Zynex Q4 2023 Earnings Call Transcript

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February 29, 2024

Key Takeaways

  • Record 2023 performance: Achieved $184.3 million in revenue (up 17% YoY), marked the 11th consecutive profitable quarter, generated a record $17.8 million of cash from operations, and repurchased $38.4 million of stock.
  • Sales force expansion drives orders: Expanded to roughly 475 of 800 targeted territories, resulting in a 43% increase in full-year orders and 29% growth in Q4, with annualized revenue per rep rising to $415,000.
  • New NMES device cleared: Received FDA 510(k) clearance in February 2024 for the next-generation mWave neuromuscular electrical stimulation device, set to launch within the next 1–2 months for clinical and home use.
  • Monitoring division pipeline: Secured FDA clearance for a second-generation blood and fluid monitor, plans mid-2024 FDA submission for a laser-based pulse oximeter, and is developing sepsis and total hemoglobin monitors.
  • 2024 outlook: Forecasts approximately $227 million in revenue (23% growth) and $0.50 in diluted EPS, supported by Q1 order growth of 23% in January and 29% in February.
AI Generated. May Contain Errors.
Earnings Conference Call
Zynex Q4 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the designx 4th Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Quinn Callanan from MZ North America.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good afternoon, everyone. Earlier today, Zynex released financial results for the Q4 year ending December 31, 2023. A copy of the press release is available on the company's website. Joining me on today's call are Thomas Sandgaard, Chairman, President and Chief Executive Officer Dan Morehead, Chief Financial Officer Anna Luszak, Chief Operating Officer and Don Greig, President of Zydex Monitoring Solutions. Before we begin, I'd like to remind you that during this conference call, the company will make projections and forward looking statements regarding future events.

Speaker 1

We encourage you to review the company's past and future filings with the SEC regarding or including without limitation the company's 2020 Form 10 ks and subsequent Form 10 Qs, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward looking statements. These factors may include, without limitation, statements regarding product development, product potential, the regulatory environment, sales and marketing strategies, capital resources or operating performance. With that, I'll now turn the call over to Thomas.

Speaker 2

Thanks, Quinn, and good afternoon, everyone. Thank you for joining us today for the Q4 and full year 2023 earnings call. 2023 was highlighted by ongoing revenue momentum leading to a record revenue of for the year of $184,000,000 up 17% from the prior year. The 4th quarter marked our 11th consecutive quarter of profitability and 7th straight quarter of record high order numbers. Once again, we received the highest number of prescriptions in company history, exceeding our previous record.

Speaker 2

I'm proud to announce that we also produced $17,800,000 in positive cash from operations in 2023, another all time record for the company. With that, we are able to continue to invest in further sales growth also in our monitoring division and aggressively be buying back stock on the open market. During the Q4, we played an allowance of $6,200,000 on accounts receivables, which decreased our net revenue and profitability. We continue to analyze our receivables and collections from payers. This adjustment is an anomaly and a nonrecurring adjustment.

Speaker 2

Net of this adjustment, we closed through as negative revenue. Revenue increased to $184,300,000 while producing $0.17 of earnings per diluted share. Dan Moorhead, our CFO, will expand on these adjustments during his portion of the presentation. Significant credit goes to our team who were able to drive revenue higher and deliver significant earnings per share and free cash flow as we expand our sales force, invest in our new business, Synex Monitoring and combat wage inflation like many others in the business. Our sales force has continued to expand the market each quarter, enabled by a strong team and great products.

Speaker 2

Orders increased 43% for the full year compared to the year before and increased 29% year over year in the 4th quarter. We believe there is considerable runway for us to continue growing orders into the future, leveraging our current portfolio and growing pipeline of existing and exciting new products. To help drive this order growth, in the Q4, we submitted a 510 application to the FDA for our new m Way neuromuscular electrical stimulation device. And already in February of this year, we received the 510 clearance. The Enway is set to replace its predecessor, the eWave, which has been fundamental in NMES treatments across the U.

