Q3 2023 Zynex Inc Earnings Call

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Okay.

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Good afternoon, ladies and gentlemen, and welcome to design, that's third quarter 'twenty to 'twenty three earnings conference call. At this time all participants are in a listen only mode did you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad a quest.

<unk> and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Now I'd like to turn the conference over to Quinn Callanan from MZ North America.

Thank you operator, and good afternoon, everyone.

Earlier today Zanex released financial results for the third quarter ending September 30th 2023.

Copy of the press release is available on the company's website. Joining me on today's call are Thomas <unk>, Our chairman President and Chief Executive Officer.

Dan Moorhead Chief Financial Officer.

And Ah Lusaka, Chief operating officer and Donald.

Great President of Xilinx monitoring solutions.

Before we begin I'd like to remind you that during this conference call at the company will make projections or 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 2022.

Form 10-K, and subsequent form 10, Qs, which identify the specific factors that may cause actual results or events.

Differ materially from those described in.

And these forward looking statements.

These factors may include without limitation statements regarding product development.

Product potential regulatory environment sales and marketing strategies.

All resources or operating performance with that I'll now turn the call over to Thomas.

Thanks, Quinn and good afternoon, everyone.

Thank you for joining us today for our third quarter 2023 earnings call.

The third quarter was highlighted by ongoing revenue momentum.

Leading us to our 10th consecutive quarter of profitability in six quarter a record high order.

All the numbers.

We once again received the highest number of prescriptions in the company's history, beating our previous record and celebrated our one millionth patient treated since our founding <unk>.

These right that's led to total revenue for the quarter of $49 9, Billion% to 20% increase over the same period in 2022, and we produced 10 cents.

Earnings per diluted share.

Our sales force continues to increase productivity and grow at a significantly each quarter.

A testament to our great sales force leadership and great products.

Orders increased 39% year over year, and we believe that there is considerable runway for us to continue growing orders into the future.

The results, we continue to show and the good work we are doing toward.

Reducing the impact of opioids have on communities.

Beginning to be recognized by the broader community with the latest excited to being a ranking.

So 'twenty amongst the top 100 health care companies. According to the health care Technology report.

To help drive our growth we introduced three new rehabilitation products in the third quarters.

Building on our holistic noninvasive approach to pain management.

The new products include signage approach cirrhotic lumbosacral.

So lets says or T. L S O.

Pure purpose back price for the mid and lower spine.

So it makes progressed at risk braced for a broad spectrum of rest related pain management, including carpal tunnel syndrome, and deciding next cryo heat and localized cold or hot fluid therapy system for.

For home for hospital use.

We continue to focus on profitable growth by adding products to our portfolio in a complementary way that combined with our industry, leading prescription strength pain management devices. The next wave.

In addition to the impressive results from our profitable pain management Division.

CMS or signings monitoring solutions continue to move forward in the third quarter in the development of blood and fluid monitor and our laser based pulse oximeter.

Our co oximeter.

We were excited to announce FDA clearance earlier this year for second generation blood and fluid blend you monitor.

Non invasive of wireless technology targeted to improve patient outcomes with better fluid management.

In hospital settings, we continue to collect additional data in clinical trials and done Greg will provide further updates on this product in his prepared remarks.

We have three additional products in the pipeline in a hospital monitoring division.

So based pulse oximeter Nico.

Nico is the.

Trade name for it a monitor for early detection of sepsis in a noninvasive laser based monetize total hemoglobin levels. The he marks.

Overall, we are making great progress in the patient monitoring division, which we believe will have a game changing gross potential for the company.

Looking ahead, we are making significant progress building on our holistic noninvasive approach with at home pain management devices and diversifying the new products.

We are rapidly expanding direct sales.

That is delivering a six accelerating and high recurring revenue as we continue to execute operationally and strategically.

In tandem we.

We are focused on ramping up our hospital monitoring division, which represents a large and growing market opportunity.

We expect consistent growth and strong financial performance for the remainder of 2023.

Following the double digit growth, we have produced year after year.

We also expect an additional catalyst in regulatory milestones and 2023 as we work to execute on our strong pipeline of new products.

We look forward to additional updates in the months to come as we build our sales force and.

And execute on growth objectives to improve the quality of life of patients suffering from debilitating pain pain or illnesses.

And bring long term value for our shareholders.

Yeah.

With that I'll turn the call over trying to lock suck our chief operating officer for a more detailed business update on the pain management Division.

Thank you Thomas dialysis pain management Division had another impressive quarter marked by sequential increase in order volumes over the second quarter and a 20% year over year over year increase in revenue. We're also incredibly proud to have surpassed treating 1 million patients during the quarter.

