Zynex Inc

NASDAQ:ZYXI

Earnings Call Transcript 2023-Q2

[Operator]

Good day ladies and gentlemen, and welcome to the Zynex Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, today's conference call is being recorded.

At this time, I would now like to turn the floor over to Quinn Callanan from MZ North America. Please go ahead.

[Quinn Callanan, Investor Relations]

Thank you, operator and good afternoon everyone. Earlier today, Zynex released financial results for the second quarter ending June 30, 2023. A copy of the press release is available on the company's website. Joining me on today's call are Thomas Sandgaard, Chairman, President and Chief Executive Officer; Dan Moorhead, Chief Financial Officer; Anna Lucsok, Chief Operating Officer; and Donald Gregg, President of Zynex Monitoring Solutions.

Before we begin, I'd like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events. We encourage you to review the company's past and future filings with the SEC, including without limitation, the company's 2022 Form 10-K and subsequent Form 10-Qs, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors may include, without limitation, statements regarding product development, product potential, the regulatory environment, sales and marketing strategies, capital resources or operating performance.

With that, I'll now turn this call over to Thomas.

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

Thanks Quinn and good afternoon everyone. Thank you for joining us today for the second quarter 2023 earnings call. The second quarter was highlighted by our continue momentum in both our Pain Management and Pain Monitoring divisions leading us to our 9th consecutive quarter of profitability and fifth straight quarter of record high order numbers. We also once again received the highest number of prescriptions in the company's history beating our previous records. These records led to total revenue for the quarter of $45 million, a 22% increase over the same period in 2022 and we produced $0.09 of earnings per diluted share.

Our sales force continues to increase productivity and grows the market significantly each quarter, a testament to a great sales force leadership and great products. Orders increased 51% year-over-year and we believe there is considerable run rate for us to continue growing orders into the future. In addition to the impressive results from our profitable pain management division ZMS or Zynex Monitoring Solutions continued to move forward in the second quarter in the development of our blood and fluid monitoring and our laser based pulse oximeter.

We were excited to announce FDA clearance for our second generation blood and fluid volume monitor, a non-invasive and wireless technology targeted to improve patient outcomes with better fluid management in hospital settings. We continue to collect additional data in clinical trials and Donald Gregg will provide further updates on this product in his prepared remarks.

We have three additional products in the pipeline in our Hospital Monitoring Products division; a laser-based pulse oximeter, named NiCO; a monitor for early detection of sepsis; and also a non-invasive laser-based monitor of total hemoglobin levels, the HemeOx. The monitoring division is pre-revenue and we expect to submit an application to the FDA for our laser-based pulse oximeter in the fourth quarter of this year. Overall we made good progress in the patient monitoring division which we believe will have game changing growth potential for the company.

Looking ahead, we're making significant progress as a leader in at-home prescription strength pain management devices with a robust and durable business model and high recurring revenue. Not only am I proud of making a real dent into the opioid epidemic, but we also continue to execute operationally and strategically diversifying the business with a ramp up of our Hospital Monitoring Products which represented large and growing market opportunity.

We expect to see consistent growth and strong financial performance for the second half of 2023 following the double digit growth we have produced year after year. We also expect additional catalyst and regulatory milestones in 2023 as we continue to execute in our strong pipeline of new products. We look forward to additional updates in the month to come as we build our sales force and execute on our growth objectives to improve the quality of life of patients suffering from debilitating pain or illness and bring long-term value for our shareholders.

With that, I will now turn the call over to Anna Lucsok, our Chief Operating Officer for a more detailed business update on the Pain Management division.

[Anna Lucsok, Chief Operating Officer]

Thank you, Thomas. Zynex's Pain Management division had another impressive quarter marked by sequential increase in order volumes over the first quarter and a 22% year-over-year increase in revenues. The growth that our sales team is delivering is consistent and profitable, and we believe there is significant room for continued expansion to reach full market penetration. We ended the second quarter with approximately 480 sales reps and year-to-date revenue per rep on annualized basis was approximately 390,000, an increase of 13% over 2022.