Speaker 2

S. Since 1998. The e wave, which is a product we have been manufacturing for several decades, has helped over 17,500 patients with muscle related issues such as drop foot, quadriarch, shoulder subluxation and hand rehabilitation. The M Way is designed to improve the way patients manage their neuromuscular conditions and with advanced features and a UC friendly design, the M Way allows patients to be treated in a clinical or home setting with ease. The compact and lightweight design of the m Way ensures portability and easy integration into patient recovery routines.

Speaker 2

The user friendly interface and ease of use when designing a custom elective therapy regimen will encourage an even broader adoption of our therapeutic products. And as I mentioned, in February of this year, we received the FDA clearance for the product. And paving the way for launching the product. We expect that to be in the next month or 2. As you know, we have spent the past many years building nationwide sales coverage with 800 territories, and we are just shy of 500 of these being populated by now.

Speaker 2

We are focused on filling all 800 territories and making our sales reps fully productive. It takes up to 3 years before a new rep is typically fully productive. And at this point, only half of our sales reps has more than 1 year in terms of tenure. Having built this strong pipeline to prescribers that see patients in pain and in need of rehab, we are now putting an extra effort into diversifying our revenue stream. Our best selling product, the Next Wave, was nearly 85% of all orders received a couple of years ago and only 50% was from all other products such as low back support, bracing products, cervical traction, cold or hot therapy equipment and compression.

Speaker 2

It is now up to 25%, and we have launched an initiative this month with incentives for our sales force to also promote these products more actively. We do not expect this to cannibalize our next-ray revenue, but rather be an addition to our revenue in the pain management division. In addition to the impressive results from pain management division, our monitoring SYNEX Monitoring Solutions, the monitoring division, continued to move forward in the Q4 with further development of our blood and fluid monitor and our laser based pulse oximeter. We were excited to announce FDA clearance last year for our 2nd generation blood and fluid volume monitor, a noninvasive and wireless technology targeted to improve patient outcomes with better fluid management in hospital settings. We continue to collect additional data in clinical trials, and Don Gregg will provide further updates on this product in his prepared remarks.

Speaker 2

We have 3 additional products in the pipeline in our hospital monitoring products division: a laser based pulse oximeter neeCo, a monitor for early detection of sepsis and a noninvasive laser based monitor of total hemoglobin levels called the Hemox. The monitoring division is pre revenue, and we expect to submit an application to the FDA for our laser based pulse oximeter midyear 2024. Overall, we're making great progress in the patient monitoring division, which we believe will have a game changing growth potential for the company. Looking ahead, we are making significant progress building on our holistic, noninvasive approach with at home pain management devices and diversifying the new products. We are rapidly expanding direct sales distribution channels that are delivering accelerating and high returning revenue high recurring revenue as we continue to execute operationally and strategically.

Speaker 2

In tandem, we are focused on ramping our hospital monitoring division, which represents a large and growing market opportunity. We expect consistent growth and strong financial performance in 2024, following the double digit growth we produced year after year. We also expect additional catalyst and regulatory milestones during the year as we work execute on our strong pipeline of new products. We look forward to additional updates in the months to come as we build our sales force and execute on our growth objectives to improve the quality of life for patients suffering from debilitating pain and illnesses and bring long term value for our shareholders. With that, I will now turn the call over to Anna Luxok, our Chief Operating Officer for a more detailed business update on the pain management division.

Speaker 3

Thank you, Thomas. Xynex's pain management division had another impressive quarter with 29% order growth and 43% order growth for the full year. As Thomas mentioned, we also received FDA clearance for our next generation NMES device. NMES treatments have several uses, including aiding recovery from surgery, managing chronic conditions and even enhancing exercise performance in healthy individuals. The Emwave replaces its predecessor, the Ewave, and is the next evolution in NMES devices, allowing for more customizable treatments within clinical and home settings.

