Q1 2022 Zynex Inc Earnings Call

Good afternoon, ladies and gentlemen, and welcome to design next first quarter 2022 earnings Conference call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.

As a reminder, this conference is being recorded I would now like to turn the conference over to Luisa Smith with the from the Gilmartin Group. Please go ahead.

Thank you Joe and good afternoon, everyone earlier today <unk> released financial results for the first quarter 2022 .

The press release is available on the company's website.

Joining me on today's call are Thomas Vanguard, Chairman, President and Chief Executive Officer, Dan Moorhead, Chief Financial Officer, and it looks our Chief operating officer, and Donald Greg Vice President XI and X monitoring solution.

Before we begin I'd like to remind you that during this conference call. The company will make projections and forward looking statements regarding future events.

We encourage you to review the company's past and future filings with the SEC, including without limitation, the company's 2021 Form 10-K , and subsequent form 10, Qs, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward looking.

Statements here.

These factors may include without limitation statements regarding product development product potential the regulatory environment sales and marketing strategies capital resources or operating performance with that I'll now turn the call over to Thomas.

Okay.

Thank you Luisa and good afternoon, everyone.

Thank you for joining us today for the first quarter 2022 earnings call.

We had another solid quarter of gross unprofitability.

Our total revenue was $31 1 million for the quarter, an increase of 29% year over year.

All generated in our pain management Division our earnings for the quarter were <unk> <unk> per share up from two cents per share loss, a year ago, and adjusted EBITDA was $3 1 million.

Oh order growth continues with the month of March recording the highest number of orders in the company's history.

Several months ago, we announced a 10 million dollar share buyback program signals our confidence in the long term success and growth of <unk>.

We've always been committed to delivering shareholder value and we believe purchasing shares.

At these prices creates value for our long term shareholders.

The first quarter performance was a reflection of the company's capacity to execute operationally and strategically and we remain on track for our 'twenty to 'twenty two annual revenue guidance of 150 $270 million.

During the first quarter the monitoring division completed the integration of Kestrel lapse in its laser based pulse oximetry products.

In the quarter in the first quarter. We also added a significant amount of engineering and clinical research personnel to the division and are gearing up for manufacturing and sales of the C. M 1600, our second generation blood and fluid monitor them.

We intake we.

<unk>. These these things to take place in.

During the third quarter of the year pending FDA clearance obviously.

That's how audience may recall, the first generation product see them 1500 is already cleared by the F. D. A.

I will now turn the call over to analog Socs, our chief operating officer.

Thank you as Thomas mentioned, we received more orders during March than any other mountain record. We've continued to see our sales force, becoming more efficient and revenue per sales rep. In Q1 grew by 50% compared to Q1 last year sales.

Sales rep productivity remains an area of emphasis and we continue to be very selective in hiring new reps and also scrutinizing existing maps, ensuring they're producing at a high level not only in the quantity of one.

Quality is well.

We ended 2021 with about 400 reps and at the end of March number was approximately 430 historically January and February represented the lowest revenue numbers of the calendar year as insurance deductibles reset. This seasonality was no exception this year, but we still achieved 31 million in revenue and.

$3 1 million and adjusted EBITDA. Additionally.

Additionally, cash collections remained strong evidence that we are not seeing a dip in numbers based on in or out of network coverage with various insurance providers.

Our newest spread portfolio offering the OA knee brace has received significant market interest and is already contributing to revenue growth since its release in January .

The next wave I would like to get there.

Arab device prescribed for pain management, and rehabilitation continues to be our top revenue generator and number one prescribed product.

It's a prescription strength technology has no side effects and is an important first line of defense for doctors in the midst of the opioid epidemic.

We've maintained effective inventory management throughout the global supply chain challenges and have sufficient inventory to accommodate our order growth in the coming months, we've seen longer lead times tomorrow manufacturers, but for the most part have been shielded from the macroeconomic complications facing our business.

They are facing.

Facing other businesses on the supply side.

I'll ask John Graff, Vice President XI and expiring so wishes to speak to the business updates related to that division. Thank.

Thank you Anna does IMAX patient monitoring division includes our product portfolio and pipeline to address Hemo dam hemodynamic monitoring laser based pulse oximetry in substance monitoring.

