Sanuwave Health - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered record second-quarter revenue of $10.16M (+42% YoY), gross margin of 78.3%, and Adjusted EBITDA of $3.37M; diluted EPS was $0.01, and operating income held at $1.88M despite $1.13M in stock comp.
• Versus Wall Street consensus, revenue modestly beat ($10.16M vs $10.14M*) and EPS beat (GAAP diluted $0.01 vs -$0.09*); Adjusted EBITDA of $3.37M exceeded consensus EBITDA ($2.36M*) though definitions differ.
• Management guided Q3 revenue to $12.0–$12.7M and reiterated FY2025 revenue of $48–$50M; Q3 is framed as a “tough comp” given a large order last year (“pig through a python”), with conservatism on big deals timing.
• Catalysts: national sales coverage (12 territories), October launch of first concerted outbound marketing program, Q4 applicator redesign to expand capacity and reduce cost, and an in-process debt refinancing with term sheet selected, implying improved cost of capital.

What Went Well and What Went Wrong

What Went Well

• Strong top-line and margin performance: revenue +42% YoY to $10.16M; gross margin expanded to 78.3% (vs 73.2% LY).
• Commercial execution: 116 UltraMIST systems sold (vs 72 LY; +61% YoY) and consumables revenue up 37% to $6.4M; consumables mix at ~63% and UltraMIST representing 99% of total revenue.
• Management momentum and strategic posture: “If Q1 and Q2 were the quarters of ‘max disruption,’ Q3 is expected to be the quarter of ‘max construction’…aim to set us up for breakout performance in Q4 2025 and 2026.” — CEO Morgan Frank.

What Went Wrong

• Operating expenses rose to $6.08M (vs $3.25M LY) with $1.13M stock-based comp and no repeat of a prior-year accrual release; operating income declined slightly YoY to $1.88M.
• Net income fell YoY to $1.06M (vs $6.56M LY) due to non-recurring prior-year gains (notably $5.31M gain on extinguishment of debt) and smaller derivative liability mark-to-market.
• Gross margin ticked down sequentially (78.3% vs 79.0% in Q1), driven by engineering costs to stand up a second source of applicator production, with benefits expected to phase in post-Q4 redesign.

Transcript

Speaker 3

Good day, everyone, and welcome to the Sanuwave Health 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 one on your telephone keypad. You may withdraw yourself from the queue by pressing star and two. Please note, this call may be recorded, and I will be standing by if you need any assistance. It is now my pleasure to turn the conference over to Morgan Frank, Chairman and CEO of Sanuwave Health. Please go ahead.

Speaker 1

Thank you. Thank you very much. Good morning and welcome to Sanuwave Health'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. Joining me on the call this morning is Peter Sorensen, our CFO. After the presentation, we will open the call up to Q&A. We are going to 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, 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. 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 statement. 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 30, 2025. All right. Now that we are absolved of any potential sins of prognostication, let's get to good bits.

Q2 was another strong performance for Sanuwave Health, 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 UltraMIST 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. 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 applicator mold 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. All in all, it's been a really productive first half of 2025, and the company is just 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, sales force, 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. 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. We've filled out the commercial operations team as well and brought in new leadership there also from Audiomed.

The energy at the all-hands sales and commercial ops meeting that we had a couple of weeks ago was as striking as it was positive. The moods and expectations are high, and 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, dashboarding, 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 a 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, you know, we get a profound spike in interest.

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. 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 kind of max production. Based on what I saw at the sales meeting, we now have a team that's really committed to getting Sanuwave firing on all cylinders. I think we're all pretty excited about seeing what happens when we do. With that, I will turn you over to Peter Sorensen, our CFO, who can walk you through the rest of our financials.

Speaker 2

Thank you, Morgan. The second quarter was a strong one for Sanuwave Health, 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 UltraMIST. We also delivered meaningful year-over-year improvement in gross margin, which underscores 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 30, 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 30, 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 UltraMIST system production and a strategic focus on pricing for UltraMIST systems and applicators. For the three months ended June 30, 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 30, 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 GAAP operating expenses by that amount that did not recur this quarter.

Net income for the three months ended June 30, 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 the 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 ended June 30, 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 30, 2025, versus $18.4 million as of December 31, 2024. Cash totaled $8.5 million as of June 30, 2025. We appreciate the continued support and confidence of our stakeholders. Q2 2025 represents another solid step forward for Sanuwave Health, 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 disciplined execution and advancing our strategic growth initiatives.

With that, I'll turn the call back over to Morgan.

Speaker 1

Thanks, Peter. Moving on to guidance, as we stated in our press release, we're guiding to $12 million to $12.7 million in Q3 revenues. Obviously, Q3 is a tough comp for us. It's up against the peak 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. Our annual guidance remains unchanged.

As ever, I want to thank the Sanuwave 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 are moving to our new office space about a mile away at the end of next week. I'm sure the team will desperately miss the old carpets, but we'll manage, as always, to adapt and overcome. Thanks, everyone. With that, I will open it up to the operator for questions.

