Zynex, Inc. (NASDAQ:ZYXI) Q1 2020 Earnings Conference Call April 28, 2020 4:15 PM ET Company Participants Thomas Sandgaard - Founder, Chairman and CEO Dan Moorhead - CFO Conference Call Participants Jeffrey Cohen - Ladenburg Thalmann Yi Chen - HC Wainwright Marc Wiesenberger - B. Riley FBR James Terwilliger - Northland Securities Operator Good day and welcome to the Zynex First Quarter 2020 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, the ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2020 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-38804 Zynex, Inc. (Exact name of registrant as specified in its charter) NEVADA 90-0275169 (State or other jurisdiction of inco ...

Investor Presentation & Financial Highlights February 2020 NASDAQ:ZYXI Forward Looking Statements • Certain statements in this release are "forward-looking" or projections and as such are subject to numerous risks and uncertainties. The company makes no express or implied representation or warranty as to the completeness of this information or, in the case of projections, as to their attainability or the accuracy and completeness of the assumptions from which they are derived. Actual results may vary signif ...

Zynex, Inc. (NASDAQ:ZYXI) Q4 2019 Earnings Conference Call February 27, 2020 4:15 PM ET Company Participants Thomas Sandgaard – Founder, Chairman and Chief Executive Officer Dan Moorhead – Chief Financial Officer Conference Call Participants Boobalan Pachaiyappan – HC Wainwright Jeffrey Cohen – Ladenburg Thalmann Marc Wiesenberger – B. Riley FBR Operator Good afternoon, and welcome to the Zynex 2019 Q4 and Full Year Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructio ...

PART I [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Zynex Medical, Inc. (ZMI) designs, manufactures, and markets medical devices for pain management and rehabilitation - **Zynex, Inc.** was founded in **1996** by **Thomas Sandgaard** and conducts most operations through its primary subsidiary, **Zynex Medical, Inc. (ZMI)**[17](index=17&type=chunk)[18](index=18&type=chunk) - Over **99%** of consolidated revenue in **2019** and **2018** was attributable to **ZMI**, which focuses on medical devices for chronic and acute pain treatment and muscle rehabilitation using electrical stimulation (**IFC**, **TENS**, **NMES**)[19](index=19&type=chunk)[20](index=20&type=chunk) - **Zynex Monitoring Solutions (ZMS)** is developing a non-invasive **blood volume monitor**, which is currently undergoing **FDA approval** and **CE Marking**, and has not generated revenue to date[24](index=24&type=chunk)[26](index=26&type=chunk) [History](index=5&type=section&id=History) - **Zynex, Inc.** was founded in **1996** and operates through six subsidiaries, with **Zynex Medical, Inc. (ZMI)** being the primary operating entity as of **December 31, 2019**[17](index=17&type=chunk)[18](index=18&type=chunk) [Active Subsidiaries](index=5&type=section&id=Active%20Subsidiaries) - **Zynex Medical, Inc. (ZMI)** designs, manufactures, and markets medical devices like **NexWave®**, **NeuroMove**, and **InWave** for pain management, stroke/**SCI** rehabilitation, and urinary incontinence, respectively. These products require a physician's prescription and are marketed in the **U.S.** following **FDA** regulations[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - **Zynex Monitoring Solutions (ZMS)** is developing the **CM-1500 blood volume monitor** for non-invasive cardiac monitoring, currently awaiting **FDA 510(k) clearance** in the **U.S.** and **CE Marking** in **Europe**. **ZMS** generated no revenue in **2019** or **2018**[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - **Zynex International (ZEU)** was formed in **2012** for international expansion but did not produce significant revenue in **2019** or **2018**[28](index=28&type=chunk) [Products](index=7&type=section&id=Products) Product Name | Description | Product Name | Description | | :--- | :--- | | **Zynex Medical Products** | | | NexWave | Dual Channel, multi-modality IFC, TENS, NMES Device | | NeuroMove | Electromyography (EMG) triggered Electrical Stimulation Device | | InWave | Electrical stimulation for treatment of female urinary incontinence | | TENSWave | Dual Channel TENS Device | | **Private Labeled Supplies** | | | Electrodes | Supplies, re-usable for delivery of electrical current to the body | | Batteries | Supplies, for use in electrotherapy products | | **Distributed Complementary Products** | | | Comfortrac/Saunders | Cervical traction | | JetStream | Hot/Cold therapy | | LSO Back Braces | Lumbar support | | **Zynex Monitoring Solutions Products** | | | CM-1500 | Blood Volume Monitor | [Product Uses](index=7&type=section&id=Product%20Uses) - **Electrotherapy devices** like **NexWave®** (**FDA 510(k) cleared**) are used for pain management, offering benefits such as pain relief, increased blood flow, and reduced edema, without the negative side effects of medications[30](index=30&type=chunk)[32](index=32&type=chunk) - The **NeuroMove** product, a **Class II medical device** cleared by the **FDA**, is designed for stroke and spinal cord injury (**SCI**) rehabilitation, utilizing neuroplasticity to help patients regain movement and functionality. Sales of **NeuroMove** have not generated material revenue in **2019** or **2018**[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) [Our Markets](index=9&type=section&id=Our%20Markets) - **Zynex Medical** primarily competes in the domestic home **electrotherapy market** for pain management, estimated at approximately **$500 million annually**. The company sees an opportunity to grow due to the **opioid epidemic**, offering non-pharmacological alternatives[37](index=37&type=chunk) - **Zynex Monitoring Solutions (ZMS)** is developing products for the non-invasive multi-parameter patient-monitoring market, specifically its **blood volume monitor**, but has not yet identified competitors for this product[39](index=39&type=chunk) [Sales and Growth Strategies](index=9&type=section&id=Sales%20and%20Growth%20Strategies) - **ZMI** accounts for substantially all revenue and profit. The company is expanding its **sales force**, aiming for **400 field sales representatives** across the **U.S.**, up from **176** as of **December 31, 2019**[40](index=40&type=chunk)[41](index=41&type=chunk) - To increase revenue and diversify, **Zynex** is adding new products like hot/cold therapy, cervical traction, and **LSO back braces** to its **ZMI sales channel** and pursuing opportunities with the **CM-1500 blood volume monitor**[42](index=42&type=chunk) [Manufacturing and Product Assembly](index=11&type=section&id=Manufacturing%20and%20Product%20Assembly) - **Zynex** utilizes **contract manufacturers** (primarily in the **U.S.**) for components and performs in-house manufacturing/assembly for **NexWave** and **NeuroMove** units. The company does not have **long-term supply agreements** but uses purchase orders[44](index=44&type=chunk) - The manufacturing strategy includes compliance with regulations, use of **contract manufacturers** for flexibility, in-house final assembly and testing, and proprietary software/hardware development[53](index=53&type=chunk) [Distribution and Revenue Streams](index=11&type=section&id=Distribution%20and%20Revenue%20Streams) - Most revenue is generated through the **ZMI** subsidiary from **electrotherapy products**, sold via a **direct sales force** in the **United States**[45](index=45&type=chunk)[46](index=46&type=chunk) - A significant portion of revenue comes from **private health insurance carriers**, **government payers (Medicare/Medicaid)**, and **worker's compensation claims**, with remaining revenue from attorneys, hospitals, clinics, and private-pay individuals[47](index=47&type=chunk) - A large part of revenue is recurring, primarily from the sale of **consumable supplies** like surface electrodes and batteries to existing patients[48](index=48&type=chunk) [Intellectual Property](index=11&type=section&id=Intellectual%20Property) - **Zynex** holds a **U.S. utility patent** for its **Blood Volume Monitor** (obtained in **2018**) and a **European