Q3 2021 Zynex Inc Earnings Call
Good day and welcome to your design next Q3, 2021 earnings conference call.
All participants will be in listen only mode.
After today's presentation there'll be an opportunity to ask questions.
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Please note this event is being recorded.
Certain statements and that's really are forward looking and as such are subject to numerous risks and uncertainties.
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 form.
10-Q, and 8-K press releases and the company's website I would now like to turn the conference over to Thomas Sungard, President and CEO. Please go ahead.
Good afternoon. My name is Thomas Sungard, President and CEO of Phoenix welcomed Troy.
2021 third quarter earnings call.
Today, we'll be covering activities in both of our divisions signings medical where are we.
Our focus on pain management and signings monitoring solutions.
Before I get into the details about our financial performance and operations I'd like to mention that this week is the 25 year anniversary of signings being accepted and restarting the basis in a one bedroom with just a couple of thousand dollars credit card having.
Having just moved to Colorado from Denmark.
It has been a long road of boot strapping, but looking at our results the past four to five years suddenly worth it.
I want to express my gratitude to all of our employees for working so hard to make this a success as well as our public shareholders for being loyal and believing in the company and our business model.
In that context.
Cited to announce yet another quarter of record revenue and net income.
Net income increased to 118% sequentially compared to the second quarter, which demonstrates the operating leverage we are achieving from the investments we've made in our sales organization.
Our third quarter revenue of.
$34 8 million is the highest quarterly revenue in the company's history and increased 74% compared to the same quarter last year.
Okay.
We continue to see good order flow and third quarter orders came in 70% higher than the third quarter of last year.
In the second half of 2021.
We're seeing the job market continued the trend we saw emerge in the second quarter in that how unemployment has been dealt with politically still keeps a big chunk of the workforce at home leading to a shortage of workers, including sales reps.
This significantly impacts our ability to hire employees for cohort headquarter.
Specifically order entry patient enrollment and insurance billing. These positions are important to keep up with our overall growth.
We are also seeing the same dynamics as most of the businesses, especially medical where there's a lot of movement and significantly inflating pay for sales representative.
We are currently competing in that space and have increased incentives such as sign on bonuses et cetera to keep a decent hiring right.
Rather than slacking in a minimum criteria for Ohio, we are instead adjusted our growth plans to focus on more productivity growth per sales rep and improving the quality of our entire sales force, which has also led to increased trimming of nonproductive bribes.
During the third quarter.
We focused on the productivity of our sales reps and trimmed our less productive reps the trimming of sales reps and the highly competitive job market resulted in a decrease in active sales reps to approximately 430 reps at the end of the third quarter.
The average revenue per rep.
During the third quarter. Therefore grew to approximately 325000 up 50000 compared to the second quarter, almost 100000 compared to Q3 of last year.
The sales Rep number is less than.
Previously anticipated with us.
<unk> led to higher near term profit than expected earlier in this year.
As we've discussed previously regarding our inventory we took a more conservative position in response to Covid and any possible supply chain issues, which resulted in increased inventory levels.
During this year.
In the third quarter.
Inventory levels move back towards more normal levels and we have to report that to date, we've had no supply chain issues in our business.
The opioid epidemic continues to be a serious issue in this country and we increasingly youre working to get patients off opioids and for physicians to use our prescription strength technology as the first line of defense when treating pain.
Currently the devastating impact as reached 11.
With nearly 100000 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 of some of the best products in the industry. The next wave for pain management, and our new move device for stroke rehabilitation as well as the envoy for incontinence treatment puts us in a very strong product position in these rehabilitation market.
We continue to see great potential in both of our product divisions, our existing revenue generating area for pain management as well as the huge unmet potential for APA volume monitor.
In the past five to six months, we have significantly increased activity in our monitoring solutions division, we have more than tripled staffing and consultants. While we also have increased our clinical research capabilities and initiating several more studies across the country looking at different aspects of the clinical value that our technology can provide.
And surgical centers.
As most of you probably know we managed to get FDA clearance for our OCM 500, blood and fluid monitor over a year ago and have the product ready and production.
