Zynex - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue fell sharply to $26.6M vs $46.5M YoY, driven primarily by a temporary TRICARE payment suspension and a smaller salesforce focused on productivity; gross margin compressed to 69% from 80% YoY, and Adjusted EBITDA turned to a loss of ($11.8M) with a -44% margin.
• Management issued Q2 2025 guidance of at least $27M revenue and loss per share of ($0.20) or better, and withheld full‑year guidance pending clarity on TRICARE; Q1 results missed prior Q1 guidance of at least $30M revenue and ($0.30) loss per share or better.
• The company implemented ~15% staff reductions and other cost actions expected to save ~$35M annually; working capital stood at $40.1M and cash at $23.9M at quarter‑end, providing near‑term liquidity while rightsizing the business.
• Strategic catalyst: NiCO laser pulse oximeter submission to FDA “in the next couple of weeks,” with management targeting commercialization and revenue in 2026; the device aims to address skin pigmentation bias in traditional LED oximetry and carbon monoxide detection limitations.

What Went Well and What Went Wrong

What Went Well

• Salesforce productivity focus and diversification: despite ~39% fewer reps, total orders fell only 3% YoY; non‑new product orders reached 34% vs ~30% last year, supporting product mix evolution (“we were encouraged by the strong performance of the current sales reps”).
• Cost actions instituted: ~15% staff reduction and other expense cuts should yield ~$35M annual savings, with S&M and G&A trending lower sequentially into Q2 (“We continue to monitor expenses and adjust as necessary”).
• NiCO laser pulse oximeter nearing FDA submission, with management highlighting superior accuracy across skin pigmentation and potential to detect carbon monoxide; commercialization plan anticipates 2026 revenue (“game‑changing pulse oximeter”).

What Went Wrong

• Material revenue and earnings miss vs prior guidance: Q1 revenue $26.6M vs prior guide ≥$30M; diluted EPS ($0.33) vs guided loss of ($0.30) or better, reflecting TRICARE suspension and payer timing volatility.
• Margin compression: gross margin fell to 69% from 80% YoY due to supporting TRICARE patients (COGS incurred without revenue); Adjusted EBITDA swung to ($11.8M), -44% of revenue.
• Visibility overhang: full‑year guidance withheld pending TRICARE resolution; management indicated revenue recognition is sensitive to payer “ins and outs,” adding near‑term uncertainty.

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen, and welcome to the Zynex First Quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Brian Prenoveau, Investor Relations for Zynex.

Brian Prenoveau (Head of Investor Relations)

Thank you, Operator, and good afternoon, everyone. Earlier today, Zynex released financial results for the first quarter ended March 31, 2025. A copy of the press release is available on the company's website. Joining me on today's call are Thomas Sandgaard, Chairman, President, Chief Executive Officer; Dan Moorhead, Chief Financial Officer; Anna Lucsok, Chief Operating Officer; and Donald Gregg, President of Zynex Monitoring Solutions. Before we begin, I'd like to remind you that during this conference call, the company will make projections and forward-looking statements regarding future events. We encourage you to review the company's past and future filings with the SEC, including, without limitation, the company's 2024 Form 10-K and subsequent Form 10-Qs, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements.

These factors may include, without limitation, statements regarding product development, product potential, the regulatory environment, sales and marketing strategies, capital resources, or operating performance. With that, I'll now turn the call over to Thomas. Thomas?

Thomas Sandgaard (Chairman, President and CEO)

Yeah, thanks, Brian, and good afternoon, everyone. Thank you for joining us today for the first quarter 2025 earnings call. With me today are Anna Lucsok, our Chief Operating Officer; Donald Gregg, President of our Zynex Monitoring Division; and Dan Moorhead, our Chief Financial Officer. Anna will provide an update on the appeals process for TRICARE and the other initiatives we are pursuing in pain management, and Don Gregg will discuss patient monitoring and the pending submission to the FDA for our Nico Pulse Oximeter. We will discuss the first quarter's financial results. Before Anna discusses operations, I'd like to thank our employees and shareholders for their patience and dedication. I want to offer our shareholders some clarity around our current situation and stock price. Clearly, our stock price is very low right now and likely lower than it's really justified.

