SANUWAVE Health Inc (SNWV) 2024 Q3 法說會逐字稿

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Good day, everyone and welcome to today's SANUWAVE Health Inc announces highest quarterly revenues in company history. Q3 2024 results. 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 start and one on your telephone keypad, you may withdraw yourself from the queue by pressing star to please note this call is being recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Morgan Frank, Chairman and CEO of SANUWAVE Health Inc.

Thank you very much. So, welcome everyone to SANUWAVE Health Inc third quarter, 2024 earnings call. As many of you saw our form 10-Q was filed with the SEC last night. Our arrange release was issued this morning and our updated corporate presentation was made available on our website in the investor section. You please refer to these during presentation. Joining me today is Peter Sorensen, our CFO and after the presentation, we will open the call up for Q&A Let me kick off with the scintillating forward-looking statements disclaimer. This call may contain, impose the 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 filings. Actual results made different materially from those projections in the forward-looking statements. The company undertakes no obligation to update any forward-looking statement.

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 quarter ended September 30th 2024.

Okay. So with that, out of the way, let's get the good stuff. Last time this call, we spoke about our revenue growth rates in 50s being sustainable and we guided to above trend growth of 65 to 75 for Q3.

We're extremely pleased to have meaningfully exceeded that guidance posting revenue for the quarter of $9.4 million by far the best quarter in the company's history and an increase of 89% versus the same quarter last year and 31% sequentially from Q2, 2024 updated revenue, which was approximately 58% of our revenue in the quarter grew 75% from a year ago and 14% sequentially versus Q2. And this consumables revenue alone actually exceeded full Q3 revenues for 2023 which is a promising sign for us given that we fundamentally view ourselves as being in the consumables business.

Ultimate system sales for the quarter were a big swing factor with 144% growth year on year and 74% growth from Q2 as our ongoing ma and our ongoing mantra of rapid profitable growth that I've been so fond repeating on prior calls continue to play out and we saw a rise in our gross margins to 75.5%. So $2 million of operating profit and $2.1 million of adjusted UA in the quarter company also turned the corner on being cash generative for Q3 as a whole. Even after cash interest costs, you can get more detail here from the earnings call deck and from our website or our filing. So, all in all, we felt like a significant number of steps in the right direction for the company. And as many of you likely saw, we took some further steps on October 18th to reverse split the stock effective note and warrant exchange in a variety of warrant exercises and closed a $10.3 million deal funded by several new, as well as several existing investors.

Post this set of transactions. The company repaid certain debt and regained compliance with the covenant of our remaining loans is no longer in forbearance on any of our obligations.

This is greatly simplified and stabilized the company's capital structure as a part of our efforts to create a simple investable structure, conducive to allowing us both to grow and thrive and to value for our business rather than our cap stack. On the business side, Q3 obviously came in ahead of plan. This underlines one of the challenges we're facing in forecasting at the moment, which is that which is what we're really internally referring to as sort of pigs and Pythons problem. As we've discussed on prior calls, companies are beginning to engage with a much larger, more sophisticated sort of customer.

Obviously, this is a fantastic opportunity for us and it's precisely the sort of thing that we would be doing as we seek to transition to being, I guess kind of a small business being a medium sized one, but it's also going to make revenue, especially systems revenue a bit trickier to predict in the near term, applicated revenue tends to be much more linear and therefore easier to forecast because it's simply a function of how many systems you have in the field, how many patients they treat per week and the applicator pricing. But system sales, especially with bigger customers tend to have a less linear aspect. And I think this Q3 shows the pigs can sometimes make quite a lump as they pass through the Python.

Selling 124 systems in one quarter versus 55 in the prior year and 72 last quarter was a real breakout for the company. But, you know, as much as we'd like to, this is a difficult outcome to draw trend lines to infinity from. We expect it will become a bit easier to forecast this as we go forward, and we get more customers into the adoption stage and laws of averages in large numbers start to work for us.

But in the near term, you know, it's going to be a little lumpy and though obviously, sometimes lumpy can be good. So, with that, I will turn you over to Peter to run through the numbers in some more detail and then I'll pick this theme up a bit again. I speak about guidance.