Speaker 3

We continue to target filling 800 sales territories, while diligently ensuring the right individual is matched to the right territory. We ended the Q4 with approximately 475 sales reps and year to date revenue per rep on an annualized basis, not including the receivable write off, was approximately $415,000 an increase of 5% over 2022. We added a net of approximately 60 sales reps during the year, which decreases the growth in revenue per rep in the near term as those reps ramp up. Our direct sales force is relatively new with an average tenure of 18 months. As our team continues to mature, we expect to drive sales efficiency higher.

Speaker 3

I look forward to another profitable year for the pain management division and updating you all on our market expansion in future calls. I'll now ask Don Gregg, President of ZYNEX Monitoring Solutions to provide updates related to that business division.

Speaker 4

Thank you, Anna. Our Patient Monitoring division is truly a ground up growth effort and a long term investment for Xynex to diversify our revenues toward becoming one of the largest medical technology companies. We are looking leverage this management team's past success at building businesses to grow a second line of products with a much larger market opportunity at comparable profitability. Zynex has the technologies and strategies necessary to make a successful entrance into the new product line and market. But the process of acquiring FGA clearance can be somewhat lengthy with occasional delays.

Speaker 4

The fluid monitoring product via our Centimeters line of monitors is a precursor technology for sepsis monitoring. Our Centimeters technology is introduced to operating rooms entirely new capabilities that could alter the standard of care and ultimately improve the welfare of patients. We continue to consult with experts, key opinion leaders and thought leaders in the space to refine the capabilities of our products and ensure maximum uptake by potential customers. We expect that building a successful standalone fluid monitoring market will take longer than other new monitoring products, but we believe strongly in the benefits patients will experience and the value proposition provided by the technology. Our non invasive laser pulse oximetry line, including neko and Hemox continues progressing positively.

Speaker 4

We expect to submit neko to the FDA in mid-twenty 24. We are working diligently to engage experts, key opinion leaders, professional societies to raise awareness of the science of laser pulse oximetry. We recently finalized our go to market strategy in this space along with developing marketing execution strategies. Considering the competitive dynamics in this space, we will refrain from detailing our initial go to market until closer to product launch. I will now turn the call over to Dan Morehead, Chief Financial Officer, for a more in-depth look at financial performance for the quarter.

Speaker 5

Thanks, Don. Please refer to our press release issued earlier today for a summary of our financial results for the Q4 and full year 2023. After commenting on our financial results, Thomas will review our guidance for 2024. Before we get into the financial results, I wanted to provide some brief color on the 4th quarter adjustment. During Q4, we placed an allowance on $6,200,000 of slow collecting accounts receivables.

Speaker 5

When our expected collections are adjusted, they are recorded through revenue, not bad debt or G and A expense. As Thomas mentioned, this is a nonrecurring adjustment. We continue to have strong relationships with our payers. It's important to consider our cash from operations increased 29% in 2023 and was a company record despite the adjustment. And our DSOs decreased during 2023, unrelated to this adjustment, both of which are great indicators of how the business is performing.

Speaker 5

The adjustment net of taxes affected our diluted earnings per share by $0.13 For the full year 2023, net revenue increased 17 percent to $184,300,000 from $158,200,000 in 2022. Orders increased 43% in 2023 compared to 2022. Adjusting for the receivables allowance, net revenue would have been $190,500,000 a 20% increase compared to 2022 and in line with our estimates. Device revenue increased 35 percent to $58,800,000 compared to $43,500,000 in the prior year. Supplies revenue increased by 9% year over year to $125,500,000 from $114,700,000 in the prior year.

Speaker 5

Gross profit for the full year of 2023 increased to $146,000,000 or 79 percent of revenue as compared to $126,200,000 or 80 percent of revenue in 2022. Sales and marketing expenses were $86,700,000 in 20 3 compared to $67,100,000 in 2022, primarily due to increased headcount of our sales force and increased commissions and incentive pay related to improved order volumes and higher than normal wage inflation. G and A expenses were $48,500,000 in 2023 compared to $36,100,000 last year. Approximately 16% of the increase in G and A is related to investments Monitoring Solutions division and related headcount to launch our new products. The remainder is primarily due to compensation and benefits expense driven by headcount growth associated with the growth of the company and increased order volumes.

