Sanuwave Health - Earnings Call - Q4 2022

Transcript

Speaker 0

Please note this conference is being recorded.

I will now turn the conference over to Kevin Richardson, CEO. Thank you. You may begin.

Speaker 1

Thank you, Sherry. Welcome to SANUWAVE's fourth quarter and full year twenty twenty two earnings call. The 10 ks was filed with the SEC Friday night. Our earnings release was issued this morning and our updated investor presentation was made available on our website in the Investors section this morning as well. Please refer to that during this presentation.

Joining me on the call are Morgan Frank, our Chairman Tony Reno, our CFO. After the presentation, we will open the call to Q and A. Let me begin with the forward looking statement. 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 obligations to update any forward looking statement. With that out of the way, let me begin. 2022 was a challenging but successful year. As we look back at 2022, we will highlight some of those successes and discuss the challenges as well.

Importantly, we will also discuss what we are doing or have already implemented to overcome these challenges. Where it all starts at SANUWAVE is we are fortunate to have great products, Ultramist and Dermapace, which both have strong clinical evidence and support, which helps support positive reimbursement for the energy first platform. As we have mentioned in the past, for success in the wound care space, a company needs clinically superior products to heal patients, products that work in a clinical setting and are accepted by the staff, and, of course, positive reimbursement for the customer to generate returns, but at a price where the payers are benefiting as well. SANUWAVE checks all those boxes for success in this $45,000,000,000 chronic wound care market. Let me review some highlights.

Revenue continued mid double digit growth in 2023 to record levels. Units shipped achieved record levels and importantly the number of treatments achieved records as the continued adoption of Ultramist grows. Gross margins improved to the highest level in company history due to our move to Eden Prairie, tight management of our supply chain, higher pricing of our products and a host of projects internally all focused on automation and driving costs lower and improving efficiency. Operating expenses decreased year over year as the executive team automated many processes allowing for lower headcount and the elimination of many outside professional fees needed to get our filings caught up last year. Management plans to continue to focus on leveraging the existing infrastructure as we grow and gain operating expense leverage to achieve profitable growth.

These operating successes were despite overcoming a challenging environment where our supply chain took a few months longer to bring on fully. We had expected to ramp production meaningfully by year end 2022 and this did not occur until March 2023. We'll discuss more of this later. During 2022, we had two more major milestones. We added three new Board members in the second quarter with great experience in adding tremendous value to the company already.

And in the summer in August, we recapitalized with a successful equity offering. This also brought on a new Board member and our Chairman, Morgan Frank. Lastly, with all the efforts on the accounting front, we were able to relist on the OTCQB January thirty of this year. Looking back, you can see despite the challenges, there are many successes to be proud of in 2022. As we enter 2023, we're focused on achieving sustainable, profitable growth.

We had anticipated this to begin in Q4, but we were unable to achieve this in the quarter due to many onetime items and year end cleanup to prepare for 2023. A level of revenue similar to Q4 of $5,500,000 would on a normalized basis achieve EBITDA breakeven. We have brought on key additions also to the management team, which will help drive the profitable growth in a disciplined fashion. Tim Hendrix joins us with over twenty years of wound care experience and leadership training in sales. Nancy Gilmore joins as VP commercial ops, adding a depth of knowledge and experience with ramping med tech startups along with training, operations, and sales support.

Lastly, Matt Egtenloch joins as a VP ops and will drive many of the efficiencies and help resolve the supply chain issues, which have challenged our near term growth. We'll continue to add more employees as we grow profitably throughout the year. 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 updated slides and then we'll conclude with Q and A and the near term outlook. Toni?

Speaker 2

Thank you, Kevin. We will start with comments on the restatements of the unaudited quarters of fiscal year twenty twenty two. The company determined during the preparation of this annual report that it has not appropriately accounted for certain transactions under GAAP. These transactions included shares issued for services and the sale of assets under financing agreement. Also, vendor invoices were not properly recorded in prior periods and interest was not properly calculated on senior debt and an inventory adjustment was posted improperly.

