Zynex Inc (ZYXI) 2016 Q2 法說會逐字稿

Good morning, and welcome to the Zynex second-quarter 2016 conference call. (Operator Instructions) Please note this event is being recorded.

Statements made in this presentation include financial statements and forward-looking statements that are not historical facts. Each of these estimates and forward-looking statements involve 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 of 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, 2015. Therefore, neither the Company's estimates nor the assumptions upon which they are based are to be interpreted as guarantee or promise of the Company or management. The Company has no obligation to modify, amend, update, alter or change the estimates contained herein.

I would now like to turn the conference over to Thomas Sandgaard, CEO of Zynex. Please go ahead.

Good morning. My name is Thomas Sandgaard, President and CEO of Zynex. Welcome to our second-quarter 2016 earnings call. We've reported revenue in the second quarter of 2016 of $3.3 million, a 7% increase compared to $3.1 million the year before. We had a net loss of $200,000, getting very close to getting on the other side of breakeven after several years of sharp revenue decline and significant losses.

Our SG&A increased from $2.3 million to $2.5 million compared to the prior year due to increased sales commissions, while other expenses were flat or down.

Earlier this year, we added more than 70 seasoned sales reps when our biggest, and for the most, only competitor, MP, closed their business down eight months ago at the end of last year. And we have already seen our orders more than double. MP's revenue in this space was over $250 million annually.

We generated positive cash from operations during the first six months of the year of $950,000 compared to a negative cash from operations in the first six months last year of $190,000, which is essentially what has enabled us to continue to reduce debt to our lender.

The balance on our line of credit was down to $3.2 million at the end of second quarter, compared to $4 million at the end of last year. We continue to be in default on our line of credit and have received quarterly extensions from the lender for the past two years, and they continue to advance funds to continue normal operations based on our cash collections of revenue.

Our products for pain management and rehabilitation still stand out as some of the best products in the industry. The NexWave for pain management, our NeuroMove device for stroke rehabilitation and the InWave for incontinence treatment puts us in a very strong product position in the rehabilitation markets.

We are making further progress on our noninvasive blood volume monitor, the first product that can indicate loss of blood during surgery, internal bleeding during recovery, and may have additional applications as well. We continue to have a dialogue with the FDA about the blood volume monitor, and it's obviously hard to predict when and if it will be done with an FDA clearance. I am also hopeful that we will receive patent protection in the US and in Europe in the not-too-distant future.

This product will fill a huge unmet need for better fluid management in hospitals today. We continue to collect data during blood donations to a blood bank and keep finding excellent correlation to our blood volume index. Check out our website, www.Zynex.com, to see a one-minute video on how it works and learn more about the clinical study. I am very excited about launching this product.

We see great potential in both our product divisions, our existing revenue-generating areas of paint management as well as a huge unmet potential for our blood volume monitor.

For more details as to the financials in the second quarter, I will now turn the call over to Rick Luckenbill, our VP of Finance.

Thank you, Thomas. I will be discussing the highlights of the financial section for the second quarter of 2016. We will be filing a full 10-Q later today. If you would like a copy of that 10-Q, you can access it on the SEC's EDGAR site.

Here's an overview of our second-quarter 2016 unaudited results. Our net revenue was $3,286,000, compared to $3,073,000 in Q2 of 2015, which is an increase of 7%. That increase was primarily due to increased orders in the quarter compared to last year, of which we realized on the front end of the monthly rentals and monthly supplies sent to patients as well as orders received earlier in that year.

Product sales were 40.7% of our total revenue in the first half of 2016, compared to 24.4% in the first half of 2015. Rentals were 25.1% versus 13.5% in the first half of 2015, and sales of consumable supplies were 30.8%, compared to 46.3% in the first half of 2015. The large percentage difference changes were impacted by 15% of the overall revenue that came from the sale of compound pharmacy products in the first half of last year, and that's a business that was discontinued at the end of 2015.

Gross profit margin in the quarter was 71%, similar to the 72% we realized in the first quarter of 2016. Selling, general and administrative expenses were $2,495,000 in Q2, compared to $2,270,000 in the same period of last year. That increase reflects an increase in sales commissions as a result of having the increased orders compared to a year ago.

For the period, we incurred a net loss of $227,000, or $0.01 per share, compared to a net loss of $493,000, or $0.02 per share, a year ago. The balance of our line of credit was about $4 million on December 31, 2015 and $3,284,000 at the end of the second quarter.

The Company continues to face liquidity challenges due to the lack of available borrowing under the line of credit. And as we have discussed the past two years, the Company is in default of the terms of the credit agreement, 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 and has agreed to forbear exercising its rights through September 30, 2016. There can be no assurance that we can find a new lender on acceptable terms or additional equity. For a more in-depth discussion, please refer to our 10-K for the year 2015 or today's 10-Q filing.

In summary, the second quarter was encouraging for Zynex. We are getting closer to seeing a positive net income. Orders were up significantly. And revenue, as a result, started to increase as well. We continue to improve our operating results and expect to see improved income for future periods as a result of the reoccurring revenue from monthly rentals and monthly supplies accumulating in our revenue numbers.

I will now turn it back over to Thomas Sandgaard.

Thank you, Rick. Our orders have doubled compared to the level of a year ago. But our continued growth is currently significantly limited by the availability of cash to fund production of new NexWave products to fill patient orders and sales rep (inaudible) units. We will continue to update everyone on the numbers of orders received monthly. I still expect our 2016 revenue will be above the year, $16 million, compared to $12 million in 2015 and that we will end up showing a profit for the year.

