Zynex, Inc. (ZYXI) CEO Thomas Sandgaard on Q2 2020 Results – Earnings Call Transcript

Zynex, Inc. (NASDAQ:ZYXI) Q2 2020 Earnings Conference Call July 28, 2020 4:15 PM ET

Company Participants

Thomas Sandgaard – President and CEO

Dan Moorhead – CFO

Conference Call Participants

Yi Chen – HC Wainwright

Matthew O’Brien – Piper Sandler

Jeffrey Cohen – Ladenburg Thalmann

Marc Wiesenberger – B. Riley FBR

James Terwilliger – Northland Securities

Operator

Good day, and welcome to the Zynex Second Quarter 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]

Certain statements in this release are forward-looking, and as such, are subject to numerous risks and uncertainties. Actual results may vary significantly from the results expressed or implied in such statements. Risk factors that could cause actual results to materially differ from forward-looking statements are described in our filings with the Securities and Exchange Commission, including the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2019, as well as Forms 10-Q, and 8-K and 8-Ka, press releases in the company’s Web site. Please note this event is being recorded.

I would now like to turn the conference over to Thomas Sandgaard, Founder, Chairman, and Chief Executive Officer. Please go ahead.

Thomas Sandgaard

Good afternoon. My name is Thomas Sandgaard, President and CEO of Zynex. Welcome to our 2020 second quarter earnings call. I’m excited to announce another quarter of revenue growth and positive net income. Our second quarter revenue of $19.3 million was an increase of 87% compared to the same quarter last year. It was also the highest quarterly revenue in the history of the company. It was our 16th straight quarter with positive net income, and earnings were $0.09 per diluted share. Adjusted EBITDA for the second quarter was $4.8 million, an increase of 69% compared to the second quarter of last year, and it was also the highest in the company’s history.

Similar to many companies, we’ve seen the impact of COVID-19. The second quarter orders came in 37% higher than the second quarter of last year, which was substantially lower than the 126% growth year-over-year in the first quarter, but we saw momentum in order growth throughout Q2, where we in April and May only saw 21% and 11% growth year-over-year, while we were up 76% in June. We continue to see the same increase in the month of July, and expect once we end the month to have again an increase in order growth. The continued strength in order growth speaks volumes to the relationship our sales force has with many prescribers, and the need for them to prescribe non-opioid non-addictive prescription strength solutions for the patients in pain.

The investment in expanding our sales force continues to progress as we expand our geographic footprint across United States. We continue to aggressively add sales reps, and as of today have surpassed more than 335 sales reps. Our recruiting efforts have been helped by a surge in candidates due to the increased unemployment rates related to COVID-19. We expect these new hires to provide significant productivity increase in orders in the second-half of 2020 and in the years to come. Applications for over 60 open positions at our corporate office have also skyrocketed, which is obviously helpful for improving our workforce. In regards to our sales force, we expect to have over 400 sales reps in September, and approximately 500 by year-end.

Revenue continued its strong growth into the second quarter, and grew 87% compared to a growth of 66% in the first quarter on a year-over-year basis. Our business model was billing for the devices monthly used and supplies as they are consumed by our patients is actually helpful in a temporary slowdown like now. Remember, approximately 80% of our revenue in the quarter is typically derived from orders received in prior periods, even years earlier. In the second quarter, we also introduced a catalog for 3,300 products, all the most popular brands and products that physical therapy clinics all over the U.S. order on a regular basis. We plan on this initiative to be a great door opener for our sales force in an effort to get into more clinics and obtain prescriptions for our NexWave device, traction devices, low back support, et cetera.

Our operations continue without interruption, and our supply chain remains uninterrupted as we previously secured non-Chinese second sources for all of our components and raw materials. In addition, it’s our practice to keep several months of finished products on the shelf, have over four months of components on hand for internal assembly, and 12 to 18 months of orders placed with our vendors on top of the in-house materials. It’s critical for us to have the ability to ship immediately to a patient in pain once we obtain the prescription.