The company evaluated the materiality of the errors and concluded that the errors in aggregate were material to the consolidated results of Q1, Q2 and Q3 in 2022. Management restated the impacted financial statements. Some of these changes were timing of recognition of fees for professional services versus invoice dates, some share based compensation and from a recognition of peak interest. Only the recognition of a financing lease agreement had a direct cash impact. For the year as a whole, nonaffected revenues or operating profit on a cash basis.

Our goal is to avoid making any such adjustments in the future. With regards to revenue, Q4 revenues ending 12/31/2022 amounted to $5,500,000 an increase of 29% over the same period last year. For the twelve months ending 12/31/2022, total revenues amounted to 16,700,000.0 an increase of 28.7% year over year. Gross margins improved year over year, reaching 75% of revenue for 2022 versus 62% for 2021. The gross margins for the quarter ending 12/31/2022 reached 78% of revenue.

They reached 69% for the last quarter of twenty twenty one, so an improvement of nine percentage points. Operating expenses and operating loss. Operating expenses for 2022 is down 4% versus the prior year despite the company's growth in 2022. The $5,800,000 in operating expense for Q4 is up 9% from the prior year. ValueRes continues to execute on its financial strategy to improve profitability and manage operating expenses.

Total current assets, cash and liquidity. Total current assets amount to $6,600,000 as of 12/31/2022 versus $4,400,000 as of 12/31/2021. And cash totaled $1,200,000 as of 12/31/2022. We thank you for your continued support of Sanu West, and I'm now transferring back to Kevin. Kevin?

Speaker 1

Thanks, Tony. Before we dive back into the presentation, let me turn it over to Morgan for comments and observations, having been Chairman now for almost three full quarters. Morgan?

Speaker 3

Thanks, Kevin. Yes, time flies. So we've been working hard here to set SANUAIP up for a breakout year in 2023. And a number of people have asked and perhaps understandably about the company's investor relations strategy and our general marketing strategy going forward, and I think there have been, you know, some perhaps fair but pointed questions. So let's talk a bit about that.

You as the housekeeping of q four is now behind us, the company is planning to adopt a more engaged posture on both fronts. From the investor side, we've been interviewing investor relations firms. We hope to be able to announce something there, sort of a more active strategy to share information and intra quarter progress on a more regular basis in the near future. So, you know, please stay tuned on that one. We've also been assessing our overall marketing and market positioning stance, and this diligence has led us to some interesting conclusions about both our market and about our customers.

As I mentioned on the last call, the $5,000,000,000 biological skin substitute space is in a fair bit of turmoil, and concerns around reimbursement there continue. It they've been cut a fair bit this year. It looks to be cut, you know, down to a total of sort of 80 to 90% reduction by next year, and this has left a lot of doctors and salespeople scrambling to see what comes next. And the recent rise in Ultramist reimbursement positions SANUWAVE very favorably here. Apart from one issue, which we've discovered, which is that, unfortunately, a great many people in the industry, including a number of our own users, especially in hospital settings, don't know this.

So, obviously, this is a state of affairs that we very much like to remedy. And to that end, Tim Hendrix, our new head of sales, and Nancy Gilmore, our new head of commercial ops, are exploring and implementing programs on the marketing and inside sales development and customer outreach side to raise awareness and drive adoption and drive use. It's a fairly high class problem, I guess, that, you know, your customers don't know that they could be benefiting more from your product. But, you know, you these things don't sell themselves, and I think we have we have some education to do in our market. To that end as well, the company will be at a number of industry trade shows in coming months, including the Leaders in Wound Healing Conference, SWAC Spring, and EWMA in Milan.

So we believe there's a lot of low hanging fruit here and that the new salespeople who are now beginning to put out in the field have both the industry experience and the knowledge and the contact and call points to spread the word and position Sanway Sanway for what we aim to be a breakout year in 2023. I'll now give the callback to Kevin who can speak a bit more on guidance.

Speaker 1

Thanks, Morgan. For those follow on in the slide deck, we're on Page six. 20 20 two set records for products shipped and patients treated. As mentioned earlier, our production ramp has taken a few months longer than expected as our suppliers, had to restart their lines and some long lead components were even longer lead than originally expected. We began receiving our new product at the end of Q1 March and anticipate continued supply in the near term.

