Q4 2022 Zynex Inc Earnings Call
Thank you for joining us today for the fourth quarter and full year 'twenty.
<unk> 2022 earnings call.
Before we get started I wanted to touch on the timing of this earnings call.
As many of you have noticed we are announcing full year earnings a little later than usual.
We normally announce during the last week of February .
However, since we have a new audit firm this year, we decided a while back to EBITDA a week extra to the first week of March.
We ended up needing two weeks so we can announce earnings today.
I want to thank not only market, but also the staff involved here at <unk> for the hard work and long hours to get the year end close completed and as usual, we're still able to announce early.
I should also point out that there is no change to our in our preliminary financial results that we reported in January .
So.
We are pleased to report another quarter of record results for <unk>, we posted near record highs for both orders and revenue in Q4 and have delivered four straight quarters of revenue and order growth.
We ended 2022 with our seventh straight year of profitability.
Total revenue for the quarter was $48 8 million a 21% increase over the same period in 2021.
Diluted earnings per share were <unk> 20, and adjusted EBITDA was $11 4 million for the quarter.
We're proud of the topline growth we have seen through increased sales rep productivity, while also maintaining a healthy bottom line to support significant business development in our monitoring division.
We received the highest number of prescriptions in the company's history in the fourth quarter, beating our milestone we have previously hit in the preceding second and third quarters of 2022.
We are demonstrating robust growth momentum that has not led up a key indication that our sales force is gaining in productivity and gaining more and more active prescribers of our products.
Revenue and profitability remained strong.
And the productivity of our Salesforce allowed for a 48% order growth over Q4 of 2021, and 11% order growth in our third quarter.
As of this point when our.
80% in into the first quarter and we can see that our order growth will come in well above 50%. So order growth is clearly accelerating at the moment.
We remain confident in our strong performance and anticipate hitting both top and bottom line guidance for the full year with 2023 estimates of revenue between 180 and $200 million.
And earnings per share between <unk> 40, and 50.
Earlier this year, we finished our third 10 million stock buyback and we feel strongly that these buybacks underscore management's confidence in the performance of our team and the growth potential of both the pain management and the monitoring division in years to come.
We remain committed to deliver shareholder value and have so far spent $30 million in buying back stock over the past year.
CMS or <unk>.
<unk> monitoring solutions has an incredibly strong team and he's working to bring the blood and fluid monitor early detection early detection of sepsis device and our laser based pulse oximeter to market.
Earlier this year, we announced the first enrollment in our bottlers detection clinical trial for the <unk> hundred and pending FDA clearance of the device.
We will announce our commoditization.
<unk>.
As you May recall, our first generation CFM 500 already cleared by the FDA.
Please note despite the progress that the division is making our revenue guidance and growth rates for 2023, we do not plan on any meaningful revenue coming from the CMS Division.
Our laser based pulse oximeter is still in the development stage. Following the acquisition of Kestrel labs, just over a year ago, but our team is making important strides with prototyping of the second generation of the product.
I'd also.
Like to mention some of the recent acknowledgment signings has received.
Over the last several months, we've been recognized by many organizations, including Forbes and Deloitte for our rapid growth and strong performance.
Forbes ranked us as number 11 in our list of Americas Best small companies.
Including us taking the R&R are number one in the health care equipment and services industry. We're extraordinarily proud of these accolades and believe the highlight the dedication and commitment.
We have to growing the business and providing value to both our patients and our shareholders.
<unk> is delivering consistent results with an efficient business model that continues to meet our guidance expectations. We are making considerable progress on two key initiatives that will expand our commercial sales organization as well as diverse power basis into compelling market opportunities between the game.
<unk> innovation occurring in our monitoring division and a strong team.
That is executed in pain management I'm excited to see the realization of our growth plans in the quarters to come.
With that I will now turn the call over to Ana Luxor, Our Chief operating officer for a more detailed business update on the paint management Division.
Thank you Tom described the management has consistently growing both from a revenue perspective and with order volume.
We're just scratching the surface at growth potential and have the opportunity to expand into a significant number of additional territory.
