Good day, everyone, and welcome to the SANUWAVE earnings call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions]. It is now my pleasure to turn the conference over to Morgan Frank, Chairman and CEO of SANUWAVE. Please go ahead.

Thank you. Good morning, and welcome to the SANUWAVE's Third Quarter 2025 Earnings Call. Our Form 10-Q was filed with the SEC last night. Our earnings release was issued this morning, and our updated presentation was made available on the website in the Investors section. Please refer to that during the presentation, we really try to make it useful. Thanks. So joining in the call today is Peter Sorensen, our CFO. And after the presentation, we will open the call up to Q&A. So 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 and plans 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. 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 statements. Certain percentages discussed in this call are calculated for the underlying whole dollar amounts and therefore, may not recalculate from rounded numbers used for disclosure purposes. As a reminder, our discussion today will include non-GAAP numbers. Reconciliation between our GAAP and non-GAAP results can be found in our recently filed 10-Q for the period ended September 30, 2025. All right. So now we have that out of the way, let's dig into other part. Our Q3 was an all-time record revenue quarter for SANUWAVE, up 22% versus the challenging Pigtail Python quarter last year, when a large order drove 89% year-on-year growth. The quarter was also up 13% sequentially from Q2. This…

Thank you, Morgan. We had a strong third quarter at SANUWAVE with revenue reaching a new all-time quarterly record and up 22% year-over-year. This performance reflects the continued momentum of our commercial strategy and the growing demand for UltraMIST. Gross margins expanded meaningfully year-over-year, reflecting both the inherent leverage in our model and our disciplined approach to managing costs. Looking ahead, our focus remains on driving sustainable profitable growth. So with that, let's take a closer look at the financial results of the quarter. Revenue for the 3 months ended September 30, 2025, totaled $11.5 million, an increase of 22% as compared to $9.4 million for the same period of 2024. This growth was below our guidance for the quarter, but right in the midpoint of the preliminary range of results we disclosed on October 6 of $11.4 million to $11.6 million. Gross margin as a percentage of revenue for the 3 months ended September 30, 2025, came in at 77.9%, up over 240 basis points year-over-year, driven by lower UltraMIST system production costs and our strategic pricing initiatives across systems and applicators. For the 3 months ended September 30, 2025, operating income totaled $1.5 million, which is down by $0.5 million compared to the same period last year. However, operating expenses for the 3 months ended September 30, 2025, amounted to $7.5 million compared to $5.1 million for the same period last year, an increase of $2.4 million. This change was largely driven by an increase in noncash stock-based compensation expense of $1.4 million versus Q3 2024, in which there was no stock comp expense. Increased headcount expenses of $0.8 million, increased marketing expenses of $0.2 million, increased legal expenses of $0.2 million and R&D increased expenses of $0.1 million, partially offset by decreased commission expense of $0.8 million.…

Thanks, Peter. So moving on to guidance. As we stated in our press release, we are guiding to $13 million to $14 million in Q3 revenues, up 26% to 36% year-on-year and also representing -- which would represent another all-time high revenue quarter for SANUWAVE. We're starting to see significant cause for optimism now that the market concern around reimbursement in wound is alleviating because we now finally have some certainty rather than vast uncertainty. Obviously, it's only been a few days since the final rule was announced. But as I said earlier, we already feel some movement beginning and some of the log jams breaking free. So as ever, I want to express my gratitude to the SANUWAVE team for all the hard work and their commitment and trust. I'd also like to thank them for routinely following for my the highest reward for good work is more work, stick and pretending that, that's insightful and motivational. Well done, guys, and thank you. So with that, thanks, everyone, and we will open the call up to questions.

[Operator Instructions] We'll take our first question from Ian Cassel with IFCM.

I just had a couple of questions, mainly around the reseller model that seems to be picking up some steam. Maybe the first question, though, is due to the disruption in skin substitutes, I was curious if the resellers or distributors of those skin substitutes -- now the revenues are probably down 90% versus last year. And I'm curious if you're seeing any inbound interest from those resellers who are now kind of scrambling to pick up additional products to fill that revenue gap in their businesses.

