Zynex - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue was $22.3M, down 55% year-over-year and down 16% sequential; gross margin was 68% vs 80% a year ago; net loss was ($20.0)M or ($0.66) per share, including a non-cash $10.3M deferred tax asset allowance ($0.34 per share impact).
• Management suspended revenue and profitability guidance for Q3 2025 amid CEO transition and CFO departure; incoming CEO Steven Dyson will review forecasting and update investors in coming quarters.
• Cost actions accelerated: Sales & marketing expense fell 45% YoY to $12.8M; total annualized savings targeted at ~$40M with reductions and operational restructuring taking fuller effect in Q3–Q4.
• Strategic catalysts: NiCO laser pulse oximeter 510(k) submission (May) with anticipated additional information in August and an expected ~six‑month clearance timeline (management indicated December is more likely), plus payer mix optimization; TRICARE payment suspension remains a central headwind.

What Went Well and What Went Wrong

What Went Well

• Operational discipline: “We have implemented several efficiency improvements... reallocating staff to more profitable business lines... These improvements will result in annualized savings of approximately $40 million, most of which will take full effect in the third and fourth quarters of this year.” — Thomas Sandgaard.
• Expense control traction: Sales & marketing expense down 45% YoY to $12.8M; G&A down to $12.7M in Q2; management expects further S&M down 15–20% and G&A down 10–12% sequential into Q3, then flattening.
• Product pipeline: NiCO laser pulse oximeter submitted to FDA; management emphasized conformance with January 2025 draft guidance and potential to address skin pigmentation bias and unlock co‑oximetry market; clearance targeted ~six months from August AI (around December).

What Went Wrong

• Revenue shock: Net revenue fell to $22.3M vs $49.9M a year ago (and below prior Q1 guidance of “at least $27M”), driven by TRICARE payment suspension, sales force reductions, shipment/billing changes, and utilization management program curbing supply shipments.
• Margin compression and loss: Gross margin declined to 68% (80% a year ago) with continued servicing of TRICARE patients yielding COGS without revenue; Adjusted EBITDA was ($8.9)M vs $3.5M a year ago.
• Guidance and balance sheet overhang: Guidance suspended; $60M convertible notes became current (May 2026 maturity), with active refinancing discussions underway, adding near‑term capital structure uncertainty.

Transcript

Speaker 7

Afternoon, ladies and gentlemen, and welcome to the Zynex Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a 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 Dan Moorhead, Chief Financial Officer of Zynex. Please go ahead.

Speaker 5

Thank you, Operator, and good afternoon, everyone. Earlier today, we released financial results for the second quarter ended June 30, 2025. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that during this conference call, the company will make projections and forward-looking statements regarding 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, along with any amendments, 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 and legal environment, sales and marketing strategies, capital resources, or other operating performance. With that, I'll now turn the call over to Thomas.

Speaker 0

Thank you, Dan, and good afternoon, everyone. Thank you for joining us today for the Second Quarter 2025 Earnings Call. With me today are Anna Lucsok, our Chief Operating Officer; Don Gregg, President of Zynex Monitoring; and Dan Moorhead, our Chief Financial Officer. Anna will provide an update on our initiatives in the Pain Management Division, and Don Gregg will discuss how far we have come in our Patient Monitoring Division and our recent submission to the FDA for our NICO laser pulse oximeter. Dan will go through the second quarter's financial results. The second quarter of 2025 is dominated by many improvements centered around refocusing our pain management business model, not only reshaping our sales force and redirecting them to slightly different call points, but also transforming our corporate structures to better reflect and streamline operations.

Later this year and into the next year, we'll see the impact of this effort. We're seeing a reduction to overall expenses of approximately $40 million annualized and a more efficient use of our inventories, better supply chain management, and a more diversified prescriber and payer customer base, all in support of our goal to return to positive cash flow by the end of this year. We recently announced the addition of Stephen Dyson as our new CEO, and Stephen brings over 25 years of experience in the medical technology sector, primarily through his leadership at Apex, a global private equity firm. Stephen brings deep expertise and a proven track record in the medical sector. His leadership will be helpful as we refocus our business strategy toward a more optimized payer mix and work to return Zynex to a strong growth trajectory.

