Q4 2021 Zynex Inc Earnings Call
20% just during the fourth quarter.
We continue to see consistent with.
With fourth quarter figure is coming in.
8% higher than the same quarter last year, and adjusted EBITDA of $13 million in the quarter.
2021 numbers cemented our financial health looking forward, we expect to experience a seventh straight year of profitability.
I will now turn the call over to Ana our COO to speak to operations in our revenue generating pain management Division.
Thank you Thomas the pain management and electric therapy Division remains the primary driver of the company's financial growth specifically with the next wave for pain relief and Postop rehabilitation.
These prescription strength electrotherapy devices provide patients with comparable and even superior results than those obtained using enterprise level technology, and the clinicians office, but with at home convenient.
We are in the process of populating 800 sales territories throughout the U S with a highly productive direct sales force to promote not only our next wave device, but also products, we distribute such as cervical traction lower back support hot and cold therapy and knee braces, we have felt well over half of those territories and are highly focused on.
<unk> the productivity of existing sales reps in addition to adding more despite the tight labor market.
Our focused sales training program is designed to enable.
Thanks.
Sales growth for the company as mentioned during our last quarterly earnings call. The employment and labor markets have remained a challenge for recruiting effective sales reps and while the incoming applicant.
But he is high we hope for the increase in quantity as the omicron wave subsides.
Our long term goal is to populate all 800 territories and continue to improve our annual revenue per sales rep.
While a large portion of our sales team is still in the early stages of ramping up the market is a unique one having been developed over many decades with widespread insurance reimbursement physician acceptance and low to no competitive products.
We would like to take this opportunity to address changes in insurance provider coverage and to reiterate the durability of <unk> revenue model, regardless of in or out of network status.
<unk> of the <unk> commercial insurance business is through out of network coverage and we process claims through all insurance.
Providers.
Our in network status change with United Healthcare will not negatively impact revenue is about 90% of all United Healthcare plan, specifically have out of network coverage, we're dedicated to providing access to care for all patients and will continue to process all incoming prescriptions, despite in or out of network status.
The opioid epidemic continues to ravage this country with tens of thousands die from prescription drug abuse every year, we've become increasingly aware of the role that <unk> and his prescribing physicians can play for our continuum of care and have educated doctors and the benefits of the next wave technology in managing pain.
Our technology is free from side effects and studies demonstrated is as effective in combating acute and chronic pain as other rehabilitation and mitigation options.
We continue to see physicians, writing prescriptions for next wave and as consumables earlier in the pain management process, thus avoiding dependence on medications from the outset of treatment.
We plan to make this a central central tenet of our sales force training program and are proud to offer an alternative solution to opioid prescription use.
As mentioned in previous quarters, we have not experienced any supply chain issues during COVID-19 and we do not foresee any materializing during 2022.
We've diversified our list of suppliers to include up to three sources of manufacturing components, and we preemptively ramped up our purchasing in anticipation of increased business levels.
I will now turn the call back to Thomas.
Thank you Anna.
I believe it's important to remind everyone that for decades, our business model in the pain management Division has been to accept prescription for all patients and therefore, bill all insurance plan.
Whether we are in network.
In fact, we only in network with less than a third of all commercial insurance plans and yet we consistently collect revenue for all products.
Our financial results with P Diddley show.
While the company's primary revenue driver is currently based on on the pain Management Division we've increased focus.
And our monitoring solution division throughout 2021.
We're excited to realize even further potential in the patient monitoring market with our recent acquisition of Kester labs.
To welcome John Dunn, Greg VP of monitoring solutions to <unk>.
Speak to the long term strategy ambition of this division.
Thank you Thomas.
Our patient monitoring products include hemodynamic monitoring laser based pulse oximetry and substance monitoring which represent a market of over $3 7 billion annually. Ultimately, we believe that a central vital sign monitoring platform that incorporates our growing product line will deliver hospitals and physicians.
The most efficient system of patient monitoring care available.