The opioid epidemic continues to be a serious issue in this country, and we’re increasingly working to get patients off opioids, and for physicians to use our prescription strength technology as the first line of defense when treating pain. Currently, the devastating impact has reached a level where tens of thousands die yearly due to opioid abuse. We continue to develop more tools to make physicians aware of our technology that literally has no side effects.

Our products for pain management and rehabilitation still stand out as some of the best products in the industry. The NexWave for pain management, our NeuroMove device for stroke rehabilitation, and the InWave for incontinence treatment puts us in a very strong product position in the rehabilitation markets. We also continue to see great potential in both of our product divisions, our existing revenue-generating area for pain management, as well as a huge unmet potential for our blood volume monitor. As most of you probably already know, we managed to get FDA clearance for our CM1500 fluid and blood volume monitor earlier this year.

The CM1500 is a non-invasive monitor intended to monitor patient’s fluid balance in hospitals and surgical centers. We expect to initially target operating rooms and surgeries that typically display substantial blood loss, as well as recovery rooms and ICUs, where internal bleeding today are common and difficult to detect until serious complications occur. We believe this product will lead to safer surgeries, fewer complications, and less mortality; one of the biggest unmet needs in hospitals today.

We began hiring for this division in July, and we’ll continue building out the team during the next few quarters. We expect to have more than a dozen people employed in this division by the end of the third quarter, and short-term, we’re obviously also leveraging the common functions from the main business subsets, human resources, payroll, recruiting, quality, accounting, and production.

I will now turn the call over to Dan Moorhead, our CFO.

Dan Moorhead

Thanks, Thomas. First, I’ll review our 2020 second quarter results. Orders grew 37% year-over-year, which drove net revenue up 87% to $19.3 million from $10.3 million in 2019. Device revenue increased 87% to $4.3 million, compared to $2.3 million last year, supplies revenue also increased 87% year-over -year to $15 million from $8 million. Gross margins were 79% in the second quarter. Sales and marketing expenses increased 106% year-over-year as we continue to aggressively our sales force. G&A expense grew 78% year-over-year. Much of that increase was related to increased headcount in our reimbursement and patient support functions related to our order growth.

Second quarter net income was $3 million or $0.9 per diluted share, compared to net income of $2.2 million, or $0.06 per diluted share in the second quarter of last year. Adjusted EBITDA, which is a standard EBITDA calculation plus an exclusion of non-cash stock-based compensation and other income expense, and is reconciled in our press release, increased 69% to $4.8 million in the second quarter of 2020.

I will now review our 2020 six-month results. Orders grew 76% year-over-year, which increased net revenue 77% to $34.5 million from $19.5 million in 2019. Device revenue increased 81% to $7.7 million, compared to $4.3 million last year. Supplies revenue increased 76% year-over-year to $26.8 million from $15.2 million. Gross margins were 78% in the first-half of 2020. Sales and marketing expense increased 108% year-over-year, and G&A expense grew 67% year-over-year.

2020 six months net income was $6 million or $0.17 per diluted share, compared to net income of $4.5 million or $0.13 per diluted share during the first-half of last year. Adjusted EBITDA increased 47% to $7.8 million in the first-half of 2020. On the balance sheet, as of June 30, 2020, our cash balance was $16.9 million, up from $14 million at year-end, and our working capital grew 37% to $23.8 million at June 30, compared to $17.4 million as of December 31, 2019.

With that, I’ll turn the call back over to Thomas.

Thomas Sandgaard

Thank you, Dan. I’m especially excited about our year-over-year growth in orders of 37%, and our revenue growth of 87% in the midst of the COVID-19 pandemic. It’s a huge testament to our efforts to grow out of sales force and clearly justifies the investment in our sales personnel, sales management, and insight support functions. Our focus continues to be growing our sales force at a rapid rate in geographic areas. We don’t currently cover to take advantage of the void left in the market by two previously very large competitors.