Reaching such a tremendous landmark for the company is a testament of the tireless efforts and teamwork that each of our employee brings to this company.

As Thomas mentioned, we also added three new products during the quarter expanding our pain management product line helps us diversify our revenue streams and provides our sales force with more opportunities to break continue prescribers.

See continuous increase in volumes of our distributed products, including strong initial volumes as he ever so risk basis is crazy.

The key to growth in pain management is the continued build out of our sales force. We ended the third quarter with approximately 480 sales reps. During 2023, we've added and that's approximately 50 sales reps and as we've mentioned previously we continue to be aggressive and off boarding reps who are underperforming.

So our overall rapid growth has been a little slower than normal.

Revenue per rep on an annualized basis with approximately 430000 during Q3, which is up 10% from Q2.

As a reminder, it takes approximately three years for reps to meet our 1 million target in annual sales. The average tenure across the sales force is currently under 18 months. So we're still on track with that metric.

We continue to make improvements and evaluating potential sales reps and evaluating productivity of new reps, which has allowed us to maintain revenue per rep at a high level. Despite the large numbers that perhaps we're adding.

Well ultimately working to fill out our 800 sales territories and continue to improve our processes to do so in a profitable manner.

We expect that by the end of the year, we shouldn't beach roughly 500 sales reps.

I look forward to another profitable year for the pain management Division and updating you all on our market expansion in future calls I'll now ask Don Grad, President XI and X monitoring solutions to provide abated updates related to that business Division.

Thank you Anna <unk>.

Our patient monitoring division as a long term investment for <unk>.

To diversify our revenues into one of the world's largest medical technology companies, our pain management divisions tremendous growth and profitability allow us to self fund the build out of a world class patient monitoring business that leverages industry transforming technologies developed through acquisition and organic development.

We can build the monitoring division.

While maintaining profitability and positive cash flow.

<unk> participated in the American Society of Anesthesiologists Conference in October.

Developing familiarity with our technologies capabilities amongst physicians is critical as we prepare for the launch of our monitoring products from.

From the assay conference we gathered several hundred needs.

I met with many key opinion leaders continue to conduct market research and presented the underlying science and benefits of our laser pulse oximetry technology to this critical anesthesia group.

Attendance at this conference and others have indicated strong demand for our monitoring progress products.

And rebuild several unforeseen potential sources of demand amongst noncore customers.

Next we'll continue to be active in similar venues in the future that allow us to present, our technologies to key opinion leaders, we continue to develop Nico or laser based pulse oximeter for commercialization in 2024, we continue to work toward FDA submission with several clinical trials the.

The clinical work has reinforced our confidence in Nico and the benefits it will provide to clinicians and patients. We've continued to prepare patents submissions to the U S. PTO and have continued revising our commercialization and marketing launch plan accordingly.

Our next generation noninvasive see them blood and fluid monitor continues to advance positively.

Having received FDA clearance for the <unk> hundred last quarter sets up our next generation see them device.

Meeting, our R&D and clinical milestones nicely for a smooth entry into the market. The C. M. Monitoring technology is an entirely new addition to operating rooms, some market uptake will likely fall on the elongated trajectory and rely on extensive engagement with medical advisers key opinion leaders and industry audiences to build momentum.

I will now turn the call over to Dan Moorhead, Chief Financial Officer for a more in depth look at financial performance for the quarter.

Thanks Dawn.

Please refer to our press release issued earlier today for a summary of our financial results for the third quarter of 2023.

After commenting on our financial results Thomas will review our guidance for the fourth quarter of 2023.

In the third quarter orders grew 39% year over year to the highest number of orders in company history for the sixth consecutive quarter.

Net revenue grew 20% to 49.

$49 $9 million from $41 5 million in 2022.

Primarily related to the growth in device orders.

Device revenue increased 49% to $16 9 million compared to $11 3 million in the third quarter last year.

Supplies revenue increased 10% year over year to $33 1 million from $30 2 million in the third quarter last year.

Gross profit in the third quarter increased to $40 4 million or <unk>, 81% of revenue as.

As compared to $33 1 million or 80% of revenue in 2022.

Sales and marketing expenses were $22 1 million in the third quarter of 2023 compared to $17 2 million in the same period in 2022.

Primarily due to increased head count of our sales force and increased incentive compensation related to order growth.

G&A expenses were $12 7 million in the third quarter of 2023 compared to $9 4 million last year.

Approximately 10% of the increase in G&A is related to investments in our monitoring solutions division and related head count to launch our new products.

The remainder is primarily for back office head count related to order growth.

Tax expense as a percentage was 27% effective rate for the quarter.

Net income was $3 $6 million and produced 10 cents per basic and diluted share in the third quarter of 2023 compared to $4 9 million or 13 cents per basic and diluted share in 2022.

