Rockwell Medical Announces Transformational Global Hemodialysis Acquisition - ROCKWELL MEDICAL INC

Good morning, and welcome to Rockwell Medical's 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 and Chief Operating Officer at Rockwell medical. Heather, please go ahead. Good morning and thank you for joining us for this update on Rockwell Medi-Call. Joining me on today's conference call is Rockwell Medical's President and CEO, Dr. Mark Strobeck, and Jesse Neary, Rockwell's Chief Financial Officer. 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 are subsequent periodic reports filed at the SEC. These statements are subject to risks and uncertainties that could cause actual results to differ materially. 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 subsequent periodic and current reports filed with the SEC, including the current report on Form 8K filed in connection with the transaction and the exhibits thereto and the press release relating to the transaction. Our reports filed by the SEC and the reports filed in relation to the SEC, along with today's press release and a replay of today's conference call and webcast, can be found on Rockwell Medical's website under the Investors section. Now, I will turn the call over to Mark Stroback, Rockwell medical's president and CEO. Thank you, Heather, and good morning, everyone. This morning, we announced that Rockwell Med has entered into an equity and asset purchase agreement with Vantib Limited to acquire Vantab's global hemodialysis concentrates, hemodialysis machines, including the AK-98, water treatment systems, related consumables, and technical services business. Based on the current projections, we estimate that the combined business could generate annual revenue between $400 and $450 million, 90% of which we expect would be reoccurring. In addition, Rockwell expects to acquire Bantam's 1 million square foot state-of-the-art manufacturing campus in Modola, Italy, and additional assets around the globe. This is a transformational transaction for Rockwell Medical, and we are incredibly excited to bring these two businesses together to form one of the world's leading hemodialysis medical device manufacturers and suppliers. This acquisition is expected to close in the middle of 2027, subject to receipt of required regulatory approvals and the satisfaction or waiver of the other closing conditions set forth in the agreement four years ago we initiated a turnaround of rockwell medical's business when we set out on this mission we highlighted three critical phases of company development that would frame our long-term strategy first eliminate non-core activities and refocus rockwell on its core expertise in manufacturing and distributing hemodialysis products to grow the core business and develop Rockwell into a sustainably profitable platform. We successfully completed this first phase in the second half of 2024 and have maintained the underlying profitability profile of our core operations, excluding transaction-related expenses associated with the acquisition. Next, our plan called for us to leverage our more stable platform to expand into new HD opportunities in global markets and build a larger global renal care portfolio. And then finally, once we are a larger globally recognized leader in the renal care space, we plan to turn our attention to more novel, innovative technologies and therapies that drive higher margins and seek to have a meaningful impact on patient care. Our acquisition of Vantiv's hemodialysis business is expected to accelerate the second phase of our development in a single transaction and rapidly accelerate our development into a leading global renal care company. I want to walk you through why we believe this transaction is truly transformational for Rockwell Medical. This transaction fundamentally changes the scale, scope, and strategic profile of our company. It transforms Rockwell Medical from a primarily U.S.-based hemodialysis concentrates business into a vertically integrated, globally scaled hemodialysis platform, with a broader product portfolio, an international manufacturing and distribution footprint, a larger install base, and multiple streams of recurring revenue. First, the transaction substantially broadens the hemodiolysis solutions we can offer dialysis providers. In addition to our core liquid and dry concentrates business, Rockwell Medical will add additional dry concentrate cartridges and additional concentrate formulations. We'll add hemodialysis machines, including the AK-98, related parts and consumables, water treatment systems, including The CWP-100 and CWB-800, and a global technical services team. These are highly complementary products and capabilities that have the potential to expand our role within the hemodialysis treatment ecosystem and deepen the value we can deliver to customers. This broad portfolio also changes the nature of our revenue base. We will no longer be principally dependent on the sale of hemodialysis concentrates alone. The acquired hemodiolysis machine installed base of approximately 100,000 machines creates ongoing demand for related consumables, replacement parts, technical services, and other aftermarket support. Together with our concentrates business, these offerings are expected to provide a larger and more durable base of recurring revenue tied to the ongoing delivery of hemodialysis treatments. Second, the transaction gives Rockwell Medical a global operating platform that would take years to replicate organically. Rockwell is already one of two major U.S. manufacturers and suppliers with the production capacity, scale, and transportation infrastructure required to serve the hemodiolysis concentrate needs of the U.K. the u.s dialysis market through this acquisition we have the opportunity to combine our strong domestic position with established international products customer relationships distribution capabilities and technical expertise into canada europe and asian pacific area a central component of that global platform is vantage manufacturing campus in medulla italy subject to the terms and conditions of the agreement we expect to acquire this one million square foot state-of-the-art campus which is located within the mirandola biomedical district the third largest medtech region in the world this site currently manufactures dry concentrate cartridges hemodialysis machines related parts and consumables and water treatment systems supporting the broader hemodiolysis portfolio the