
PART I—FINANCIAL INFORMATION Financial Statements The unaudited consolidated financial statements for the period ended June 30, 2019, show significant revenue growth and an improved balance sheet Consolidated Balance Sheets 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 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 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 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 America1922 - 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, respectively5455 - In Q1 2019, the company recognized $880,000 as other income from a 2016 insurance payment after determining the repayment obligation was remote8889 - 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 receivable9499 Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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, respectively115 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 2019121122 Liquidity and Capital Resources 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 receivable129 - 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 2018130 - 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 million132 Quantitative and Qualitative Disclosures About Market Risk 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 assessment137 Controls and Procedures 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 effective138 - There were no changes during Q2 2019 that materially affected or are reasonably likely to affect the company's internal control over financial reporting140 PART II—OTHER INFORMATION Legal Proceedings 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 proceedings100142 Risk Factors 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, 2018143 Unregistered Sales of Equity Securities And Use of Proceeds 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, 2019144 Exhibits 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