Adjusted EBITDA for the three months ended September 32023 was $7 3 million versus $8 1 million in the quarter ended September 32022.

We ended the quarter with $52 $4 million in cash and cash equivalents and short term investments and working capital of $83 1 million.

Cash flows from operations for the three months ended September 32023 was a record $8 9 million and for the nine months cash from operations increased 29% year over year to $11 6 million.

In the third quarter, we continued our stock buyback and repurchased $14 9 million of common stock.

Bringing the total repurchases in the past 18 months to $51 million.

As we've stated before we believe this to be a signal to our shareholders that we are incredibly confident in our management team the growth opportunities for both divisions, and we remain committed to creating shareholder value in the near and long term.

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

It is becoming increasingly evident that we still have a long runway you know pain management division growing revenues from the current just below 200 million to $800 million over the next few years with a strong bottom line.

We have the monitoring division on the brink of launching not just one but for game changing product lines and.

Scientists continue continues to operate under the backdrop of a strong balance sheet.

We've had a strong start to Q4 in terms of orders and expect to post our seventh consecutive record quarter with.

With the continued growth in orders in the fourth quarter of 2023, we expect total revenue of 52, and a half to 57 and a half million dollars, which is approximately 13% greater than the fourth quarter of 2022 and diluted earnings per share of 17 to 22 cents.

As for the 24th.

2023 outlook, we are reiterating our initial guidance and expect total revenue to be 189, and a half to 194 and a half million representing growth of approximately 20% over 2022 and diluted earnings per share of 40 to 45 cents.

With that operator, please open up the call 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.

If at any time. Your question has been addressed and you would 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.

Good afternoon, everyone.

Great you're doing pretty good how are you.

Pretty good thanks for taking the question. So just a few so I'm wondering if you could draw a little bit on the devices versus supplies have you seen.

A lag effect, if you will on a supplier's behind devices, historically and should we assume that the stronger side of devices gets up were there pull through on the squash side.

No I think our thinking obviously give you a little more technical detail, but all will be here for several several months have had a very strong roes in orders a lot of the revenue on the initial claims are.

It's paid by insurance companies a lot of that is obviously devices and the supplies as a revenue that typically sits on the tail end.

All of those orders so with the current up ticket oldest.

We typically see a lot of lot of device revenue and as a percentage not in absolute numbers, but as a percentage we will see a little lesson on supplies, but I don't know if you have any more technical to say.

No I agree with you I think you know if you do look device, usually gets a little stronger as compared to supplies as the year goes on.

And so that's just kind of a general trend, we have and I would agree with Thomas with strong order growth is driving that number. So maybe instead of 25 75 going forward. It's more of a a 30 70 I'm just because the order growth has been so strong but.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Zynex 3rd quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. Did you need assistance? Please signify conference specialist by pressing star than zero on your telephone keypad. A question and answer session will follow the formal presentation. As reminder, this conference is being recorded.

Again, both are growing well, yeah long term yields you'll you'll see that percentage for supply suppliers creep up again, so okay got it and then next week could you talk a little bit about some of the distribution channels.

Quinn Callanan: I would now like to turn the conference over to Quinn Callanan from MD. The North America. Thank you operator and good afternoon everyone.

The physical therapy.

Our offerings are going through and how those channels may have have changed over the past few quarters and what they may look like going forward.

Quinn Callanan: Earlier today, Zynex released financial results for the third quarter ending September 30 2023. A copy of the press releases available on the company's website. Joining on today's call are Thomas Sandgaard, Chairman, President and Chief Executive Officer.

And that's one of them.

There's no significant changes that we've seen over the last few quarters is still the same channels that are producing or prescriptions and orders.

Thomas Sandgaard: Dan Moorhead, Chief Financial Officer, Anna Lucsok, Chief Operating Officer, and Donald Gregg, President of Zynex Monitoring Solutions. 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 2022 form 10K and subsequent form 10Qs, which identify the specific factors that may cause actual results or events to differ materially from those described.

Got it and then lastly for us on the on the buyback front I think you talked about $51 million over 18 months ago was the last.

Piece of $10 million included them out of your own to be.

Dawn.

Versus the fifth one.

Not not yet its obviously something considering how well we're doing organically how strong our balance sheet as are we.

We have recently has primarily been investing in two areas the monitoring division and also because of Oh how.

How inexpensive the stock is right now we find good use of the capital by buying back stock and considering how it sits right now.

Thomas Sandgaard: In these forward-looking statements, 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 on now turning the call over to Thomas. Thanks Quinn, and good afternoon everyone. Thank you for joining us today for our third quarter 2023 earnings call. The third quarter was highlighted by ongoing revenue momentum leading us to our 10th consecutive quarter of profitability and 6th quarter of record high auto numbers.