We remain committed to filling all 800 sales territory to achieve optimum market penetration. However, as we've noted previously we are still able to maintain healthy growth rate and bottom line profitability without the dependence on these additional territory.
We ended 2022 with approximately 450 sales reps and our full year annual revenue per Rep was approximately 400000.
We have seen a steady increase in the quality of applicants and performance of new hires over the last several months.
Productivity remains at an all time high in revenue per rep in 2020% to 31% over 2021 and fourth quarter and grew 17% over the prior year.
Efficiency is a critical metric in recent improvement to operational performance.
Closely marine mechanisms to optimize it.
We continue to expand their regional sales lead layer within our sales force responsible for training new hires in monitoring performance at their site.
<unk> sales reps.
Each regional sales currently.
Currently oversees an average of eight sales reps.
Listen oversight and targeted performance management. This layer continues to drive increased productivity of new hires and identify underperformers early on.
We're still seeing some lingering challenges as it relates to the macro environment, particularly with inflationary pressures.
Corporate employee wages and sales Rep compensation has increased as a result, but in order to maintain the efficiency I've. Just described we're committed to recruiting and retaining high quality sales and corporate team.
We continue to work with all payer types and currently our largest volume of orders come from commercial insurances, followed by workers compensation Tricare and Medicare.
Again, we want to emphasize all orders and we've worked with all patients in their insurance companies to process coverage in all cases.
We are a credit through accreditation Commission for health care, and we go through regular audits to confirm our policies processes and care delivery standards mute centers for Medicare and Medicaid services.
And other official regulatory requirement diamonds.
<unk> prides itself and our commitment to quality and integrity as well as the value we provide to all of our patients.
I'll now ask Dan, Greg Vice President XI and acquiring solutions to speak to the business updates related to that division. Thank.
Thank you Anna.
BMS is a strategic product portfolio and development pipeline that includes hemodynamic monitoring.
<unk> monitoring and laser based pulse oximetry we.
Believes that the addressable market for these products is approximately $4 billion and we are working towards regulatory milestones of several products for the next several quarters.
Additionally, we recently announced the expansion of <unk> into a larger facility needed for our offices.
<unk> and production space.
Our head count has increased by 94% over the last 12 months and the division has advanced considerably throughout 2022.
I am excited about what the coming year, we will bring in terms of progress towards commercialization on future developments.
The two product lines within the monitoring division.
Are the Nico co oximeter and key market pulse oximeter <unk> built on a similar technology the.
<unk> hundred blood and fluid monitor as a reminder to our audience about the technical and clinical benefits of these products. The Nico for what's also known as the noninvasive co oximeter as a laser based pulse oximeter that is on track for five 10-K submission to the FDA This year.
Hey, Mark.
As a hemoglobin oximeter, both products utilized laser technology and will be used in hospital systems as an alternative to legacy devices. The laser technology as opposed to led systems has been found to produce more accurate readings across the diverse patient populations.
There is a is not pigmentary bias.
Just on skin tone, we demonstrated the Nico prototype at the American Society of Anesthesiologists in October with excellent feedback and are planning several clinical studies throughout the 2023 year to be led by our new clinical research manager among other key personnel, we are bringing on this year for engineering.
For development.
Alternatively, the other product within CMS has the same <unk> hundred our hemodynamic monitor the <unk> hundred is a noninvasive wireless blood and fluid monitor also to be used in a hospital setting. This as the next generation device or the <unk> 500, which is already cleared.
Previously.
Previously cleared by the FDA, but with added wireless capability, we submitted the <unk> hundred to the FDA and are waiting any further guidance on testing for additional data requirements before will begin to commercialize the device. We have a series of completed and ongoing studies as it relates to blood loss to <unk>.
With approximately 500 participants throughout the United States.
Additionally, we recently announced a research collaboration with vital in the nation's largest independent nonprofit blood services provider, we've partnered with them to take part in our IRB approved blood loss detection and clinical trial measuring the specificity and sensitivity of the <unk> hundreds Pat.
Patented relative index.
