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Electromed (ELMD) Q3 2025 Earnings Call May 13, 2025 05:00 PM ET Speaker0 Greetings, and welcome to the Electromed Third Quarter Fiscal twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Mike Kavanaugh, Investor Relations. Thank you, Mike. You may begin. Speaker1 Good afternoon, and thank you for joi ...

Financial Performance - Net revenues for the three months ended March 31, 2025, increased by $1,813,000 or 13.1% to $15,684,000 compared to the same period in the prior year, while for the nine months, revenues increased by $6,723,000 or 16.9% to $46,607,000[60]. - Homecare revenue for the three months ended March 31, 2025, increased by $1,815,000 or 14.8%, and for the nine months, it increased by $5,798,000 or 16.1%[61]. - Gross profit for the three months ended March 31, 2025, increased to $12,229,000, or 78.0% of net revenues, compared to $10,382,000, or 74.8% in the same period last year[65]. - Operating income for the three months ended March 31, 2025, increased by $299,000 or 16.2% to $2,140,000, while for the nine months, it increased by $2,374,000 or 55.9% to $6,620,000[72]. - Net income for the three months ended March 31, 2025, was $1,891,000, an increase from $1,493,000 in the same period last year, and for the nine months, it was $5,333,000 compared to $3,322,000[76]. Expenses - Research and development expenses for the three months ended March 31, 2025, increased by $110,000 or 65.9%, and for the nine months, they increased by $214,000 or 44.6%[71]. - Selling, general and administrative expenses for the three months ended March 31, 2025, were $9,812,000, an increase of $1,438,000 or 17.2% compared to the same period last year[66]. Cash Flow and Financing - Cash flows from operating activities for the nine months ended March 31, 2025, were $7,534,000, consisting of net income of $5,333,000 and non-cash expenses of $3,184,000[77]. - Cash used for financing activities for the nine months ended March 31, 2025, was $8,228,000, primarily for share repurchase and taxes on stock awards[79]. - The company believes its working capital of approximately $35,684,000 will provide sufficient liquidity for the next twelve months[80]. - The company maintains a credit facility with a maximum borrowing limit of $2,500,000, which is secured by a security interest in substantially all tangible and intangible assets[81]. - As of March 31, 2025, there was no outstanding principal balance on the line of credit, and the interest rate on borrowings is set at 6.50% (prime rate of 7.50% less 1.0%)[81]. - For the nine months ended March 31, 2025, the company spent approximately $117,000 on property and equipment, a decrease from $265,000 in the same period of 2024[84]. - The company expects to finance planned equipment purchases through cash flows from operations or borrowings under the credit facility, with potential additional debt if unforeseen capital needs arise[84]. - The company believes its cash, cash equivalents, and cash flows from operations will be sufficient to meet working capital and capital expenditure requirements for fiscal 2025 and the foreseeable future[85]. - The company has a minimum tangible net worth covenant of not less than $10,125,000 as part of its credit facility agreements[82]. - Failure to comply with covenants could lead to an event of default, potentially resulting in accelerated debt maturity or refusal to renew the line of credit[83]. Regulatory and Market Risks - The company is focused on maintaining regulatory compliance and gaining future regulatory approvals for its products[88]. - The company anticipates ongoing availability of credit and intends to evaluate financing alternatives to meet cash requirements[85]. - The company faces risks including component shortages, adverse changes in healthcare regulations, and competition from new entrants in the market[88].

Financial Performance - Net revenues increased by 13.1% to $15.7 million in Q3 FY 2025, compared to $13.9 million in Q3 FY 2024[5] - Direct homecare business revenue grew by 14.8% to $14.1 million, driven by increased referrals and sales efficiencies[6] - Gross profit rose to $12.2 million, representing 78.0% of net revenues, up from 74.8% in the prior year[8] - Operating income increased by 16.2% to $2.1 million, or 13.6% of net revenues, compared to 13.3% in Q3 FY 2024[11] - Net income grew by 26.7% to $1.9 million, or $0.21 per diluted share, compared to $1.5 million, or $0.17 per diluted share in the prior year[9] Cash Flow and Balance Sheet - Operating cash flow for the nine months ended Q3 FY 2025 was $7.5 million, an increase of $3.0 million year-over-year[9] - Cash balance as of March 31, 2025, was $15.2 million, with total shareholders' equity at $43.9 million[12] - Net cash provided by operating activities increased to $7,534,000 from $4,578,000, representing a growth of 64% year-over-year[23] - Cash and cash equivalents at the end of the period were $15,237,000, up from $11,712,000, indicating a year-over-year increase of 30.5%[23] - The beginning cash balance was $16,080,000, which decreased to $15,237,000 by the end of the period, resulting in a net decrease of $843,000[23] Expenses and Investments - Selling, general and administrative expenses rose by 17.2% to $9.8 million, primarily due to increased personnel costs[10] - Research and development expenses increased to $277,000 from $167,000 in Q3 FY 2024, reflecting ongoing investment in new product development[20] - Share-based compensation expense rose to $2,409,000, compared to $1,250,000, reflecting a 92.5% increase[23] Stock and Equity - The board approved a stock repurchase authorization of $5 million in Q3 FY 2025[9] - The company repurchased common stock amounting to $6,331,000 during the period[23] - The company issued common stock upon exercise of options totaling $381,000, up from $111,000 in the previous year[23] Inventory and Receivables - Accounts receivable showed a negative change of $109,000, contrasting with a positive change of $223,000 in the previous year[23] - Inventories increased by $564,000, compared to an increase of $78,000 in the prior year[23] Year-to-Date Performance - Net income for the nine months ended March 31, 2025, was $5,333,000, an increase of 60.5% compared to $3,322,000 in 2024[23]

