Zynex(ZYXI) - 2021 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements The company's unaudited consolidated financial statements detail its financial position, performance, and cash flows for the periods ended September 30, 2021 Consolidated Balance Sheets The company's financial position shows increased total assets and stockholders' equity, driven by growth in accounts receivable and operating lease assets | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Total Assets | $90,723 | $72,175 | | Total Liabilities | $27,340 | $15,320 | | Total Stockholders' Equity | $63,383 | $56,855 | | Accounts Receivable, net | $24,234 | $13,837 | | Operating Lease Asset | $17,234 | $5,993 | Unaudited Consolidated Statements of Operations The company reports significant growth in revenue and net income for the three and nine months ended September 30, 2021, compared to the prior year | Metric | 3 Months Ended Sep 30, 2021 (in thousands) | 3 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | | :----------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net Revenue | $34,786 | $20,026 | $89,935 | $54,517 | | Net Income | $6,107 | $1,333 | $8,209 | $7,287 | | Basic EPS | $0.18 | $0.04 | $0.24 | $0.22 | | Diluted EPS | $0.17 | $0.04 | $0.23 | $0.21 | - Net Revenue increased by 73.7% for the three months ended September 30, 2021, compared to the same period in 2020[12] - Net Income increased by 358.1% for the three months ended September 30, 2021, compared to the same period in 2020[12] Unaudited Consolidated Statements of Cash Flows Cash from operations decreased while financing activities used cash for stock repurchases, contrasting with prior year's equity offering proceeds | Cash Flow Activity | 9 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | | Net cash (used in)/provided by operating | $(589) | $2,514 | | Net cash (used in) investing | $(420) | $(759) | | Net cash (used in)/provided by financing | $(2,796) | $25,434 | | Net (decrease)/increase in cash | $(3,805) | $27,189 | | Cash at end of period | $35,368 | $41,229 | - Operating activities used $0.6 million in cash for the nine months ended September 30, 2021, a decrease from $2.5 million provided in the prior year[14] - Financing activities used $2.8 million in cash for the nine months ended September 30, 2021, primarily due to treasury stock purchases, contrasting with $25.4 million provided in 2020 from an equity offering[14] Unaudited Consolidated Statements of Stockholders' Equity Total stockholders' equity increased, driven by net income and additional paid-in capital, partially offset by treasury stock repurchases | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Total Stockholders' Equity | $63,383 | $56,855 | | Retained Earnings | $31,639 | $23,430 | | Treasury Stock | $(6,513) | $(3,846) | Unaudited Notes to Consolidated Financial Statements These notes detail the company's accounting policies and provide breakdowns of specific financial statement line items (1) BASIS OF PRESENTATION Zynex, Inc operates primarily in the U.S medical device segment, with a monitoring solutions subsidiary that has not yet generated revenue - The Company operates in one primary business segment: medical devices, including electrotherapy and pain management products[17] - Zynex Monitoring Solutions, Inc (ZMS) developed a blood volume monitoring device approved by the U.S Food and Drug Administration (FDA) in 2020, but has achieved no revenues to date[17][74] - Substantially all revenue is generated in the United States from sales of devices and related supplies to patients and healthcare providers[19] | Device Revenue Type | 3 Months Ended Sep 30, 2021 (in thousands) | 3 Months Ended Sep 30, 2020 (in thousands) | | :------------------ | :--------------------------------------- | :--------------------------------------- | | Purchased | $2,076 | $1,618 | | Leased | $6,995 | $3,683 | | Total Device Revenue| $9,071 | $5,301 | (2) PROPERTY AND EQUIPMENT Property and equipment consist mainly of office furniture, equipment, and leased devices, with a notable increase in depreciation expense for leased devices | Category | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :----------------------- | :-------------------------- | :-------------------------- | | Property and equipment | $4,913 | $4,432 | | Less accumulated depreciation | $(2,660) | $(2,507) | | Total, net | $2,253 | $1,925 | | Depreciation Expense | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Leased devices | $0.4 | $0.2 | $1.0 | $0.6 | (3) EARNINGS PER SHARE Basic and diluted earnings per share increased for the three and nine-month periods, reflecting higher net income | EPS Type | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic | $0.18 | $0.04 | $0.24 | $0.22 | | Diluted | $0.17 | $0.04 | $0.23 | $0.21 | - For both the three and nine months ended September 30, 2021, options to purchase 0.2 million shares were excluded from dilutive EPS calculation due to their anti-dilutive effect[48] (4) STOCK-BASED COMPENSATION PLANS Stock-based compensation expense decreased in 2021, with no new stock options granted but new restricted stock awards issued | Stock-Based Compensation Expense | 3 Months Ended Sep 30, 2021 (in thousands) | 3 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | | :------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total | $533 | $730 | $1,042 | $1,806 | - As of September 30, 2021, the Company had approximately $5.9 million of unrecognized compensation expense related to stock options and restricted stock awards, to be recognized over a weighted average period of approximately 2.9 years[55] - No stock option awards were granted during the three and nine months ended September 30, 2021[52][54] (5) STOCKHOLDERS' EQUITY The company completed a $10.0 million stock repurchase program and saw the exercise of 10,000 stock warrants - The Company repurchased 175,179 shares of common stock for $2.7 million at an average price of $15.22 per share under a $10.0 million program from March 8 to September 8, 2021[56][111] - 10,000 stock warrants were exercised during the nine