utility patent** (**January 2020**). The company also uses **non-disclosure and trade secret agreements** to protect proprietary information[50](index=50&type=chunk)[52](index=52&type=chunk) [Regulatory Approval and Process](index=12&type=section&id=Regulatory%20Approval%20and%20Process) - All **ZMI products** are **Class II (Medium Risk) devices** regulated by the **FDA**, requiring **510(k) market clearance**. **NexWave**, **NeuroMove**, and **InWave** have received **FDA 510(k) clearance**[54](index=54&type=chunk) - **Zynex** has received **CE Marking** for several products, a requirement for sale in the **EU**, and is in the process of renewing/obtaining **CE Marking** for its **CM-1500 Blood Volume Monitor**[56](index=56&type=chunk) - The company holds **ISO13485:2016 certification** for quality management systems, crucial for international expansion[58](index=58&type=chunk) [Competition](index=13&type=section&id=Competition) - **Zynex** competes in the **medical electrotherapy market** against manufacturers like **RS Medical, EMSI, and H-Wave**, as well as alternative medical therapies from **pharmaceutical companies**[61](index=61&type=chunk) [Research and Development](index=13&type=section&id=Research%20and%20Development) Research and Development Expenses (in millions) | Year | Expense (millions) | | :--- | :--- | | 2019 | $0.6 | | 2018 | $0.2 | - **Research and development expenditures** are expected to be limited throughout **2020**[62](index=62&type=chunk) [Employees](index=13&type=section&id=Employees) - As of **December 31, 2019**, **Zynex** employed **283 full-time employees**, including **134 direct sales representatives**, and engaged **42 independent commission-only sales contractors**[65](index=65&type=chunk) [Item 1A. Risk Factors](index=15&type=page&id=Item%201A.%20Risk%20Factors) Zynex faces various risks including significant volatility in operating results, dependence on insurance reimbursement policies, and estimating revenue accurately - The company's **operating results** have shown significant volatility, despite recent improvements, with no assurance of continued revenue and profit increases[66](index=66&type=chunk) - Past **operating losses** led to a '**going concern**' opinion from auditors, and future **liquidity challenges** could arise from swings in **operating results**[67](index=67&type=chunk)[70](index=70&type=chunk) - The company is highly dependent on reimbursement from insurance companies and government health care programs; changes in policies or delays in payment can significantly impact revenue and cash flow[71](index=71&type=chunk)[74](index=74&type=chunk) - Significant estimating risks are associated with revenue, refund liabilities, accounts receivable, and provider discounts due to complex billing and changing reimbursement practices, which could impact financial results or lead to restatements[75](index=75&type=chunk) [RISKS RELATED TO OUR BUSINESS](index=15&type=section&id=RISKS%20RELATED%20TO%20OUR%20BUSINESS) - The company's **operating results** have shown significant volatility, despite recent improvements, with no assurance of continued revenue and profit increases[66](index=66&type=chunk) - Past **operating losses** led to a '**going concern**' opinion from auditors, and future **liquidity challenges** could arise from swings in **operating results**[67](index=67&type=chunk)[70](index=70&type=chunk) - Dependence on **physician prescriptions** means that factors preventing **institutional customer acceptance**, such as cost concerns or adverse patient events, could lead to decreased revenues[82](index=82&type=chunk)[83](index=83&type=chunk) [RISKS RELATING TO OUR COMMON STOCK](index=25&type=section&id=RISKS%20RELATING%20TO%20OUR%20COMMON%20STOCK) - Sales of significant amounts of shares by **CEO Thomas Sandgaard** (**beneficial owner of ~50%**) could adversely affect the common stock's market price and discourage potential acquirers[112](index=112&type=chunk)[103](index=103&type=chunk) - As a '**controlled company**' under **NASDAQ rules**, **Zynex** is exempt from certain corporate governance requirements, which might make its common stock less attractive to some investors[113](index=113&type=chunk) - Future **equity capital raises** could **dilute existing shareholders**, and **cash used for dividends** (like the **$0.07 per share** paid in **January 2019**) reduces funds available for other corporate purposes[115](index=115&type=chunk)[116](index=116&type=chunk) Operating Results Volatility (in millions) | Year | Revenues | Profit (Loss) | | :--- | :--- | :--- | | 2015 | $11.6 | $(2.9) | | 2016 | $13.3 | $0.07 | | 2017 | $23.4 | $7.4 | | 2018 | $31.9 | $9.6 | | 2019 | $45.5 | $9.5 | [Item 1B. Unresolved Staff Comments](index=27&type=page&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report [Item 2. Properties](index=27&type=section&id=Item%202.%20Properties) Zynex leases its corporate headquarters in Englewood, Colorado, which expanded to approximately 108,227 square feet through amendments in March 2019 and January 2020 - **Zynex's corporate headquarters** in **Englewood, Colorado**, expanded to approximately **108,227 square feet** through **lease amendments** in **March 2019** and **January 2020**[120](index=120&type=chunk) - The current lease for the corporate offices runs through **June 30, 2023**, with an option for a **two-year extension** until **June 2025**[120](index=120&type=chunk) [Item 3. Legal Proceedings](index=27&type=section&id=Item%203.%20Legal%20Proceedings) Zynex is not currently a party to any material pending legal proceedings - The company is not involved in any **material pending legal proceedings**[121](index=121&type=chunk) [Item 4. Mine Safety Disclosures](index=27&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Zynex, Inc PART II [Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=Item%205.%20Market%20For%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Zynex's common stock began trading on The Nasdaq Capital Market under the symbol "ZYXI" on February 12, 2019 - **Zynex common stock** began trading on **The Nasdaq Capital Market** under the symbol "**ZYXI**" on **February 12, 2019**, previously quoted on **OTCQB**[124](index=124&type=chunk) - As of **February 27, 2020**, there were **32,811,832 shares** of common stock outstanding and approximately **233 record holders**[7](index=7&type=chunk)[124](index=124&type=chunk) - A one-time **special cash dividend** of **$0.07 per share** was declared in **Q4 2018** and paid in **January 2019**; future dividends are at the **Board's discretion**[127](index=127&type=chunk) [Item 6. Selected Financial Data](index=28&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not required for Zynex, Inc [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Zynex operates primarily in the electrotherapy and pain management segment through ZMI, with ZMS and ZEU not generating material revenue - **Zynex** operates in one primary business segment: **electrotherapy and pain management products**, primarily through its active subsidiary **ZMI**[130](index=130&type=chunk) - **Zynex Monitoring Solutions (ZMS)** is developing a **blood volume monitoring device** awaiting **FDA approval** and **CE Marking**, and has not generated revenue to date[130](index=130&type=chunk) [OVERVIEW](index=28&type=section&id=OVERVIEW) - **Zynex** operates in one primary business segment: **electrotherapy and pain management products**, with **ZMI** as the only active subsidiary generating revenue as of **December 31, 2019**[130](index=130&type=chunk) - **ZMS** is developing a **blood volume monitoring device** awaiting **FDA approval** and **CE Marking**, having generated no revenue to date[130](index=130&type=chunk) [HIGHLIGHTS](index=28&type=section&id=HIGHLIGHTS) Financial Highlights (in millions) | Metric | 2019 | 2018 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Revenue | $45.5 | $31.9 | +42% | | Net Income | $9.5 | $9.6 | -1% | | Operating Cash Flows | $6.3 | $9.4 | -33% | | Working Capital (Dec 31) | $17.4 | $7.3 | +138% | - The company paid **cash dividends** of **$0.07 per share** in **2019**, which