Oximetry sales to hospitals and clinics alone accounts for over $600 million of serviceable market in the U S and it is growing at about a seven 4% CAGR the.
The Kestrel labs acquisition provides <unk> with leading edge laser based pulse oximetry technology that solve unmet clinical challenges and market demand.
The Nico device, which is a noninvasive co oximeter uses laser technology to measure for crucial species of hemoglobin with the high level of accuracy, regardless of skin pigmentation.
Nico is a direct replacement for the conventional monitors on the market.
Monitors, primarily measure spo too and they failed to capture accurate reflections of patient condition.
Kestrel second device Behemoth monitor as a total hemoglobin pulse oximeter, which replaces invasive finger stick.
Venous blood draws for continuous monitoring of hematocrit oxygen content and oxygen saturation.
Led technology being used in virtually all hospital settings today.
As approximately over 35 years old a glaring outdated standard of care that is ripe for disruption.
Antiquated science can lead to inaccurate diagnosis that cost facilities and insurance providers millions of dollars every year, let alone pose a risk for patient health.
While this shift towards laser based technology won't happen overnight, we expect that the inherent value will be supported by data collected in clinical trials.
Armed with this technology and data <unk> is in a position to compete and ultimately seize market share from incumbent players, we don't anticipate revenues from our monitoring.
Thank you.
Additionally, we are looking forward to working with the FDA on our recent submission of the <unk> hundred. This next generation wireless device allows for ease of use and hospital.
<unk> and helps physicians monitor patient fluid balance.
So we bulemia the cm 1500, which was <unk> first generation monitor received FDA clearance in 2020 and completed multiple informal.
<unk> clinical trials for perioperative use of our proprietary relative index algorithm with.
<unk> hundred was submitted to the FDA at the end of 2021, we expect the typical 180 day clearance cycle and look forward to commercializing the product later this year.
Our initial targets will include hospitals and.
And surgery centers were substantial blood loss and internal bleeding are difficult to detect until serious complications present.
<unk> patients died post operatively, and then intra operatively largely due to hemodynamic instability.
The noninvasive <unk> hundred.
It provides more comprehensive insight into patient conditions in the second quarter will add ahead of sales and marketing to the monitoring division and be prepared to mobilize manufacturing as soon as the FDA clearance is achieved.
We have multiple studies planned and are enrolling patients for clinical research throughout the upcoming year and plan to commercialize the wireless <unk> 16 higher device over pursuing a go to market strategy with the wired cm 1500.
With that I will now turn over the call to Dan Moorhead, Chief Financial Officer to discuss our operating results.
Thanks, Tom.
Please refer to our press release issued earlier today for a summary of our financial results for the fourth quarter and full year 2021.
After Colin.
18% year over year, and net revenue grew 58% to.
To $40 4 million.
From $25 6 million in 2020.
Q4 revenue increased 16% sequentially compared to Q3.
Device revenue increased 62% to $13 3 million compared to $8 2 million last year.
Supplies revenue increased 56% year over year to 27 million from $17 4 million.
Gross margins were 82% of the fourth quarter compared to 80% in Q3.
We have previously stated we expected margins to be between 75, and 80% and were pleased to outperform those expectations.
Sales and marketing expenses were $13 6 million in the fourth quarter of 2021 compared to $12 3 million in the same period in 2020.
G&A expense grew to $7 8 million in the fourth quarter of 2021 compared to $5 3 million in the same period in 2020 and $6 8 million in Q3.
The increase was mainly due to facility increased head count related to order growth and our growth in <unk> monitoring.
And finally net income grew 398% year over year to $8 9 million and produced 23 cents per diluted share in the fourth quarter of 2021 and.
And adjusted EBITDA grew 276% to.
To $13 million.
Keep in mind that our 10% stock dividend, which was distributed during January 2022.
<unk> accounted for retrospectively to all prior periods and decreased our earnings per share by 10% for 2021 and all prior periods.
We ended the quarter with $42 6 million in cash up 20% from the end of Q3.
For full year 2021 results.
