# SANUWAVE Health, Inc. (SNWV) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from SANUWAVE Health, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1417663/000162828025014141/snwv-20241231.htm
Accession: 0001628280-25-014141
Filing date: 2025-03-20
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SNWV/
All MD&A years: /company/SNWV/mda/
Previous year: /company/SNWV/mda/fy2023/ (FY 2023)
Next year: /company/SNWV/mda/fy2025/ (FY 2025)

Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations provides information management believes to be relevant to understanding the financial condition and results of operations of the Company. The discussion focuses on our financial results of operations for the years ended December 31, 2024 and 2023. You should read this discussion and analysis in conjunction with our consolidated financial statements and related notes thereto for the years ended December 31, 2024, and 2023, which are presented within Part II, Item 8. "Financial Statements and Supplementary Data" in this Annual Report on Form 10-K. Amounts reported in thousands within this annual report

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are computed based on the amounts in thousands, and therefore, the sum of the components may not equal the total amount reported in thousands due to rounding.

Executive Summary

We realized significant revenue growth during the year ended December 31, 2024, with a 60% growth in revenue to $32.6 million for the year ended December 31, 2024, as compared to $20.4 million in 2023. Gross margins also increased to 75% from 70% in 2023. As the Company continues to focus on profitable growth, we have also increased our operating income by 1103% to $5.4 million for the year ended December 31, 2024, compared to an operating loss of $0.5 million for the year ended December 31, 2023.

Net loss for the year ended December 31, 2024, was $31.4 million, or $7.03 per basic and diluted share, compared to a net loss of $25.8 million, or $12.19 per basic and diluted share, for the year ended December 31, 2023, an increase of $5.6 million, which was largely driven by a non-cash change in the fair value of derivatives. We believe these improvements set the stage for additional growth as we head into 2025.

Recent Developments

On March 7, 2025, our common stock began trading on The Nasdaq Global Market under the ticker symbol “SNWV.”

Non-GAAP Financial Measures

Throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we present certain financial measures that facilitate management’s review of the operational performance of the Company and as a basis for strategic planning; however, such financial measures are not presented in our financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S.”) (“U.S. GAAP”). These financial measures are considered “non-GAAP financial measures” and are intended to supplement, and should not be considered as superior to, or a replacement for, financial measures presented in accordance with U.S. GAAP.

The Company uses Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) and Adjusted EBITDA to assess its operating performance. Adjusted EBITDA is Earnings before Interest, Taxes, Depreciation and Amortization adjusted for the change in fair value of derivatives and any significant non-cash or non-recurring infrequent charges. EBITDA and Adjusted EBITDA should not be considered as alternatives to net loss as a measure of financial performance or any other performance measure derived in accordance with U.S. GAAP, and they should not be construed as an inference that our future results will be unaffected by unusual or infrequent items. These non-GAAP financial measures are presented in a consistent manner for each period, unless otherwise disclosed. The Company uses these measures for the purpose of evaluating its historical and prospective financial performance, as well as its performance relative to competitors. These measures also help the Company to make operational and strategic decisions. The Company believes that providing this information to investors, in addition to U.S. GAAP measures, allows them to see the Company’s results through the eyes of management, and to better understand its historical and future financial performance. These non-GAAP financial measures are also frequently used by analysts, investors, and other interested parties to evaluate companies in our industry, when considered alongside other U.S. GAAP measures.

EBITDA and Adjusted EBITDA have their limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are that EBITDA and Adjusted EBITDA:

•Do not reflect every expenditure, future requirements for capital expenditures or contractual commitments.

•Do not reflect all changes in our working capital needs.

•Do not reflect interest expense, or the amount necessary to service our outstanding debt.

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As presented in the GAAP to Non-GAAP Reconciliations section below, our non-GAAP financial measures exclude the impact of certain charges that contribute to our net loss.

[[GREPCENT_TABLE]]
[["","For the year ended"],["(in thousands)","2024","","2023"],["Net (Loss) Income","$","(31,372)","","","$","(25,807)"],["Non-GAAP Adjustments:"],["Interest expense","13,637","","","15,623"],["Depreciation and amortization","1,145","","","1,028"],["EBITDA","$","(16,590)","","","$","(9,156)"],["Non-GAAP Adjustments for Adjusted EBITDA:"],["Change in fair value of derivative liabilities","31,413","","","9,621"],["Other non-cash or infrequent charges:"],["Gain on extinguishment of debt","(6,326)","","","-"],["Severance agreement and legal settlement","741","","","-"],["Release of historical accrued expenses","(1,547)","","","(1,866)"],["Stock-based compensation","1,514","","","-"],["Shares issued for services","-","","","224"],["License and option agreement","(2,500)","","","-"],["Prepaid legal fees expensed from termination of Merger Agreement","457","","","-"],["Adjusted EBITDA","$","7,162","","","$","(1,177)"]]
[[/GREPCENT_TABLE]]