The <unk> hundred is a noninvasive monitor intended to monitor patient fluid balance and hospitals and so to consensus we expect to initially target <unk> and surgeries that typically display substantial blood loss as well as recovery rooms, and IC used for internal bleeding today are common and difficult to take until serious.
This complication to occur.
We believe this product will lead to safer surgeries fewer complications and less mortality.
One of the biggest unmet needs in hospitals today.
We continue to see solid preliminary results from our clinical study at wake Forest and we are preparing to commence more studies.
On the device shortly we're seeing interest in purchasing the device from hospitals that have a device.
On the table.
Our engineering team is well underway with building prototypes of the next generation <unk> hundred devices will be easier to use in surgical settings.
And.
Today, we have with US Vice president of our <unk> monitoring Division.
Greg that will fill you in more details as to his background, what we've been doing in short as well as long term plans.
Thanks, Thomas and good afternoon, everyone.
Let me start with some background on myself I've spent about 15 years in the high Tech and consumer industries, and a bit over a decade and medical device, leading infusion pumps respiratory in health informatics products and businesses for startup multinational global corporations in various executive leadership roles at.
As most of you probably already know as Thomas mentioned, the FDA cleared the <unk> 500 fluid volume monitor a year ago.
Our focus in 2021 has been on US submitting the wireless version, our <unk> <unk> hundred to the FDA by the end of the calendar year.
The current CMS <unk> hundred is a noninvasive monitor intended to monitor patients fluid balance and hospitals and surgical centers.
We expect to initially target operating rooms surgeries and clinical care critical care settings, where fluid responsiveness as a known challenge in this space. There are two primary areas that need to be addressed number. One is overall fluid volume. The question is is the patient losing too much blood or fluid.
Or being overloaded with fluid.
The second one and perhaps.
The most important is.
Understanding fluid status and being able to know if the patients should receive more fluid or not.
Incorrect fluid therapy can lead to severe negative outcomes, including increased morbidity and mortality.
Patients die post operatively and more frequently than intra operatively.
Largely due to hemodynamic instability.
Therefore, we are very focused on hemodynamics, they built stability perioperative Lee and post operatively. We believe this product will lead to safer surgeries fewer complications and of course less mortality is Thomas had mentioned.
This is one of the biggest unmet needs in hospitals today.
We continue to see promising preliminary results as Thomas mentioned from a clinical study at wake Forest.
We've commenced additional studies on that device as well wake Forest is planning to publish.
The results of this study in Q1, and we've started a very specific April recessed blood donation study with vital want to continue to refine our patented relative index algorithm for fluid prediction.
In blood component fluid loss and re infusion of blood into the body. Additionally, we are starting a dialysis observational study. This calendar year that continues to characterize the relative index for change with specific values of fluid loss.
We plan to expand our clinical footprint on our and are heavily investing in a robust cadence.
Clinical evidence to enable us to expand into other care areas, where fluid monitoring is a priority for patients.
We had a very successful trade show at Anesthesiology 2021 in San Diego.
You also might notice as the assay conference there was significant excitement from our key opinion leaders for our Kols in both the U S and internationally.
They are very interested in validating the need to focus on hemodynamic stability during and post surgery, we have several leading anesthesiologists in their field that approached us to work closely on the predictive algorithms to solve the question of should I give my patient fluid or not.
We are seeing significant interest in placing and purchasing the device from hospitals and we continue to develop our pipeline focused on commercializing. The wireless 16, <unk> hundred version of the monitor post FDA clearance in the first half of 2022.
Thank you Don.
Ill turn the call over to Dan Moorhead, our CFO.
Thanks Thomas.
First I'll review, our 2021 third quarter results orders grew 70% year over year and net revenue grew 74% to $34 8 million from $20 million in 2020.
It's also worth noting that Q3 revenue increased 12% sequentially compared to Q2.
Device revenue increased 71% to $9 1 million compared to $5 3 million last year.
Supplies revenue increased 75% year over year to $25 7 million from $14 7 million.
Gross margins were 80% in the third quarter of 2021 compared to 77% in Q2.
As we mentioned previously we transitioned our production and warehouse to a new facility during Q1, which put some pressure on gross margins during the first half of the year, but as we continue to increase volumes and get better pricing, we've been able to increase margins throughout the year, we still expect margins to range between 75 and 80% going forward.