We believe we are actively debating to deploy more.

More of our cash to buy back stock.

So the fifth Theres been five recently Jeff.

In October so it wasn't quite done at September 30th when you look at it but it's that last 10 million finished up in October.

Okay.

Perfect protection across sites, we checked into crushed congrats on the short read out.

Thank you Frank with you.

The next question comes from shotgun thing with RBC. Please go ahead.

Thomas Sandgaard: We once again received the highest number of prescriptions in the company's history, beating our previous record and celebrated our 1 millionth patient-treated sensor-funded Zynex. These records led to total revenue for the quarter of 49.9 million, a 20% increase over the same period in 2022, and we produced 10 cents of earnings per dollar which is share. Our sales force continues to increase productivity and grow auto significantly each quarter, a testament to a great sales force, leadership and great products.

Oh, great. Thank you so much for taking the question. So I was hoping you could elaborate a little bit more on the revenue momentum you're seeing you know you indicated the highest stumbled upon it in the company's history.

Can you provide some color on what is driving that and the new within existing accounts. You know is it is it adding more sales reps in region and then on the order of growth. It grew about 39% year over year, which was below the state which was higher than the sales growth of 20%. So just what are the implications of that.

How should we think about it as a predictor of up to just that one.

Thomas Sandgaard: Autos increased 39% here over year, and we believe that there's considerable runway for us to continue growing orders into the future. The results we continue to show, and the good work we are doing toward reducing the impact opioids have on communities, beginning to be recognized by the broader community, with the latest example being our ranking. As the 23rd amongst the top 100 healthcare companies, according to the healthcare technology report. To help drive our growth, we introduced three new rehabilitation products in the third quarter.

Net net of our sales force is becoming more productive we keep adding more sales reps are however, we also hum pro pro proactively.

Not letting satisfy upsets that may.

They may not produce as much as we'd like to see long term it doesn't seem to have a potential to get the so always we continue to see a higher productivity you know salesforce as we get better and better at hiring new talent.

Thomas Sandgaard: Building on our holistic, non-invasive approach to pain management. The new products include Sinix Pro, Ceraseic, Lombard Sequel, Ossoses or TLSO, a dual purpose back brace for the mid and lower spine, Sinix Pro wrist, a wrist brace for a prospectum of wrist related pain management, including Carpal Tunnel Syndrome, and the Sinix cryoheed, the localized cold or hot fluid therapy system for home or hospital use. We continue to focus on profitable growth by adding products to a portfolio in a complimentary way that combine with our industry leading prescription strength pain management device the next wave.

So the order growth comes from that.

It's also a relatively speaking been.

And very strong here for a number of months compared.

Compared to last year.

A year and a half two years ago.

M O order growth.

Well, it's not a well in the mobile in the single digits.

And therefore when we.

When we get some momentum in terms of the order growth.

It it turns into some some very high percentages.

And obviously the.

The average order growth if you look at the last two to three years is more in the in just.

Just a 25% a little less than 30%.

If you look at that on a on an annual on an annual basis.

Thomas Sandgaard: In addition to the impressive results from our profitable pain management division, CMS or Sinix Monitoring Solutions, continue to move forward in the third quarter in the development of our blood and fluid monitor and our laser-based pulse examiner, or core examiner. We were excited to announce FDA clearance earlier this year for our second generation blood and fluid volume monitor. Uninvasive wireless technology targeted to improve patient outcomes with better fluid management in hospital settings.

Which correlate pretty well with our revenue growth and there's still a little bit to.

To come there, but we expect the full year to come in at a at 20% revenue growth and.

And and we expect with the oldest were getting now and the revenue that will generate four for many quarters to come that we have a strong strong revenue growth still in the pipeline that's already landed on the books and firms in terms of our prescriptions are that.

Thomas Sandgaard: We continue to collect additional data in clinical trials, and Doug Grech will provide further updates on this product in his prepared remarks. We have three additional products in the pipeline in our hospital monitoring division, a laser-based pulse examiner, Niko is the trait name for it, a monitor for early detection of sepsis, and a non-invasive laser-based monitor of total hemoglobin levels, the hemarks. Overall, we are making great progress in the patient monitoring division, which we believe will have a gain-changing growth potential for the company.

That now needs to to get billed and battling with insurance companies to get paid et cetera. That's those are those types of things will will be executed here over the next many quarters for the oldest that we've recently received so there's always a lag there between when when we have a growth spurts in autism and when revenue catches up to.

To that.

Got it that's really helpful. And then I was wondering if you could maybe share some directional outlook for 2024.

As it relates to your pain management business is plus 20%.

