Zynex, Inc. (NASDAQ:ZYXI)

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ZYNEX INC
SIC: 3845 - ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS
State location: CO | State of Inc.: NV | Fiscal Year End: 1231
formerly: ARIZONA VENTURES INC (filings through 2003-08-19)
formerly: CHINA GLOBAL DEVELOPMENT INC (filings through 2003-01-15)
formerly: FOX RIVER HOLDINGS INC (filings through 2004-01-20)
formerly: IBONZAI COM INC (filings through 2001-06-12)
formerly: LIFE MEDICAL TECHNOLOGIES INC /UT/ (filings through 2000-05-25)
formerly: ZYNEX MEDICAL HOLDINGS INC (filings through 2005-08-12)
formerly: ZYNEX MEDICAL HOLDINGS INC (filings through 2008-07-08)

As best as I can tell, Zynex is taking 100-200 dollar pieces of medical equipment and renting them to rehab patients at a 95% gross margin, another way of saying they are putting a 2000% markup on the equipment. Then they are assuming that insurance companies are going to reimburse their fees, but are withholding approximately 50% of the fee under the assumption that the insurance company will not reimburse the stupid rates, only half stupid rates. So they are actually booking the sales at a 1000% markup to their cost. Nice work if you can get it, except that they appear to be collecting only enough cash to go straight into the sales force's pockets as commissions, and the rest of the revenues find their way into accounts receivable. So the extraordinary growth they are booking isn't showing us as any meaningful operating cashflow to speak of. By the way, last year the company was cited for material weakness in it's accounting, among the reasons: "Lack of timely write off of uncollectible and duplicate billings that result in an overstatement of our accounts receivable."

If I had to draw any conclusions from Zynex's financial statements, I would think it less likely that the GAAP earnings actually makes it's way into real cash flow, and more likely that that this former penny stock is inflating it's GAAP revenues and earnings, passing accounting entries from sales to accounts receivables, to a likely accounts receivable writeoff at some future date after they have gotten a few PIPEs through the door.

Either that or our nation's medical insurers have no problem paying 1000% markups on medical equipment that can be acquired just about anywhere for 1/10th the cost.

If anything positive can be said here, it's that they have managed to accrue a million dollars or so in cash from operations over the past 12 months (setting aside for a moment that this does not account for any capital expenditures which appears to eat up 100% of this amount.) I suppose someone, somewhere, might consider paying a high growth multiple, say 40x, on this cashflow, if they were able to convince themselves that the growth rates actually related to a real business earning real cash (or at least real accounts receivables with low likelihood that the current 50% loss provisions will end up being an accurate assessment of ultimate collectability, something they appear not to have the best track record on to date.) If only ZYXI wasn't trading over 5 times higher than that level...

I'm gonna go with underperform here.