Increased orders due to a larger sales force combined with strong reimbursement for our products continues to drive increased revenue and profitability. We estimate our third quarter of revenue to come in between $22.3 million and $22.8 million with an adjusted EBITDA between $2.3 million and $2.8 million. The revenue range is 89% to 93% higher than last year third quarter revenue. So, we’re getting close to doubling the revenue. This is up from 87% year-over-year revenue growth in the second quarter and 66% year-over-year growth in the first quarter.

As a reminder, nearly all of our collections from bill income from insurance companies, mostly private insurance, but also government, auto insurances, workers’ comp, and personal injury attorneys. Payments from these are dictated by contracted amounts we have established, allowable amounts already well-established throughout our industry, and negotiated amounts sometimes on a patient-by-patient basis. These amounts are typically discounted by deductible and copay deductions, and we ended up getting much less than our MSRP. That’s typical throughout the healthcare industry in the U.S. This pattern is the same whether we get paid for the device or the patient supplies. We are careful to make sure our billing practices are always within the law and comply with our guidelines and regulations. We also undergo regular equitation by a third party to ensure we continue to be compliant.

My long-term goals are like the therapy and rehab division is to continue to grow our share of the huge unmet need for prescription pain management and to take advantage of the huge void in the market after the disappearance of our main competitors. This includes growing out domestic sales force as well as potential acquisition of complementary technologies and long-term potentially international expansion. We’re also still working with the European notified body to obtain CE marking for the CM1500, and we will update everyone as we continue to be loud on the personnel side and infrastructure in the Monitoring Solutions division.

In summary, we have now announced yet another great quarter with strong growth in orders, growth in revenue and profit, which puts us in a very strong position of strength going forward.

We will now take questions from our listeners.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Yi Chen from HC Wainwright. Please go ahead.

Yi Chen

Thank you for taking my questions. My first question is, could you comment on the current ratio of reimbursement coming from government payers, and what is the current average time needed to collect reimbursements from various payers, including private and government payers?

Thomas Sandgaard

Yes, this is Thomas. Let me try to answer this. We have a little over 10% Medicare, if you add other government insurers, some Department of Labor, there is some TRICARE, there’s some Medicaid business, it may add up to less than 15%, and in terms of the time it takes to collect, there’s a couple of ways to describe that, obviously we do have files where we end up not getting paid anything, even in cases where we have a good solid contract with an insurance company, and some, we see sometimes in personal injury cases might be three or four years before our case settles, and we get our share of it. Commercial insurances typically pay pretty well, Medicaid pays pretty fast, Medicare pays relatively fast as well, workers’ comp business is kind of the middle of the road in terms of how fast they pay on the average. So, that doesn’t really give you any actual information, but if you go to our — the financials we just posted, you’ll see, you can take a look at our revenue, whether you do it on a trailing 12-month basis, or you do it more real-time and compare that to the accounts receivables, you will see a DSO or Days Sales Outstanding that is just about 40 days, and that is an indication of obviously how fast our bills are moving compared to when the cash comes in. So, the average would be there in less than 45 days.

Yi Chen

Okay, okay. So, would you say that quite a portion of the second quarter revenue just reported actually were related to orders placed in 2019?

Thomas Sandgaard

Yes, obviously we’ve reported the cash value of what we build out during the second quarter, but it was obviously based on orders that came in 2019, 2018, and also in the earlier parts of 2020.

Yi Chen

Got it, got it. And I believe the company is currently on track to reach the target of sales rep by the end of this year. So, could you comment on the trend of average sales generated per sales rep as you get more new sales rep into the team?