Sales and marketing expenses increased 39% year over year due to our sales force growth G&A expenses grew 39% year over year much of that increase was related to facilities and increased head count in our reimbursement and patient support functions related to our order growth.
Third quarter net income was $6 1 million.
358% increase year over year, and <unk> 17 per diluted share.
Both net income and earnings per share were company records.
Adjusted EBITDA, which is a standard EBITDA calculation, plus an exclusion of noncash stock based comp.
Severance noncash lease expense and other income expense and as reconciled in our press release was $9 3 million in the third quarter and was also the highest in company history.
I will now review our 2021 nine months results.
Orders grew 134% year over year, which increased net revenue, 65% to $89 9 million from $54 5 million in 2020.
Device revenue increased 79% to $23 3 million compared to $13 million last year.
Supplies revenue increased 61% year over year to $66 7 million from $41 5 million.
Gross margins were 78% during the first nine months of 2021.
Sales and marketing expenses increased 86% year over year, and G&A expense grew 42% year over year.
2021, nine months net income was $8 $2 million or 23 per diluted share compared to net income of $7 three or 21 per diluted share in 2020.
Adjusted EBITDA was $13 7 million for the first nine months of 2021.
On the balance sheet as of September 32021, our cash balance was $35 4 million and grew just under 10% during the quarter due to our record profitability and that also includes spending half a million dollars on our stock buyback, which expired during the quarter.
Our working capital was $59 6 million at September 30 up 13% compared to Q2.
Now I will turn the call back over to Thomas.
Thank you Dan.
I am pleased with the third quarter order growth of 70% and our record revenue and profitability.
Clearly justifies the investments in our sales personnel sales management and insights support functions.
Our focus for the remainder of the year is continuing to increase sales rep productivity.
So our sales force gets more experience continuing to leverage the investments we made within sales and G&A to further improve profitability.
Most importantly, helping our patients in pain.
We will continue our sales force growth in Q4.
And into 2022, but due to the current tight labor market it'll be at a slow but more profitable pace than prior years.
We have we estimate.
Our fourth quarter revenue to come in between 40% and $43 million with an adjusted EBITDA between nine and $10 million.
The fourth quarter revenue range is 54% 65% than 2020.
2000, Twenty's fourth quarter revenue and full year 2021 revenue is estimated between 130 <unk> hundred $33 million.
With adjusted EBITDA between 22, 7% and $23 7 million.
We are.
Also expecting significant positive cash flow in Q4 due to the seasonality of deductibles and continued profitability.
The full year revenue estimate is approximately 62% to 66% above 2000 twenty's.
Full year revenue of $80 1 million.
My long term goal for electric therapy, and rehab division is to continue to grow our share of a 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 complementary technologies.
Our long term goal is still to fill all 800 territories.
Which we have well over half.
In the U S and get sales reps fully productive we see that it takes up to two years to make our sales rep fully productive.
We are extremely encouraged by the progress we've made in our monitoring solutions division and the positive feedback from the market.
We're pleased with what that distribution has accomplished so far during this year.
<unk>.
The more recent increase in staffing and activity.
In summary, we announced strong growth in autos.
And revenue and profitability and we expect we expect the strong growth in orders to drive continued growth in revenue and profit in the remainder of the year and during the next year or two.
We will now answer questions from our listeners.
Thank you we will now begin the question and answer session.
I'll ask a question you May press Star then one on your Touchtone phone.
CTO using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then Q.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.
Hi, Thomas Donald and Jan how are you.
We are doing well how are you doing Dave.
Just fine staying well so.
Thanks for the commentary and.
Thanks for your commentary John Wilder shall I wondered if Thomas maybe you could talk a little bit about.
The CMS business and.
Your comment about complementary acquisition for.
The <unk> hundred and the fluid monitor.
How should we think about that.
Where is that business growing and also as far as the commercial channels as far as your plans for.
Dealing with the various channels out there.
And your approach.
That's right.
So I'm thinking it.
About it in regards to both divisions, we are looking at opportunities that could fit into the pain management and rehab division as wireless opportunities that could fit into.
Into the monitoring solutions product range and the type of products, we see could be complementary.