Thomas Sandgaard: Looking ahead, we are making significant progress building on our holistic non-invasive approach with at-home pain management devices and diversifying new products. We rapidly expanding direct sales that is delivering accelerating and high recurring revenue as we continue to execute operationally and strategically. In tandem, we are focused on ramping up our hospital monitoring division, which represents a large and growing market opportunity. We expect consistent growth from strong financial performance for the reminder of 2023, following the double-digit growth we have produced year after year. We also expect an additional catalyst and regulatory milestones in 2023 as we work to execute on our strong pipeline of new products.

Achievable next year and it seems like that's somewhat of a base case, given how you're tracking this year and then on the patient monitoring side you know it just contribution from let's see them 1600, and anything we should factor into Nico and any color on the opex side would be great. Thank you for taking the questions.

Oh, Yes, I think in terms of the pain management business we are.

Tentatively looking at well, it's a little over 20% so somewhere in the range of 20% to 25% is probably a good good guess for Halloween.

In terms of our order and revenue growth next year in that division.

It would probably be because we we expect a lot of the activity in terms of additional data collecting and and also be dealing with the F. D. A to take place in the first half of all.

Oh of 'twenty 'twenty four for the Nico and see it seems 60 and hundred and.

Thomas Sandgaard: We look forward to additional updates in the months to come as we build our salesforce and execute on growth objectives to improve the quality of life of patients suffering from debilitating plain oil necessary and bring long-term value files year-holders.

The generation of that.

We expect that so we will be lucky to see some revenue.

In the second half of next year.

And then she goes as far as on the profitability side I think you know this year, we're kind of in the flattish range I think next year, we would expect to be up.

Anna Lucsok: With that, I will turn the call over to Anna Luxark, our Chief Operating Officer, for a more detailed business update on the pain management division. Thank you Thomas. Zynex's Pay Management Division had another impressive quarter marked by sequential increase in order volumes over the second quarter and a 20% year over year increase in revenues. We were also incredibly proud to have surpassed trading one million patients during the quarter. Reaching such a tremendous landmark for the company is a testament of the tireless efforts and teamwork that each of our employee brings to this company.

You know at least 10% somewhere in that range on the EPS side.

As we leverage some of the investments we've made but.

But right now.

I think that the Dms contribution on the revenue side, its probably immaterial.

Yeah.

Got it thank you for taking my question.

Thank you the next.

The next question comes from <unk>, Chen with H C Wainwright.

Please go ahead.

Anna Lucsok: As Thomas mentioned, we also added three new products during the quarter. Expanding our Pay Management Product Line helps us diversify our revenue streams and provide our sales force with more opportunities to break into new prescribers. We've seen continuous increase in volumes of our distributed products, including strong initial volumes of TLSO, risk, racism, and cryoheats. The key to growth in Pay Management is the continued buildout of our sales force. We ended the third quarter with approximately 480 sales reps. During 2023, we've added a net of approximately 50 sales reps, and as we've mentioned previously, we continue to be aggressive in off-boarding reps who are underperforming, so our overall rep growth has been a little slower than normal.

Thank you for taking my questions could.

Could you comment on that.

The new products for pain management and turns off the <unk>.

The origin of the products, whether they are prescribed a prescription products and how these products are used in connection with our next week. Thank you.

Yes, absolutely so the three new products that we added a T. L. A so crowd he hadn't gotten a hot and cold therapy and the risk rates are.

Signings private label did.

I used to say are all prescription only.

And they fall within our pain management line and complement our flagship next wave device and are frequently prescribed together.

Anna Lucsok: Revenue per rep on an annualized basis was approximately 430,000 during Q3, which is up 10 percent from Q2. As a reminder, it takes approximately three years for reps to meet our 1 million target and annual sales. The average tenure across the sales force is currently under 18 months, so we're still in track with that metric. We continue to make improvements in evaluating potential sales reps and evaluating productivity of new reps, which has allowed us to maintain revenue per rep at a high level, despite the large numbers of reps we're adding.

So if they fall, but then we essentially what we're trying to accomplish is to become a one stop shop for noninvasive non addictive pain management solutions for pitch.

Prescribers looking for that.

Okay, that'd be a reported 39% order growth for the third quarter does that include the three products as well.

Yes.

So going forward a young reported auto gross will include the three products correct.

Correct, correct, but they've always included.

Do we distribute a number of product. These are three new products and those distributed products have always been included in order growth. So it's pretty consistent with what we've done okay. Yeah, a prescription is a prescription and whether it's.

Anna Lucsok: We're ultimately working to fill out our 800 sales territories and continue to improve our processes to do so in a profitable manner. We expect that by the end of the year we should reach roughly 500 sales reps.