Thomas Sandgaard

Yes, right now it’s tough to move that average up, because every time we have a rep that become more productive, we just added another one that doesn’t send in any orders yet. So, and then obviously, there’s a delay between when we hire reps, once they get trained, once they get deployed, and then later they start becoming productive, and as we were just talking about them, as we start getting a few orders from those reps, the revenue comes in subsequent periods. So, some reps that may have started early 2020, started sending in orders maybe doing work, where we had peak up of COVID in April, May, maybe we’re just now beginning to see a little bit of revenue. So, we’re still running at an average that is less than, if you analyze the revenue per rep, that is less than $300,000 per the average rep or per year or annualized. We’ll continue, actually we can say that COVID slowed us down a little bit. We’ll get down in the middle 200s in Q3 probably, because we’ve added a lot of reps that have not produced very high numbers yet. We expect at the end of the year to be back in the $300,000 a year, and by the end of next year more, $400,000 a year. Long-term we expect to be right around a million per sales rep in annual production, but that that will only start maturing when the percentage of new reps we’re adding, and then we’re getting into 2022, 2023 then we’ll start seeing that average per rep go up dramatically when we’re not adding as many reps as fast anymore, but obviously, in terms of how that plays into the actual revenue, since we continue to hire 30 to 40 new reps every month, we will obviously see a growth in revenue simply as a result of that, and as I mentioned, as these reps become more and more productive, we just add another one that that it’ll take a little while before this and in the first few orders. So, there’s a lot of inertia in growing our revenue.

Yi Chen

Got it. And the next question is, have you observed any change in the average reimbursement you can collect from a single patient in the year?

Thomas Sandgaard

Yes, we have — obviously, it fluctuates a lot. It mostly fluctuates with — sometimes there’s an insurance company that suddenly — the three or four months can really figure out to push the button that actually prints a check or wire transfers payments to us and then eventually gets released. So, sometimes it fluctuates a little bit. Sometimes changes to our internal organization can also have potential revenue backed up. So, for that reason we see a little bit of fluctuation. Overall, we have seen it’s very constant here in the last four or five years. I’d say the last few months it’s helped a little, it’s actually gone up, even though it’s marginal, but we do collect better than we did a few months ago.

Yi Chen

Would you be able to give us a sort of a range for this fluctuation?

Thomas Sandgaard

The range is on the average order less than $200, maybe more in the $100 range per the average order. So, we’re talking less than 10% increase, but again, it could be part of fluctuation, next month it could drop down a little bit. So, overall, I’d say it’s very stable.

Yi Chen

Okay, my final question is, could you provide us some color on the latest trends for our prescribing physicians in terms of office reopening and accessibility to your sales team?

Dan Moorhead

Yes, obviously depending on how the COVID pandemic has hit various states, it’s something we’re following very closely, and unfortunately despite the media, there’s not any increase in that, if we look at the entire country. There’s a couple of states where people call it hotspots, where obviously it’s been a little harder for us, in those particular cities to get into clinics, but for the most, we see that clinics are very busy. They even have extended their hours, so that they can handle all the patients that may have delayed going to either physician or go into physical therapy, and obviously need treatment may have delayed. So, we see clinics obviously apply social distancing, et cetera. So, they’ll have fewer employees, fewer patients in the clinic at all times. Sometimes our reps has been able to at least get in and drop off, for instance, customized prescription pads to those clinics, or they’ve been able to actually get in and talk to people. Some of the interaction is obviously also over phone, and by other means where we may, the rep may have shipped material to them, but overall, I’d say we have a surprisingly good success rate with keeping in touch with those clinics and keeping a good flow of orders. In the later part of July, we’ve seen very strong order numbers at the same level and maybe even higher than we’ve ever seen as a company.

Yi Chen

Got it. Thank you very much.

Operator

The next question comes from Matthew O’Brien from Piper Sandler. Please go ahead.

Matthew O’Brien

Good afternoon. Thanks so much for taking my questions. Thomas for starters on the productivity expectation for Q3 and even Q4, you saw obviously a pretty big drop, on a productivity per rep basis here in Q2, but then these kind of based on the guidance that you’re giving us and the number of reps we’re expecting for Q3 kind of level-off, they go down a little bit in Q3 but not nearly as much as we saw from Q1 to Q2. So what are you seeing so far from the reps that you hired earlier this year, even earlier in Q2 that gives you the confidence that that level of productivity won’t fall off dramatically given how many reps you’ve added especially here in Q3?

