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Zynex, Inc. (NASDAQ:ZYXI) Q4 2023 Earnings Call Transcript

Zynex, Inc. (NASDAQ:ZYXI) Q4 2023 Earnings Call Transcript February 29, 2024

Zynex, Inc. beats earnings expectations. Reported EPS is $0.21, expectations were $0.17. ZYXI isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, ladies and gentlemen. And welcome to the Zynex Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Quinn Callanan from MZ North America. Please go ahead.

Quinn Callanan: Thank you, operator and good afternoon everyone. Earlier today, Zynex released financial results for the fourth quarter ending December 31, 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 202 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 the call over to Thomas.

Thomas Sandgaard: Thanks, Quinn. And good afternoon, everyone. Thank you for joining us today for the fourth quarter and full year 2023 earnings call. 2023 was highlighted by ongoing revenue momentum, leading to a record revenue for the year of $184 million, up 17% from the prior year. The fourth quarter marked our 11th consecutive quarter of profitability and seventh straight quarter of record high order numbers. Once again, we received the highest number of prescriptions in company history, exceeding our previous record. I'm proud to announce that we also produced a $17.8 million in positive cash from operations in 2023, another all-time record for the company. With that, we are able to continue to invest in further sales growth also in our monitoring division and aggressively be buying back stock on the open market.

During the fourth quarter, we played an allowance of $6.2 million on accounts receivables, which decreased our net revenue and profitability. We continue to analyze our receivables and collections from payers. This adjustment is an anomaly a nonrecurring adjustment. Net of this adjustment, which flows to a negative revenue, revenue increased to $184.3 million while producing $0.17 of earnings per diluted share. Dan Moorhead, our CFO, will expand on this adjustment during his portion of the presentation. Significant credit goes to our team who were able to drive revenue higher and deliver significant earnings per share and free cash flow as we expand our sales force, invest in our new business, Zynex monitoring and combat wage inflation like many others in the business.

Our sales force has continued to expand the market each quarter, enabled by a strong team and great products. Orders increased 43% for the full year compared to the year before an increased 29% year-over-year in the fourth quarter. We believe there is considerable runway for us to continue growing orders into the future, leveraging our current portfolio and growing pipeline of existing and new and exciting new products. To help drive this order growth. In the fourth quarter, we submitted a 510(k) application to the FDA for our new M-Wave Neuromuscular Electrical Stimulation device. And already in February of this year, received the 510(k) clearance. The M-Wave is set to replace its predecessor, the E-Wave, which has been fundamental in NMES treatments across the U.S. since 1998.

The E-Wave, which is a product we have been manufacturing for several decades, has helped over 17,500 patients with muscle-related issues, such as drop-foot, quad rehabilitation, shoulder subluxation, and hand rehabilitation. The M-Wave is designed to improve the way patients manage their neuromuscular conditions and with advanced features and a user-friendly design, the M-Wave allows patients to be treated in a clinical or home setting with ease. The compact and lightweight design of the M-Wave insures portability and easy integration into patient recovery routines. The user of friendly interface and ease of use when designing a custom electrotherapy regimen will encourage an even broader adoption of our therapeutic products. And as I mentioned, in February of this year we received the FDA clearance for the product and paving the way for launching the product, we expect that to be in the next month or 2.

As you know, we have spent the past many years building nationwide sales coverage with 800 territories, and we are just shy of 500 of these being populated by now. We are focused on filling all 800 territories and making our sales reps fully productive. It takes up to 3 years before a new rep is typically fully productive. And at this point, only half of our sales reps has more than 1 year in as in terms of tenure. Having built this strong pipeline to prescribers that see patients in pain and in need of rehab. We are now putting an extra effort into diversifying our revenue stream. Our best-selling product, the NexWave was made in 85% of all orders received a couple of years ago and only 50% was from all other products such as low back support, pricing, products, cervical traction, cold or hot therapy equipment and compression.

It is now up to 25%, and we have launched an initiative this month with incentives for our sales force to also promote these products more actively. We do not expect this to cannibalize our NexWave revenue, but rather be in addition to our revenue in the pain management division. In addition to the impressive results from our profitable pain management division, our monitoring - Zynex monitoring solutions, the monitoring division continued to move forward in the fourth quarter with further development of our blood and fluid monitor and our laser-based pulse oximeter.. We were excited to announce FDA clearance last year for our second-generation blood and fluid volume monitor, a noninvasive 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 Don 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, Nico, a monitor for early detection of sepsis and a noninvasive, laser-based monitor of total hemoglobin levels called the HemeOx. The monitoring division is pre-revenue, and we expect to submit an application to the FDA for our laser-based pulse oximeter midyear 2024. Overall, we are making great progress in the patient monitoring division, which we believe will have a game-changing growth potential for the company. Looking ahead, we are making significant progress, building on our holistic noninvasive approach with at-home pain management devices and diversifying the new products.