medulla campus provides us with an immediate european operating presence specialized manufacturing and distribution capabilities established technical expertise and infrastructure supporting a broader global customer base when combined with the continued ramp up of our further automated concentrate production lines in the united states we believe the expanded manufacturing network will enhance our scale operating efficiency and ability to compete as a reliable global supplier. Third, this transaction brings together complementary products, customer relationships, operating capabilities, and technical expertise under one organization. The result will be a more diversified and scalable renal care company with a stronger ability to support customers across products, geographies, and stages of the hemodialysis treatment process. It will also strengthen our ability to provide the quality, reliability, technical support and continuity of supply that dialysis providers and patients depend on every day. Importantly, this is not diversification away from our core. It's an expansion of our core hemodialysis concentrates are our foundation. And this transaction allows us to build outward from that position into complimentary products and services that are sold to many of the same customers used within the same treatment environment and supported by many of the same commercial and operational capabilities. The combined businesses will therefore have greater product breadth, significantly expanded international reach, and a more diversified mix of recurring revenue streams. We believe this creates a stronger platform for profitable growth, innovation, and long-term shareholder value. Finally, continuity will be critical priority throughout this transition. We are committed to working closely with Bantam to support customers, patients, and employees, and to maintain reliable access to the products, services, and technical support on which care providers depend. In summary, this transaction is transformational because it changes Rockwell's scale, geographic reach, product breadth, manufacturing footprint, and revenue profile, all while remaining firmly centered on the hemodialysis market we know well. It positions us to move from being a leading U.S. concentrate supplier to becoming a broader, vertically integrated, and globally relevant hemodiolysis company. I'm now going to turn the call over to Jesse to walk through the financial terms of this transaction. Under the terms of the agreement, the aggregate base purchase price is $125 million subject to customary adjustments. Vantive will provide financing through two $50 million term loans plus a $25 million convertible note. Vantage may also receive up to $45 million in contingent consideration tied to specified revenue and EBITDA milestones. If achieved, these payments will be made over several years. Tranche A, the first of the two seller finance notes, has a six-year term and an initial interest rate of SOFR plus 550 basis points. The rate increases by 75 basis points annually. Tranche B also has a six- year term with an initial rate of so far plus 700 basis points. This rate also increases by 75 basis points per year. Neither term loan carries a prepayment penalty, and we believe the Sauer Finance structure helps align Rockwell and Vantiv's objectives. The $25 million convertible note will have an initial conversion price set at a 100% premium to the 15-day volume-weighted average price, or VWAP, of our common stock at the time of signing. We believe this premium reflects the underlying value of Rockwell Medical. As Mark mentioned, we expect the combined enterprise to generate annual sales of $400 to $450 million with approximately 90% forecasted to be recurring revenue. We expect the Combined Business will generate sufficient cash to meet its financing obligations. As disclosed in this morning's press release, we are withdrawing our 2026 guidance for net sales, gross margin, adjusted EBITDA, and operating cash flow due to transaction-related expenses expected in the third and fourth quarters. I will now turn the call back over to Mark for closing remarks before we open up the call for questions. Thank you, Jesse. With today's announcement, we embark on an exciting new chapter for Rockwell Medical. This transaction has the potential to significantly accelerate the next phase of our growth by adding product breadth, global distribution, manufacturing, research and development infrastructure, technical services, and a broader, more diversified customer base. Between signing and closing of this transaction, Rockwell Medical will work in partnership with the Vantiv team to build and successfully execute an integration plan and support an orderly transition in continuity of supply at close and beyond. It is important to note that we will have transition services agreements and manufacturing and supply agreements in place with Bantam to support the transition of the business, including with respect to employees, customers, systems, processes, manufacturing, product registrations, and distribution. Following the closing, we believe the complementary products, capabilities, and expertise of these hemodialysis businesses can create a stronger, more scalable global renal care platform with a broad product portfolio, greater international reach, and enhanced opportunities to serve dialysis providers and patients. We look forward to keeping you updated in the coming months as we move towards closing this transaction. With that, I'll conclude the formal remarks and turn the call over to our operator to open the line for questions. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please note that Rockwell Medical will only be taking questions specific to today's announcement. The company will not answer questions related to Rockwell Medical's financial performance for the three and nine months ended September 30th, 2026. The company will address those questions on its earnings call, which is scheduled for Thursday, November 12th. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ram Salvaraju with H.C. Wainwright. Ram, your line is open. Please go ahead. Hi, this is Jan Zies, sitting in for Ram. Thank you for taking my question. I have three. The first is, given the seller finance structure and the expectation that the combined business is going to generate sufficient cash to meet its financing obligations, how should we think about Rockwell's pro forma liquidity position in cash runway? And do you anticipate needing additional capital to support integration or ongoing operations yes so as of right now um we do not need um additional cash to support um operations between signing and close we are contemplating um you know financing structures that that could be beneficial here um for us uh post close but as of now we are um we are sufficiently funded um to get through the this period of time got it and beyond the transition period do you anticipate maintaining an ongoing commercial relationship with vantiv and do you think may advantage you know for example might remain a customer of rockwell's chemo dialysis business following this transaction yes the plan is that um post-closing that um we will both be you know a customer um of theirs and they will be and we will be a supplier of theirs as well got it thank you this is my last one and you mentioned that the acquired products serve many of the same customers and significantly expand your international reach do you see an opportunity to introduce rockwell's uh legacy concentrate products into Vantiv's existing customer base particularly with respect to international markets and how significant could that opportunity become you think yeah i actually think it's you know for us they they manufacture a set of concentrate products that are are very similar to the ones that we manufacture here in the united states um so i think where the opportunity lies is actually introducing the other components of the Bantam portfolio into our existing customer base here in the United States. And I think that is a pretty significant opportunity. We haven't, you know, we're not releasing that information yet, but we think the cross-selling opportunities within our existing custom customer base is significant and I think could provide an opportunity for growth. Got it. Thank you so much for taking my questions. Sure. As a reminder, if you would like to ask a question, please press star one to raise your hand. your next question comes from the line of jeremy pearlman with maxton group jeremy your line is open please go ahead oh good morning thank you for taking the question maybe just first how does the the acquired advantage business or the potential acquired business how does the maybe the gross margins and the even the margins compare to rockwell currently will they'll be will they be accreted from the gecko or there's going to be some you know time to bring them up to third levels or above what rockwell is seeing now uh hey jeremy thanks for your question um the acquired product product groups have similar margins to what Rockwell is currently at although we do think there is there is some upside there once we take over the business okay understood and also maybe and what you know what's the competitive landscape like you know globally we've been focused you've been focused pretty much predominant in the US so we're familiar with that market and the big players there and who are some advantage top competitors what are the regions that they, you know, that their largest customer base is from or that they sell to? And where do you see the biggest potential for expansion beyond that? Yeah, so in the, you know regions outside of the United States, you know, there are a number of, you know, large players that, you know, service and, you know, complete hemodialysis procedures, you such as you know the companies that we've you know our current competitors of ours um and so you've got big big suppliers like bebron you've got big suppliers nepro um so those are all you know present within the within the global market um you know in the in a number of the countries outside of the united states um those treatments are provided through government tenders um and And so, you know, Vantiv brings a number of tenders that are in place with within the 35 plus territories that we are acquiring, you know that. Our contracts that cover all of the products that that we currently well will currently manufacture and and sell. In addition, they have a machine install base of 100,000 machines that I think has an opportunity for us to, you know, grow that install base as well as to leverage off of that install based to continue to grow the opportunity. And so we're looking to, you know, we're looking to access that and, you know, enhance the products we sell within those, you know, those centers that have machines that are, you know, currently installed. So we think there's overall, we think there's a tremendous opportunity to grow this business. And you know we think with the expertise that we have, the resources that we intend to provide to support this business, that we'll be able to grow it beyond, you know, what our current projections are. Okay, understood. And then just last question from us. You know, what do you think may be the biggest operational challenges you can anticipate, you know, integrating these businesses together? And then, will you, I think you mentioned, I'm not sure, just to follow up, did you mention earlier in the call that you will be keeping the existing Vantiv management team, or is there any other, you know, management capabilities and infrastructure that you'll have to build out post the close? Yeah. So, you know, where we're focused right now is working with Vantive to build a, you know, comprehensive integration plan and strategy. That's where all of our attention and focus is going to be making sure that, you know, at the time of close and day one that we are in a position to be able to take on that business. So our teams are working and will work with Vantip quite closely to help us to do that. You know, as it relates to, you know, particularly the manufacturing site in Medola, you We think this is a great opportunity to make that site a center of excellence for us as we look to continue to develop the products that we have, add new products, and expand into the territories that we are currently supporting. You know, it's a state-of-the-art manufacturing facility with a tremendous team of experienced professionals that are joining Rockwell and going to become part of the Rockwell family. We're super excited to have them be a part of The Organization and to discuss ways in which to build and enhance that facility to support our global operations. So it's a super exciting addition for us. Okay. Thank you for all that information. I'll have that in the queue. Thanks. We have reached the end of our Q&A session, and this concludes today's call. Thank you für attending. You may now disconnect.