We added a net of approximately 50 sales reps during the first half of the year, which decreases the growth in revenue per rep in the near-term as those new reps ramp up. We continued to work to expand our sales force to cover our target of 800 sales territories, but maintaining productivity remains our primary focus. We are refining our onboarding procedures for new sales reps and have developed improved metrics for evaluating those reps fit.

These improved processes have had the effect in increasing our effectiveness in pairing reps to sales territories. There are some lingering challenges related to the labor market, but we believe these to be improving over time and we will remain committed to recruiting and retaining a high quality sales and corporate team. We will continue to evaluate sales reps closely in order to maintain efficiency while managing our expenses and expect to hit well over 500 sales reps by year end.

The strength of our billing team and processes continue to be a key differentiator for Zynex as our products are available to all patients regardless of their insurance status. We process all orders that we receive and work directly with patients and their insurers to process coverage in each case. I look forward to another profitable year for the Pain Management division and updating you all on our market expansions in future calls.

I'll now ask Don Gregg, President of Zynex Monitoring Solutions to provide updates related to Pain Management division.

[Donald Gregg, Vice President, Zynex Monitoring Solutions]

Thank you, Anna. The patient monitoring market is estimated about $3.7 billion. We have products that will be brought to market with truly game-changing technologies. Our entrance into monitoring is a long-term strategic investment in the company's future and will diversify the customer base, product set and use cases for the company's solutions.

We received FDA approval for our wireless CM-1600 fluid monitor on June 16th. Clearance of the CM-1600 is an essential milestone toward our goal of providing perioperative fluid monitoring that will provide clinicians the ability to assess the significance of changes in a patient's fluid volume, their status and balance for timely clinical management. We are sponsoring multiple clinical studies on our technology, engaging with medical advisors and key opinion leaders to assist in product and clinical development within our blood and fluid monitoring product line.

In addition, our non-invasive CO-Oximeter line of products, including NiCO and HemeOx continues progressing positively. We expect to submit our NiCO product to the FDA in Q4 of 2023. We recently received trademarks for both NiCO and HemeOx and continue to meet important milestones necessary to bring those products to market. Zynex's Monitoring Division is consistently executing toward introducing our products in 2024. We will continue sharing important clinical trial results as they are published and look forward to updating the investment community on completing other milestones.

I will now turn the call over to Dan Moorhead, Chief Financial Officer for a more in-depth look at financial performance for the quarter.

[Daniel Moorhead, Chief Financial Officer]

Thanks, Don. Please refer to our press release issued earlier today for a summary of our financial results for the second quarter of 2023. After commenting on our financial results, Thomas will review our guidance for the remainder of 2023. Orders grew 51% year-over-year, the highest number of orders in company history for the fifth consecutive quarter. Net revenue grew 22% to $45 million from $36.8 million in 2022, primarily related to the growth in device orders.

Device revenue increased 45% to $13.7 million compared to $9.5 million in the second quarter last year. Supplies revenue increased 15% year-over-year to $31.2 million from $27.3 million in the second quarter of last year. Gross profit in the second quarter increased to $35.7 million or 79% of revenue as compared to $29.5 million in 2022. Sales and marketing expenses were $21.6 million in the second quarter of 2023 compared to $16.3 million in the same period in 2022, primarily due to increased headcount of our sales force and increased commission and incentive pay related to order growth.

G&A expenses were $11.4 million in the second quarter of 2023 compared to $8.8 million last year. Approximately 15% of the increase is related to investments in our Monitoring Solutions division and related headcount to launch our new products. The remainder is primarily for back office headcount related to the order growth. Tax expense as a percentage was 18% effective rate for the quarter due to other income of $1.7 million, which was not taxable. Net income was $3.4 million and produced $0.09 per diluted share in the second quarter of 2023 compared to $3.3 million or $0.08 per diluted share in 2022. Adjusted EBITDA for the three months ended June 30, 2023 was $4 million as compared to $5.5 million in the quarter ended last year.

