SANUWAVE Health, Inc. (SNWV) Earnings Call Transcript & Summary

Greetings. Welcome to SANUWAVE's business update call. [Operator Instructions] Please note that this conference is being recorded. At this time, I'll now turn the conference over to Kevin Richardson. Mr. Richardson, you may now begin.

Thank you, Rob, and thank you, everyone, for joining us, and welcome to the business update for SANUWAVE Health. The call is being recorded and will be available until February 2. Before we get started, I need to read the forward-looking statement. This presentation contains forward-looking statements within the meaning Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements that are not a description of historical facts constitute forward-looking statements and may often but not always be identified by the use of such words as expects, anticipates, intends, estimates, plans, potentials possible, probably believes, seeks, may, will, should, could, or the negative of such terms or other similar expressions. Such statements include the quotations from SANUWAVE's CEO and statements related to the company's 2022 outlook. More detailed information about SANUWAVE and the risks that may affect the realization of the forward-looking statement is set forth in SANUWAVE's annual report and on Form 10-K for the fiscal year ending December 2020. With that, let me move on to the presentation. I'll provide updates in 3 areas today. The call will be brief, just so everyone knows, we will not be doing Q&A at this point. Once the Q3 is filed, and I'll give an update on when that will be we're caught up, we should begin trading again on the OTC at that point in time. We'll hold a conference call at that point in time to review and update '21, provide initial guidance for 2022, and offer Q&A at that point in time when we are caught up completely with our SEC filing obligations. The 3 areas that we'll discuss today are financial results for the Q2 of '21 as filed in the 10-Q for Q2 of '21, which was filed Friday, January 14. We'll give an update on the timing of our next SEC filing, status of our stock trading on the OTC, expert markets moving back to the OTCQB. And then finally, an update on where businesses are trending. First, as a point of context, during Q2 in late April, early May, we ended our relationship with Celularity on the skin sub distribution. We also purged our sales team and many other employees that were not pulling their [ weight ]. As we've discussed on prior calls, this led to shrinking of our W-2 sales team from roughly 23 people down to 15. Despite all that, revenue continued to grow 20-plus percent quarter-over-quarter with the less people. So the team we had did a fantastic job, which we'll get into in a little bit. We no longer distribute the lower-margin skin sub products for Celularity. It's just an ENERGY FIRST first company, selling products that we manufacture UltraMIST and dermaPACE. Q2 revenue came at $2.9 million. That's versus $100,000 in the prior year. The 6-month revenue came in at $5 million, that's versus $200,000 in the prior year. The growth of Q2 over Q1, and we'll be using sequential growth rates a little bit just so we have more of an apples-to-apples comparison, was 38%. So 38% Q2 over Q1. Gross margin in Q2 came in at 64%. For the first 6 months, it was 58%. We expect these trends in gross margin to continue to increase through the remainder of '21 and into 2022. International revenue came in at just under $500,000 for the first 6 months of 2021. That compares to $124,000, in [ '20 ] a threefold increase. It also recently have set the stage for 2022 to have a very strong growth year, most likely doubling as we head into next year. Part of that is in December, our joint venture partner in Brazil, Diversa was awarded a 5-year BRL 25 million tender to treat wounds in Sao Paulo. And so that translates to about a $5 million tender that was awarded in December. The team worked very hard competing against some big multinationals. So very proud of the international group there. I'll get some more information in the back end on trials, placements and quarterly top-line. But let me now move to timing of SEC filings and so forth. As we've mentioned in previous calls, our issues have not been necessarily on the product or integration or sales, it's been on the integration and accounting systems, and -- which started in November of 2020. We went from 2 antique platforms of software onto a brand new 1 and that integration, as I've outlined before did not go well, it went extremely poorly. We've brought in a team to help fix that, and I'm glad to say that they are making progress in getting that done. We put that action plan in place in that April, May time period to fix those issues, assemble the team and get our filings caught up. We filed our 10-K for 2020 in early October, the 10-Q in December. This most recent 10-Q, January 14. During this period, beginning September 28, we were moved to the OTC expert markets from the pink sheets. Once we file our 10-Q for Q3, we fully expect to resume normal trading on the OTC markets. We expect the Q for 10-Q for Q3 '21 to be filed no later than February 18, hopefully, before that, but that's no later then. And then the 10-K should be filed for 2021 -- should be filed before the deadline, which is March 31, 2022. We'll be fully caught up when the Q3 is filed, will be considered current at that point in time and can get back to life as normal. We'll hold the conference call once that's occurred to go over the Q3 10-Q and also open it up to Q&A and give some guidance for 2022 on where things are headed from a revenue standpoint. Hopefully, some of the discussion I have in a moment, we'll give you at least some comfort on the growth that we're having right now and continuing to see. The accounting finance team has worked really hard to fix and address these issues, and they're not just addressing it so they can be filed. They're addressing it so that we can stay timely and develop useful information from our systems and actually leverage them to grow the business. So third part of my business update today is that we've talked about the poor job on the integration and accounting side, which is now being addressed. Now, we'll talk about sales. I mean our sales team has done an excellent job this year, growing the top-line in 2021. And with the support of operation, support, customer service, the whole team has really pulled together despite what have been some difficult challenges on invoicing NetSuite implementations and so forth, but it will continue to see that growth continue into 2022. Part of it is that we have clinically superior products in the energy space with the dermaPACE system and the UltraMIST system. They help heal wounds faster than other products. They're great at jump starting them, getting them moving in the right direction, disrupting