Several things have added to our current situation. As you all know, our business model is to obtain a prescription for patient use of our devices and then bill the insurance company for the use. We deal with over 3,000 insurance companies daily and are constantly navigating challenges and obstacles put in our way in securing reimbursement. Recently, a new challenge was that TRICARE abruptly placed a temporary payment suspension while they're looking into if our claims comply with their policies and guidelines. We're used to these kinds of behaviors constantly over the past several decades, and we therefore did not include bills to TRICARE in our recent revenue calculations. If and when this all gets resolved, it'll get incorporated into our financials per accounting guidelines.

We had a chance to meet with TRICARE, or what's called the Defense Health Agency, on April 9, and we believe we presented strong arguments that we have clearly followed all current and existing guidelines and policies. They committed to providing a response before June 9, which was 60 days after the meeting, and we now have up to 40 more days to wait. Hopefully, we will hear from them sooner. As a reminder, we actually had an audit and completed an audit with TRICARE back in 2022, and at the time, we made all recommended adjustments to billing and reimbursements that they requested. The evidence we outlined in our presentation to TRICARE strongly supported our consistent compliance with TRICARE billing practices, and we hope as they work through our arguments that coverage and payments get restored. Of course, we never know the outcome here short term.

Not long ago, an accounting firm called CBIZ acquired Marcum. Marcum is our auditors or was our auditors, and that acquisition made it possible for short collaborators or short news agencies to scoot the story so that it sounded like our auditors dumped Zynex as a client, which was clearly not the case. The mandatory 8-K filing we made made this narrative possible, which clearly did not help the stock price either. I want to emphasize that we are restructuring our business to run without TRICARE business in a worst-case scenario going forward, trimming a lot of overdue fat in the organization and restructuring several areas of the business. Once this is completed later this year, we'll be poised to get back on our growth track.

We're refocusing our sales force on new revenue opportunities, which will help us grow even without TRICARE patients and will eventually help us get back to current revenue levels and even more as growing our sales force with more productive sales reps will drive more growth. We also continue to promote other products such as bracing to our prescribers. As part of our cost containment, we have continued to trim unproductive sales reps and leaving territories open for better hires in the future. You will later hear in more detail about finishing up our game-changing Pulse Oximeter. In short, we have completed and passed all EMC and safety tests, which was the last missing item that we were waiting for and will be submitting to the FDA in what we believe will be just over a week.

I'm very excited about finally getting ready to launch this product into the world's biggest device market, which is Pulse Oximetry. A product that has no bias when patients have darker skin, a product that will not show incorrect oxygen data when there's, for instance, carbon monoxide poisoning, and fundamentally will be able to do the same thing as when hospitals take a blood sample to be sure that what hemoglobin species are in the blood. With our technology, this can now be done non-invasively, real-time, and accurately show levels of oxygen, carbon monoxide, methemoglobin, and reduced hemoglobin. A revolution that could replace old technology Pulse Oximeters as we will have the same price levels and form factors that hospitals are used to.

Hopefully, shareholders will pay attention to our progress on the background of these recent challenges that we now have a clear path to turn things around and a clear path to continued growth in both divisions. We're still confident that our non-invasive approach with at-home pain management devices have real growth opportunities to provide non-opioid relief to patients. We've remained focused on ramping our hospital monitoring division, which represents a large and growing market opportunity with a better mousetrap in the Pulse Oximeter market. Our revenue is also becoming more diversified with increased call points, more products, technologies, and more end users. We're very optimistic about the future of Zynex as we have proven to be a business that can grow quickly and profitably. We think there's a plethora of growth paths available in the years to come.

I will now turn the call over to Anna Lucsok to provide a more detailed update on the operations and our status with TRICARE. Anna?