Low back support or in some cases, St patient gets two prescriptions and they get paid independently by insurance companies. Good example is the cryo heat.

Anna Lucsok: I look forward to another profitable year for the Pay Management Division in updating you all on our market expansion and future calls.

Donald Gregg: I'll now ask Doug Greg, President of Zinex Monitoring Solutions to provide updated updates related to that business division. Thank you, Anna. Our patient monitoring division is a long-term investment for Zinex to diversify our revenues into one of the world's largest medical technology companies. Our Pay Management Division's tremendous growth and profitability allow us to self-fund the buildout of a world-class patient monitoring business that leverages industry transforming technologies developed through acquisition and organic development.

Which are the cold.

Hold portion of that is really fantastic to us along with the next wave right after and immediately after orthopedic surgery. So that'd be unexciting before we'd get two prescriptions, St patient and and it'll be two billing lines that insurance companies pay pay separately for.

Could you give us a rough estimate as to the percentage of revenue represented by these three new products.

As a percentage of the total revenue in the third quarter.

Donald Gregg: We can build the monitoring division while maintaining profitability and positive cash flow. Zinex participated in the American Society of Anesthesiologist Conference in October, developing familiarity with our technologies, capabilities amongst physicians as critical as we prepare for the launch of our monitoring products. On the AFA conference, we gathered several hundred leads met with many key opinion leaders, continued to conduct market research, and presented the underlying signs and benefits of our laser pulse oximetry technology to this critical anesthesia group.

The distributed products about 15% of our device revenue.

Okay.

And they have a similar gross margin compared to the next one.

Yeah.

Much the same or else, we wouldn't take them on.

Got it.

Okay. Thank you.

Yeah.

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

Yeah. Thank you for joining US today, we are pleased with our performance this quarter and the consistent growth our team is delivering.

Donald Gregg: Attendance at this conference and others have indicated strong demand for our monitoring products and revealed several unforeseen potential sources of demand amongst non-core customers. Zynex will continue to be active in similar venues in the future that allow us to present our technologies to key opinion leaders. We continue to develop NICO, our laser-based full-fleximeter for commercialization in 2024. We continue to work toward FDA submission with several clinical trials. The clinical work has reinforced our confidence in NICO and the benefit it will provide to clinicians and patients.

We look forward to leveraging that momentum throughout the rest of the year.

And speaking to you at upcoming Investor events. We appreciate your time and interest in signings have a great day.

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

[music].

Donald Gregg: We've continued to prepare patent submissions to the USPTO and have continued revising our commercialization of marketing and launch plan accordingly. Our next generation non-invasive CM Blood and Food Monitor continues to advance positively. Having received FDA clearance for the CM 1600 last quarter sets up our next generation CM device, meeting our R&D and clinical milestones nicely for a smooth entry into the market.

Yeah.

[music].

Donald Gregg: The CM monitoring technology is an entirely new addition to operating rooms, so market uptake will likely follow a elongated trajectory and rely on extensive engagement with medical advisors, key opinion leaders and industry audiences to build momentum.

Daniel Moorhead: I will now turn the call over to Dan Morehead, Chief Financial Officer, for a more in-depth look at financial performance for the quarter. Thanks, Don. Please refer to our press release issued earlier today for a summary of our financial results for the third quarter of 2023.

Daniel Moorhead: After commenting on our financial results, Thomas will review our guidance for the fourth quarter of 2023. In the third quarter, orders grew 39% year-over-year to the highest number of orders in company history for the sixth consecutive quarter. Net revenue grew 20% to 49.49.9 million dollars from 41.5 million in 2022, primarily related to the growth in device orders. Device revenue increased 49% to 16.9 million compared to 11.3 million in the third quarter last year.

Daniel Moorhead: Supplies revenue increased 10% year-over-year to 33.1 million from 30.2 million in the third quarter last year. Gross profit in the third quarter increased to 40.4 million or 81% of revenue as compared to 33.1 million or 80% of revenue in 2022. Sales and marketing expenses were 22.1 million dollars in the third quarter of 2023 compared to 17.2 million in the same period in 2022. Primarily due to increased headcount of our sales force and increased incentive compensation related to order growth.

Daniel Moorhead: GNA expenses were 12.7 million in the third quarter of 2023 compared to 9.4 million last year. Approximately 10% of the increase in GNA is related to investments in our monitoring solutions division and related headcount to launch our new products. The remainder is primarily for back office headcount related to order growth. Tax expense as a percentage was 27% effective rate for the quarter. Net income was $3.6 million and produced 10 cents for basic and diluted share in the third quarter of 2023 compared to 4.9 million or 13 cents for basic and diluted share in 2022.

