Good morning and welcome to Rockwell Medical's Second Quarter 2023 Results Conference Call and Webcast. Please note this event is being recorded. At this time, I would like to turn the conference call over to Heather Hunter, Senior Vice President, Chief Corporate Affairs Officer at Rockwell Medical. Heather, please go ahead.

Good morning and thank you for joining us for this update on Rockwell Medical. Joining me on today's conference call are Dr. Mark Strobeck, Rockwell Medical's President and Chief Executive Officer; and Paul McGarry, Rockwell Medical's Senior Vice President, Finance and Chief Accounting Officer. Before we begin, I would like to remind you that this conference call will contain forward-looking statements about Rockwell Medical within the meaning of the federal securities laws, including, but not limited to, the types of statements identified as forward-looking in our annual report on Form 10-K and our subsequent periodic reports filed with the SEC. These statements are subject to risks and uncertainties that could cause actual results to differ. Please note that these forward-looking statements reflect our opinions and expectations only as of today. Except as required by law, we specifically disclaim any obligation to update or revise these forward-looking statements in light of new information or future events. Factors that could cause actual results or outcomes to differ materially from those expressed in or implied by such forward-looking statements are discussed in greater detail in our periodic reports filed with the SEC. Rockwell Medical's quarterly report on Form 10-Q for the three months ended June 30, 2023, was filed prior to this call and provides a full analysis of the company's business strategy as well as the company's first quarter 2023 results. Our Form 10-Q and other reports filed with the SEC, along with today's press release and a replay of today's conference call and webcast can be found on Rockwell Medical's website under the Investors section. Now, I would like to turn the conference call over to Rockwell Medical's President and CEO, Dr. Mark Strobeck.

Thank you, Heather. Good morning and thank you for joining us today for Rockwell Medical's second quarter 2023 results conference call and webcast. To get started, I'd like to spend some time reviewing our business strategy and capital structure, including greater detail about our recent acquisition of Evoqua Water Technologies, hemodialysis concentrates business and then we'll discuss our quarterly results and what investors can expect for the remainder of 2023. It's been about a year since we began making changes to Rockwell's business focus and strategy. At the beginning of the third quarter of '22, we set out the goal for Rockwell to unlock the value of its business in a way that would let us increase our revenue, reduce our expenses, reduce and eventually eliminate our debt and drive our business to profitability. We continue to believe that through the successful execution of this strategy, we will be able to drive shareholder value and reduce our reliance on the capital markets to operate our business. This has been and remains our focus. In just over a year, we have made significant progress against these objectives. We've increased our net sales by 13% year-over-year. We've reduced our expenses by 60% year-over-year. We enhanced our gross margin from minus 5% in the first quarter of 2022 to 13% in the first quarter of 2023. We lowered our debt by over 50% and we set a target to achieve profitability in 2024. As you can see by our results, we are making significant progress against our strategic plan and we'll continue to drive our business even further over the coming months and quarters. With the addition of Evoqua's hemodialysis concentrates business and the continued improvements we are making at Rockwell, we are accelerating our guidance on profitability and now believe that we…