Company Overview - Electromed, Inc. is a profitable and growing medical device company that develops, manufactures, markets, and sells innovative High Frequency Chest Wall Oscillation (HFCWO) airway clearance products, primarily for home use [4] - The flagship product, SmartVest® Airway Clearance System, is designed for patient comfort and ease of use [4] - The domestic market for HFCWO devices is largely untapped, with fewer than 15% of the approximately 824,000 patients diagnosed with bronchiectasis in the US currently using this non-invasive therapy [4] Business Model - The company employs an efficient direct-to-patient and provider model, obtaining patient referrals directly from clinicians [5] - Electromed manages the entire insurance claim, product delivery, and training processes on behalf of patients and providers, thereby improving the quality of life for patients with compromised pulmonary function [5] - This model reduces healthcare utilization and enhances value for shareholders [5] Event Participation - Electromed, Inc. will participate in the 15th Annual LD Micro Invitational on April 9th and 10th, 2025, at the Westin Grand Central in New York [1][2] - Jim Cunniff, President and CEO, will represent the company during the presentation scheduled for April 10, 2025, at 02:30 PM ET [2] - The event will feature over 50 companies presenting in half-hour increments and attending private meetings with investors [3]

Financial Data and Key Metrics Changes - Electromed reported record revenues of $16.3 million for Q2 FY 2025, an increase of 18.7% from $13.7 million in Q2 FY 2024 [7][18] - Operating income reached a record $2.5 million, compared to $2.3 million in Q2 FY 2024, driven by increased revenue and gross profit [7][23] - Net income was $2 million, or $0.22 per fully diluted share, marking a significant improvement in earnings per share [7][24] Business Line Data and Key Metrics Changes - Revenue from the direct homecare business increased by 15.2% to $14.6 million from $12.7 million, attributed to more referrals and improved efficiencies [19] - Hospital segment revenue grew by 16.8% to $723,000, driven by increased demand for capital and disposable products [20] - Homecare distributor revenue surged by 188% year-over-year to $807,000, reflecting strong demand from DME partners [20] Market Data and Key Metrics Changes - The company improved working capital by reducing inventory by 35% compared to Q2 FY 2024 while meeting patient therapy needs [12] - The annualized homecare revenue per weighted average direct sales representative was $1,077,000, slightly above the target range of $900,000 to $1 million [19] Company Strategy and Development Direction - The company aims to diversify its customer base beyond the core homecare segment, with a focus on the hospital segment and DME distributor relationships [9][10] - Investments in personnel, technology, and process improvements are ongoing to enhance operational efficiency and customer experience [11][12] - The "Triple Down on Bronchiectasis" campaign aims to raise awareness and increase prescriptions for SmartVest Clearway technology [14][15] Management's Comments on Operating Environment and Future Outlook - Management expressed satisfaction with the operational performance and market response, indicating a strong trajectory for continued growth [16] - The company remains focused on delivering double-digit top-line growth and expanded operating leverage for the full year [25] Other Important Information - Electromed had $16.2 million in cash, $22.8 million in accounts receivable, and no debt, achieving a working capital of $35.5 million [24] - The company is investing in a new CRM system to enhance productivity and market insights [12] Q&A Session Summary Question: Competitive response to SmartVest marketing - Management noted that while competitors have upgraded their technology, it has not significantly impacted Electromed's business, which continues to show strong results [30][33] Question: Developments in drugs for bronchiectasis - Management indicated that a new drug for bronchiectasis is under FDA review, expected to be complementary to airway clearance rather than a replacement [35][38] Question: Revenue per sales representative outlook - Management expressed optimism about maintaining or improving revenue per sales representative, citing better performance management and onboarding processes [40][41]

