Q4 2020 Zynex Inc Earnings Call
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Thank you ladies getting them.
Good afternoon, and welcome to design next fourth quarter and full year 2020 earnings call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you made.
Press Star and then one on your telephone keypad to withdraw your question you May press simply one certain.
Certain statements in this release are forward looking and as such are subject to numerous risks and uncertainties.
Actual results may vary significantly from the results expressed or implied in such statements.
Risk factors that could cause actual results to materially differ from forward. Looking statements are described in our filings with the Securities and Exchange Commission, including the risk factors section of our annual report on form 10-K for the year ended December 31, 2020, as well as two forms 10-Q 8-K and eight.
K E press releases and the company's website. Please note. This event is being recorded I would now like to turn the conference over to Thomas Vanguard founder Chairman and Chief Executive Officer. Please go ahead.
Good afternoon. My name is Thomas <unk>, President and CEO for <unk> one.
Welcome true 2024th quarter and full year earnings call.
I'm excited to announce yet another quarter of revenue growth and positive net income.
Our fourth quarter revenue of $25 6 million increased 81% compared to the same quarter last year.
It was also the highest quarterly revenue in the history of the company.
It was our 18th straight quarter with positive net income and fully diluted earnings per share was five.
Adjusted EBITDA for the fourth quarter was $3 4 million.
We continue to invest in growing our sales force.
We continue to see good order flow as we push for obstacles related to COVID-19 pandemic.
Fourth quarter orders came in.
117% higher than the fourth quarter of last year, and 45% sequentially compared to Q3.
For the full year oldest grew 96 per cent compared to 2019.
For salt in the middle of a pandemic.
The continued strength in autos.
The growth of those on it speaks volumes to the relationships that our sales force has for many prescribers and the need for them to prescribe non opioid non addictive prescription strength solutions for the patients in pain.
As selling gets back to normal later in 2021, we see an upside in sales order growth.
The over 300 sales reps, we added net during 2020, they haven't been able to get access to many of the clinics and detectors due to COVID-19 restrictions.
As a reminder, the majority of cash and revenue related to on order comes in over the year following the receipt of the order.
Patient uses the device and related supplies, which should lead to expanding revenue and profitability in the second half of 'twenty 'twenty, one and beyond.
In Q4, we continued to aggressively add sales reps and exceeded 500 total reps by the end of the fourth quarter.
Our recruiting efforts continue to be supported by our searching candidates due to increased unemployment rates related to COVID-19.
We expect these new hires to provide significant productivity increases in 'twenty 'twenty, one and beyond.
We expect to have over 600 sales reps by year end.
I should also mention that our operations continue without any issues.
Supply chain remains uninterrupted.
It's our practice to keep several months of finished products on the shelf at full months of components on hand for internal Assembly and 12 to 18 months of orders placed with our vendors on top of the in house materials.
During 2020, we took on even more conservative approach in response to Covid.
Any possible supply chain issues, which resulted in an increased inventories of approximately.
Similarly, 3 million higher than our normal levels we.
We should get back to a more normal inventory level, when we get through Q2 and Q3.
The opioid epidemic continues to be a serious issue in this country and we are increasingly working to get patients off opioids and for physicians to use our prescription strength technology as the first line of defense when training pay.
Currently the devastating impact have reached a level with tens of thousands die yearly due to opioid abuse.
We continue to develop more tools to make physicians aware of our technology that literally has no side effects.
Our products for pain management, and rehabilitation still stand out on some of the best products in the industry. The next wave for pain management on your move device for stroke rehabilitation and invite for incontinence treatment.
Put us in a very strong product position in the rehabilitation market.
We continue to see great potential in both our product divisions.
Our existing revenue generating area for pain management, as well as a huge unmet potential for blood volume monotone.
As most of you probably already know we manage to get the FDA clearance for our <unk> blood and fluid monitor.
Nearly a year ago.
The <unk> hundred is a non invasive monitor intended to monitor a patient's fluid balance and hospitals and surgical centers. We expect to initially target ores and surgeries that typically display substantial for blood loss as well as recovery rooms in ICU is for internal bleeding is today, a common and difficult to detect.