Thank you, Morgan. Well, reiterating what was previously said, it was another exciting quarter for stu wave as we achieved all-time record high quarterly revenues including year over year growth of almost 90% and strong sub growth of over 30% from last quarter's previous all-time record quarter. We also increased our gross margins both year over year and sequentially and we continue to execute on our goal of rapid profitable growth. So, with that, let's take a look at the numbers revenue for the three months ended September 30th, 2024, total $9.4 million an increase of 89% as compared to $5 million for the same period of 2023. This growth is greater than the previous guidance of a 65 to 75% increase gross margin as a percentage of revenue amounted to 75.5%. For the three months ended September 30th, 2024, versus 71.5% for the same period last year.

An increase of over 400 basis points which is mainly due to completing a line transfer at a new contract manufacturer as well as positive pricing impacts compared to the same period last year for the three months ended September 30th 2024 operating income totaled $2 million which is an improvement of $2.5 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, September 30th 2024 amounted to $5.1 million compared to $4.1 million for the three months ended September 30th 2023 an increase of $1 million which was mainly driven by increased selling expenses.

Net loss for the three months ended September 30th 2024 was $20.7 million compared to a net loss of $23.7 million for the same period. In 2023 the decrease in net loss was primarily due to a change in the fair value of derivative liabilities and an increase in operating income adjusted EBITA for the three months ended September 30th 2024 was $2.1 million versus a negative $264,000 for the same period last year, an improvement of $2.4 million D wave continues to execute its financial strategy to improve operational profitability and manage operating expenses as previously discussed with the subsequent event of the Note and Warrant exchange. We're thrilled to be moving on from most of the derivative liability that has previously clouded. Our bottom line results.

Total current assets amounted to $9.9 million as of September 30th 2024 versus $9.8 million as of December 31st, 2023 cash total $3.3 million as of September 30th 2024.

We thank you for the continued support of anyway and then I'll transfer the call back to Morgan.

Thanks Peter. So, moving on to guidance as you like we saw in our press release, we're guiding to 9.7 to $10.5 million in revenue for Q4, which would represent roughly 40-50% growth from what was another sort of picture of Python quarter last year in Q4 when we had our first full quarter without supply constraints on our system. And we were catching up on that Q4 2023 was up over 40% sequentially from Q3 of last year. So, it's a bit more difficult of a quarter to comp against. But obviously, this guidance takes us up to revenue estimate in excess of $32 million for 2024 as a whole, which is a bit ahead of our previous guidance and would put us at a 50% or 57% year on year growth rate.

The company's also been looking at requirements to uplift to NASDAQ and currently believes that it will be able to do so using the market value standard, presuming it is able to sustain a $4 bid price and a $75 million market cap for 90 trading days. Yesterday made 15 days so far not that we're counting anything. So again, I just really just imposed by reiterating that we're building for the long term here and that we're very excited by the progress we've made. We remain hungry for more. I would like to thank the whole SAN team for their extraordinary efforts here and to remind everyone that as our control mantra is the reward for good work, is more work that there's going to be plenty more opportunity to come. So with that, I will open the call up for questions, operator.

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 to once again that is star and one to ask a question, we will pause for a moment to allow questions to queue.

And we'll take our first question from Alex Silverman with a WM Investments. Your line is open.

Hey, good morning. Congratulations.

Hey, Alex. Thanks for calling.

Curious a couple questions. Can you spend a little bit of time talking about the your process of moving to a new manufacturer, both for systems as well as disposables and where you are in that process.

Sure. So on the on the system side, we successfully completed the transition to two new contract manufacturers that we are using to manufacture the ultimate system. Now, we're now up and we're now up and running there and are getting, you know, are getting systems in at a kind of 25 to 30 a week cadence. So that seems to be going very well. On the applicator side, we have been working through a minor redesign on the product that would remove a couple of ultraviolet or adhesive steps in the production process.

Once we have that design, you know, nailed down, we're looking to go and cut, you know, new larger molds that we can use. And we're hoping to have, you know, kind of, I think at this point, probably, you know, sometime in Q2 next year have the second source stood up on applicators with the new design.