We are planning to publish results from our five or more clinical trial throughout 2023.
Testament to the confidence we have in the relevance of this product.
Thrilled by the progress we've made in the monitoring division and am eagerly anticipating the opportunity to capitalize on our unique market opportunity through this new disruptive technology.
I will now turn the call over to Dan Moorhead, Chief Financial Officer for a more in depth look at financial performance for the fourth quarter and full year 2022.
Thanks, Don.
Please refer to our press release issued earlier today for a summary of our financial results for the fourth quarter and full year of 2022.
First I'll review the fourth quarter.
Orders grew 48% year over year, and net revenue grew 21% to $48 8 million from $40 4 million in 2021.
Device revenue increased 19% to $15 9 million compared to $13 3 million in the fourth quarter of last year.
<unk> revenue increased 22% year over year to $32 9 million from $27 million.
Gross margins were 81% in the fourth quarter.
Sales and marketing expenses were $19 2 million in the fourth quarter of 2022 compared to $13 6 million in the same period in 2021.
G&A expenses were $10 1 million in the fourth quarter of 2022 compared to $7 8 million last year, approximately 25% of the increase in G&A is related to investments in our monitoring solutions division and related head count to launch our new products.
As a reminder.
The remainder is primarily for back office head count and related order growth.
Tax expense as a percent was 23% for the quarter.
Net income was $7 5 million and produced <unk> 20 per diluted share in the fourth quarter of 2022, adjusted EBITDA was $11 4 million.
For the full year.
Orders grew 23% and net revenue grew 21% to $158 2 million from $133 million in 2021.
Device revenue increased 19% to $43 5 million compared to $36 $6 million last year.
<unk> revenue increased 22% year over year to $114 7 million from $93 7 million.
Gross margin for the full year was 80% compared to 79% last year.
Sales and marketing expenses grew 24% year over year to $67 1 million.
G&A expense grew 37% year over year to $36 1 million.
$4 six or almost half of that increase is related to investments in the monitoring solutions Division.
Tax expense was 23% for the full year.
Net income was $17 million and produced 44 per diluted share in 2022.
Compared to net income of $17 1 million in the same <unk> 44 per diluted share in 2021.
Adjusted EBITDA increased 5% to $28 1 million in 2022.
And finally, we ended the year with $20 1 million in cash cash from operations increased 98% during 2022, which allowed us to initiate our third $10 million stock buyback pay a cash dividend and pay down our debt related to the kester acquisition by $5 million.
With that I'll turn it back over to Tom.
Thank you Dan.
As for all of 2023 outlook, we expect total revenue to be in the range of 180 to 200 million.
Representing growth of approximately 21% over 2022 and diluted earnings per share of approximately 40 to 50 cents per share.
So the first quarter of 2023, we expect total revenue to be in the range of $39 million to $41 million.
With adjusted.
Earnings per share of <unk>.
Zero two.
<unk>.
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 you are using a speakerphone. Please pick up your handset before pressing the keys.
Anytime Youre question has been addressed and you'd like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.
Hey, good morning, How's everyone doing.
Good morning, Jeff.
So.
Just to recap.
What was the main issue with the timing and the Auditor was your was your one main issue is just.
The timing issue on a number of items.
No I would say it was simply a matter of.
Malcolm.
We've worked with plant will run for the past six years, there is no longer working with any any publicly traded companies.
<unk> done a great job throughout the year.
We underestimated how long it was going to take to close to the full year.
And in very very early announced when we expect it to have the earnings call.
We have to extend that a little bit that's really all has to it.
Okay, and what about the case on this one should we expect that to hit.
Should hit.
If not today and the next day or two.
Now that you're through.
A good portion of Q1.
The outlook I heard was sales reps up too.
800, aspirational, but how does the.
Look from your estimation to unfold throughout 2023.
I think we've talked about sales reps in the kind of mid five hundred's, so adding approximately 100 during the year net.
Okay got it and some of the.
Q4 spend that youre, showing there related to some of the other divisions that are not yet commercial you expect them.
To be commercial this year, so we should see some pull through and spend.