On some of the point with serious complications for occur.
We believe this product with lease to say for surgeries fewer complications have less mortality one of the biggest unmet needs in hospitals today.
We're still on recruiting to add more personnel to this deviation of that division.
We are seeing good solid preliminary results from our clinical study at wake Forest and we are preparing to commence more studies on that device shortly.
We are seeing interest in purchasing the device from hospitals that have now have the device on demo.
And our engineering team are well underway with building prototypes of our next generation <unk> 600 device that will be easier to use and so on settings.
Recently filed a patent application for our technology that is somewhat similar in nature, but will be used for noninvasively.
Early on.
Early detecting sepsis.
And the other huge unmet problem and cause a problem in hospitals today.
I will now turn the call over to Dan Moorhead, our CFO.
Thanks, Thomas first I'll review, our 2024th quarter results.
Orders grew 117% year over year, and net revenue grew 81% to $25 6 million from $14 2 million in 2019.
Device revenue increased 118% to $8 2 million compared to $3 $8 million last year.
Supplies revenue increased 67% year over year to $17 4 million from $10 4 million.
Gross margins were 78% in the fourth quarter.
Sales and marketing expenses increased 156% year over year as we continue to aggressively grow our sales force and G&A expense grew 91% year over year.
Much of the increase was related to increased headcount in our reimbursement and patient support functions related to our order growth.
Fourth quarter net income was $1 8 million or <unk> <unk> per diluted share.
Adjusted EBITDA, which is a standard EBIT calculation plus an exclusion of noncash stock based compensation and other income expense and as reconciled in our press release was $3 4 million in the fourth quarter of 2020.
I will now review the 2020 full year results.
Orders grew 96% year over year, which increased net revenue, 76% to $80 1 million from $45 5 million in 2019.
Device revenue increased 99% to $21 3 million compared to $10 $7 million last year.
Supplies revenue increased 69% year over year to $58 9 million from $34 8 million.
Gross margins were 78%.
Sales and marketing expenses increased 130% year over year in G&A expense grew 71% year over year.
2020, net income was $9 $1 million or 26 per diluted share compared to net income of $9 5 million or <unk> 28 per diluted share in 2019.
Adjusted EBIT increased 13% to $13 7 million in 2020.
On the balance sheet as of December 31, 2020, our cash balance was $39 2 million up from $14 million at year end.
As many of you know we completed an equity transaction during July which added $25 million for the balance sheet.
Cash was down slightly from Q3, as we increased our inventory to protect against any supply chain issues are.
Our working capital grew 205% to $52 $9 million at December 31, compared to $17 4 million as of December 31, 2019.
With that I'll turn the call back over to Thomas.
Thank you Dan.
I am pleased with our full year growth.
<unk>.
Year over year growth in orders of 96%.
And on a revenue growth of 76% in the midst of the COVID-19 pandemic. It's a huge testament to our efforts to grow our sales force and clearly justifies the investments in our sales personnel sales management and inside support functions.
Our focus for 2021.
Is on increasing sales rep productivity net.
Selling <unk> through its normal course, continuing to leverage the investments we have made within sales and also G&A to improve profitability and most importantly help our patients in pain.
We will continue to grow our sales force during 2021.
Except it'll be at a much slower pace than last year.
We've made the investments in growing our sales force primarily in the second half of last year. This investment is showing all the right signs. That's Q4 orders grew an impressive 117% year over year January of this year grew 98% over last January and February is current.
Trending above 120%, while modest looks like a growth.
150% at this point.
Eventually over the next year or two these orders will turn into revenue and therefore, we expect to return to a healthy relationship.
Between top line revenue and sales expenses as we get into the third and fourth quarters for 2021.
As always.
For the beginning of the year, we see insurance deductibles impacting revenue. So this seasonality that we see every every year means a flat or slightly lower revenue in the first quarter compared to the fourth quarter of the previous year. That's been the case for for many years.
We estimate.
Our first quarter revenue to come in between 23, and $24 5 million with an adjusted EBITDA loss between half a million dollars on $1 5 million.
As a reminder, our first quarter revenue has historically affected by health insurance deductibles not being met in the beginning of the year. This revenue source for seasonality that along with the sales sales force investments. We made in the second half of 2020 is causing a small loss in Q1.
