Q3 2024 Zynex Inc Earnings Call
The End
Speaker Change: Good afternoon, ladies and gentlemen and welcome to the Zinex 3rd Quarter 2024 earnings conference call. At this time, all participants are in listen only mode. The question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
Speaker Change: Oh, now I'd like to turn the conference over to Quinn Callanan from MC North America
Quinn Callanan: Thank you operator and good afternoon everyone. Earlier today, Zinex released financial results for the third quarter and its September 30, 2024.
Quinn Callanan: I'll copy it. The press release is available on the company's website, joining me on today's call, our Thomas Sandgaard, Chairman, President, Chief Executive Officer, Dan Moorhead, Chief Financial Officer, and Donald Gregg, President of the XMunner Turning Solutions.
Quinn Callanan: Before we begin, I'd like to remind you that during this conference call to company Will Make Projections and Foreign Defense statements regarding future events
Quinn Callanan: We encourage you to review the companies past and future filings with the SEC, including without limitation, the company's 2023 Form 10K and subsequent Form 10Qs, which I identify the specific factors that may cause actual results or events to different materialy from those described in these foreign looking statements.
Quinn Callanan: These factors may include the foundation, statements regarding product development, product potential, the regulatory environment, seals and marketing strategies, capital resources, or operating performance with that on now turn the call over to Thomas.
Thomas: Thank you, Quinn, and good afternoon, everyone. Thank you for joining us today for the third quarter, 2021, earnings call. We are pleased to report on our continued progress as the leading provider of non-OPE management solutions and building out cutting-edge patient monitoring solutions.
Thomas: We've been successful in diversifying our revenue stream and building a sustainable, profitable company that delivers better pain management and monitoring solutions for patients and doctors as well as hospitals.
Thomas: Our continued revenue growth and sustainability that has allowed us to reinvest in our business and return capital to shareholders.
Thomas: I think it's worth reminding the investing community that our 2024 revenue expectation of 200 million is more than 50% higher than we've worked just three years ago.
Thomas: Thank you for watching.
Thomas: Our continued growth and evolution has followed us the opportunity to implement greater institutional controls across the company to improve operations, collections and new products into introductions as we continue to grow as a business.
Thomas: As part of this evolution, we have used 2024 to take a deeper analytical look at the sales force.
Thomas: While we have identified 800 sales regions across the United States, we are working to ensure that we have the best people and processes to take advantage of the overall opportunity.
Thomas: So, sure, we have trimmed the Salesforce to ensure we have the right reps in place to put us in the best position moving forward.
Thomas: We've always seen the benefits of this approach and while we're a new person essentially, flat in the core of the order growth in the core of the sub 13%.
Thomas: Yeh, we're here and we're having you for saleswrap on an annualised basis in Q3 was 530,000 and increased of 25% of the third quarter in 2023.
Thomas: We currently sitting at approximately 17% in terms of higher orders, you know, total, this year versus a total last year.
Thomas: So our team continues to mature, we expect to drive sales to fishing too, you can hire.
Thomas: We're proud of the prime management groups ability to incorporate new products while increasing or us in revenue. We confident that we can expedite onboarding new salespeople so we can see increased order growth while maintaining a high standard for productivity.
Thomas: Turning to new products, we've received the clearance from the FCA for our new tenswave during the quarter, a device that aims to provide effective pain relief through transcutaneous elective nerve simulation, which has been clinically proven to reduce chronic and acute pain without needing medication.
Thomas: CMS or Signage Monitoring Solutions continues to move forward in the third quarter with major milestones to commercialize NECO, our laser-based pulse oximeter.
Thomas: We're now undergoing the final phase of a manufacturing transfer, FDA clinical trials and commercialization readiness prior to FDA submittal and clearance. And Don Gregg will provide further updates on these products in his prepared remarks.
Thomas: I find it important to remind everyone of the importance of this one product as we will soon be competing for market share in the world's biggest medical device market, pulse oximetry, with a significantly better mousetrap, a real game changer.
Thomas: We're excited to announce FDA clearance last year for our second generation blood and fluid monitor, a non-invasive and wireless technology targeted to improve patient outcomes with bladder fluid management in hospital settings.
Thomas: Overall, we are making great progress in the patient monitoring division, which we believe will have significant growth potential for the company.
Thomas: Looking ahead, we are making significant progress building on our non-invasive approach with at-home pain management devices and diversifying the new products.
Thomas: In tandem, we focus on ramping our Hospital Monitoring Division, which represents a large and growing market opportunity.
