Zynex, Inc.

Good day, and welcome to DesignX Q3 2021 Earnings Conference Call. All participants will be in 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 touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. 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 factor section of our annual report on Form 10-K for the year ended December 31, 2020, as well as Forms 10-Q and 8-K press releases and the company's website. I would now like to turn the conference over to Thomas Sandgaard, President and CEO. Please go ahead.

Good afternoon. My name is Thomas Sandgaard, President and CEO of Sinex. Welcome to our 2021 Third Quarter Earnings Call. Today, we'll be covering activities in both of our divisions, Sinex Medical, where we focus on pain management, and Sinex Monitoring Solutions. Before I get into the details of our financial performance and operations, I'd like to mention that this week is the 25-year anniversary of Sinex being accepted and me starting the business in a one-bedroom with just a couple of thousand on a credit card, having just moved to Colorado from Denmark. It has been a long road of bootstrapping, but looking at our results the past four to five years, certainly worth it. I want to express my gratitude to all of our employees for working so hard to make this a success, as well as our public shareholders for being loyal and believing in the company and our business model. In that context, I'm excited to announce yet another quarter of record revenue and net income. Net income increased 118% sequentially compared to the second quarter, which demonstrates the operating leverage we're achieving from the investments we made in our sales organization. Our third quarter revenue of $34.8 million is the highest quarterly revenue in the company's history and increased 74% compared to the same quarter last year. We continue to see good order flow and third quarter orders came in 70% higher than the third quarter of last year. In the second half of 2021, we're seeing the job market continue the trend we saw emerge in the second quarter in that how unemployment has been dealt with politically still keeps a big chunk of the workforce at home, leading to a shortage of workers, including sales reps. This significantly impacts our ability to hire employees for our corporate headquarter, specifically order entry, patient enrollment, and insurance billing. These positions are important to keep up with our overall growth. We are also seeing the same dynamics as most other businesses, especially medical, where there's a lot of movement and significantly inflating pay for sales representative. We are currently competing. in that space and have increased incentives such as sign-on bonuses, et cetera, to keep a decent hiring rate. Rather than slacking on our minimum criteria for hire, we have instead adjusted our growth plans to focus on more productivity growth per sales rep and improving the quality of our entire sales force, which has also led to increased trimming of non-productive reps. During the third quarter, we focused on the productivity of our sales reps and trimmed our less productive reps. The trimming of sales reps and the highly competitive job market resulted in a decrease in active sales reps to approximately 430 reps at the end of the third quarter. The average revenue per rep during the third quarter therefore grew to approximately $325,000, up $50,000 compared to the second quarter and almost $100,000 compared to Q3 of last year. The sales rep number is less than previously anticipated, which has obviously led to a higher near-term profit than expected earlier in this year. As we've discussed previously regarding our inventory, we took a more conservative position in response to COVID and any possible supply chain issues, which resulted in increased inventory levels during this year. In the third quarter, our inventory level moved back towards more normal levels, and we're happy to report that to date we have had no supply chain issues in our business. The opioid epidemic continues to be a serious issue in this country, and we're 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 nearly 100,000 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 and our NeuroMove device for stroke rehabilitation, as well as the InWave for incontinence treatment, puts us in a very strong product position in these 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 a blood volume monitor. In the past five to six months, we have significantly increased activity in our monitoring solutions division. We are more than triple staffing and consultants while we also have increased our clinical research capabilities and initiating several more studies across the country, looking at different aspects of the clinical value that our technology can provide hospitals and surgical centers. As most of you probably know, we managed to get FDA clients for our CM1500 blood and fluid monitor over a year ago and have the product ready in production. The CM1500 is a non-invasive 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 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, and we're preparing to commence more studies on the device shortly. We're seeing interest in purchasing the device from hospitals that have a device on demo. Our engineering team is well underway with building prototypes of the next generation CM1600 device that will be easier to use in surgical settings. And today we have with us our Vice President of our Cynics Monitoring Division, Donald Greig. That will fill you in with more details as to his background, what we've been doing, and short as well as long-term plans.

Donald Greig Thanks, Thomas. Good afternoon, everyone. Let me start with some background on myself. I've spent about 15 years in the high-tech and consumer industries and a bit over a decade in medical device leading infusion pumps. respiratory and health informatics products and businesses for startup to multinational global corporations and various executive leadership roles. As most of you probably already know, as Thomas mentioned, the FDA cleared the CM-1500 fluid volume monitor a year ago. Our focus in 2021 has been on submitting the wireless version, our CM-1600, to the FDA by the end of the calendar year. The current CM1500 is a non-invasive monitor intended to monitor patients' fluid balance in hospitals and surgical centers. We expect to initially target operating rooms, surgeries, and clinical care, critical care settings where fluid responsiveness is a known challenge. In this space, there are two primary areas that need to be addressed. Number one is overall fluid volume. The question is, is the patient losing too much blood or fluid or being overloaded with fluid? The second one, and perhaps is probably the most important, is understanding fluid status and being able to know if the patient should receive more fluid or not. Incorrect fluid therapy can lead to severe negative outcomes, including increased morbidity and mortality. Patients die postoperatively and more frequently than intraoperatively largely due to hemodynamic instability. Therefore, we are very focused on hemodynamic stability perioperatively and postoperatively. We believe this product will lead to safer surgeries, fewer complications, and, of course, less mortality, as Thomas had mentioned. This is one of the biggest unmet needs in hospitals today. We continue to see promising preliminary results, as Thomas mentioned, from a clinical study at Wake Forest. We've commenced additional studies on that device as well. WakeFlorist is planning to publish the results of the study in Q1, and we've started a very specific apheresis blood donation study with Vidalent that continues to refine our patented relative index algorithm for fluid prediction in blood components, fluid loss, and reinfusion of blood into the body. Additionally, we are starting a dialysis observational study this calendar year that continues to characterize the relative index for change with specific values of fluid loss. We plan to expand our clinical footprint and are heavily investing in a robust cadence of clinical evidence to enable us to expand into other care areas where fluid monitoring is a priority for patients. successful trade show at Anesthesiology 2021 in San Diego. You also might know this as the ASA conference. There was significant excitement from our key opinion leaders or our KOLs in both the US and internationally. They are very interested in validating the need to focus on hemodynamic stability during and post-surgery. We have several leading anesthesiologists in their field that approached us to work closely on the predictive algorithm to solve the question of should I give my patient fluid or not? We are seeing significant interest in placing and purchasing the device from hospitals, and we continue to develop our pipeline focused on commercializing the wireless CM1600 version of the monitor post-FDA clearance in the first half of 2022.