Results of Operations

The following table sets forth our consolidated statement of operations:

[[GREPCENT_TABLE]]
[["","For the Years Ended December 31,","","Change"],["(in thousands)","2024","","2023","","$","","%"],["Revenue","$","32,634","","","$","20,398","","","$","12,236","","","60","%"],["Cost of revenue","8,084","","","6,035","","","2,049","","","34","%"],["Gross margin","24,550","","","14,363","","","10,187","","","71","%"],["Gross margin %","75","%","","70","%"],["Operating expenses:"],["General and administrative","11,348","","","8,674","","","2,674","","","31","%"],["Selling and marketing","6,323","","","4,898","","","1,425","","","29","%"],["Research and development","673","","","579","","","94","","","16","%"],["Depreciation and amortization","789","","","752","","","37","","","5","%"],["Operating income (loss)","5,417","","","(540)","","","5,957","","","1103","%"],["Other expense, net","(36,762)","","","(25,263)","","","(11,499)","","","46%"],["Income tax expense","27","","","4","","","23","","","575","%"],["Net loss","$","(31,372)","","","$","(25,807)","","","$","(5,565)","","","22","%"]]
[[/GREPCENT_TABLE]]

Revenue

Revenues for the year ended December 31, 2024 were $32.6 million, compared to $20.4 million for 2023, an increase of $12.2 million or 60%. The increase in net sales was primarily driven by the growth in quantity of UltraMIST® disposables

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and systems sold. The quantity of UltraMIST® disposables sold increased by 37% in 2024 as compared to 2023. The quantity of UltraMIST® systems sold increased by 77% in 2024 as compared to 2023. Pricing of the UltraMIST® system and disposables also showed growth in 2024 as compared to 2023; disposables average selling price increased 21% in 2024, and systems average selling price increased 10% in 2024. Revenue from UltraMIST® totaled over 98% of total revenue in 2024 and 90% in 2023.

Cost of Revenue

Cost of revenues for the year ended December 31, 2024 was $8.1 million, compared to $6.0 million for 2023. Gross profit as a percentage of revenues was 75% for the year ended December 31, 2024, compared to 70% for the same period in 2023. This increase in gross margin was largely driven by increased pricing on our UltraMIST systems and applicators.

General and Administrative

General and administrative expenses for the year ended December 31, 2024 were $11.3 million as compared to $8.7 million for 2023, an increase of $2.7 million, or 31%. The increase in 2024 as compared to 2023 was primarily due to increased headcount, severance and legal settlement expenses, and non-cash charges for stock-based compensation expense.

Selling and Marketing

Selling and marketing expenses for the year ended December 31, 2024 were $6.3 million as compared to $4.9 million for 2023, an increase of $1.4 million, or 29%. The year-over-year increase in sales and marketing expenses in 2024 was largely driven by increased commission expenses due to increased sales.

Research and Development

Research and development expenses for the year ended December 31, 2024 were $0.7 million, compared to $0.6 million for 2023. The research and development costs in 2024 remained approximately consistent with the costs in 2023.

Other Income (Expense), net

Other expense, net consists of the following:

[[GREPCENT_TABLE]]
[["","For the years ended December 31,","","Change"],["","2024","","2023","","$","","%"],["Interest expense","$","(13,637)","","","$","(15,623)","","","$","1,986","","","(13","%)"],["Change in fair value of derivatives","(31,413)","","","(9,621)","","","(21,792)","","","nm"],["Gain on extinguishment of debt","6,326","","","-","","","6,326","","","nm"],["Other expense","(893)","","","(19)","","","(874)","","","nm"],["Other income","2,855","","","-","","","2,855","","","nm"],["Other expense, net","$","(36,762)","","","$","(25,263)","","","$","(11,499)","","","nm"],["nm - not meaningful"]]
[[/GREPCENT_TABLE]]

Other expenses totaled $36.8 million for the year ended December 31, 2024, as compared $25.3 million for 2023, an increase of $11.5 million. The increase was primarily driven by an increased loss from the change in the fair value of derivative liability of $21.8 million, partially offset by a gain on the extinguishment of debt of $6.3 million and other income of $2.5 million from a license and option agreement. The change in fair value of the derivative liability mainly relates to warrants issued during 2024, 2023, and 2022 with the convertible debt. That convertible debt and associated warrants were converted to common stock in October 2024, as further discussed in Note 16 to the consolidated financial statements in Part II, Item 8. “Financial Statements and Supplementary Data”. The gain on extinguishment of debt was mainly due to the settlement of outstanding notes to Celularity and HealthTronics, as further discussed in Note 10 to the consolidated financial statements in Part II, Item 8. “Financial Statements and Supplementary Data”.