Great. And our goal, our goal is to our goal is to maintain multiple sourcing on these so that there's no single point of failure.

That makes perfect sense. You know, given I, I assume your systems are, are a our fifo accounting. How many of this quarter systems were on the new, more profitable manufacturing as opposed to the, the less, you know, the lower margin prior.

I'll take that one, Morgan. I was just a few.

Out here.

You want to, you want to fill that here?

Yeah, I'll.

Take that.

So just.

At the end of the quarter of these new contract manufacturers got stood up near the end of the Q3.

And we still have left over inventory from our previous ones. So in Q4, we'll start to see another uptick in our growth margin as our COGS comes down on those systems.

Got it, got it. So they'll sort of be a step function on the margin on systems Q3 to Q4. And then starting in 2025 a step function on the applicators, correct?

Okay, helpful. And then in terms of the 124 systems. You know, that you sold in this, in the quarter, which is kind of mind boggling. Can you walk through how many of those are to the quote unquote, more sophisticated, bigger customers? And how many of those are, are to the mom and pop?

Well, so, yeah, I guess it's, it's always a little tricky to sort of, to break it down that way. I mean, what we can say is, you know, we've had a couple new customers that have been, you know, that, that started to ramp aggressively in Q3 and that, you know, between a couple of large customers, they were, you know, they were a very significant effect on the quarter.

I think we're, we're sort of trying to stay away from like, you know, revealing data about our customers and like who's, who's buying how much it was.

And, and if you could spend a moment on a new customer pipeline and, sort of what you're seeing out there.

Yeah. I mean, the top of our funnel right now is, exciting.

Like, it's, it's the best we've ever seen it, but it's also a little different than anything we've seen before where, you know, these are, these are bigger customers, they're, you know, they're more sophisticated, they're potentially much bigger buyer product. You know, they also tend to take, you know, if you're going to buy 100 systems, you think about it very differently than if you're going to buy two. And so it's, we're still sort of learning, you know what it takes to move these guys through the funnel and you know, the speed at which they move. But, you know, we're very excited about what we're seeing. It's, you know, I think over the next, over the next couple of quarters, I like it. It really feels like we could be turning a corner here.

Got it very helpful. Thank you. Appreciate the help.

Thank you. We'll take our next question from Christopher Davis with founding asset MGMT. Your line is open.

Thank you. So, Morgan and team congratulations on executing frankly, as efficient and comprehensive a turnaround as I've ever seen. So really, that's so maybe fill in a little bit of the profile over the next year of of opexs for, for us and, and maybe also talk about a numbers of sales people, what you had four quarters ago, what you intend to have what you have now and what you have, what you may have next year.

Sure. Thanks. So we started this year with, I believe three sales people. This, there's actually been some turnover in the sales force since then. I believe we're now at nine and should be at 11 by kind of the middle of this month.

So that's obviously we're starting to get some, we're starting to get some traction there. And we're increasingly focusing on how to get, you know, more deeply involved with some of the bigger, more sophisticated customers from an operating expense standpoint, obviously, adding, adding head count does add to OpEx. We don't expect it to be anything like proportional. The, you know, our Q2 number had some, you had some expense reversals back out on a GAAP basis.

You know, this quarter had a Q3 had some expenses in it associated with the transaction that we Consummated in October with some of the prophies with the non-recurring engineering expense associated withstanding up the new production lines. And so I think in spite of having added a fair bit of head count, I think it's reasonable to assume that operating expenses in Q4 are going to be about flat in dollar terms with Q3.

And you know, there should be some, you know, there should be some modest growth across 2025 and some of the swing factors will include things like whether and to what extent we're going to pursue some additional clinical study.

But overall, I think, you know, using a dollar value for Q4 pretty similar to what we experienced in Q3 is a reasonable assumption.

Okay. Thank.

You.

Thank you. We'll take our next question from Nathaniel Hurst private Investor. Your line is open.