were declared in **2018**[133](index=133&type=chunk) [RESULTS OF OPERATIONS](index=28&type=section&id=RESULTS%20OF%20OPERATIONS) Consolidated Statements of Operations (in thousands) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | **NET REVENUE** | | | | | Devices | $10,713 | $6,822 | $3,891 | | Supplies | $34,759 | $25,095 | $9,664 | | Total net revenue | $45,472 | $31,917 | $13,555 | | **COSTS OF REVENUE AND OPERATING EXPENSES** | | | | | Costs of revenue – devices and supplies | $8,814 | $6,038 | $2,776 | | Sales and marketing | $14,016 | $6,503 | $7,513 | | General and administrative | $11,576 | $9,006 | $2,570 | | Total costs of revenue and operating expenses | $34,406 | $21,547 | $12,859 | | Income from operations | $11,066 | $10,370 | $696 | | Other income/(expense) | $875 | $(154) | $1,029 | | Income from operations before income taxes | $11,941 | $10,216 | $1,725 | | Income tax expense | $2,449 | $664 | $1,785 | | Net income | $9,492 | $9,552 | $(60) | | Net income per share (Basic) | $0.29 | $0.29 | $0 | | Net income per share (Diluted) | $0.28 | $0.28 | $0 | Consolidated Statements of Operations (as % of total revenue) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | **NET REVENUE** | | | | Devices | 24% | 21% | | Supplies | 76% | 79% | | Total net revenue | 100% | 100% | | **COSTS OF REVENUE AND OPERATING EXPENSES** | | | | Costs of revenue – devices and supplies | 19% | 19% | | Sales and marketing | 31% | 20% | | General and administrative | 25% | 28% | | Total costs of revenue and operating expenses | 75% | 67% | | Income from operations | 24% | 32% | | Other income | 2% | -% | | Income from operations before income taxes | 26% | 32% | | Income tax expense | 5% | 2% | | Net Income | 21% | 30% | [Net Revenue](index=30&type=section&id=Net%20Revenue) - **Net revenue increased** by **$13.6 million (42%)** to **$45.5 million** in **2019** from **$31.9 million** in **2018**, primarily due to an **83% growth** in **device orders** and increased **consumable supply sales**[142](index=142&type=chunk) - Revenue is reported net of estimated **third-party payer reimbursement deductions** and allowances for uncollectible amounts, which are subject to ongoing adjustments and disputes common in the industry[139](index=139&type=chunk)[140](index=140&type=chunk)[141](index=141&type=chunk) [Device Revenue](index=31&type=section&id=Device%20Revenue) - **Device revenue increased** by **$3.9 million (57%)** to **$10.7 million** in **2019** from **$6.8 million** in **2018**, driven by an **83% growth** in **device** and complimentary product orders due to an increased **sales force**[143](index=143&type=chunk) [Supplies Revenue](index=31&type=section&id=Supplies%20Revenue) - **Supplies revenue increased** by **$9.7 million (39%)** to **$34.8 million** in **2019** from **$25.1 million** in **2018**, primarily due to growth in the customer base from higher **device sales** and improved billing procedures[144](index=144&type=chunk) [Operating Expenses](index=31&type=section&id=Operating%20Expenses) - **Costs of revenue increased** by **$2.8 million (46%)** to **$8.8 million** in **2019**, remaining at **19%** of revenue for both **2019** and **2018**[145](index=145&type=chunk) - **Sales and marketing expense increased** by **116%** to **$14.0 million** in **2019**, rising to **31%** of revenue (from **20%** in **2018**) due to a **148% increase** in the **sales force**[146](index=146&type=chunk) - **General and administrative expense increased** by **29%** to **$11.6 million** in **2019**, but decreased as a percentage of revenue to **25%** (from **28%** in **2018**) as **net revenue growth** outpaced **G&A cost increases**[147](index=147&type=chunk) [Other Income (Expense)](index=31&type=section&id=Other%20Income%20%28Expense%29) - **Other income** was **$0.9 million** in **2019**, related to a **deferred insurance reimbursement** from **2016**, which was recognized as income after management determined the refund obligation was remote[148](index=148&type=chunk)[149](index=149&type=chunk) - **Other expense** was **$0.2 million** in **2018**, primarily due to **debt discount amortization** and **interest expense** related to a **private placement** that was paid off early[150](index=150&type=chunk) [Income Tax Expense](index=31&type=section&id=Income%20Tax%20Expense) - **Income tax expense increased** to **$2.4 million** in **2019** (**20% effective rate**) from **$0.7 million** in **2018** (**7% effective rate**), primarily due to increased profitability and the release of the **valuation allowance** against **net operating losses** in **2018**[152](index=152&type=chunk) [FINANCIAL CONDITION](index=32&type=section&id=FINANCIAL%20CONDITION) - The increase in **working capital** is primarily due to the company's increase in orders and profit during **2019**[153](index=153&type=chunk) Working Capital (in millions) | Metric | December 31, 2019 | December 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Working Capital | $17.4 | $7.3 | +$10.1 | [LIQUIDITY AND CAPITAL RESOURCES](index=33&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) - The decrease in **operating cash flows** in **2019** was primarily due to increased **income taxes paid**, higher **accounts receivable** from revenue growth, and increased **inventory** to support order volumes[157](index=157&type=chunk) - The company believes its cash, **cash equivalents**, and anticipated **cash flow from operations** will be sufficient to meet **working capital** and **capital expenditure requirements** for at least the next twelve months[160](index=160&type=chunk) Liquidity and Cash Flows (in millions) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents (Dec 31) | $14.0 | $10.1 | +$3.9 | | Accounts Receivable (Dec 31) | $5.8 | $2.8 | +$3.0 | | Net Cash from Operating Activities | $6.3 | $9.4 | -$3.1 | | Net Cash Used in Investing Activities | $0.2 | $1.1 | -$0.9 | | Net Cash Used in Financing Activities | $2.2 | $3.8 | -$1.6 | [Contractual Obligations](index=33&type=section&id=Contractual%20Obligations) Future Cash Disbursements (in thousands) | Obligation | Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $4,988 | $1,344 | $1,408 | $1,473 | $763 | - | - | | Finance leases | $226 | $57 | $45 | $45 | $45 | $34 | - | | **Total** | **$5,214** | **$1,401** | **$1,453** | **$1,518** | **$808** | **$34** | **-** | [Off – Balance Sheet Arrangements](index=33&type=section&id=Off%20%E2%80%93%20Balance%20Sheet%20Arrangements) - As of **December 31, 2019**, and **2018**, **Zynex** had no **off-balance sheet arrangements** or obligations[165](index=165&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=34&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) - Key estimates include allowances for billing adjustments and uncollectible accounts, **inventory reserves**, leased device life, **stock-based compensation**, and valuation of **long-lived assets** and **deferred tax assets**[239](index=239&type=chunk) [Revenue Recognition and Accounts Receivable](index=35&type=section&id=Revenue%20Recognition%20and%20Accounts%20Receivable) - Revenue from **device sales** (purchased or leased) and supplies is recognized upon delivery to the patient. **Leased device revenue** is recognized monthly as leases are month-to-month[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[249](index=249&type=chunk) - Revenues are estimated using a **portfolio approach** based on **historical collection rates**, **aging of receivables**, and trends in **third-party payer reimbursement**, with inherent risks of revision due to industry changes[173](index=173&type=chunk)[253](index=253&type=chunk) Device Revenue Breakdown (in thousands) | Type | 2019 | 2018 | | :--- | :--- | :--- | | Purchased | $4,035 | $1,950 | | Leased | $6,678 | $4,872 | | **Total Device Revenue** | **$10,713** | **$6,822** | [Stock-based Compensation](index=37&type=section&id=Stock-based%20Compensation) - **Stock-based compensation cost** is recognized over the employee's service period based on the **grant date fair value** of **equity instruments**, with **performance-based awards** recognized when achievement is