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Greetings, and welcome to the SANUWAVE Health Business Update Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, Kevin Richardson, Chief Executive Officer. Thank you, sir. You may begin.
Thank you, Christine. Welcome to SANUWAVE's First Quarter 2023 Earnings Call. The Form 10-Q was filed with the SEC Thursday night. Our earnings release was issued this morning and our updated investor presentation was made available on our website in the Investors section. Please refer to that during the presentation.
Joining me on the call today are Toni Rinow, our CFO, and and Tim Hendricks, our Executive Vice President of Wound Care sales. After the presentation, we will open the call to Q&A.
Let me begin with the forward-looking statements. 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 obligation to update any forward-looking statements.
With that out of the way, 2023 is off to a positive start. First quarter revenue recorded mid-teens growth driven by demand in consumables and systems. We began 2023 first quarter up 18% compared to our guidance of 14% to 20%, which was issued on our last conference call. Demand for our products remains robust. As we discussed on our last conference call, we are still working through supply chain issues as currently demand is far outstripping supply. We are on track to receive over 400 devices this year, which compares to 217 sold last year. This is not to say we will sell all 400, but as we work our way through the year, the supply chain issues will abate and we will hopefully be able to balance supply and demand.
This demand was evident at the three conferences we participated in recently. Leaders in Wound Care held in New Orleans. Dr. Johnson, a relatively new user of UltraMIST presented his clinical findings to the invite-only crowd. A Symposium of Advanced Wound Care, SAWC, we had six posters presented.
And finally, in Milan, at the European Wound Management Associated meeting, two of our KOLs, Dr. Meyer and Dr. Casino presented their various use cases for the product.
From these events, we can safely say over 20 new accounts with purchasing interest were added to our pipeline. This demand will be fulfilled later in the year when the supply issues mentioned earlier abate.
Let's get into the details of the quarter. Revenue continued mid-teens growth in Q1 2023 despite the challenges we face with our supply chain. Units shipped achieved the highest level for the first quarter in the company history. And importantly, the number of treatments reached 43,000 was a record as well as we continued -- as the continued adoption of UltraMIST grows.
Gross margins were down in Q1 as compared to the prior year due to cost increases year-over-year associated with the servicing of refurbished equipment and as part of our push to get more product out to market.
Management continues to have tight management of our supply chain, pushes for higher pricing of our products and continues to execute a host of projects internally, all focused on automation and driving costs lower.
Operating expenses increased year-over-year, even though head count was down. The largest driver of the increase is from professional fees, particularly year-end audit, being higher in Q1 2023 as compared to Q1 2022. Management plans to continue to focus on leveraging the existing infrastructure as we grow and gain operating leverage to achieve profitable growth.
Let me turn the call over to Toni Rinow to walk through the numbers. She will pass it back to me to review more of the update slides. Then Tim, our Head of Sales, will speak, and I will conclude with our near-term outlook.
Toni?
Thank you, Kevin. Q1 revenues for the 3 months ending March 31, 2023, amounted to $3.8 million, an increase of 18% over the same period last year and in line with the guidance of 14% to 20% provided prior.
Gross margin decreased year-over-year reaching 67% of revenue for the 3 months ended March 31, 2023, versus 72% for Q1 of 2022.
Operating expenses for the 3 months ended March 31, 2023, totaled $4.5 million. This is an increase of 4.7% versus prior year 3-months period. This is due to an increase in general and administrative expenses incurred in Q1 2023. However, operating expenses decreased as a percentage of revenue, and this shows the effectiveness of the cost and expense management initiatives.
Operating loss remained flat year-over-year 3-months period. SANUWAVE continues to execute on its financial strategy to improve profitability and manage operating expense.
Total current assets amounted $4.5 million as of March 31, 2023 versus $6.6 million as of December 31, 2022.
Cash totaled [ $0.1 million ] as of March 31. In May 2023, the company closed an additional private placement with proceeds receiving totaling $1.2 million to support operations.
We thank you for your continued support of SANUWAVE, and I'm transferring back to Kevin. Kevin?
Thank you, Toni. Next on the call will be Tim Hendricks. Tim joined us in January from Byram Healthcare. He has been in the wound care industry for 20-plus years with experience at firms like Smith & Nephew and Osiris and he got his early start at Boston Scientific. We're very pleased to have Tim on board. Tim?
Thank you, Kevin. Good morning. It's a pleasure to join this call, and I'm happy to share my perspective since I joined the organization not quite 4 months ago when I was asked to come in and lead our U.S. wound sales efforts.
I first came to SANUWAVE with the exciting prospect of 2 devices that I knew had a great reputation in the marketplace for clinical efficacy but also reimbursement possibilities. The #1 thing I can share with you months later is that my enthusiasm is only heightened by the reality that we are uniquely positioned with our products that you don't often see in the medical device space.
Too often, products are in a crowded marketplace where the devices or products are commoditized and it's all about pricing and me-too efficacy. Speaking of UltraMIST in particular, it really is unique and offers a one-two punch of a long history of strong clinical data and feedback that is very positive, but now strong reimbursement in multiple places of service.
Simple fact is we are not able to meet the strong demand right now. This is a great problem to have that speaks to the opportunity to treat a great number of patients with our unique modality.