Thomas Sandgaard

Right. Fortunately, the amount of reps we’re hiring, so we started doing that already earlier this year, and that’s when you do something like that. So that’s obviously a risk that we either slack on the quality of reps that we offer an employment agreement to or because of the amount of reps we’re training that the quality of the training gets less than is decided, and as they get deployed, how well our regional sales managers can grab hold of them and hold their hands in the first few days for the first few months. We have seen that the quality of reps we’re hiring is probably increasing. So that helps a lot in terms of the early productivity as well as the probability that we have sales reps that’s going to survive and stay with us for a long-time. We also see that the efforts in terms of training, we have improved significantly on that the past couple of years I would say and are running at a level where compared to about a year-ago, the order production for a new rep within the first 30, 60, 90 days is a little more than twice what it used to be, and more surprisingly, we actually see that kind of performance for new reps. Even though they haven’t become high production sales reps yet. We’ve seen that level of production for new reps actually continued during COVID in the second quarter, and we obviously also see that here in the third quarter. So, that is very encouraging because they have really difficult conditions out there, but improvements and the talent we hire, improvements and the training compared to a year-ago suddenly mitigated that, and I should also mention that we have expanded our, the layer of regional sales managers from 5 to 15 where 12 of them are in place and trained and are now managing our sales reps, and we expect the last three to be hired in the next couple of weeks.

Matthew O’Brien

Okay. And then…

Thomas Sandgaard

Help improve on new rep initial performance.

Matthew O’Brien

That’s really helpful. Appreciate that color. Just to follow-up on that a little bit more. You’re expanding really quickly. It seems like the reps are doing really well. They’re pretty well trained, how are you going to manage through the pace of new adds, making sure that he’s fully trained and then making sure that churn rate especially doesn’t grow at the level that that could be a little bit unmanageable for the company?

Thomas Sandgaard

Yes, obviously the attrition rate is important. We do pretty well on that because in a class of 15, or 18 reps, we train every two weeks, there are sometimes one or two, typically one that that don’t survive the early days, but it’s my impression, we’re getting really good at catching them within the first few days. So we don’t end-up wasting a lot of time. It makes a big difference, regional sales managers and the rest of the organization don’t have to deal with that don’t survive anyway. They typically also take a lot of your time, and therefore making sure that we literally nip that in the bus, as early as possible is very helpful on it. It looks like we were getting better at that.

Matthew O’Brien

Got it. And then last one for me is just, I know you don’t want to put too much emphasis on the blood volume monitoring business especially this year, but it seems like things are going a little bit faster than expected by the end of Q3 and the investments that you’re making there, can this be even back half of next year, a bit more of a contributor than I think some of us are anticipating, and how do we kind of frame up what to think about that market given how large it is?

Thomas Sandgaard

Well, I think I’m going to frame my answer more context of what would you do for a living as a resource analyst, and obviously try to not put a whole lot of emphasis on potential revenue from that division. We’ll obviously try to not burn any more money in that division, then it will still be an insignificant part of, the overall flow of money through the company. So I think the numbers in the pain management division are so strong and so solid and we don’t expect them to be timed significantly by the initial burn here with the blood volume on. So and also because we don’t have enough people in terms of the CRO and we just started the efforts of the first business development Director, getting in touch with the hospitals and some key opinion leaders. We just started that effort now. So it’s too early to predict when we’re going to see any real revenue. So I’ll probably have a little more feedback from those people, because then I’ll probably be able to speak more about it.

Matthew O’Brien

Okay, very helpful, thank you.

Thomas Sandgaard

Thanks, Matt.

Operator

The next question comes from Jeffrey Cohen from Ladenburg Thalmann. Please go ahead.

Jeffrey Cohen

Hi, Thomas and Dan, how are you?

Thomas Sandgaard

Good. How are you?

Dan Moorhead

I’m great. How are you doing?