the biofilm, reducing the bacteria, getting the blood flow going, and all in all, helping save lives and save limbs. Both products have excellent reimbursement that was reaffirmed for 2022. And let's not kid ourselves, hospitals and doctors need to be able to not just heal the wounds but they also need to make money and get paid for it. So we check both those boxes clinically and financially. They're easy to use and they work well in the workflow of wound clinics, and workflow is really important from a workflow dynamic and patient flow. So that's an area where we really have a competitive advantage over some of the other advanced wound treatments that are out there. I'm going to give you some metrics, and then we'll finish off. Again, I said it would be a quick call, but I wanted to give people some metrics of what we look at when we're managing the business. The sales funnel that we look at every day, and we monitor the number of trials that we have in place for these systems. System trials are really important because that's what leads to revenue -- to sales, and then sales leads to recurring revenue. And I kind of walk through that flow. The opportunity set for us is -- I would guess we haven't even penetrated 5% of what our opportunity set is today, and have a large open kind of wide space with these energy products, again, that are clinically superior and have solid reimbursement. When we look at where we are positioned today on a daily basis, again, the things we look at are the trials and the close rates. So we began the year with a total device count of 980 devices. These are devices that were either renting the product or we were shipping applicators, onetime applicators or refurbishing dermaPACE applicators for them. And that's what we define as an active unit. We finished '21, so this is at year-end, over 1,160, so up over 20% during the year. And given our pipeline, we expect that trend to continue into 2022. A lot of the growth that we saw this year was getting usage up within those active accounts, and we'll continue to drive improving the usage. And part of that is just educating the accounts on what the reimbursement is and all the different ways that they can use the device and where they can use the devices. And then speaking to trials. So what -- how do we track, how we're going to grow for next year, we look at trials. We began the first quarter of 2021 with 17 trials that were out in for systems. Throughout the year, we averaged 60 per quarter. So we -- and right now, we're -- we have over 60 trials currently. So we added additional 60 trials per quarter. Many of which were led to our record sales for Q4, specifically a record number of devices placed in December and sold in December. That was -- there were more in December than almost any other year prior of the combined company. So really a strong end to the year. These trials lead to sales, sales lead to revenue and the applicator usage is what drives the recurring part of our business. The recurring part of our business to put in perspective, we began the year January with 560 single-use applicator shipped in the month. And again, we're trying to give you a sense of the growth that we've had during the year with the sales team and why it can sustain and continue. We finished the year shipping over 1,600 applicators. These are cases of applicators, which is a threefold increase throughout the year. So getting that usage of the devices increased dramatically. It was part of the strategic shift away from the skin substitutes and near to the ENERGY FIRST products. And it was evident in the use of applicators throughout 2021. Also during this time period, we increased prices of the applicators 12% in 2021. And in 2022, we're implementing another 10% price increase. So we're increasing prices. We're seeing units placed go up, and we're seeing usage go up. So all the trends are heading in the right direction with applicators. Right now, the recurring revenue, which are the applicators and refurbishments represent about 55% of monthly revenue and it fluctuates between 55% and 65% depending on the number of systems being placed in any given month. If we just take the run rate of the applicators for December, Q4 run rate, just Q4 run rate and knowing that December was much higher. And these are things that are, I don't want to say locked and loaded, but fairly locked and loaded and will deliver revenue even without new systems being placed. It would indicate that our revenue next year '22 over '21 would grow 10% with no new system growth. So we have a really good tailwind that's leading us into 2022. It doesn't mean that everything is going to be perfect. It means that we have a really strong sales team that's supporting our accounts. We also have 60 trials going on right now that should close within the next 60 to 90 days. So there's a strong pipeline as we head into 2022 also. The final thing I'll just -- we're focused on quarter-over-quarter revenue. So I wanted to give some numbers there as well, just so people could understand. So the Q2 over Q1 increase was, like I said earlier, 38%. Q3 increased over Q2 over 20%. Q4 increased over Q3 over 20%. And we expect that 20% quarter-over-quarter to continue as we go into Q1 of 2022 as well. We'll provide more guidance as we get into the Q3 results coming out, and then we can give guidance for 2022, initial guidance for 2022. But the -- it looks to be -- it will be a strong -- another strong year on the top-line. We're also throughout this process have been implementing cost savings programs to help improve gross margins, to help lower our operating expenses. As we've been going through the back office integration, we've incurred a lot of what I would call consulting and onetime expenses that will begin to normalize as we head into the first half of 2022, lowering our overall operating cost of the business. This should lead to a better level of profitability as we head throughout 2022 also. So that's the update on where we're at. The team is excited about where we're headed. We're excited about getting a lot of the SEC filing issues behind us and looking forward to trading again on OTC -- on the OTCQB once this is all caught up. We've built a good momentum with the existing base. We have a strong follow-through of recurring revenue, a nice pipeline of new devices to come in, strong international. And then we've got a few new verticals that we'll talk about when we get to the next conference call that we've entered into that are -- that show some promise as well. With that, we'll end the call. If people have questions, please feel free to e-mail at sanuwave.com, and we will try to answer your questions. And then, we look forward to speaking again when we go over the Q3 10-Q, which should be in mid-February. Thank you very much and have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.