10-Q: Zynex Faces Liquidity Crisis Amidst Revenue Plunge, SEC Probe

Zynex, Inc. reports significant net losses and revenue declines, raising substantial doubt about its ability to continue as a going concern, while grappling with a Tricare payment suspension, multiple lawsuits, and an SEC investigation.

Summary

• Zynex, Inc. reported a net loss of $73.3 million for the nine months ended September 30, 2025, a significant decline from a net income of $3.6 million in the same period of 2024.
• Total net revenue decreased by 57% to $62.2 million for the nine months ended September 30, 2025, compared to $146.4 million in the prior year.
• The company's cash and cash equivalents stood at $13.3 million as of September 30, 2025, down from $39.6 million at December 31, 2024.
• Management has concluded that existing cash resources are not sufficient to support planned operations for the next year, raising substantial doubt about the company's ability to continue as a going concern.
• The company elected not to make a $1.5 million interest payment due on November 15, 2025, on its $60.0 million 2023 Convertible Senior Notes, triggering a 30-day grace period before an event of default.
• A temporary suspension of Tricare claims processing and payments, initiated in Q1 2025 due to allegations of misrepresentation, continues, impacting 20-25% of historical annual revenue.
• Zynex Monitoring Solutions (ZMS) changed its commercialization strategy for the NiCO CO-Oximeter, ceasing independent efforts and seeking strategic partners, resulting in $30.7 million in non-cash asset impairment charges.
• The company implemented multiple workforce reductions (15% in Q1 2025, 14% in June 2025) to align operating expenses with reduced revenue, though some employees were rehired in Q3 2025.
• Zynex is cooperating with voluntary document requests from the SEC in connection with an investigation into potential federal securities law violations.
• Several new legal proceedings, including securities fraud class actions, shareholder derivative lawsuits, and a RICO action by Allstate Insurance, have been filed against the company and its former officers.
• New leadership appointments include Steven Dyson as CEO, Vikram Bajaj as CFO, and John Bibb as CLO, effective August 18, 2025.
• The Board established a Special Committee on November 11, 2025, to evaluate and negotiate strategic restructuring and/or financing transactions.

Sentiment

Score: 1

Explanation: The filing indicates severe financial distress, including substantial net losses, significant revenue decline, a working capital deficit, and an explicit 'going concern' warning. The company is facing multiple regulatory investigations, significant litigation, and is at risk of defaulting on its convertible notes, all of which point to an extremely negative outlook.

Positives

• A preliminary settlement has been reached in the Heid v. Zynex Medical, Inc. class action, pending court approval, with an accrual already recorded.
• A settlement in principle has been reached in the Christian Hunt lawsuit, reducing potential litigation exposure.
• The company rehired certain previously impacted employees in Q3 2025 to support service levels, indicating an effort to stabilize operations after workforce reductions.

Negatives

• Net loss of $73.3 million for the nine months ended September 30, 2025, compared to net income of $3.6 million in the prior year.
• Total net revenue decreased by 57% to $62.2 million for the nine months ended September 30, 2025, from $146.4 million in 2024.
• Cash and cash equivalents decreased significantly to $13.3 million as of September 30, 2025, from $39.6 million at December 31, 2024.
• Working capital shifted from a surplus of $58.3 million at December 31, 2024, to a deficit of $41.8 million at September 30, 2025.
• Cash used in operating activities was $23.0 million for the nine months ended September 30, 2025, a reversal from $10.3 million provided in the same period of 2024.
• The company elected not to make a $1.5 million interest payment on its $60.0 million Convertible Senior Notes, risking an event of default and potential bankruptcy.
• A $30.7 million non-cash asset impairment charge was recognized in Q3 2025 due to the change in commercialization strategy for the ZMS subsidiary.
• The temporary Tricare payment suspension continues, and the company recognized no revenue from Tricare for the nine months ended September 30, 2025, and reduced revenue by $2.8 million related to payments received during the suspension period.
• Workforce reductions of approximately 15% in Q1 2025 and an additional 14% (86 corporate roles) in June 2025 were implemented due to revenue declines and uncertainty.
• Device orders decreased 35% for the three months and 20% for the nine months ended September 30, 2025, compared to the same periods in 2024.
• Supplies revenue decreased 82% for the three months and 68% for the nine months ended September 30, 2025, primarily due to the Tricare suspension, payer policy changes, and a revised resupply process.
• Sales and marketing expenses, while decreasing in absolute terms, increased as a percentage of revenue to 71% and 63% for the three and nine months ended September 30, 2025, respectively, reflecting the sharp revenue decline.
• General and administrative expenses also increased as a percentage of revenue to 88% and 63% for the three and nine months ended September 30, 2025, respectively, for similar reasons.

