Breaking Down Zynex, Inc. (ZYXI) Financial Health: Key Insights for Investors

Understanding Zynex, Inc. (ZYXI) Revenue Streams

Understanding Zynex, Inc.’s Revenue Streams

The revenue of Zynex, Inc. is primarily derived from two main sources: device sales and consumable supplies. The breakdown of net revenues for the three and nine months ended September 30, 2024, compared to the same periods in 2023, is as follows:

For the nine months ended September 30, 2024, net revenue increased by 7% or $9.3 million compared to the same period in 2023. The growth is attributed to an 18% increase in device orders, which reflects a larger customer base and heightened sales of consumable supplies.

Year-over-Year Revenue Growth Rate

Year-over-year revenue growth shows a modest increase in total revenue, with net revenue for the three months ended September 30, 2024, slightly up by 0.2% compared to the same quarter in 2023. The nine-month period reflects a more substantial growth rate of 7%.

Contribution of Different Business Segments to Overall Revenue

The contributions from device and supplies revenue indicate a balanced reliance on both segments, with supplies revenue representing a larger portion of the total revenue. For the nine months ended September 30, 2024, supplies revenue accounted for approximately 69% of total revenue, highlighting its importance to the overall business model.

Analysis of Significant Changes in Revenue Streams

Device revenue saw a decrease of 12% for the three months ended September 30, 2024, compared to the same period in 2023, attributed to a reduced sales force headcount and lower order growth rates. However, for the nine months ended September 30, 2024, device revenue increased by 5%, indicating a recovery driven by increased orders despite challenges in sales personnel and product pricing.

Conversely, supplies revenue exhibited consistent growth, increasing by 6% in the three-month period and 7% in the nine-month period, driven by a broader customer base associated with the increase in device orders.

Overall, the company continues to navigate the complexities of its revenue streams while demonstrating resilience through growth in supplies revenue and recovering device sales.

A Deep Dive into Zynex, Inc. (ZYXI) Profitability

A Deep Dive into Zynex, Inc.'s Profitability

Gross Profit Margin: For the three months ended September 30, 2024, the gross profit margin was approximately 79.6%, calculated from a gross profit of $39.8 million on total net revenues of $49.966 million. For the nine months ended September 30, 2024, the gross profit margin was approximately 79.9%, with a gross profit of $116.6 million on net revenues of $146.4 million.

Operating Profit Margin: The operating profit for the three months ended September 30, 2024, was $3.8 million, resulting in an operating profit margin of approximately 7.6%. For the nine months ended September 30, 2024, the operating profit was $6.6 million, yielding an operating profit margin of about 4.5%.

Net Profit Margin: The net income for the three months ended September 30, 2024, was $2.4 million, leading to a net profit margin of approximately 4.8%. For the nine months ended September 30, 2024, the net income was $3.6 million, resulting in a net profit margin of about 2.5%.

Trends in Profitability Over Time

Comparing the profitability metrics from 2023 to 2024 reveals a downward trend. For the three months ended September 30, 2023, the net income was $3.6 million with a net profit margin of 7.2%. For the nine months ended September 30, 2023, net income was $8.5 million with a net profit margin of 6.2%. This indicates a decrease in profitability year-over-year.

Comparison of Profitability Ratios with Industry Averages

The industry average for net profit margins in the medical device sector typically ranges from 5% to 10%. As of the third quarter of 2024, Zynex's net profit margin of 4.8% is slightly below the industry average, indicating potential areas for improvement in efficiency and cost management.

Analysis of Operational Efficiency

The cost of revenue for the three months ended September 30, 2024, was $10.2 million, which is 20% of total revenue. In comparison, the cost of revenue for the same period in 2023 was $9.6 million, or 19% of total revenue. This increase in cost percentage suggests a need for improved cost management strategies.

Sales and marketing expenses for the three months ended September 30, 2024, were $20.7 million, representing 41% of total revenue, down from 44% in the same period in 2023. This decrease indicates a more efficient allocation of sales and marketing resources, despite the overall increase in costs.

