Zynex, Inc.

Good day and welcome to the Zynex 2021 second quarter conference call. All participants will be in a listen only mode. Should you need assistance, please signal 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 then one on your telephone keypad. And to withdraw your question, please press star then two. Certain statements in this release are forward looking. and as such are subject to numerous risk and uncertainties. Actual results may vary significantly from the results expressed or implied in such statements. Risk factors that can cause actual results to materially different from forward-looking statements are described in our filings with the Securities and Exchange Commission, including the risk factor section of our annual report on Form 10-K for the year ended December 31st of 2020, as well as Forms 10-Q, 8-K, and 8-K and A, press releases, and the company's website. Please note this event is being recorded. I would now like to turn the conference over to Thomas Sandgaard, founder, chairman, and chief executive officer. Please go ahead, sir.

Good afternoon. My name is Thomas Sandgaard, president and CEO of Sinex. Welcome to our 2020 second quarter earnings call. I'm excited to announce yet another quarter of revenue growth and positive net income. Our second quarter revenue of $31 million is the highest quarterly revenue in this company's history and increased 61% compared to the same quarter last year. We continue to see good order flow as the economy returns to normal and second quarter orders came in 247% higher than Q2 of last year and 11% sequentially compared to the first quarter of this year. The continued strength in orders speaks volumes to the relationships that 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. As a reminder, the majority of cash and revenue related to an order comes in over the year and following years following the receipt of the order. as the patients used the device and related supplies, which should lead to expanding revenue and profitability further throughout 2021 and beyond. During the second quarter, we continued to focus on the productivity of our sales reps and trimmed our less productive reps. The trimming of sales reps and the high competitive job market resulted in not hiring as many reps as we said goodbye to, and therefore saw a decrease in active sales reps now here throughout the second quarter to approximately 450 reps at the end of the second quarter. The decrease in sales reps will now slightly decrease the forecasted revenue, but also in turn, which I think is very important, boost profitability here in the near term. It's obviously very difficult to grow as fast as we've been growing for a while and invest in a sales force with a very high expense and post a significant profit. We now saw the beginning of hearing Q2 and expect to see that throughout the rest of the year. that will be slightly more profitable than we had originally expected. We still expect to have approximately 550 sales reps by year end. The addition of a net of 50 sales reps compared to the beginning of this year compares to a net of over 300 that we added in 2020, most of those in the second half of 2020. The additional salesforce growth is now happening at a much slower pace, which will directly help our bottom line. I also want to mention that our operations still continue without issues and our supply chain remains uninterrupted. As we discussed previously, we've taken a very conservative position in response to COVID and any possible supply chain issues which resulted in an increase in inventory uh at the end of q1 of approximately 3 million in excess of our normal levels here in q2 our inventory level started moving back to more normal levels which will continue during the second half of 2021 as announced earlier this year we moved into a new corporate headquarters during the quarter the new building has additional square footage and expansion rights to support our continuous roads 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 the 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 product for pain management and rehabilitation still stand out as some of the best in the industry. The next wave for pain management, our new move devices for stroke rehabilitation, and the in-wave for incontinence treatments puts us in a very strong product position in the rehabilitation market. We continue to see great potential in both our product divisions, our existing revenue-generating area for pain management, as well as a 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 volume monitor a year ago. We recently also filed a patent on top of the three patents that have now been issued for the blood volume monitor, but also for a noninvasive method to detect or early detection of sepsis. The CM1500 is a noninvasive monitor intended to monitor patients' fluid balance in the hospitals and surgical centers. We expect to easily target ORs and surgeries that typically display substantial blood loss, as well as recovery rooms and ICUs where internal bleeding 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. We continue to see solid preliminary results from a clinical study at Wake Forest. We've now had the device monitor more than 120 patients. And the device so far has been solid in terms of either not providing a false positive or one that has been bleeding and or other fluid loss shown a significant change. So this is obviously very encouraging. And we are gearing up to commence more studies on the device shortly. Our engineering team is also expanding pretty significantly and well underway with building prototypes of the next generation, the CM1600, that'll be easier to use in certain settings compared to the CM1500. And we're also adding personnel and other resources conduct more clinical research. I will now turn the call over to Dan Moorhead, our CFO.

Thanks, Thomas. First, I'll review our 2021 second quarter results. Orders grew 247% year-over-year, and net revenue grew 61% to $31 million from $19.3 million in 2020. It's also worth noting that Q2 revenue increased 29% sequentially compared to Q1. Device revenue increased 83% to 7.8 million compared to 4.3 million last year. Supplies revenue increased 55% year over year to 23.2 million from 15 million. Gross margins were 77% in the quarter. As we've mentioned previously, we transitioned our production and warehouse to a new facility during Q1. This has greatly enhanced our efficiency but in the short term it has put some pressure on gross margins. Sales and marketing expenses increased 102% year-over-year due to our Salesforce growth. G&A expense grew 43% year-over-year. Much of the increase was related to increased headcount in our reimbursement and patient support functions related to our order growth. Second quarter net income was $2.8 million, or $0.08 per diluted share. Adjusted EBITDA, which is a standard EBITDA calculation plus an exclusion of non-cash stock-based compensation, severance, non-cash lease expense, and other income expense, and is reconciled in our press release, was $4.8 million in the second quarter of 2021. I'll now review our 2021 six-month results. Orders grew 186% year-over-year, which increased net revenue 60%, to $55.1 million from $34.5 million in 2020. Device revenue increased 84% to $14.2 million compared to $7.7 million last year. Supplies revenue increased 53% year over year to $41 million from $26.8 million. Gross margins were 76% in the first half of 2021. Sales and marketing expenses increased 123% year over year and G&A expense grew 44% year-over-year. 2021 six-month net income was $2.1 million or $0.06 per diluted share compared to net income of $6 million or $0.17 per diluted share last year. Adjusted EBITDA was $4.4 million in the first half of 2021. On the balance sheet, as of June 30th, cash was $32.3 million, which is down slightly from Q1, but mainly related to the 2 million in purchases in our stock buyback program. Our working capital was $52.9 million at June 30th. With that, I'll turn the call back over to Thomas.