Anna Lucsok (COO)

Thank you, Thomas. As Thomas mentioned, we were notified by TRICARE of a temporary suspension of payments as they complete their review. In early April, we met with the Defense Health Agency and supplied them with our evidence regarding their questions to billing practices. We believe we supplied good information to their inquiries and provided strong evidence to dispute their claims and questions. We expect to hear from them in June or earlier, but we're happy with the information and documentation we showed to their team. As a reminder, if or when the reimbursements begin again, TRICARE would be responsible for paying all of the claims that have been appropriately processed during the temporary hold, which would show significantly increased revenue once received. We remain in network with TRICARE and are expected to continue processing new and existing claims for treatments of TRICARE patients.

TRICARE told us that they want current and new patients to continue receiving care through this process. In March, we decreased overall staff by approximately 15%, mostly in our corporate office. We anticipate this, along with other expense reductions, will result in annual savings of approximately $35 million. Beyond TRICARE, we remain excited about several new opportunities for growth with various insurers, including focusing on new areas like personal injury. Although it's still in the early days, revenue is growing, and we're excited about the possibilities. Our sales force continues to drive a diversified product mix. In Q1 2025, we saw our non-NextWave product order percentage increase to 34%, up from an average of 30% last year. I'll now turn the call over to Don Gregg to provide a more detailed update on the patient monitoring business. Don?

Donald Gregg (President)

Thank you, Anna. I want to provide an update on the progress of our Nico Pulse Oximeter and the overall market opportunity for this product. We have successfully completed third-party testing and are finalizing documentation for our FDA submission as we expect to file this in May. I would also like to spend a few minutes discussing why we are so passionate about this technology and the massive opportunity we believe is in front of us. We believe this technology will be superior to what is currently in the market and will improve health equity across the patient continuum of care. There are very few clinical procedures that do not use Pulse Oximetry. Pulse Oximeters are used to provide clinicians with a patient's blood oxygenation level in order to assess oxygenation status and inform next steps in care.

A broader goal of healthcare providers is to ensure that any disparities in care are minimized to every extent possible. Skin pigmentation and thickness have both been shown to alter the oxygen measurement displayed when using LED-based Pulse Oximetry, resulting in biases which can have negative impacts on patient care and outcomes. Laser Pulse Oximetry is not biased in the same manner as LED Pulse Oximeters, allowing for more accurate readings across all individuals regardless of skin pigmentation. More accurate data results in improved care and better patient outcomes. We believe our Nico Pulse Oximeter will provide reliable and equitable care for all. LED Pulse Oximeters on the market today are challenged to provide accurate and unbiased results due to inherent technological limitations. This shortcoming risks compromising patient care, especially for individuals with darker skin pigmentation or comorbidities, which put them at higher risk.

We are working closely with key opinion leaders to broadly educate clinicians in every care area about the science of laser-based Pulse Oximetry, which is the key element of Nico's fractional hemoglobin measurements and the reason supporting the anticipated positive impact of this technology on patient care. Additionally, ongoing and upcoming clinical trials will allow us to publish widely on the benefits of our technology. After FDA submission, we expect approval to take approximately six months, and this is based on FDA data. We have been preparing for commercialization with an early awareness education campaign that is targeting physicians across the country. Our goal is to have a pipeline of physicians interested as early adopters to both evaluate laser-based Pulse Oximetry and utilize Nico in their practice following FDA clearance. Taken together, Nico will hit the market following clearance with a strong foundation of clinical results and commercial development.

Patient monitoring is a multi-billion dollar market that we believe Nico will enter as a superior product that can meaningfully improve care to the broadest range of patients when they need it most. Zynex is pushing to be a key industry partner and leader to all clinicians and further demonstrate how Nico's laser Pulse Oximetry technology inherently solves the current market challenges, especially skin pigmentation bias, while bringing new precision medicine technology forward in the field of patient monitoring. We are incredibly excited about next steps as we have a clear trajectory to FDA submission and commercialization of this game-changing technology. I will now turn the call over to Dan Moorhead, Chief Financial Officer, for a more in-depth look at the quarter's financial performance.