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Liquidity and Capital Resources

Since inception, we have incurred losses from operations each year. As of December 31, 2024, we had an accumulated deficit of $251 million. Historically, our operations have primarily been funded from the sale of capital stock, notes payable, and convertible debt securities.

See Notes 1, 10, 11, 15, and 16, to the consolidated financial statements in Part II, Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information regarding the Convertible Promissory Notes, Senior Secured Note, Reverse Stock Split, and the October 2024 transaction.

The following table presents summarized cash flow information:

[[GREPCENT_TABLE]]
[["","For the period ended December 31,"],["(in thousands)","2024","","2023"],["Cash flows provided by (used in) operating activities","$","2,455","","","$","(4,538)"],["Cash flows (used in) provided by investing activities","$","(490)","","","$","21"],["Cash flows provided by financing activities","$","6,354","","","$","5,211"]]
[[/GREPCENT_TABLE]]

Cash Flows from Operating Activities

We have improved our cash flow from operations in 2024 as compared to 2023, which was driven by increased emphasis on improved cash management and operating expense management. Additional volatility in adjustments of cash flows from operations is the change in fair value of derivative liabilities connected to our convertible debt and warrants issued. The Company recognized a loss on these liabilities of $31.4 million for the year ended December 31, 2024, as compared to a loss of $9.6 million for the year ended December 31, 2023.

Cash Flows Provided by Financing Activities

Cash flows provided by financing activities increased while also paying off outstanding debt. For the year ended December 31, 2024, we received proceeds of $12.1 million from the issuance of the convertible promissory notes, sales of common stock, and proceeds from promissory note payable as compared to $6.0 million for the year ended December 31, 2023. In 2024, we paid off outstanding debt owed to Celularity, HealthTronics, and our factoring line of credit for a total of $5.0 million.

Going Concern

The Company has incurred recurring operating losses in prior years, has negative working capital, and the Senior Secured Note becomes due in September 2025, which raises substantial doubt about our ability to continue as a going concern for a period of 12 months from the filing of the Form 10-K.

During the current fiscal year, the Company has achieved operating income, reflecting a significant improvement in its financial performance. The Company is addressing its financial obligations, including the significant portion of debt that is coming due in September 2025. Management is actively engaged in discussions with lenders and financial institutions to refinance this debt, which will extend the maturity of the debt and provide additional liquidity to support ongoing operations and strategic initiatives.

Although no assurances can be given that our plans to obtain refinancing will be successful or on the terms or timeline we expect, or at all, management believes that the actions taken to date, along with the planned initiatives, will enable the Company to meet its obligations as they become due and to continue as a going concern.. If these efforts are unsuccessful, we may be required to significantly curtail or discontinue operations or obtain funds through financing transactions with unfavorable terms.

See Note 2 to the consolidated financial statements in Part II, Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information on our ability to continue as a going concern.

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Critical Accounting Estimates

We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors. In addition, there are other items within our consolidated financial statements that require estimation, but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our consolidated financial statements.

We have used various accounting policies to prepare the consolidated financial statements in accordance with U.S. GAAP. Our significant accounting policies are disclosed in Note 3 to the consolidated financial statements in Part II, Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

The preparation of the consolidated financial statements, in conformity with U.S. GAAP, requires us to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates reflect our best judgment about economic and market conditions and the potential effects on the valuation and/or carrying value of assets and liabilities based upon relevant information available. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

The following accounting estimates are deemed critical:

Litigation Contingencies

We may be involved in legal actions involving product liability, intellectual property and commercial disputes, tax disputes, and governmental proceedings and investigations. The outcomes of these legal actions are not completely within our control and may not be known for prolonged periods of time. In some actions, the enforcement agencies or private claimants seek damages that could require significant expenditures or result in lost revenues or limit our ability to conduct business in the applicable jurisdictions. Estimating probable losses from our litigation and governmental proceedings is inherently difficult, particularly when the matters are in early procedural stages, with incomplete scientific facts or legal discovery; involve unsubstantiated or indeterminate claims for damages; potentially involve penalties, fines, or punitive damages; or could result in a change in business practice. The Company records a liability in the consolidated financial statements for loss contingencies when a loss is known or considered probable, and the amount may be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. The Company has reserved approximately $150 thousand for unasserted claims. Our significant legal proceedings are discussed in Note 21 to the consolidated financial statements in Part II, Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Derivative Liabilities from Warrants

The Company determined that certain warrants qualified as derivative financial instruments. Various valuation models were used to estimate the fair value of these derivative financial instruments that are classified as derivative liabilities on the consolidated balance sheets. The models include subjective input assumptions that can materially affect the fair value estimates and as such are subject to uncertainty. The Company's volatility is the most significant assumption and changes over time with the market. Our significant input assumptions are discussed in Note 13 to the consolidated financial statements in Part II, Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Recently Issued Accounting Standards

Information regarding new accounting pronouncements is included in Note 3 to the consolidated financial statements in Part II, Item 8. “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

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