Speaker 5

Net income was $9,700,000 and produced $0.27 per basic and diluted share in 2023 compared to $17,000,000 or $0.44 per basic and diluted share in 2022. Adjusting for the receivables allowance, net income would have been $14,400,000 net of tax or $0.40 per basic and diluted share, which was in line with our estimates. Adjusted EBITDA for the year ended December 31, 2023 was $22,300,000 compared to $28,100,000 in the year ended December 31, 2022. Now I'll look at our 4th quarter results. In the 4th quarter, orders increased 29% year over year to the highest number of orders in company history for the 7th consecutive quarter.

Speaker 5

Net revenue was $47,300,000 compared to $48,800,000 in the Q4 of 2022. Adjusting for the receivables allowance, net revenue would have been $53,500,000 a 10% increase compared to the Q4 of last year. Device revenue was $16,300,000 compared to $15,900,000 in the Q4 of last year. Supplies revenue was 31,000,000 dollars versus $32,900,000 in the Q4 last year. Gross profit in the 4th quarter was $37,000,000 or 78 percent of revenue as compared to $39,400,000 or 81 percent of revenue in 2022.

Speaker 5

Sales and marketing expenses were $21,700,000 in the Q4 of 2023 compared to $19,200,000 in the same period in 2022. And G and A expenses were $13,000,000 in the Q4 of 2023 compared to $10,100,000 last year. Net income was $1,200,000 and produced $0.04 per basic and diluted share in the 4th quarter of 2023 compared to $7,500,000 or $0.20 per basic and diluted share in 2022. Adjusting for the receivables allowance, net income would have been $5,800,000 net of tax or $0.17 per basic and diluted share in the 4th quarter and in line with our estimates. Adjusted EBITDA for the 3 months ended December 31, 2023 was $9,900,000 compared to $11,400,000 in the quarter ended December 31, 2022.

Speaker 5

We ended the year with $44,600,000 in cash on the balance sheet and working capital of $69,300,000 Cash flows from operations in 2023 increased 29% year over year to a record 17,800,000 dollars In the Q4, we continued our stock buyback and repurchased $14,000,000 of common stock, bringing the total repurchases in 2023 to $38,400,000 and over the last 24 months, we've purchased $65,000,000 We continue to balance deploying cash generated between investing in our business and returning cash to shareholders. We believe both offer attractive return profile. The continuing buyback reflects our belief in management team, the growth opportunities for both divisions and we remain committed to creating shareholder value in the near and long term. With that, I'll turn the call back over to Thomas.

Speaker 2

Thank you, Dan. We've had a strong start to the Q1. And with the continued growth in orders in the Q1, I can tell you we're off to a good start in January, we grew 23% year over year. And in February, we're looking at 29% year over year growth. And in terms of revenue for the quarter, we expect revenue to come in at $47,500,000 which is approximately 13% higher than the Q1 of 2023 and diluted earnings per share of $0.03 As for our 2024 outlook, we expect total revenue to be approximately 227,000,000 dollars representing growth of approximately 23% over 2023 and diluted earnings per share of approximately 0 point 5 $0 We are incredibly proud of the growth that we have consistently demonstrated in the past several years.

Speaker 2

Top line revenue has produced high levels of profitability and free cash flow, which has allowed us to expand our sales force, launch a new business line to diversify our revenue stream and continue repurchasing our shares. The business we have created and the profitability we're able to generate allows us a high degree of flexibility to allocate capital in several ways. We have the ability to continue investing in our business and return cash to shareholders simultaneously. We believe both these avenues will produce substantial shareholder value. With that, operator, please open the call up for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question is from Jeffrey Cohen from Ladenburg Thalmann. Please ask your question.