Thomas: We also expect additional catalysts and regulatory milestones during the year as we work to execute on our strong pipeline of new products.
Thomas: As I mentioned, we continue to add additional rehabilitation products to our offering.
Thomas: And the volume of those products as a percentage of overall sales continue to increase. In the first quarter, we reported our non-Next Wave private label rehab products made up.
Thomas: 25% of our orders up from low double digits in 2022. We've seen this grow even more in Q3 to just over 31% of total orders.
Thomas: And we believe this diversification is important to our future growth as it provides additional tools for our sales team to engage new prescribers and serves to add complementary revenue sources.
Thomas: These efforts to add complementary products to diversify brand new streams and evolve our sales team are part of our effort to institutionalize growth at a higher scale.
Thomas: At this time, Synyx has a strong sales core that we can build upon.
Thomas: With this in mind, we continue to expect 2024 net revenue to increase approximately 9% compared to last year to $200 million and diluted earnings per share of at least $0.20 per share.
Thomas: We produced $10 million in cash from operations during the first nine months of the year and had a cash balance of $37 million at the end of the third quarter, up from $31 million earlier in the year.
Thomas: Thank you for watching. I'm Dan Gregg. I'll see you next time.
Speaker Change: We believe that with a diversified product portfolio, multiple sales channels, institutional quality policies and procedures.
Speaker Change: In a lean and efficient sales team, Synex is poised to capitalize on the long-term opportunity presented by the 800 potential defined sales territories that we have discussed in the past.
Speaker Change: We've reached some important milestones and see significant progress in our monitoring division. I now ask Don Gregg, President of ScinX Monitoring Solutions, to provide updates on that business division.
Don Gregg: Thank you, Thomas. It is an exciting time to work in Xinex's monitoring division as we are closing on major milestones to commercialize our Neco pulse oximeter.
Don Gregg: The NICO Verification Clinical Study is concluding in November of this year at a leading medical education institution, and we continue to achieve our program milestones.
Don Gregg: Throughout the clinical study, we have been monitoring the performance of our device and the study results are achieving our goals as expected.
Don Gregg: We are optimistic we will file our FDA 510K premarket submission in Q4 2024. This 510K will focus on adult and pediatric clearance for the pulse oximeter and accessories.
Don Gregg: Assuming all continues to go well and based on historical pulse oximeter clearance data published by the FDA, the 510K submittal in Q4 puts us on track for clearance in mid-2025.
Don Gregg: In addition to completing the NECL verification study, we have invested in Hypoxia Lab partnerships to support future 510K submissions to achieve additional NECL market claims and publishing of laser pulse oximetry clinical evidence.
Don Gregg: These agreements provide the opportunity to perform additional human testing if required in preparation for additional information requests from the FDA during our 510k submittal.
Don Gregg: We continue to file intellectual property protections, engage influential physicians, and raise awareness of laser pulse oximetry science.
Don Gregg: We are now in the final months preparing to commercialize and launch the following expected clearance in mid-2025.
Don Gregg: We continue to participate in open oximetry.
Don Gregg: because existing LED pulse oximeters on the market demonstrate lower accuracy in people with darker skin tone. The NECO laser pulse oximeter technology solves the pigmentation challenge.
Don Gregg: This past weekend, we presented two poster presentations of the NekoLaser Pulse Oximetry Science and its effectiveness at the American Society of Anesthesiologists annual meeting. Specifically, the two posters were, number one,
Don Gregg: pulse oximetry in the presence of elevated methemoglobin or carboxyhemoglobin, and number two, laser-based pulse oximetry eliminates effects of skin pigmentation on SpO2 measurements.
Don Gregg: Lastly, we've engaged and recruited several industry-leading physicians at major institutions and universities to serve as our champions within the physician community. In summary, we've achieved major milestones in Q3 on NECO commercial development.
Don Gregg: Clinical Verification and FDA 510K Submission Readiness.
Don Gregg: We will continue to close on clinical operational and commercialization milestones in Q4 2024 to create and meet market demand after FDA clearance. I will now turn the call over to Dan Moorhead, Chief Financial Officer, for a more in-depth look at the quarter's financial performance.
Dan Moorhead: Thanks, Tom.
Dan Moorhead: Please refer to our press release issued earlier today for a summary of our financial results for the third quarter of 2024.
Dan Moorhead: In the third quarter, orders increased 13% year over year. Net revenue was $50 million compared to $49.9 million in the third quarter of 2023.
Dan Moorhead: Device revenue was $14.9 million compared to $16.9 million in the third quarter of last year. Supplies revenue was $35.1 million, up from $33.1 million in the third quarter of last year.