Jeffrey Cohen

Just fine. Two questions, I guess the first one that jumped on the back of what Matt was asking about, how are you thinking about that commercially on the CM1500 and at least domestically, and how were you thinking about as far as perhaps other commercial products as well, as far as the hospital markets go and the ASCs?

Thomas Sandgaard

Sorry. Could you repeat the question?

Jeffrey Cohen

So I guess, how are you thinking about a commercial expansion of the CM1500 into the hospital?

Thomas Sandgaard

Yes, just kind of an extension of what I was just talking about, which is we are now getting hold of what we consider people with relevant experience and therefore influence. We call them key opinion leaders. That’s our first point of attack, and as we get more into that, then we’ll obviously be talking more to other points of contact, people that are responsible for recovery rooms, ICUs, and obviously the end of physiology and OR nurses, and eventually we’ll also make our way into hospital administrators because we believe at least early on that a big sales argument for us an important one is going to be the whole risk mitigation. What he can do to the risk profile in hospitals potentially the insurance premiums and what it can do or not do to help them in terms of the — some high profile cases in terms of complications or mortality that potentially can be prevented using this technology. We will also obviously be in contact with other obviously larger medical device companies that have a solid distribution and be build relationships and see what we can do in terms of in parallel either licensing or OEM or private labeling of device for them. That answers your question.

Operator

The next question comes from Marc Wiesenberger from B. Riley FBR. Please go ahead.

Marc Wiesenberger

Thank you. Following on the some of the first set of questions, I’m wondering if you can quantify the number of physician interactions from your rapid both on an in person and virtually in the second quarter, and maybe thus far in the third quarter, relative to what the activity was either in the first quarter or maybe the fourth quarter of 2019. I’m just trying to get a sense of how your reps are interacting with providers and then any detail on kind of conversion rates would be really helpful?

Thomas Sandgaard

I am afraid I won’t be able to answer that question. We obviously measure the number of orders we get by minute, by hour, by day et cetera. We know exactly how many reps we have employed, and I can only obviously speak to the interaction to them on a more soft basis in that.

Marc Wiesenberger

Yes. Would you say that they are able to still kind of have the regular interactions and kind of the pace is continuing or as COVID limiting that and potentially hurting or helping conversion rates or kind of — I guess maybe more qualitatively then?

Thomas Sandgaard

Of course it has been slower April and May was very slow for us the last week of March as well in terms of being able to get into claim again face-to-face interactions. Some reps with especially here the last two months have been able to get to a more normal cadence. Some have still to some degree you’ve relied on their telephonic and maybe even texting interactions with the prescribers they already have relationships with. So it’s a mix. It’s really something that’s better explained on a rep-by-rep basis, and then we would have to go through a 350 of them.

Marc Wiesenberger

Understood.

Thomas Sandgaard

Okay. We don’t really measure that. We really just look at the order production per rep, and if it’s not satisfactory after X amount of month having bought here and then they don’t work anymore, and if this didn’t work, it’s because they’re producing a significant amount that’s enough to sustain our profitability and also make a good living for them.

Marc Wiesenberger

Understood.

Thomas Sandgaard

I know it’s tempting to look at those things, but it doesn’t really help us in terms of how the operator on sales force.

Marc Wiesenberger

I think there was some talk about maybe TRICARE’S decision earlier this year. I’m wondering if you could talk about the TRICARE business and any maybe potential impacts design X from their decision to not reimburse for tendons treatment, or if there’s any impact at all?

Thomas Sandgaard

Well, they suddenly reimbursed for tendons treatment for hundreds of indications, except one indication that decided to stop covering, and TRICARE is less than 5% of our business and having one indication not to recover. I actually looked at the – – we’ve we talked a little earlier about that we’ve been able to see a better collections across the board on the average file. I remember having looked at TRICARE collection, so a few days ago and how it’s developed the last three or four months, and it’s actually increasing. So we were doing perfectly okay with the TRICARE.