Speaker 6

Hi, everyone. Good afternoon. Thanks for taking our questions. I've got a few semi brief ones. So firstly, on the receivable balance, perhaps a little more commentary.

Speaker 6

I know that there's been some naysaying in the past about one account specifically called United and want to know if this stems from that account or one account or it stems from multiple accounts and is the effect both on devices and supplies?

Speaker 5

Yes. So the adjustment, Jeff, is related to receivables that we're collecting slowly. We placed an allowance on them. As we said, it was a bit of an anomaly because current accounts receivable have improved with cash flow and DSOs improving both in 2023 and going forward, it's really a non issue. We're not going to get too detailed on it, but I would say it's not related to a specific account that you're thinking about, I don't believe.

Speaker 5

But it is a pair that we continue to work with.

Speaker 6

Okay. Got it. That's super helpful. Maybe, Don, could you comment a little bit? So it seems like CMS is about $8 ish million of G and A operationally currently.

Speaker 6

And what's the plan for launching the Blood Volume Monitor? What's the plan for any public readouts far as some of the data that you've been collecting?

Speaker 4

Yes. Jeff, this is Don. I just wanted to clarify, we're about $9,000,000 G and A. And we the Centimeters platform is a long term play for us. We're very focused right now on our non invasive fluximeter, essentially our laser pulse oximeter.

Speaker 4

And we're very focused on the organization completing that and getting that to the FDA and into commercialization. That will be our first product at this point that we will actually commercialize and take to the market. Our blood volume, fluid volume platform has been in clinical trials and we continue to run clinical trials on that to refine that technology. That technology is also very important for our subsets monitoring platform. And so therefore, some investment goes into that.

Speaker 4

But largely, we're very focused on the pulse oximeter platform right now. That answers your question?

Speaker 6

Yes, that's perfect. Just to reiterate, you're planning on a submittal for the pulse ox mid-twenty 24.

Speaker 1

That's correct. Yes. And I'd just

Speaker 5

clarify, Jeff, they had 9 they spent about $9,000,000 in 2023. We're looking at closer to 13 dollars if you're looking at your forecast for 2024.

Speaker 6

Got it. That's super helpful, Dan. And then I guess lastly, some questions on EnWave. If you could just remind us all as far as the target audience and the payer environment and the channels to market? That would be helpful.

Speaker 2

Yes, maybe I can answer that one. This is Thomas. So neuromuscular electrical stimulation is a market that is used for reeducating muscles. Typically, it can be after surgery or after sports injuries. And it is in terms of payers, it's the same as we have for all the other products.

Speaker 2

Is a billing code for NMES that's different than the other billing codes that we know are often used. Sometimes the next wave actually is on a patient where it's helping here. But the M Way is more versatile. And when it requires specialty settings, for instance, it's much better to put that device on. We'd be billing for that code and all payers, just like with TENS and Interferential, pretty much pay for it.

Speaker 2

It pays pretty well. So therefore, it makes sense to have a dedicated product for these particular applications. But it's as always, it depends on what medical conditions, what indications we get on the paperwork from the clinic that then decides, again, what product that goes to the patient and what billing codes we're using.

Speaker 6

I got it. And Thomas, does that expand your TAM as far as the target audience, as far as the physicians out there, which the sales force is targeting? Does that tack on additional physicians in additional geographies?

Speaker 2

No, because we were selling the E Wave product. We also manufactured an older generation of it's actually one of the very first products that developed a couple of decades ago. So it doesn't expand it, but it gives the sales force a much easier to sell and more versatile and easier to use product rather than the eWave. That will be phased out here over the next couple of months as production has ramped up and we start supplying the e wave.

Speaker 6

Got it. Okay, super. Thanks for taking our questions.

Speaker 2

Thank

Speaker 1

you.

Operator

Thank you. Your next question is from Shangan Singh from RBC. Please ask your question.

Speaker 7

Great. Thank you so much and I apologize for any background noise at the airport. So I guess 2 sets of questions from me. Firstly, with respect to strategic alternatives, can you just provide us with an update on where you are with that review process? And if we should expect any news on that front in 2024?

