Zynex Announces First Quarter 2014 Results

LONE TREE, CO--(Marketwired - May 13, 2014) -

Zynex, Inc. (OTCQB: ZYXI), an innovative medical technology company specializing in the manufacture and sale of non-invasive medical devices for pain management, stroke rehabilitation, neurological diagnostics, and compound pharmacy, announced today its first quarter 2014 financial results.

President and CEO Commentary:

Thomas Sandgaard, CEO stated: “While health care reform had a major impact on 2013 results, during the first quarter of 2014 we began to see our core electrotherapy business stabilize. While our net revenue declined for the first three months of 2014 by 59%, as compared to the first three months of 2013, it declined by just over 5% to $3,167,000 as compared to the fourth quarter 2013 net revenue of $3,353,000. Changes in reimbursement affected a large portion of the patients we normally serve in the electrotherapy market, and we believe we have made the needed adjustments to regain our balance in this business segment, and can eventually take steps to begin to drive growth.

During the first quarter of 2014, our streamlined electrotherapy sales process, which simplifies the way physicians can prescribe our products, helped to drive orders for the core electrotherapy products. The first quarter of each year is normally impacted by insurance reimbursement seasonality, in which patients’ insurance plans’ deductibles reset causing a decline in our revenue, so this near term quarter over quarter trend is particularly encouraging.

In December 2013, we commenced operations of an in-house, non-sterile compound pharmacy providing topical and transdermal pain creams. Zynex-branded pain creams, in conjunction with our electrotherapy products, offer a full service, conservative pain management solution for the market. We believe in the US market alone there are approximately 100 million people that have chronic pain treatable by a topical or transdermal pain cream, and we now offer a solution that is an alternative to oral medication. Compounded pain cream prescribers and specialties include anesthesiology, pain management doctors, orthopedics, podiatry, rheumatology, and family practices. This market is highly fragmented and we estimate the market size is approximately $2 billion annually in the US.

Our compound pharmacy allows us to leverage the existing electrotherapy sales force, servicing the same channel with pain creams. This creates a more rounded product portfolio for the company, and a double revenue opportunity with each sales call. Revenue from the sale of compound pain creams reached approximately 4% of total net revenue during the first quarter of 2014. We continued to gain traction in pain cream revenue during April, and have almost exceeded our first quarter revenue in just the first month of the second quarter. The typical pain cream sales cycle includes refills, an element of recurring revenue similar to our electrotherapy products.

We have carefully developed an operating plan for 2014 that emphasizes cash flow, under which the Company is focusing on topical pain cream sales, which currently yield higher margins and have a shorter collection cycle than our electrotherapy products. Our focus during the first quarter was to ensure our core electrotherapy business was stable, which allows us to initiate actions to begin to drive growth for the Company as a whole and regain profitability during 2014.”

Summary of Financial Results:

The Company’s net revenue decreased 59% to $3,167,000 for the three months ended March 31, 2014 from $7,668,000 for the three months ended March 31, 2013. The decline in net revenue for the first quarter 2014, as compared to 2013, was a direct result of the decline in orders from the Company’s Zynex Medical electrotherapy products impacted by health care reform, and coverage and reimbursement changes that negatively affected demand for the Company’s electrotherapy products.

The Company reported a gross profit of $2,170,000, or 69% of net revenue, for the first three months of 2014, as compared to a gross profit of $5,477,000, or 71% of net revenue, for the first three months of 2013. The decrease in the Company’s gross profit percentage for the first quarter of 2014, as compared to 2013, was primarily a result of lower sales volume for the period, as the Company had less net revenue to cover manufacturing and fixed costs.

The Company reported Selling, General and Administrative (SG&A) expenses of $3,456,000, or 109% of net revenue for the first quarter of 2014, as compared to $5,839,000, or 76% of net revenue for the first quarter of 2013. Decreases in the Company’s SG&A expenses during the first quarter 2014, as compared to 2013, were primarily attributable to lower sales commissions, based on the decrease in orders and net revenue, and a reduction in headcount to adjust fixed expenses to the lower level in revenue.

The Company generated a first quarter 2014 loss from operations of $1,286,000, loss before income taxes of $1,444,000 and net loss attributable to Zynex, Inc. of $1,430,000, or $0.05 net loss per share, versus a first quarter 2013 loss from operations of $362,000, loss before income taxes of $492,000 and net loss attributable to Zynex, Inc. of $304,000, or $0.01 net loss per share.