I will turn the call back over to Kevin.
Thank you, Tim. Before we go to Q&A, I wanted to provide some guidance on Q2. And for those following along, this is Page 6 on the investor deck from our website. We currently anticipate revenue to grow 15% to 25% in Q2. The gating item governing that growth will be how smoothly the supply rolls in during the remainder of May and June. . As we have mentioned earlier, demand is and has not been our issue. The issue is supply. And we have all eyes in the company focused on initiatives to address and fix that issue so we have sustainable supply stream through the remainder of '23 and into 2024.
Many have also asked when we will be more active on the Investor Relations front. The answer is soon. But we have been in somewhat of a quiet period through the first part of the year as the Q4 report is almost the same time that the Q1 quiet period begins.
We plan to attend some investor conference over the next few quarters and work with our new Investor Relations group on a clear communications plan with that regard. We have wonderful products, passionate, dedicated team members and demand far exceeding supply. We should be able to achieve record revenue growth and profitability in 2023.
Finally, I want to thank our employees for driving our success. Shareholders who have invested in us has allowed us to ramp the product and most importantly, meet our mission, which is about saving [Indiscernible] and saving lives through healing wounds.
With that, I'll open the call to questions. Christine?
[Operator Instructions] Our first question comes from the line of Sachin Shah, a private investor.
I have a couple of questions. First for Tim. Congratulations for joining the team. And you have mentioned that you're seeing good reimbursement in multiple places of service. Can you expand on that? Like what does that mean exactly?
So in my experience with a device that has strong reimbursement or reimbursement in different places of service, you'll find that it's reimbursed, maybe in a hospital and maybe in another setting. But what we're finding now is that UltraMIST has had reimbursement in the hospital setting in the wound care and inpatient setting, and it has a very strong reimbursement in the private office, which is Medicare [Indiscernible] at Place of Service 11. But our fastest-growing channels are from Home Health where there's a growing number of wound care based mobile practices, treating patients in their home, and that's a Place of Service 12, assisted living facilities, which is a Place of Service 13 and nursing homes are quickly becoming our #1 channel because they're seeing the results not only just reimbursement, but more importantly, what UltraMIST can do for chronic wounds, but also for deep tissue injury. So the ability to clinically work and see -- and have reasonable reimbursement in 5 places of service is dynamic and that gives us multiple channels to go after.
That's great. And then for you, Kevin, just a quick question. In terms of the supply constraints that you guys are facing, is that -- is that something that we should anticipate as a year long -- like is it going to be prolonged, like it's going to continue for a while? And -- is it certain products within the mix that are -- the supply constraint is within -- like is it for dermaPACE versus UltraMIST or is it a combination?
Yes. So the supply constraints are primarily around UltraMIST and it was the line that produced it was not producing it for a period of time, and the restart of that line has taken longer to get all the kinks worked out and make sure we have high-quality product coming to us on a consistent basis. And we're getting close to the point where I'm comfortable and confident that we have the supply we need on a weekly basis. We're not there yet. It will hopefully not be a year-long thing. I can't imagine that happening. It appears that we're getting close to the point where we'll have that abated.
But right now, that's the issue we're working through. I think we're on track into the 400 for the year -- 400-plus devices for the year, and that's really what we're focused on is making sure we can meet demand for the full year.
And just to clarify, based on your projections, guidance for the next quarter, like did investors assume with some level of confidence that going forward, you'll, sort of, be at a breakeven to profitability at this point? Or is that still a little bit to optimize?
No, no. It's a good question, Sachin. I mean our goal this year is we got to get to profitable growth. we can't rely on going back to the markets. We have to get to that point. For us, as you can see on Page 6 in the slide deck, our breakeven is about $1.8 million a month, when we have gross margins of 75%. And we're close -- that's about 25 plus or minus systems gets us to that level. And right now, we're tracking close to that. And as the -- and once the supply is there -- the demand is there -- I mean there's a backlog of a host of customers that are just waiting for product right now. And so getting to that breakeven point, once we have that supply constraint fixed, it won't be an issue, and we should be able to hop over into the profitable section.
That's great. And then one last thing. In terms of the operating cost, you had mentioned the increase that was due to professional services. Is that sort of a onetime hit that we shouldn't anticipate going forward?
No, I'll let Tony address that. We're still year-end. Go ahead, Tony.
Yes. no worries, I can address that, Kevin. So yes, it's more like onetime because during the quarter, we had a number of SEC initiatives. We filed one assessment -- we also got back on the OTC QB and we got back up listed. So this kind of singular and unique events were driving some of the professional service costs during the quarter, and we don't expect them to be coming back. But I would also like to mention that overall operating expenses are going -- have been increasing much slower to a [ 4.57% ] compared to revenue. So it really shows the effectiveness of our cost control initiatives that we started last year.
Back to you, Kevin.
[Operator Instructions] It appears we have no further questions at this time. I would like to turn the floor back over to management for closing comments.
Great. Thank you, Christine. Well, first, thank you, everyone, for your participation in the call. We'll have the recording of this live for the next few weeks. We'll also try to get it on the website. So you can relisten to it if you want. Our next update, it will be for Q2. And hopefully, we'll see some people at some investor conferences moving forward. Thank you, and have a good day. .
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.