months ended September 30, 2021, at an average exercise price of $2.50[57] (6) INCOME TAXES The company's income tax expense increased significantly in 2021, with an effective tax rate of 23-24% for the reported periods | Income Tax Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :---------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Income Tax Expense| $1.9 | $0.1 | $2.5 | $0.7 | | Effective Tax Rate| 24% | N/A | 23% | N/A | - Discrete items, primarily related to excess tax benefits on stock option exercises, adjusted for $0.3 million and $0.8 million for the three and nine months ended September 30, 2021, respectively[58][92] (7) LEASES A new operating lease for corporate headquarters significantly increased the company's lease liabilities, assets, and expenses in 2021 - The Company entered into a sublease agreement for a new corporate headquarters, commencing May 1, 2021, through April 29, 2028, with an initial rent of $26.50 per square foot[62] - Upon lease commencement, an operating lease liability and corresponding right-of-use asset of $13.4 million each were recorded[62] | Lease Expense | 3 Months Ended Sep 30, 2021 (in thousands) | 3 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | | :-------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Operating Lease | $1,072 | $419 | $2,415 | $1,181 | | Finance Lease | $40 | $21 | $109 | $58 | | Total Net Lease | $1,112 | $440 | $2,524 | $1,239 | (8) CONCENTRATIONS The company has significant supply chain and accounts receivable concentrations with a small number of vendors and third-party payers - For the three months ended September 30, 2021, 51% of electrotherapy product supplies were sourced from three significant vendors[66] - For the nine months ended September 30, 2021, 36% of supplies were sourced from two significant vendors[67] - As of September 30, 2021, receivables from two third-party payers constituted approximately 37% of the net accounts receivable balance[69] (9) LITIGATION The company is not currently involved in any material pending legal proceedings - The Company is not currently a party to any material pending legal proceedings[71][108] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant revenue and net income growth driven by increased device orders and sales force expansion General Zynex, Inc operates primarily in the medical device segment, with a monitoring solutions subsidiary that has not yet generated revenue - Zynex, Inc operates one primary business segment: medical devices, including electrotherapy and pain management products[74] - Zynex Monitoring Solutions, Inc (ZMS) developed a blood volume monitoring device approved by the U.S Food and Drug Administration (FDA) during 2020, but has achieved no revenues to date[74] RESULTS OF OPERATIONS The company achieved substantial revenue and net income growth, driven by increased device orders and a larger customer base for supplies Summary The company reports significant growth in net revenue and net income for the three and nine months ended September 30, 2021, alongside improved working capital | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :--------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net Revenue| $34.8 | $20.0 | $89.9 | $54.5 | | Net Income | $6.1 | $1.3 | $8.2 | $7.3 | - Net revenue increased 74% and 65% for the three and nine months ended September 30, 2021, respectively[75] - Working capital at September 30, 2021, was $59.6 million, an increase of 13% from $52.9 million as of December 31, 2020[75] Net Revenue Net revenue growth was driven by a substantial increase in device orders, which expanded the customer base for consumable supplies | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :--------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net Revenue| $34.8 | $20.0 | $89.9 | $54.5 | - Net revenue growth is primarily related to a 70% and 134% growth in device orders for the three and nine months ended September 30, 2021, respectively[79] Device Revenue Device revenue increased significantly due to higher order volumes from an expanded and more productive sales force | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :----------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Device Revenue| $9.1 | $5.3 | $23.3 | $13.0 | - The increase in device revenue is primarily related to increased orders attributable to the growth of the sales force and an increase in revenue provided by each sales representative[81] Supplies Revenue Supplies revenue grew substantially, supported by a larger customer base resulting from strong device sales in 2020 and 2021 | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :------------ | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Supplies Revenue| $25.7 | $14.7 | $66.7 | $41.5 | - The increase in supplies revenue is primarily related to a larger customer base from increased device sales in 2020 and 2021[83] Operating Expenses Operating expenses rose across all categories to support growth, though some decreased as a percentage of the rapidly growing revenue Cost of Revenue – Device and Supply Cost of revenue increased due to higher order volumes and overhead, while remaining stable as a percentage of revenue | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :-------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Cost of Revenue | $6.8 | $4.3 | $20.0 | $11.8 | | % of Revenue | 20% | 21% | 22% | 22% | - The increase in cost of revenue is primarily due to a 70% and 134% increase in device orders for the three and nine months, respectively, along with increased overhead from a new manufacturing and warehouse facility and freight costs[86] Sales and Marketing Expense Sales and marketing expenses grew significantly, driven by the expansion of the sales force and related headcount costs | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :-------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Sales and Marketing | $13.1 | $9.4 | $40.7 | $21.8 | | % of Revenue | 38% | 47% | 45% | 40% | - The increase in sales and marketing expense is primarily due to the expansion of the