His start date is August 18, and I look forward to working with him in my new role as just Chairman of the Board. I should also mention that he and I are very aligned on all the major things that need to get done. In another also important development, Dan Moorhead, our CFO, has recently resigned, as announced in our 8K filing two days ago. He's on the call today and available to answer questions. As soon as we have a replacement appointed, we'll update everyone immediately, of course. As I'm sure most of our listeners know, we submitted the FDA application on our NICO laser pulse oximeter back in May.

This product marks a historic milestone in the evolution of pulse oximetry and is a major game changer in our mission to improve the quality of care and patient outcomes with unique breakthrough technologies in our Hospital Monitoring Division. We are encouraged by the early attention we've received from the FDA and the line of questions we have answered already. We expect at least one more round of questions that will take several months before clearance. Don Gregg will provide you with more details on this exciting development. The TRICARE temporary payment suspension is still ongoing, and it's hard to predict exactly how long it would take before we have a resolution to this. We are obviously hopeful that it will be sooner rather than later.

We are actively cooperating with the Defense Health Agency and TRICARE in their claims reviews, and we are advocating for rescission of the payment suspension. In support of TRICARE's goals for patient care, we've also agreed to continue servicing existing TRICARE patients, and we are honoring prescriptions for new patients. While we are working on a resolution with TRICARE, we are redirecting our focus to fully operate without relying on TRICARE's revenue. We are committed to diversifying our revenue streams even more. During the quarter, we continued our efforts to refocus our sales force and operations to reflect the current landscape of insurance coverage and have made significant strides towards improving cash flow.

This has included several efficiency improvements in our internal operations, relocating staff to more profitable business units, reducing our cost of goods sold, and updating our sales management structures while driving the sales force in the field to become more efficient and productive. Our efforts to redirect our sales force and reduce expenses internally are beginning to take effect now, and over the next several quarters, it will naturally show as improvements to our bottom line. We've reported net revenue of $22 million in the quarter, while we collected $26 million in cash in the second quarter. We posted a net loss of $20 million, while more than half of that was due to a non-cash adjustment to our deferred tax asset allowance. We strongly believe in our commitment to help patients with the best products for pain relief without side effects that are associated typically with opioids.

We are confident that our efforts to reduce costs and redirecting our sales force will be pivotal to improve cash flow and create a foundation for continuing to grow into the huge demand for our products. Our revenue is becoming more diversified with increased call points, increasing sales of other products, technologies, and more end users. We are very optimistic about the future of Zynex as we have proven to be a business that can grow profitably. I'll now turn the call over to Anna Lucsok to provide a more detailed update on the operations. Anna.

Speaker 4

Thank you, Thomas. As Thomas mentioned, we were notified by TRICARE that the temporary suspension of payments will continue as they complete their review. We continue to remain an in-network provider and service existing and new TRICARE patients as directed by the Defense Health Agency. In June, we decreased overall staff by an additional 14%, mostly in our corporate office. We anticipate this, along with previous expense reductions, will result in an annual savings up to $40 million. As part of the restructure and based on payer performance analysis, we've categorized payers into different tiers and are actively shifting our focus to the most favorable segments. As a result, we've right-sized shipments for orders and adjusted sales commissions to reflect performance. Internally, we've eliminated close to 90 corporate roles, replacing them with more cost-effective outsourced teams.

These actions are expected to reduce expenses while allowing our teams to focus more efficiently on our core business on a monthly basis. While we anticipate a near-term impact on revenue, primarily within our supply segments, it reinforces our patient-centric approach and strengthens our ability to build and sustain long-term value-based relationships with payers. We believe this strategy will drive greater patient outcomes and operational sustainability over time. We've undertaken a comprehensive realignment of our sales force to drive productivity and position the organization for long-term growth. One of the key initiatives has been resetting our sales organization to better align with and reflect our business objectives. In parallel, we've restructured the sales team by reducing the overall headcount and exiting sales reps that don't meet our standards. We also streamlined our organizational structure by removing redundancies, which has allowed for oversight and support from senior leadership.

