Good morning, and welcome to Rockwell Medical's Fourth Quarter and Full Year 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 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, 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 annual report on Form 10-K for the year ended December 31, 2023 will be filed today and will provide a full analysis of the company's business strategy as well as the company's fourth quarter and full year 2023 results. Our Form 10-K and other reports filed with the SEC, along with today's press release, our 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. The reconciliations of non-GAAP measures we discuss can be found in today's press release on our website. 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 fourth quarter and full year 2023 results conference call and webcast. 2023 was a transformative year for Rockwell Medical. For the first time in our company's history for the fourth quarter, we achieved profitability on an adjusted EBITDA basis. This milestone doesn't come easily. It is a direct result of our team's deep commitment to expanding our customer base, improving efficiencies, streamlining processes, reducing expenses and focusing on key business fundamentals. Additionally, we achieved record net sales, record net product sales and record gross profit for the second year in a row, meeting or exceeding guidance that we issued at the beginning of 2023, and our gross margin continued to improve. Bottom line, we have significantly transformed Rockwell Medical's overall financial health. Before we delve into the details of our fourth quarter and full year 2023 results, it's important to remind everyone how far we've come over the last year and a half. When I joined Rockwell in the middle of 2022, the company's revenue was consistently stagnant, annually generating around $60 million. We were operating at a loss, generating a gross loss, were heavily levered and were at risk for being delisted from the NASDAQ. During the third quarter of 2022, we evaluated our business and the potential for short- and long-term value and determine that going forward, we would focus our efforts on growing our revenue-generating business, pause further investment in capital-intensive pharmaceutical development programs and achieve profitability to put Rockwell in a stronger and more stable financial position. In turn, as a result of these efforts, we gave guidance that we expected to achieve profitability in 2024 and, that once we achieve profitability and sustain cash flow from our revenue-generating business, we…

Thank you, Mark. Good morning, everyone. I will now review our fourth quarter and full year 2023 financial results in more detail, provide you with an update on our cash and debt positions and provide you with additional details on guidance. Net sales for the fourth quarter of 2023 were $22.1 million, an increase of 15% over the same period in 2022. Net sales for the fourth quarter of 2023 were comprised solely of concentrate product sales, representing the highest quarterly concentrate product sales generated to-date for Rockwell and a 22% increase over the net product sales for the same period in 2022. Net sales for the year ended December 31, 2023 were $83.6 million, which represents a 15% increase over the same period in 2022. Net product sales for the full year 2023 were $79.8 million, representing a 15% increase over net product sales of $69.2 million for the same period in 2022. In 2024, Rockwell projects its net sales, which is expected to comprise solely of net product sales, will be between $84 million and $88 million. The company projects net sales will grow in the mid- to high-single digits in 2025 and beyond. Gross profit for the fourth quarter of 2023 was $2.9 million, which represents a 23% increase over the same period in 2022. Gross profit for the full year 2023 was $8.7 million, representing the second year in a row of record gross profit and a 114% increase over the same period in 2022. Rockwell projects that gross profit in 2024 will be between $12 million and $14 million. Gross margin for the full year of 2023 was 10%, representing an increase from 6% gross margin for the same period in 2022. Gross margin for the fourth quarter of 2023 was 13%. Rockwell projects gross…

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

Yes. The floor is now open for your questions. [Operator Instructions] Your first question comes from the line of Ram Selvaraju with H.C. Wainwright. Please go ahead.

Thanks very much for taking my questions, and congrats on a very strong finish to 2023. Just wanted to ask in a general sense about how you qualitatively would describe the integration of the Evoqua business, and your perspective for growth in that segment of Rockwell Medical's operations, as well as what you would attribute the principal drivers of gross margin improvement to be as we look out ahead to the 2025 timeframe?

Yeah. Thanks, Ram. Appreciate the question. So, as we mentioned, the integration of the Evoqua business has been completed into Rockwell. So, we brought over not only the additional customers that we gained through that acquisition, but are now taking advantage of the manufacturing capabilities that came as well with that acquisition. So, that's -- we were excited to get that completed ahead of schedule at the end of 2023. As far as the drivers around margin going forward, with now us essentially adding the #3 player in concentrates within the United States into the Rockwell portfolio, it really creates a marketplace of two companies, us and Fresenius. And so, with that, it has allowed us to not only improve our margins through adjusting the economics of our customer relationships, I think to reflect the value of our products, but then simultaneously to continue to drive efficiencies within our manufacturing process, some of which will come from the acquisition of Evoqua.

Thanks very much. And then just as a follow-up, there's been some speculation regarding the potential long-term impact of broad spectrum utilization of anti-obesity drugs on diabetes incidence, diabetes severity, and thereby dialysis center utilization rates. Can you confirm that you're not in fact seeing any impact of any of that as of right now and that you anticipate dialysis utilization rates to continue trending upwards over the course of the foreseeable future?

Yeah. So, we are actively monitoring all of the GLP-1 products and other products that are currently in development. And we can confirm and certainly that has been confirmed through the two largest dialysis providers in the world, DaVita and Fresenius, that although these products will have a meaningful place in the armamentarium of a physician to help treat patients with these conditions that they will not have a meaningful impact on unfortunately the patients who ultimately end up in end-stage renal disease and then subsequently those that need to utilize dialysis as a treatment paradigm. So, we are actively monitoring, but we don't see that these will have a near-term/mid-term impact on our business. In fact, we're seeing just the opposite. And that is being confirmed, as I mentioned earlier, through DaVita and Fresenius, who've now suggested that patient censuses are on the rise again. And so, we will see that translated into more dialysis procedures throughout the year and subsequently a greater consumption of concentrates.