Dan Moorhead (CFO)

Thanks, Don. Please refer to our press release issued earlier today for a summary of our financial results for the first quarter ended March 31, 2025. Net revenue was $26.6 million compared to $46.5 million in the first quarter of 2024. Device revenue was $11.9 million, and supplies revenue was $14.7 million. The revenue decline was primarily attributable to the temporary payment suspension from TRICARE and slowing order growth related to our focus on sales rep productivity and lower sales headcount. Gross profit in the first quarter was $18.2 million, or 69% of revenue, as compared to $37.2 million, or 80% of revenue in Q1 2024. Sales and marketing expenses decreased 28% to $16.9 million in the first quarter of 2025. The primary contributor to the decrease in sales and marketing expenses was our headcount reduction.

DNA expenses were $14.4 million in the first quarter of 2025 compared to $13.3 million last year. Net loss was $10.4 million and $0.33 per share in the first quarter of 2025 compared to net income of $10,000 last year. Adjusted EBITDA loss for the three months ended March 31, 2025, was $11.8 million, as compared to adjusted EBITDA of $1.7 million in the quarter ended March 31, 2024. Despite the difficult first quarter, we maintain a strong balance sheet of $40 million in working capital and approximately $24 million of cash on hand. With that, I'll now turn the call back over to Thomas.

Thomas Sandgaard (Chairman, President and CEO)

Thank you, Dan. Although we have received some unwelcome news at the beginning of this year, we are optimistic about the growth prospects of the company and the varying opportunities that we have going forward. We hope to receive a response from TRICARE here in the next 40 days or hopefully less, and we'll continue to provide high-quality service to those patients here in the meantime, as well as accepting new patients that are covered by TRICARE. Beyond the TRICARE issue, we are pursuing further growth avenues to propel the business forward. Our mission is to improve the quality of life for patients suffering from debilitating pain or illness by providing the highest and best technology and service standards.

In pain management, we do this by providing a non-opioid alternative to pain management, and our monitoring division aims to measure data more accurately across patients to provide more equitable healthcare outcomes. We will continue to adjust the cost structure as needed with the long-term goal of generating revenue above and beyond $800 million a year. Looking forward, we believe we have additional customers and revenue streams that can drive further growth. We have a solid balance sheet with a strong cash position, and our historic profitability allows a high degree of flexibility to allocate capital in multiple ways. We have shown the ability to adjust to market, customer and reimbursement changes, and continue investing in our business.

As for the second quarter, we estimate our revenue to come in at $27 million and the EPS, or earnings per share, to be a loss of $0.20 per share as we continue to right-size the business to return to profitability as soon as possible. With that, operator, please open the call up to questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star, followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Shagoon Singh from RBC Capital Markets. Your line is now open. Please go ahead.

Shagun Singh (Analyst)

Thank you so much for taking the question. I was hoping you can give us a little bit of more color into the conversation with TRICARE. Did you get a better sense of why they denied coverage? What kind of evidence did you present? How do you feel about the decision on June 9? I guess also more importantly, have you had conversations with other payers? Are they worried about anything? Could there be a domino effect? Any color around the conversations you're having would be helpful.

Donald Gregg (President)

That's you. I did not like to know.

Anna Lucsok (COO)

At this time, we do not have any more information that we can provide. As we mentioned during the call, we met with the Defense Health Agency. We presented our arguments. The claims that we received from TRICARE for payment suspensions are fairly vague, so we just presented our compliance with their guidelines and policies. There are no other conversations with any other payers right now about any type of issues. I also wanted to emphasize that this is not denied coverage. They continue to process our claims. This is a temporary payment suspension while they confirm that the evidence that we provided and the arguments that we provided in following their policy is appropriate.