This leaner structure empowers leadership to stay focused on the metrics that matter for the business and performance indicators that enable faster identification of coaching opportunities to ensure every individual representing our company represents our values. Additionally, we revamped our sales compensation model to drive a performance-focused culture that meets the company's objectives for good patient care and experience and regulatory compliance. High-performing sales employees are now rewarded with increased base pay, while mid-tier performers are incentivized to improve through clearly defined targets. This approach not only drives accountability but ultimately creates a clear pathway for reps to appropriately grow their earnings if they deliver better business outcomes through better patient experience. Long-term, our objective remains unchanged. We aim to fully staff all 800 sales territories with highly capable data-driven representatives.

We believe this focused and disciplined strategy will allow us to serve our patients more effectively and deliver consistent, profitable growth. I'll now turn the call over to Don Gregg to provide a more detailed update on the patient monitoring business. Don.

Speaker 3

Thank you, Anna. I want to provide an additional update on the progress of our NICO pulse oximeter and the overall market opportunities for this product. We successfully submitted NICO to the FDA in May, and there has been initial interactive review with the FDA. We are expecting an additional information request in August and an overall six-month clearance process. Last quarter, I spent some time explaining why we are well-positioned with this technology and the massive opportunity we believe is in front of us. Clinical results show the NICO laser technology is superior to LED-based pulse oximeters currently in the market today, as they have severe accuracy issues in patients with darker skin, elevated carbon monoxide or methemoglobin in the bloodstream, and especially those with low levels of blood oxygen. There are very few clinical procedures that do not use pulse oximetry.

Skin pigmentation has 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. These accuracy issues are on the FDA agenda and have resulted in device manufacturer litigation to date. Numerous clinical publications prove LED-based pulse oximeters that are on the market today are inaccurate on darker skin. Given this, 25 attorney generals and the U.S. Senate requested FDA to address pigmentation bias. As a result of this, the FDA funded Open Oximetry to improve the safety and precision of pulse oximeters that openly publish their testing results. Multiple FDA panel meetings resulted in a new draft guidance issued in January of 2025, in which our technology conforms to that guidance.

The NICO pulse oximeter recently submitted to the FDA is powered by patent-protected laser technology that has been validated to solve the accuracy issues of LED technology in a clinical study at Duke University. Laser pulse oximetry is not biased, allowing for more accurate readings across all individuals, regardless of skin pigmentation, elevated carbon monoxide, or methemoglobin in the bloodstream, and especially those with low levels of blood oxygen. 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. In addition to solving current LED-based pulse oximeter technology accuracy issues, the NICO technology platform is poised to unlock the $1 billion invasive lab-based co-oxymetry market with non-invasive laser pulse oximetry technology by bringing it directly to the bedside with instant results and shifting the standard of care.

Co-oxymetry is a critical diagnostic tool for emergency room and hospital patients to determine their treatment pathway. Current co-oxymetry technology is lab-based for the most part, uses similar laser spectrometry technology, and suffers from a number of drawbacks that affect patient outcomes and high hospital cost. Co-oxymetry measurements require a blood draw today, which is painful and risks infection. Patients wait for results from the lab, which reduces the ability to select appropriate treatment in a timely fashion. These labs are sometimes offsite and result in lengthy delays. It's also a more expensive approach due to hospital lab processes and high-cost consumables. The NICO platform uses needle-free, patent-protected laser technology to deliver instant, continuous, and low-cost results at the bedside to unlock this opportunity.

To close, we submitted NICO to the FDA in May of this year, and we expect approval to take approximately six months from receipt of an FDA additional information request that's scheduled for August. Patient monitoring is a multi-billion dollar market, approximately $3.5 billion globally, 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 accuracy and skin pigmentation bias, while improving the field of patient monitoring. 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.