Okay. So I mean the short answer to that question is, yes. It feels like there is a substantial realignment beginning in the space. And obviously, this is a very significant change to a large product category. We've definitely seen some inbound interest. I think a bunch of it started even well before the rule came out and was sort of -- and some were sort of predicating the -- well, maybe we'd be interested in picking this up depending on what happens. I think it's a little bit premature to say, well, okay, this is going to result in a ton of new deals. But what I will say is distribution is an important part of this space. A lot of -- some of these distributors are very sophisticated. They have good account control. They do good work with the providers to help them even down to the level of selecting patients and determining care. It's something that we've been sort of stripping down and rebuilding this year. Our average sales through distributors and resellers was about 36% in 2024. In this quarter, it was about 25%. So that's up a little from last quarter, but still kind of not to levels where it used to be. And so we're kind of assessing what the right level of -- we're sort of assessing what the right mix for us is going to be.

And how do you kind of blend that distributor channel with your direct sales force? How do you think about that?

Yes. It's always -- that's always sort of the tricky bit. And we're doing it through sort of a deconflicting structure where if our reps are chasing something, it's theirs. And we don't -- what we want to avoid is are the 2 channels stepping on each other. And so it's sort of -- if a distributor wants to go after a customer, they'll come to us and say, "Hey, we think this is an interesting prospect. And we'll deconflict it through our internal -- we'll deconflict it through our internal list and say, yes, we don't have anybody who's working on that. Go ahead.

And maybe last question on the reseller and distributor model, how do you handle inventory management? Are they kind of want to be stuffing the channel, so to speak, where they're buying 9 months' worth of inventory? How do you think about those inventory turns?

Yes. Yes, yes. That's a great question. And that's something we've given a lot of thought to and something we worry about a lot. When you're dealing with stocking distributors, you always sort of run this risk of -- do you have too much inventory in the channel and will you wind up kind of choking on it? We've been trying to be sort of measured with this and not putting too much inventory into the channel to really avoid that problem. I think the first major distributor we dealt with on a stocking basis this year was back kind of towards the end of Q2. They took about 15 systems from us into inventory. And at the time, I was actually pretty worried about that. They came back 6 weeks later and said, yes, we've sold them. Can we have 10 more. Took 10 more and then went out and sold those again in another 8 weeks. And so I think if we can kind of keep those turns in the sort of 8 to -- if we can keep the inventory turns there in the sort of 8 to 12 weeks range, I think that's healthy. I think once we start seeing it bump up against that kind of like 10 to 12 area, we're going to start to get nervous for any given distributor. And then to look at them overall, obviously, I think we'd like to keep it more towards the sort of range.

Our next question comes from Kyle Bauser with ROTH Capital Partners.

Maybe just following up a little bit on that. What's the latest rep headcount?

Rep headcount is still 13, same as it was last quarter. We've rejiggered it a little bit. We changed the shape of a couple of territories, moved it to 12 national territories. And now have 2 full-time kind of national key account managers, but overall count is the same.

Got it. And how are you feeling about that heading into '26, you had a pretty good number in addition to having the distributors, as you mentioned?

Yes. I think, obviously, given a lot of what's happening in the industry right now, as you can imagine, there are resumes. So I think we're going to kind of do this on a -- we're doing this on sort of a -- let's see what we see basis. I mean, obviously, we plan to grow this rep headcount as we go forward. Exactly how we do it right now is something that we are -- doing a lot of work to assess internally. Do we want to start bringing in some reps to just manage distributors? Do we want more key account reps? Do we want more national territories? Do we want to bring in a set of more kind of inside sales folks to either just handle customers or to just set appointments, right? So that we're having -- we can get our closers more time closing. Like that's really -- those are really the discussions we're having internally at the moment. I think we'll be continuing to add to the sales force on kind of a measured basis.

Got it. Yes. Makes sense. And just curious what sort of annual revenue some of your more productive reps are doing and maybe also kind of what's the reasonable run rate for reps to achieve?

Yes. I mean it's -- to some extent, that's always going to be a little bit territory specific, right? So -- and a function of how well developed a territory is. I mean we had a rep exceed $2 million of sales in Q3. We had a couple of others over $1 million. And so as these ramp up, getting to this kind of $4 million to $6 million annual sales rate, I mean, it doesn't -- it's certainly not impossible. I think given the difference -- we have a couple of markets that are more developed than others. And so it's a question of kind of how long does it take to get an undeveloped market to look more like a developed market. But ultimately, I mean, rep productivity here can be very high.