Marc Wiesenberger

Great. Have you had any unusual or out of the ordinary interactions with any kind of state insurance investigators during the second quarter? And maybe could you remind us about your general interactions with kind of insurance investigators, if at all?

Thomas Sandgaard

Well, let me put it this way. We’ve been doing this for well over 20 years, right? And all insurance companies when you deal with them that this seems to be a flow as to obviously you stop sending them in each flames and they either want to pay or they have to pay very poorly and sometimes you pay okay, et cetera, and that flow, and then after a while, all insurance companies is to our experience, they have departments a most commonly labeled special investigations units, and it’s really how do we protect our employers meaning the insurance companies are cash flow. So all hospitals doctor’s offices DME providers like us, then on a regular basis get sent let us accuse us of the worst things between here and the moon, and I believe all providers, whether it’s a hospital or provider, like us, we have some certain tactics as to how we, if we deal with those. Some people just settle for proper percentage of all those claims that come in with a regular basis. I believe we see more than a thousand of those every single month and has for many, many years, some of them large, some of them small. So, it’s just part of this industry. Our approach is typically to tell their documents apart and actually spend some resources on it, and I can give you one example, a few months ago, we had a very large one from one of our big payers, obviously amounted to $1.8 million, and once we had torn it apart, they agreed that maybe the real being amount that they felt we should offer them was 36,000, and then we negotiated a percentage off of that. So we paid them $24,000. That’s not atypical. So, we are able to do that, and that’s just part of the being in this industry and billing insurance companies. We have not seen any unusual activity, which is really where the question started and I expect it to continue for as long as insurance companies exist in this country.

Marc Wiesenberger

Understood, thank you. Are any of your products subject to competitive bidding?

Thomas Sandgaard

No. There has been talks about having tens in it, but since, we are not a full service provider, like [indiscernible] or some of those types of companies, it doesn’t really apply to us. Of course, if the pricing and the price pressure that comes out of it indirectly, you could say that affects the allowable amounts that’s programmed in this case Medicare’s computers, and that’s where we’re dealing with. We still making good money off of that, and that’s tough. So you can say in a very indirect way. There is a little bit of an impact, but it’s not something that we even talk about it at all.

Marc Wiesenberger

Understood. And final one for me, I’m just wondering how the, introduction of a catalog has progressed relative to your expectations and how we should think about its impact on the business going forward? Thank you.

Thomas Sandgaard

Well, it’s actually we made a decision to make the catalog a little more appealing than many other catalogs you see out there. So first impression is great and that is to, we deliberately did that, so that we — so fits within our old strategy in terms of that it’s supposed to be at all opener, so that it’s even easier for our reps to get in and start a conversation again, because such a big percentage of our sales force is brand new sales folks, and we’ve gotten great comments, great initial feedback from, from our reps and obviously from clinics on this. We have seen very limited sales on the catalog products so far, which is probably related to the physical therapy clinics during COVID. I’m sure they’re all small proprietorships. Some of them are part of bigger change, but I’m sure all capital investments in exercise equipment or exercise balls or stretching bands or whatever they my purchase. I’m sure that’s been put on hold for probably the rest of this year. So in terms of dollars, it’s very minimal what we have seen, but what we are learning is that it is having the right impact, which – there is something, and one more thing for our sales rep that may not have relationships yet to talk about. So it’s working out just as planned, and again, we want at least early on planning on any significant revenue from it. So it’s both positive.

Marc Wiesenberger

Great. Thank you very much.

Thomas Sandgaard

Yes. Thanks, Marc.

Operator

The next question comes from James Terwilliger from Northland Securities. Please go ahead.

James Terwilliger

Hi, Thomas and Dan, can you hear me?

Thomas Sandgaard

Yes. How are you doing, James?

James Terwilliger

I am doing well. Congratulations on a nice quarter. I very quickly Thomas, I got three questions. Most of my questions have been answered or asked. You’re doing such a tremendous job in terms of building out this sales and marketing infrastructure. This is a tough question though, but how do you define a territory, is it the population, the MSA is it potential customer list, is it list of healthcare providers? When you look at a territory, say for example, Denver, and I assume it’s non-ski season, how do you determine how many reps should be in that Denver market?