Good morning. Morgan just a couple of quick questions if you don't mind looking here at page 12 and 13 of your 10-Q that you guys filed last night, sections seven and eight going, senior secured debt in the fault of 26 just over $26 million and a promissory note payable, with $1.3 million in default.

Just looking to see when, those might be, getting, cleaned up if you, if you will.

Sure. So the $1.3 million note has already been repaid as of this time and there is no longer an obligation of the company and the def the default on the LH expansion that was associated with non compliance with a minimum cash covenant of $5 million. And that that covenant has also now been met. So at this time, we're no longer in default or in forbearance on any of our debt obligation.

Okay. Beautiful and page 16 the, the, the breakdown of US revenue and international revenue. Obviously, you guys have done a tremendous job of growing revenue here in the US international side. However, seems a little sluggish if not meandering. I know you guys are focused on the US side, any comment on the international side.

I mean, the international sales were predominantly or I think exclusively actually associated with the Dermabase and profile product line. And so, you know, the company's primary focus at the moment remains ultimus in the US. And so given that this is not cleared for use in looks like the eu we're you know, it's just that's not going to be a focus in the near term. Like the opportunity in the US is so large that we really, we've chosen to focus there and really going to want to be the dog that chases one bunny and comes home fed rather than trying to chase two and coming home hungry.

Okay. And, at last question, page the bottom of page 25 on the top of page 26 it says the company is still identified the following material weaknesses. It lists three of them and then it says as a result, management concluded that it's internal control over, over reporting was not effective as of September 30th of this year. Any, any, any ideas on that.

Well, so, I mean, obviously it's not, it's not uncommon for companies our size to have various forms of material weaknesses in their reporting. It's something that we have chosen to focus on internally. We're, now, we've, we've hired a full time employee whose entire job is to remedy these reporting issues and, you know, she reports both directly to Peter our CFO and to the audit committee on our board. So these are, you know, these are issues that we believe are well within our remit to remediate and that we're currently working on.

Thank you very much.

Thank you. And once again, if you would like to ask a question, please press star one. We'll take our next question from John Lundy Private Investor. Your line is open.

How soon do you expect to be cash flow positive? And if it's not in the near future, is there going to be more debt? How are you going to handle that? Thank you.

Well, as we mentioned on the call earlier, the company was cash generative in Q3.

And you expect that to continue.

I think we haven't given any, we haven't given any guidance there, but I think, you know, based on the, based on what we've said about operating expense and about expected revenue levels for Q4, I think you can probably do some reasonably good math.

Okay, thank you.

Thank you. We'll take our next question from Ian Castle with ISCM. Your line is open.

Hi, Morgan. Congratulations on the quarter. I had a, I had a question about the clinical studies or validation studies that you may be working on now or may be working on in the future. I was just curious if you're quite H1stly, if you're working on any more or do you see the need to do additional ones to, to get further further penetration in the market?

Yeah, thanks. I don't know that it's so much a function of penetration in the market in that the, you know, there's, there's a fair bit of data out on this. And we have a lot of, we've, we have a fair number of users out now that have history using the product. And there's a general sense of, you know, people have had good experiences with it. You know, the question becomes, you know, one, how do we bolster our claims using real world data because this is obviously something that both C MS and insurers have become increasingly interested in is, you know, do post approval studies, you know, show us that your product is working out in the field.

You know, we have some users that have you know, repositories of data and are, you know, very interested in working with us on this. And so I, I suspect, you know, we'll certainly be pulling together some data along those lines over the next year. You know, the question of prospective studies then becomes an issue of if there's something else, you know, we might want to be able to pursue and, you know, be able to make claims about. We have a couple of things in mind. I'm not sure this is really the place to discuss them, but it's there, there are a couple of prospective studies that we think could be, you know, managed fairly easily and that would, that might yield some data that could be really beneficial to us.

Okay.

Thank you.

And it appears that we have no further questions at this time, I will now turn the program back over to our presenters for any additional or closing remarks.

Great. Well, thank you all for participating in the call and thanks. Thanks for the attention. Thanks for the question and we will speak to you next quarter.

That concludes today's teleconference. Thank you for your participation. You may now disconnect.