Zynex Inc (ZYXI) 2023 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Zynex Second Quarter 2023 Earnings Conference Call. (Operator Instructions) As a reminder, today's conference call is being recorded.

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

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.

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 continued momentum in both our pain management and pain monitoring divisions, leading us through our ninth 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 record. 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 grow the market significantly each quarter, a testament to a great sales force, leadership and growth products. Orders increased 51% year-over-year and we believe there is considerable runway 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, continue to move forward in the second quarter in the development of our blood and fluid monitor and our laser-based pulse oximeter. We were excited to announce FDA clearance 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 3 additional products in the pipeline in our hospital monitoring products division. A laser-based pulse oximeter, the NiCO, a monitor for early detection of sepsis and also a noninvasive 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're making 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 I am proud of making a reinvent into the opioid epidemic, but we also continue to execute operationally and strategically, diversifying the business with the ramp-up of our hospital monitoring products, which represent a 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-over-year. We also expect additional catalysts 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 months 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.

Thank you, Thomas. Zynex' pain management division had another impressive quarter, marked by a 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 an 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 continue 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'll 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 (inaudible) 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 that business division.

Thank you, Anna. The patient monitoring market is estimated at about $3.7 billion. We have products that will be brought to market with true 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 16. 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 advisers and key opinion leaders to assist in product and clinical development within our blood and fluid monitoring product line.

In addition, our noninvasive 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' 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.

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 3 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 6 months of 2023 increased 70% year-over-year to $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 stated before, we believe this to be a signal to our shareholders that we are incredibly confident in our management team, 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.

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 the 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 Instructions) Our first question today comes from Jeffrey Cohen from Ladenburg Thalmann.

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

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?

Yes, the current number of sales reps?

Current number of sales reps?

489, yes.

Okay. Perfect. I got it. And I guess, Donald, could you talk about commercial plans for the back half of 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?

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 the -- our focus on perioperative fluid balance and management. The -- let me talk a little bit about NiCO. We have 3 types of clinical trials that we have to do on NiCO.

We've completed a hypoxia study and we have 2 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 as a verification validation against that calibration of the effectiveness of the device. And so those are scheduled. They're starting here very shortly in August, and they will continue throughout the third and fourth quarters with a couple of different institutions.

Okay. Got it. And Dan, real briefly, you talked about the $36.1 million of share repurchases the last 15 months. And in the press release, the -- is that the fourth one that's open, the fourth 10 lot? Or is that the fifth one that's open now?

That includes everything through 6/30. So there was 4 or 5 plans.

That will be the fourth one. So once we have completed that, if we completed that, that will then add up to $40 million. So far, we have $36.1 million.

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 a great quarter.

And our next question comes from Yi Chen from H.C. Wainwright.

This is [Chait] 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?

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

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?

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.

Excellent. 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 2 others in the pipeline, if I'm not wrong. So are you able to comment on them now?

Sure. On our NiCO line, which is our noninvasive 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 noninvasive.

HemeOx will provide that with a noninvasive reading. In addition to that, also on that technology between our CM food monitoring line as well as 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.

And ladies and gentlemen, at this -- we do have a follow-up from Jeffrey Cohen from Ladenburg Thalmann.

So 2 more from us. Firstly, anything on physical therapy for Q2 or back half of Q3 worth mentioning?

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

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

Are you asking if there's any updates regarding physical therapy or...

Yes.

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 orders. So in the physical therapy space, we're not really that active right now.

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?

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 million to $13 million. So it's -- we're on track with that, for sure.

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

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.

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.