With our current order growth, we expect revenue and profitability to ramp up significantly throughout the year.
The Q1 revenue range is 51% to 61% higher than in 2020.
And full year 2021 revenues estimated to come in between 135 on $150 million with adjusted EBITDA between 15 and $25 million.
The full year revenue estimated at approximately 68% to 87% above 2020 revenue of $81 million.
Michael for all I would like to therapy and rehab division is to continue to grow our share of the huge market for prescription pain management and to take advantage of the huge void in the market. After the disappearance of our main competitors. This includes growing our domestic sales force as well as potential acquisitions of <unk>.
<unk> technologies.
The very large expense line in our financials for central part of a very deliberate effort to grow our topline revenue long term and therefore leverage the Hilton margins in our industry to maximize long term profitability and on earnings per share.
We will see the effects of debt in the third quarter of this year and going forward in the meantime, our revenue is still impacted by the slowdown in orders in Q2 last year.
Due to Covid and our bottom line impacted by adding a net of 300 sales reps during last year, primarily during the second half.
Our long term goal is still to fill all 800 territories in the U S and get sales for fully productive.
We see that it takes up to about two years to make our sales for fully productive.
In summary, we announced yet another great quarter with strong growth in orders growth in revenue and profit.
We will now answer questions from our listeners.
Thank you we will now begin the question and answer session to ask a question you May Press Star and then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question Chris just the number one so again star and then one on your telephone keypad.
Q up for a question we will take our first question today for Chen with H C. Wainwright. Please go ahead.
Thank you for taking my questions. My first question is how much impact from COVID-19 have you incorporated into the 2021 on revenue guidance.
Relatively little the biggest impact was came from a significant dip in orders in April and May to some degree the first half of June of last year. So we saw a significant dip in orders in that second quarter that impacted revenue in the third and fourth quarter of last.
Yeah, So we came out.
A little less than what else we could have.
We definitely still see the impact of that dip in orders here in this first quarter there'll be a little bit in the second I think for once we get to the third quarter of this year the impact from that debt is very little.
On all of our reps, obviously, not having full access of the same type of access that DST have before COVID-19, but just the fact that we have added so many sales reps.
More than mitigated.
Those those marginal difficulties, we see for the individual web.
So therefore, we still see order growth in <unk>.
And in the range of at least doubled over last year.
Except for that second quarter on last year.
And eventually we will see revenue growth catching up to that kind of order growth.
Thanks for the second question does the does your revenue projections include any potential revenue from volume monitor and if not can we still expect the device.
This cash to be commercialized sometime later this year.
Well, it's definitely commercialize it's already sitting at a few hospitals.
People are on looking at it testing it and have indicated that.
Certainly interested in in acquiring it.
Not put any of those numbers in the forecast for this year, we have so much growth in.
In the pain management division alone that it wasn't necessary to put that Enzo.
That debt buys us a little on puts some of the pressure take some of the pressure off in terms of.
Suddenly the debt.
Public markets and the perception of how much revenue should come this year, but that there might be there might be a little debt that will trigger Lynn before.
Before the end of the year.
Most of the activity.
See on.
On the on getting more and more clinical data.
But.
We do have some sensor for us.
And so currently you do not have a dedicated sales team for the flow volume monetary yet is that correct.
We do have one person on.
On the title of expenses development.
Director of business development.
But we might expand with more people.
Two two.
<unk>.
Basically.
Undertaken a samsung on <unk>.
Just one person.
Okay, and finally can you provide an update on the development of <unk>.
Sepsis monitor.
Yes, we are still.
In the very early stages of figuring out the prototyping of debt device. So theres not theres not a whole lot yet other than the concept to say at the patent has been filed.
And while its patent application has been filed.
We're looking at how we can.
We can we can develop a prototype for it.
Just add one more engineer.
The engineering team.
So we should have the resources to take that on us since his thoughts.
Okay. Thank you.
We will take our next question is from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.
Well hi, Thomas on Darren how are you.
And then Greg on how Youre doing.
Pretty good no complaints.