Got it. And internationally, were any of the 155 systems sold were any of those into international markets in the quarter?

No.

Okay. And maybe just lastly, on that point, how are you thinking about the international opportunity for UltraMIST? Would you ever I know you've got a lot to focus on in the U.S., but just curious if you'd be interested in looking to take on distribution partners in OES market.

I mean it's certainly something we'd look at. It's always -- I mean, we sort of refer to this internally as the Golden retriever and a tennis ball factory problem, where you like what are you going to chase. And I think at the moment, there's so much domestic opportunity that it just -- this hasn't really gotten top of the pile. I mean if there were a really compelling distributor who could basically handle all of this without a whole lot of intervention from us in a market where there was where there was an easy regulatory pathway, I mean, I suppose we'd look at it, but it just isn't something we've spent a lot of cycle time on yet.

Our next question comes from Carl Byrnes with Northland Capital Markets.

Again, considering the CMS fixed rate 127, 28 per square centimeter, would you expect that the private physician practices would look to UltraMIST as an additional line of revenue? And on that, I mean, how long do you think that takes to play out? And then I have a follow-up as well.

I mean short answer is yes, right? I mean I think physicians are often maximizing 2 things, right? They're maximizing their desire to provide good patient care and for the patients to get better. And obviously, they're running business. And so to the extent that they find both revenue and care gaps, this becomes a very interesting option. I mean by -- on a relative basis, the attractiveness of UltraMIST seems to have increased a great deal, particularly from a -- if your goal is revenue maximization. Exactly how long that takes to play through is an interesting question. I'm not really sure how to answer it with any like rigor. It seems to vary a great deal by folks. I mean people just -- people respond to new realities with differing time frames. We've certainly seen a change in inbound. And we've certainly seen -- I mean there were -- we've certainly seen people who are sort of like on the fence saying, well, maybe let's see suddenly get more interested. And so I think there's definitely going to be some of that. Exactly how it plays out is complex.

Got it. And then just one follow-up question. Looking at mobile wound care, what do you think happens there given the CMS change? And kind of how does that affect your business? What percent of your business is tied into the mobile space?

I think -- I mean, the mobile is experiencing a lot of the same issues as others. And they are widely divergent practices within mobile. And we've been doing some looking at this and kind of tearing into the CMS data just to get a look at what we think the interrelationships are between skin subs and UltraMIST. One of the things we discovered is that 55% of the practitioners who bill UltraMIST don't build any -- haven't built any skin sub at all in the last 4 years. So of the 45% of do, most are -- a lot of times, it's not the same patient or it's -- you can't build the 2 in the same visit. So from a standpoint of like what's mobile going to do, I think some of the folks who were most aggressively using skin subs may see their practices either change dramatically or terminate. But I think -- I mean, just speaking hypothetically, if my goal as a provider were to do the maximum number of skin sub applications, I wouldn't be using UltraMIST, right, because the wound would heal more quickly and you would wind up doing fewer applications. And so I think there's been sort of an inherent sorting here where the folks most interested in doing the most skin sub have also tended to be the folks who were not using a lot of UltraMIST.

Our next question comes from Alex Silverman with AWM Investments.

Two questions. One, can you give us a sense of what kind of toeholds or trialing you're doing in some of the very, very large wound centers? And then I'll ask my second question after.

Well, certainly an interesting question. I mean we've -- we're starting to get -- I mean, we're starting to spread through a couple of hospital networks in particular or at least these are things that have been going on us, I think we could talk about them. One in particular is one of the larger hospital networks in the U.S. We've been in at a couple of their flagship facilities now for several months. It's gone really well. I think they are using the product in a similar fashion to some other large hospital chains, predominantly around treating half eyes and incipient half eyes -- sorry, that's hospital-acquired pressure injury. Essentially, you lay on your hip for your back too long, it turns into a pressure ulcer in a patient with suppressed immune system or health, those can be very, very serious, even life-threatening. And so we're starting to spread there. We're starting to work on how do we become a -- we were added to their approved vendor list. And so they're kind of 150-ish hospitals and 2,200 facilities are now free to buy. We're definitely working on some other large opportunities. Nothing I can really talk about by name here right now, but give you a little time on that, and I may have something for you.

Okay. Great. And then second question, have you guys thought about how to get around the capital approval process, which can be so painful at some of these bigger buyers, the hospitals and the large wound care centers that have just painful processes?