The Company’s cash balance and outstanding line of credit as of March 31, 2014 was $189,000 and $5,608,000, respectively, as compared to a cash balance and outstanding line of credit as of March 31, 2013 of $681,000 and $6,602,000. The Company is currently facing liquidity challenges due to the decline in revenues and lack of available borrowings under its revolving credit facility. The Company is currently exploring ways to improve its liquidity and is in discussions with its lender with respect to obtaining financial covenant waivers and relief under the credit facility. The Company can make no assurance that it will be able to improve its liquidity.

Webcast Details: Tuesday, May 13, 2014 at 9:00 a.m. MT - 11:00 a.m. ET

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 Highlights from the first quarter ended 2014 consolidated financial statements: (unaudited, amounts in thousands, except per share amounts) Quarter Ended March 31, -------------------------- 2014 2013 ------------ ------------ Net revenue $ 3,167 $ 7,668 Gross profit 2,170 5,477 Loss from operations (1,286) (362) Loss before income taxes (1,444) (492) Net loss attributable to Zynex, Inc. (1,430) (304) Adjusted EBITDA (1) (715) (168) Net loss per share - basic and diluted $ (0.05) $ (0.01) Weighted average number of common shares outstanding - basic and diluted 31,171,234 31,148,234 (1) Reconciliation of unaudited U.S. Generally Accepted Accounting Principles (GAAP) Net income to Adjusted Earnings Before Interest Taxes Depreciation, and Amortization (Adjusted-EBITDA) Quarter Ended March 31, -------------------------- 2014 2013 ------------ ------------ Net loss attributable to Zynex, Inc. $ (1,430) $ (304) Interest expense 158 130 Income tax benefit - (182) Depreciation and amortization 169 241 Change in value of contingent consideration - 4 Deferred rent 357 (93) Stock-based compensation expense 31 36 ------------ ------------ Adjusted EBITDA $ (715) $ (168) ============ ============ 

About Zynex

Zynex, founded in 1996, operates under five primary business segments: Zynex Medical, NeuroDiagnostics, Monitoring Solutions, International, and Billing and Consulting. Zynex Medical engineers, manufactures, markets and sells its own design of electrotherapy medical devices used for pain management and rehabilitation and the company’s proprietary NeuroMove device designed to help recovery of stroke and spinal cord injury patients. Zynex Medical’s product lines are fully developed, FDA-cleared and commercially sold world-wide. Zynex Medical also operates a non-sterile compound pharmacy providing topical and transdermal pain creams. Zynex NeuroDiagnostics sells and distributes EMG, EEG, sleep pattern, auditory and nerve conductivity neurological devices. Zynex Monitoring Solutions, currently in the development stage, was established to develop and market medical devices for non-invasive cardiac monitoring. Zynex International is dedicated to supporting sales and marketing of Zynex products worldwide through a network of medical distributors. Zynex Billing and Consulting division provides medical billing and consulting service for offices and hospitals.

For additional information, please visit: www.ir-site.com/zynex.

Safe Harbor Statement

Certain statements in this release are “forward-looking” and as such are subject to numerous risks and uncertainties. Actual results may vary significantly from the results expressed or implied in such statements. Factors that could cause actual results to materially differ from forward-looking statements include, but are not limited to, the need to obtain additional capital or augment our liquidity in order to continue our business, the success of our compound pharmacy and international expansion efforts, our ability to engage additional sales representatives, the success of such additional sales representatives, the need to obtain FDA clearance and CE marking of new products, the acceptance of new products as well as existing products by doctors and hospitals, larger competitors with greater financial resources, the need to keep pace with technological changes, our dependence on the reimbursement from insurance companies for products sold or rented to our customers, acceptance of our products by health insurance providers, our dependence on third party manufacturers to produce our goods on time and to our specifications, implementation of our sales strategy including a strong direct sales force, the uncertain outcome of pending material litigation and other risks described in our filings with the Securities and Exchange Commission including the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2013.

