Zynex Inc (ZYXI) 2014 Q3 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Zynex third quarter 2014 earnings conference call and webcast. As a reminder for the Q&A session, questions can only be submitted from participants using the webcast interface.

Statements made in this presentation include financial estimates and forward-looking statements that are not historical facts. Each of these estimates and forward-looking statements involves risks and uncertainties. These estimates are based on present circumstances, information currently available, and assumptions about future revenues, industry growth, and general economic conditions. Estimates are inherently uncertain as they are based on assumptions concerning future events. No representations can be made as to the accuracy of such information or the reliability of such assumptions.

Accordingly, actual revenues and expenditures may vary significantly from the Company's estimates, and actual results or developments may differ materially from those expressed or implied by the forward-looking statements. Factors that could cause actual results to differ from the financial estimates and forward-looking statements in this presentation include those described in the Company's filings with the Securities and Exchange Commission, including the risk factors section of the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Therefore, neither Company's estimates nor the assumptions upon which they are based are to be interpreted as a guarantee or promise of the Company or management. The Company has no obligation to modify, amend, update, alter or change the estimates contained herein.

At this time it is my pleasure to turn the call over to Mr. Thomas Sandgaard. Please go ahead, sir.

Good morning. My name is Thomas Sandgaard. I'm the President and CEO of Zynex. Welcome to our third quarter 2014 conference call. This morning we will review our third-quarter results and then take questions.

To start, I'd like to provide an overview of our business. We manufacture, develop, and sell noninvasive medical devices and compound pain creams. The Company has been in existence for 18 years, primarily manufacturing and selling electrotherapy devices. Our devices are used for pain management to reduce reliance on drugs and medications, and provide rehabilitation and increased mobility.

The products are cost and clinically effective compared to traditional physical therapy and oral medication. Our compound pain creams provide an excellent alternative to oral medications, as they are applied directly to the area of pain, and are not susceptible to addiction by the patient. Our products are cleared by the FDA when it comes to our electrotherapy line, and require a physician's prescription before they can be dispensed in the US.

We have the ability to accept any type of insurance, including government and workers' comp, and believe we have the established a sophisticated billing and reimbursement department to maximize reimbursements received from third-party payers.

We manufacture electrotherapy products such as our newest generation E-STIM device, the NexWave, for pain management, the InWave for incontinence treatment, and the NeuroMove, which is primarily used for stroke rehabilitation. It's a treatment that enables neuroplasticity in the patient's brain.

These products are marketed to physicians and therapists through our sales force. In early 2014 we saw our in-house, nonsterile, compound pharmacy being ready, specializing in topical and transdermal pain treatments. These pharmacy products complement our electrotherapy products and are also marketed to physicians and sold through our existing sales force.

Brian Alleman, our CFO, you will hear momentarily discuss the financial results in more detail. But I'd like to highlight a few things.

For the third quarter we previously estimated to come in between $4 million and $4.2 million in the quarterly revenue. We actually came in at $4.4 million, which was compared to $3.2 million for the first quarter of the year and $1.3 million for the second quarter of 2014. The backlog in shipping consumable supplies that we discussed last quarter has been resolved, and we are beginning to see growth in orders for our electrotherapy devices.

Revenue from the compound pharmacy continued to grow nicely, with revenues of $390,000 for the third quarter compared to $258,000 in the second quarter. Finally, the Company generated a net profit of $258,000, or $0.01 a share for these three months ended September 30, 2014. I'll now turn to call over to Brian Alleman to review our third quarter 2014 financial results.

Thank you, Thomas. Many of you have probably seen our earnings news that was released this morning. If we do not have a copy of the release, you can access one on the way on the SEC's EDGAR site. We also filed our Form 10-Q last night, which also will be available on the SEC EDGAR site on the next day or so.

Here's an overview of our third-quarter and nine-month unaudited financial results. Our Q3 revenue was $4,404,000 compared to $1,349,000 in the second quarter and $3,167,000 in the first quarter. Revenue has been stabilized and we are announcing an increase in orders for our electrotherapy devices.

For the nine months, total net revenues were $8,921,000. As we talked about last quarter, second quarter revenues were negatively impacted by delays in shipping consumable supplies to patients. That issue was fully resolved in the third quarter.

Cost of revenue related to both rental and sales business was $1,383,000 in the quarter compared to $1,171,000 in the second quarter.

We reported selling, general, administrative or SG&A expenses of $2,609,000 for the third quarter compared to $2,947,000 for the second quarter and $3,456,000 in the first quarter. The reduction in spending reflects reduced headcount and general cost control measures.

In addition, in third quarter we benefited from an $85,000 reduction in rent charges for our building for the month of September. In October, we executed agreements with our landlord that, one, terminates our existing lease on December 31, 2014; two, reduces the monthly rent from approximately $128,000 to $43,000 a month for the period from September 1 through December 31. Third, the agreements establish a new lease effective January 1, 2015 with a two-year term, and six monthly payments of approximately $49,000 per month for about 1/3 of the space we currently occupy. These agreements will result in annual savings of approximately $1 million.