Orders grew 89% year over year, which increased net revenue, 63% to $133 million from $80 1 million in 2020.
Device revenue increased 72% to $36 6 million compared to $21 3 million last year.
Supplies revenue increased 59% year over year to $93 7 million from $58 9 million.
Gross margins for the full year were 79%.
Sales and marketing expenses increased 59% year over year, and G&A expenses grew 44% year over year.
2021, net income was $17 1 million.
Or <unk> 44 cents per diluted share compared to net income of $9 1 million.
Or <unk> 24 cents per diluted share in 2020.
We previously reported 2006 for.
For 2020, but the amount was adjusted by the 10% stock dividend.
Adjusted EBITDA increased 95% to $26 7 million in 2021 and on the balance sheet as of December 31, our cash balance was $42 6 million up from $39 2 million at the end of 2020.
Our working capital grew 13% to $59 8 million at December 31, compared to $52 9 million as of December 31, 2020.
That growth was net of our stock buybacks cash dividend and debt added related to the kestrel lapsed transaction.
In December we completed the acquisition of Kester labs for $31 million, which included $15 million in stock and $16 million was financed through bank of America at two 8% over three years.
With that I'll turn the call back over to Thomas.
Thanks, Tim.
So now turning to the outlook for 2022.
We expect total revenue to be in the range of $150 million to $170 million representing growth of 15% to 30% over the previous year.
Adjusted EBITDA for 2022 is expected to come in between 25 and $35 million.
For the first quarter of 2022.
We estimate revenue to come in between 29 and $32 million with an adjusted EBITDA between three and four and a half million dollars.
This reflects our most recent assessment of the current labor environment, and continuing uncertainty related to the evolving impact of the COVID-19 pandemic.
We look forward to maintaining our financial health is a key differentiator among all other microcap peers in Endo, we anticipate high growth and profitability in the upcoming quarters.
With that we can now open up for questions.
Thank you.
We will now begin the question and answer session.
Ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press star. Thank you.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Matthew O'brien with Piper Sandler. Please go ahead.
Afternoon. Thanks for taking my questions I guess, let's just start with UNH and such.
The 800 pound gorilla here.
In the room, so why would they want to move from in network out of network or why would you want that to happen and then what percentage of sales as UNH.
Sorry, well presented just as <unk> sales in that EBITDA.
Yes, Hi, Matt This is Thomas.
First of all.
It was definitely a mutual decision.
Second you called it the big Gorilla in the room.
It is a non event.
Changes in relationship.
Insurance companies that happens all the time and.
And certainly is something that won't have an impact on our revenue.
And in terms of the percentage of revenues.
And then do you have.
Looked at it and and I have looked at it and you know it varies.
Yes, we are estimating collections, but it's.
We have talked about they did change some supply during the middle of the year and so towards the end of the year I think they were between 10 and 15% of our overall revenue somewhere in that range.
And we would expect that percentage to stay fairly flat going forward.
Dan is it about the same amount on the EBITDA side too.
Is it disproportionately.
No I heard David of course, it and everything else, so they're not more or less profitable in general you know, we always talk about payer mix and those types of things, but again the commercial guys are kind of in the middle.
Pretty much all of the same whether it's on Aetna.
So some of the smaller insurance or Steve on the average rates are pretty much end up collecting the same for the <unk> trial.
Okay, and why would you want them to go out of network what benefit does that provide you guys.
Suddenly less headache.
We typically have less.
Going back and forth in terms of suddenly be they have a number of tools in the toolbox some of them.
Suddenly they have a year an entire year of everything is on prepayment review and that means that we provide additional documentation to to insurance companies like that for a long period and then it goes off suddenly we see a big influx of money et cetera.
It's more cumbersome, it's actually more straightforward.
In general to be dealing with.
With.
Commercial health insurance as we auto network with there's a lot of work on a case by case basis. They awesome.
Forget to pay for one data service, but for amendment to pay maybe half the amount for the next date of service and sometimes the device, sometimes it's a supplies and all of that doesn't so much housekeeping going on each each fall weather, we ended FY <unk> auto network, but it's generally.