Dan Moorhead: Vice revenue was lower during the quarter due to slowing in our order growth rate over the last couple quarters which was affected by the sales rep pruning we did as we focused on sales rep productivity.
Speaker Change: I'm not sure. I'm not sure. I'm not sure. I'm not sure.
Speaker Change: Gross profit in the third quarter was $39.8 million, or 80% of revenue, as compared to $40.4 million, or 81% of revenue in 2023.
Speaker Change: Sales and marketing expenses were $20.7 million in the third quarter of 2024 compared to $22.1 million in the same period in 2023.
Speaker Change: The primary contributor to the decrease in sales and marketing expenses was our headcount reduction of sales reps.
Speaker Change: G&A expenses were $15.3 million in the third quarter of 2024, compared to $12.7 million last year.
Speaker Change: Approximately 1 million of the increase in GNA was related to our increased investment in Xilinx monitoring.
Speaker Change: Net income was $2.4 million and $0.07 per diluted share in the third quarter of 2024 compared to net income of $3.6 million or $0.10 per diluted share in 2023.
Speaker Change: The adjusted EBITDA for the three months ended September 30, 2024 was $5.1 million, as compared to $7.3 million in the quarter ended September 30, 2023.
Speaker Change: Cash flow from operations were $7.1 million in Q3 and $10.3 million year-to-date in 2024. The strong cash flow increased our cash balance on the balance sheet to $37.6 million, up 22% from Q2's balance of $30.9 million.
Speaker Change: Working capital was $58.5 million as of September 30th. With that I'll now turn the call back over to Thomas.
Thomas: Thank you, Diane.
Thomas: We've had a strong start to the fourth quarter, and with the continued growth in orders in the fourth quarter of this year, we expect total revenues to come in at least $53.6 million, which is 13 percent above revenue in the fourth quarter of 2023, and diluted earnings per share of $0.09.
Thomas: As for our 2024 outlook, I'll reiterate that we expect total revenues to be at least $200 million, representing growth of approximately 9% over 2023, and diluted earnings per share of approximately $0.20.
Thomas: Thank you for tuning in. We'll see you next time.
Thomas: I'm incredibly proud of the growth that we have consistently demonstrated over the past several years. Top line revenue has produced high levels of profitability and free cash flow, which has allowed us to invest in our operations, launch a new business line to diversify our revenue stream.
Thomas: The business we have created and the profitability we are able to generate allows us a high degree of flexibility to allocate capital in several ways. We have shown the ability to continue investing in our business and return cash to shareholders immaterially.
Thomas: We believe both these avenues produce substantial shareholder value. And with that, operator, please openly call for questions.
Speaker Change: We will now begin the question and answer session. If you would like to ask a question, please press star followed by the 1 on your touchtone phone.
Speaker Change: Your first question comes from the line of Avi Dahan with RBC.
Speaker Change: Please go ahead.
Speaker Change: Good afternoon, this is Avian for Shagoon. Thanks for taking my question. First on order growth, there is a pretty big deceleration in the third quarter relative to previous quarters. I know you mentioned it on the call.
Speaker Change: dig into it a bit deeper because the last couple of quarters you were in like the mid to like within the 20s percent and then year over year you're down a good chunk of amount. You could just dive into like the dynamic during the quarter, how orders are trending so far through Q4 and then I have a follow-up. Thank you.
Speaker Change: Yeah, so far in this quarter, we see a 17% year-over-year October versus October.
Speaker Change: And I think going forward we'll be in the high teens, not necessarily hitting the very consistent 20% we've been sitting at, but definitely a double-digit order growth.
Speaker Change: We expect to see that continue also well into next year.
Speaker Change: All right, thank you. And then can you just give us an update on the strategic review process and where you are with that, and if there's any updates to timing and whatnot? Thank you.
Speaker Change: It continues, there's no real news to announce there, other than we, over the period we've received a couple of letters of intent and we continue to move forward with
Speaker Change: We want an interested entity in particular, but it's not something we see will close in the very immediate time frame.
Speaker Change: and many more. Thank you for watching. I hope you enjoyed this video. If you did, please click the Like button, subscribe to the channel, and share it with your friends.
Speaker Change: Your next question comes from the line of Jeffrey Cohen with Landenburg-Chulman. Please go ahead.
Jeffrey Cohen: Hey, good afternoon. Thanks for taking our questions.
Jeffrey Cohen: I guess firstly could you discuss a little bit about TENS wave as far as the transcutaneous stim affiliated with it and perhaps talk about the indications and if a patient would be on both TENS wave as well as NEXT wave simultaneously?
