunting aspirations toward engaging with larger customers. Ultimately, having systems on hand to enable us to really just take yes for an answer on a large order is never a bad thing, and for the first time since I've been the CEO, we're really at a quite comfortable inventory level, and to be honest, it feels comfortable.

So, especially during such uncertain economic and trade conditions as these, we feel really good about our supply chains and our manufacturing, and as of right now, we do not anticipate any material cost, availability, or margin issues resulting from the current tariff situation. Our production is domestic, and we are well set up for parts and benefiting from economies of scale. Now, just as a note of housekeeping, our uplist to Nasdaq this quarter was a great step for us, but it also came with a $295,000 listing fee, which affected our operating profit, our EBITDA, and our adjusted EBITDA figures. Obviously, we hope not to have that recur next quarter. With that, I will turn you over to Peter Sorensen, our CFO, who can walk you through the rest of our financials.

Peter Sorensen (CFO)

Thank you, Morgan. Q1 was an excellent quarter for SANUWAVE, marked by record-breaking Q1 revenues and robust 61% year-over-year growth. Beyond our top-line performance, we also delivered meaningful improvements in gross margins both compared to the same period last year and sequentially, underscoring the strength and scalability of our business model. These results reflect our continued focus on driving rapid, profitable growth. Let's now take a closer look at the financials. Revenue for the three months ended March 31st, 2025, totaled $9.3 million, an increase of 61% as compared to $5.8 million for the same period of 2024. This growth exceeded the top end of our previous guidance of 45-55%. Gross margin as a percentage of revenue amounted to 79% for the three months ended March 31, 2025, versus 72.6% for the same period last year.

This represents an increase of over 640 basis points, which can be attributed to reduced costs in Ultimus system production and a strategic focus on pricing for Ultimus systems and applicators. For the three months ended March 31st, 2025, operating income totaled $1 million, which is an improvement of $2 million compared to the same period last year, which aligns with our continued initiative to drive towards profitable growth and manage spend effectively. Operating expenses for the three months ended March 31st, 2025, amounted to $6.4 million compared to $5.3 million for the same period last year, an increase of $1.1 million. This change was largely driven by an increase in non-cash stock-based compensation expense of $1 million versus Q1 of 2024, in which there was no stock comp expense. As Morgan mentioned, we had a $295,000 Nasdaq uplift expense in the quarter.

Net loss for the three months ended March 31st, 2025, was $5.7 million compared to a net loss of $4.5 million for the same period in 2024. The increase in net loss was primarily driven by higher non-cash and infrequent expenses, including stock-based compensation expense and changes in the fair value of derivative liabilities, which resulted in a $4.9 million loss this quarter versus $2.5 million in Q1 of 2024. Additionally, in Q1 2024, we recognized $2.5 million in other income related to a patent license agreement, which did not recur this year. These impacts were partially offset by lower interest expense in Q1 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 ended March 31, 2025, was negative $3.6 million.

However, adjusted EBITDA was a positive $2.3 million versus negative $59,000 for the same period last year, an improvement of $2.4 million year-over-year. Total current assets amounted to $18.8 million as of March 31st, 2025, versus $18.4 million as of December 31st, 2024. Cash totaled $8.5 million as of March 31st, 2025. We're grateful for the continued support of our stakeholders. Q1 2025 marks a strong start to the year, and we're excited to build on this momentum as we execute on our growth strategy. With that, I'll turn the call back over to Morgan.

Morgan Frank (Chairman and CEO)

Thanks, Peter. Moving on to guidance, as we stated in our press release, we are guiding to $10 million-$10.7 million in Q2 revenues, 40%-50% year-on-year growth. Q1 was a bit ahead of plan, and we are essentially adopting guidance of on plan for mid-year in keeping with our annual guidance target of 47%-53% for the full year 2025, as described on our Q4 call. On a personal note, I mean, the third week of May will mark my two-year anniversary as CEO at SANUWAVE. Time really does fly when you're having fun. We've built a great team and a great culture, and I remain immensely proud and grateful for all the folks who followed me out under the ledge here and even more grateful for the job they did of getting us back in.