These represent a market of over $3 7 billion annually and we're looking forward to bringing to market a variety of new products and tools to achieve improved patient care.

As you May recall, the <unk> acquired Kestrel labs in late 2021, and Zanex monitoring solutions has officially completed the integration of this acquisition in the first quarter as planned.

We are adding key personnel to build out these laser based products to include the Nico co oximeter, our multi parameter AR device.

And he marks a total hemoglobin oximeter that enables continuous arterial blood monitoring we plan to submit the Nico oximeter to the FDA for clearance in the next 12 to 18 months. Additionally, the noninvasive see them 1600 wireless blood and fluid marker, which was submitted to the FDA in December of <unk>.

'twenty 2021 is progressing as planned as Thomas mentioned, we are awaiting clearance in the correspondence with the FDA has been positive to date.

MFS is also prioritizing data collection with multiple ongoing studies and clinical trials, we've completed clinical validation trials for the hemodynamic monitor at Yale Medicine, and Davita kidney care, both yielding positive results. The Yale study tracks reductions in blood volume and recovery as well as the visa <unk>.

Friction in basal dilation of the rap of the relative index. The Davita study characterized as changes in the relative index during a dialysis procedure and wake Forest study was completed this quarter in order to detect positive post operative patient fluid status in the PACU and a peer reviewed publication is.

We expect it to be published in the next few months with several additional controlled studies starting in Q2 and Q3 to focus specifically on other complex clinical scenarios to bolster future market adoption of these novel products with that I will now turn the call over to Dan Moorhead, Chief Financial officer to discuss our opt.

<unk> results.

Thanks, Don.

Please refer to our press release issued earlier today for a summary of our financial results for the first quarter.

Orders grew 3% year over year, and net revenue grew 29% to $31 $1 million from $24 1 million in 2021.

Q1 revenue decreased decreased sequentially compared to Q4, but this is expected as deductibles reset at the beginning of each calendar year.

Device revenue increased 6% to $6 7 million compared to $6 4 million in Q1 last year.

Supplies revenue increased 37% year over year to $24 4 million from $17 8 million.

Gross margins were 78% for the first quarter compared to 76% a year ago.

Sales and marketing expenses were $14 $4 million in the first quarter of 2022 compared to $13 8 million in the same period in 2021.

G&A expense was $7 8 million in the first quarter of 2022, which was flat compared to Q4 and up compared to $5 5 million in the same period in 2021.

The increase year over year was primarily due to our growth in <unk> monitoring and our new headquarters facility.

And finally net income come grew 296% year over year to $1 4 million and produced three cents per diluted share in the first quarter of 2022, and adjusted EBITDA grew 897% to $3 1 million.

Tax expense as a percentage was higher than normal as new regulations were pass related to R&D activities and caused the effective rate to grow to 30% from our prior average of 24% to 25%.

We ended the quarter with $39 $2 million in cash down $3 4 million from Q4 due to making the dividend payment of $3 6 million and debt service payments of $1 4 million, including interest.

Cash flows from operation in the quarter increased 133% or $7 $1 million to a positive $1 8 million compared to cash used in operating activities of $5 3 million last year.

With that I'll turn the call back over to Thomas.

Yes. Thank you Dan now turning to the outlook for 2022.

Our total revenue estimate remains in the range of $150 million to $170 million representing growth of 15% to 30% over the previous year.

Adjusted EBITDA for 2022 is estimated to come in between 25 and $35 million.

Yeah.

For the second quarter of 2022, we estimate revenue to come in between 35, and 38 million with adjusted EBITDA between $4 6 million.

This really reflects our most recent assessment of the current labor environment or was that a.

Puts some restrictions on the pace as to which we can hire.

Additional sales reps and additional employees for the corporate headquarters 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 our microcap peers, and we still anticipate high growth and profitability in the upcoming quarters.

With that operator, please open the call up for questions.

We will now begin the question and answer session to 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 then two at this time, we will pause momentarily to assemble our roster.

Okay.

The first question comes from Matt O'brien with Piper Sandler. Please go ahead.

