Zynex Inc (ZYXI) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Zynex Incorporated 2014 year-end 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 risk and uncertainties. These estimates are based upon present circumstances, information currently available and assumptions about future revenues, industry growth and general economic conditions. Estimates are inherently uncertain as they are based upon 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 the 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.

It is now my pleasure to turn the call over to Mr. Thomas Sandgaard, CEO. Please go ahead, sir.

Good morning. My name is Thomas Sandgaard, President and CEO of Zynex. Welcome to our fourth-quarter and full-year 2014 conference call.

I want to focus on a few key issues for 2014. First, I want to mention our new noninvasive blood volume monitor, the first product to communicate loss of blood during surgery and internal bleeding during recovery. It's a huge unmet need in hospitals today.

This month, we finally submitted our application to the FDA requesting the de novo rollout for getting this unique technology approved. Check out our website for how it works. I'm very excited about launching this product.

Other than that, we have been through two rough years, but the second half of last year clearly shows the effects of our stabilized revenue and sharply reduced expenditures. In 2013, we saw revenue drop from $40 million in 2012 to $22 million, and we lost $7 million simply because we didn't cut expenses fast enough to match the decline in revenue from our electrotherapy business.

As we have discussed in several earnings calls before, the decline is mostly caused by healthcare reform and sales reps in the industry spending more time promoting compounded pain creams. And we eventually made the decision to build our own pharmacy that was ready in early 2014. We launched another $4 million in the first two quarters of 2014, plus too an additional $2.5 million restructuring charge for a total loss of $13 million in 18 months.

Last two quarters of 2014 showed a $1 million profit as expenses finally came in line with revenue, orders stabilized and we got things turned around. The first quarter of this year continues to trend and we expect first-quarter revenues to be on par with 2014 run rate.

We have had a rough time. We've just gone through and saw revenues decline from $40 million to $11 million in just two years.

Cash collections were steady through 2014 at about $2.5 million a quarter. And the cost reduction ratios we have taken, we've stopped the bleeding.

The good news is that the trend in electrotherapy insurance reimbursement per order remains strong and is not declining, although payments, as always, have been -- takes a long time to collect. The TENS market is still there and there's a lot of market share that we can bring them back.

The challenges we see right now is that we find our compound pharmacy -- the orders pay really well, they pay fast, but that industry is currently undergoing changes from pressure from the PGMs and the long-term prospects are hard to predict. Growing our sales force and monthly orders continue to be important for us, and we are actually seeing signs of improvement.

I want to remind everyone of our current business focus. Managing solutions with the introduction of the world's first blood volume monitor (technical difficulty) the FDA and international approvals is starting initial production and getting ready to bring sales channels, market awareness at hospitals, etc.

And we have Zynex Medical, our existing revenue generator focused on pain management with electrotherapy and compound pharmacy, all conservative pain treatments. In this position, all orders require a prescription and is paid for by insurance reimbursement.

We have significantly reduced or eliminated our activities in billing and consulting, neurodiagnostics in our international division while we've been focused on stabilizing the core parts of the Company in the past year. I will now turn the call over to Brian Alleman, our CFO, who will review our fourth-quarter 2014 financial results.

Thank you Thomas. Many of you have probably seen our financial results in the news that was released this morning or filed with the 10-K on Tuesday. And just an update to the Safe Harbor that was read at the beginning, the 10-K is actually through 2014 updated from 2013. If you do not have a copy of the release or Form 10-K, you can access one on the web at the SEC's Edgar website.

2014 was a pivotal year for Zynex. After several quarters of significant revenue declines, we finally stabilized. The introduction of the compound pharmacy added a great revenue source and gave us the ability to start attracting new sales reps.

During 2014, we narrowed our sales focus on TENS and compound pharmacy, reduced headcount by about 40%, restructured our billing department, negotiated a new agreement that will -- a new lease agreement for our building that will save us approximately $1 million a year in 2015, and physically moved our operations in December. We also reduced the amount owed to our lender by $1.4 million, reduced vendor payables by about $200,000, and improved our inventory utilization. All of these moves have positioned us well for 2015 and beyond.

Here is an overview of our fourth-quarter and full-year audited financial results. Our Q4 total net revenue was $2.191 million and was $11.117 million for the full year. Revenue for the fourth quarter was hurt by the disruption to our operations resulting from the move in December. While painful in the current period, the benefits of the lower rent and operational efficiencies from working in the smaller space are significant going forward.

Cost of revenue related to both rental and sales was $1.406 million compared to $1.383 million in the prior year.

We reported selling, general and administrative expenses, or SG&A, of $2.396 million in the fourth quarter compared to $2.6 million for the third quarter, $2.9 million in the second quarter, and $3.5 million in the first quarter. The significant reduction from Q1 to Q4 reflects the headcount reductions, general cost control, and negotiation of the new facilities lease. Based on the fourth-quarter SG&A on an annualized run rate, we have reduced SG&A expenses by nearly 55% from the 2013 levels.

For the fourth quarter of 2014, we generated a net profit of $515,000, or $0.02 per share, including the net gain on a lease termination of $2.2 million. For the year, the net loss was $6.2 million or $0.20 per share.

Our line of credit balance at December 31 was $4.442 million as compared to $5.820 million as of December 31, 2013, a reduction of nearly $1.4 million year-over-year. The Company continues to face liquidity challenges due to the lack of available borrowings under our line of credit. As we have discussed over the last several months, the Company is in default of the terms of the credit agreement with the lender and the lender has accelerated payment of the outstanding balance. However, the lender has continued to make advances to the Company based on cash collections and has agreed to forbear exercising its rights through June 30, 2015.