sales force and related costs associated with increased headcount[88] General and Administrative Expense General and administrative expenses rose due to headcount growth and facility expansion, but decreased as a percentage of revenue | Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | General and Administrative | $6.8 | $4.9 | $18.5 | $13.0 | | % of Revenue | 20% | 24% | 21% | 24% | - The increase in general and administrative expense is primarily due to increased compensation and benefit expense related to headcount growth and increased occupancy expense from corporate headquarters expansion[90][91] Income Taxes Income tax expense increased substantially, reflecting higher pre-tax income, with effective tax rates of 24% and 23% for the respective periods | Income Tax Metric | 3 Months Ended Sep 30, 2021 (in millions) | 3 Months Ended Sep 30, 2020 (in millions) | 9 Months Ended Sep 30, 2021 (in millions) | 9 Months Ended Sep 30, 2020 (in millions) | | :---------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Income Tax Expense| $1.9 | $0.1 | $2.5 | $0.7 | | Effective Tax Rate| 24% | N/A | 23% | N/A | - Discrete items, primarily related to excess tax benefits on stock option exercises, provided a benefit of $0.3 million and $0.8 million for the three and nine months ended September 30, 2021, respectively[92] LIQUIDITY AND CAPITAL RESOURCES The company maintains sufficient liquidity through cash and receivables, despite a shift to negative operating cash flow due to growth in working capital - Principal sources of liquidity at September 30, 2021, were $35.4 million in cash and $24.2 million in accounts receivable[93] - Net cash used in operating activities for the nine months ended September 30, 2021, was $0.6 million, compared with $2.5 million provided in the same period of 2020, primarily due to increased inventory and receivables[94] - Net cash used in financing activities for the nine months ended September 30, 2021, was $2.8 million, primarily due to purchases of treasury stock, contrasting with $25.4 million provided in 2020 from an equity offering[96] - Management believes current cash and cash equivalents, along with anticipated cash flow from operations, will be sufficient to meet working capital and capital expenditure requirements for at least the next twelve months[97][100] CRITICAL ACCOUNTING POLICIES AND ESTIMATES The company's financial statements are prepared under U.S GAAP, with detailed policies available in its 2020 Annual Report on Form 10-K - Financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S GAAP)[97] - Detailed critical accounting policies and estimates are available in the Annual Report on Form 10-K for the year ended December 31, 2020[98] OFF BALANCE SHEET ARRANGEMENTS The company reports no significant off-balance sheet arrangements that could materially affect its financial condition or results - The Company had no significant off-balance sheet arrangements[99] RISKS AND UNCERTAINTIES The company acknowledges ongoing uncertainties from the COVID-19 pandemic, though no significant operational disruptions occurred in the reporting period - The Company is unable to predict the future impact of COVID-19 on its business, financial position, and operating results due to numerous uncertainties[100][101] - The Company did not incur significant disruptions to its operations during the three and nine months ended September 30, 2021, from COVID-19[100] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to market risks from changes in interest rates, excluding non-quantifiable risks like regulatory changes - The Company is exposed to certain market risks, including changes in interest rates[102] - Non-financial or non-quantifiable risks (e.g, political, economic, tax, regulatory, healthcare reimbursement) are not included in the market risk assessment[102] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls during the quarter Disclosure Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures are designed at a reasonable assurance level and are effective as of September 30, 2021[103] Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting occurred during the third quarter of 2021 - During the three months ended September 30, 2021, there were no changes that materially affected or are reasonably likely to affect internal control over financial reporting[105] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material pending legal proceedings - The Company is not a party to any material pending legal proceedings[108] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K - There have been no material changes in the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020[109] Item 2. Unregistered Sales of Equity Securities And Use of Proceeds The company completed its $10.0 million stock repurchase program, buying back 175,179 shares between March and September 2021 | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value (in thousands) of Shares that may yet be Purchased under the Program | | :----------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------- | :------------------------------------------------------------------------------------------ | | March 8 to September 8, 2021 | 175,179 | $15.22 | 175,179 | $— | - The Board of Directors approved a program to repurchase up to $10.0 million of common stock, which was fully utilized by September 8, 2021[111] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities[112] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable (N/A)[113] Item 5. Other Information The company reported no other information - No other information to report[113] Item 6. Exhibits This section lists the exhibits filed with the report, including officer certifications and XBRL data documents - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL Instance, Schema, Calculation, Label, Presentation, and Definition Linkbase Documents[115] SIGNATURES The report is duly signed by the Chief Financial Officer on behalf of the company as of November 2, 2021 - The report was signed by Daniel J Moorhead, Chief Financial Officer, on November 2, 2021[119]