Zynex Inc (ZYXI) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Zynex first-quarter 2015 earnings conference call and webcast. As a reminder, for the Q&A session questions can only be submitted from the 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 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, 2014. 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 first-quarter 2015 conference call. Revenue in our first quarter was $3.2 million and was slightly higher than first quarter a year ago and over $1 million higher than the fourth quarter of 2014. Our revenue has obviously stabilized and we are back to growth mode.

We saw orders increase in the later part of the quarter, and we have also seen orders continue to grow into the first half of this quarter, which makes us up optimistic that we will see further revenue growth throughout the year. As we have mentioned before, 2013 and the first half of 2014 was a rough period for us. So it's very exciting for us to be back to the revenue growth and now combined with significant expense reductions. The loss in the first quarter was reduced significantly from the prior-year as we continue to make improvements to our cost base.

We have positive news regarding revenue on our NexWave pain management device as well as our compound pharmacy. Orders are growing significantly on our NexWave device and, even more importantly, we just hit an all-time high on how much we collect per order in this industry, an indication that the electrotherapy market is still very healthy and we will continue to expand and win market share back in this area.

We saw a significant increase in our compound pharmacy revenue as well. It is now up to $500,000 in the first quarter of 2015 and continues to grow. It now has a meaningful contribution to our overall revenue and makes us less dependent on having one revenue stream alone.

Our NexWave device is still by many considered one of the best performing and most user-friendly devices in the electrotherapy industry, if not the best. The NexWave was introduced back in 2011 and, along with our NeuroMove device for stroke rehabilitation and InWave for incontinence treatment puts us in a very strong position in the rehabilitation markets.

In addition to growing our electrotherapy salesforce, we are expanding sales in our compound pharmacy area by also adding well-established web groups and, of course, continuing cross-selling efforts in the two markets. We have also added new products such as pain patches and metabolic supplements to our offerings.

Overall cash collections have been steady for about a year and a half, running at around $3.5 million a quarter. And with cost reductions we have made, we have stopped the bleeding.

We are making further progress on our noninvasive blood volume monitor, the first product that can indicate loss or block during surgery, internal bleeding during recovery, and may have additional applications as well. This product will fill a huge unmet need for better fluid management in the hospitals today. Not only do we expect to hear back from the FDA sometime in May or early June, but we are building the first line production and it is aimed to be placed in hospitals for commercial testing and for collecting additional clinical data.

We are also preparing to getting the product CE Mark for Europe. You should check out our website, www.Zynex.com. And right there in the middle of the first page is a video you can click on to see how it works. I'm very excited about launching this new product.

In summary, we see great potential in both our product divisions, our [existing] revenue-generating [layer] of pain management as well as the huge unmet potential for our blood volume monitor.

I will now turn the call over to our CFO, Brian Alleman, to review our first-quarter 2015 financial results.

Thanks, Thomas. Many of you have seen our financial results in the press release that was issued this morning. We will be filing our Form 10-Q later today. If you would like a copy of the release or Form 10-Q once filed, you will be able to access them on the web at the SEC's EDGAR website.

Here's an overview of the first-quarter unaudited financial results. Q1 total net revenue was $3,183,000 compared to $3,167,000 in the first quarter of 2014. This is the first time in nine quarters that revenue has exceeded the same higher prior-year quarter. As Thomas said, orders for our NexWave electrotherapy devices have finally stabilized and are beginning to show signs of growth. Sales of transdermal pain creams continue to increase and were $474,000 in 2015 quarter compared to merely $110,000 in the 2014 period.

Cost of revenue related to both rental and sales business was $1,245,000 compared to $997,000 in the 2014 quarter. The increase reflects a more aggressive reserving for obsolete and damaged field inventory in 2015.

We reported selling, general and administrative or SG&A expenses of $2,710,000 in the first quarter compared to $3,456,000 for the 2014 quarter. The reduction reflects the effects of the headcount reductions, general cost controls, and lower rent under the new facilities lease, all of which were implemented in 2014.

For the first quarter of 2015 we incurred a net loss of $896,000 or $0.03 per share compared to the net loss of $1,430,000 or $0.05 per share in the 2014 period. Our line of credit balance of March 31, 2015, was $4,538,000 compared to $4,442,000 as of December 31, 2014. The Company continues to face liquidity challenges due to the lack of available borrowings under our credit line.

As we have discussed over the last several quarters, the Company is still in default of the terms of the credit agreement, and the lender has accelerated the payment of outstanding loan balance. However, the lender has continued to make a cash advances to the company based on its 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 a more in-depth discussion, please refer to our upcoming Form 10-Q for the quarter ended March 31, 2015, or the recently filed Form 10-K for the year ended December 31, 2014.

