Zynex Inc (ZYXI) 2016 Q4 法說會逐字稿

Good morning and welcome to the Zynex 2016 earnings call. (Operator Instructions) Please note this event is being recorded. 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 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 these 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 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.

I would now like to turn the conference over to President and CEO Thomas Sandgaard. Please go ahead.

Good morning. My name is Thomas Sandgaard, President and CEO of Zynex. Welcome to our full-year 2016 earnings call. And for those of you that haven't seen our press release yet, I can inform you that it just came out just a few minutes ago. So you might be able to follow the numbers, etc., on that as we speak.

But for the year of 2016, we reported revenue of $13.3 million, a 14% increase compared to $11.6 million the year before. We had net income of $69,000, primarily due to the second half of the year being profitable, and we now have the year of the turnaround behind us.

Our fourth quarter showed a $200,000 profit, and our gross profit margin during the year showed a strong 75% margin. We continued our tight cost control during -- that we have been executing the past couple of years, and managed to keep our SG&A slightly lower than 2015 in a year were orders increased 86% year over year.

We recently closed on a financing of just over $1 million, which allowed us to pay more down on our line of credit. And more importantly, allowed us to build more products so we could finally keep up with our sales orders.

It has been very difficult for us the past several years while being cash flow positive to be using the monies from our positive momentum to pay down old bank and lender debt and not being able to take advantage of the huge void in our primary market for electrotherapy. The recent financing now makes it possible to keep up with filling sales orders in a timely fashion, and I am very excited to see the continued growth as a result of physician, clinics, and our sales force now prescribing and purchasing our products more than ever.

Our long-term goals for the Zynex medical division for electrotherapy is still to grow to more than $250 million in annual revenue. It is worth noting that cash from operations was positive during 2016 at $1.7 million compared to a positive cash from operations in 2015 of $341,000, which is essentially what has enabled us to continue to reduce the debt to our lender even further. And at the end of March this year, our balance with our lender was down to $2.1 million.

We continue to see good, strong reimbursement from insurance companies on our NexWave device. And we expect to see more support in general for our technology, as we clearly have a safe and non-addictive solution to pain management without any side effects. Opioid addiction and abuse is a huge problem affecting millions in this country every year.

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

We're making further progress on our new noninvasive blood volume monitor, the first product that can indicate loss of blood during surgery or internal bleeding during recovery and may have additional applications as well.

We continue to have a dialogue with the FDA and expect to submit another response to them this week. And it's obviously hard to predict when and if we will be done with an FDA clearance. This product will fill a huge unmet need for better fluid management in our hospitals today.

Earlier this year, we had a chance to demonstrate our fully developed product to the U.S. Army with great success. We are having the product tested in several hospitals internationally and have also collected data during blood donations where people donate half a liter of blood to a blood bank. You can check out our website, www.zynex.com, to see a one-minute video of how it works and a write-up of our clinical testing. I am very excited about eventually be (sic) launching this product.

So we see a great potential in both our product divisions, our existing revenue-generating area for pain management, as well as the huge unmet potential for our blood volume monitor.

I will now turn the call over to Rick Luckenbill, our VP of Finance.

Thank you, Thomas. Before I get started, I just want to note that we filed an NT and hope to have the full 10-K filed in the next couple of days. So here's our overview of the 2016 audited results.

So our net revenue for 2016 was $13.313 million compared to $11.641 million in 2015, which represents an increase of 14.4%. The increase was primarily due to the increase in orders during the year. And product sales was 34.7% of our revenue in 2016 compared to 25.4% in 2015.

Rentals were 33.1% versus 21.3% in 2015. And then the sales of the consumable supplies was 32.2% compared to the 43.2% in 2015. Our pharmacy revenue was $18,000 in 2016 represented in Q1 as we closed our compound pharmacy business effectively in the beginning of last year, 2016.

Gross profit increased from $6.704 million in 2015 to $9.796 million in 2016, reflective of an increase in our gross profit margin from 58% to 74%. The prior-year gross profit margin was also impacted by writing off non-core inventory. Product and supplies cost decreased $1.420 million or 29% compared to 2015.

Selling, general, and administrative expenses, or SG&A, were $9.156 million in 2016 compared to $9.185 million in 2015, which is a slight reduction and an indication of further tightening of our operations, considering the significant increase in orders during the year. For the year, our net income was $69,000 or less than 1% compared to a net loss of $2.911 million or $0.09 per share in the year prior.

Our line of credit was $2.771 million at December 31, 2016, compared to $4.002 million a year before. A few days ago, the balance on the line of credit was brought down to $2.154 million. The Company continues to face liquidity challenges due to the lack of available borrowing under our line of credit. And as we have discussed the past year or more, 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. Our last extension was for the first quarter of this year and we continue to negotiate another quarterly extension. 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 2016 as we filed with the SEC.

So in summary, 2016 was encouraging as we produced a positive result, grew orders and revenue, and increased gross profit margins while decreasing our fixed expenses.

I will now turn it back over to Thomas Sandgaard.

Thank you, Rick. Last year's result was a reflection of several years of hard work and working through a difficult financial situation. Not only have our orders grown, our fixed expenses are now under control and our production can now finally keep up with order volume. And I look forward to reporting the first quarter of this year soon and see the trend continue.

It was very important for us to close on the financing four weeks ago, since the only roadblock we really had to continuing our growth was the ability for production to keep up with the growth in sales orders. Having a significant backlog and delay in shipment of products to patients in severe pain made many prescribing physicians hesitant to increase their orders and sales reps hesitant to introduce our NexWave to new accounts.

I am very excited to be 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 left by some of our competitors. We have hired many new, very seasoned sales reps during last year and I am excited to see increasing collections in our electrotherapy business.

With orders increasing in our existing business and having decreased our SG&A during the past couple of years after the $40 million we reported in revenue in 2012, I am 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 the product, which 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)

We have one question that came in electronically. I can read that and answer that. Do you expect to be profitable in the first quarter? And what does this year look like?

And I would say yes, that's currently our expectation. First quarter, we'll probably be in the same range and run rate as last year, as the majority of our revenue, 70% or so, is from recurring revenue such as monthly supplies and monthly rentals.

I expect our gross profit margin to remain high and our SG&A to be stable still at this point and not fluctuate. The rest of the year will depend heavily on how much orders will continue to grow, mainly as a result of now having enough inventory to fill orders timely.

We should have a good estimate in a couple of months. And later in the year, we expect to get back in the mode of further expanding our direct sales force. There is still a huge void in the market, however, after our biggest competitor, a $250-million-a-year competitor, closed down just more than a year ago.

Okay. If there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to President and CEO Thomas Sandgaard for any closing remarks.

Well, today's earnings call has been informative for everyone. And I appreciate the interest in Zynex and listening to this call. And 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.