We are rapidly expanding direct sales distribution channels that are delivering accelerating and high returning revenue - high recurring revenue as we continue to execute operationally and strategically. In tandem, we are focused on ramping our hospital monitoring division, which represents a large and growing market opportunity. We expect consistent growth and strong financial performance in 2024, following the double-digit growth we have produced year after year. We also expect additional catalysts and regulatory milestones during the year as we work to execute on our strong pipeline of new products. We look forward to additional updates in the months to come as we built our sales force and execute on our growth objectives to improve the quality of life for patients suffering from debilitating pain and illnesses 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.

A close-up view of medical devices, electrical stimulation electrodes, and batteries.
A close-up view of medical devices, electrical stimulation electrodes, and batteries.

Anna Lucsok: Thank you, Thomas. Zynex's Pain Management division had another impressive quarter with 29% order growth and 43% order growth for the full year. As Thomas mentioned, we also received FDA clearance for our next-generation and NMES device. NMES treatments have several users, including aiding recovery from surgery, managing chronic conditions and even enhancing exercise performance in healthy individuals. The M-Wave replaces its predecessor, the E-Wave, and is the next evolution in NMES devices, allowing for more customizable treatments within clinical and home settings. We continue to target filling 800 sales territories, while diligently ensuring the right individual is matched to the right territory. We ended the fourth quarter with approximately 475 sales reps and year-to-date revenue per rep on an annualized basis, not including the receivables write-off was approximately $415,000, an increase of 5% over 2022.

We added a net of approximately 60 sales reps during the year, which decreases the growth in revenue per rep in the near term as those reps ramp up. Our direct sales force is relatively new with an average tenure of 18 months. As our team continues to mature, we expect to drive sales efficiency higher. I look forward to another profitable year for the pain management division and updating you all on our market expansion in future calls. I'll now ask Don Gregg, President of Zynex Monitoring Solutions to provide updates related to that business division.

Donald Gregg: Thank you, Anna. Our Patient Monitoring division is truly a ground-up growth effort and a long-term investment for Zynex to diversify our revenues towards becoming one of the largest medical technology companies. We are looking to leverage this management team's past success at building businesses to grow a second line of products with a much larger market opportunity at comparable profitability. Zynex has the technologies and strategies necessary to make a successful entrance into the new product line and market, but the process of acquiring FDA clearance can be somewhat lengthy with occasional delays. The fluid monitoring product via our CM line of monitors is a precursor technology for sepsis monitoring. Our CM technologies introduced to operating rooms, entirely new capabilities that could alter the standard of care and ultimately improve the welfare of patients.

We continue to consult with experts, key opinion leaders and thought leaders in the space to refine the capabilities of our products and ensure maximum uptake by potential customers. We expect that building a successful stand-alone fluid monitoring market will take longer than other new monitoring products, but we believe strongly in the benefits patients will experience and the value proposition provided by the technology. Our noninvasive laser pulse oximetry line, including Nico and HemeOx continues progressing positively. We expect to submit Nico to the FDA in mid-2024. We are working diligently to engage experts, key opinion leaders, professional societies to raise awareness of the science of laser pulse oximetry. We recently finalized our go-to-market strategy in this space, along with developing marketing execution strategies.

Considering the competitive dynamics in this space, we will refrain from detailing our initial go-to-market until closer to product launch. 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: Thanks, Don. Please refer to our press release issued earlier today for a summary of our financial results for the fourth quarter and full year 2023. After commenting on our financial results, Thomas will review our guidance for 2024. Before we get into the financial results, I wanted to provide some brief color on the fourth quarter adjustment. During Q4, we placed an allowance on $6.2 million of slow collecting accounts receivables. When our expected collections are adjusted, they are recorded through revenue, not bad debt or G&A expense. As Thomas mentioned, this is a nonrecurring adjustment. We continue to have strong relationships with our payers. It's important to consider our cash from operations increased 29% in 2023 and was a company record despite the adjustment, and our DSOs decreased during 2023 unrelated to this adjustment, both of which are great indicators of how the business is performing.