Risks

• The company's ability to continue as a going concern is dependent on obtaining creditor consent or refinancing its $60.0 million Convertible Senior Notes, securing additional financing, and achieving profitable operations.
• Failure to make the $1.5 million interest payment on the Convertible Senior Notes within the 30-day grace period would result in an event of default, potentially accelerating the notes and leading to bankruptcy.
• The ongoing Tricare payment suspension, based on allegations of misrepresentation and lack of physician orders, has materially impacted revenues and liquidity, with no assurance of satisfactory resolution.
• The SEC is conducting an investigation into potential violations of federal securities laws, which could result in charges, material damages, fines, or other penalties.
• The company faces substantial costs and potential adverse outcomes from multiple pending legal proceedings, including securities fraud class actions, shareholder derivative lawsuits, and a RICO action.
• Fluctuations in tax obligations and effective tax rates, as well as the realization of deferred tax assets, may result in volatility of operating results and adversely affect financial condition.
• The strategic decision to discontinue independent commercialization of the NiCO device and seek partners carries the risk that a suitable partner may not be found, or terms may be unfavorable, impacting future growth strategy.
• Changes to U.S. trade policies, tariffs, and trade barriers could increase manufacturing costs and reduce gross margins.
• Changes to certain payers' claim submission and review practices have resulted in unanticipated denials and payment delays, negatively impacting revenue.

Future Outlook

Management believes existing cash resources are not sufficient to support planned operations for the next year, raising substantial doubt about the company's ability to continue as a going concern. The company is actively exploring restructuring alternatives, including discussions with creditors regarding its $60.0 million Convertible Senior Notes. Failure to make a crucial interest payment within a 30-day grace period could lead to an event of default and potential bankruptcy. The company is also seeking strategic partners for its ZMS noninvasive monitoring technology after discontinuing independent commercialization efforts. The outcome of ongoing regulatory investigations and numerous legal proceedings remains uncertain, posing significant future challenges.

Management Comments

• Management believes that existing cash resources are not sufficient to support planned operations for at least the next year from the issuance of the unaudited condensed consolidated financial statements.
• 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 unaudited condensed consolidated financial statements are issued.
• The company has retained Province, LLC as its financial advisor to assist in preparing for, analyzing, evaluating, and arranging discussions with its creditors and other stakeholders to explore several alternatives for a Restructuring.
• The company has recently begun discussions with certain creditors holding the 2023 Convertible Senior Notes and anticipates beginning discussions with other stakeholders and investors with respect to a Restructuring.
• There can be no assurances that an agreement with respect to a Restructuring will be reached in the future.
• If the company is not successful in improving its liquidity position, it may be required to significantly scale back operations, pursue the sale of the company to a third party at a price that may result in a loss on investment for stockholders, or file for bankruptcy or cease operations altogether.
• Management does not expect further material impairment related to the ZMS business at this time.