Slightly more.
Remember when we some years back opted out of Aetna I believe the year following that we all collections from Aetna increased 10% for the average browser I wouldn't be surprised if we see something similar or at least the same collections per the average vial from from United.
Okay very helpful. Thanks for that and then I don't think I heard sales force number maybe at the end of last year and then what's your what's your plans are for this year and I'll just kind of wrap the question that I really have around that.
Q4, you did about 40 million of sales in total youre guiding to about 160, so no real kind of.
Growth off of that exit rate and I'm, just wondering if that salesforce related or if there is something else.
Okay.
Something else to really keep an eye on.
Yes, it's very much a salesforce related and at.
At this point it might be wishful thinking that the.
The impacts of Covid on the labor market that will be gone tomorrow, and we can start high new reps at a higher rate without <unk> on the on the quality of the reps we have.
We add into the sales force.
So worst case.
That's also why we have.
At range.
Our range in terms of the revenue estimate between $150 million to $170 million.
It's a worst case scenario, if we only hire at the rate.
We have right now than we expect we might be in the low end of that rate of.
Of that range, if we if we see the job market open up more as it relates to quality candidates applying for sales positions than we could potentially do a little better in the later part of the year and catch up that way, but realistically phases for this year.
It's going to be hard to grow a whole lot more than that.
We got to be real about the job market.
We saw in the later parts of 2020 that trying to force that.
In this situation.
The supply of labor is fairly limited.
It's not worth trying to push it any any further.
Okay and actual numbers of sales reps, how many did you end last year with and how many are you hoping to end this year with.
We had about 400 at the end of the year.
And the current forecast shows us around 500, so adding about 100 net.
Obviously, we'd like to do better than that but.
But as of right now like commentary with the labor market. That's just.
A tough number to forecast.
Got it thank you so much.
Our next question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.
Hi. Thank you this is actually destiny on for Jeff This afternoon.
Following on the theme of the labor market I'm curious and maybe this is a question for Anna.
Has your strategy changed are you focusing specifically on geographic areas that are underserved or are you really more focused on qualified reps, even if they're in similar or somewhat filled.
Area has that changed at all given the current labor market or now.
Well our strategy hasn't necessarily changed we have.
We have implemented a number of initiatives to.
Increased number of candidates that we're attracting and put some additional filters in place to ensure that the candidates that we're pushing through our quality candidates, but overall our goal is to get to 800.
Sales reps still and we're focusing on all areas recruiting quality candidates throughout the country.
Okay got it. Thank you and then maybe could you just talk a little bit about the timing of some of the cash flow products in terms of regulatory submissions and then potential commercial commercial launches.
Yes. This is Dan Greg I can I can speak to those so we acquired Kestrel and we've integrated the acquisition.
We're currently working on the.
Product innovation of the products and the submission we're planning in about 18 months. So that's about mid 2023.
And that'll.
That will be for the noninvasive co oximeter Nico product.
Okay.
Thank you and then danon better margins than expected I'm, just curious if theres anything specific you wanted to call out or that you could call out or if it was strictly a function of higher revenues. This quarter. Thanks, so much I'll jump back in queue.
No I would say it was it was some of it was a function of the higher revenues we've continued to.
Work work, our vendor relationships and those types of things so for the year, we were still at 79%. So we still think that 75 to 80 is a good range going forward, but we were happy with the result in Q4 for sure.
Alright, thank you.
Our next question comes from Mark Weisenberger with B Riley Securities. Please go ahead.
This is actually a mind jumping in for Mark Thanks for taking my question.
Could you provide a little bit more color on maybe.
Prior to your customers that way from a network to network maybe.
Maybe quantify the impact on revenue per prescription as long with quantity and reimbursement.
For consumables.
Yes. This is Thomas.
We have we seen that.
Alright quite often go go positively marginally positive and.
In the case of Aetna Vagner, Dave is a 10% increase gross numbers fluctuate all the time between all insurance companies.