It's a little different as to how we're looking at those opportunities set out there. We're looking at products that are fully developed.
And typically already have reimbursement codes in long long history of.
Are being reimbursed by insurance companies and something that would also fit well into the core point that our huge sales force.
<unk> across the country.
So we're looking at that kind of opportunities.
And while we're looking at that we obviously distribute products from from other manufacturers such as sort of a contraction.
Low back support devices.
We will soon be introducing knee braces and also cold cold and hot therapy used.
Postoperatively.
So those are products, we already distributed from other manufacturers. So we just we keep looking at.
Potential opportunities to strengthen that product line.
And in terms of monitoring solutions that are so.
So many great technologies.
That have been invented out there and could potentially fit fit well with our blood and fluid monitor and sepsis monitoring that we're also looking at.
<unk> fit into that space. So.
So we keep looking at those opportunities but.
As you know.
Pretty startling about those those things and nothing has materialized yet.
Okay. So more in multi functional with the current sales organization.
With pain and a little bit beyond then.
Would you be going.
Kind of a <unk> model in house direct when Youre talking about the hospital environment or ASC environment or clinic environment.
Well the.
We obviously, our sales force and pain management.
Is that they all have fairly small radios as a total of 800 <unk> across the country.
They sell directly they go to primary physicians.
And.
Especially in orthopedic surgery and.
To get a prescription that is then send into us here and with that and with the patient.
Demographics, we able to build the patient's health insurance.
And Thats, how we get paid.
So it's a direct salesforce, where pretty much all of them have a base salary and commission on top of that.
In.
Monitoring solutions Division, we expect to see a direct very separate but direct sales force.
As well as working with.
Larger companies either at as distributors or private labeling as an OEM arrangement.
That could potentially be some licensing that could come.
But we as I mentioned before we expect in that division to apply a multi multi faceted.
Our strategy to two <unk>.
Hit.
To hit the market of hospitals and surgical centers.
Okay got it and then lastly, a quick one for you Dan on the margin side.
Very strong for the quarter, but.
Should we be thinking of the next.
Year or two similarly to how we're thinking of it yesterday or is <unk>.
Q3, representing some trend or its a bit of an outlier.
No I think we still expect that 75% to 80%.
Sometimes we're on the higher end, sometimes it's on the lower end, but were always pretty close to that range. So I don't know that the basis has changed at all I still think thats kind of.
The modeling formula going forward is that 75 to 80.
Perfect. Okay. Thanks for taking our questions.
Thank you.
Our next question comes from Matthew O'brien with Piper Jaffray. Please go ahead.
Afternoon, Thanks for taking our questions. So I guess just for starters, maybe Dan can you give us the numbers as far as sales reps at the end of Q3, and then how many you expect to exit Q4 with.
And we had I think we had in one of the disclosures about 430 is what we were shown at the end of the quarter. I think ended the year is going to be around there I don't think youre going to see anything materially up or down.
I would like Tom said, we are trimming some of the less productive then will add some new people as well, but the net change should be pretty minimal.
This is simply a limit to how much we can add to the sales force now compared to a year ago. It was a lot easier.
So therefore that limitation on what we are adding.
Barely just keep up with or maybe exceed a little bit.
How many many people that are not making it in our current sales force.
Okay. Thank you and then.
Look at the sequential bump from Q3 to Q4 in terms of the guidance, it's about $7 million at the midpoint roughly.
That's a little bit higher than what you guys did last year I noted the COVID-19 year, but even the year before that and year before that so I'm. Just wondering if there is the expectation of some ramp in.
And productivity or are there is there is a.
Bolus of people that have been able to get access that you are expecting in.
Q4 that gives you comfort in getting up to kind of the midpoint of the range.
Here in Q4.
Yes, that's a good question Matt.
I would.
I would say because the numbers keep getting bigger so the relative increase is not as big as the absolute increase you see there. So this is this is more a reflection of the orders that have already been been chipped maybe in prior periods and just keep accumulating in terms of the revenue we generate from.
And supplies and monthly rentals et cetera.
So it's just it's just more of a compounding effect on the numbers are getting bigger so therefore, you're.
Youre right Youre looking at something like a $7 million.
