Zynex's (ZYXI) CEO Thomas Sandgaard on Q4 2015 Results - Earnings Call Transcript

| About: Zynex, Inc. (ZYXI)

Zynex, Inc. (OTCQB:ZYXI) Q4 2015 Earnings Conference Call April 1, 2016 11:00 AM ET

Executives

Thomas Sandgaard - CEO

Operator

Good morning, ladies and gentlemen and welcome to the Zynex 2015 Year End Earnings Conference Call and Webcast.

Statements made in this presentation include financial estimates and forward-looking statements that are not historical facts. Each of these estimates and forward-looking statements involves risks and uncertainties. These estimates are based on present circumstances, information currently available, and assumptions about future revenues, industry growth, and general economic conditions. Estimates are inherently uncertain and they are based on assumptions concerning future events. No representations can be made as to the accuracy of such information or the reliability of such assumptions. Accordingly, actual revenues and expenditures may vary significantly from the company's estimates and actual results, or developments may differ materially from those expressed or implied by the forward-looking statements.

Factors that could cause actual results to differ from the financial estimates and forward-looking statements in this presentation include those described in the company's filings with the Securities and Exchange Commission including the Risk Factors section of the company's annual report on Form 10-K for the year-ended December 31, 2015. Therefore, neither the company's estimates nor the assumptions upon which they are based are to be interpreted as a guarantee or promise of the company or management. The company has no obligation to modify, amend, update, alter, or change the estimates contained herein.

It is now my pleasure to turn the call over to Mr. Thomas Sandgaard, CEO and Founder. Please go ahead, sir.

Thomas Sandgaard

Good morning. My name is Thomas Sandgaard, President and CEO of Zynex. Welcome to our full year 2015 earnings call.

We reported revenue in 2015 of $11.6 million, a 5% increase compared to $11.1 million the year before. We had a net loss of $2.9 million, primarily due to the loss in the first quarter and significant write-offs of consignment inventory that we are hardly using anymore. We have seen a positive response to introducing our EZ Prescribe Program where we drop-ship the product directly to patients. It allows us to be much more efficient in the ordering process and it is a significant cost saving on the inventory.

During the year, we also decreased SG&A more than $2 million from the year before in order to right-size expenses to the actual revenue level. We recently added more than 70 seasoned sales reps, we're now biggest and for the most only competitor, MP, closed the business down three months ago at the end of last year, and we have already seen our orders go up three-fold. MP's revenue in this base was over $250 million annually.

It is worth noting that cash from operations was positive during 2015 as much as $341,000 compared to a positive cash from operations in 2014 of $961,000, which is essentially what has enabled us to continue to reduce debt to our lender. During the month of March, we had extra high collections in particular from one insurance company that had underpaid us for a very long time and that allowed us to reduce our credit line debt from $4.4 million at the beginning of 2014 down to $3.3 million a few weeks ago.

The improvements have also made it possible for us to get a term sheet on favorable terms for replacing our current line of credit from another lender, and ultimately should give us more flexibility in operating. We recently executed the term sheet, paid the due diligence fee, and should be done with the due diligence in a week or so. There is no guarantee that we would actually come to terms with the new lender and enter into a new agreement with caution. We have also received another extension under the current default with our existing lender until June 30, 2016.

We continue to see improvements into how much we collect per order on our NexWave device, it proves that the home electrotherapy industry is still a very profitable segment of the medical device industry to be in.

During 2015, we experienced challenges in the billing and reimbursement in our compound pharmacy and decided to close the pharmacy down at the end of the year since reimbursement was practically disappearing for these products. We also closed down our billing and consulting division in the first quarter of 2015. Our growth is currently coming from our NexWave combination of TENS in differential neuromuscular electrical stimulation device, why many consider the best product in the industry.

Our products for pain management and rehabilitation still stand out as some of the best products in the industry. The NexWave for pain management, our NeuroMove device for stroke rehabilitation, and the InWave for incontinence treatment that puts us in a very strong product position in these rehabilitation markets.

We're also making further progress on our non-invasive blood volume monitor, the first product that can indicate loss of blood during surgery and internal bleeding during recovery and many additional applications as well. We are currently responding to the FDA and their correspondents and expect that to go out in early April in the next week or so, and it is obviously very hard to predict when and if it will be done with an FDA clearance.