Thank you, Mark. Net sales for the six months ended June 30, 2023 were $37.7 million, which represents an 8% increase over $34.8 million for the same period in 2022. Overall, product revenue for the six months ended June 30, 2023 was $36.1 million compared to product revenue of $33.1 million for the three months ended June 30, 2022, an increase of $3 million. Net sales for the three months ended June 30, 2023 were $18.1 million compared to net sales of $19.7 million for the three months ended March 31st, 2023, and $18.7 million for the second quarter in 2022. The difference between the first and second quarter 2023 net sales is a result of product revenue recognition timing. Gross profit for the six months ended June 30, 2023 was $3.6 million, a 278% increase over $1 million for the same period in 2022. Gross profit increased by $2.6 million primarily due to restructuring and supply contracts, onboarding of new customers, increased pricing to other customers and recognition of the remaining deferred revenue related to the termination of the Baxter distribution agreement. Gross profit for the three months ended June 30, 2023 was $1 million compared to gross profit of $2.6 million for the three months ended March 31, 2023 and $1.7 million for the second quarter of 2022. The difference between the first and second quarter 2023 gross profit is a result of product revenue recognition timing. For the six months ended June 30, 2023, Rockwell's net loss was $5.1 million compared to $12.1 million for the same period in 2022. For the three months ended June 30, 2023, Rockwell's net loss was $3.3 million or $0.18 per share compared with a net loss of $5 million or $0.43 per share from the same period in 2022. Cash and cash equivalents and investments available for sale at June 30, 2023, was $14.9 million compared to cash and cash equivalents and investments available for sale of $16.8 million at March 31, 2023, and $21.5 million at December 31, 2022. On July 10, 2023, which was after the end of the second quarter of 2023, Rockwell received gross proceeds of approximately $13.8 million from the exercise of warrants which the company used to fund the Evoqua hemodialysis concentrates business acquisition. Rockwell acquired from Evoqua substantially all of the assets related to Evoqua's business of its manufacturing, marketing, distributing and selling hemodialysis concentrates products for $11 million upfront in cash was approximately $1.2 million for the estimated inventory amount. Following the close of the Evoqua transaction and taking into account the exercise warrants, Rockwell had approximately $16.2 million in cash, free cash equivalents and investments available for sale on a pro forma basis. I will now turn the call back over to Mark.

Thank you, Paul. Operator, please open the phone lines for any questions.

[Operator Instructions] And our first question comes from the line of Dipesh Patel from H.C. Wainwright. Your line is open.

Hi, Mark. Hi, Paul. Thank you very much for the update and I got a few questions regarding the acquisition and then a few questions regarding TRIFERIC. How is the integration of the latest acquisition going? And has the sales effort been optimized?

Yes. Thank you for the question. The integration is going incredibly well. Evoqua has been a tremendous partner for us and is working seamlessly with our transition team to move the business over into the Rockwell platform. We feel very good about the progress that the team has made and believe we'll be able to meet the objective of transitioning the entire business over to Rockwell by the middle of October. We are now similarly taking a path to integrating the sales activity. And so with that, we're loading all of our new customers into our systems so that we create a uniform customer database for us to interact with. Similarly, we're also undertaking a strategic evaluation as to how to optimize the utilization of that manufacturing facility. That's a process that's also similarly underway as we look to move some of our manufacturing activities into that fully automated process. Our goal is to be able to provide more of an update on our third quarter conference call as to the success of that transition and the savings that we'll see associated with that.

Got it. Got it. And what do you think are the key marketing strategies you expect to employ to expand the market for hemodialysis concentrates?

So for us, being one of only two players in this marketplace for dialysis organizations that are seeking to purchase hemodialysis concentrates really have one or two options to go to. So for us, from a marketing perspective, it's important that we continue to supply partners on a consistent basis. We continue to provide the sort of the white glove customer service that, that we provide all of our customers and that we continue to get positive feedback that they appreciate and is one of the reasons why they select Rockwell. We need to be able to demonstrate that we have an ability to continue to expand our distribution into the West. We believe opening this first distribution warehouse in Utah will certainly expand that for us. And then I think, finally, as I mentioned during the call, working to find products that will begin to satisfy the at-home dialysis market will also be incredibly important for us and we're actively working on that as we speak.

Great. Thank you for that additional color. I know we did or you had mentioned profit margins. Do you think there is room for meaningful, I guess, additional gross profit improvement in the hemodialysis concentrates business. If so, how do you think might this be achieved? I know you kind of mentioned the increasing revenue, but could it be through pricing increases, manufacturing improvements or a combination of both? And then how long do you think this might take to actually achieve?

Yes. So I think it's going to be a combination of, frankly, all three of those, and that process has already begun. As I mentioned, once we purchased our business back from Baxter, we undertook a process to begin to renegotiate agreements with our existing customers put agreements, new agreements in place with new customers, all that would have updated pricing that reflected the value that our products bring to patients. We've similarly begun the process of reducing expenses within the organization. And now we'll have the opportunity to begin to look to improve the way in which we manufacture our products through utilization of a more fully automated manufacturing platform. All of those are going to contribute to what we believe will be improved gross margins. As you can tell, we've already made improvements. I think we've reported 3% for the first half of '22 to 10% in the first half of '23. We think there's more room to go and we're going to continue to drive our business to access that.