Debt vs. Equity: How Zynex, Inc. (ZYXI) Finances Its Growth

Debt vs. Equity: How Zynex, Inc. Finances Its Growth

The financial structure of Zynex, Inc. consists of both debt and equity financing, which plays a crucial role in its operations and growth strategy.

Overview of the Company's Debt Levels

As of September 30, 2024, Zynex, Inc. reported long-term debt of $52.5 million from the issuance of Convertible Senior Notes, which is due on May 15, 2026. Additionally, the company has short-term debt obligations amounting to $1.7 million related to various operational needs.

Debt-to-Equity Ratio and Comparison to Industry Standards

The debt-to-equity ratio for Zynex, Inc. as of September 30, 2024, stands at 1.46. This is calculated based on total liabilities of $90.3 million and total equity of $61.8 million. This ratio is relatively higher than the industry average of approximately 0.8, indicating a more leveraged position compared to peers in the medical device sector.

Recent Debt Issuances, Credit Ratings, or Refinancing Activity

In May 2023, Zynex issued $52.5 million in 5.00% Convertible Senior Notes, with an additional $7.5 million from the over-allotment option. The interest on these notes is payable semi-annually, and the unamortized issuance costs were $1.7 million as of September 30, 2024.

How the Company Balances Between Debt Financing and Equity Funding

Zynex has historically relied on both debt and equity to finance its operations. As of September 30, 2024, the company had $37.6 million in cash and cash equivalents, which provides a buffer against its debt obligations. Furthermore, Zynex has utilized equity funding through stock-based compensation and stock repurchase programs, with $20 million allocated for stock repurchases announced in February 2024.

This strategic mix of debt and equity financing enables Zynex to maintain liquidity while pursuing growth opportunities in the medical device market.

Assessing Zynex, Inc. (ZYXI) Liquidity

Assessing Zynex, Inc.'s Liquidity

Current and Quick Ratios

As of September 30, 2024, the current ratio for Zynex, Inc. is calculated as follows:

• Current Assets: $59.1 million
• Current Liabilities: $0.6 million
• Current Ratio: 98.5

The quick ratio, which excludes inventory from current assets, is:

• Quick Assets: $59.1 million (assuming minimal inventory)
• Current Liabilities: $0.6 million
• Quick Ratio: 98.5

Analysis of Working Capital Trends

Working capital has shown a decline from the previous year:

• Working Capital as of September 30, 2024: $58.5 million
• Working Capital as of December 31, 2023: $69.3 million

This represents a decrease of approximately 15.7%.

Cash Flow Statements Overview

For the nine months ended September 30, 2024, the cash flow from operating activities is detailed below:

Potential Liquidity Concerns or Strengths

The company has a cash balance of $37.6 million as of September 30, 2024, which, combined with accounts receivable of $21.6 million, provides a solid liquidity position. However, the decrease in working capital and cash flow from operations compared to the previous year indicates potential concerns that need monitoring.

Moreover, the net cash used in financing activities primarily stemmed from treasury stock purchases totaling $15.6 million, which could impact future liquidity if not managed effectively.

Is Zynex, Inc. (ZYXI) Overvalued or Undervalued?

Valuation Analysis

Price-to-Earnings (P/E) Ratio

The P/E ratio for the company is currently at 19.8 based on a recent stock price of $1.39 and a trailing twelve months (TTM) earnings per share (EPS) of $0.07.

Price-to-Book (P/B) Ratio

The P/B ratio stands at 1.2, calculated using a book value per share of $1.16.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is currently 12.5, reflecting an enterprise value of $61.25 million and EBITDA of $4.9 million.

Stock Price Trends

Over the last 12 months, the stock price has fluctuated between $1.20 and $2.50. At the start of the year, the stock was priced around $2.00, but has seen a decline of approximately 30%.

Dividend Yield and Payout Ratios

The company does not currently offer a dividend, resulting in a dividend yield of 0%. The payout ratio remains at 0% as no dividends have been declared.

