Executive Summary / Key Takeaways

• Dual Transformation Underway: Zynex is executing a significant strategic pivot, refocusing its core pain management division for efficiency and launching its innovative Patient Monitoring segment, aiming for long-term growth and profitability.
• TRICARE Headwind & Cost Rationalization: A temporary payment suspension from TRICARE, historically 20-25% of revenue, has severely impacted recent financials, prompting aggressive cost reductions targeting $40 million in annualized savings and a strategic shift to operate without reliance on TRICARE.
• Game-Changing Technology in Monitoring: The NiCO laser pulse oximeter, submitted to the FDA in May 2025 with anticipated clearance by December 2025, offers superior accuracy over existing LED technology, addressing critical market needs and poised to unlock a multi-billion dollar opportunity in patient monitoring.
• Liquidity and Leadership Transition: The company faces a near-term liquidity challenge with convertible notes maturing in May 2026 and a "going concern" qualification, concurrent with a CEO transition and CFO departure, signaling a period of internal review and strategic recalibration.
• Long-Term Growth Potential Amidst Risks: Despite current financial pressures and ongoing legal/regulatory scrutiny, Zynex's differentiated technology, diversified product portfolio, and refocused sales strategy position it for a return to positive cash flow by year-end 2025 and sustained growth in both pain management and patient monitoring.

A Legacy of Non-Opioid Innovation Meets a Pivotal Crossroads

Zynex, Inc., founded in 1996, has built a legacy as a developer of non-invasive medical devices, primarily focused on electrotherapy for chronic and acute pain management and muscle rehabilitation. Its flagship NexWave device, offering multi-modality electrical stimulation, has been central to its mission of providing non-opioid pain relief. Over the decade leading up to 2024, Zynex demonstrated remarkable growth, with revenues expanding nearly twentyfold, cementing its position in a critical healthcare niche.

The company's overarching strategy has evolved to encompass both deepening its pain management offerings and diversifying into new, high-potential markets. This dual approach is critical in an industry increasingly focused on value-based care, patient outcomes, and technological advancement. Zynex's foundational strength lies in its patient-friendly, home-use devices, which address a significant societal need for alternatives to traditional pain medications.

Technological Edge: The NiCO Revolution and Pain Management Advancements

Zynex's strategic future is significantly tied to its technological differentiation, particularly within its nascent Patient Monitoring Solutions (ZMS) division. The NiCO CO-Oximeter, a multi-parameter pulse oximeter, stands out due to its patent-protected laser technology. This represents a substantial leap over conventional LED-based pulse oximeters, which are known to exhibit severe accuracy issues. Specifically, NiCO's laser technology demonstrates "much lower bias" on patients with darker skin pigmentation and provides accurate readings even with elevated carbon monoxide or hemoglobin in the bloodstream, especially at low blood oxygen levels.

This technological superiority directly addresses a critical and widely criticized limitation of existing devices, which has drawn scrutiny from the FDA, 25 attorney generals, and the U.S. Senate. The FDA has even funded the "Open Oximetry" project to improve safety and precision, and Zynex's NiCO technology conforms to the new draft guidance issued in January 2025. The "so what" for investors is profound: NiCO is positioned as a "major game changer" capable of "meaningfully improving care to the broadest range of patients," potentially disrupting the approximately $3.5 billion global patient monitoring market. Furthermore, NiCO aims to "unlock the $1 billion invasive lab-based co-oximetry market" by offering needle-free, instant, continuous, and low-cost results at the bedside, shifting the standard of care away from painful, delayed blood draws.

Within its core pain management segment, Zynex continues to innovate. The company received FDA clearance for its new TensWave device in Q3 2024, a TENS-only stimulator that offers a high-quality, effective pain relief alternative for specific insurance-approved scenarios. This complements the NexWave and expands the company's portfolio of non-opioid solutions.

Strategic Realignment and Operational Resilience

The beginning of 2025 brought significant operational challenges, most notably the temporary payment suspension by TRICARE, a government payer that historically contributed 20-25% of Zynex's annual revenue. This suspension, based on allegations of misrepresentation in billing and diagnoses, has forced Zynex to rapidly adapt. Despite continuing to service existing and new TRICARE patients as directed, the company has fully reserved all related revenue for Q2 2025, resulting in no TRICARE receivables as of June 30, 2025.

In response, Zynex has initiated aggressive cost containment measures and a strategic refocusing of its pain management business. Workforce reductions in Q1 and Q2 2025, including a 15% overall staff reduction in Q1 and an additional 14% (86 corporate roles) in June, are projected to yield approximately $40 million in annualized cost savings. The sales force has been trimmed from roughly 475 to 330 representatives by year-end 2024, with a focus on enhancing productivity, which already saw revenue per rep increase by 22% to $490,000 on average in 2024. This leaner structure, coupled with a revamped sales compensation model, aims to drive efficiency and accountability.

The company is actively "redirecting our focus to fully operate without relying on TRICARE's revenue," diversifying its revenue streams by targeting new payer channels like personal injury cases and expanding sales of private labeled rehabilitation products (e.g., braces, hot/cold therapy), which grew to over 31% of total orders in Q3 2024. This strategic pivot underscores Zynex's resilience and commitment to long-term growth, even in the face of significant reimbursement headwinds.