Great. And then just several questions on TRIFERIC it sounded like you said you were going to deprioritize if and when this is applicable, when do you expect to finalize a revamped clinical development path for TRIFERIC and at what point would you consider it most advisable for the company to deploy substantive resources into developing TRIFERIC in the US as a prescription product and how large do you think that market opportunity is?

So shortly after I joined the company, we took the determination to deprioritize the existing commercial product in the US and allow the existing international partnerships around TRIFERIC to continue to progress. As I mentioned, none of the -- none of our guidance or our future financial success is really based off of those international partnerships. They required no additional resource really from us. So in a sense, they were -- an opportunity to see whether we could secure any additional value off of TRIFERIC. I think what we're seeing is that, that opportunity continues to be somewhat limited. And therefore the strategic choice that we made over a year ago to essentially deprioritize TRIFERIC, I think, is sort of proving out. On the FPC platform, which is the basis of TRIFERIC, which we still have access to and could potentially develop further into some of the indications and markets that we've discussed previously. We've really put that on the shelf for now until we have the ability to generate positive cash flow for the company so that we can use that to potentially reinvest into that program. That's the strategy that we've employed. And I think now that we're moving towards profitability in a more accelerated fashion. We may have the opportunity to begin to evaluate that sooner. I similarly think because we are very active in the business development marketplace that there may be opportunities that we will identify that could be potentially equally or more attractive than investing further in that particular technology. And so we'll need to evaluate those. But the way we look at it is we need to get to profitability first to provide us the foundation that will allow us to grow significantly bigger.

Okay. And then finally I have to ask this one. What milestones could be achieved, do you think in the next 12 to 18 months with TRIFERIC outside the US via Rockwell partners? And would any of those trigger sizable payments to Rockwell?

Yes. So over the next 12 months, our commercial partner in Korea is going to continue to commercialize that product. That relationship carries with it royalties based on sales. So I think that could be a -- we will continue to see how that product develops. In addition, our partner Drogsan in Turkey is in the process of seeking to register TRIFERIC in Turkey. If it is successful in doing that, there is royalties based on sales associated with that program. And at this point, all of the other partners that we have established effectively, the programs are on hold or are no longer being pursued. So those are the opportunities that, that we have going forward with respect to TRIFERIC. But as I said, I mean, as much as those offer potential lottery tickets for the company, the core business is where we are focused and where we believe we'll deliver profitability and will give us the platform to allow ourselves to expand even further. So if those opportunities deliver value, fantastic. But at the end of the day, they're not critical for us to be successful at Rockwell and for us to continue to grow this business well beyond where we've been.

Great. Certainly, I appreciate the details, Mark. Thank you so much.

Thanks.

[Operator Instructions] And there are no further questions at this time. I will now turn the call back over to Dr. Strobeck for some final closing remarks.

Thank you, everyone, for joining us on today's call. Before we conclude our call, I'd like to take a moment and say thank you to a few key members of the Evoqua team who were instrumental in supporting Rockwell's acquisition of this hemodialysis concentrates business. Doug McFarland and Beth Huddleston, over my 20-year career, I have completed many transactions and partnering with Doug and Beth to complete this acquisition has been one of the most productive experiences to-date. Their professionalism, experience, understanding and balance makes them among the best in this business. On behalf of the entire team at Rockwell, I want to take a moment and thank them for their hard work to complete this transaction. We look forward to partnering with them through this transition and wish them continued success under their new structure with Xylem. We have accomplished a lot in the last year, but there is more work ahead for us. While a lot of this discussion has been focused on top and bottom line revenue, profitability improved margins et cetera. All of this is being done with the sole purpose of ensuring the longevity of our business to support clinics and the patients they serve for years to come. Thank you to all of our employees for all their hard work and continued dedication and to our shareholders for their continued support. I look forward to sharing our progress on future calls as we continue to work diligently to unlock the value of Rockwell.

This concludes today's conference call and webcast. You may now disconnect.