We have. In fact, it's something we've been giving a lot of thought to. And obviously, starting to have a bit of a balance sheet helps. The -- as we look at a -- hospitals, in particular, tend to have very difficult capital cycles and their capital budgets are highly segregated from their operating budgets. And so I mean, you walk into a hospital, you'll see tracking codes like even on computer monitors because those are leased, right? Like that's how aggressive the -- like the cap budgets are protected there. And so I think moving to something along the lines of a rental model at prices that make sense for both sides, particularly if you could tie it to some sort of usage minimums makes a lot of sense. Some hospitals don't seem to care. I mean we've seen a number that are just like great, let us buy the thing. But there are many others for whom the cap budgets are tight. So it seems to vary a lot hospital to hospital. But yes, we're definitely starting to consider the -- can we rent these to hospitals that we believe will be sort of high-use environments, like that can be a great model for us.

I assume with a, I don't know, $5,000-ish cost for a system -- the payback of placing one of these is -- could be a pretty quick payback for you.

Obviously, depending on -- I'm sure you can do the math, right, if we price it at various points. But the real -- I mean, obviously, the real fun for us is if you're selling -- if you're getting people to use 3, 4 cases of applicators a month, the value of the consumables rapidly exceeds the price of the capital sale.

[Operator Instructions] We'll take a question from Andrew Rem with Odinson Partners.

I just wanted to go back to this -- the reseller. And is there a way that you guys can kind of bifurcate the market where maybe direct you go to large accounts, heavy users and use resellers to get to kind of the fragmented small customers that would be less efficient to service on a direct basis?

Yes. So you're speaking very much to an internal discussion we have frequently. We refer to them internally as Bunnies, Dear, Elephants and Wales. And the -- it's hard to have high-priced reps chasing bunnies. And so -- and a lot of the distributors know a lot of the smaller customers really well. So it's certainly something we're looking at and whether that ultimate -- whether that ultimately turns out to be the solution, it's certainly possible. It's an idea we're exploring. I think we're just trying to get some experience with it and see how it works. I mean we made a lot of changes in our distribution network and sort of tried to do -- try to move to a more engaged, more hands-on, more value-add channel. And so we're still getting some experience with it and seeing how it works and what it's good at and how to how to integrate it with our sales force most productively. But yes, I mean, the idea you discussed is certainly one we've been looking at.

And would applicator sales also run through the reseller? Or would you just use them to sell systems?

It's going to be -- I mean, ultimately, it depends on the distributor or reseller. Like from -- many of the folks we're starting to talk to now have much more sophisticated ERP systems and systems that can integrate with our own. So what we're really looking for is to make sure we understand exactly how many applicators would be in the channel and exactly what the flow through to end customers winds up being, we're very sensitive to that attach rate, like how many cases of applicators per week is a given user consuming. And so to the extent that we can sustain adequate visibility to that, we can allow sort of applicators into the channel. I mean, predominantly, what we've done with these distributors is at least in the past, is to -- they'll set up the customer. That customer will then come and order applicators from our portal. So we have a direct relationship with them. We're directly drop shipping to them. And then we'll pay commission to a distributor based on those applicators. But we're starting to look more at the -- many of these folks just want to do stocking entirely themselves. The question just becomes, can we sufficiently integrate it that it makes sense for both sides.

And then maybe lastly, I'm not sure if this is a competitive, if it is, you don't need to answer. But it does seem like the current environment lends itself to leverage from -- for you guys in terms of negotiating with resellers. So -- and maybe that speaks a little bit to your increased sense of urgency, but maybe can you comment on that at all?

I don't know that I really want to speak to something like leverage. We're -- this is one of those moments where there's kind of a sorting hat going on. And I think like some of the key salience in this market just changed and people are adapting to this new situation. And I think that provides a lot of opportunity. I think it's made a lot of people more interested in engaging with SANUWAVE. We've had a lot of inbound interest. And it feels like this is a great time to -- it feels like this is a great time to kind of make some new friends.

It appears we have no further questions at this time. I'll turn the program back to the speakers for any additional or closing remarks.

Well, thanks, everyone. I appreciate your making the time, first thing on a Friday morning, and we look forward to updating you further in the future. Thanks again.

This does conclude today's program. Thank you for your participation, and you may disconnect at anytime.