The whole team knows what's coming next because it's how we always end things here. The highest reward for good work is more work. Now, go earn some more work. Thanks to everyone, and with that, I'll open it up to questions.

Operator (participant)

At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star two. Once again, that is star and one. We'll pause a moment to allow questions to queue. Once more, that is star and one. We will take a question from Carl Byrnes with Northland Capital Markets. Your line is open.

Carl Byrnes (Managing Director and Senior Research Analyst)

Thanks for the question, and congratulations on the quarter. I'm wondering if you can quantify a bit in terms of system placements from what you might categorize as smaller customers and larger customers, and then how that might look going forward. Thanks so much.

Morgan Frank (Chairman and CEO)

Thanks, Carl. Good to catch up. That's one of those questions that sounds really simple on the surface but actually gets sort of vexingly complicated as you try to delineate it and answer it. I mean, for example, we have a number of customers who are substantial chains of nursing homes or long-term care facilities, and each location gets sold individually. They tend to have their own administrators, their own clinical therapy teams who make their own decisions. Kind of whether you cast each of those individual sales as being a part of a larger customer or being a one-off small customer has some pretty significant impact on how we look at that. Ultimately, if we group those large groups as single entities, which I think probably makes the most sense, then we had 58 new customers in Q1.

As we start to look at who are really big and who are relatively small, that's another question that gets tricky to define just around the fact that some of these customers are growing very rapidly. A customer that may be in the kind of 5-10 range now could be at the 40-50 range by the end of the year. It is really more a function of how easy are our abilities to grow with that customer going forward. I do not know that I really have a solid answer for you in terms of bigger versus smaller, but hopefully, that sort of helps in terms of how to think about it.

Carl Byrnes (Managing Director and Senior Research Analyst)

No, definitely does. Just to follow up on that, typically, what are you seeing in terms of time to sale from initiation of a conversation to getting a purchase order in place? Thanks.

Morgan Frank (Chairman and CEO)

We're seeing a remarkably wide range, is sort of the honest answer. I mean, we get inbounds to our corporate email that say, "Hi, I'm interested in your product, and can you give me a price quote on your system?" And those often close in a couple of days. We have other larger customers where the negotiations tend to take longer and are ongoing. I think the answer is sort of anywhere between a couple of days and several months. For the bigger, as the customers tend to get bigger and the capital outlay gets larger, the time frames tend to stretch.

Carl Byrnes (Managing Director and Senior Research Analyst)

For sure. Very helpful. Thank you so much. Congrats again on the quarter.

Operator (participant)

Once more, that is star and one. We'll pause a moment. We'll move next to Albert Hanzer with Kestrel. Your line is open.

Albert Hanser (Managing Partner)

Thank you. Congratulations, Morgan. Very, very impressive execution. Two quick questions. One, can you just address the debt and what you're seeing in the landscape with regards to that? I feel like that's the one last piece of the puzzle that hopefully we'd love your color on. Two, great to see you out there telling the story at different conferences like Roth and Invecus. Anything in the next three or four months that we should put on our calendar to come see. Thank you.

Morgan Frank (Chairman and CEO)

Sure. Let me start with the second question first, which is, yeah, we're starting to look at some other conferences and sort of non-deal roadshow activities for later in the year. We don't have anything definitively set at this time, so we'll keep you posted as that evolves. Moving to debt, yeah, I mean, as I'm sure many of you have noticed, our debt is not cheap. We're certainly looking at refi opportunities. I think it would be premature for us to really say anything definitive, but I suspect, as you can imagine, this is a topic that is front of mind for us and where we are exploring a number of opportunities and feel pretty good about the likelihood we can do something to improve our interest rate.