For the three months ended June 30, 2014 we generated a net profit of $258,000 or $0.01 per share compared to a net loss of $5,553,000 or $0.18 a share for the second quarter. As we have noted before, the second-quarter loss includes the $2,605,000 write-off of non-core inventory that we discussed last quarter. In the first quarter the net loss was $1,430,000, or $0.05 per share.

Our cash and line of credit balance as of September 30,2014 was $319,000 and $4,541,000 respectively as compared to our cash and line of credit balance a year ago on September 30, 2013 of $468,000 and $6,291,000 for the credit crime, a reduction of nearly $1.8 million on the credit line balance year-over-year. Since December 31, 2013 the balance on the credit line has been reduced by nearly $1.3 million at September 30.

The Company continues to face liquidity challenges due to the lack of available borrowings under its revolving credit facility. The Company is in default of the credit agreement with the lender, and the lender has accelerated the payment of the outstanding loan balance. However, the lender has continued to make advances to the Company based on cash collections.

The Company is exploring ways to improve its liquidity and is actively seeking a new lender or investor to replace the existing lender. However, the Company can make no assurance that it will be able to improve its liquidity or obtain new capital to replace the existing lender. For a more in-depth discussion, please refer to our third quarter Form 10-Q.

I'll now turn to call back to Thomas.

Thank you, Brian. As we have talked about, revenues have stabilized and we are seeing an increase in orders for our electrotherapy devices. In addition, revenue from our compound pharmacy continues to increase.

We will be increasing our marketing initiatives to elevate the pharmacy brand and grow our presence within key pain management markets in the year ahead, and will also selectively add experienced sales reps to support the geographic ramp of the compound pharmacy in the US. Mike Frabotta, who joined us as Vice President of Sales in October, will be instrumental in leading this effort. Mike as a tremendous track record and experience within this particular industry, so we are very excited about this addition.

Our compound pharmacy allows us to leverage the existing electrotherapy sales force, often servicing the same accounts for pain creams. This creates a more rounded product portfolio for the Company and a second revenue opportunity with each sales call. Zynex is the only company in the industry that offers electrotherapy and pain cream solutions on the same prescription pad.

During the third quarter we continued to make progress on the development of our new blood volume monitor. We are currently building additional beta units, as we call them, to be use in field testing to collect more commercial feedback as well as collecting clinical data before we submit an application to the FDA.

Revenue for Q3 benefited from the revenue recognized from shipping the supplies delayed from the second quarter. And revenue for the fourth quarter is forecasted to be in the range of $3.5 million to $3.7 million. We expect to see post a small positive income from operations in the fourth quarter.

In conclusion, we believe revenue has finally stabilized and we are poised for growth. We have taken the appropriate steps to right-size our operations. Our strategic move into topical pain creams will yield higher margins and a shorter collection cycle in our core electrotherapy products. With our core electrotherapy business stabilizing and growing, building our sales force and leveraging the growing sales force to drive sales of electrotherapy and pain cream solutions is our top priority during the months ahead.

I appreciate your interest in Zynex and participation in our earnings call. We will now take questions, and once again, if you have a question, please use the webcast interface.

So we will give it just a second for the questions to come up.

The first question seems to revolve around the line of credit, and what's our current status with our lender?

As I noted before, we are in default of the loan agreement and the lender certainly has its rights under that default. However, our relationship with the lender is actually quite good. They continue to make advances. We have a lot of communication with them and it seems to be operating quite smoothly.

That being said, we are out actively in discussions with new potential lenders looking at various forms of potential lending. And those steps are moving forward, but again, we can't give any assurance that we are going to be equal to bring in a new lender. But we are very hopeful.

Thomas, there is a question on the pain cream business. Is there a seasonality function to the pain cream business?

As we know, the market for prescribing products for pain management in general -- a market we obviously are very familiar with -- we obviously see that the seasonality around when physicians primarily on vacation, which is typically around July and December, we sometimes have slower months. We typically also see the deductibles having an impact on collections in the first couple of months of a year.

But other than that, as fast as we are growing in the pain cream industry, it looks like we are growing right through any kind of seasonality in that market. I should probably also mention that other than seasonality, it is a market or an area that we see that has potential for changes and potential lower reimbursement sometime in the future. But at this point in time, we see it as a very healthy market and are very excited to see the kind of growth we do in that space right now.

We have a question regarding profitability going forward. And, do we anticipate profitability going forward?

As Thomas said in the guidance for Q4, we are expecting to be slightly positive on the operating income -- income from operations line, so that's before interest and taxes. But I would expect that as our revenue continues to grow from that level, we will increase that income from operations line moving forward.

That's good. It doesn't look like we have any other questions today, so I would like to thank everybody that participated and listened in on this earnings call for their interest in Zynex, and listening in on the third-quarter results. Thank you very much.

That does conclude today's teleconference. We thank you all for your participation.