SANUWAVE Health, Inc. (SNWV) Earnings

Management highlights

### Market Context Post CMS Pricing Change - Q1 2026 opened with an unexpected market freeze, as many advanced wound care providers did not anticipate the new CMS pricing for skin substitutes would take effect and waited for a last-minute policy change that never occurred. - Market conditions began improving in February 2026, with sequential monthly improvements throughout the quarter, though sales cycles remain extended and customer churn remains elevated due to ongoing financial stress among practitioners. - The CMS Skintub audits and claim clawbacks from Q4 2025 have frozen provider capital budgets, but the market is gradually thawing as providers gain clarity on their financial positions. ### Commercial and Channel Update - The company is expanding its presence across all advanced wound care channels, including hospitals, wound centers, physician offices, and long-term care/nursing facilities, with particular strength reported in hospital demand. - Contrary to market misconceptions, mobile wound care remains an important strategic segment for SaniWave, as patient demand for in-home care persists and CMS's care-to-the-patient policy remains in place. The segment is currently undergoing consolidation driven by tightened documentation standards, higher back-office costs, and reduced reimbursement rates that have put pressure on small, low-scale providers. - Consolidation in mobile wound care is favorable to SaniWave, as working with a smaller number of larger, more sophisticated providers simplifies operations and allows for better customer engagement. The only notable concern in mobile care is rural markets, where lower patient density and lower indexed reimbursement rates create cost challenges that will likely require future payer policy adjustments. ### Operational and Financial Update - The company has made meaningful progress on resolving its historical sales tax exposure, having entered into voluntary disclosure agreements (VDAs) with almost all applicable states. VDAs limit look-back periods and reduce potential penalties, and remediation work is proceeding on schedule with third-party tax advisors. - Gross margin came in at 77.3% for the quarter, a 177 basis point year-over-year decline driven by the shift to lower-margin wholesale reseller pricing, a one-time transition that is now complete. - Operating loss totaled $1.1 million in Q1 2026, compared to operating income of $0.6 million in Q1 2025, with the change driven by a $1.8 million year-over-year increase in operating expenses. Higher expenses reflect increased stock-based compensation ($380,000), higher payroll for expanded headcount ($384,000), increased R&D investment ($346,000), $300,000 in one-time 10-K restatement fees for tax, legal, and audit work, and higher sales and marketing costs ($400,000) for commercial outreach. - Net loss was $1.4 million in Q1 2026, a $4.7 million improvement from the $6.1 million net loss in Q1 2025, primarily due to the absence of a $4.9 million non-cash fair value loss on derivative liabilities that occurred in the prior year period. Lower interest expense from the Q3 2025 senior debt refinancing also contributed to the improvement. - As of March 31, 2026, SaniWave held $10.8 million in cash and cash equivalents, with total current assets of $24 million.

Guidance

- Q2 2026 guidance calls for 10% to 15% year-over-year revenue growth, which translates to total quarterly revenue of $11.1 million to $11.6 million. - Full year 2026 revenue guidance is maintained at $51 million to $55 million, representing 16% to 25% year-over-year growth, consistent with prior guidance. - Management expects stronger revenue growth in the second half of 2026, supported by the company's typical historical seasonal trend (the second half averages 48% higher revenue than the first half in normal years) and a high level of ongoing engagement with large national accounts that are expected to convert to new business later in the year.

Segment performance

SaniWave reports one core product category focused on the Ultramist wound care system and its corresponding consumable applicators. In Q1 2026, the company sold 97 new systems, bringing the total count of actively used systems in the field to 1,382, a net increase of 90 systems from the end of 2025. Applicator unit sales reached an all-time record, driven by the growth in active systems and a partial recovery in usage rates among existing customers. However, applicator revenue did not set a record due to a shift to wholesale pricing for resellers (including the transition of two longstanding distributors to the reseller model), which reduced average selling prices. Total company revenue for Q1 2026 was $9.6 million, a 3% year-over-year increase compared to $9.3 million in Q1 2025. Consumable utilization grew 22% year-over-year and 4% sequentially from Q4 2025.

Risks & headwinds

- Uncertainty around the impact of new CMS pricing and auditing policies for skin substitutes caused a temporary market freeze in early Q1 and continues to extend sales cycles and elevate customer churn as providers adjust to new reimbursement levels. - Rural mobile wound care markets face structural challenges from low patient density and lower reimbursement rates indexed to local wages, which could lead to underpenetration or reduced demand in these areas if payer policy does not adjust to cover travel costs. - The company faces unresolved historical sales tax exposure across multiple U.S. states, though remediation efforts through voluntary disclosure agreements are progressing and have reduced potential penalties and look-back periods. - The conversion of distributors to resellers created a one-time negative impact on revenue and gross margin, even though the impact to operating results was minimal.

Analyst Q&A

• Q: After 3% year-over-year growth in Q1 and maintained full-year guidance that implies significant second-half growth, what is the basis for management's confidence in stronger back-half performance?

  A: Management cites two core drivers. First, the business has a well-established historical seasonal trend where the second half generates 48% higher revenue than the first half on average, and this trend is expected to hold as the market recovers from first-half suppression from CMS policy changes. Second, the company is seeing higher levels of engagement with large national accounts than ever before, with multiple ongoing large-system evaluations that are expected to convert to larger business later in the year, following the company's typical pattern of trials leading to broad adoption after customers see clinical results.

• Q: What product advancements and evidence-based trials are planned for Ultramist over the next 24 months that could support expansion into new market areas?

  A: The company is investing in normalized R&D spend that is directed toward three areas: incremental improvements to the existing Ultramist product, line extensions, and development of products for adjacent wound care areas, though details on new initiatives are not yet ready for public release. The company is also working with large customers and user groups to generate new data on Ultramist's cost-effectiveness and validate its use for additional indications, and expects to publish papers and white papers outlining these new use cases over the coming quarters.