During the second quarter, we completed a $60 million convertible debt offering, which added approximately $48 million in cash to the balance sheet net of offering costs and previous debt which was retired. We ended the quarter with $58.7 million in cash and working capital of $93.5 million cash flows from operations for the six months of 2023, increased 70% year-over-year $2.7 million.

In the second quarter we continued our stock buybacks and repurchased $6.1 million of common stock, bringing the total repurchases in the past 15 months to $36.1 million. As we've stated before, we believe this to be a signal to our shareholders that we are incredibly confident in our management teams, the growth opportunities for both divisions, and that we remain committed to creating shareholder value in the near and long-term.

With that, I'll turn it back over to Thomas.

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

Thank you, Dan. We've had a strong start to the third quarter in terms of orders and expect to post our sixth consecutive record quarter. With a continued growth in orders in the third quarter of 2023 we expect total revenue in the range of $49 million to $51 million, which is approximately 20% greater than the third quarter of 2022, and diluted earnings per share of $0.08 to $0.10.

As for our 2023 outlook, we are reiterating our initial guidance and expect total revenues to be in the range of $180 million to $200 million, representing growth of approximately 20% over 2022, and diluted earnings per share between $0.40 and $0.50.

With that operator, please open the call up for questions.

[Operator]

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions] Our first question today comes from Jeffrey Cohen from Ladenburg Thalmann. Please go ahead with your question.

[Jeffrey Cohen, Ladenburg Thalmann]

Hi, Thomas, Dan and Donald how are you?

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

Good. How are you?

[Jeffrey Cohen, Ladenburg Thalmann]

Good. Just a couple quick ones. Anna, did you call out the spot number now on the sales reps? I did hear the 500 by year, but what's current?

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

We're having a little trouble hearing you, Jeff. I don't know what's going on with the phone, but you talked about sales reps. I think, could you repeat that?

[Jeffrey Cohen, Ladenburg Thalmann]

Yes. The current number of sales reps?

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

Current number of sales reps, 489?

[Anna Lucsok, Chief Operating Officer]

489, yes.

[Jeffrey Cohen, Ladenburg Thalmann]

Okay, perfect. I got it. And I guess, Donald, could you talk about commercial plans for the back half the year for the 1600, and also talk about the clinical work that you're doing on HemeOx and the anticipated filing for hemoglobin, please?

[Donald Gregg, Vice President, Zynex Monitoring Solutions]

Sure. So on the CM-1600 that's been cleared by the FDA, we have been focused on ensuring that we have milestones that specifically prove the clinical efficacy of the product and we are engaged in several clinical trials. We have that in multiple hospitals and organizations. We will continue to complete those trials and update you as we go throughout the year. There's a focus specifically to ensure that we're doing the proper due diligence with key opinion leaders and physicians to ensure our focus on perioperative fluid balance and management.

Let me talk a little bit about NiCO. We have three types of clinical trials that we have to do on NiCO. We completed a hypoxia study and we have two additional clinical trials that we have to do for FDA submission. The first part is we have to do a calibration of the NiCO product, and then we have to do is a verification validation against that calibration of the effectiveness of the device. And so those are scheduled. They are starting here very shortly in August, and they will continue throughout the third and fourth quarters with a couple of different institutions.

[Jeffrey Cohen, Ladenburg Thalmann]

Okay, got it. Thanks for that. And Dan, real briefly, you talked about the 36.1 of share repurchases the last 15 months, and in the press release is that the fourth one that's open, the fourth one, or is that the fifth one that's open now?

[Daniel Moorhead, Chief Financial Officer]

That includes everything through 630. So it was four or five plans. That will be the fourth one. So once we have completed that, if we complete it, that will then add up to 40 million. So far we have 36.1 million.

[Jeffrey Cohen, Ladenburg Thalmann]

Okay. So that's the approved 10 million share repurchase program of the company's common stock in the press release. I got it. I think that does it for us. That's great quarter. Thanks for taking our questions.

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

Thank you.

[Operator]

And our next question comes from Yi Chen from H.C. Wainwright. Please go ahead with your question.