 ZYNEX, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES) March 31, December 31, 2014 2013 ------------ ------------ (UNAUDITED) ASSETS Current Assets: Cash $ 189 $ 323 Accounts receivable, net 6,284 7,033 Inventory, net 5,011 5,002 Prepaid expenses 244 346 Deferred tax assets, net 72 72 Income tax receivable 893 893 Other current assets 64 35 ------------ ------------ Total current assets 12,757 13,704 Property and equipment, net 3,012 2,891 Deposits 30 400 Deferred financing fees, net 35 48 Intangible assets, net 168 178 ------------ ------------ Total assets $ 16,002 $ 17,221 ============ ============ LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Line of credit $ 5,608 $ 5,820 Current portion of notes payable and other obligations 68 92 Accounts payable 2,905 2,743 Income taxes payable 94 96 Accrued payroll and payroll taxes 653 607 Current portion of contingent consideration 7 7 Other accrued liabilities 201 319 ------------ ------------ Total current liabilities 9,536 9,684 Notes payable and other obligations, less current portion 136 150 Deferred rent 2,811 2,454 Deferred tax liabilities, net 72 72 Warranty liability 12 13 ------------ ------------ Total liabilities 12,567 12,373 ------------ ------------ Stockholders’ Equity: Preferred stock; $.001 par value, 10,000,000 shares authorized, no shares issued or outstanding -- -- Common stock, $.001 par value, 100,000,000 shares authorized, 31,171,234 (2014 and 2013) shares issued and outstanding 31 31 Paid-in capital 5,617 5,586 Accumulated deficit (2,165) (735) ------------ ------------ Total Zynex, Inc. stockholders’ equity 3,483 4,882 Noncontrolling interest (48) (34) ------------ ------------ Total stockholders’ equity 3,435 4,848 ------------ ------------ Total liabilities and stockholders’ equity $ 16,002 $ 17,221 ============ ============ ZYNEX, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Three months ended March 31, -------------------------- 2014 2013 ------------ ------------ Net revenue: Rental $ 735 $ 1,679 Sales 2,432 5,989 ------------ ------------ 3,167 7,668 ------------ ------------ Cost of revenue: Rental 135 301 Sales 862 1,890 ------------ ------------ 997 2,191 ------------ ------------ Gross profit 2,170 5,477 Selling, general and administrative expense 3,456 5,839 ------------ ------------ (Loss) income from operations (1,286) (362) ------------ ------------ Other income (expense): Interest expense (158) (130) ------------ ------------ (158) (130) ------------ ------------ (Loss) before income taxes (1,444) (492) Income tax benefit - 182 ------------ ------------ Net (loss) (1,444) (310) Plus: Net loss - noncontrolling interest 14 6 ------------ ------------ Net (loss) - attributable to Zynex, Inc. $ (1,430) $ (304) ============ ============ Net (loss) per share - attributable to Zynex, Inc.: Basic $ (0.05) $ (0.01) ============ ============ Diluted $ (0.05) $ (0.01) ============ ============ Weighted - average number of common shares outstanding: Basic 31,171,234 31,148,234 ============ ============ Diluted 31,171,234 31,148,234 ============ ============ ZYNEX, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, AMOUNTS IN THOUSANDS) Three months ended March 31, -------------------------- 2014 2013 ------------ ------------ Cash flows from operating activities: Net loss $ (1,444) $ (310) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 135 213 Change in the value of contingent consideration -- 4 Provision for losses on accounts receivable 8 136 Amortization of intangible assets 21 15 Amortization of financing fees 13 13 Change in obsolete inventory 14 17 Deferred rent 357 (93) Employee stock-based compensation expense 31 36 Changes in operating assets and liabilities: Accounts receivable 741 854 Inventory (23) (181) Prepaid expenses 102 (13) Deposits and other current assets (47) (170) Accounts payable 162 (382) Accrued liabilities (71) (705) Income taxes payable (2) (427) ------------ ------------ Net cash used in operating activities (3) (993) ------------ ------------ Cash flows from investing activities: Purchases of equipment and inventory used for rental (11) (55) Change in inventory used for rental 130 247 ------------ ------------ Net cash provided by investing activities 119 192 ------------ ------------ Cash flows from financing activities: Net (repayments) borrowings on line of credit (212) 696 Payments on notes payable and capital lease obligations (38) (37) Net cash provided by financing activities (250) 659 ------------ ------------ Net decrease in cash (134) (142) Cash at the beginning of the period 323 823 ------------ ------------ Cash at the end of the period $ 189 $ 681 ============ ============ Supplemental cash flow information: Interest paid $ 133 $ 113 Income taxes paid (including interest and penalties) $ 2 $ 427 Supplemental disclosure of non-cash investing and financing activities: Equipment acquired through note payable and capital lease $ -- $ 72