Thomas Sandgaard

Yes, it’s actually very easy because if you look at the size of the population and the distribution of the population there, the number of people that live in an area typically equates to more or less the same amount of medical providers, there can be different specialties obviously, but since our core points cover so many different specialties, we can literally go by size of population. So what we did was take all the Zip codes, and we have territories that little few that are smaller 350,000 to 400,000 people in the territory, and the largest are probably between 500,000, 550,000 people in a territory, that equates to very close to 800 territories and we’re simply trying to fill those as fast as possible. We know that the size of those territories are still big enough because there’s so many core points for us. That sales rep cannot even cover those clinics in one territory. So from here to 800 sales reps, that outbreaks we’re trying to drive as fast as we possibly can.

James Terwilliger

Okay, great. Thank you. My next question is really based on competition. What’s the feedback from the sales force when you don’t get an order? I mean, we’ve talked about this void of the negative effects of opioids is there, if you’re not doing opioids and you’re not doing Zynex, are you doing a non-addictive type of former or how should I think of the competition?

Thomas Sandgaard

Well, there’s two types of competition, those were patients are self-directed in terms of say seeking medical help. So they might buy some stuff based on a TV commercial. That that can be a roll-on mental type things that that gives you a nice feeling of maybe very short-term, a little less pain. They might seek without insurance reimbursement or even without prescription to seek out someone that does acupuncture. Then you can buy some very inexpensive, suddenly not prescription things, devices not like ours with the interferential current and by that is online or Walmart. So there’s a self-directed portion of it, and then there’s the way they get into medical professionals to get a prescription. They can get preferred to maybe additional physical therapy. They can obviously get, the state will get a lot of opioids prescribed in some cases, you see chiropractors trying to assist the patient, but obviously, our main argument is to use our devices, the prescription selector therapy we offer as first line of defense.

And from a sales force perspective, when they walk into a clinic, let’s say they walk into a new clinic, their first question should really be so do you guys see patients in pain? And if they do, what the hell is wrong with them if they’re not already writing prescriptions as the first line of defense, that that is what we’re trying to instill in terms of our approach to sales these days. Of course, I know that our sales reps are much better in terms of delivering this message more politically correct, and others just praise to hear but that’s really the mindset we walk in with.

James Terwilliger

Okay, great. Thank you. That was enlightening. And lastly, did I get this correct? So you had little bit of slowdown in terms of future orders or current orders in April, May, because of the ramifications in COVID, and the business has kind of bounced back here in kind of the June, July. Is there any summer slowdown that we should think of typically in healthcare but with COVID muddying the waters, it’s hard to put that in there, and I think about this correctly that a slowdown in April, May and kind of bounce back in June and July?

Thomas Sandgaard

Yes, I think so, the impacts of COVID is much more powerful than the traditional seasonality. If clinics are open, they probably try to get as many hours in as possible or billable hours in as possible to treat as many patients as possible, certainly from a financial point of view, but we saw that in June and even though the uptick really came in only in the second-half of June, we still grew 76% year-over-year in June, and we see even better, better growth in July. So, obviously, the addition of sales reps is certainly helping on that. There’s still a damper on the economy and therefore also the available clinics for us as a result of COVID, but we’re more than mitigating that by the addition of sales reps.

James Terwilliger

Great, thank you very much for taking my questions. Thomas, congratulations on a good quarter. Keep it up. Thanks, guys. Goodbye.

Thomas Sandgaard

Yes, thank you. It sounds like everybody is beginning to be so used to, how profitable we are then very few people. I’ll actually make note of how profitable we are. So, I really appreciate that. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Thomas Sandgaard for any closing remarks.

Thomas Sandgaard

Thank you, I hope today’s earnings call has been informative for everyone, and I appreciate the interest in Zynex and listening into this call. Thank you and have a great day to all.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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