Q2 2022 Zynex Inc Earnings Call
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[music], let me ask the question is simply well good afternoon, ladies and gentlemen, and welcome to the di next second quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, the conference call is being recorded I would now like to turn the conference over to Mr.
Luis estimate from the Gilmartin group. Please go ahead.
Thank you Chuck and good afternoon, everyone earlier today <unk> released financial results for the second quarter of 2022 a copy of 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 I look back 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.
These forward looking statements.
These factors may include without limitation statements regarding product development product potential regulatory environment sales and marketing strategies capital resources or operating performance.
With that I'll now turn the call over to China.
Thank you Louise and good afternoon, everyone.
Thank you for joining us today for the second quarter 2022 earnings calls.
This quarter's revenue and profitability remained exceptionally strong as we continue to execute on our long term growth plans.
Total revenue was $36 8 million for the quarter, an increase of 18% year over year.
Both in June and also for the second quarter.
We saw the highest number of monthly and quarterly orders in the company's history.
Second quarter orders grew.
19% sequentially over the first quarter of 'twenty, 'twenty, two and 10% over the second quarter 2021.
Earnings for the quarter were eight cents per diluted share and adjusted EBITDA was $5 5 million.
And we are on track to achieving both top and bottom line full year guidance.
So I think thats experiencing consistent growth quarter over quarter.
And I'm looking forward to continued demonstration of our strong performance.
During the second quarter.
We completed a 10 million share buyback program and established yet another bypass cool program for an additional $10 million.
We believe this initiative signals to all the shareholders how confident we are in delivering value and executing our strategic close plants.
We ended the second quarter with approximately 400 sales reps.
We.
We reiterate the ability of new and existing reps to grow our sales more efficiently and strategically as evidenced by consistency in order growth.
The current job market makes it difficult to hire a significant amount of new high quality sales reps.
In the second quarter, we achieved record order numbers, demonstrating our ability to continue to grow our topline.
Once the job market returned to a more normal cadence we believe that we.
We will accelerate growth even further.
Eventually fill all 800 territories across the U S of which 400 are still open.
You know monitoring products Division, we continue to hire for engineering and clinical research positions.
We keep making progress on all of the C. M 1600, blood and fluid volume monitor sepsis sepsis detection device and all the laser based pulse oximeter.
Pending FDA clearance on the second generation blood and fluid volume monitor.
We are now gearing up to launch the product commercially two in the second half of this year.
We expect to see prototypes of the laser based pulse oximeter also here in the second half this year and we are targeting a submission to the FDA mid next year.
I'll now turn the call over to Ana looks at our Chief operating officer.
Thank you Thomas it's the monitoring division is still in its ramp up to commercialization. The pain management Division remains the primary revenue source for XIAFLEX as Thomas discussed we've seen a consistent increase in order growth in revenue over the past several quarters in large part due to productivity of our salesforce revenue per sales rep.
In Q2 grew by 37% compared to Q2, 2021, and 23% over last quarter sales force productivity rather than size has developed into the primary driver for high quality and topline revenue growth.
We continue to be very selective as new reps to ensure they are a good fit and the existing sales force. We are identifying underperformers earlier in their lifecycle with the company and are emphasizing efficiency with new and existing reps.
Similarly to other companies facing macroeconomic challenges, we have been impacted by inflation, primarily incorporate employee and sales rep wages and incentive pay.
It would have increased more than normal over the last 12 to 18 months, which has impacted our bottom line.
Cash collections from payers, both in and out of network remains strong and we have not seen any shifts in dynamics throughout the first half of the year. Additionally.
Additionally, we've largely been unaffected by supply chain concerns in fact in many others in the med Tech space.
Our access to components and supplies has not significantly changed year over year, and we built up inventory to account for a longer transit times and shipping channels. We have also been able to tap into our secondary manufacturing providers to keep a steady handle unnecessary material.
I'll now ask Don Graham VP of dining smothering solutions to speak to the business updates related to that division.
Thank you Anna with <unk> patient monitoring division, otherwise known as CMS.
Prices are multi product portfolio and development pipeline, including hemodynamic monitoring substance monitoring and laser based pulse oximetry, we estimate that CMS has a total addressable market of approximately $3 7 billion.
And we have started to implement an effective growth strategy within the division to capitalize on future market share. There are two primary programs driving growth of the monitoring division. The first is the development of the Nico co oximeter and he marks products, whose technologies <unk> integrated through the Kestrel Labs acquisition. The second is the <unk>.