I guess im referring to the 1600 predominantly and it sounds like the <unk>, which you will file.
Slide 10-K this year.
There's going to be spend on both I think youre going to see a lot of that's why we give a range some of the things as we get closer to launch.
Have some additional expenses and as the.
The pulse ox side yet.
Get submitted to the FDA, we may see some additional expenses there as well so.
I think there is a little bit of a range there of what we spend on just how quickly we get to submission and commercialization.
Okay got it and then.
Lastly, as far as our FDA inspections related to some of these other divisions do you have have you had any over the past.
Quarter, or so of what's expected over the coming quarter or so.
So this is Don from dynamics from a monitoring division.
We've had a.
Previous FDA inspection certainly not over the last quarter, but it was all part of a CMI or <unk> medical and <unk> monitoring and.
Inspection, which we passed without any issues.
Okay, and you would expect further inspections and some of the newer divisions.
Here too we are related to our commercial launch.
No.
Shouldn't be any of those inspections are not based on.
What's happening on the product side.
<unk> of the company.
<unk>.
<unk>.
Wouldn't say on a regular basis, but we tend to see those.
<unk> of less than five years.
And.
The product product approvals.
It's a whole whole different.
Scenarios through the FDA, So that's independent.
Okay got it and then.
Could you talk about adjusted EBITDA or.
Full year 'twenty three it looks like you're expecting a similar type of growth.
Growth cadence and trajectory.
As you had in 'twenty two.
On the adjustment.
This is Dan do you see that it looks like youre coming in around.
Where you are over 20% for the fourth quarter, but your average.
All about high teens, 17%, 18% for the full year.
Any thoughts there in 'twenty three.
Yes, I think.
We were guiding more towards EPS, this year and pushing away from adjusted EBITDA, a little bit, but I think.
Generally when you look at the year you should see similar growth in 'twenty three to what we saw in 'twenty two.
Got it Okay, I think that those are for us.
Thanks for the call.
For the readout.
Yes. Thank you.
The next question comes from Simon <unk> with Piper Sandler. Please go ahead.
Hey, good morning, this is <unk>.
The mine on for Adam Thank you for taking our questions and congrats on the Brent maybe.
Maybe just starting off on the full year guidance of 180 to 200 ml.
Can you walk us through key assumptions at the low end and high end of the range and specifically what is assumed for the core pain franchise versus the other.
Yes.
Yes, maybe ill.
I'll take that one.
We may.
Basically even though that might be.
A bit of revenue in CMS this year.
In our guidance, we are not accounting for any of that so thats all the pain management Division.
Obviously, the order growth we are seeing now.
It's going to result in increased revenue over the next several years and some of that's obviously going to going to hit in the next couple of quarters.
And.
The assumption to assume that as Dan mentioned earlier.
By the end of the year, we can we can get up to around 550 sales reps. So there'll be an increase in sales reps was in itself is not that productive.
Initially so thats going to be part of increasing our.
Fixed expenses, but.
Our existing sales reps are experiencing.
Hi, gross right now NSA as they continue to become more and more productive.
We expect that to turn into revenue.
$180 million to $200 million.
Range.
And what.
But we'll determine if we are in the low end of the range versus in the high end of the range.
Would probably be the productivity of the existing reps more than anything.
We have a very stable.
Scenario when it comes to how we collect the cash which is payments.
Payments from from Health insurance companies.
And that is obviously.
Based on preset amounts and preset quantities and preset lengths of of treatment that is determined by insurance companies and we don't really foresee any changes so productivity.
<unk>.
Better makes of insurances could also help us a little bit in terms of moving.
The revenue up.
But we are still somewhat dependent on the labor market.
In terms of new hires for our sales force as well as employees.
Our corporate headquarters.
In Colorado.
If you have anything to add.
Sales reps.
We've seen we've seen an increase in productivity of our sales reps obviously throughout the end of 2022, and then, especially the first two months of 2023.
And.
We are seeing them focus more on.
Fairbanks insurance Maxon.
Hi.
Driving that forward.