probable[176](index=176&type=chunk) [Income Taxes](index=37&type=section&id=Income%20Taxes) - Significant judgment is required for **income tax provisions**, including assessing the recoverability of **deferred tax assets** and establishing **valuation allowances** based on future taxable income projections and historical results[177](index=177&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Zynex is exposed to market risks, including changes in interest rates and inflation - The company is exposed to **market risks**, specifically changes to **interest rates** and **inflation**[179](index=179&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=37&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The consolidated financial statements, notes, and auditor's report are filed as part of this report, starting on page F-1 - **Consolidated financial statements**, related notes, and the report from **Plante & Moran PLLC** are included starting on page **F-1**[180](index=180&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures](index=37&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) There are no changes in or disagreements with accountants to report [Item 9A. Controls and Procedures](index=37&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, with CEO and CFO participation, evaluated the effectiveness of disclosure controls and procedures as of December 31, 2019, concluding they were effective - **Disclosure controls and procedures** were evaluated and deemed effective as of **December 31, 2019**, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[182](index=182&type=chunk)[183](index=183&type=chunk) - Management concluded that **internal control over financial reporting** was effective as of **December 31, 2019**, based on the **2013 COSO framework**[185](index=185&type=chunk)[186](index=186&type=chunk) [Evaluation of disclosure controls and procedures.](index=37&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures.) - The **CEO** and **CFO** concluded that **disclosure controls and procedures** were effective as of **December 31, 2019**, providing reasonable assurance for timely and accurate financial reporting[183](index=183&type=chunk) [Management's report on internal control over financial reporting.](index=37&type=section&id=Management%27s%20report%20on%20internal%20control%20over%20financial%20reporting.) - Management, with **CEO** and **CFO** participation, evaluated and concluded that **internal control over financial reporting** was effective as of **December 31, 2019**, based on the **COSO framework**[185](index=185&type=chunk)[186](index=186&type=chunk) [Changes in Internal Control over Financial Reporting](index=39&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There were no material changes in **internal control over financial reporting** during the quarter ended **December 31, 2019**[188](index=188&type=chunk) [Item 9B. Other Information](index=39&type=section&id=Item%209B.%20Other%20Information) There is no other information to report under this item PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=39&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance will be included in the Proxy Statement, to be filed within 120 days after fiscal year-end - Information for this item will be incorporated by reference from the **Proxy Statement**, to be filed within **120 days** after **December 31, 2019**[191](index=191&type=chunk) [Item 11. Executive Compensation](index=39&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation will be included in the Proxy Statement, to be filed within 120 days after fiscal year-end - Information for this item will be incorporated by reference from the **Proxy Statement**, to be filed within **120 days** after **December 31, 2019**[192](index=192&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=39&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section provides information on equity compensation plans, including outstanding options, warrants, and shares available for future issuance - The **2005 Stock Option Plan** was terminated as of **December 31, 2014**, but options previously granted remain active. The **2017 Stock Option Plan** was approved by shareholders on **June 1, 2017**[195](index=195&type=chunk) Equity Compensation Plan Information (as of December 31, 2019, in thousands) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans | | :--- | :--- | :--- | :--- | | 2005 Stock Option Plan | 696 | $0.41 | — | | Equity Compensation Plans not approved by Shareholders | 72 | $0.31 | — | | Warrants | 100 | $2.63 | | | 2017 Stock Option Plan | 1,189 | $3.62 | 3,672 | | **Total** | **2,057** | **$2.37** | **3,672** | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=39&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence will be included in the Proxy Statement - Information for this item will be incorporated by reference from the **Proxy Statement**[196](index=196&type=chunk) - **Zynex** is a '**controlled company**' under **NASDAQ rules** due to **CEO Thomas Sandgaard's** approximate **50% beneficial ownership**, which exempts it from certain director independence requirements[197](index=197&type=chunk) - Despite being a **controlled company**, the **Audit Committee directors** (**Messrs. Cress, Disbrow, and Michaels**) are all considered '**independent directors**' under **NASDAQ Listing Rules**[197](index=197&type=chunk) [Item 14. Principal Accounting Fees and Services](index=40&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services will be included in the Proxy Statement, to be filed within 120 days after fiscal year-end - Information for this item will be incorporated by reference from the **Proxy Statement**, to be filed within **120 days** after **December 31, 2019**[198](index=198&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=41&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements, including the Independent Registered Public Accounting Firm's Report, Balance Sheets, Statements of Comprehensive Income, Cash Flows, Stockholders' Equity, and Notes to Consolidated Financial Statements - The **consolidated financial statements**, including the **Report of Independent Registered Public Accounting Firm**, **Balance Sheets**, **Statements of Comprehensive Income**, **Cash Flows**, **Stockholders' Equity**, and **Notes**, are filed starting on page **F-1**[200](index=200&type=chunk) - A detailed list of exhibits, including organizational documents, employment agreements, lease agreements, and certifications, is provided[200](index=200&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk) SIGNATURES [Signatures](index=45&type=section&id=Signatures) The report is duly signed on February 27, 2020, by Thomas Sandgaard (Chairman, President, CEO, and Principal Executive Officer), Daniel Moorhead (CFO and Principal Financial Officer), and Directors Barry D. Michaels, Michael Cress, and Joshua R. Disbrow - The report was signed on **February 27, 2020**, by key executives and directors, including **Thomas Sandgaard (CEO)** and **Daniel Moorhead (CFO)**[207](index=207&type=chunk)[208](index=208&type=chunk) Report of Independent Registered Public Accounting Firm [Opinion on the Financial Statements and Internal Control over Financial Reporting](index=46&type=section&id=Opinion%20on%20the%20Financial%20Statements%20and%20Internal%20Control%20over%20Financial%20Reporting) Plante & Moran PLLC, the independent registered public accounting firm, issued an unqualified opinion on Zynex's consolidated financial statements as of December 31, 2019 and 2018, and on the effectiveness of its internal control over financial reporting as of December 31, 2019, based on the COSO framework - **Plante & Moran PLLC** provided an **unqualified opinion** that **Zynex's financial statements** for **2019** and **2018** present fairly, in all material respects, the financial position, results of operations, and cash flows[213](index=213&type=chunk) - The firm also opined that **Zynex** maintained effective **internal control over financial reporting** as of **December 31, 2019**, based on the **COSO framework**[213](index=213&type=chunk) - **Plante & Moran, PLLC** has served as the Company's auditor since **2016**[219](index=219&type=chunk) ZYNEX, INC. CONSOLIDATED BALANCE SHEETS [Consolidated Balance Sheets as of December 31, 2019 and 2018](index=48&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20December%2031%2C%202019%20and%202018) Zynex's consolidated balance sheets show significant growth in total assets and stockholders' equity from 2018 to 2019 Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2019 | Dec 31, 2018 | Change (YoY) | | :--- | :--- | :--- | :--- | | Cash | $14,040 | $10,128 | +38.6% | | Accounts receivable | $5,833 | $2,791 | +109.0% | | Inventory, net | $2,378 | $837 | +184.1% | | Total current assets | $22,566 | $14,324 | +57.5% | | Total assets | $28,277 | $19,251 | +46.9% | | Total current liabilities | $5,197 | $6,983 | -25.6% | | Total liabilities | $8,624 | $9,960 | -13.4% | | Total stockholders' equity | $19,653 | $9,291 | +111.5% | ZYNEX, INC. CONSOLIDATED STATEMENTS OF INCOME [Consolidated Statements of Comprehensive Income for the years ended December 31, 2019 and 2018](index=49&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20for%20the%20years%20ended%20December%2031%2C%202019%20and%202018) Zynex reported a 42.5% increase in total net revenue to $45.5 million in 2019, driven by strong growth in both device (57.0%) and supplies (38.5%) sales Consolidated Statements of Income (in thousands) | Metric | 2019 | 2018 | Change (YoY) | | :--- | :--- | :--- | :--- | | Devices Revenue | $10,713 | $6,822 | +57.0% | | Supplies Revenue | $34,759 | $25,095 | +38.5% | | Total Net Revenue | $45,472 | $31,917 | +42.5% | | Costs of revenue - devices and supplies | $8,814 | $6,038 | +46.0% | | Sales and marketing | $14,016 | $6,503 | +115.5% | | General and administrative | $11,576 | $9,006 | +28.5% | | Total costs of revenue and operating expenses | $34,406 | $21,547 | +59.7% | | Income from operations | $11,066 | $10,370 | +6.7% | | Other income/(expense), net | $875 | $(154) | N/A | | Income from operations before income taxes | $11,941 | $10,216 | +16.9% | | Income tax expense | $2,449 | $664 | +268.8% | | Net Income | $9,492 | $9,552 | -0.6% | | Basic EPS | $0.29 | $0.29 | 0% | | Diluted EPS | $0.28 | $0.28 | 0% | ZYNEX, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS [Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018](index=50&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20years%20ended%20December%2031%2C%202019%20and%202018) Zynex's net cash provided by operating activities decreased by 33% to $6.3 million in 2019, primarily due to higher income taxes paid, increased accounts receivable, and inventory growth - The decrease in **operating cash flows** in **2019** was primarily driven by increased **income taxes paid**, higher **accounts receivable** due to revenue growth, and increased **inventory**[157](index=157&type=chunk)[227](index=227&type=chunk) - Cash used in financing activities in **2019** was mainly due to a **$2.3 million dividend payment**, compared to a share buyback program and debt payments in **2018**[159](index=159&type=chunk)[227](index=227&type=chunk) Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 2019 | 2018 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $6,303 | $9,408 | -33.0% | | Net cash used in investing activities | $(160) | $(1,082) | +85.2% | | Net cash used in financing activities | $(2,231) | $(3,763) | +40.7% | | Net increase in cash and cash equivalents | $3,912 | $4,563 | -14.2% | | Cash and cash equivalents at end of period | $14,040 | $10,128 | +38.6% | ZYNEX, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) [Consolidated Statements of Stockholders' Equity for the years ended December 31, 2019 and 2018](index=51&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity%20for%20the%20years%20ended%20December%2031%2C%202019%20and%202018) Zynex's total stockholders' equity significantly increased by 111.5% from $9.3 million in 2018 to $19.7 million in 2019 - **Net income** of **$9.492 million** in **2019** significantly contributed to the increase in **retained earnings**[228](index=228&type=chunk) - **Additional paid-in capital increased** due to exercised and vested stock-based awards (**$221k**) and **stock-based compensation expense** (**$820k**) in **2019**[228](index=228&type=chunk) Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Dec 31, 2019 | Dec 31, 2018 | Change (YoY) | | :--- | :--- | :--- | :--- | | Common Stock (Amount) | $34 | $34 | 0% | | Additional Paid-in Capital | $9,198 | $8,157 | +12.8% | | Treasury Stock | $(3,846) | $(3,675) | -4.7% | | Retained Earnings | $14,356 | $4,864 | +195.1% | | Total Stockholders' Equity | $19,653 | $9,291 | +111.5% | ZYNEX, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS [(1) ORGANIZATION, NATURE OF BUSINESS AND MANAGEMENT'S PLANS](index=52&type=section&id=%281%29%20ORGANIZATION%2C%20NATURE%20OF%20BUSINESS%20AND%20MANAGEMENT%27S%20PLANS) Zynex, Inc. is headquartered in Englewood, Colorado, and primarily operates through its Zynex Medical, Inc. (ZMI) subsidiary, focusing on electrotherapy and pain management medical devices - **Zynex, Inc.** operates in one primary business segment, **medical devices** for **electrotherapy and pain management**, with **Zynex Medical, Inc. (ZMI)** as its only active subsidiary generating substantial revenue[231](index=231&type=chunk) - **Zynex Monitoring Solutions (ZMS)** is developing a **blood volume monitoring device**, awaiting **FDA approval** and **CE Marking**, and has not generated revenue to date[231](index=231&type=chunk) - The company's **medical devices**, such as **NexWave**, are designed for **home use**, require a physician's prescription, and are marketed in the **U.S.** under **FDA** regulations[233](index=233&type=chunk) [(2) SIGNIFICANT ACCOUNTING POLICIES](index=52&type=section&id=%282%29%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section details Zynex's significant accounting policies, including principles of consolidation, non-controlling interest, reclassifications, and the use of estimates in financial reporting - Financial statements are prepared in conformity with **U.S. GAAP**, requiring management to make significant estimates for items like billing adjustments, **inventory reserves**, and **deferred tax assets**[238](index=238&type=chunk)[239](index=239&type=chunk) - Revenue from **device sales** (purchased or leased) and supplies is recognized upon delivery to the patient, with **leased device revenue** recognized monthly due to month-to-month arrangements[249](index=249&type=chunk)[251](index=251&type=chunk) - The company adopted **ASU 2016-02, Leases (Topic 842)**, as of **January 1, 2019**, resulting in the recording of approximately **$3.6 million** in **net lease assets** and **$3.9 million** in **lease liabilities** as of **January 1, 2018**[264](index=264&type=chunk)[266](index=266&type=chunk) [Organization](index=52&type=section&id=Organization) - **Zynex, Inc.** is a **Nevada corporation** headquartered in **Englewood, Colorado**, operating primarily through its **Zynex Medical, Inc. (ZMI)** subsidiary[231](index=231&type=chunk) [Nature of Business](index=52&type=section&id=Nature%20of%20Business) - The company designs, manufactures, and markets **medical devices** for chronic/acute pain treatment and muscle rehabilitation using electrical stimulation, with over **99.99%** of revenue from **North America** in **2019** and **2018**[233](index=233&type=chunk)[234](index=234&type=chunk) [Principles of Consolidation](index=52&type=section&id=Principles%20of%20Consolidation) - The **consolidated financial statements** include **Zynex, Inc.