Operator (participant)

We will take our next question from Christopher Davis with Founding Asset Management. Your line is open.

Christopher Davis (Managing Director)

Thank you. Morgan, again, congratulations. A question, looking at the slide deck, slide four, the market opportunity, where are you getting success within those segments on the total addressable market? Do we know accurately exactly what kind of wounds this is being used on mainly and the success rate of different kinds of wounds potentially?

Morgan Frank (Chairman and CEO)

Yeah. So the actual, as we're not the ones providing the service, right, we don't actually get a ton of visibility into what our practitioners are specifically treating, right? I mean, there's a whole set of HIPAA rules around that where the patient records are private, and so we can see we talk to our providers. We get a sense of what they're doing. We get a sense of when they're finding interesting applications and new things, and we're sort of trying to help each of our providers understand the interesting things that others have discovered, but we don't actually have any really clear visibility through to say there were this many diabetic foot ulcers, there were this many venous leg ulcers, there were this many deep tissue injuries or burns. We just don't have it's just not data that we have access to.

It's all because, particularly, it's all billed under the same code.

Christopher Davis (Managing Director)

Okay. A follow-up question, if I may. Any developments regarding any kind of patent assertion suits or engagements that may have happened or may be likely?

Morgan Frank (Chairman and CEO)

Yeah. Obviously, given the nature of our agreements there, I have to be a little careful. Ultimately, as you know, we entered into an intellectual property assertion agreement with an outside assertion firm last year. They paid us $2.5 million to buy effectively an option under which they can pay us a mid-single-digit million payment, take the patents down into a special purpose vehicle, and go commence assertion. In the event that that's successful, we'll share profits on the back end. To actually sort of speak to the tangible process there is a little bit, it's difficult because it's both private and because it's a matter that's functionally out of our control. I can say we're very happy with our partner. We think they're making great progress, and I just don't know that I can really say anything more specific at this time.

Christopher Davis (Managing Director)

Fair enough. Thank you.

Operator (participant)

We'll move next to Ian Cassel with IFCM. Your line is open.

Ian Cassel (Founder)

Congratulations, Morgan, to you and the team there. It's an incredible turnaround over the last two years, and congrats on the two-year anniversary. I was wondering if you could give us some insight now with Tim joining the team. I know it's only been a couple of months, but is there any maybe insight into maybe the new sales strategy? It might not be the right way to phrase it, but the evolving sales strategy there and how you're doing things different now versus six months ago?

Morgan Frank (Chairman and CEO)

Sure. I mean, essentially, we're pursuing the sales strategy that we've been pursuing in, I guess, really through most of the latter half of last year. We've been looking to engage with larger customers at a higher level. We have been looking for a more sort of senior and seasoned sales executive in the team, people who are sort of used to the industry parlance, more accustomed to selling in the carpeted parts of the facility than the parts that are tiled. It's been really interesting to start to see how differently folks who have a lot of med device experience but perhaps not wound are approaching this. I think we're really starting to build some very interesting momentum. I mean, the strategy really remains the same, right?

There are a lot of nursing homes and skilled nursing facilities with whom I think there is a real confluence of interests and where engagement makes a lot of sense, especially those who tend to have their own clinical groups, right? The counterpoint to that is that obviously the mobile and home healthcare space is also a very rapidly growing opportunity in this market. That is a group we are also making sort of strong outreaches into. I think along with doctor's offices and hospitals, we are really, at this point, probably just starting to push kind of 1% market penetration. It feels like we have, it feels like we have, it is really about kind of focusing on what to prioritize and what to chase.

Christopher Davis (Managing Director)

Thank you.

Operator (participant)

It does appear that there are no further questions at this time. I would like to turn it back to management for any additional or closing remarks.

Morgan Frank (Chairman and CEO)

Thanks for coming, everyone. I appreciate the ongoing interest and support. We'll speak to you next quarter. Thanks very much.

Operator (participant)

This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful afternoon.