Non invasive see them 1600, wireless blood and fluid monitor and its associated commercialization and R&D efforts, the Nico and he marks our laser based products, which will be used in hospital systems as a multi parameter pulse oximeter and the hemoglobin oximeter that allows for continuous arterial blood monitoring respectively.
Vms has been building out the teams and adding critical engineering and clinical personnel.
We remain on track for submission to the FDA in mid 2023.
The noninvasive seem 1600 devices wireless blood fluid monitor we submitted to the FDA at the end of 2021 and are in discussions with the agency to provide all additional information requested we are still confident that clearance is progressing as plan.
As it relates to the <unk> hundred Vms is using this opportunity for the creation of clinical evidence to support the commercialization process.
Multiple ongoing and new studies are set to launch in addition to recently completed clinical validation trials, which track blood volume shock response and recovery in the patient population.
Additional enrollments are continuing and we will examine the new <unk> hundred and our ongoing April recessed blood donation study, we look forward to presenting the data in the coming quarters and seizing on market opportunity I will now turn the call over to Dan Moorhead, Chief Financial Officer.
Thanks, Tom.
Please refer to our press release issued earlier today for a summary of our financial results for the second quarter and six months.
2022 in the second quarter orders grew 10% year over year, and net revenue grew 18% to $36 $8 million from $31 million in 2021.
Device revenue increased 21% to $9 5 million compared to $7 8 million in Q2 last year.
Supplies revenue increased 18% year over year to $27 3 million from $23 2 million.
Gross margin was 80% for the second quarter compared to 77% a year ago.
Sales and marketing expenses were $16 $3 million in the second quarter compared to $13 8 million in the same period in 2021.
G&A expenses were $8 8 million in the second quarter, an increase of 42% or $2 6 million year over year.
$1 4 million of the increase is related to investments in our monitoring solutions division and related head count to launch our new products.
The increase in monitoring is in line with previously stated estimates of increased spend.
Tax expense as a percentage was lower than normal at 19% for the quarter due to an additional deduction related to stock options, which were exercised during the quarter.
Finally, net income grew 19% year over year to $3 3 million and produced <unk> <unk> per diluted share in the second quarter and adjusted EBITDA grew 16% to $5 5 million.
As far our six months results for the first half of 2022 orders grew 6% year over year and net revenue grew 23% to $67 $8 million from $55 1 million in 2021.
Device revenue increased 14% to $16 2 million compared to $14 2 million last year.
Supplies revenue increased 26% year over year to $51 6 million from $41 million.
Gross margin was 79% year to date compared to 76% a year ago.
Sales and marketing expenses were $30 $7 million for the first half compared to $27 6 million in the same period in 2021.
G&A expenses were $16 6 million, an increase of $4 9 million year over year.
As mentioned earlier, we continue to invest in the monitoring solutions division, which accounted for $2 7 million of the increase year to date.
And finally net income grew 125% year over year to $4 $7 million and produced 12 cents per diluted share in the first half of 2022, and adjusted EBITDA grew 97% to $8 6 million.
Tax expense year to date as a percentage was slightly lower than normal at 23% due to additional deductions related to stock options and.
And as a reminder, we expect tax expense for the remainder of the year to range between 25, and 30% due to changes in the treatment of research and development expenses and other timing differences.
We ended the quarter with $26 $9 million in cash down $12 4 million from Q1 due to outflows of $10 7 million related to our buyback programs income tax payments of $3 9 million in debt service payments of $1 4 million, including interest.
Cash flows from operations for the year increased 137% or $5 $9 million to a positive $1 6 million compared to cash used in operating activities of $4 3 million last year.
Before I turn it back over to Thomas I want to inform analysts and investors that as part of our quarterly reporting process. We plan to discontinue the practice of issuing pre announcement flash reports beginning in Q3.
That I will turn the call back over to Thomas.
Yes.
Yeah.
Thank you Dan.
As noted earlier, we are affirming the full year guidance with total revenue estimate 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.
And for the third quarter of 2022, we estimate revenue between 40 and $43 million with an adjusted EBITDA between $7 million to $9 million.
These figures reflect our most recent assessment assessment of the current labor environment and continued uncertainties relating to the evolving impact of the COVID-19.
And how does that filter by the government and other macroeconomic factors.
With that operator, please open the call up for questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys and to withdraw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Oh.
And the first question will come from Adam Maeder with Piper Sandler. Please go ahead.
Hi, Good afternoon, guys and that's just some run on for Adam. Thank you for taking the question.
Maybe starting with a little bit more detail on the procedure environment and the progression that you saw over the course of Q2. It sounds like you've had record order volumes in June . So I mean is that salesforce related in your mind or do you think there was maybe some pent up demand from Covid and then.