I am very excited to be the past -- turning the business around and instead be dealing with growing the business and now be in a position to take advantage of the huge void in the electrotherapy business. Our biggest hurdle right now is our limited ability to finance the building of an increasing number of products needed to fill patient and sales rep orders. We have hired many new, very seasoned sales reps the past several months, and I'm excited to see increasing collections in our electrotherapy business. With orders increasing in our existing business and having decreased our SG&A during the last couple of years after the $40 million we reported in revenue in 2012 and the subsequent decline, I'm very optimistic for the future.

I'm also very excited to see the progress of our blood volume monitor, and the data we are collecting to eventually support the launch of product is very encouraging. The response to our ability to detect blood loss and internal bleeding noninvasively has been tremendous already.

We will now answer questions from our listeners.

(Operator Instructions) Albert [Fein], a private investor.

It's Howard Fein, not Albert. Two questions -- how many actual shareholders do you have? And second question is, what are the non-cash costs that have been deducted in your operating statement? In other words, I'm looking for depreciation and similar charges.

Okay. Well, I can answer the first one, and I'm sure we can have Rich answer the second question here. There are approximately 1,500 shareholders. And, as you know, I'm the largest shareholder.

Right. Yes.

And the rest is spread over approximately 1,500 shareholders.

And in regards to the non-cash portions of our operation statements, Rick is looking into providing some detail right now. (inaudible).

I presume that they are going to be on the 10-Q anyway.

They will be, Howard.

Yes; they weren't obvious to me in the press release.

Yes. If I can get back to you on that, as I'm trying to pull my information.

That's fine. Sure.

Okay, we'll get back. We'll answer another question here in the meantime, and then we will get back to this one here.

Here's one that came in. What's the status of the blood volume monitor? Do you expect to start selling this year?

We keep collecting good data in blood drives and blood donations where people donate half a liter of blood, which is actually a very small amount of blood compared to the 5 liters that's in the body, only enough for some people to get a little dizzy and uncomfortable. And we already see that after about 200 milliliters, and maybe with about a minute delay, that we see a strong correlation with our index. And we've also seen from previous studies that when saline is re-infused that the index follows right back up.

And we also finished up yet another response to the patent office last week. That thing has now been under way for more than four years. And we also have a European patent application pending as well.

And in terms of the FDA, we are just about to submit yet another response to them. And, all in all, we are getting closer every day with all the formal issues. It's very encouraging that we obviously have a real product that works well and is already in pilot production in several places. So, we've obviously -- the main hurdle for us is to get the blessing from the FDA before we can start selling, but the product is obviously ready.

And another question is if we are looking for additional capital. The answer is that, yes, we are obviously looking for additional capital. We are very constrained in terms of our cash right now and considering the huge opportunity have in the market. So, we are looking both on possible loan possibility as well as private equity. We are exploring as many opportunities as we possibly can in regards to that.

So Howard, the total property and equipment depreciation through June 30 was $1.8 million.

Yes; he's obviously not on the line anymore. But I hope that that answered the question.

I see this -- there's another question here. And maybe we can make that the last question. Do you expect to be profitable in the third quarter?

And, yes, that is currently our expectation. We hope to exceed $4 million in net revenue in the third quarter and have SG&A at about the same level as we were running at the first half. So that in itself should get us to a profitable quarter.

I think that ends the questions for today. Oh, it looks like we have another listener with a question again.

We have a follow-up question from Mr. Howard Fein. Please go ahead.

How much of the non-cash depreciation was for the last quarter? Or can you not easily tell? If you can't easily tell, that's fine; I'll look on the 10-Q.

Howard, hold on. I have just got to do a comparison analysis quarter over quarter. I could specifically get back to you if you'd like.

Oh, that's fine. Yes, you go to computer.helper@ATT.net.

I'd also like to say as a shareholder I am not concerned that you are so constrained. And I'm not concerned you can't raise money or that you can't get new financing. I think it's better to tough it through. I spent many years doing corporate turnarounds. So, I think you want to get back to where you have cash in the bank, and you are doing just fine now. You are doing an excellent job, and you just need to tough it through and keep doing it. You will be a much, much stronger Company in five years.

Well, thank you, Howard. That's very encouraging to get that kind of feedback. Whether it was deliberate or just the way things played out the past two years, that's obviously what we have been doing. And if nothing else, the business is stronger than ever.

Yes, yes.

And we obviously have the --

Yes. Keep it strong. Don't try to go too fast. And if it's constrained for a while, it forces efficiency in the business, which keeps -- and keep that strength of that efficiency and that discipline.

I appreciate it.

People sometimes -- this was always my observation. They want it too fast, too soon. They go out, borrow money, or they further dilute by raising money. And it doesn't serve them well in the long-term. I'm concerned not that you are paying me a dividend tomorrow; I'm concerned that you are a strong Company in five years.

Thank you. Yes. Not incurring unnecessary dilution -- that has always been an important thing for us.

And especially for you as the major shareholder.

Yes. Absolutely.

And the other thing is you really need to get yourself a Board of Directors that needs to look better. And that's one way. And the other way you want to look at it is you may want to reduce the number of shareholders by doing a reverse split and freezing out the small people, get yourself to the point where you don't have to do all the filing.

That's definitely one of many options we are looking at constantly. That, as well as the option to eventually get listed on another stock exchange, et cetera. Those things are in play all the time, including what you were talking about there.

Okay. Good. It's not necessary to be on the exchanges and be publicly traded and have to do all that filing. The bottom line is how many dollars you have in your pocket at the end of the day.

Right. That's what buys us strategic options. Unfortunately, it has been somewhat limited here the past couple of years. But it --

I think it's fine. You are doing very well. You have done an excellent turnaround, and just keep at it.

Thank you. Thank you.

Well, we should probably -- there are no more questions in the lineup. So I hope that today's earnings call has been informative for everyone. And I appreciate the interest in Zynex and listening in to this call. Thank you, and have a great day to all.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.