Industry Context

The company operates in the medical devices segment, specifically electrotherapy and pain management products. The significant revenue decline and liquidity issues are exacerbated by 'continuing changes in the healthcare industry and third-party payer reimbursement' practices, which have led to unanticipated denials and payment delays. The challenges with Tricare, a major government payer, highlight the increasing scrutiny and complexity within the healthcare reimbursement landscape, affecting companies reliant on government and commercial insurance programs.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• Securities Class Action (Tuncel v. Zynex Inc. et al., filed March 20, 2025): Alleges securities fraud, oversupply scheme, inflated revenue, and exposure to adverse consequences from insurers and government penalties. Seeks class certification and unspecified damages.
• Shareholder Derivative Action (Ayers v. Sandgaard et al., filed July 9, 2025): Alleges breaches of fiduciary duties, waste of corporate assets, unjust enrichment, gross mismanagement, and violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934. Seeks damages, restitution, disgorgement, and corporate governance reforms.
• Second Shareholder Derivative Action (Graziano v. Sandgaard et al., filed August 12, 2025): Alleges substantially the same claims as the Ayers action. A motion to consolidate with Ayers and a motion to temporarily stay derivative actions were filed on October 3, 2025.
• Third Shareholder Derivative Action (Arbel v. Sandgaard et al., filed November 14, 2025): Alleges substantially the same claims as the Ayers and Graziano actions.
• Allstate Insurance Company et al. Action (filed September 4, 2025, amended October 8, 2025): Alleges violations of RICO, Colorado Organized Crime Control Act, fraud, and unjust enrichment against former officers and the Company. Seeks declaratory relief, injunctive relief, actual, treble, and punitive damages, and costs.
• Christian Hunt Action (filed April 25, 2025): Alleges breach of fiduciary duties, fraudulent nondisclosure and concealment, and false representation related to a 1999 investment in an unaffiliated entity. A settlement in principle has been reached.
• Raelynn Maloney Action (filed September 15, 2025): Alleges unjust enrichment, false representation, and negligent and intentional infliction of emotional distress against Thomas Sandgaard, the Company, and affiliated entities. Seeks judgment, damages, and costs.
• Heid v. Zynex Medical, Inc. Class Action (filed March 4, 2023): Alleges violations of the California Invasion of Privacy Act and Unfair Competition Law. A preliminary settlement has been reached and an accrual recorded.
• Melissa Ramirez v. Zynex Medical, Inc. Class Action (filed May 30, 2024): Alleges failure to pay earned wages, timely pay wages, reimburse business expenses, and claims under the California Private Attorneys General Act (PAGA). Seeks class certification, unpaid wages, statutory penalties, and damages.
• Ongoing regulatory investigations: The company is responding to voluntary document requests from the SEC and investigative demands, subpoenas, and formal document requests from the Department of Justice, Department of Health and Human Services-Office of Inspector General, California Department of Insurance, and Colorado Attorney General.

Related Party Transactions

• On March 13, 2025, the company purchased 1,700,000 shares of its common stock from Thomas Sandgaard, the company's Chairman and then-serving President, Chief Executive Officer, and Principal Executive Officer, for $4.9 million at a price of $2.905 per share. This transaction was approved by the disinterested members of the Board of Directors and the Audit Committee, who believed the stock was undervalued and the purchase was a good use of company funds at the time.

Stakeholder Impact

• Shareholders face significant risk of loss on investment due to the company's severe financial distress, potential bankruptcy, and the possibility of a sale at a loss. The ongoing securities fraud and derivative lawsuits also pose a threat to shareholder value.
• Employees have been significantly impacted by multiple workforce reductions (totaling approximately 29% of the workforce), leading to job losses and uncertainty. Future operational scaling back or cessation could lead to further job losses.
• Creditors, particularly holders of the $60.0 million Convertible Senior Notes, face a high risk of default and potential acceleration of debt, which could lead to significant losses if the company files for bankruptcy.
• Patients, especially those covered by Tricare, may experience disruptions in service or uncertainty regarding coverage due to the ongoing payment suspension and policy changes, although the company states it continues to support them.
• Suppliers face potential risks related to reduced orders and payment delays if the company's financial condition continues to deteriorate.

Next Steps

• Continue discussions with creditors, including holders of the 2023 Convertible Senior Notes, and other stakeholders to explore restructuring alternatives.
• Elect to make the $1.5 million interest payment on the 2023 Convertible Senior Notes on or prior to the expiration of the 30-day grace period to avoid an event of default.
• Pursue commercialization of the NiCO CO-Oximeter through one or more strategic partners.
• Finalize and implement the new resupply policy to all remaining payers by the end of Q4 2025.
• Continue cooperating with the SEC in its investigation by providing responsive documents on a rolling basis.
• Vigorously defend against the multiple pending legal proceedings, including securities fraud and shareholder derivative actions.
• Incur aggregate pre-tax cash severance charges of approximately $0.7 million in the fourth quarter of 2025 related to ZMS workforce reductions.

Key Dates

Recommendation

The company is in severe financial distress, evidenced by substantial net losses, a dramatic decline in revenue, and a negative working capital position. Management has explicitly raised 'substantial doubt' about its ability to continue as a going concern. The election to not make an interest payment on convertible notes puts the company at imminent risk of default and potential bankruptcy. Furthermore, Zynex is embroiled in multiple regulatory investigations and significant litigation, including securities fraud and RICO claims, which could result in substantial penalties and further operational disruption. The strategic shift for ZMS and ongoing Tricare payment suspension add to the uncertainty. Given these compounding factors, the risk of significant capital loss is extremely high, warranting a strong sell recommendation.

Keywords

Zynex, ZYXI, medical devices, electrotherapy, pain management, SEC filing, 10-Q, financial results, liquidity crisis, going concern, Tricare suspension, regulatory investigation, securities litigation, shareholder derivative, convertible notes, debt default, impairment charges, workforce reduction, corporate governance, executive changes, restructuring