Few questions. So firstly can you remind us.
On the <unk> monitor what you anticipate the input is.
Yeah.
Well, it's the principle is the same.
Multiple parameters that have a.
With the onset of sepsis.
Individually debt.
I mean, much but when you put them together in an index.
Then it becomes a very strong strong indication.
Just like the blood volume on its own.
In this case.
We're looking at heart rate temperature.
Inventory rate.
And one or two more parameters.
Two two to eventually add into that that index that could give us an alarm debt. So the end result of that is true.
Albert.
A medical professional that you should probably take a blood sample.
So that you can analyze to see if you.
I actually have such as coming on and that would be earlier than.
When.
When it gets into a very serious situation for each market.
<unk> Sunset. So if we can take medical professionals take that time, but early on.
And with a decent degree of probability, we'll then be able to say, yes, we can start treatment now rather than later.
We will be able to save some lives in debt.
And obviously produce a lot of communications.
And similar to the blood volume monitor you would be.
As to the form or the hand as.
As far as.
Click.
That would be.
This this product will have the ability to to have the.
The census.
Applied.
Thanks.
For more flexibility on where that can be applied on the plot volume on it.
But that is definitely an option to place it then and the sensors.
For the most be somewhat similar.
Got it.
On.
First formal for you really talk about or mention the acquisitions are complementary products or are you thinking about debt.
The pain slash opioid.
Or are you thinking about that as far as I know.
So Sidney on the hospital patient population or all in.
Randy.
We're looking at both we have come.
Somewhat close or very close in some cases actually for both divisions.
As of now what's what's on the table right now dosing.
Those things that are more imminent.
Potential Act.
Acquisitions.
They would be in the pain management space.
We always distributed products from other companies.
If we add more products.
And in that space. It would have an immediate sales channel and we're only looking at products that.
That would be able to leverage that.
That we have that day.
But at the same call point.
So thats what were looking at.
But.
It's going to be right opportunity for us to pull the trigger.
But we actively.
Okay, and then lastly.
For us the guidance on both sides with the range as well as the EBIT numbers.
It looked like 2020 was.
Fairly.
Methodical an orderly ramp up for reduce it sounds like what you're saying is.
A little bit of a reset in Q1 similar to Q4 with probably another equal an orderly.
Ramp up throughout the year to get to that midpoint.
And with the mid point in the call it 76 or 77% range.
Are we okay and thinking about.
Generally speaking the sales and marketing line being driven by the share.
80% to 85% in the G&A line.
Increasing in the 60 to 65 per cent.
I'd say.
For the full year.
On the sales side this year in our sales.
Sales comes in it.
A little over 40% and that's going to be similar next year, but it's going to decrease significantly over the course of the year with the guidance we gave in Q1.
The sales and marketing line is over 50% because of the flatness in revenue in Q1 that we see every year and then you should see a decrease down towards 40% by the end of the year.
As far as its margin and on the growth side, and the sales and marketing could be.
70, 75% range for the year.
I don't have that calculation in front of me.
I typically look at it as a percentage of revenue and you'll definitely I'd have to go back and look at it that way, but again, if you are trending down towards about 40% as a percentage of revenue by the end of the year that's about right.
We are talking about gross profit margin on where youre talking about.
<unk> expense line.
Yes, I was thinking of just trying to get a better handle on the expense lines. Okay.
Okay. Okay.
So with that midpoint in guidance I think we're at on a call it.
60 authority for <unk> sales and marketing for the year.
In that general range.
Yes, that's pretty close.
Okay.
I think I got it and lastly on the.
On the sales for them so.
You increased dramatically last year of our 300 plus reps.
Getting over 500, Youre concerned with this year.
Perhaps another 100 ish.
Get added.
Any commentary on retention or selection your qualification for trading of note and how that's been growing.
It's about the same.
As we've seen before.
<unk>.
We continue to get better and better at training new reps, it's going to be a little easier this year because of training.
About 500, new reps last year.
Maybe not that much of a 400 for something like that and then 300 of them are still with us.
Was obviously, a big task on top of the reps that were already on board. So this year by only adding 100 net.
It's going to.
Enable us to do to make sure we.