And.
Go in and out of network for many of them, sometimes it's beneficial.
And.
In some cases, where it's very hard to squeeze anything out of an insurance company for a long period of time, we find ways to then get in network.
<unk>.
A little bit of that way, so it's something that goes on.
In our billing department.
On a constant basis.
But the numbers, especially when it comes to commercial insurance plans.
Pretty constant.
And it's not really it's not something we really are.
What about on a daily basis, whether we in Netherlands Auto network for the most most of these plants or bottleneck work benefits the ACA.
Nation of benefits just flow a little differently.
If you have anything to add.
I would also add those typically when we are out of network, we see higher allowable is because we're not restricted to.
Our contracted price is typically lower when you are in network with a payer.
So.
We're anticipating that.
Jude.
Allow both to go up once we're out of network with United.
Got it that's helpful and.
Some reports have indicated at ash.
Outside of the numbers number of consumables to patients on a monthly basis can you talk about the political do you have in place to safeguard against any unusual activity.
Can you provide an average number of consumable ships to patients.
And what factors go into determining the monthly quantity of consumables.
Well, obviously everything is nearly to the point of being dictated by the insurance companies. They have allowable quantities as well as allows all dollar amounts are C. Sometimes it even varies patient by.
Patient.
It's for the most something thats dictated by the insurance companies.
And the obvious.
We try to comply with that sometimes it takes a month or two before we certainly learn about new new allowable quantities.
So it's on a high level.
It's really dictated by the insurance companies.
Yeah.
Okay.
Thank you in more detail.
We also look at.
Number of treatment areas that the patient is creating good.
Lauren.
Variables go into the need for quantities of supplies and.
As Thomas mentioned most of it is driven by the insurance company, and what they're allowing but if the patient needs more or less they can also.
We would reach out to them to follow up and.
We get confirmation and then they're able to reach out to us.
Adjusted or increase or decrease the quantities if they're.
Trading as frequently as needed.
Alright, Thank you I'll jump back in the queue.
Our next question comes from <unk>, Chen with H C. Wainwright. Please go ahead.
Okay. Thank you for taking my questions could you give us a rough percentage estimate of the revenue that's covered by the <unk>.
Yes.
Commercial insurance and also the percentage covered by auto network coverage.
Well.
Overall, we are in network with less than a third of our commercial insurance plans.
And revenue wise.
We collect more or less the same.
On the average.
Through between all the commercial insurance plans.
So.
It stimulates haemorrhagic shock.
And we completed that trial here currently at a large institution on the east coast.
And we are in the process of analyzing all of this data that's coming through these trials too.
Make.
Changes and characterizations of our relative.
Index, an algorithm in our device and so there is highly promising results that are coming out of these and.
They are growing very well overall.
Do you expect all the trials to the core results by the end of this year.
We have trials that will be mostly completed by the end of this year.
We have a few others that were.
Working on with other large institutions similar.
These are university trials.
And they May go into next early next year, but most all complete by the end of this year.
Okay.
Is the economy does the timing of the <unk>.
Charles This is reported.
Thank you.
Timing of your commercial launch soon.
<unk> 6000.
It doesn't we are using the trials to ensure the performance of the device of course.
We are waiting for a response from the FDA, we submitted at the end of December 2021.
And we're expecting a response end of March and that is what will really dictate our commercialization.
We will have the trial data.
For the commercialization and that's been part of the plan.
All along with the.
With the clinical trials.
And our commercialization date.
Okay. Thank you.
You're very welcome.
This concludes our question and answer session I would like to turn the conference back over to Jonathan Gould for any closing remarks.
Okay, yes. Thank you.
We're very excited about our progress this quarter and remain very optimistic that we will continue to generate growth from our strategic initiatives. We ended 2021 with a flurry of activity and announcement and will keep leveraging that momentum into the new year.
We expect 2020 to see some significant milestones for the company in a period of inflection for.
For our expansion.
We hope todays earnings call has been informative and appreciate your interest in <unk>.
Great evening.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.