Speaker Change: No, I don't see that happening, Jeff.
Speaker Change: will be approved for a patient. So we now have our own device, our own manufactured device that produces that with slightly more variations of the various modalities than those you find in the next wave. What we can say about our TENS modalities compared to what else you find in the market, it's very similar.
Speaker Change: It's a much higher quality.
Speaker Change: a much better controlled output.
Speaker Change: that actually provides benefits as it's supposed to.
Speaker Change: versus what else is out there. So it's a very high quality tent yet.
Speaker Change: It's when the situation speaks for that we supply that device instead of an X-Wave. Most patients still use an X-Wave and in the IFC modality, simply because it's so much more effective.
Speaker Change: Okay, got it. That's helpful. Was there any share repurchase during the quarter at all, third quarter?
Speaker Change: We did not buy back anything during the quarter. The plan is still open but for the time being we hadn't purchased any.
Speaker Change: Thank you. Bye. Bye.
Speaker Change: Okay, got it. And as far as the rehab business, I know you did discuss orders and percent of total orders relative to orders. Could you talk about top-line revenue or you'll tell us when that hits 10% of the business?
Speaker Change: Yeah, we are obviously closing in on that number. In terms of the amount of orders we get on all those other products that are next wave, we're now up to 31% consistently.
Speaker Change: And we're getting, obviously, a lot more experiences with those products and good cash collections, et cetera, on those products.
Speaker Change: Okay, perfect. I think that does it for us. Thanks very much for taking the questions.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Yi Chen with HC Wainwright.
Speaker Change: Please go ahead.
Yi Chen: Thank you for taking my questions. My first question is, do you intend to add additional sales rep before the end of 2024? And how many sales rep in total do you expect to have by the end?
Speaker Change: Obviously, long term, we still need all those 800 geographical territories to be filled. We expect, we have started to process after a lot of trimming earlier in the year of adding sales reps again.
Speaker Change: For the next 18 months, I see us adding a net of 10 reps.
Speaker Change: on a monthly basis going forward from here. So that will include additional trimming, but obviously more additions to the sales force than that. Since we at this point have had...
Speaker Change: All 800 territories populated at some point.
Speaker Change: It will actually be easier for new reps than in the past to get into those territories and take over clinics that may still be sending in prescriptions as we have an inside sales team handling those better producing clinics.
Speaker Change: here while we are re-staffing up again. So we put quite a bit of an effort into making sure that new additions to the sales force will have a higher success rate in the past. So the selection.
Speaker Change: of candidates.
Speaker Change: We have optimized, and we believe our training continues to be better and better, so we should be able to...
Speaker Change: but a lot of it comes down to. So we continue to make improvements in that area and that will continue for an infinite time, I would expect.
Speaker Change: And my final question is, how many sales reps do you think you need to effectively market NICO post-oximeter once it's cleared by the FDA?
Speaker Change: Hi, this is Don Gregg.
Don Gregg: We have been looking at a direct and indirect sales force.
Don Gregg: We will be deciding that in probably Q1 of 2025.
Speaker Change: Thank you for listening, good night.
Speaker Change: how we'll definitely go to market, but we are going to start out with a couple handfuls of reps.
Speaker Change: Our call points are very specific and they're very focused on certain segments of the market initially, so we will want to ensure that we're going to have a very controlled launch of this product, and so I think that
Speaker Change: Given that clearance would be about mid-2025, we would start that ramp.
Speaker Change: just before that, through the end of the year, through 2025, and then 2026 would be more of a ramp to a larger number.
Speaker Change: Okay, do you believe the monitored division will be independently a profitable operation compared to the pain management division?
Speaker Change: They are entirely independent.
Speaker Change: We don't even have the organization in the same building and of course the call points are so different that there are no synergies on the sales side either.
Speaker Change: And we do believe, we believe they'll be profitable long term. Obviously, there's going to be a ramp to get to that point. But yeah, long term, they, they should be, they should be profitable.
Speaker Change: and many others. Thank you for watching. I hope you enjoyed this video. If you did, please click the like button, subscribe to my channel, and leave a comment below. I'd love to hear from you. See you next time.
Speaker Change: Hope you wouldn't be doing it.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: I will now turn the call back over to Thomas Sandgaard for closing remarks. Please go ahead.
Thomas Sandgaard: Thank you. 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.
Thomas Sandgaard: We appreciate your time and interest in ScienX. Have a great day. Thank you.
Thomas Sandgaard: and Daniel Moorhead. Thank you. Thank you.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.