Shagun Singh (Analyst)

Got it. Thank you. I just wanted to kind of touch on Q1 and guidance. You guys gave us an update last month, I believe, in March, and you guys missed Q1.What got worse? What was unanticipated versus last month? Also, with respect to your 2025 guidance, you still have not provided that, but is it likely, or could you consider giving us a look into the non-TRICARE portion of the business and how that is doing or what your expectation is in 2025? Thank you for taking the questions.

Dan Moorhead (CFO)

I'd say a couple of things. When you're talking about the revenue miss in Q1, there's a multitude of factors. We have ins and outs with payers all the time, and our revenue recognition is pretty sensitive to those changes. We had a couple of those in Q1, and we ended up a little short. I would say for the rest of the year, you're correct. We haven't given guidance yet. We were waiting just to get a little more clarity on TRICARE before we do that. We would expect to give the remainder of the year, hopefully when we announce our Q2 guidance or our Q2 results at the beginning of Q3 in July. Generally, I would say, again, the rest of the business is operating as normal.

Again, like we said, we have some things bounce from quarter to quarter, but nothing else that was super material in that period.

Anna Lucsok (COO)

Thank you.

Operator (participant)

Your next question comes from the line of Yi Chen from H.C. Wainwright. Your line is now open. Please go ahead.

Yi Chen (Managing Director and Senior Healthcare Analyst)

Thank you for taking my questions. My first question is, could you please confirm that the first quarter revenue and also the guidance for the second quarter contain no payments from TRICARE?

Dan Moorhead (CFO)

That's correct.

Yi Chen (Managing Director and Senior Healthcare Analyst)

Okay. If the outcome is positive, do you believe TRICARE will give you a lump sum payment that was due in the first quarter and the second quarter?

Dan Moorhead (CFO)

I don't know that we're positive on how it'll come through, but they have told us that we would get reimbursed for those claims that haven't been paid.

Yi Chen (Managing Director and Senior Healthcare Analyst)

We know that all those claims, even some from the fourth quarter of last year, have been adjudicated, and we can see that in the system. The missing thing is obviously the decision to open up for the temporary payment suspension. Ideally, there would be one or a number of payments on the same day. If they want to spread that out or how that would flow in a positive outcome, we do not know that yet. The main thing is, certainly for me, is that we believe we have proven in very clear terms that we have complied with all guidelines and policies that they have in place. Okay. Let's just assume if for whatever reason the outcome is negative, will you stop servicing the TRICARE patients?

Is there a plan, or are you considering a plan that would be able to make up the revenue lost with the TRICARE patients?

Donald Gregg (President)

To make up the revenue that else was coming from TRICARE, we're addressing that by refocusing our sales force so that we will grow in other areas. They have so many hours available in a day, and if we direct them to other areas, we expect that to generate the equal amount or maybe even better revenues depending on what clinics they hit. Yeah. Okay.

Yi Chen (Managing Director and Senior Healthcare Analyst)

Last question. If NICO is approved before the end of 2025, do you expect NICO to generate a meaning for sales in 2026, or it's more likely a 2027 event?

Shagun Singh (Analyst)

Yeah. We will launch NICO immediately once it's cleared. 2026 is the year for revenue for NICO. We will start with a controlled launch and ensure that we can build and service this for our customers. 2026 is the year for revenue for NICO.

Yi Chen (Managing Director and Senior Healthcare Analyst)

Okay. Thank you very much.

Donald Gregg (President)

You're welcome.

Operator (participant)

There are no further questions at this time. Please continue, Mr. Thomas Sandgaard.

Thomas Sandgaard (Chairman, President and CEO)

Yeah. Thank you for joining us today. We are pleased with our performance here this last year and the consistent growth that our team is delivering. We obviously had a hiccup earlier in the year that we are working through and right-sizing the business. With that said, we look forward to leveraging the momentum that we have with our sales force and the business model that we have built. Speaking to you at upcoming investor events. We appreciate your time and interest in Zynex. Have a great day.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.