$7 million increase, but its more an effect of more more and more.
We are firing on more cylinders than.
Any any significant boost.
Boost.
I would agree I think Matt if you look at it as a percentage to its similar to what we've done in the past like you said the raw numbers are.
A little bigger, but last year actually sequentially, we were up more.
As a percentage.
And in 19, we were up a little bit more as well this year.
Obviously the range is little wider but we're generally in the same spot and I would say, it's even down a little bit compared to last year.
Yes, but we have the seasonality of Q1 always being being by far the weakest quarter and Q4 as being the strongest definitely boosted by.
Patients insurance deductibles being met.
Okay. Okay. Thanks for that last one for me is just on the blood monitoring side.
A lot of commentary.
On the on that product in the script today and.
Just overall it so I'm just curious as far as what kind of.
Impact do you anticipate that category will have on the business as we head into 'twenty, two and then as I look at numbers for next year, it's still a pretty healthy increase even though it seems like the sales force.
And it's going to be a little bit flatter coming out of this year. I mean are you comfortable with where the street's at as far as 22 revenue scale.
Yes.
Well, maybe I should I should answer that one obviously.
<unk>.
We are internally very bullish on.
What we can.
We can squeeze out of.
Of the sales force and.
The internal.
The infrastructure of the organization, we have to support that in terms of how much cash we can collect.
And obviously, we are beginning to get well into it.
At least at the $101 million to $200 million in annual revenue and so relatively speaking.
Our growth might be baked in.
In dollars, but percentage wise it will naturally start slowing down.
So.
Yes.
<unk>.
And at this point, we haven't really finalized our planning.
For <unk>.
For next year in terms of where it will be in terms of orders and revenue and expenses, we have some rough ideas and.
Just here early on when we might be very optimistic as to the east.
The amount of growth, we will be able to achieve next year, even at these revenue levels.
But I think we'll be.
We'll have to wait until until our next earnings call before we can really comment on where we at compared to the analysts.
Okay and blood monitoring.
Okay.
Yes, maybe you can.
<unk> can speak to the potential revenue in that.
Yes, so we've been really focused currently on.
Our.
FDA submission for our wireless CFO <unk> hundred we've been thinking through what the strategy looks like of the design of the sales force as I mentioned earlier in the commentary that our submission to the FDA will be this year.
We're expecting that it will be a very traditional 90, maybe 90 plus days and we will see revenue in the back half of 2022, we will be preparing our commercialization plans in Q1 and Q2.
We will start executing with a small direct and some indirect sales force and probably late Q2 early Q3 of the.
2022, specifically for that.
I'm not so sure I have exact numbers for you, but this will be certainly a very important.
Execution phase in the first half of 2022.
Great. Thank you.
Youre welcome.
Our next question comes from Louise Chen with H C. Wainwright. Please go ahead.
Thank you for taking my question. The first question is could you comment on the.
The number of sales reps you aim to achieve by the end of 2022 and also you mentioned that the average revenue generating generated per rep has been improving.
Tell us what is your target average revenue per rep and how soon do you expect to achieve that.
Yes Hello.
This is Thomas.
In terms of.
And in terms of revenue per Rep, if I take your questions and sort of an impact whatsoever.
We know from our.
Yes.
Well seasoned and better producing sales reps.
Hey.
They can produce up towards $2 million a year.
In revenue within their territory.
And therefore, we are still planning on long term.
We might be half a decade out.
Really a bit sooner than that but.
Long term that the average sales reps and there'll be some some brand new ones and that makes so that the average will be right around $1 million per sales rep. So that target Hasnt hasnt changed.
In terms of.
How many reps we expect to have by the end of next year.
That's obviously.
We can see right now.
The shortage.
Of potential employees, whether it's sales reps or people that want to come work at.
At our corporate headquarter.
Is playing a very very significant role right now.
If we assume that things stopped normalizing and get back to the supply demand levels.
We saw a couple of years ago.
Here in Colorado and in across United States.
Supply demand in terms of the workforce.
Then I would expect us to get very close to 600 by the end of next year.
But if the first in the second quarter.
To demonstrate the same type of challenges we are seeing right now.
That's good.