The adjustment, net of taxes, affected our diluted earnings per share by $0.13. For the full year 2023, net revenue increased 17% to $184.3 million from $158.2 million in 2022. Orders increased 43% in 2023 compared to 2022. Adjusting for the receivables allowance, net revenue would have been $190.5 million, a 20% increase compared to 2022 and in line with our estimates. Device revenue increased 35% to $58.8 million compared to $43.5 million in the prior year. Supplies revenue increased by 9% year-over-year to $125.5 million from $114.7 million in the prior year. Gross profit for the full year of 2023 increased to $146 million or 79% of revenue as compared to $126.2 million or 80% of revenue in 2022. Sales and marketing expenses were $86.7 million in 2023 compared to $67.1 million in 2022.

The primarily due to increased headcount of our sales force and increased commissions and incentive pay related to improved order volumes and higher than normal wage inflation. G&A expenses were $48.5 million in 2023 compared to $36.1 million last year. Approximately 16% of the increase in G&A is related to investments in our Monitoring Solutions division and related headcount to launch our new products. The remainder is primarily due to compensation and benefits expense driven by headcount growth associated with the growth of the company and increased order volumes. Net income was $9.7 million and produced $0.27 per basic and diluted share in 2023 compared to $17 million or $0.44 per basic and diluted share in 2022. Adjusting for the receivables allowance, net income would have been $14.4 million net of tax or $0.40 per basic and diluted share, which was in line with our estimates.

Adjusted EBITDA for the year ended December 31, 2023, was $22.3 million compared to $28.1 million in the year ended December 31, 2022. Now I'll look at our fourth quarter results. In the fourth quarter, orders increased 29% year-over-year to the highest number of orders in company history for the seventh consecutive quarter. Net revenue was $47.3 million compared to $48.8 million in the fourth quarter of 2022. Adjusting for the receivables allowance, net revenue would have been $53.5 million, a 10% increase compared to the Q4 of last year. Device revenue was $16.3 million compared to $15.9 million in the fourth quarter of last year. Supplies revenue was $31 million versus $32.9 million in the fourth quarter last year. Gross profit in the fourth quarter was $37 million or 78% of revenue as compared to $39.4 million or 81% of revenue in 2022.

Sales and marketing expenses were $21.7 million in the fourth quarter of 2023 compared to $19.2 million in the same period in 2022. And G&A expenses were $13 million in the fourth quarter of 2023 compared to $10.1 million last year. Net income was $1.2 million and produced $0.04 per basic and diluted share in the fourth quarter of 2023 compared to $7.5 million or $0.20 per basic and diluted share in 2022. Adjusting for the receivables allowance, net income would have been $5.8 million net of tax or $0.17 per basic and diluted share in the fourth quarter and in line with our estimates. Adjusted EBITDA for the 3 months ended December 31, 2023, was $9.9 million compared to $11.4 million in the quarter ended December 31, 2022. We ended the year with $44.6 million in cash on the balance sheet and working capital of $69.3 million.

Cash flows from operations in 2023 increased 29% year-over-year to a record $17.8 million. In the fourth quarter, we continued our stock buyback and repurchased $14 million of common stock, bringing the total repurchases in 2023 to $38.4 million. And over the last 24 months, we've purchased $65 million. We continue to balance deploying cash generated between investing in our business and returning cash to shareholders. We believe both offer attractive return profile. The continuing buyback reflects our belief in the management team, the growth opportunities for both divisions, and we remain committed to creating shareholder value in the near and long term. With that, I'll turn the call back over to Tom.

Thomas Sandgaard: Thank you, Dan. We've had a strong start to the first quarter. And with the continued growth in orders in the first quarter, I can tell you we're off to a good start. In January we grew 23% year-over-year. And in February, we're looking at 29% year-over-year growth. And in terms of revenue for the quarter, we expect revenue to come in at $47.5 million which is approximately 13% higher than the first quarter of 2023 and diluted earnings per share of $0.03. As for our 2024 outlook, we expect total revenue to be approximately $227 million, representing growth of approximately 23% over 2023 and diluted earnings per share of approximately $0.50. We are incredibly proud of the growth that we have consistently demonstrated in the past several years.

Top line revenue has produced high levels of profitability and free cash flow, which has allowed us to expand our sales force, launch a new business line to diversify our revenue stream and continue repurchasing our shares. The business we have created and the profitability were able to generate allows us a high degree of flexibility to allocate capital in several ways. We have the ability to continue investing in our business and return cash to shareholders simultaneously. We believe both these avenues will produce substantial shareholder value. With that, operator, please open the call up for questions.

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