We pay more attention not only doing training, but in the first few days with our regional sales managers and hold their hands on the field after they get their needs for training there'll be a much easier task and we can probably achieve even better results in terms of early on productivity and retention rate.
Okay perfect. Thanks for taking my questions.
Thank you as a reminder.
One on your telephone keypad to ask a question again that was star one on your telephone keypad to queue up for a question. We will take our next question for Mark Weisenberger with B Riley Securities. Please go ahead.
Hey, Thanks for taking my question. This is actually a mind jumping in for Mark.
I wanted to ask can you talk about the demand and prescriptions associated with rehab income surgical procedures.
And where are you relative to a normalized level and how has that trended over the last couple of quarters.
While the demand is some payable to describe the demand for.
Professional.
On medical pain management too.
To be in the 500 billion.
Low range.
Worldwide on half of it being in the U S.
And.
But we see it so.
That's a pretty good day of illustrating that.
Any any reps we have in the 800 territory that already mapped out.
Loan growth.
Barely scratched the surface of the demand that exists in the territories, whether it's the amount of patients that they are on it.
The amount of clinics to can they can even possibly get to.
Net.
During the day or during the time that the workforce.
So.
We see the long term.
Revenue potential.
Be an average of $1 million per sales for long term. Obviously it takes it takes a couple of years for for most reps too.
To get to that kind of productivity. That's ora productivity then the revenue comes even later than that.
<unk> of our business model.
But.
Right now because of how many new reps on the.
Just beginning to send them.
The first true for orders.
That obviously means that our average is way lower than that something good.
But many times previously.
Previously.
But obviously if you.
You say that the average revenue progress long term is $1 million.
A year and we will eventually have filled up 800 territories that should be.
Equating to a revenue of $800 million in theory.
We currently see that we have we have a few reps that are producing over $2 million a.
A year in annual revenue.
And our top 20 reps produced.
On average of all.
You got to be below that top 20 to be producing.
In the neighborhood.
Maybe $1 million.
Annual revenue so it's absolutely attainable, but we have we have so many reps so that just slowly working up to that so it's a very slow stone moving machine that we've built here.
But thats also a lot of sustainability to it because the revenue is generated for a couple of years after we get those orders.
It's slowly getting getting on the books and eventually in the future quarters, we will see the accumulated effect of that.
So on turning into revenue.
Okay. Thanks for that and then I wanted to ask about your supply chain are you seeing any input inflation, there and do you have any ability to pass that onto your customers.
We are fortunate enough to be growing so fast and also now having pretty much second sources on on everything we do.
And that puts us in a very strong negotiating position so if it worldwide.
Turning to see increased prices, we still see it decreasing prices on.
On our raw material and components.
Simply because our volumes are increasing so much and we've been good at creating second sources. So we have we have competition on pricing.
As a result of that so we see the opposite trend, but that's that's not obviously.
On macro trend trend, that's something that is self inflicted.
Just the fact that we are doing better.
Got it now and then the last question for me I'll jump back on the queue on can you talk about any traction youre getting with other products like near on move in.
In ways and do you have any plans to make more aggressive efforts to monetize.
These products Besides next wave.
Right now our focus is to.
Primarily increased revenue over the next right that that is where the most obvious demand is and you can say well you get the most bang for Buck by adding more sales reps, providing them with better training better promotional material on better support so on investments have been more.
And the sales force also we added.
From going last year, we added 10 more regional sales managers, we went from five to 15 regional sales managers. That's also on investment in new ways that primarily.
Fits that that space.
And the other products that we distribute from other companies and potentially.
We'll acquire that fit into their sales force.
As well focuses long term you're right we've got some great products.
Our NYU continents treatment is a great product and has really good reimbursement for it as well so as we penetrate those markets better debt.
Certainly something we.
Could take off.
And do more that's probably an item we can debt.
Where we are.
We can utilize at least parts of our sales force the newer low power.
Probably the way things are reimbursement wise right now require more effort.
More of an investment long term.
Potentially securing better reimbursement and all.
<unk>.
<unk> the end users more than necessarily dispositions.
To drive to drive more revenue on that so that is more longer term, we also need to consider.