Speaker 3

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 Mauser with Roth Capital Partners. Your line is open.

Good morning, guys. Thanks for the updates and great progress here. Maybe I'll start on margin. Glad to hear the enhanced production process for the applicators is 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 scales. Seems like the business is poised for some pretty nice operating leverage, especially given the commercial infrastructure is in place. This production process is nearing completion. Just 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.

Speaker 1

Sure. 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 probably 350, 400 basis points of additional margin on the applicators with the new design. It seems, is this up to where we're?

Speaker 2

It's going to take some time to get to that as well, just because we've got, we try to hold about six months of inventory on our applicators. We need to bleed off our existing costs on our current applicators before we start really seeing that impact. We should see that in early 2026.

Speaker 1

It should be sort of a steady fade in because we're using a kind of a blended cost as our cost basis. It'll flow through gradually, but we'll flow through.

Okay, appreciate that. Thirteen 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?

I think we are, at this point, there's a certain amount of, 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. It 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. 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 start? 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 U.S. into 12 regions still means you've got some pretty big territories. 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 rest of the year. I think at this point, we're pretty much where we need to be to have real national coverage.

Got it. Glad to hear that you're working internally as well on kind of a marketing program. I think you mentioned it, 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 UltraMIST really resonates with that, you know, you kind of tailored this marketing program towards?

To a great extent, one of the things we're focusing on in the marketing program is moving more to a kind of 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. 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. 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, a lot of opportunity in podiatry, in wound care centers.

I think it really becomes a question of tailoring the offering to both the wound and the customer type, beginning to show people this is really how you can use this product. Getting over the hump of people saying wound care is not a high trust environment, right? When you walk in with a shiny new thing and say this is the best, this is the best new wound care since moldy bread, you're met with an understandable amount of skepticism. 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. Some of it is going to be pushing for very specific regional critical mass.

Appreciate that. Maybe just lastly, any update on the senior secured debt that's coming new?

There we go. We had an internal bet on how long we could go on this call without somebody asking that. Yes, I guess it's probably fitting we give something of an update. I think as we sort of long discussed, we were looking at the refinancing of our debt as sort of a cost of capital equation, right? We were looking at, do we want to do this as debt? Do we want to do this as equity? What's the choice? We ran an internal process to look at what our debt options were. We received several term sheets that we thought were very attractive. We chose one and are currently in the process of working to close it. I can't really get into too much more detail right now.

I can't name the counterparty, but I think 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, and we'll keep an eye out for that. I'll jump back in queue.

Thanks, Kyle.

Speaker 3

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 Plum with Tallpipe Capital. Your line is open.

Good morning, guys.

Speaker 1

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, you know, who do you have that maybe you've sold systems to that have a big runway with a couple hundred locations and maybe the pipeline for maybe new large elephant hunting spots?

Yeah, I mean, sure. Obviously, for competitive reasons, we want to be a little bit careful about naming folks. There are a number of key initiatives that we've gotten pretty interested in. We were recently added to the approved vendor list on one of the largest hospital chains and networks in the U.S., and that's become a very interesting hunting ground for us. We're looking at a number of folks who have considerably larger footprints, like people who have several hundred locations. I think it's sort of early days, right? We hired our new key accounts rep in, it's like the second week of July. He's been here almost a month now. We're going to start expecting things any day now. It's always a little bit difficult to guess exactly how these guys are going to perform. Big customers like this tend to be more careful. They're also structured differently.

Some of them are kind of tipping point accounts where there's one national decision maker, and if they say yes, you go on a large number of units. Others are sort of a, we'll approve this, and now you have a hunting license but have to go get each one individually, though they seem to get easier the more you get on board. As you penetrate a network like that, there's kind of a flipover point where the question changes from, why should I use this thing to, hey, why aren't you using this thing yet? Don't you see what the rest of your peers are doing? We're building some real momentum there, but it's obviously, we've, we're kind of a month in. It's just a little early to be making much in the way of really concrete prognostication.

Great. Thanks, guys.

Thanks, Chris.

Speaker 3

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

Speaker 1

I think we might have one more question.

Speaker 3

Apologies. We do have a question now from Albert Hanser from Kestrel, your line is open.

Speaker 0

Hi, nice job. Fun to see the execution. In all the momentum and good news, sometimes I think the IP aspect gets overlooked. 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?

Speaker 1

Wow. You couldn't come up with an easier question. Okay. Fundamentally, yes, Sanuwave Health 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 UltraMIST platform. Obviously, we have in the past monetized some of these patents. We have the one relationship with Vascular Wave LLC to potentially utilize some of our shockwave patents around some vascular conditions.

I can't really speak to that any further in concrete specifics beyond what we have out in the public market, which is that they paid us $2.5 million last year to basically buy an option that would allow them to pay a mid-single-digit millions fee to then 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 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.

Speaker 3

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.

Speaker 1

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

Speaker 3

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