Speaker 5

Thanks, Don. Please refer to our press release issued earlier today for a summary of our financial results for the second quarter ended June 30, 2025. Net revenue was $22.3 million compared to $49.9 million in the second quarter of 2024. Device revenue was $11 million, and supplies revenue was $11.3 million. The revenue decline was primarily attributable to the temporary payment suspension from TRICARE and slowing order growth, which was impacted by sales force reductions, shipping policy adjustments, and the redirection of the sales force activity. Gross profit in the second quarter was $15.2 million, or 68% of revenue, as compared to $39.9 million, or 80% of revenue in Q2 2024. Sales and marketing expenses decreased by 45% to $12.8 million in the second quarter of 2025.

The primary contributor to the decrease in sales and marketing expenses was our headcount reduction as we continue to focus on sales rep productivity. G&A expenses were $12.7 million in the second quarter of 2025 compared to $14.5 million last year. Net loss was $20.66 per share in the second quarter of 2025 compared to net income of $1.2 million in Q2 2024. As Thomas mentioned, included in our net loss is a non-cash charge of $10.3 million, or $0.34 per share, related to an allowance on our deferred tax assets. Adjusted EBITDA loss for the three months ended June 30, 2025 was $8.9 million as compared to an adjusted EBITDA of $3.5 million in the quarter ended June 30, 2024. On the balance sheet, we had $17.5 million of cash on hand at June 30, 2025, and we're able to reduce our cash burn significantly in Q2.

We expect it to be even less in Q3. Our convertible debt of $60 million is due in May of 2026, so you'll notice it's now a current liability. We are currently working with our advisors to refinance this liability. With that, I'll now turn it back over to Thomas.

Speaker 0

Thank you, Dan. In terms of forward-looking guidance, we have decided to suspend quarterly guidance while we are onboarding our new CEO and looking to appoint a new CFO following Dan's announced departure. Stephen Dyson, the incoming CEO, will lead a review of the company's forecasting procedures and will provide an update to investors on the potential resumptions of guidance in the coming quarters. Our mission is to improve the quality of life for patients suffering from debilitating pain and illness by providing the highest 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 and provide a reputable healthcare outcome. We continue to adjust the cost structure as needed, and we'll soon get back to a strong growth trajectory.

Looking forward, we believe we have additional call points and revenue streams that can drive further growth. We have always shown an ability to adjust to market, customer, and reimbursement changes and continue investing and refocusing our business. With that, let's open the call up for questions.

Speaker 7

Thank you, sir. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touch-tone phone. You will then hear a prompt that your hand has been read. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift the handsets first before pressing any keys. Please go ahead and press star one now if you have any questions. Your first question will be from Jeffrey Cohen at Ladenburg Thalmann. Please go ahead, Jeffrey.

Oh, hello, folks. How are you doing? A few questions from our end. I guess, firstly, I just want to review and recap with Don Gregg on NICO. The initial submission was May. August is when you expect to return questions back to the FDA, or is August when you expect to hear back from them again, and remind us on anticipated approval? Would it be closer to October or December?

Speaker 3

Thanks for the question. We've been in dialogue with FDA in what's called an interactive review. We've received multiple discussion questions and dialogue with them. We're expecting an AI, which should be in August, and we are anticipating six months from then clearance. Depending on what is in the AI, based on what we've already had discussions with FDA regarding, I would expect that clearance would be closer to that December timeframe.

Okay. You feel confident that there won't be a second AI iteration?

Nobody really knows exactly what the FDA might do in that case, but we have forecasted AI questions. We've got responses ready for those, and we feel pretty confident in our submission to the FDA, given all the work that we've done over the past several years.

Okay. Got it. Perfect. Could you talk about TRICARE a little further as far as next steps and timelines as far as the next iteration when you may meet or have some news about the relationship there, and maybe talk a little bit about those patients and their patients and referrals. TRICARE is still referring patients to you. That flow has continued or perhaps diminished, and are those patients going on therapy or alternatively going elsewhere?

We don't have any information about TRICARE payment suspension, next steps at this point, and when or if it's going to get resolved. We continue to service TRICARE patients, existing and new patients. The inflow of patients has reduced a little bit just as a result of reduced sales rep headcount by about 50%.

Got it. Lastly, for Dan, perhaps talk a little bit about the sales and marketing line and/or the G&A line as far as the back half of the year and how those in the past three quarters may compare with Q2 and where you ended up Q2.