Good afternoon, everyone, it's Adam on for Matt and thanks for taking the questions here.

Maybe just wanted to start with just a little bit more detail.

On the procedure environment in the recovery that you saw over the course of Q1, it sounds like you've had record.

Order volumes in March showed I mean is that organic in your mind or do you think there was some catch up there from.

The prior months that were impacted by Omicron, maybe just talk about any impact to volumes from knee braces and then would be curious if you could just talk a little bit about how things have trended thus far.

Through April and that had a couple of follow ups. Thanks.

Yeah I'll I'll take this one this is a this is thomas.

So to your question about the order growth.

We don't really see that was any pent up demand from previous quarters. So this is this is more what would be considered organic growth and organic increased productivity by our by our sales force them to your question about April the the order growth continues and is.

Uh huh.

At least as good if not slightly better than what we saw all in the a and the first quarter.

Okay. Thanks, Thomas and I gave you a multipart question. So just maybe trying to take the last box did I Miss that.

Impact on knee braces impact from EBIT, Oh, Yeah, that's right yeah and.

And anything on in terms of like revenue contribution from knee braces and then I had a couple more follow ups for you. Thanks.

Yes. It is slowly beginning to kick in we've had now about three months of <unk>. After we have initially introduced it to our sales force, especially the OA osteoarthritis.

<unk> arthritis, NIE basis have taken off.

Very well.

But as with all the sales reps and Oh, probably after the next wave.

Closely followed by if I think sort of a contraction Oh Oh.

The third best selling selling product all the body. So it's nice to see a little little bit of diversification and you know.

Oh product product revenue and we are seeing are the are the same the same reimbursement from insurance company, who said we expected to see when we before we introduced this product which was part of all our planning and.

And decision to go into into this product area. So that's very healthy as well.

Okay. Thanks for the color there and then maybe just the next one is on.

Device sales it looks like there was a pretty.

Pretty healthy sequential declines or just anything to note or call out on the device business in Q1.

There is and it's really just time that might be.

<unk>.

Sorry, Thomas Yes, no. It's really just part of the normal.

Seasonality of the business and if you'd looked at prior years you'd kind of see the same thing.

As a percentage though.

It's pretty normal.

Okay understood and then maybe I'll just ask.

One more on the full year guidance. So the guidance range to 150 to 170 implies a nice ramp in the back half maybe just talk about what's contemplated at the low and high end of the range do you think you need to deliver against that 500 sales.

Sales force head count in Alberta to kind of hit the <unk>.

End of the range or are there other levers that you can pull and is there anything contemplated in the guidance from the monitoring business. Thanks, so much for taking the questions.

At this point, we have not added anything from the monitoring business into our our guidance.

And and obviously the revenue number is more derived from an estimate of <unk>, we expect to come in around $160 million.

And the tolerance of plus minus $10 million on that reflects that so there's really nothing nothing to interpret and what what was the lower number mean and what would be a higher number I mean, it would basically.

The result of the.

Sales rep productivity here in the first second and to some degree third quarter of the year as those orders eventually turn into.

222, gross billings to to insurance companies and we start seeing some some cash so are the.

The revenue for this year is pretty much set as we get get well into the third quarter of the year because.

Any any new reps that get good at it as you said, we were trending towards towards the end of the year would be at least close to 500 sales reps.

And what what new reps in the fourth quarter for instance might contribute with you're certainly not going to add to the revenues. This year that there'll be revenue next year.

So a lot of it is really based on how orders are coming in right now.

Okay. Thanks, again for taking the questions.

Yeah.

Thank you.

Our next question comes from Mark Weisenberger with B Riley. Please go ahead.

Yeah. Thanks, Good afternoon I appreciate you taking the questions just following up on some of the earlier questions with regards to the device revenue what percentage was actually next week.

So total device.

We reported but I think it's north it's probably.

You know, it's high eighteens or low ninety's as a percentage of the total so but that's not something we put out but thats just you know.

At the top of my head I'm, that's pretty close I think.

Got it okay and can you remind us kind of what percentage of next wave prescriptions are tied to surgical procedures versus kind of more chronic pain management and I guess that kind of goes to we've heard a lot about <unk>.