I'd be curious if you could just talk about a little bit about how things have trended thus far into July .
Uh huh.
Think we can safely say that this is this is all sort of an internal issue more than it is an external it's better productivity from.
From a sales force as relatively new reps are becoming more productive and the entire sales force overall rather than its.
Uh huh.
The entire medical device.
Environment is developing.
July is.
Already showing.
Great growth.
As we have alluded to earlier, we've continued to see strong order growth compared to the same quarters.
Last year.
And we are definitely trending right in that direction here in July already.
Okay, and then for net sales force adds in the quarter could you remind me where you finished in Q2.
We were right around 400.
Okay. So it sounds like there was about an attrition of 30 reps from the prior quarter. So maybe just talk about the hiring environment in general given some of these macro pressures I know you.
You guys touched on kind of the inflationary headwinds on a you know.
Wages and just in general, though about attracting quality reps as well as your confidence in getting to that 500 rep target by yearend.
Yeah, it's a it's obviously a difficult.
It's because we can't really lowered the bar in terms of the quality of the webs.
Yeah.
But.
When you can.
You can kind of say that we are.
We did that in 2020 and where.
We had to prune a significant amount of those after having been hey, yes, maybe didn't produce as far as you would've hoped so we keep to the board.
The same same high level.
It really shows in those we do hire them.
Continue to happen.
Steady increase in the first 90 day.
<unk> performance, which is always a very strong indication of the long long term performance.
So per per Rep, and I would say, we are building a stronger and stronger sales force.
But the amount of the amount of reps are we able to go ahead and or.
Or try to recruit.
Versus C U E.
Fairly small attrition, we have is not enough to really significantly change the numbers up.
Of course, we expect that it will loosen up a little later in the year and that's why we're talking about.
Increasing the number of reps towards the end, but.
It's the the gross is certainly coming from reps, becoming more productive and those we do hire quickly kick in with some significant numbers.
Okay, perfect and then if I could just squeeze in one more on the guide and so it's a full year guide was maintained and you issued a range of 40 to 40 Thermel for Q3.
So now with the Q2 results in hand, this does imply a pretty hefty ramp in Q4, particularly I think about $10 million at the midpoint. So is the expectation of kind of this continent.
Continuation of ramp in sales rep productivity without necessarily.
Necessarily adding more reps or is there a bolus of reps that you're expecting to kind of come through during Q4, that's giving you the comfort in hitting your full year target.
And then all of them there and were very different things.
There's two different kind of sub seasonality. So one on the auto side and then on the revenue throughout the year, we always see an increase of revenue.
Mostly driven by our insurance deductibles that obviously.
Become less towards the end of the year. So we always start our revenues.
Level that he sees it the same or sometimes even a little less than the fourth quarter of the previous year and then you see the overall growth.
And right now we are looking at it.
With 15% to 30% revenue growth over the year.
So the orders are growing more steadily obviously when when doctors on vacation that its a little little weaker but.
That shows a whole different pattern with doctors typically out in.
January and July because they don't want to get hit by insurance deductibles.
But for US we see the majority of the revenues throughout the year in the third and especially fourth quarter. So it's perfectly natural.
We see that it's not like we put additional pressure on us.
Suddenly ramp up revenue, it's just part of the.
Seasonality on the revenue side of our business and if you look at the percentages of the total if you look at last year and this year Theyre mirroring almost exactly the same the Q2 as a percentage of the total 130, we did last year Q2 of the kind of the midpoint of the range. This year and then with the guide Q3 as a percent.
<unk> of total it's almost exactly the same so it's nothing that's out of the ordinary.
Got it and then just.
Just real quick is there anything contemplated in the guide for from the monitoring business.
No.
Okay.
Got it thank you.
The next question will come from Jeffrey.
Cohen with Ladenburg Thalmann. Please go ahead.
Hi, Thomas Stan and Donald how are you.
Great I think we're doing pretty good did you like the numbers.
Very much so it sounded like you had a 10.7 number there on the buyback so what does that mean that you've initiated that second piece.
Correct Yeah.
Yeah.
Okay. So the point, serving one size of.
And of.
The quarter or currently.
That was end of the quarter.
Got it Okay, I guess, we'll get nothing further yeah. So.
The next question for Donald or if you could.
Talk about the.
These developments I'm not going to ask about 61 I've already done that occurs only talks but when you talk about the legal and machine box you're talking about.
The platform together and then maybe talk a little bit about what Youre envisioning down the road on the commercial film as far as do.