Okay. And then just lastly, very quickly, a housekeeping question on your debt position and how you expect that to evolve and what role you see for debt in the long-term cap structure of the company. And this pertains specifically to the remaining debt facility and the fact that you now have an interest-only period extending for 36 months. Do you anticipate paying off the entire principal amount immediately once the interest-only period ends? Or do you expect to pay down the debt effectively in accordance with the currently envisaged maturity?

Yeah. So, Jesse mentioned, it's incredibly important for us to enter into this extension of our loan facility. It's really through the growth of the business that we've been successful at achieving that really allowed us to actually enter into that extension. So, we see that as an opportunity to free up some cash for us that would otherwise have gone to repaying that debt for us to reinvest in our manufacturing capabilities and efficiencies to continue to drive better improvements within our gross margin and subsequently sales. Once the interest-only period ends, I think we're going to have to see where the business is, whether we would pay it out on the straight [amort] (ph) schedule or we would try to make a payment sooner. I think that depends. As far as using debt going forward, I think everyone has hopefully seen, we are very responsible from a financing perspective. We are being very mindful of our cash, right? We're driving the business towards profitability, right, to reduce our need to go out and utilize the capital markets. So, we'll continue to be responsible in that perspective. And if it makes sense for us, if there's an acquisition opportunity where we feel like we need to raise some additional capital, it makes sense to do it from a debt perspective, we'll consider it. We'll simultaneously consider it from an equity perspective. But this is from our view or vantage point, will be growth capital that will be used to grow the business further. But that's how we think about it.

Thank you so much.

Thanks, Ram.

Our next question comes from the line of Anthony Vendetti with Maxim Group. Your line is now open.

Thank you. Yes, so on the guidance for revenue growth for 2024, is the guidance 100% organic growth or does that include acquisitions? And then, in terms of the growth, are you able to break it down in terms of volume and price? Obviously, it's a combination, but if you have a general breakdown of how much of that is driven by volume and price?

Yeah. So thanks, Anthony. Growth that we've projected for 2024 is 100% organic, meaning it will come through a combination of both price and volume. We've been conservative in that assessment and putting out the guidance for 2024 as we continue to focus on optimizing our business commercially. So that's what's driving our current guidance. We're not suggesting, at this point, what percentage comes from price, what percentage comes from volume, but know that it's a significant mix of the two that drives that.

Okay. And then just in terms of the gross margin improvement, obviously, given guidance pretty far out into the future and it's a significant improvement. You've already made significant improvements, and it's more than doubling of the gross margin that you have for the full year, and almost the doubling of what you have here in the fourth quarter as you go out into the future. What gives you the confidence in that? Is it locked-in contracts? Is it clear efficiencies you see from your current business as well as the Evoqua acquisition? A combination of those things? Maybe just talk about the confidence in those out-year estimates.

Yeah. I mean, so I think as everyone is hopefully learning, once we took over this business and determined that it was important for us to provide guidance, right, to the market as to the company's performance, we've been very focused on accuracy and being able to successfully achieve that guidance. And we've done that now over the last two years. And so, when we look forward in 2024 and beyond, we're applying that same level of diligence and accuracy in projecting out what we think is going to happen within this -- with our business within the market. What gives us the confidence in our ability to do that is as you suggest, we have a number of customers now that have entered into long-term supply agreements with known economics associated with them. The market dynamics over the last, call it, nine months have shifted favorably to Rockwell in that we are now in a two-company market. And so, that gives us, I think, also greater confidence around what the commercial opportunity that exists for Rockwell and the pricing that we're able to achieve. And then finally, through the acquisition of Evoqua and other changes that we're making within the manufacturing processes, right, we're seeing a greater amount of efficiencies that are coming through, making our processes more automated that again become reproducible. So, the combination of all of those is what gives us the great -- give us the confidence to project our business going forward. And we felt like given our understanding of all of that and our expertise now within the space that we felt like we could do that competently.

Okay. Great. And then just the last follow-up. I think we've discussed the trends of at-home dialysis and the trend moving towards that, even though it's still a low percentage of the dialysis market. Can you talk about your plans to address that growing trend? And then, I'll hop back in the queue. Thanks.

Yeah. Thanks, Anthony. So, you're right, we are certainly monitoring the changes that are going on in the dialysis market, and we are watching the at-home market begin to establish a meaningful presence of the overall dialysis procedures that are administered annually. It's our belief that this is likely where the market is heading as technology is becoming much easier to use within the home, as patients becoming more capable of being able to administer these treatments at home. We think they're probably likely a greater advantage in doing it in the home setting. So, we are -- certainly believe that this is where the market is going, there's going to be a greater presence of dialysis treatments that occur at the home. We are working with companies that are focused in the at-home space, and are working actually on a product opportunity with the leading provider in this space. We hope to have something a little bit more to say about that in the coming weeks. But our concentrates can be used on all of the products that -- and all the machines that are basically being used in the home setting. So, we're perfectly set up to address that part of the market, especially as that market continues to grow.

Great. Thank you very much. Appreciate it.

Awesome. Thanks, Anthony.

There are no further questions. I will now turn the call back over to Dr. Strobeck.

Great. Thank you everyone for joining us on today's call. We are extremely proud of all the progress we made in 2023 and we are excited for all that lays ahead for Rockwell. I want to personally thank all of the Rockwell employees for all of their hard work, where without them this progress we have highlighted here would not have been possible. We look forward to sharing our progress on future calls.

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