Speaker 7

And then just

Speaker 6

with respect to your guidance, can

Speaker 7

you help us with the your adjusted revenue guidance of 19% for 2024 in the context of the 43% order growth that you saw in 202329% exiting Q4? Thank you so much for taking the questions.

Speaker 2

Sorry, I didn't hear it. But the so you're asking about the strategic alternatives, which to a large degree is us focusing on a going private transaction. And that is still continuing. We are talking to a couple of potential private equity firms that are pretty deep in the weeds and has done, I would say, probably most of their due diligence. Whether we get to conclude a transaction with any of those or if we decide to go in a different direction is obviously still to be seen.

Speaker 2

Some of that will depend on valuation and negotiating in regards to that and if we have the right partner to move forward with. So it's looking very positive. However, we have nothing affirmative to report for probably another couple of months.

Speaker 7

Great. And then just on 2024? Yes.

Speaker 5

I would say, again, when you're looking at revenue growth versus order growth, you're always going to have some differences there. I would say, we did 43% for the year, but a lot of the larger numbers were in the first half. I would just say, the comps were a little easier. And as the sales force got more effective in the back half of 'twenty two, those got a little tougher. So, the 20% revenue growth, kind of is showing that and that continued growth.

Speaker 5

I would say margins, we expect to stay constant or slightly expand a little bit. Our production group has done a really good job with pricing here. So we would expect to continue to see those strong margins into 2024 and beyond.

Speaker 7

Great. Any color on cadence through the year on sales and margins? Thanks.

Speaker 5

I would expect it obviously, we had a little higher comps this year as again the sales force continues to do better. But as far as order growth, I think we're looking at mid-twenty growth and I think we see that across most the quarters. I don't think it's going to jump around too much. So, it should be a little steadier this year than it was in the prior year and that again should drive that approximately 20% revenue growth. And don't forget right now the forecast is EPS going from what would have been $0.40 this year to $0.50 so over a 25% increase in kind of pro form a EPS year to year.

Operator

Thank you. Thank you. Your next question is from Yi Chen from H. C. Wainwright.

Operator

Please ask your question.

Speaker 8

Thank you for taking my questions. Regarding the 23% expected growth in 2024, out of that, how much will be primarily driven by next wave? Can you comment on that?

Speaker 2

Go ahead, Dion. Yes. I would say that we don't expect the growth to slow down on the next wave. So let's assume that is in the 20% range. We are pushing hard to see revenue growth from all the other products that we are selling through our sales force.

Speaker 2

And that's probably where the majority of this is going to come from. So all those other products will hopefully double in terms of orders and therefore, get us up to more than 25% order growth and again spilling over to what we expect to be a 23% growth in revenue.

Speaker 8

So Next Wave is will still be the main growth driver for within 2024, correct?

Speaker 2

Well, ideally, we'll get that one below 50% while we really grow the orders. But chances are that it will still be a little over 50% as we exit the year. And long term, we are hoping to have a much more diversified product portfolio also in the pain management division.

Speaker 1

Got it. Got it. And

Speaker 8

I'm also curious, are there any attractive opportunity out there that the company could look at that may involve fast growing products on the market that Zynex could potentially acquire versus using the existing cash to buy back more shares?

Speaker 2

We are evaluating about a handful of those exactly making products that we either sell right or similar to what we sell right now would be a great complement and also a price range where we could afford it. We have not initiated any negotiating, but we are getting pretty big in our research there.

Speaker 8

Got it. Thank you.

Operator

Thank you. There are no further questions at this time. I will now hand the call back to Thomas Sandgaard for the closing remarks.

Speaker 2

Well, thank you for joining us today. We're pleased with our performance this quarter and the consistent growth our team is delivering. We look forward to leveraging that momentum throughout the rest of the year and speaking to you in upcoming investor events. We appreciate your time and interest in SYNNEX, and have a great day.

Operator

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.

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