Good morning, and welcome to Rockwell Medical's Third 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 Jesse Neri, Rockwell Medical's new Senior Vice President of Finance. 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, 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 September 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 third quarter 2023 results. Our Form 10-Q and other reports filed with the SEC, along with today's press release or updated Investor Presentation, 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 third quarter 2023 results conference call and webcast. I am pleased to report that we continue to make progress on all the strategic objectives and priorities we outlined this time last year. Our efforts are keenly focused on enhancing our hemodialysis concentrates business by driving top line revenue, enhancing our gross margins, reducing our expenses and achieving profitability all while continuing to delever our business. In addition, we made enhancements to our management team and board of directors, which we believe will further strengthen our organization and elevate our experience base. Let's review each of these updates in further detail. During the third quarter of 2023, we generated net sales of $23.8 million, including concentrate product sales of $21.6 million, both of which were the highest sales generated to date for the company. Additionally, we completed our second acquisition in just under a year, acquiring the hemodialysis concentrates assets from Evoqua Water Technologies. This acquisition adds a number of important strategic elements to Rockwell, including approximately $18 million in annual revenue and over $3 million in EBITDA, which is immediately accretive to our business. Additionally, this acquisition expands our presence in the concentrates market by adding approximately 1,700 new purchasing facilities to our customer base. As a result, Rockwell now services approximately one-third of all purchasing facilities in the United States, including outpatient dialysis clinics and hospitals. In addition, we have added a fully automated manufacturing process, which when fully unlocked, can manufacture products at a lower cost than we currently manufacture our products today. Lastly, as a result of acquiring these assets, Rockwell is now the leading supplier of liquid bicarbonate hemodialysis concentrates in the United States. To successfully integrate these assets into Rockwell,…

Thank you, Mark. Good morning, everyone. I will now review our third quarter 2023 financial results and provide you with an update on our cash and debt positions as well as our 2023 guidance. Net sales for the third quarter of 2023 were $23.8 million, including concentrate product sales of $21.6 million, both of which were the highest sales generated to date for the company. Net sales for the third quarter represented a 31% increase over the second quarter of ‘23 and a 27% increase over the same period in 2022. The increase of $5.1 million in net sales year-over-year was primarily driven by our Evoqua asset acquisition and our recognition of deferred revenue related to the Wanbang agreement. Net sales for the nine months ended September 30, 2023, were $61.5 million, which represents a 15% increase over the same period in 2022. Gross profit for the third quarter of 2023 was $2.2 million, which represents a 183% increase over the same period in ‘22. Gross profit increased by $1.4 million, primarily due to the lower distribution costs associated with the concentrate business and a recognition of deferred revenue from the Wanbang agreement, partially offset by an increase to the Triferic Inventory Reserve. Gross margin for the third quarter of 2023 was 9% compared to a gross margin of 6% in the second quarter of ‘23 and 4% for the same period in 2022. We continue to employ strategies to improve our gross margin and anticipate that it will continue to track positively as we close out 2023. Operating loss for the third quarter of 2023 was $1.7 million, which includes one-time severance expenses of $575,000. This compares to an operating loss of $3 million for the second quarter of 2023 and $3.7 million for the same period in 2022.…

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

[Operator Instructions] Your first question comes from the line of Anthony Vendetti with Maximum Group. Anthony, your line is open.

Thank you. Thanks, Mark, Heather, and welcome aboard. So, on the fully automated facilities that you acquired from Evoqua, you mentioned, Mark, that you're looking to fully automate your other facilities. How much capital is required to do that? And is that necessary to get to your goal of 15% plus gross margins or could you do that without fully automating your other facilities?

Good morning, Anthony. Thank you for the question. So we're in the process of evaluating that right now. We don't believe, based on our current projections, that we need to fully automate all of our facilities to be able to achieve gross margins that you mentioned. To fully automate our facilities will likely drive gross margins higher than that. But we are still in the process of evaluating that and will likely begin to make those transitions over a period of time.

Okay. Great. And this is a follow-up. So congrats on being the leading provider of all hemodialysis concentrate in the county for one-third of all that after the acquisition of Evoqua. As you look to continue to expand, I think one of the areas or one of the -- in terms of geography, the western part of the U.S, it looks like a large opportunity for Rockwell. Can you talk about your expansion plans for the West Coast?