Financial Performance - Net revenues for the three months ended December 31, 2024, increased by 18.7% to $16,255,000 compared to $13,689,000 for the same period in the prior year[60]. - Homecare revenue increased by $1,925,000 or 15.2% for the three months ended December 31, 2024, driven by increased referrals and approvals[61]. - Gross profit for the three months ended December 31, 2024, increased to $12,627,000, representing 77.7% of net revenues, up from 77.0% in the same period last year[66]. - Operating income increased by $279,000 or 12.3% to $2,542,000 for the three months ended December 31, 2024, compared to the same period in the prior year[74]. - Net income for the three and six months ended December 31, 2024, was $1,968,000 and $3,442,000, respectively, compared to $1,674,000 and $1,829,000 for the same periods in the prior year[79]. Expenses - Research and development expenses increased by $144,000 or 134.6% for the three months ended December 31, 2024, primarily due to increased headcount and external spend[73]. - Selling, general and administrative expenses increased by $1,659,000 or 20.3% for the three months ended December 31, 2024, compared to the same period in the prior year[67]. Cash Flow and Financing - Cash flows from operating activities for the six months ended December 31, 2024, were $5,460,000, consisting of net income and adjustments for non-cash expenses[80]. - The company reported cash used for financing activities of $5,010,000 for the six months ended December 31, 2024, primarily for share repurchase[82]. - The company believes its working capital of approximately $35,522,000 will provide sufficient liquidity for the next twelve months[83]. - The company maintains a credit facility with a maximum borrowing limit of $2,500,000, which is secured by a security interest in substantially all tangible and intangible assets[84]. - As of December 31, 2024, there was no outstanding principal balance on the line of credit, and the interest rate on borrowings is set at 6.5% (prime rate of 7.5% less 1.0%)[84]. - For the six months ended December 31, 2024, the company spent approximately $270,000 on property and equipment, compared to $180,000 for the same period in 2023, indicating a 50% increase in capital expenditures[87]. - The company expects to finance planned equipment purchases through cash flows from operations or borrowings under the credit facility, with potential additional debt if unforeseen capital needs arise[87]. - The company believes its cash, cash equivalents, and cash flows from operations will be sufficient to meet working capital and capital expenditure requirements for fiscal 2025 and the foreseeable future[88]. - The company has a minimum tangible net worth covenant of not less than $10,125,000 as part of its credit facility agreements[85]. - Failure to comply with financial covenants could result in an event of default, potentially leading to accelerated debt maturity or restricted access to additional funds[86]. Regulatory and Compliance - The company is focused on maintaining regulatory compliance and gaining future regulatory approvals, which are critical for its operations[90]. - The company anticipates ongoing availability of credit and the ability to renew its line of credit, which is essential for its liquidity[89]. - The company is evaluating financing alternatives to satisfy its working capital and other cash requirements amid macroeconomic uncertainties[88].

Financial Performance - Net revenues increased by 18.7% to a record $16.3 million in Q2 FY 2025, compared to $13.7 million in Q2 FY 2024[4] - Operating income reached a record $2.5 million, representing 15.6% of net revenues, with a year-over-year increase of 12.3%[7] - Net income was $2.0 million, or $0.22 per diluted share, compared to $1.7 million, or $0.19 per diluted share in Q2 FY 2024[9] - Gross profit increased to $12.6 million, or 77.7% of net revenues, up from $10.5 million, or 77.0% of net revenues[6] - Revenue in the direct homecare business grew by 15.2% to $14.6 million, driven by increased referrals and approvals[5] Expenses and Investments - Selling, general and administrative expenses rose by 20.3% to $9.8 million, primarily due to increased salaries and share-based compensation[8] - The company initiated an investment in a new CRM system to enhance the productivity of its commercial team[3] - Share-based compensation expense increased significantly to $1,652,000 from $791,000, marking a rise of 108.5%[21] - Expenditures for property and equipment were $270,000, up from $180,000, indicating ongoing investment in operational capacity[21] - The net cash used for investing activities was $295,000, compared to $220,000 in the prior year, showing an increase in investment outflows[21] Cash Flow and Liquidity - Cash balance as of December 31, 2024, was $16.2 million, reflecting a $0.2 million increase compared to the previous six months[10] - Net cash provided by operating activities increased to $5,460,000 from $3,227,000, reflecting a growth of 69.2% year-over-year[21] - Cash and cash equivalents at the end of the period rose to $16,235,000, up from $10,434,000, indicating a year-over-year increase of 55.0%[21] - The beginning cash balance was $16,080,000, which demonstrates a solid liquidity position for the company[21] Shareholder Equity and Stock Activity - Electromed's total shareholders' equity was $43.6 million as of December 31, 2024[10] - The company repurchased common stock amounting to $4,536,000 during the period, indicating a strong commitment to returning value to shareholders[21] - The company issued common stock upon exercise of options totaling $346,000, compared to $55,000 in the previous year, reflecting increased employee stock option activity[21] Inventory and Receivables Management - Accounts receivable decreased by $558,000, while inventories increased by $500,000, suggesting changes in sales and inventory management strategies[21] Workforce - The company ended the quarter with 60 field sales force employees, including 54 direct sales representatives[5]

