Zynex Inc. (NASDAQ:ZYXI), a leading provider of non-invasive medical devices for pain management, rehabilitation, and patient monitoring, reported its financial results for the second quarter of 2024. While the company continued to deliver solid revenue growth, its diversification efforts and operational changes weighed on the top line, leading to a revision in its full-year guidance. However, the company's monitoring division made significant strides towards the commercialization of its innovative products, positioning Zynex for long-term success.

Financials

In the second quarter of 2024, Zynex reported net revenue of $49.9 million, up 11% from the prior-year period. This growth was driven by a 20% increase in device orders, the highest number in the company's history for the 9th consecutive quarter. Device revenue came in at $15.9 million, up from $13.7 million in the same quarter of 2023, while supplies revenue increased to $34.0 million from $31.2 million in the prior-year period.

The company's diversification efforts, however, had a more significant impact on revenue than anticipated. Zynex has been expanding its product portfolio beyond its flagship NexWave device, adding more rehabilitation products such as back, knee, and wrist braces, cervical and lumbar traction, and hot/cold therapy. These distributed rehabilitation products now make up 28% of total orders, up from 25% in the first quarter of 2024. While these products have a higher gross profit margin of around 80%, their revenue and cash flow are not as high as the NexWave device, which has a recurring supply element recognized over the entire treatment period.

In addition to the product mix shift, Zynex has been more aggressive in scrutinizing its sales force and exiting underperforming representatives. During 2024, the company has decreased its sales force, which has had a near-term impact on revenue growth. However, management believes this is a necessary step to ensure long-term productivity and profitability.

Despite the revenue headwinds, Zynex's gross profit margin remained strong at 80% in the second quarter of 2024, compared to 79% in the same period of 2023. Sales and marketing expenses increased to $23.2 million, up from $21.6 million in the prior-year quarter, while general and administrative expenses rose to $14.5 million from $11.4 million.

Net income for the second quarter of 2024 was $1.2 million, or $0.04 per diluted share, compared to $3.4 million, or $0.09 per diluted share, in the same period of 2023. The decrease in net income was primarily due to the revenue challenges and increased investments in the company's monitoring division.

Business Overview

Zynex's monitoring division, Zynex Monitoring Solutions (ZMS), continued to make significant progress towards the commercialization of its innovative products. The company's NICO pulse oximeter, a laser-based technology that provides blood test-level accuracy in a non-invasive form factor, is currently undergoing the final phase of manufacturing transfer, FDA clinical trials, and commercialization readiness prior to FDA submittal and clearance.

Liquidity

Zynex's balance sheet remains strong, with $30.9 million in cash and cash equivalents as of June 30, 2024, and working capital of $55.9 million. The company generated $3.2 million in cash flow from operations during the first half of 2024, a 20% increase compared to the same period in 2023.

Outlook

Looking ahead, Zynex expects total revenue for 2024 to be approximately $200 million, representing growth of approximately 9% over 2023. The company also anticipates diluted earnings per share of approximately $0.20 for the full year. For the third quarter of 2024, Zynex expects revenue of $50 million and diluted earnings per share of $0.05.

Conclusion

Zynex's diversification efforts, operational changes, and investments in its monitoring division have weighed on its short-term financial performance. However, the company's long-term strategy of building a diversified revenue stream, improving operational efficiency, and developing innovative products positions it well for sustained growth and profitability. As Zynex continues to navigate the evolving landscape, investors will be closely watching the company's ability to balance its growth initiatives with maintaining strong financial discipline.