The Company is exploring ways to improve its liquidity and is actively seeking a new lender or investor to replace the existing lender and provide additional liquidity. 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 more in-depth discussion, please refer to our recent filing on Form 10-K for the year ended December 31, 2014.

In summary, in 2014, we cleaned up our balance sheet, reduced operating expenses, restructured key departments, launched the compound pharmacy and stabilized revenue. All of this positions Zynex well for growth in 2015.

Thomas, I'll give the call back to you.

Thank you Brian. Let me summarize. The last half of 2014, our revenue stabilized in our pain management division while our reduced expenses allowed us to show profitability again. Our cash collections have been steady for over a year. And we renegotiating our building lease, saving $1 million a year, was crucial in our turnaround along with the significant reductions in efficiencies in the organization and on the payroll expenses.

Even though we continue to be in default of our bank line of credit, we have a good relationship with Triumph and look to not only get within compliance but also replace the line with another loan facility long-term.

We are estimating the same run rate or better for the first quarter of this year. And most importantly, our noninvasive blood volume monitor is finally becoming a real product in pilot production and we look forward to getting FDA approval as well as getting it introduced to the international markets. We are ready to take on 2015 full force and we are excited we got through 2013 and 2014 without incurring any shareholder dilution.

And this concludes our presentation, and we will now take your questions that cover in the web interface. And Brian, if you can read some of those questions that are coming in.

Sure. We actually have a couple of questions related to the blood volume monitor. If I can sort of summarize the questions, it really goes around can we give a little more insight about your initial plans for getting the blood volume monitor to market? And what's the status? Have we heard anything back from the FDA?

It's really a month ago that we sent in a pre-sub to the FDA applying for -- see if we can get into the de novo route. The de novo route is a new process that the FDA has opened up for that one user technology. That doesn't already exist on the market, something that's really revolutionary like this product that there's a separate group of people that will look at that and to be able to -- comparing it and using the regular checkmarks to existing products, we'll eventually clear the product or obviously not. We expect that we will be hearing back from them in less than two months from today, and after that, the FDA would be getting the full formal application from us. That can easily take more than six months. So it's not unrealistic that we are not through patenting this product, maybe towards the end of this year.

We are also in parallel with that working on and seeing if we can get the products approved on international markets. We're talking CEMarking for Europe and there are many different authorities we need to do this for the international markets. Obviously, the need is just as big internationally as it is domestically.

The initial production is primarily designed so that we can collect more clinical data and also to introduce the product to leading hospitals, both domestic and internationally.

We are obviously very excited due to the strong correlation we see between actual blood loss and our index to guide the professional. And we need to better manage order through balance in the hospitals. It's huge, both during surgery and also in recovery. So, having an early detection of internal bleeding is something that currently can only be detected when it's really getting bad. The fact that the blood volume monitor is noninvasive and very easy to apply, just on one arm, makes it very user-friendly. And we have high hopes for a significant market adoption on this product.

Terrific. The next question revolves around the compound pharmacy. There have been recent items in the news surrounding compound pharmacy and Internet marketing and telemarketing practices. How has this affected the Zynex compound pharmacy?

Fortunately, it hasn't affected us. We are seeing this industry (technical difficulty) some really bad press. And it's actually become a very large industry. We estimate the compound pain-free market to be around $3 billion annually, and we've recently seen the introduction of even marketing solicitation of patients over phone and prescriptions written by what's characterized as Internet doctors. At this point, we are not accepted into those types of orders even though we've been presented with them. We really only take orders from physicians that our sales reps know and those prescriptions are ready where there is a face-to-face connection between the patient and the prescribing physician.

We have recently seen the PBMs, the Express Scripts, the CVS Caremarks of the world react very negatively to this trend in the industry. And I think here in hindsight, I think we are very fortunate we have not participated in that part of the growth of the industry and we can see today potentially a cost of some relationships with the PBMs and maybe even some state licenses. But we keep things very conservative, making sure that everything is above the bullet and follow all of the regulations, something I believe long-term is going to come back and benefit us.

Thanks Thomas. I think this next question I can take. It's what's the status of the relationship with your lender? Triumph Healthcare Finance has been, in my time with the Company which is since July 15, 2014, in my view has been excellent. They've been very, very supportive. We do continue in a state of default, but the bank has made advances available based on our cash collections. And with the reduction in our expenses and the steadiness of our cash flows, it's been -- they've been adequate, frankly, to maintain our operations. They've agreed to forbear on exercising their rights of default through June 30, which is a very good thing for us. And obviously we are looking to replace the lender. We are looking to bring in either a new investor or a new secured lender, but the bank has been just absolutely supportive and in my opinion the relationship is very, very good.

I don't see any other questions beyond this. What's your current estimate for 2015?

Well, I'm confident that we turned a corner in the second half of 2014, and we continue the positive trend going into 2015. We are not yet able to give any guidance, and we should be able to update our shareholders soon and going forward here throughout the year. At this point, that's all I can say about the estimate for 2015.

I think that concludes our earnings call for the fourth quarter of 2014. Thank you very much for anybody that has listened into the call, appreciate it.

That does conclude today's call. Thank you for your participation. You may now disconnect.