Financial Performance Under Pressure and Liquidity Outlook

Zynex's financial performance in the first half of 2025 clearly reflects the impact of the TRICARE suspension and ongoing restructuring. For the three months ended June 30, 2025, net revenue plummeted to $22.29 million from $49.88 million in Q2 2024, a 55.3% year-over-year decline. Similarly, for the six months ended June 30, 2025, net revenue decreased 49.3% to $48.87 million from $96.41 million in the prior year period. Device orders decreased by 20% and 12% for the three and six months, respectively, further illustrating the operational impact.

The company reported a net loss of $20.03 million ($0.66 per share) for Q2 2025, a stark contrast to the net income of $1.22 million in Q2 2024. The six-month period saw a net loss of $30.43 million ($0.98 per share) compared to a net income of $1.23 million in the same period of 2024. This loss included a significant non-cash charge of $10.3 million ($0.34 per share) related to a valuation allowance on deferred tax assets. Gross profit margins also compressed, falling from 80% in Q2 2024 to 68% in Q2 2025, primarily due to the revenue decline.

Liquidity is a critical focus. Zynex's working capital shifted from a surplus of $58.3 million at December 31, 2024, to a deficit of $28.3 million at June 30, 2025. Net cash used in operating activities for the six months ended June 30, 2025, was $16.7 million, a significant reversal from the $3.2 million provided in the prior year period. The company's $60 million convertible senior notes, maturing on May 15, 2026, are now a current liability, and Zynex is actively working with advisors to refinance this obligation. Management has concluded that "substantial doubt exists about the Company's ability to continue as a going concern for 12 months from the date the condensed consolidated financial statements are issued," highlighting the urgency of improving liquidity and executing its business plan.

Competitive Landscape and Strategic Positioning

Zynex operates in a competitive medical device landscape, facing both large, diversified players and niche specialists. In pain management and rehabilitation, Zynex's NexWave and TensWave devices compete with offerings from giants like Medtronic plc (MDT), Abbott Laboratories (ABT), Boston Scientific Corporation (BSX), and Stryker Corporation (SYK). These larger competitors often boast superior R&D budgets, vast global distribution networks, and integrated AI-driven therapies. For instance, MDT's neuromodulation devices are more advanced, while ABT excels in consumer-friendly devices and digital health integration. ZYXI's gross profit margin (TTM 77.67%) is competitive with these larger players (MDT 66%, ABT 55%, BSX 69%, SYK 64%), indicating strong product economics. However, ZYXI's operating (TTM -4.43%) and net profit margins (TTM -4.30%) lag significantly behind its peers, reflecting its smaller scale and recent operational challenges.

Zynex's competitive advantage in pain management lies in its cost efficiency and direct sales model, which allows for personalized service and potentially lower operating costs compared to the overheads of larger, more complex organizations. Its focus on non-opioid, home-use devices also carves out a distinct market segment. However, ZYXI's smaller scale means higher customer acquisition costs and less pricing power compared to its larger rivals.

The Patient Monitoring division, particularly with NiCO, aims to disrupt the pulse oximetry market by offering a technologically superior product. While existing players like ABT and MDT have monitoring solutions, NiCO's laser technology directly addresses the accuracy and pigmentation bias issues inherent in their LED-based devices. This technological differentiation is Zynex's most significant competitive moat in this segment, positioning it to potentially shift the standard of care and capture market share from established players who face litigation and regulatory pressure over their current technology's limitations.

Outlook and Key Risks

Zynex has suspended quarterly guidance due to the ongoing leadership transition and the uncertainty surrounding the TRICARE payment suspension. Incoming CEO Steven Dyson will lead a review of forecasting procedures. However, management remains committed to returning to positive cash flow by the end of 2025, driven by the $40 million in annualized cost savings and a refocused sales strategy. The company expects cash burn to be "even less in Q3."

The NiCO pulse oximeter is a key growth driver. Following its FDA 510(k) submission in May 2025, Zynex anticipates an additional information request in August and expects clearance around December 2025. Management projects 2026 to be the year for NiCO's revenue ramp, starting with a controlled launch and exploring direct, indirect, and partnership sales models. This new division is expected to be profitable long-term, despite being pre-revenue currently.

Several risks temper this outlook. The most immediate is the TRICARE payment suspension, which could persist for up to 12 months, severely impacting revenue and cash flow if not resolved favorably. The company also faces legal challenges, including a securities fraud class action and a shareholder derivative action, alongside an SEC investigation into potential federal securities law violations. These legal and regulatory matters, regardless of merit, are costly and divert management attention. Furthermore, a material weakness in internal controls related to ITGCs has been identified, requiring remediation. The ability to refinance the $60 million convertible notes by May 2026 is also critical to avoiding a material adverse impact on operations.

Conclusion

Zynex stands at a pivotal juncture, undergoing a profound strategic reset aimed at fortifying its core pain management business and unlocking significant new growth in patient monitoring. While the TRICARE payment suspension and associated financial pressures present substantial near-term headwinds, the company's aggressive cost-cutting measures and strategic redirection of its sales force demonstrate a proactive approach to regaining profitability. The impending FDA clearance of the NiCO laser pulse oximeter represents a compelling long-term catalyst, offering a technologically superior solution to a multi-billion dollar market with critical unmet needs.

For investors, Zynex is a story of resilience and innovation. The path forward is not without considerable risk, particularly concerning liquidity and ongoing legal/regulatory matters. However, the company's commitment to non-opioid pain management, coupled with its differentiated laser technology poised to disrupt patient monitoring, suggests a compelling opportunity for those willing to accept the current volatility. The success of the NiCO launch and the effective refinancing of its debt will be paramount in determining Zynex's ability to transition from a period of significant challenge to one of sustained, diversified growth and profitability.