During yourself do you if our territories by regions, but distributors any thoughts there or any updates.
First to think about.
Yeah.
First of all I'd say that we're on track with our internal development time lines for <unk>.
The laser based products.
The commercialization, we're trying to think about that upfront as we're designing the product because we want to put things in the devices and then the platform and.
Think about how we actually commercialize and go to market.
These devices are.
Planned to be wireless in nature. So they can have connectivity in the hospital.
And will allow us to collect data and things like that.
With that said commercialization is a combination of both a direct sales force and indirect sales force and I, probably can't speak too much more about that.
Except that this is a.
System sale and it takes.
Some.
Individuals that understand both the technology and the clinical therapy.
Two to sell this device and so it's a it's a very important way that you will go to market and how we will focus primarily in the hospital market.
At the beginning.
That answer your credit.
Yes. Thanks.
How does it look in the back half you mentioned two quarters show them for the front half on the G&A from CMS.
Brown machine.
No, it's a little more than that just because we've been ramping so.
Hum.
We spent about two and a half last year. We said we were going to spend about five more this year, so somewhere in that seven five to eight range for the full year is about where we'll end up I think.
Okay. That's helpful and then lastly.
I guess maybe.
Question for you Thomas when we think about.
The Paas number.
But in some quarters, a year or so awareness growing out there.
How is that reflected currently both on the patient.
Patient side and both on the disposition side. When you when you think about and talk to folks out there about awareness and trends in utilization in preschool.
Prescribers and number of practices that are expanding in internally.
<unk>, which would be added.
Well I assume youre talking about the pain management Division here, yes.
Okay. So.
Our business model.
I would say has very little to do with them.
The sort of the general awareness.
So because we were talking about a <unk>.
More than.
$25 billion to $30 billion of pain management market and we're still just a drop in the bucket when it comes to that.
Everything is driven by.
But by the face to face interaction between our sales force and the prescribing physicians.
So yes, there's awareness, where we have a rep in and fund of of the prescriber.
And other than that yeah, occasionally I hear someone hain, Colorado that seem to sign next name before but that's that's that's probably more because we are here.
It's it's obviously something that over the past 26 years went up in this industry in this country.
We have tested a lot of different things and also seen other companies pretty much piped and Nick on I'm trying other things.
We're trying to do more of the.
Sure.
Paul approach instead of a push approach, which you control having a direct sales force.
And you.
You end up losing a ton of money on any other approach than that so.
It's not really something we measure and pay attention to.
We measure our productivity in our sales force and that's going to drive us.
Two.
Obviously, the end goal of what I believe will be above $800 million in annual revenue from these products.
Super Thanks for taking the questions.
The next question will come from Mark Weisenberger with B Riley Securities. Please go ahead.
Thanks, Good afternoon I appreciate you taking the questions.
All the more than 45000 orders in the second quarter I'm wondering if you could give us a rough breakdown of that.
How much of that was next wave versus other products and how is that breakdown been trending recently.
Yeah.
I believe in terms of autos.
About 80.
82% to 83% of the autos next wave Synopsys subsequent supply said, all puppies being send out or several years. After when we received the prescription that's obviously part of why.
When we see a significant order close by but it takes a while before the actual revenue kitchen.
So it's gone up you can call it that.
The diversification is has improved a little bit but not substantially.
Understood.
And then if you could update us maybe on how many active patients do you currently have and how that maybe.
Maybe trended relative to the prior quarter and last year.
You know I think we're somewhere approaching 100 K inactive patients you know we don't that's not a metric we're tracking on a day to day basis, but I do get information on that here and there and people that are still known to be treating with the device. Obviously you know we don't.
Always know when somebody is treating and not treating so it's a little bit of a round number, but we think it's somewhere in that area.
Got it okay, great and then if you could talk about the percentage of the sales and marketing expense that's neighbor related to fuel for your reps and then kind of what percentage, maybe as kind of the marketing materials for in clinic kind of the the food.
And kind of the advertising stuff and with respect to those kind of costs I think a lot of them have probably experience. Some inflationary dynamics I'm wondering if you have taken any actions around that or you're potentially going to take.
Some actions around that to mitigate some of those rising costs.
So with.
With respect to fuel and kind of those in service or meals that they are providing the clinics that time those are capped on a per rep basis. So you know I can't say that that has really affected us because the rep can only spend so much per month and so they have to allocate their dollars effectively we havent increased that since gas.
Gas has gone up significantly in the last you know.
Six months.
And so we haven't seen an increase there I would say as far as rep materials, obviously as we've continued to grow.