Yeah. So that, that does continue to be a large opportunity which we are looking to aggressively access through the Evoqua acquisition and the activities of our commercial team. We've already begun to expand our presence in the western portion of the United States. So we have more customers now in the west than we've ever had historically here at Rockwell. But I think for us to more meaningfully access that, we're going to have to do more to establish a fundamental presence there. And so that's an opportunity that we are looking and considering now, whether that's establishing our own facility there, whether that's acquiring a facility that may exist out there. But I think for us to really, I think, on a cost effective way, address the market in the West, we're going to have to seek a more permanent sort of position there.

Okay. And then just lastly, international, I know the focus is primarily in the United States, but can you talk a little bit about your international opportunity. What is it now as a percent of revenues and what sort of the opportunity over the next couple years? Thank you.

Yeah. So right now, it's just around 10% of our overall revenue. We think that there is a big opportunity internationally for us. The majority of international markets are largely being addressed by some smaller hemodialysis concentrates players. Much like in the United States, struggle at times to maintain effective supply and distribution. So we think that there's an opportunity for us, given our expertise, not only manufacturing but being able to work with organizations outside the United States to distribute the product, to expand that. It's a very cost effective business for us, as distribution is usually carried by the customer. So we're looking to expand that aggressively. And I know our commercial team has a number of potential international partnerships that are currently in the pipeline, which we are looking to establish relationships with.

Okay. Great. Thanks so much. I'll hop back in the queue. Appreciate it.

Thanks, Anthony.

Our next question comes from the line of Dipesh Patel for H.C. Wainwright. Dipesh, your line is open.

Thank you and congrats guys on the update. This is Dipesh on for Ram Selvaraju. You noted some good examples on several product purchase agreements. Could you provide a sense of how you might see the number of agreements evolving through 2024 and 2025, and perhaps any challenges that you might see around managing these current agreements or obtaining new ones?

Good morning, Dipesh. Thank you for the question. So, we continue to be the largest independent supplier of hemodialysis concentrates here in the United States. And by independent I mean, this is our focus, this is our expertise. We're not bundling these products with other products and thereby forcing customers to buy our other products in an effort to get to our human dialysis concentrate. So by that fact, that opens up really the entire U.S. market for those organizations that are looking to find a cost effective supplier that has its own distribution capabilities and customer service capabilities to handle their needs around these products. We continue to see over the course of the next year and the year after, multiple opportunities to continue to not only expand, our existing relationships with our current customer base, but then to continue to add new customers, as well. If you look at the, the dialysis clinics and dialysis providers in the United States, although, we are working with the top organizations within the marketplace, there are still a number of very large providers that we still are working to establish customer and product purchase arrangements with. So we think that offers us a great opportunity and then as you know, as Anthony raised an opportunity to get to the West really allows us to expand our presence with those two large customers and the two largest providers of dialysis in the United States. So, we see an opportunity to continue to grow this business and continue to add revenue. And our commercial team is very focused on doing that. But as Jesse mentioned, we're going to provide a much greater sort of details around what 2024 and beyond look like at our fourth quarter conference call.

Okay. Great. I appreciate the color. And then final question related to your stated target, I guess, of the gross margin goal being north of 15% on an annual basis. How soon are you looking to achieve that goal, if you can kind of elaborate on that?

Yeah. So, I think it's -- I think I'd say a couple of things. I think it's important for everyone to realize that, we've come from a place in this business where this business itself, the concentrates business, did not generate a gross profit. It generated a gross loss from Rockwell. And through the strategy that we put in place shortly after I joined and the management team has now been executing on has really turned this business around to the point where we're now not only generating a gross profit, but now we're looking to maximize that gross profit. So I think that continues to be an important contextual element that folks need to consider in the transition of Rockwell into a meaningful, profitable organization. Our goal is to do that, is to get to the 15% gross margin as quickly as we possibly can. We haven't given guidance as to when we're looking to achieve that, but as you can see in this quarter, our gross margin was 9%, as Jesse suggested, we continue to believe that that will trend positively through the remainder of the year, and we expect that to continue to trend positively in 2024. So again, I think we'll be able to give everybody greater visibility as to when that will be achieved during our fourth quarter conference call.

Great. Thank you so much, guys. Congrats again.

Thanks.

I would now like to turn the call over back to Mark.

Thank you, everyone for joining us on today's call. Overall, we are pleased with the progress we continue to make in the financial performance of our business in 2023 and we remain focused on continuing to position Rockwell for future growth. We look forward to sharing our progress on future calls.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.