Obviously, you put a damper on it but.
I am showing no matter, how fast that goes well, we'll be well over 500 again bye.
By the end of next year.
Got it thank you.
Next question is.
Do you expect.
<unk> hundred when commercialized.
Have a similar gross margin.
Two the next wave margin.
So this is Don can take that question.
Sure.
When you look at the <unk> hundred it's a network device and this network device has piece of capital equipment. It has software and it has.
<unk> disposables traditionally in this business and the monitoring space.
You have a strategy that youll.
Youll have margins on the hardware youll have margins on the disposables, you'll have margins on the.
On the software.
Very high margins on software.
High margins on the disposables, because it's a razor razorblade type business and so I am expecting that margins will be.
A bit higher on the disposables and the software and we will be on par if not a little bit better on the capital side, we have focused significantly on cost reduction in our wireless and what I would call designed for manufacturing.
So we can manufacture this in high volume.
Got it thank you.
Youre welcome.
Our next question comes from Mark Weisenberger with B Riley Securities. Please go ahead.
Yes. Thank you good afternoon.
You've talked about it becoming difficult to kind of onboard new reps and maybe that's.
Lowering the potential growth rate for generating new orders have you thought of working with any telehealth companies to provide direct access to doctors, who can prescribe the next wave two to generate orders.
Maybe in a non traditional route than you've historically done.
Oh, yes, we have we have certainly thought about it.
We also.
Looking at how successful we have been in terms of growing revenues.
And.
And.
Filling up the territories across the country.
We know with high certainty, how how well a good relationship between <unk> and <unk> sales representative from our company works in terms of developing autism and subsequent revenue.
And we have we have seen incredibly high close rates as a result of that.
So.
If we look at that question, specifically, you could say, we could potentially try to add another another.
Another way of growing the business.
Some of that potentially.
Okay.
If not as successful be distracting, our our efforts internally and also <unk>.
Externally.
Versus the more traditional knocking on doors and building relationships.
The extent to which the building relationships with direct sales force how successful that is right now that make us stick to that for now and maybe when we get to the point of having sales reps.
<unk>.
In all 800 territories.
And then being reasonably profitable that would be 800 sales reps and hopefully approaching.
<unk>.
Per for the average sales rep.
And.
As we're looking at strategies to develop the market further.
The potential unlocking the potential really is in the pain.
Management.
Area.
That would definitely be one of those ways, we could we could potentially grow more revenue on top of what 800 sales reps can provide.
So right now.
We're looking at it as one of many options we could apply but.
I want to make sure we get all 800 territories filled with eventually very productive sales force and then grow further from there.
Got it okay.
Sticking on the tight labor conditions theme, a little bit longer.
Could you quantify maybe any potential drag on the results either in the current quarter or potentially maybe what youre seeing in the fourth quarter not necessarily from.
Slower sales grab growth, but may be kind of more from the back office labor constraints in the billing department that you highlighted.
Yes sure.
The corporate office, we have approximately I would say between 80 and 100 unfilled open positions.
So that obviously means that we still processing.
We.
We are severely understaffed in every department nearly every department I would say.
However, we do get the work done but there are many things you do as an organization, where you built structures for the future.
We may not necessarily built them.
To the same extent in.
An organization that doesn't grow as fast and it doesn't have a difficult job market against the might see.
The activities that are not specifically.
Geared towards reaching this month's goal of processing that many orders or whatever the task may be.
Like like that are more social and met in nature and just part of building a good work environment to get to know <unk> and OLED <unk>.
They are less of that in a period like that versus.
Let's hopefully in a year from now being in a better position.
<unk> will be eventually focus more on maybe team building and things like that so there is also some of the more intangible things we get work done.
And.
That's really what matters now while we are we.
We are staffing up we have a net addition in contrast to our salesforce.
Every week, we are adding net more than we are losing so we are we're not losing we're not losing ground here cohort, but it could definitely be better or this is still quite a few empty seats.
Got it got it thanks.
It seems maybe that you had an elevated level of cash right now I'm wondering if you could talk about the capital allocation priorities balancing.
Pain management, and monitoring and kind of the split there and then I think Dan noted that the buyback ended in September based.