Daniel Moorhead: Adjusted EBITDA for the three months ended September 30, 2023 was $7.3 million versus $8.1 million in the quarter ended September 30, 2022. We ended the quarter with $52.4 million in cash and cash equivalent and short term investments and working capital of 83.1 million. Cash flows from operations for the three months ended September 30, 2023 was a record $8.9 million and for the nine months cash from operations increased 29% year over year to $11.6 million. In the third quarter we continued our stock buyback and re-purchased $14.9 million of common stock bringing the total re-purchases in the past 18 months to $51 million.

Thomas Sandgaard: As we've stated before, we believe this to be a signal to our shareholders that we are incredibly confident in our management team, the growth opportunities for both divisions, and we remain committed to creating shareholder value in the near and long term. With that, I'll turn the call back over to Thomas. Thank you, Dan. It is becoming increasingly evident that we still have a long one way in our payment management division, growing revenues from the current just below 200 million to 800 million over the next few years with a strong bottom line.

Thomas Sandgaard: We have the monitoring division on the brink of launching, not just one, but four game-changing product lines, and Sinis continues to operate on the backdrop of a strong balance sheet. We've had a strong start to Q4 in terms of orders and expect to post our seventh consecutive record quarter. With the continued growth in orders in the fourth quarter of 2023, we expect total revenue of 52.5 to 57.5 million, which is approximately 13% greater than the fourth quarter of 2022, and diluted earnings per share of 17 to 22 cents.

Thomas Sandgaard: As for our 2023 outlook, we are reiterating our initial guidance and expect total revenue to be 189.5 to 194.5 million, representing growth of approximately 20% over 2022, and diluted earnings per share of 40 to 45 cents.

Operator: With that, I'll write a please open up to Cole for questions. We will now begin the question and answer session. To ask a question, you may press star than one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two.

Operator: At this time, we will pause momentarily to assemble our roster.

Jeffrey Cohen: The first question comes from Jeffrey Cohen with Latinburg Paulman. Please go ahead. Good afternoon. How's everyone? Are you doing pretty good? How are you? Pretty good, thanks for taking the questions. Just a few. So I wondered if you could drill a little bit on the devices versus supplies. Have you seen a lag of fact, if you will, I'm not surprised behind devices historically. And should we assume that the stronger side of devices gets further pull through on the supply side?

Jeffrey Cohen: No, I think at then can obviously give you a little more technical detail, but all when we here for several months have had a very strong growth in orders. A lot of the revenue on the initial claims that that is paid by insurance companies, a lot of that is obviously devices. And the supplies is revenue that typically sits on the tail end of those orders. So with the current upticket orders, we typically see a lot of a lot of device revenue.

Jeffrey Cohen: And as a percentage, and not an absolute numbers, but in as a percentage, we see a little less on supplies. But I don't know if you have anything more technical to say there. No, I agree with you. I think, you know, if you do look if I usually get a little stronger as compared to supplies as the year goes on. And so that's just kind of a general trend we have. And I would agree with Thomas, the strong order growth is driving that number.

Jeffrey Cohen: So you know, maybe instead of 25, 75 going forward, it's more of a 3070 just because the order growth has been so strong. But again, both are growing well. A long time, you'll see that percentage for supply supplies, clean up again. OK.

Jeffrey Cohen: God, next week, could you talk a little bit about some of the distribution channels that the fiscal therapy offerings are going through and how those channels may have have changed over the past few quarters and what they may look like on foreign. There is no significant changes that we've seen over the last few quarters. It's still the same channels that are producing our descriptions and orders. And then lastly, for us on the on the buyback front, I think you talked about 51 million over 18 months.

Jeffrey Cohen: So was the last piece of 10 million concluded and now you're on to the 6th one. Not yet. It's obviously something considering how well we are doing organically, how strong our balance sheet is. We hear recently have primarily been investing in two areas, the monitoring division and also because of how inexpensive the stock is right now. We find good use of the capital by buying back stock and considering how it sits right now, we are actively debating to deploy more of our cash to buy back stock.

Jeffrey Cohen: So the fifth, there's been five recently, Jeff. In October, so it wasn't quite done at September 30th when you look at it, but that last 10 million finished up in October. Okay. Perfect. But those are for us. Thanks for taking a crush on the shortly read out. Thank you.

Shagun Singh: The next question comes from Shagun Singh with RBC. Please go ahead. Great. Thank you so much for taking the question. So I was hoping to elaborate a little bit more on the revenue momentum you're seeing. You indicated the highest level of orders in the company's history. Can you provide some color on what is driving that? Is it new? Is it existing account? Is it adding more sales reps in regions? And then on the order of growth, it grew about 39% year over year, which was below the sale, which was higher than the sales growth of 20%.