Financial Data and Key Metrics Changes - The company reported net revenue of $14.7 million for Q1 FY 2025, representing a year-over-year growth of 19% from $12.3 million in Q1 FY 2024 [6][22] - Operating income increased to $1.9 million, compared to $0.1 million in the same quarter of the previous year, with diluted earnings per share of $0.16 [8][30] - Gross profit rose to $11.5 million, accounting for 78.3% of net revenues, up from 77.1% in Q1 FY 2024 [25] Business Line Data and Key Metrics Changes - Home care revenue grew by 18.5% year-over-year to $13.2 million, driven by increased referrals and a higher number of direct sales representatives [7][22] - Hospital revenue increased by 36.1% to $690,000, attributed to stronger demand for capital devices and disposable products [23] - Other revenue surged by 97.8% to $180,000, primarily due to increased international distributor purchases [24] Market Data and Key Metrics Changes - The company ended the quarter with 53 direct sales representatives, with a target of 57 by the end of Q2 FY 2025 [12] - The annualized home care revenue per weighted average direct sales representative was $985,000, up from $876,000 in the previous year [23] Company Strategy and Development Direction - The company aims to expand its sales team and improve operational efficiencies while raising awareness of its airway clearance technology [10][11] - A new marketing VP has been appointed to strengthen the marketing team and drive therapy adoption for SmartVest Clearway [19][20] - The company is focusing on direct-to-consumer initiatives to enhance patient awareness and engagement [47] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the continued growth trajectory, highlighting the importance of addressing underdiagnosed conditions like bronchiectasis [36][39] - The company is monitoring the impact of natural disasters on product access for providers and patients [51] Other Important Information - The company authorized a share repurchase of up to $5 million, with 262,756 shares repurchased at a total cost of $4.5 million [31] - As of September 30, 2024, the company had $13.9 million in cash and no debt, achieving a working capital of $33.6 million [32] Q&A Session Summary Question: Are you seeing any momentum in specific diagnoses related to bronchiectasis? - Management noted increased visibility and identification of bronchiectasis patients by pulmonologists, leading to earlier prescriptions of SmartVest technology [36][39] Question: What are your long-term targets for revenue distribution, especially in the hospital setting? - Management indicated that hospital sales will remain a smaller percentage of total revenue due to longer sales cycles, but they are optimistic about growth in this area [40][41] Question: How does the company's status as the industry's only pure play affect its competitive position? - Management believes being a single product company allows for focused expertise and better positioning in a nascent market [42][43] Question: What are the overarching growth drivers for the company moving forward? - Key growth drivers include expanding the sales team, enhancing direct-to-consumer efforts, and improving payer relations to facilitate quicker patient access to products [46][49]

Revenue Growth - Homecare revenue increased by $2,058,000, or 18.5%, to $13,211,000 for the three months ended September 30, 2024[55] - Hospital revenue increased by $183,000, or 36.1%, to $690,000 for the three months ended September 30, 2024[57] - Total revenue increased by $2,344,000, or 19.0%, to $14,668,000 for the three months ended September 30, 2024[55] Profitability - Gross profit increased to $11,491,000, or 78.3% of net revenues, for the three months ended September 30, 2024, compared to 77.1% in the prior year[61] - Operating income increased by $1,796,000 to $1,938,000 for the three months ended September 30, 2024[67] - Net income for the three months ended September 30, 2024, was $1,474,000 compared to $155,000 for the same period in the prior year[70] Cash Flow and Liquidity - Cash flows from operating activities were $2,309,000 for the three months ended September 30, 2024[71] - The company maintains a working capital of approximately $33,591,000, which is expected to meet liquidity needs for the next twelve months[74] - The line of credit available as of September 30, 2024, was $2,500,000, with no outstanding principal balance[75] Risks and Challenges - The company faces risks related to component or raw material shortages, changes to lead times, and significant price increases[82] - Regulatory compliance and the ability to gain future regulatory approvals are critical for the company's operations[82] - The company is concerned about the entry of new competitors and adverse economic conditions impacting its market position[82] - Cybersecurity threats such as data breaches and computer viruses pose risks to the company's operations[82] - The company acknowledges the potential impact of adverse international healthcare regulations on its business[82] Strategic Focus - The company emphasizes the importance of obtaining reimbursement from Medicare, Medicaid, and private insurance payers for its products[82] - The company is focused on developing new sales channels, including the homecare distributor channel[82] - The company is committed to protecting and expanding its intellectual property portfolio[82] Forward-Looking Statements - The company does not plan to update forward-looking statements unless required by law[83] - The company is classified as a smaller reporting company and is not required to provide certain market risk disclosures[85]