Based on where the stock is right now is there any plans to reinstate that in the near term.
I'll start with the buyback.
Everything's on the table, we got to look and see.
In our current business activities, where any capital allocated in those types of things so.
I don't know that we have any intention to reinstate it.
Immediately, but I think it's definitely on the table.
Sorry can you repeat your other question Mark.
Yeah in terms of.
Capital allocation kind of split between.
Monitoring and pain management going forward.
If you're just talking normal operating activities I would say pain management is running now.
Now, we're running between $25 million to $30 million of expense per quarter.
Monitoring, even though we're making a significant investment and it is still probably 10% to 15% of that.
So it's still <unk>.
Far.
A small piece of the pie, but.
It's definitely grown this year.
Last year, we were probably close to $1 million. This year, we're probably between two and two and a half if you'd look at the full year.
Next year is probably.
Another $1 million and half on top of that so.
There is definitely.
With all the activities that Thomas and Don talked about Theres definitely.
Some P&L.
<unk> is hitting there so.
That's all within the plan.
Got it very helpful.
Don can you provide more detail on the difference between overall fluid volume versus understanding the fluid status.
Yeah.
So overall fluid volumes and fluid status is.
Slightly different but very related what's important is fluid responsiveness.
Fluid responsiveness is about.
Asking yourself, if youre, an anesthesiologist that you should give your patient fluid and the reason that is is because you can.
Put your patient into some challenges around cardiac conditions.
Today, there are many organizations that are kind of focused on are they losing fluid or are they somewhat getting overloaded.
We have to address that question as well, but one of the things. That's most important is predictably figuring out if you need to give your patient fluid or not because clinically that's the most important.
That's most important for in a surgical setting because of you want to.
Ensure stability from a hemodynamic hemodynamic standpoint.
Got it very helpful. And then just a final one for me.
As we think of the business and kind of the long tail of the consumable revenue that is generated off the initial order. If you were to stop all device sales.
Let's say at the end of the fourth quarter.
What kind of runway do you see for consumables revenue I mean, how long would you be able to still generate consumables revenue. Thank you.
Well for the next decade, obviously would be on a declining scale.
But it's obviously as youll see on our reporting a very significant part of our revenue and even more significant part of our profitability.
So.
The first quarter as an example, you wouldn't you wouldn't see.
Much of a dip and then it'll just.
Right down.
It would be somewhat insignificant compared to face numbers.
When you are more than five years out.
So it's.
If a patient has a device.
Even if we got absolutely no prescription and subscriptions and we will still get revenue from the monthly rentals.
And the supply of consuming as S insurances approve and disapprove it.
To pay a forget to tell us about it.
All the stuff that goes on in between.
Great very helpful. Thank you very much perhaps on a good quarter.
Hey, guys. Thank you.
Our next question comes from James Terwilliger with.
Northland Securities. Please go ahead.
Hey, Thomas can you hear me.
Yes, I can hear you how are you doing.
I'm doing well I hope you guys are all doing well a couple of quick questions.
First of all congrats on a nice quarter.
Good revenue growth numbers, it's a great EPS number.
My first question is.
How many reps have you guys had to had to trim I think.
It's terrible when anyone loses a job, but clearly I and I understand that.
And then.
Maybe a turnover percentage percentage of reps come in versus what you've been able to keep and then how much time do you give a ramp.
Will you kind of make that call that hey, we're just not getting it done we now have six months 12 months for a sales rep, depending on the territory and in medical devices.
Brand, new or an existing territory for them to become productive and those are my days at Johnson <unk> Johnson, but again, how much turnover do you have.
How many reps have you lost or have you trimmed maybe a turnover percentage of and how much time do you give them before you make that decision.
Well I don't have all of those I don't have enough numbers with me to give you specific answers to all of it but I can you can obviously you mentioned win.
The net number of sales reps went from 500 down to 430 at the end of the quarter that we.
We got rid of more than that.
Quite a few more meat.
We added about 300 reps nearly all of those in the second half of last year.
And I was.
We obviously, especially those that had had been.
Six to 12 months six to nine months.
There was quite a few among those that.
<unk> never really made it.
And.
I would say because we.