Expansion internationally.
In terms of diversifying and expanding our revenue base that way so that will be part of the mix as well, but again, we are probably a couple of years out before we look at.
B looking at expanding.
And for those areas.
The demand is so big and any effort, we put in and pain management.
Net area right now pays off so quickly that debt.
It's an obvious one to put most of our energy on.
Short term debt.
Thank you I'll pass it on.
Our next question comes from Matt O'brien with Piper Sandler. Please go ahead.
Hi. Thank you. This is <unk> on for Matt. Thanks for taking the questions. So first could you talk a little bit about the revenue mix shift, we're seeing with supply decreasing a bit and what are the drivers of that and also where do you see mix going over the coming years.
I would say all debt is pretty meaningless, how that flows because it is very constant.
<unk>.
Well, maybe Diane can give them on technical.
Explanation of it.
Every patient has a total revenue stream.
That comes from device.
And supplies.
Only thing is that when we have a huge uptick in orders, obviously initially that would be.
An uptick in the device revenue versus the suppliers, but the long term than the supplies revenue.
Catch up to it but.
But overall it's flat.
Technicalities.
That makes it looks like the fluctuations, but maybe you can.
Yes, typically like you said, it's typically pretty fat flat, we're usually around 75% supplies Q4 is always a little bit of an anomaly because we see.
At the end of the year, we always see a bump in device.
We had the same thing last year it didn't quantify quite as much as it did this year, but the.
On the customer base is a lot bigger this year. So again I agree with Thomas I think it's going to be pretty flat and youre typically.
On that $25 75 device supplies as a percentage of revenue.
Great.
Super helpful and for.
Secondly, can you just provide a little more color on the gross margin pressures Racine and where do you see that going on throughout 'twenty, one and into 2022.
We've been pretty constant we've been in that 78% range.
For the last several quarters in prior years, we might've been a little higher than that but coming out of $15 $16 17, when the company really didn't have a huge staff we were lacking in a lot of areas and so to get staffing where it needed.
We had to we had to make those investments and sacrifice the margin.
A little bit going into 'twenty one.
As many people know we did open up a new facility that is our production facility Standalone. Prior it was on the first floor of our corporate headquarters so that investment obviously, we we.
We took a space that we needed to grow into a little bit. So I think that will put a little margin pressure in 'twenty one.
So instead of maybe that 70% to 82, maybe where 75% to 80 going into next year, but the product margins themselves.
<unk> been pretty constant.
Awesome. Thank you and last one for me I know you touched on this earlier, but can you just expand a little bit more on the retention and turnover at Youre seen of your ratzon since you've on boarded a bunch of new folks. So quickly we'd be interested on hearing how does that checks have been trending versus historical levels.
Yes.
Those that we do.
During last year.
<unk>.
We.
Most of them.
It came on board in the second half.
And therefore, a lot of them has still been with us.
On a quarter, we typically give them 90 days, sometimes a little extra to prove that they can actually sell.
<unk>.
More than just the initial interviewing.
And.
Yeah right at year end.
We had we had a little bit of cleanup so.
Probably still in the.
10, low 10, maybe 10, 15%.
Attrition rate.
So.
It's probably if you look at other medical device companies, probably a little better than you see.
In other medical.
Medical device companies.
And I expect we would be doing even better.
This year because we are.
We only going to be hiring at a rate that is less than a third of what we did.
Last year.
Much much less probably a quarter.
What we did in the second half of last year and that gives us the ability to be even pick here when we recruit.
We can pay more attention to the individuals doing training and on a regional sales managers will be able to follow up on hold the hands of the new sales reps better than they were able to last year. So I expect to see a significant improvement.
In the end.
On the retention.
And sales force going forward.
Thank you.
And this concludes our question and answer session I would like to turn the conference back over to Thomas Vanguard for any closing remarks.
Yes, thank you for.
First of all I, just wanted to apologize for the technical difficulties and dialing in today.
But other than that I hope that today's earnings call has been informative for everyone and I appreciate the interest in <unk> and listening into this call.
And a great day tool.
The conference has now concluded we thank you again for attending today's presentation. You may now disconnect and have a great day.
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Okay.
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