** and its subsidiaries, with all intercompany balances and transactions eliminated[235](index=235&type=chunk) [Non-controlling Interest](index=52&type=section&id=Non-controlling%20Interest) - **Non-controlling interest** represents the **20% ownership** in the inactive subsidiary, **Zynex Billing and Consulting, LLC (ZBC)**, and is reported as a decrease in **shareholders' equity**[236](index=236&type=chunk) [Reclassifications](index=52&type=section&id=Reclassifications) - **Selling and marketing costs** were reclassified from **general and administrative costs** in **2019**, with **2018** figures adjusted for comparability, having no effect on **net earnings**, **retained earnings**, or **cash flows**[237](index=237&type=chunk) [Use of Estimates](index=52&type=section&id=Use%20of%20Estimates) - Preparation of **financial statements** requires management to make significant estimates, particularly for billing adjustments, uncollectible accounts, **inventory reserves**, and **deferred tax assets**[238](index=238&type=chunk)[239](index=239&type=chunk) [Fair Value of Financial Instruments](index=53&type=section&id=Fair%20Value%20of%20Financial%20Instruments) - The carrying amounts of cash, **accounts receivable**, **accounts payable**, and **accrued liabilities** approximate their fair value due to their short-term nature[240](index=240&type=chunk) [Cash and Cash Equivalents](index=54&type=section&id=Cash%20and%20Cash%20Equivalents) - Highly liquid investments with a maturity of **three months or less** when purchased are considered **cash equivalents**[241](index=241&type=chunk) [Inventory](index=54&type=section&id=Inventory) - **Inventories** are stated at the **lower of cost and net realizable value**, with cost computed using standard costs approximating actual average costs. Reserves are provided for estimated excess and obsolete inventories[242](index=242&type=chunk)[243](index=243&type=chunk) Inventory Components (in thousands) | Component | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Raw Materials | $953 | $454 | | Work-in-process | $200 | $55 | | Finished Goods | $1,640 | $576 | | **Total** | **$2,793** | **$1,085** | | Less: reserve | $(415) | $(248) | | **Net Inventory** | **$2,378** | **$837** | [Property and Equipment](index=54&type=section&id=Property%20and%20Equipment) - **Property and equipment** are recorded at cost and depreciated on a **straight-line basis** over estimated useful lives, ranging from **9 months** for **leased devices** to **7 years** for **assembly equipment**[244](index=244&type=chunk) [Leases](index=54&type=section&id=Leases) - The company recognizes **finance and operating lease right-of-use assets and liabilities** at commencement, using implicit rates for **finance leases** and **incremental borrowing rates** for **operating leases**[246](index=246&type=chunk) - **Device leases** are accounted for as **operating leases** under **ASC 842**, with revenue recognized monthly, as the company retains title and leases are month-to-month[247](index=247&type=chunk)[248](index=248&type=chunk) [Revenue Recognition, Accounts Receivable, Allowance for Billing Adjustments and Collectability](index=55&type=section&id=Revenue%20Recognition%2C%20Accounts%20Receivable%2C%20Allowance%20for%20Billing%20Adjustments%20and%20Collectability) - Revenue from devices and supplies is recognized when control is transferred to the patient, typically upon delivery. The company does not have material deferred revenue[249](index=249&type=chunk)[251](index=251&type=chunk) - Revenues and receivables from commercial/government health plans are estimated using a **portfolio approach** based on **historical collection rates** and trends, with adjustments for estimated **third-party payer deductions** and refund requests[253](index=253&type=chunk) [Stock-based Compensation](index=57&type=section&id=Stock-based%20Compensation) - **Stock-based compensation cost** is recognized over the employee's service period based on the **grant date fair value** of **equity instruments**, with **performance-based awards** recognized when achievement is probable[256](index=256&type=chunk) [Earnings Per Share](index=57&type=section&id=Earnings%20Per%20Share) - **Basic EPS** is calculated on the **weighted-average common shares outstanding**, while **diluted EPS** includes the effect of potential dilutive common shares using the **treasury stock method**[257](index=257&type=chunk) [Advertising](index=57&type=section&id=Advertising) Advertising Expense (in millions) | Year | Expense | | :--- | :--- | | 2019 | $0.3 | | 2018 | $0.1 | [Research and Development](index=57&type=section&id=Research%20and%20Development) - **Research and development costs** are expensed when incurred and include salaries and raw materials, reported within **general and administrative expenses**[259](index=259&type=chunk) Research and Development Expense (in millions) | Year | Expense | | :--- | :--- | | 2019 | $0.6 | | 2018 | $0.2 | [Income Taxes](index=57&type=section&id=Income%20Taxes) - **Deferred tax assets** and liabilities are recorded for temporary differences, with a **valuation allowance** established if recovery is not likely. The company finalized its analysis of the **U.S. Tax Cuts and Jobs Act of 2017** with no material adjustments[260](index=260&type=chunk)[261](index=261&type=chunk) [Recently Adopted Accounting Pronouncements](index=57&type=section&id=Recently%20Adopted%20Accounting%20Pronouncements) - The company adopted **ASU 2018-07 (Stock Compensation)** and **ASU 2018-02 (Income Statement—Reporting Comprehensive Income)** in **2019**, neither of which had a material impact on **consolidated financial statements**[262](index=262&type=chunk)[263](index=263&type=chunk) - Adoption of **ASU 2016-02 (Leases)** on **January 1, 2019**, using the **modified retrospective approach**, resulted in recording approximately **$3.6 million** in **net lease assets** and **$3.9 million** in **lease liabilities** as of **January 1, 2018**, with an immaterial impact on the **statement of operations** and no impact on **cash flows**[264](index=264&type=chunk)[266](index=266&type=chunk) [Recently Issued Accounting Pronouncements](index=59&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) - The company is currently evaluating the impact of **ASU 2016-13 (Credit Losses)** and **ASU 2019-12 (Income Taxes)**, which are effective for annual periods beginning after **December 15, 2022**, and **December 15, 2020**, respectively[267](index=267&type=chunk)[268](index=268&type=chunk) [(3) PROPERTY AND EQUIPMENT](index=59&type=section&id=%283%29%20PROPERTY%20AND%20EQUIPMENT) Zynex's net property and equipment increased by 4.8% to $858 thousand in 2019 - Total **depreciation expense** for purchased **property and equipment** was **$0.3 million** in **2019** and **$0.2 million** in **2018**[271](index=271&type=chunk) - **Depreciation expense** for devices out on lease was **$0.5 million** in **2019** and **$0.3 million** in **2018**, reflected as **cost of revenue**[272](index=272&type=chunk) Property and Equipment (in thousands) | Component | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Office furniture and equipment | $1,178 | $1,172 | | Assembly equipment | $128 | $128 | | Vehicles | $181 | $184 | | Leasehold improvements | $500 | $480 | | Leased devices | $934 | $317 | | **Total** | **$2,921** | **$2,281** | | Less accumulated depreciation | $(2,063) | $(1,462) | | **Net Property and Equipment** | **$858** | **$819** | [(4) EARNINGS PER SHARE](index=59&type=section&id=%284%29%20EARNINGS%20PER%20SHARE) Basic and diluted earnings per share remained stable at $0.29 and $0.28, respectively, for both 2019 and 2018 - Approximately **0.3 million** and **0.4 million shares** of common stock were excluded from the dilutive stock calculation in **2019** and **2018**, respectively, due to their **anti-dilutive effect**[275](index=275&type=chunk) Earnings Per Share (in thousands, except per share amounts) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net income available to common stockholders | $9,492 | $9,552 | | Basic weighted-average shares outstanding | 32,439 | 32,503 | | **Basic earnings per share** | **$0.29** | **$0.29** | | Diluted weighted-average shares outstanding | 33,963 | 34,043 | | **Diluted earnings per share** | **$0.28** | **$0.28** | [(5) STOCK-BASED COMPENSATION PLANS](index=60&type=section&id=%285%29%20STOCK-BASED%20COMPENSATION%20PLANS) Zynex's stock-based compensation plans include the 2017 Stock Incentive Plan and the expired 2005 Stock Option Plan - The **2017 Stock Incentive Plan** authorizes grants of **stock options** and **restricted stock**, with **1.2 million stock options** and **0.1 million unvested restricted stock awards** outstanding, and **3.7 million shares** available for future grants as of **December 31, 2019**[276](index=276&type=chunk) - As of **December 31, 2019**, there was approximately **$3.5 million** of total **unrecognized compensation costs** related to unvested **stock options** and **restricted stock**, expected to be recognized over a **weighted average period** of **2.9 years**[284](index=284&type=chunk) Stock-Based Compensation Expenses (in thousands) | Expense Category | 2019 | 2018 | | :--- | :--- | :--- | | Costs of revenue - devices and supplies | $21 | $33 | | Sales and marketing | $205 | $127 | | General, and administrative | $594 | $210 | | **Total stock based compensation expense** | **$820** | **$370** | [(6) STOCKHOLDERS' EQUITY](index=63&type=section&id=%286%29%20STOCKHOLDERS%27%20EQUITY) Zynex paid a one-time cash dividend of $0.07 per share ($2.3 million total) in January 2019 - A **cash dividend** of **$0.07 per share**, totaling **$2.3 million**, was paid on **January 18, 2019**[286](index=286&type=chunk) - The company completed two **stock repurchase programs**: **$2.0 million** for **495,091 shares** by **March 2018**, and **$1.8 million** for **576,129 shares** by **May 2019**. No outstanding repurchase programs as of **December 31, 2019**[287](index=287&type=chunk)[288](index=288&type=chunk) - As of **December 31, 2019**, **100 thousand common stock warrants** were outstanding with a **weighted average exercise price** of **$2.63**[290](index=290&type=chunk) Stock Warrant Activity (in thousands) | Metric | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Outstanding Warrants | 100 | 150 | | Weighted Average Exercise Price | $2.63 | $2.42 | | Weighted Average Remaining Contractual Life (Years) | 4.77 | 5.77 | | Aggregate Intrinsic Value | $525 | $79 | [(7) INCOME TAXES](index=64&type=section&id=%287%29%20INCOME%20TAXES) Zynex's pre-tax income from continuing operations was $11.9 million in 2019, leading to an income tax expense of $2.4 million (20% effective rate), significantly higher than $0.7 million (7% effective rate) in 2018 - The increase in **income tax expense** and **effective rate** in **2019** was due to increased profitability and the release of the **valuation allowance** against all remaining **net operating losses** in **2018**[152](index=152&type=chunk)[294](index=294&type=chunk) - For federal tax purposes, the company fully utilized its **$2.7 million** in **NOL carryforwards** by **December 31, 2018**, and had no recorded **valuation allowance** as of **December 31, 2019**[293](index=293&type=chunk)[294](index=294&type=chunk) Income Tax Expense (in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Pre-tax income from continuing operations | $11,941 | $10,216 | | Total Income Tax Expense | $2,449 | $664 | | Effective Tax Rate | 20% | 7% | [(8) DEFERRED INSURANCE REIMBURSEMENT](index=66&type=section&id=%288%29%20DEFERRED%20INSURANCE%20REIMBURSEMENT) In 2019, Zynex recognized $880 thousand as other income from a deferred insurance reimbursement liability established in 2016 - In **Q1 2019**, **Zynex** recognized **$880 thousand** as **other income**, reversing a **deferred insurance liability** from **2016**[298](index=298&type=chunk) - The liability was established after an insurance company verbally requested a refund for a payment made in error; management later determined the repayment obligation was remote based on legal statutes[297](index=297&type=chunk)[298](index=298&type=chunk) [(9) LEASES](index=66&type=section&id=%289%29%20LEASES) Zynex has three operating leases for its corporate headquarters in Englewood, CO, with terms extending through June 2023 (with extension options) and a new amendment in January 2020 for additional space - **Zynex** has three **operating leases** for its **Englewood, CO corporate headquarters**, with terms through **June 30, 2023**, and an option to extend. An amendment in **January 2020** added **22,546 square feet**[299](index=299&type=chunk)[300](index=300&type=chunk) - The company also has a **5-year finance lease** for office equipment, with an **implicit rate** of **8.3%**. The **incremental borrowing rate** for **operating leases** is **4.8%**[301](index=301&type=chunk) Lease Costs (in thousands) | Lease Type | 2019 | 2018 | | :--- | :--- | :--- | | Total Operating Lease expense | $1,150 | $926 | | Total Finance Lease expense | $24 | $12 | [(10) COMMITMENTS AND CONTINGENCIES](index=68&type=section&id=%2810%29%20COMMITMENTS%20AND%20CONTINGENCIES) Zynex's primary commitments are under long-term leases - The company's primary commitments are related to its **long-term leases**[303](index=303&type=chunk) - **Zynex** is not a party to any **material pending legal proceedings**[304](index=304&type=chunk) [(11) CONCENTRATIONS](index=68&type=section&id=%2811%29%20CONCENTRATIONS) Zynex is exposed to credit risk related to cash balances held at major financial institutions - **Zynex** maintains cash at **major financial institutions** and believes it is not exposed to significant **credit risk** related to its **cash balances**[306](index=306&type=chunk) - The company sourced approximately **49%** of its **electrotherapy product supplies** from one **major vendor** in both **2019** and **2018**[307](index=307&type=chunk) - Receivables from two **third-party payers** accounted for approximately **39%** of the **accounts receivable balance** at **December 31, 2019**, compared to one **third-party payer** making up **23%** in **2018**[308](index=308&type=chunk) [(12) RETIREMENT PLAN](index=70&type=section&id=%2812%29%20RETIREMENT%20PLAN) Zynex established a 401(k) Plan in 2012 for eligible employees, offering a discretionary employer match of 35% on the first 6% of employee contributions - **Zynex** established a **401(k) Plan** in **2012**, available to employees **18 years or older** with **three months of service**, with a discretionary employer match of **35%** on the first **6%** of employee contributions[309](index=309&type=chunk) Retirement Plan Expense (in millions) | Year | Expense | | :--- | :--- | | 2019 | $0.1 | | 2018 | $0.1 | [(13) RELATED PARTY TRANSACTIONS](index=70&type=section&id=%2813%29%20RELATED%20PARTY%20TRANSACTIONS) A three-year employment agreement with Mr. Joachim Sandgaard, son of CEO Thomas Sandgaard, totaling $0.1 million, concluded at the end of 2018, with no further payments made in 2019 - A **$0.1 million employment agreement** with **Mr. Joachim Sandgaard**, son of **CEO Thomas Sandgaard**, concluded at the end of **2018**, with no payments in **2019**[311](index=311&type=chunk) [(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)](index=70&type=section&id=%2814%29%20QUARTERLY%20FINANCIAL%20INFORMATION%20%28UNAUDITED%29) Zynex's quarterly total revenue showed consistent growth throughout 2019, increasing from $9.2 million in Q1 to $14.2 million in Q

Zynex, Inc. (NASDAQ:ZYXI) Q3 2019 Results Conference Call October 29, 2019 4:15 PM ET Company Participants Thomas Sandgaard - Chief Executive Officer Dan Moorhead - Chief Financial Officer Conference Call Participants Jeffrey Cohen - Ladenburg Thalmann Marc Wiesenberger - B. Riley FBR Yi Chen - HC Wainwright Operator Good day and welcome to the Zynex's Third Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode [Operator Instructions]. Certain statements in this release are f ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2019 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-38804 Zynex, Inc. (Exact name of registrant as specified in its charter) | NEVADA | 90-0275169 | | --- | --- | | (State or ...

Zynex, Inc. (NASDAQ:ZYXI) Q2 2019 Earnings Conference Call July 31, 2019 4:30 PM ET Company Participants Thomas Sandgaard - Founder, Chairman and CEO Dan Moorhead - CFO Conference Call Participants Jeffrey Cohen - Ladenburg Thalmann Marc Wiesenberger - B. Riley FBR Yi Chen - HC Wainwright Shawn Boyd - Next Mark Capital Kevin Mackey - WellPoint Operator Good day and welcome to the Zynex's Second Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode [Operator Instructions]. Ce ...

[PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements for the period ended June 30, 2019, show significant revenue growth and an improved balance sheet [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2019, total assets increased to **$21.8 million**, driven by accounts receivable and operating lease assets, while stockholders' equity grew to **$14.1 million** Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $10,054 | $10,128 | | Accounts receivable, net | $3,540 | $2,791 | | Total current assets | $15,752 | $14,324 | | Operating lease asset | $4,323 | $3,050 | | **Total assets** | **$21,839** | **$19,251** | | **Liabilities & Equity** | | | | Total current liabilities | $3,828 | $6,983 | | Total liabilities | $7,772 | $9,960 | | Total stockholders' equity | $14,067 | $9,291 | | **Total liabilities and stockholders' equity** | **$21,839** | **$19,251** | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) For Q2 2019, net revenue increased **36%** to **$10.3 million**, but net income slightly decreased to **$2.2 million** due to higher operating expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | Six Months 2019 | Six Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $10,297 | $7,573 | $19,493 | $14,450 | | Income from operations | $2,584 | $2,715 | $4,840 | $4,671 | | Net Income | $2,162 | $2,418 | $4,512 | $4,339 | | Diluted EPS | $0.06 | $0.07 | $0.13 | $0.13 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities for H1 2019 was **$2.4 million**, a decrease from prior year due to higher tax payments, with cash balance at **$10.1 million** Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,364 | $3,640 | | Net cash used in investing activities | ($141) | ($661) | | Net cash used in financing activities | ($2,297) | ($2,259) | | **Net decrease in cash** | **($74)** | **$720** | | **Cash at end of period** | **$10,054** | **$6,285** | [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) The notes detail accounting policies, including the adoption of ASC 842, recognition of a one-time insurance reimbursement, and significant vendor and customer concentrations - The company operates in a single business segment: medical devices for electrotherapy and pain management, with **99.99% of revenue generated in North America**[19](index=19&type=chunk)[22](index=22&type=chunk) - The company adopted lease accounting standard ASU 2016-02 (Topic 842) as of January 1, 2019, resulting in recording additional net lease assets and liabilities of approximately **$3.6 million** and **$3.9 million**, respectively[54](index=54&type=chunk)[55](index=55&type=chunk) - In Q1 2019, the company recognized **$880,000** as other income from a 2016 insurance payment after determining the repayment obligation was remote[88](index=88&type=chunk)[89](index=89&type=chunk) - For Q2 2019, **72%** of electrotherapy supplies came from two vendors, and as of June 30, 2019, two health insurance carriers accounted for **37%** of net accounts receivable[94](index=94&type=chunk)[99](index=99&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong revenue growth to increased device orders and sales force expansion, impacting short-term net income but expanding the customer base, while maintaining a strong liquidity position [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Net revenue increased **36%** in Q2 2019, driven by device and supplies revenue growth and a **65%** increase in device orders, while operating expenses rose sharply due to sales force expansion - Net revenue growth for Q2 2019 (**36%**) and H1 2019 (**35%**) was primarily driven by **65%** and **48%** growth in device orders, respectively[115](index=115&type=chunk) Revenue Breakdown by Type (in millions) | Revenue Type | Q2 2019 | Q2 2018 | % Change | | :--- | :--- | :--- | :--- | | Devices | $2.3 | $1.7 | +37% | | Supplies | $8.0 | $5.9 | +36% | | **Total Net Revenue** | **$10.3** | **$7.6** | **+36%** | - Sales and marketing expenses increased **111%** in Q2 2019 and **101%** in H1 2019, mainly due to the addition of **32** sales representatives in the first six months of 2019[121](index=121&type=chunk)[122](index=122&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2019, the company maintained strong liquidity with **$10.1 million** in cash and **$3.5 million** in net accounts receivable, despite decreased operating cash flow due to higher tax payments - The company's principal sources of liquidity at June 30, 2019, were **$10.1 million** in cash and **$3.5 million** in net accounts receivable[129](index=129&type=chunk) - The decrease in cash from operating activities in H1 2019 was primarily due to increased cash payments for income taxes, as the company had utilized all available net operating losses in 2018[130](index=130&type=chunk) - Cash used in financing activities for H1 2019 was **$2.3 million**, mainly for a dividend payment of **$2.3 million** and stock repurchases of **$0.2 million**[132](index=132&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=30&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks, including interest rate changes, but does not provide a quantitative analysis of these risks - The company is exposed to market risks, including changes in interest rates, but does not include non-quantifiable risks like political, economic, or healthcare reimbursement practices in its assessment[137](index=137&type=chunk) [Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) As of June 30, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during Q2 2019 - Management, including the CEO and CFO, concluded that as of June 30, 2019, the company's disclosure controls and procedures were effective[138](index=138&type=chunk) - There were no changes during Q2 2019 that materially affected or are reasonably likely to affect the company's internal control over financial reporting[140](index=140&type=chunk) [PART II—OTHER INFORMATION](index=30&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) As of the reporting date, Zynex, Inc. is not a party to any material pending legal proceedings - The Company is currently not a party to any material pending legal proceedings[100](index=100&type=chunk)[142](index=142&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred in the risk factors since the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - No material changes have occurred in the risk factors since the filing of the Annual Report on Form 10-K for the year ended December 31, 2018[143](index=143&type=chunk) [Unregistered Sales of Equity Securities And Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20And%20Use%20of%20Proceeds) This section details the company's stock repurchase activities, including **52,000** shares bought in January 2019 at an average price of **$3.29** per share under an expired program Issuer Purchases of Equity Securities (Six months ended June 30, 2019) | Period | Total Shares Purchased (thousands) | Average Price per Share | Approximate Dollar Value of Shares Remaining Under Plan (thousands) | | :--- | :--- | :--- | :--- | | Jan 1 - Jan 31, 2019 | 52 | $3.29 | $154 | | Feb 1 - Jun 30, 2019 | - | - | $154 | - The Board of Directors approved a **$2.0 million** stock buyback program on May 14, 2018, which expired on May 13, 2019[144](index=144&type=chunk) [Exhibits](index=32&type=section&id=Item%206.%20Exhibits) The report lists all exhibits filed concurrently, including CEO and CFO certifications and XBRL data files for interactive data submission - Exhibits filed with the report include CEO and CFO certifications (**31.1, 31.2, 32.1, 32.2**) and XBRL Instance Documents (**101** series)[146](index=146&type=chunk)

Financial Data and Key Metrics Changes - The first quarter revenue was $9.2 million, representing a 34% increase compared to the same quarter last year, with a net income of $2.4 million or $0.07 per fully diluted share [3][11] - Cash position decreased to $9.4 million at the end of Q1 2019 from $10.1 million at the end of 2018, primarily due to a special dividend payment of $2.3 million [3][16] - Gross profit margin remained stable at 81%, indicating a healthy industry for prescription-strength electrotherapy [8][11] Business Line Data and Key Metrics Changes - Device revenue increased by 24% to $2 million compared to $1.6 million last year, while supplies revenue rose by 37% year-over-year to $7.2 million from $5.3 million [11] - Orders grew by 30% year-over-year, driven by the expansion of the sales force [6][11] Market Data and Key Metrics Changes - The company is expanding its sales force, adding approximately 10 new sales representatives each month, aiming for a total of around 250 by the end of 2019 [7][20] - The opioid epidemic is a significant issue, and the company is focusing on getting patients off opioids by promoting its technology as a first line of defense for pain treatment [5] Company Strategy and Development Direction - The long-term goal is to grow market share in prescription pain management and explore potential acquisitions of complementary technologies [22][30] - The company aims to leverage the void left by two large competitors to increase its sales and profitability [20][22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, estimating second-quarter revenue between $9.5 million and $10 million, with EBITDA between $2.3 million and $2.8 million [21] - The company is focusing on clinical studies for the Blood Volume Monitor to validate its effectiveness in various medical scenarios [38] Other Important Information - The company successfully listed on the NASDAQ stock exchange in February 2019, leading to increased trading volume and stock price [9] - The implementation of new lease accounting guidelines resulted in approximately $3.5 million in lease liabilities recorded on the balance sheet [18] Q&A Session Summary Question: Comments on the sales force restructuring and training cycle - Management confirmed that restructuring is underway and a robust training program is in place for new sales representatives [27][28] Question: Percentage of accounts captured from competitors - Management indicated that only a small portion of accounts have been captured so far, with significant potential remaining [28] Question: Examples of potential acquisitions and internal R&D developments - Management is exploring various complementary technologies for pain management and expects to see developments in R&D in the near future [29][30] Question: New marketing materials rollout and trends in orders - Management reported a slight delay in the rollout of new marketing materials but emphasized their potential to help sales representatives engage with physicians [33][34] Question: Trends in profitability from new sales representatives - Management noted that while profitability trends remain stable, early signs suggest that new representatives may become more productive due to improved training [36][37]