We added so many we get we gave them more time or I should say, we gave our regional sales managers more time than usual to eventually get them up and running because they had a lot to work with we only have 15 regional sales managers. So we gave them a lot to work with and a lot of that.
This is not only dealing with the existing sales reps, but also holding the hands of brand new reps to get them get them up and running and so.
We normally.
Yes.
We normally see right after the 90 days.
Net.
Sales of either.
We'll make it or not.
But I would say in the last the last couple of quarters, we have given them longer than normal simply because.
Our managers have had module.
To work with them than normal.
And therefore, it gave them gave the reps are.
<unk>.
Beyond what we normally would do.
So here recently, we've cleaned up a lot because it's not worth it to carrying people that that are not going to make it now we definitely know, let's put it that way.
Who couldn't make it and we.
Keep keep.
Keep building the sales force at a slower than before cadence.
Okay.
Have the calculations of our specific ton rates.
But it's obviously a lot of people have talked about the net has gone down by 70%.
Mhm. Thank you My second question is really on the gross margins I Wonder if there's anything.
You guys could add I thought I heard you say earlier in the call maybe a price increase a lot of the companies I'm talking to are having pressure on the gross margins with the supply chain issues that are everywhere and then you guys actually came in I think at about 80%, 80% and it was actually.
Real nice gross margin number is there anything else that you can add there in terms of did you get a price increase during the quarter.
Is it a trend or I know the range is at $75 76 to 80, but is there anything else you can add on how the gross margins did so well here in Q3.
So it's really just normal operating like I said, we have gotten better on the pricing side from the suppliers. We are volumes have increased significantly over the last couple of years and so obviously that helps from a pricing perspective.
Our cost prices, yes.
Our retail our MSRP or wherever you want the revenue pricing hasnt changed at all so it's really just improvements there and then.
Absorbing like I said the investments we made in the production facility and those things as revenues get higher and higher those that absorption percentage get lower and lower so.
It's really those two factors that have continued to drive margins and again I think 75% to 80 going forward.
Is reasonable so.
It may not always be 80%, maybe 77 to 78, but that's all within the expected range.
No no. It's a very very good number I think I'm at 76 going forward trying to be conservative. So the 80 is a great number, especially with the conditions everyone's operating under.
My next question is how big is the current patient monitoring division I know youre looking for strategic partnerships and maybe some independent distributors, how big is that patient monitoring division as it sits today.
So this is Don I'll take that question today, we have a mix of.
Engineering.
Focused.
On both the <unk> hundred and the wireless version assume 600.
In addition to that I have.
People focused on running clinical trials and there is.
We've kind of quadrupled the size of the team to be very strategic and focused youll see additional commercial team that will be built in Q1 Q2 timeframe of 2022.
So we're staffed somewhere around 20% to 25 with contractors and things like that.
Okay fantastic. Thank you.
That's very important product as we move into next year and my last question is.
I had a lot of concern.
Coming in and like I said I think our numbers are very good.
Concerned with maybe what happened down in Florida with Covid.
Sure.
Procedures have been delayed sometimes it's hard to catch the.
Patient coming out of the hospital and the same thing with Texas do you.
I think that had any impact on your numbers.
I know, they're going to impact other medical device companies do you think that had any impact on your numbers are you guys kind of salad right through that.
Yes, we haven't really seen COVID-19, except for the second quarter last year, where there was a lot of uncertainty in clinics as to how to deal with us in sales reps in general.
<unk>.
Since then we haven't really seen any any impact it's still looking a little bit but.
All it doesn't it's more the individual performance.
Those 430 sales reps.
That dictates and how they eventually get.
Get the relationships built.
And.
I think I noticed this morning, you mentioned, Florida, which is a big state. That's also the state that has the second biggest decline in incidents.
Or infections.
Sure.
Covid right now so.
I think.
Very quickly then they will probably be back to another level.
Okay.
Being able to.
To do medical procedures et cetera.
Okay, great I'll jump back in queue, but thanks, guys for taking my questions and nice job on the quarter. Thanks, guys. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Thomas Bancorp for any closing remarks.
Yes. Thank you.
I Hope today's earnings call, it's been informative for everyone and I appreciate the interest in <unk> and listening into this call.
And a great data.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.