This product will fill in huge unmet need for better fluid management in hospitals today. We are having the product tested in several hospitals internationally and also collecting data during blood donations where people donated 500 milliliters of blood to a blood bank. Check out our website www.zynex.com to see a one-minute video on how it works. I'm very excited about launching this product. We see great potential in both of our product divisions that are active these days; our existing revenue generating area for pain management as well as the huge unmet potential for our blood volume monitor.

Paul Oberman, our CFO, unfortunately couldn't be here today as he is traveling, so I'll be reading the financial section of our earnings call to the 2015 full year. Many of you have seen our financial results in the 10-K that has already been filed. If you would like a copy of the 10-K, you can access it on SEC's EDGAR site.

Here is an overview of our 2015 audit results. Our net revenue was $11,641,000 compared to $11,117,000 in 2014, which is an increase of 5%. The increase was primarily due to better collections profile in our billing department as order throughout the year was substantially flat during 2014 and 2015. Product sales was 25.4% of our revenue in 2015 compared to 26.6% in 2014, rentals were 21.3% versus 19.7% in 2014, and sales of consumable supplies was 43.2% compared to 39.9% in 2014, overall a very small change in the mix.

Our compound pharmacy sale was 9.7% versus 10% in 2014. As mentioned before, we have closed our compound pharmacy effective at the end of last year and are no longer producing compounded pain creams, etcetera, for individualized prescriptions. Product and supplies cost decreased $464,000 or 23.8% compared to 2014. The lower cost reflected the tightening of costs and reduced overall per unit cost of current products. During 2014 and 2015, in conjunction with the introduction and ramp up of our EZ Prescribe Program, we provided significant allowances for shrinkage of field inventory, $1.256 million in 2015 and $916,000 in 2014 respectively.

Selling, general and administration or SG&A expenses were $9,185,000 in 2015 compared to $11,397,000 in 2014. The reductions reflect the effects of headcount reductions and lower rent expense. For the year, we incurred a net loss of $2,911,000 or $0.09 per share compared to a net loss of $6,199,000 or $0.20 per share the year before. Our line of credit was $4,002,000 at December 31, 2015 compared to $4,442,000 a year before. A few weeks ago, the balance on the line of credit was brought down to $3.3 million.

The company continues to face liquidity challenges due to the lack of available borrowings on our line of credit. As we have discussed in the past year or more, the company is in default of the terms of the credit agreement, and the lender has accelerated the payment of the outstanding loan balance. However, the lender has continued to make advances to the company based on cash collections and has agreed to forbear exercising its rights through June 30, 2016. There can be no assurance that we can find a new lender on acceptable terms or additional equity. For more in-depth discussion, please refer to our 10-K for the year 2015.

In summary, 2015 was a disappointing year that we incurred a loss. However, we have continued to decrease our cost of operating, but we are now seeing a significant increase in orders and increase in revenue will be following after that. Our orders continued to grow and we will update everyone on the number of orders we received in March in just a few days.

We have filled a new position with a Chief Operating Officer, Mr. Michael Hartberger, starting in February and has a strong background in similar positions from the past several decades. I have high expectations that Michael will help us getting through the upcoming rapid growth and for the years to come.

I look forward to reporting the first quarter of this year soon, and we expect to show revenues in the $4.5 million range, up about 50% from the run rate in 2015, and we expect to post a profit as well. I'm very excited to be past turning this business around and instead be dealing with growing the business and now be in a position to take advantage of this huge void in the electrotherapy business. We have hired many new very seasoned sales reps in the past several months, and I'm excited to see increasing collections in our electrotherapy business.

With orders increasing in our existing business and having decreased our SG&A during the past couple of years, as of the much higher $40 million in revenue we reported in 2012, I'm very optimistic for the future. I'm also very excited to see the progress of our blood volume monitor and the data we are collecting to eventually support the launch of the product that's very encouraging. The response to our ability to detect blood loss and internal bleedings non-invasively has been tremendous already.

And finally, since Paul Oberman couldn't be in here today, I've decided to not take questions that come in on the web interface, and instead prefer to our webcast for the first quarter earnings that will be held in about 40, 45 days from now, and look forward to answering questions at that point in time.

I hope today's earnings call has been informative for everyone. And I appreciate the interest in Zynex and listening in to this call. Thank you and have a great day to all.

Question-and-Answer Session

Operator

And that does conclude your teleconference for today. Thank you for your participation. You may disconnect at any time.

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