Given our past experience with the supply chain, it is our top focus currently to make sure we have supply to meet the ever growing demand. On Page seven, based on what we know and the accounting books have not been closed, so the numbers I mentioned are are subject to change, but first quarter revenue should show growth between 1420% year over year. We continue to believe $1,800,000 per month is our EBITDA breakeven. First quarters are seasonally slowest and given we did not receive products until the March, literally the March, we are actually extremely pleased with this type of growth from the team and what the team was able to accomplish. And we also expect to see growth accelerate meaningfully in q two with the supply coming on board.

We have wonderful products, passionate dedicated team members and demand far exceeding supply. As we address the supply chain and once we are 100% in that working order, we should be able to achieve record revenue growth and profitability in 2023. I want to thank our employees for driving our success to shareholders who invested more, which allow us to ramp the products and most importantly, that we can meet our mission, which is about saving limbs and saving lives through healing wounds. With that, I'll open it up to Q and A. Sherry?

Speaker 0

There are no questions at this time. Would like to hand the conference back over to management for closing comments.

Speaker 1

Great. Thank you, Sherry, and thank you, participants. We see that there are over 60 people participating on the call and I really appreciate that. One of the things that I want to point out is that anyone who does have questions or does have follow-up, we're always open to having conversations with shareholders when we can, and that's an important aspect here. So please we do have a question from the audience.

So Sherry, if you could take the question, that would be great, and then we'll conclude after that.

Speaker 0

Great. Our question is from Christopher Davis with Founding Asset Management. Please proceed.

Speaker 4

Hi, Kevin. Thank you. I wanted to get an idea of what peak production might look like in the next couple of quarters.

Speaker 1

Sure. So we've brought things back online. It took a again, as I've said before, it took a little longer and some of the long lead items that needed even longer time to get to production. Currently, we'll we're at a pace of 40, 40 new products a month. That is scheduled to ramp to a hundred by the end of the year.

So we'll be at a a clip of doubling throughout the summer and then increasing to a hundred in new production. We're also doing a lot of refurbishment activity as well to help fill the gaps where we need to. So that's the the production ramp on the the system side for for product. And then on the applicator side where the the group that we work with has been these are the single use applicators where we generate over 50% of our revenue, and they've been great about line expansion. They are currently running roughly 20% of the ahead of demand.

So we're in the inventory building phase, and they should be able to increase that by another 70% to 80% by the end of the year. So they're on track with meeting the growth of 100% production increase for the full year.

Speaker 4

Okay. And what would you imagine that would look like at the end of this year? What would be the kind of ramp rate in another six months?

Speaker 1

Yeah. I mean, we're it's we're doubling from the beginning of the year, and so it it it it doesn't happen overnight. Both on the system side and the applicator side, it's it comes down to on the system side, it they they add new it's it's more about employee ramp and making sure the inventory is available, and that goes kind of on a month by month basis. So we should be at the 60 to 80 mark in the midsummer and then 100 per month by the end of the year. And average selling price is in the high 20s.

So right now, we're on track to get to about 500 devices for the full year, which would and then next year would be in the 1,200 plus. And then with the single use applicators, right now, we're, again, building inventory so that we don't have to worry about any of that. But, we we typically see that, an end customer uses between two and four cases of applicators a month. And so, you know, based on our installed base, we'll need to be, somewhere around 1,000 cases a week, so about 4,000 a month.

Speaker 4

Excellent. Thank you.

Speaker 1

Thanks, Chris.

Speaker 0

There are no further questions at this time.

Speaker 1

Great. Well, as I as I was saying earlier, if people do have questions or wanna spend some time with management and go through it, please let us know. We'll be glad to speak. We during blackout periods, won't, but, during normal periods, we will. And so, that's really how we'd approach it.

Just shoot shoot us an email or give us a call, and we'll be glad to set that up. We appreciate everyone's support, and we look forward to, updating you again. Q1 results will be out in May, and we'll have those out to people. And any other updates as we go along throughout April and May, we'll be glad to share them with everyone. With that, thank you very much, and have a great

Speaker 2

day. Thank

Speaker 0

you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.