In summary, the first quarter of 2015 was a significant turning point as revenue stabilized and, for the first time in nine quarters, was greater than the prior-year period. We continue to see growth in orders for our NexWave product and ramping growth in compound pharmacy.

I will now turn the call back over to Thomas.

Well, thank you, Brian. As we have turned this business around and look forward, we expect to see $4 million to $4.4 million in revenue in the second quarter and at least $15 million in revenue for the year. We also expect to see positive income from operations. I am really excited to see increasing collections from our electrotherapy business, orders increasing in both electrotherapy and our compound pharmacy intervention, having our SG&A in line with our current level of revenue. It has taken a long time and a lot of effort from everyone at Zynex to get to that point. And I'm excited to see more prosperous times ahead for the Company for the benefit of our shareholders, employees, lenders, and other stakeholders.

Of course, it's exciting to see our blood volume monitor now a real product and waiting for regulatory approvals and more clinical trials. The response to our ability to detect blood loss noninvasively has been tremendous. And we have a high expectation for not only the clinical interest in the product but also reliability in this medication issues that hospital administrators might be able to reduce as a result of having this technology available.

We will now respond to questions that have come in through our webcast interface. We will have Brian read those questions and we will answer them accordingly.

Okay. The first question actually has to do with blood volume monitor. And it involves -- basically, you talked about the development, etc., and waiting for the FDA approval. Can you shed a little more light on what you plan to do with these units that are in production now, prior to FDA approval?

Yes. First of all, we need clinical research to be published and as much as possible. It's part of obtaining acceptance among medical professionals. We also need to collect information from field about the initial use of the technology in order to shape our marketing messages and start planning ourselves the marketing efforts. We expect to work with hospitals both in the US and in Europe for collecting data. And there's great interest from a lot of places and we have worked with, I believe, just a limited number of hospitals and research institutions here at this early stage.

Terrific. Next question is -- become a pretty standard question. It's can we give an update on the status of the relationship with our lender. And I'll take that.

The relationship continues to be very, very good. As you can see, we have a slightly higher balance on the credit line at March 31 from December 31. And that has all been with the support of Triumph Healthcare Finance. They have been very, very supportive. They have made it clear they want us to refinance them out, but as we see the improvement of the business, none of that would have been possible without the support from Triumph. They continue to provide us funding. We report to them on a very regular basis, but their support has been very good. And I've got no reason to believe that that won't continue into the future, although, frankly, I can't predict the future. But the relationship today is very, very strong.

The last question I see involves our projections and how confident are we in the $4 million to $4.4 million of revenue for the current quarter.

Well, I can probably start off with saying the same thing as you just did, in terms of predicting the future that there's a lot of uncertainty around trying to predict the future. But what I'm focused on it comes to predicting the revenue for the second quarter is obviously the uptick in orders that we have right now both on our NexWave device and in the compound pharmacy. And that gives me great confidence that we will see a 25% to 35% increase in revenue from the first to the second quarter.

And as mentioned earlier, the NexWave device is still considered the best in the industry now, four years after the introduction. And while we don't expect any significant increase in the SG&A other than an increase in sales commissions, I'm very confident that at this point in the time that we will meet this target.

We have a follow-up question on the blood volume monitor. And that's when do we believe that the blood volume monitor will be actually approved by the FDA and ready to go to market.

We submitted an application, it's called a pre-submission application, because we are hoping to get this through the FDA into the de novo route. This is a new technology, something that doesn't exist already. And that was nearly two months ago. And the FDA has 90 days to respond to that. They have already responded that they have everything we need and expect to be able to give us an answer within the 90-day window. So here in May or early June we should have a response to that. So basically that gives us the place and the route for way we send in the complete application.

So if it's the de novo route, that would be the group that deals with new technology. And that will be a six-to-nine-month process. It's hard to say. That might be a realistic timeframe. If it goes the more traditional route of the 510(k), where it's a product that will be concurrent to other existing products in the market, that would probably take about the same time. That doesn't mean that there could be complications in dealing with the FDA, there could be additional information that they would like to see that we won't be providing in the initial application, etc., that could certainly delay it.

So we are aggressively hoping that we could be through the FDA process before the end of the year. Realistically, maybe it gets right after the beginning of the year. But most importantly, we have the process started with the FDA. It's not something that we up until recently just talked about. We look to be filing something with the FDA. It's actually in process now. So I think that's a key item in terms of how things are progressing and moving forward on the blood volume monitor end.

Good. I don't see that we have any other questions, so I think we should wrap up.

Okay. Well, thank you for everyone that listened in on Zynex's earnings call. Thank you very much.

And that does conclude today's conference. And we thank you for participating.