That piece has grown significantly as well and we've been able to be more efficient on some of those in and bring down the price versus in producing them here or outsourcing and we kind of do a mix of both to to make that efficient, but I would say again, that's a pretty small piece of the budget.
Most of the budget is obviously going to salaries and the related commissions in that <unk> number that I spoke of that cap as a percentage of that as well, but we haven't seen any increases due to the factors you mentioned.
We see if we have a relatively large sales force.
And there's 400 sales reps. So we have a lot of efficiencies and also flexibility.
All the printed materials, we supply to them that's generated internally, we literally have our own.
<unk> recorded a very large scale version of a kinko's here.
That that is able to customize prescription pads for each individual physician for instance.
The marketing material.
Individualized with sales reps names on it and.
How to send in prescriptions et cetera, all of that is customized.
We can switch gears very quickly here by doing all that internally instead of having done it having it done.
Upside.
That that's fairly inflation proof.
Understood very helpful. And then just two more from me and he was going to switch to E. M. S.
I think I heard you talk about your gearing up for a commercial launch in the second half of this year for potentially the C. M 1600 after clearance.
Does that mean that you really kind of finalized a go it alone strategy and you.
You will be building up the sales rep base within that segment.
Too, which is obviously going after a completely different market and if you could remind us how many sales reps you have there now and what's kind of a medium term goal for the Z EMS sales reps.
So.
The current sales.
<unk> team is.
We're scheduled to respond to the F. D. A let me just back up and say were scheduled to return.
To respond to the FDA.
And we will consider building.
The commercialization team.
To sell the device, we have a plan in place to bring on.
A limited number of reps that are direct that will also help.
Manage a indirect channel and that's a fairly small number in the beginning because we will be ramping over a.
A few quarters of next year.
Understood got it and then just a final one for me I think.
Recently, I've heard discussions about a creating a connected platform.
For the monitoring solutions Division I'm wondering if you could just talk more about that and what kind of capabilities, you're envisioning, there and maybe would that kind of provide recurring revenue in terms of software and any kind of additional details would be helpful. Thank you very much.
Yeah, so the business model around that as well.
You look at devices in the medical device industry today. Most most everything is connected by a wireless Bluetooth or some type of communication, whether it be near field et cetera.
On Prem solutions in a hospital and then there is typically a cloud behind that that provides data collects data.
Downloads updates to devices things like that we have we are building.
A connected platform to communicate with all of our devices wherever they are in the world.
And.
That platform can download updates that can collect data it can do some vision to do reporting its envision too.
Have a SaaS.
This model behind it so that way there are revenues from the capital from the disposables and from the software.
Great very helpful. Thank you very much.
Youre welcome.
The next question will come from E. Chen with H C. Wainwright. Please go ahead.
Thank you for taking my questions. My first question is could you give us some general comments regarding.
Whether a recession.
The economy could.
Because of the impact.
Yes going forward. Thank you.
Yes.
You know what.
It's a it's a medical service and you know a lot of these are paid by insurance and other types of things. So I don't know that we feel theres going to be a direct impact.
On this obviously with People's discretionary income you never know with co pays and those types of things but.
So far what we've seen or what we expect to see is fairly minimal.
Got it.
And given the current environment for hiring new sales reps, how quickly could you could you achieve the target number.
Once you get the clearance for the.
Monitor to get to the sufficient.
Reps for your team to launch the product.
Reps that sell capital equipment.
System level type equipment.
It will take probably 60 to 90 days.
Bring on.
We've.
We've outlined a plan that will bring on as I mentioned, a limited number of those.
Because we have a strategic approach to what geographies.
Territories within that geography, we want to.
Go after.
And the types of hospitals, whether they be academic or.
Other types of institutions.
There's a ramp.
To those and.
It's also based on the.
The success and the need in the marketplace and so.
I think that that will be spread over.
Number of quarters.
Based on kind of how we see our our launch.
Thank you.
Lastly, can you remind us.
How long a period.
Did it take to complete the initial 10 million share buyback and do you expect a similar time trying to complete the additional program of $10 million.
So the original one we did.
And about 60 to 75 days, we would expect this wanted to go quite a bit slower so.
It's out there and it may change, but right now.
Executing at a much slower pace.
Got it.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Mr. Thomas angle or for any closing remarks. Please go ahead.
Yes, thank you for joining us today.
We look forward to maintaining our financial helps going forward and anticipate high growth from sales rep productivity in the upcoming quarters enjoy your evening and thanks for.
Are you interested in this call and in signings. Thank you bye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
Yeah.
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