[Unidentified Analyst]

Hey, this is [indiscernible] on behalf of Yi Chen. Congrats on all the excellent progress. I just want to make sure I got it right. During your prepared remarks, did you indicate that by the end of the year you would like your sales force to be around 500 reps? Is that right?

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

Yes, we think we'll be over 500, yes.

[Unidentified Analyst]

Okay, sounds good. And also during the prepared remarks, you touched upon more key catalysts to be followed during the second half of this year. Could you maybe provide some color on some of the important catalysts that we should know across your portfolio? Thank you.

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

So I think the catalyst that Don spoke of, obviously the submission of the NiCO product continued work on the CM-1600 and related products. And then on the Pain Management side, obviously continuing to add sales reps, which will drive revenue from not only a new rep basis, but continued increases in productivity as well. So those are the main catalysts we're looking at for the remainder of the year as of right now.

[Unidentified Analyst]

Excellent, thank you. And would you be able to comment on the other hospital monitoring products beyond the pulse oximeter in the fourth quarter? I believe you have two others in the pipeline if I'm not wrong, so are you able to comment on them now?

[Donald Gregg, Vice President, Zynex Monitoring Solutions]

Sure. on our NiCO line which is our non-invasive CO-Oximeter, the HemeOx product will provide total hemoglobin and specifically that's important in several different clinical settings, hospitals, clinics, and several others because particularly for example, when you provide, when you give blood, they have a finger stick that they would like to not be an invasive procedure. They'd like it to be non-invasive. HemeOx will provide that with a non-invasive reading.

In addition to that, also on that technology between our CM fluid monitoring line as well the NiCO line of products, when you think about combining those you have an opportunity to go after sepsis. And so we have been working on sepsis monitoring to reinvent how you will detect sepsis early and often and accurately.

[Unidentified Analyst]

Got you. Thank you so much and congrats again.

[Donald Gregg, Vice President, Zynex Monitoring Solutions]

Thank you.

[Operator]

And ladies and gentlemen at this -- we do have a followup from Jeffrey Cohen from Ladenburg Thalmann. Jeffrey, please go ahead with your followup.

[Jeffrey Cohen, Ladenburg Thalmann]

Hey, thanks again for taking the questions. So two more from us. Firstly, anything on physical therapy for Q2 or back half of Q3 worth mentioning?

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

Say that one more time, Jeff. Sorry, I don't know what the issue is.

[Jeffrey Cohen, Ladenburg Thalmann]

It must be my phone. Any PT news, any physical therapy updates?

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

Are you asking if there's any updates with -- regarding physical therapy or…?

[Jeffrey Cohen, Ladenburg Thalmann]

Yes.

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

Well we have one product that's typically prescribed in that area. We are not focusing on that right now. That would be the NeuroMove device for stroke rehab, a device that we have developed ourselves. But that's a very minimal amount of our order. So that's in the physical therapy space, we are not really that active right now.

[Jeffrey Cohen, Ladenburg Thalmann]

Okay. Got it. And then lastly, I guess Dan, any comment, it sounded like you called out 15% of G&A for ZMS. Would you expect that to be a consistent percentage for the back half of the year?

[Daniel Moorhead, Chief Financial Officer]

Yes. No it should be similar to that. We're on our normal track. I think we talked about going from about $8 million last year to about $12 million this year, 12 to 13. So it's -- we're on track with that for sure.

[Jeffrey Cohen, Ladenburg Thalmann]

Okay, perfect. That does it for us. Thanks again.

[Operator]

And ladies and gentlemen, at this time and not -- and showing no additional questions, I'd like to turn the floor back over to the management team for any closing remarks.

[Thomas Sandgaard, Chairman, President and Chief Executive Officer]

Well, yes. Thank you for joining us today. We are pleased with our performance this quarter and the consistent growth our team is delivering. We look forward to leveraging that momentum throughout the rest of the year and speaking to you at upcoming investor events. We appreciate your time and interest in Zynex. Have a great day.

[Operator]

And ladies and gentlemen, with that, we'll be concluding today's conference call and presentation. Thank you for joining. You may now disconnect your lines.