Analyst Consensus on Stock Valuation

Analyst consensus indicates a rating of Hold, with price targets averaging between $1.50 and $2.00 over the next 12 months.

Key Risks Facing Zynex, Inc. (ZYXI)

Key Risks Facing Zynex, Inc.

Overview of Internal and External Risks:

Zynex, Inc. faces various internal and external risks that can significantly impact its financial health. Key risks include:

• Industry Competition: The medical device industry is highly competitive, with numerous players vying for market share. Zynex competes with both established companies and new entrants, which can affect pricing strategies and market share.
• Regulatory Changes: As a medical device manufacturer, Zynex is subject to stringent regulations from the FDA and other regulatory bodies. Any changes in regulations or failure to comply could result in fines or restrictions on product sales.
• Market Conditions: Economic fluctuations can impact consumer spending on medical devices. A downturn in the economy may reduce demand for Zynex's products, affecting revenue and profitability.

Operational, Financial, or Strategic Risks:

Recent earnings reports highlight several operational and financial risks:

• Decreased Device Revenue: Device revenue decreased by $2.0 million or 12% to $14.9 million for the three months ended September 30, 2024, compared to $16.9 million for the same period in 2023.
• Increased Operating Expenses: General and administrative expenses increased by $2.5 million or 20% to $15.3 million for the three months ended September 30, 2024.
• Net Income Decline: Net income fell to $2.4 million for the three months ended September 30, 2024, down from $3.6 million for the same period in 2023.

Mitigation Strategies:

The company has implemented several strategies to mitigate these risks:

• Cost Control Measures: Zynex has focused on managing operational costs, as evidenced by a 6% decrease in sales and marketing expenses for the three months ended September 30, 2024.
• Diversification of Product Lines: The company is expanding its product offerings to include new technologies and devices, which can help capture additional market share and reduce dependence on existing products.

Future Growth Prospects for Zynex, Inc. (ZYXI)

Growth Opportunities

Future growth prospects for Zynex, Inc. are driven by several key factors, including product innovations, market expansions, and strategic partnerships.

Key Growth Drivers

• Product Innovations: The company continues to develop its product line, focusing on non-invasive medical devices such as electrotherapy products. The acquisition of Kestrel Labs in December 2021 introduced laser-based monitoring technologies, which are expected to enhance its offerings once cleared by the FDA.
• Market Expansions: There has been an 18% growth in device orders for the nine months ended September 30, 2024, compared to the same period in 2023, indicating a broadening customer base and increased market penetration.
• Strategic Partnerships: Collaborations with healthcare providers and payers are critical for increasing device adoption and improving reimbursement rates.

Revenue Growth Projections

For the nine months ended September 30, 2024, net revenue was $146.4 million, up from $137.0 million in the same period in 2023, reflecting a growth of 7%. The revenue for the three months ended September 30, 2024, was $50.0 million, slightly increasing from $49.9 million in 2023.

Earnings Estimates

Net income for the nine months ended September 30, 2024, was $3.6 million, down from $8.5 million in 2023. For the three months, net income was $2.4 million compared to $3.6 million in 2023. Diluted earnings per share for the nine months ended September 30, 2024, were estimated at $0.11, down from $0.23 in the same period of the prior year.

Strategic Initiatives

The company has embarked on a stock repurchase program, with up to $20 million authorized for repurchases starting March 4, 2024. From this plan, 423,894 shares were purchased for $5.2 million as of September 30, 2024.

Competitive Advantages

Zynex's competitive advantages include a diversified product portfolio and a strong customer base leading to a 13% increase in device orders for the three months ended September 30, 2024. The company's innovative approach, including its focus on FDA-cleared technologies, positions it favorably against competitors.

These growth drivers and strategic initiatives highlight the potential for continued revenue increases and operational improvements moving forward.

Article updated on 8 Nov 2024

Resources:

• Zynex, Inc. (ZYXI) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Zynex, Inc. (ZYXI)' financial performance, including balance sheets, income statements, and cash flow statements.
• SEC Filings – View Zynex, Inc. (ZYXI)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.