Zynex, the pain management and monitoring solutions company, just wrapped up its Q1 2024 earnings call, painting a picture of growth and optimism. While analysts focused on the Change Healthcare cyberattack's impact on revenue and the exciting developments in the monitoring solutions division, a subtle, yet potentially game-changing, shift within the core pain management division went largely unnoticed.

Buried within Anna Lucsok's, the COO's, remarks lies a clue: "Our expanded portfolio of rehabilitation products now makes up approximately 25% of all orders, up from 15% a couple of years ago." This seemingly innocuous statement reveals a strategic transformation within Zynex. The company, known primarily for its flagship NexWave pain management device, is actively diversifying its revenue stream.

Why is this significant? Because it suggests Zynex is proactively mitigating risk and preparing for a future where reliance on a single product, however successful, could be vulnerable. The healthcare landscape is dynamic, subject to regulatory changes, competitive pressures, and evolving patient needs. By cultivating a robust portfolio of rehabilitation products, Zynex is building a more resilient business model.

Let's delve into the numbers. Two years ago, rehabilitation products constituted 15% of orders, implying that the NexWave, Zynex's star performer, accounted for the remaining 85%. Today, rehabilitation products have surged to 25% of orders, indicating a 67% increase in their share of the business. This isn't merely organic growth; it points towards a deliberate strategic push by Zynex.

This diversification strategy has several implications:

Reduced Reliance on NexWave: While the NexWave remains a key revenue driver, its dominance is waning. This reduces Zynex's vulnerability to unforeseen events that might impact NexWave's sales, such as changes in reimbursement policies or the emergence of competing technologies. Enhanced Customer Relationships: By offering a wider range of solutions, Zynex can address a broader spectrum of patient needs. This deepens customer relationships, making it more likely that healthcare providers will turn to Zynex for a wider array of products. Future Growth Opportunities: The rehabilitation products market is substantial and expanding. Zynex's commitment to this segment positions the company to capture a larger slice of this lucrative pie. Attractive Acquisition Target: A diversified revenue stream with a strong track record of growth makes Zynex a more attractive acquisition target for private equity firms, especially in the context of the ongoing "going private" discussions.

Hypothesis:

We hypothesize that Zynex's deliberate diversification strategy is not merely a response to market conditions, but a proactive maneuver to establish a stronger position for future growth and potential acquisition.

Supporting Evidence:

Rapid Growth in Rehabilitation Products: The 67% increase in the share of rehabilitation products within two years suggests a deliberate push by Zynex to expand this segment. Strong Order Growth: The company continues to report record high order numbers, indicating that this diversification isn't cannibalizing NexWave sales but is driving overall growth. Positive Cash Flow: Zynex generated record positive cash flow in 2023, demonstrating its financial strength and ability to invest in future growth initiatives, including acquisitions. Ongoing "Going Private" Discussions: Zynex is engaged in advanced talks with private equity firms for a potential "going private" transaction, suggesting that its financial performance and strategic direction are attracting interest.

Order Growth Trend

The chart below illustrates the consistent order growth Zynex has experienced in recent quarters. This growth is a testament to the company's expanding salesforce and its ability to penetrate the market effectively.

While headlines focused on the cyberattack and monitoring solutions, a quiet revolution is taking place within Zynex's pain management division. This shift towards diversification, backed by solid numbers and strategic foresight, may be the hidden signal that sets the stage for even greater growth and potential acquisition in the future.

"Fun Fact: Did you know Zynex's founder, Thomas Sandgaard, also owns the English football club, Charlton Athletic? It seems he has a knack for leading teams to success, both in the business world and on the football pitch!"