Elective procedures picking back up so I'm wondering at kind of that record March might have seen some impact from that.

Yeah.

Yeah, we normally don't Oh at least talk about it but we don't really record.

The data that way because when when we receive the prescription we get a number of diagnosis codes from from the clinic or it could be anywhere between one and one or two diagnosis code, sometimes there's more than 10 diagnosis codes.

And they all get entered in our system some of those.

May not actually be relevant for exactly what the devices used for others. So it's it's hard to get a clear picture. We can see what type of physicians that are prescribing and we know a little over 20% of all prescribers are orthopedic surgeons and then there's a number of many other specialties.

That prescribe it so that still telling you that Oh. This is this is being used a lot postop surgery, and primarily used to speed up the healing and get people back for instance back to work.

Or getting fully recovered much faster than if they went out using the next wave.

And in many cases.

Our cold therapy.

Bison, we just drove it has also added to it and that even further speeds up the the healing.

Understood and to that point have you seen any change in the duration of.

<unk> a treatment for patients and then what how does your interactions with then what have your interactions been with United Health and how does that change really at all or.

No real impact on the business.

Yeah.

We haven't seen any change in terms of how products are prescribed are being used maybe Anna you can speak to.

How we still collect pretty well if not better from United Health care after being out of network anymore.

Right yes.

We have seen a positive change after.

Coming out of network with United We see a much faster payments from them and more consistent.

Got it helpful.

It looks like you are.

In terms of.

Your open positions it looks like you may be prioritizing some new geographies relative to the past. So wondering if there's any specific factors impacting that or or how your strategy on sales rep expansion might have evolved.

No. We still have 800 territories mapped out as we've had for several years now and we have 430 of those populated right now hopefully about 500 by the end of the year.

And.

It really some times our focus on what territories, we are advertising for one therefore, interviewing and hiring for it depends a little bit.

If for instance, we had parted ways with the.

Regional sales manager and if if there's either a vacant region. We have 15 regional sales managers and if there's a vacancy there or someone that has that has just been high up and it's getting up to speed.

We typically go slow in terms of hiring.

Our hiring for that region.

But other than that we were literally hiring all over the country.

And obviously pruning our sales force to make sure it's only the.

The productive sales reps that stays on both long long term.

That's that's pretty much equal throughout the country and I expect we will.

Continued to treat pretty much all the territories are the same way until we get up to 800 sales reps.

Got it and then just the last one for me I Wonder if you could talk about any.

Any digital initiatives, you're working on to increase the efficiency and the reach of physicians and prescribers and there's been a rise of these kind of digital point of care solutions that companies are leveraging either to reduce the sales force or at least increase efficiency. So so wondering what if at all you guys are doing on that front.

Thank you.

No none of that I believe we are growing fast enough and our focus is hiring very high quality sales reps rather than.

Then activities that potentially could be distracting for.

Well the way things are developing right now.

Okay. Thank you very much.

Yeah.

Our next question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

Hi, Thomas Stan and then Donald how are you.

Good how are you.

Just furniture and good.

And I guess I'll start with you on or could you give us a guesstimate on.

Current share count.

Or or basic or diluted.

See we're running.

It's about $41 million is dilutive.

Got it.

Okay. That's.

That's helpful and and can you talk about the I know you briefly talked about the two new Grace's the airline post aren't any commentary specific to the Aspen horizon.

Hum.

I'm not sure I understand the question so the Aspen horizon as the backbone that we distribute.

Where there are revenues from this prior quarter from Q1.

For sure yes.

Big piece of the business as well so it's.

All of the products, we distribute as Thomas mentioned I think cervical attraction is the highest.

You know lso as her back braces are kind of second and then as you mentioned the knee braces are gaining fast so there.

Great, Yes, so I would say the OA knee brace in the bag rate that probably.

At the same.

Percentage at this point and then post op.

We rolled it out a little bit later so.

It's not picking up as fast, but we're also seeing traction with that as well.

Okay got it and I may have missed some of the commentary on the P. P. M 1600 did.

Could you talk about a.

I think I heard there's some middle and Youre coming in 16 months.

Let me clarify two things on that so we submitted the.

