SANUWAVE Health, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Thank you, Leslie.

Welcome to Sanuwave second quarter 2026 earnings call. Our Form 10-Q was filed with the SEC last night, along with our earnings release, and our updated presentation was made available on our website in the investor section. Please refer to that during the presentation. Joining on the call is Peter Sorensen, our CFO, and after the presentation, we will open the call 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, plans for future business development activities, and expectations regarding the impact of changes in reimbursement levels and tariff rates. 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 % 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 30th, 2026.

As we discussed in several of our recent press releases, Q2 actually started out fairly strong and applicator sales remained so during the whole quarter, setting a new all-time record for both unit volumes up 13% sequentially from our previous record in Q1 and 27% year-on-year, and for applicator revenues up 8% sequentially from Q1 and surpassing the previous record from Q3 2025. These were up 13% year-over-year. We know that the release looks like it should be 14%. That's a whole number rounding issue that we mentioned. The diversion on price is predominantly from the shift to a reseller model into the company selling applicators at wholesale prices. Overall, during the quarter, applicator sales went largely to plan and on model.

We take this to be a good sign about customer confidence in the UltraMIST product, especially in such a difficult market in which so many wound care providers have gone BK or closed their doors as a result of CMS changes to skin substitute reimbursement and clawbacks of reimbursement associated with that modality. As we've said in the past, neither the wounds nor the patients have gone away. As the number of practitioner entities drop, we continue to see significant consolidation in the space. This has all been much as we expected. Where Q2 meaningfully diverged from plan and expectation was on the system sales side. As a number of UltraMIST customers, some of them quite large, have closed up shop in recent quarters, this has created an unprecedented market for used UltraMIST devices, which wound up having profound cannibalization effects on our business during the quarter.

I suppose if one were inclined to see good news here, it would be that at least people are buying them. Obviously, the bad news is that they weren't buying them from us. Many have asked about whether and to what extent we can size the impact that this had on the quarter. The honest answer to this is it's pretty difficult, because while we've seen a number of these transactions directly, either through the sales process or as new users reach out to us, there's simply no way to know what percentage of the overall trend we're capturing. Our best guess is that used systems accounted for 40 to 60 system sales in the quarter. Again, and just to be really clear here, it's difficult to be precise and this is our best estimate.

Customers buying applicators through resellers who are unable to check a serial number against the original purchasers list would not necessarily be visible as having bought a used system. Obviously, the same is true for existing customers who simply added another system. This also makes active systems a little tricky to calculate just now and creates the potential to undercount somewhat. Based on our ordered within the last six months, less those we know who have closed their doors, even if it was fewer than six months ago methodology, our count for active systems at the end of Q2 was 1,411, up 29 from the 1,382 at the end of Q1. We've shared some quite a market over the last 12 months.

The announcement of the pricing drop for skin subs to $127 a square centimeter took a $14 billion space and gave it something on the order of a 95% haircut. Reported CMS billing for 2026 thus far bears this out. Clawbacks on past payments have sucked huge amounts of money out of the space. This has put quite a few practitioners out of business, as many were users of both UltraMIST and Allograft. This has had a profound effect on the health of our customer base. Their used systems coming up for sale stand testament to this. Hopes that 2027 might see a skin substitute reimbursement pricing rise were not met when CMS provided early guidance on this topic.

We get some positive news from the calendar year 2027 Hospital Outpatient Prospective Payment System proposed rule released July 2nd, which proposes to increase reimbursement for UltraMIST by 14% for 2027 when used in the hospital outpatient setting. A place of service that includes a number of our customers and that has been an increasing focus for us. On July 14th, CMS calendar year 2027 Physician Fee Schedule proposed rule was released and obviously this news is not as good. 97610 was nominated as a mispriced code and changes to reimbursement suggested. If, and I really want to emphasize that this is still a proposed and not final rule, this rule were to go into effect, our read is that reimbursement for UltraMIST would drop from its present $397 average to approximately $316 in 2027, with further reductions to follow in 2028.

We disagree with a number of the assumptions CMS is using to arrive at these figures, and while getting into particulars is not appropriate in this venue, suffice it to say that both we and a great number of UltraMIST users, both professional and academic, plan to participate in this comment period. Honestly, it's been gratifying to get such a significant inpouring of support and we'll make the most of it. Having a product that your users truly love and believe in, and that is changing and saving patient lives and that provides profound savings to the overall system, is a good place from which to start. Just to take an example, diabetic foot ulcers are the number one cause of lower extremity amputations in the U.S. every year.

With 130,000 such amputations and an estimated lifetime cost of over $600K per patient emerging from each, the cost to the system from UltraMIST are de minimis relative to the potential for savings, which are enormous. Its role in underserved rural markets has been particularly large as well. While Sanuwave wholeheartedly supports CMS's goal of accurate data-driven payment, our goal in this comment period will be to ensure that the data that drives this decision is in fact both accurate and complete, and that it represents full practitioner costs and the systemic benefits of providing treatment under 97610, which of course is the intent of these rules and of this system. Comment period runs through September 14th, and we expect a final rule to be announced in or around the first week of November.

We wouldn't be the first company to get such a proposed rule overturned or reassessed, and we're going to try very hard to be the next one. We believe that there is a strong case to be made. In the meantime, we continue the longer-term push into indications like burn, hospital-acquired pressure injury, post-acute hospital inpatient, hospital outpatient, pediatric, and long-term care facilities, both to expand the reach of our product and because such users tend to be sticky long-term customers with high usage rates. These groups take longer to win over, but the groundwork we've laid over the last 9 to 12 months is starting to bear some fruit here, and we're optimistic about continuing to make progress. With that, I'll now turn you over to Peter Sorensen, our CFO, who can walk you through the rest of our financials.

Thank you, Morgan. Revenue for the second quarter came in at $9.7 million, a decrease of 3% versus $10.1 million in the prior year quarter. Speaking directly to this decrease, the softness was concentrated in capital or system sales, while the recurring core applicator business held up well. UltraMIST's applicator revenue grew 13% year-over-year, with applicator unit volume up 27% year-over-year, reflecting continued strong demand across our active installed base. Before turning to the financials in more detail, a brief update on the sales tax matter we discussed on prior calls and in our filings. We have now finalized Voluntary Disclosure Agreements with a number of applicable states and have begun remitting the amounts due under them. As we work through the remaining states, the VDA process continues to do what is intended to do, limiting the look-back period and abating penalties in many jurisdictions.