Speaker 5

I think you'll see continued reductions. We made the second of our cost reductions in June, and you didn't really get the full effect of those. On the sales side, I think you're going to continue to see a decrease, probably down another 15% to 20% in Q3. I think it probably flattens out for the rest of the year. On the G&A side, it's probably closer to a 10% to 12% decrease from Q2 to Q3, and then again flattening out. You'll really start to see the full effect of the cost reductions starting in Q3.

Okay. Perfect. That does it for us. Thanks for taking the questions.

Speaker 7

Thank you. Next question will be from Yi Chen at H.C. Wainwright. Please go ahead.

Hi there. This is Eduardo on for you. Thanks for taking the question. Do you have any more details on the nature of the data request from the FDA? You mentioned that you've done some preparation already to anticipate those questions. Just kind of get some color on any hesitations they might have or where they're looking for more detail in the technology.

Speaker 3

I think that the FDA, Yi Chen, is definitely concerned about LED technology. They want to ensure that our technology and our clinical trial performs as good as or better than LED technology. They've also, you know, we've had a lot of dialogue on claims positioning of it because it is a different light source technology, things like that. I'm anticipating that, you know, they will continue to review our clinical data. They will continue to review our claims to ensure where this is positioned properly for those claims, etc., etc. We are well prepared to talk through this with them and to respond in a very quick manner around that because we'd like to get clearance as soon as possible.

Thanks. That's really helpful. I guess, curious, I know it might be a little early, any conversations with the new CEO and possible initiatives or strategies, either on the commercial side or the reimbursement side, that you guys might have moving forward?

Speaker 0

Obviously, I've had a close dialogue with Stephen Dyson, and the rest of the leadership team is also engaged in basically making sure that things that come up at this point in time, that we're all aligned. All these initiatives to refocus on the pain management side, we're fully aligned on, and it fits well what he's good at, sorting out a difficult situation and make sure that the valuation of the company over the next several years will be much better than it is today.

All right. That sounds good. Thanks so much for taking the questions.

Speaker 7

Thank you. Next question will be from Shagun Singh at RBC Capital Markets. Please go ahead.

Thank you, Operator. Good afternoon, everyone. Thanks for taking the question. I guess just a couple of questions for me. Could you touch on why revenue came in below the recently provided guidance? I understand it was due to TRICARE and some of the sales force reduction, but beyond that, was there anything incremental that drove the sort of low visibility coming into the quarter? Thank you.

Speaker 0

Yeah, that's a third component in that we shipped less supplies in the second quarter than we had in prior quarters, simply as a result of the insurance companies that we are now servicing, the allowable and the initiatives we have to have even closer contact with patients as to their actual needs of supplies. I don't know if you have anything to add.

We continue to implement a utilization management control program in place to ensure better patient outcome that continues to impact our supply ship installations.

Got it. Thank you very much. Maybe on TRICARE, you talked about how you're still servicing some of these patients when you know that payments aren't necessarily going to be coming in at this time. Is there a reason why you're still servicing them? Perhaps, have you thought about perhaps reallocating resources elsewhere? Maybe can you help us think about what Zynex could look like at TRICARE? Thank you.

Yeah. TRICARE specifically, or the Defense Health Agency with TRICARE, has specifically asked us in doing this process here to continue to service their patients and new patients as well. As annoying and hostile of a situation as it is, we are obviously doing our best to try to play ball and take good care of patients as we receive those prescriptions. That's part of basically dealing with this situation here. It's something that's obviously costing us some money with no revenue, and we will continue to evaluate whether we do that. As Anna Lucsok mentioned earlier, the number of new orders we are getting has dropped significantly as a result of refocusing our sales force, and that helps a little bit on that equation.

Got it. Thank you very much. This was Mohamed Sour on for Shagun Singh.

Speaker 7

Thank you. At this time, Mr. Sandgaard, we have no further questions registered. Please proceed.

Speaker 0

Thank you for joining us today. We obviously didn't see the performance that we had expected here this past quarter. However, I'm very pleased with our plan of improvement and the actions that we have already taken. We appreciate your time and interest in Zynex. Have a great day.

Speaker 7

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.