C M 1600 to the FDA in December we received a response and were replying back to them.

Communications have been good.

<unk>.

<unk> Nikko product, which is the noninvasive co oximeter, we are submitting in the next 12 to 18 months to the FDA.

That's it okay. So.

That was my question and any commentary, particularly to call out.

On margins from this quarter going forward, you still kind of have a strong feeling of high seven days for the balance of this year.

Yeah.

<unk> Q1 is the <unk>.

First quarter of the year. So 75 to 80 is still a good range and we are.

We expect to be in the higher seven days like you said.

Got it and then lastly for us as far as R&D expense.

Is most of that going through the G&A line or the sales and marketing line I'm, assuming most of the churn area.

It is G&A and there was just some new regulations that came out on the tax side that anything related to G&A you have to capitalize from a tax perspective and amortize over I think it's five years and so.

We're working on the backend.

On R&D credit study is going to take us a quarter or two to get that in place. So that we can offset some of that increase.

Okay got it and then lastly, I hate to keep beating on the size of the commercial force, but it's sounding like.

Somewhat linear we should anticipate for lack of any more detail through the balance of this year.

As far as an increase.

Yes, I think we kind of look at it on a linear basis kind of evenly spread across the year I would agree.

Okay got it and it didn't look like the.

Both the full year was unchanged on the.

Adjusted EBITDA range as well got it to 25 to 35.

Correct, Yeah, all of the annual guidance remains the same.

Okay perfect. That's it for us thanks for taking the questions. Thank you.

Our next question comes from <unk>, Chen with H C. Wainwright. Please go ahead.

Thank you for taking my questions. Previously you mentioned that it is higher and it's hard to hire additional sales reps under the current market conditions as this at these conditions improved recently.

Okay.

Yes, they are.

<unk> improved slightly.

Compared to January two.

And up until now it's very much in and so we do we do see more applicants and among those obviously does so we do see a few more that have the quality that we we ended up deciding to Ohio.

It's certainly not back to where it was before COVID-19 .

And hopefully the trend continues but it it's only slowly we see an improvement.

And your target is 500 reps by the end of 'twenty to 'twenty two.

By the end of the year, Yeah. So 770 more over the next that'll be.

So seven eight months. So a net net addition of 10 should be possible for us.

Okay.

Yes.

Yes.

Respect to.

<unk> 16 country seems 500 are there going to be any data published.

During the remainder of this year or and also regarding the FTE response is there any possibilities you anticipate to conduct any additional clinical trials.

Yeah, Let me take the first question. So we finished the wake Forest trial, and we presented a poster at the IAA RF conference.

We are working on a peer reviewed publication. It's in draft right now that we're working on with the darker corner and.

That should be publishing.

We're targeting a clinical journal.

And that should be publishing within a few months.

Given that its peer reviewed it takes a bit of time too.

Get that out into the public.

The last question about the.

I think your question was about the FDA.

Correct, Yes, FDA response, any possibility to get up.

To conduct additional trials.

So we have several trials planned.

These are controlled trials.

<unk>.

<unk>.

Targets with these trials are in.

In various areas around cardiac and non cardiac surgery.

And specific others for <unk>.

What we call our whole blood study and a few others around.

Certain shock assessments and things like that specifically with the <unk> hundred.

The reason.

What we've done with much of the trials to date is to validate the relative index and to work through simulations of that.

Around the specific areas to be ready to go into those more difficult.

Surgical procedures and expand that.

Do you need to complete those trials before securing clearance from the afternoon.

We do not need to complete those trials prior to clearance.

We our claims as part of this or back to the 1500.

This is a wireless version of that that has got an improved.

Casey and so.

And so forth on the relative index in specific procedures. So we are adding some claims to it.

That the trial data that we've already completed.

Supports.

Got it thank you.

Youre welcome.

This concludes our question and answer session I would like to turn the conference back over to the founder Chairman and CEO Thomas Sungard for any closing remarks.

Okay.

Yeah. Thank you. Thanks, Thank you for joining us today.

We are excited by the momentum that <unk> is experiencing and look forward to providing meaningful updates on our progress in both divisions in the coming quarter.

Enjoy your evening. Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.