Alright, great no that was perfect.
I guess for my follow up here I, just wanted to circle back on the P&L.
Typically how we should think about that.
Hayden of Opex spend through the year.
And really I'm trying to kind of hone in on what is assumed when you layer the impact.
Vms belt.
Last year, we've talked about kind of what we do is the EMS Dms increased about.
$5 million in 'twenty two to I think we spent about $7 5 million.
We see a similar increase in.
2023, so about another $5 million some of that new hires and some of it is just exit rate versus what we started the year at so.
Youll see that layered into G&A over the course of the year.
This year, we ended G&A.
23% of revenue I think.
With the investments in Vms and generally just inflation.
<unk> continues to hit us pretty good I.
I think that stays pretty constant.
In 2023 same on the sales side. This year, we were at about 42% I think it's fairly similar next year, obviously depends how many people we hire and then where we end up on the top line, but.
With inflation and the number of people, we expect to add this year I think those percents of revenue, we're going to stay fairly constant.
Okay perfect no that was great Jim and maybe a quick one on capital deployment.
So you guys completed about $30 million and stock buybacks last year. So how should we think about capital allocation this year and specifically on stock buybacks.
I think it's still on the table will still continue to do that we are still generating cash from operations. So we do still have excess cash in the business and so.
That's still something that we will consider we're always going to look at what provides shareholder value and for us and we believe for all of our shareholders that provides a pretty good value.
Okay perfect I think that was it for me. Thank you guys.
Yes.
The next question comes from <unk>, Chen with H C. Wainwright. Please go ahead.
Thank you for taking my questions.
Just to clarify does the FTE need to inspect the manufacturing facility of <unk> hundred before guaranteeing the five 10-K clearance.
Not specifically as I mentioned before.
It's just a matter of when they routinely come to to audit.
And inspect our facilities.
<unk> and <unk>.
On cgmp.
Sure.
So it's done.
Doesn't come up they'll look at.
The thing to look at last time.
This have some comments to various areas and suggestions to things we can improve that will come out. The first thing to do is to check on that it could be that there is a.
Paragraph missing in a quality manual or something like that they will take on all those things and then they'll just randomly inspect various areas and as we keep adding more products as for instance, the <unk> that'll.
There'll be more parts of the company for them to look at so.
And recent audits with them.
It's taken a lot less time than they had planned and they only out here for a few days and as we continue to grow our business.
The time it takes them to complete an audit.
Likely increase but again, it's not specifically tied to.
When we get the clearance for a specific device.
Okay and has recent communication with the FDA indication clearance could occur.
In the first half of this year or second half of this year.
Yes. This is Don.
We've been in contact with the FDA on a continuous basis.
If requested.
Information at various times were still in that communication.
I'm expecting that we may have this in the first half of this year, but it might be early of the second half of it just depends on the type of information that.
The FDA continues to ask for.
Got it got it.
Lastly, given the gross momentum of orders you've seen so far in the first quarter and also the status of the labor market.
Are you likely to speed up hiring new reps or do you think you will likely maintain the current pace of hiring.
I would say.
We continue to be more and more critical in terms of the <unk>.
Quality of the talent.
Hi.
We have we have increased our efforts because it is a difficult job market. We have increased the funnel if you want to put it that way.
But also.
Increased.
Critical we are in terms of who we hire.
That is a significant part of how we've seen productivity per sales rep increased.
Here in the past many months is that we continue to be more and more critical so I think we will.
Net net unless something changes in the labor market will continue to to high at about the same pace.
So adding.
Net of approximately up to 10 10 reps every every months throughout the year.
And of course, we hope.
We're still hopeful that the labor market will.
Well, well look better going forward.
Still very tight.
Alright, thank you.
This concludes our question and answer session I would like to turn the conference back over to Thomas Sungard for any closing remarks.
Well. Thank you for joining us today, we are encouraged by the momentum we have coming out of a yet another record year for <unk> and we are excited about several upcoming regulatory submissions and operational milestones. We expect 2023 to be another transformational year for the company and appreciate your interest.
Signings have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Okay.
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