Pitchayanan Kongkaew
Quarterly results in pills
Zynex, Inc. (NASDAQ:ZYXI) recently released its latest quarterly results. These are the most critical data in a nutshell. The company’s revenues grew 18% YoY to 36.8 million. This growth was mainly due to improved performance of sales reps, which were down from 430 at the beginning of the year to 400. Revenues from devices increased by 21%, while revenues from supplies increased by 18%. NexWave remains the company’s best-selling product, corresponding to 83% of all executed orders, about 45 000. In addition, the company remains at a high level in terms of gross margin, which for this quarter was close to 80%, thanks mainly to the supplies component on which the company manages to achieve large margins.
Guidance reaffirmed
The company’s CEO, Thomas Sandgaard, reaffirmed the guidance for the year: the company’s revenues are seen to be between $150-170 million, a growth of between 15-30% over the previous year. Adjusted EBITDA are projected to be between $25-35 million. Analysts expect revenues to be $158 million.
Share buyback
Zynex completed in 60-75 days the first round of share buybacks and has already announced the second round of 10 million that will be completed in more time than the previous one. The company will buy back about 5-7% of outstanding shares with these two transactions. To this should also be added the extraordinary dividend Zynex paid in January, which shows the company’s choice to reward investors.
Zynex has $27 million in cash, which will finance its second buyback in the year’s second half. For this year, it does not seem likely that the company will make a new acquisition. However, it is in management’s mind to look around for exciting opportunities, and perhaps as early as 2023 we could see the company move into this area.
Risks and opportunities
Zynex, unlike many other companies, has not been particularly affected by supply chain problems. To protect itself, the company has decided to increase inventory throughout 2021 and the first part of 2022. This choice may now be detrimental to the company, although management is confident that the business would not be significantly impacted even in a recession.
On the other hand, such a saturated labor market has hurt the company, which has already been having difficulty hiring new sales representatives since mid-2021. Even more, the company has reduced its sales reps, keeping only those who meet its high-efficiency standards. The big problem is finding new sales representatives to reach the 500 that is the company’s goal for 2022. This goal is unlikely to be achieved without sacrificing efficiency to some extent. So the danger will be that we will end up in the same situation as in 2020, with lots of new hires. Over the years, however, they will be thinned out, eliminating the less efficient reps.
The 2022 guidance does not consider revenues from the sale of CM-1600, the blood fluid monitor submitted to the FDA in late 2021. Pending FDA clearance for CM-1600, Zynex is preparing for the product’s commercial launch in the second half of the year. Specialized sales reps will be hired for this product, which the company estimates can be sold for around $30,000 per unit. Prototype prototypes of the laser-based pulse oximeter are also scheduled to be launched in the second half of this year, with submission to the FDA planned for the middle of next year. These are NiCO CO-Oximeter and HemeOX, whose technology was integrated by Zynex through last year’s acquisition of Kestrel Lab. The total addressable market for the Zynex Patient Monitoring division is valued at around $3.7 billion.
Conclusions
Zynex’s quarterly earnings report was positive, beating analysts’ estimates on both revenue and EPS. The stock, after turbulence in recent months due to the Night Market research short report, is returning to November levels, when it was travelling at around $11.5 per share. The company does not appear to have been significantly hurt by UHC’s transformation into an out-of-network partner, plus the company could more easily withstand this adverse economic environment. The new products the company will launch in the market between the second half of 2022 and the second half of 2023 could positively impact the company’s revenues. However, the company has consistently failed to develop viable products outside NexWave.
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