Zynex, Inc.

Good afternoon everyone and welcome to the Xymex Q3 2020 earnings call. All participants will be in a listen-only mode. Should you need assistance, please see a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a telephone keypad. To withdraw your questions, you may press star and two. Certain statements in this release are forward-looking and as such are subject to numerous risks and uncertainties. Actual results may vary significantly from the results expressed or implied in such statements. Risk factors that could cause actual results to materially differ from forward-looking statements are described in our filings with the Securities and Exchange Commission, including the risk factors section of our annual report on Form 10-K for the year ended December 31st, 2019, as well as forums 10Q, 8K, and 8KA, press releases, and the company's website. Please also note today's event is being recorded, and at this time I'd like to turn the conference call over to Thomas Sengard, founder, chairman, and chief executive officer. Sir, please go ahead.

Thank you, and good afternoon. My name is Thomas Sengard, president and CEO of Sinex. Welcome to our 2020 third quarter earnings call. I'm excited to announce yet another quarter of revenue growth and positive net income. Our third quarter revenue of 20 million increased 69% compared to the same quarter last year. It was also the highest quarterly revenue in the history of the company. It was actually our 17th straight quarter with positive net income and fully diluted earnings per share was $0.04. Adjusted EBITDA for the third quarter was $2.4 million as we continue to invest in growing our sales force. Similar to many companies, we've seen the impact of COVID-19 pandemic, and Q3 orders came in at 96% higher than Q3 of last year, which was an increase of 37% year-over-year order growth in Q2 And we saw momentum in order growth during Q3 with 83% in July and August and 117% in September. October is currently trending above 120% compared to October of last year, which is a strong benchmark as October last year was by far our strongest month in 2019. The continuous strength in order speaks volumes to the relationships our sales force has with many prescribers and the need for them to prescribe non-opioid, non-addictive prescription strength solutions for their patients in pain. The investment in expanding our sales force continues to progress as we expand our geographic footprint across the US. We continue to aggressively add sales reps and eclipse 400 total reps in the third quarter. Our recruiting efforts have been aided by a search in candidates due to increased unemployment rates related to COVID-19. We expect these new hires to provide significant productivity increases in Q4 and beyond. We expect to have over 500 sales reps by year end. Revenues slowed slightly in Q3 due to the lower Q2 orders in April and May related to COVID-19, but still grew 69%. in the third quarter compared to 87% in the second quarter. As a reminder, our business model with billing for the devices monthly used and supplies as they're consumed by our patients causes a lag between orders and revenue growth. As business continues to get back to normal and orders continue to grow, we expect revenue and revenue growth to follow accordingly. I also want to mention that our operations continue without interruption and our supply chain remains uninterrupted. In addition, it's our practice to keep several months of finished products on the shelf, have over four months of components on hand for internal assembly, and 12 to 18 months of orders placed with our vendors on top of the in-house materials. We have also increased our second sourcing to become less dependent on individual vendors. it is critical for us to have the ability to ship immediately to a patient in pain. The opioid epidemic continues to be a serious issue in this country, and we are increasingly working to get patients off opioids and for physicians to use our prescription strength technology as the first line of defense when treating pain. Currently, the devastating impact has reached a level where tens of thousands die yearly due to opioid abuse. We continue to develop more tools to make physicians aware of our technology that literally has no side effects. Our products for pain management and rehabilitation still stand out as some of the best products in the industry. The NexWave for pain management, our Neuromood device for stroke rehabilitation, and the InWave for incontinence treatment, those all puts us in a very strong product position in the rehabilitation markets. We continue to see great potential in both our product divisions, our existing revenue-generating area for pain management, as well as the huge unmet potential for our blood volume monitor. As most of you probably already know, we managed to get FDA clearance for our CM1500 blood and fluid monitor earlier this year. The CM1500 is a noninvasive monitor intended to monitor patients' fluid balance in hospitals and surgical centers. We expect to initially target ORs and surgeries that typically display substantial blood loss, as well as recovery rooms and ICUs where internal bleedings today are common and difficult to detect until serious complications occur. We believe this product will lead to safer surgeries, fewer complications, and less mortality, one of the biggest unmet needs in hospitals today. Last week, we announced we hired Neil Furrier as the president and COO of the division. Neil has a strong background from primarily Simmer Biomed, in particular the surgical side, and comes with a lot of knowledge about medical devices and also blood loss monitoring in hospitals. At Simmer Biomed, Neil managed P&L-led product development, manufacturing, sales and marketing, product launches, and quality functions for their 400 million surgical division with 600 employees and 35% EBITDA margins. He specifically built a 130-man sales force from scratch and also led several acquisition efforts in the cardiac device market. Before that, he was director of finance or controller for five years at Simmer Surgical. Going forward, Neil will be leading our sales, marketing, clinical research, and engineering efforts. In the near term, this division still utilizes manufacturing, human resources, accounting, and QA resources from Cynics Medical, the other division, but will at some point have their own self-sufficient functions. I will now turn the call over to Dan Moorhead, our CFO.

Thanks, Thomas. First, I'll review our 2020 third quarter results. Orders grew 96% year over year, and net revenue grew 69% to $20 million from 11.8 million in 2019. Device revenue increased 99 percent to 5.3 million compared to 2.7 million last year. Supplies revenue increased 61 percent year-over-year to 14.7 million from 9.2 million. Gross margins were 79 percent in the third quarter of 2020. Sales and marketing expenses increased 125 percent year-over-year as we continue to aggressively grow our sales force. G&A expense grew 70% year over year. Much of that increase was related to increased headcount in our reimbursement and patient support functions related to our order growth. Third quarter net income was $1.3 million, or $0.04 per diluted share, compared to net income of $2 million, or $0.06 per diluted share, in the third quarter last year. Adjusted EBITDA, which is a standard EBITDA calculation plus an exclusion of non-cash stock-based compensation and other income expense and is reconciled in our press release, was $2.4 million in the third quarter. I'll now review our 2029 month results. Orders grew 85% year-over-year, which increased net revenue 74% to $54.5 million from $31.3 million in 2019. Device revenue increased 88% to $13 million compared to $6.9 million last year. Supplies revenue increased 70% year-over-year to $41.5 million from $24.4 million. Gross margins were 78% in the first three quarters of 2020. Sales and marketing expenses increased 117% year-over-year, and G&A expense grew 63% year-over-year. 2020 nine-month net income was $7.3 million, or 21 cents per diluted share, compared to net income of $6.5 million, or 19 cents per diluted share, through three quarters last year. Adjusted EBITDA increased 27% to $10.2 million in the first three quarters. On the balance sheet, as of September 30th, our cash balance was $41.2 million, up from $14 million at year end. As many of you know, we completed an equity transaction during July, which added approximately $25 million to the balance sheet. Our working capital grew 189% to $50.3 million at September 30th, compared to $17.4 million as of December 31st, 2019. With that, I'll now turn the call back over to Thomas. Thank you, Dan.