Shagun Singh: So just what are the implications of that? And how should we think about it as a predictor of future sales? Net net our sales force is becoming more productive. We keep adding more sales reps. However, we also pro pro actively not letting sales reps that may may not produce as much as we'd like to see long term and doesn't seem to have a potential to get there. So we continue to see a higher productivity in our sales force as we get better and better at hiring new talent.

Shagun Singh: So the order growth comes from that. It's also relatively speaking been very strong here for a number of months compared to last year. A year and a half, two years ago. Our order growth was not more in the single digits. And therefore, when we get some momentum in terms of the order growth, it turns into some very high percentages. And obviously the average order growth, if you look at the last two to three years, is more in the just over 25%, a little less than 30%.

Shagun Singh: If you look at that on an annual basis, which correlate pretty well with our revenue growth. There's still a little bit to come there. We expect the pollier to come in at 20% revenue growth. And we expect with the orders we're getting now and the revenue that'll generate for many quarters to come that we have strong, strong revenue growth still in the pipeline. That's already landed on the books in terms of descriptions that now needs to get build and battling with insurance companies to get paid, etc.

Shagun Singh: Those things will be executed here with the next many quarters for the orders that we recently received. So there's always a lack there between when we have a growth spurt in order and when revenue catches up to that.

Shagun Singh: That's really helpful. And then I was wondering if you could maybe share some directional outlook for 2024, you know, as it relates to your pain management business is plus 20% growth achievable next year. It seems like that somewhat of a base gave given how you're you're tracking this year. And then on the patient monitoring side, you know, it just contribution from the CM 1600 and anything we should factor in for Nico and any color on the opposite side would be great to thank you for taking the question.

Shagun Singh: Yes, I think in terms of the pain management business, we are tentatively looking at a little lower or 20 percent. So, somewhere in the range of 20 to 25 percent is probably a good guess for how we are going to fare in terms of order and revenue growth next year in that division. We will probably be because we expect a lot of the activity in terms of additional data collecting and also be dealing with the FDA to take place in the first half of 2024 for for the NECO and see 1600 and further generations of that.

Shagun Singh: We expect that so we will be lucky to see some revenue in the second half from next year. And then Shagun, on the profitability side, I think this year we are kind of in the flattest range. I think next year we would expect to be up at least 10 percent somewhere in that range on the UPS side as we leverage some of the investments we have made. But right now, I think the DMS contribution on the revenue side is probably immaterial. Thank you for taking the question.

Unknown Executive: Thank you.

E10: The next question comes from E10 with HC Wainwright. Please go ahead. Thank you for taking my questions.

Unknown Executive: Could you comment on the three new products for pain management in terms of the origin of the products, whether they are prescription products and how these products are used in connection with the next wave. Thank you. Yes, absolutely. So the three new products that we added, the TLSO prior heat hot and cold therapy and the risk rates are ZineX private labelled devices. They are all prescription only and they fall within our pain management line and complement our flagship next wave device and are frequently prescribed together. So they fall.

Unknown Executive: But then we essentially, what we're trying to accomplish is become a one-stop shop for non-invasive, non-addictive pain management solutions for prescribers looking for that. Okay, so the reported facility 99% auto-grows for the third quarter. Does that include those three products as well? Yes. So going forward, you are reported auto-grows will include those three products, correct? Correct. But they've always included, you know, we distribute a number of products. These are three new products and those distributive products have always been included in order growth. So it's pretty consistent with what we've done in the past. Okay, yeah.

Unknown Executive: A description is a prescription. And whether it's low back support or in some cases, same patient gets two prescriptions and they get paid independently by insurance companies. Good example is the cryo-heat, which the cold portion of that is really fantastic to use along with the next wave right after and immediately after also in surgery. So that'd be an example. Well, we've got two prescriptions, same patient and it'll be two billing lines that insurance companies pay separately for.

Unknown Executive: Could you give us a rough estimate as to the percentage of revenue represented by the three new products as the percentage of the total revenue in the third quarter? The distribute products are about 15% of our device revenue. Okay. And they have a similar gross margin compared to the next one. Yeah, it's similar, it's the same else we wouldn't take them on. Okay. Thank you.

Unknown Executive: This concludes our question and answer session.

Thomas Sandgaard: I would like to turn the conference back over to Thomas Sandgaard for any closing remarks. Thank you for joining us today. We are pleased with our performance this quarter and the consistent growth our team is delivering. We look forward to leveraging that momentum throughout the rest of the year and speaking to you at upcoming investor events. We appreciate your time and interest in signings. Have a great day.

Operator: The conference has now concluded.

Operator: Thank you for attending today's presentation.

Operator: You may now disconnect.