Q1 2021 Electromed Inc Earnings Call
[music] Hello.
Welcome to the Electromed fiscal 2021 first quarter financial results conference call and webcast.
At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.
Anyone should require operator assistance. Please press star zero on the telephone keypad as a reminder, this conference is being recorded.
So my pleasure to turn the call over Cali, all with the equity group. Please go ahead.
Thank you Kevin and good afternoon, everyone Electromed first quarter fiscal 2021 financial results were released today after the market close.
A copy of the earnings release can be found in the Investor Relations section of the company's website at Www <unk> Smartglass Dot com.
As a matter of formality I need to remind you that some of the statements that management will make on this call are considered forward looking statements, including statements about the company's future operating and financial results and plans.
Such statements are subject to risks.
Uncertainties that could cause actual performance or achievements to be materially different from those projected.
Any such statements represent managements expectations as of today's date.
You should not place undue reliance on these forward looking statements and the company does not undertake any obligation to update or revise forward looking statements, whether as a result of new information future events or otherwise.
Please refer to the company's FTC filings for further guidance on this matter.
Joining us from Electromed this afternoon, or Kathleen Scarlett, President and Chief Executive Officer, and Mike Mccourt, Chief Financial Officer.
Kathleen will begin with some opening remarks, after which Mike will present, a summary of the company's financial results.
We will open the call for questions.
Now, it's my pleasure to turn the call over to Kathleen.
Thank you Kelly good afternoon, everyone and thanks, you. Thank you for joining us today.
First quarter at Cisco 2021, we delivered strong financial and operational performance.
They said COVID-19 related disruption.
Our on net revenue was $8 million down 3.6% versus the comparable prior year period.
<unk> revenue increased 17.9% compared to the fourth quarter of fiscal year, 2020, driven primarily by state and local government restrictions beginning to east increasing patient face to face reengagement with clinicians and an increasing number of clinics, allowing face to face.
Access by our sales team.
We've adapted nimbly across the entire organization to this crisis with our sales team specifically shifting to a hybrid selling approach consisting of virtual and face to face interaction.
Care business has also continued to benefit from the CMS waiver that relaxing certain requirements for high frequency chest wall installation or Hfts tw out [laughter], which has recently been extended through late January income.
In conjunction with the extension of the public health emergency by the Department of Health and human services.
I don't care referral and revenue growth improved throughout the quarter and has continued into October so when certainty surrounding cobot, 19%.
The institutional side of our business remains soft due to reduced hospital purchases in light of COVID-19.
<unk> is related to the aerosol spread though we did register a sequential increase in single use disposable wrap orders in the first quarter of fiscal year 2021, compared to the fourth quarter of fiscal year 2020.
We are seeing a resumption in hospital orders in tandem with declining garment inventory and an increase in the census of noncore vacation.
Our institutional strategy remains unchanged, we are focused on fortifying the hospital call point.
Strengthening our partnerships with the integrated delivery networks as a reminder, a growth in our institutional business should augment our home care revenue as the HFC W. Ell brand used in the hospital is often the default brand prescribed when discharging a patient.
Well, our direct sales channel remains our primary focus our homecare distributor segment continues to add revenue from those areas of the country, where smart bets brand is under recognized and we see opportunities for accelerating growth on a supplemental basis in the first quarter, we generated $178000 at rabbit.
Through this channel living.
Moving to the bottom line. This quarter, we remained profitable with net income of roughly $535000 or six cents per diluted share. We continue to fund strategic investments for our long term growth and during the first quarter of fiscal year 2021, we invested nearly five times as much research.
And development expense compared to the prior year period well.
Well, we can't disclose additional information on this project for competitive reasons, we are very excited about its prospects to drive future growth.
We also continue to invest in building, our sales and marketing organizations.
And launched additional direct to consumer marketing efforts intended to increase awareness of brucie activists and smart best as an effective treatment.
This quarter, we continued to successfully navigate 'cause it 19 challenges and could not have done so without the amazing dedication of our employees, whose health safety and wellbeing remain our top priority.
We already have our corporate employees will continue to work remotely for the foreseeable future.
Our operations and manufacturing groups continue to practice safe that work using our 'cause it 19 preparedness plan and protocols.
And we are pleased to report that we haven't had any significant disruption in manufacturing shipping for the supply chain.
Finally, touching on a recent change to our leadership team in October we were excited to appoint Christine Aweida as vice president of reimbursement and payer relations. She brings to Electromed approximately 15 years after that diverse leadership experience and people management client relationships and.
Process improvement.
Prior to Electromed, Christine was president and director of Intellicheck incorporated where she drove strategic planning initiatives process improvement revenue cycle management efficiencies business development and growth. She is an expert in revenue cycle solutions for the health care industry and has a high.
Performing sales track record, including <unk> M. D D. G Oh global brushing achieved multiple years sales quota overachievement.
We believe and hurt in depth understanding of the interconnections among sales reimbursement and business processes functions will help us further optimize electromed operations to support our long term growth.
Oh, they are long term thesis remains intact non cystic fibrosis brucie actresses represents a significant and growing market opportunity conservatively estimated at more than 4 million individuals in the United States.
We believe that approximately 630000 people with bronchiectasis diagnosis could benefit from HFC W.O. therapy, yet only an estimated 77000 patients in the Medicare population have been treated with a device like smart that's today.
As the impact of COVID-19 debate.
We believe we can resume longer term low double digit revenue growth and improved profitability, while continuing to serve our clinicians and patients with best in class customer service and differentiated smart best airway clearance products.
With that I will now turn it over to Mike for a more detailed discussion of our financial results.
You Kathleen and good afternoon, everyone.
Our net revenue in the first quarter of fiscal 2021 decreased 3.6% to 8.0 million from 8.3 million in the first quarter fiscal 2020, primarily due to lower institutional revenue home.
Hunker revenue totaled approximately 7.5 million in the first quarter of both fiscal 2021 in fiscal 2020, okay.
Home care revenue increased 17.9% compared to the fourth quarter of fiscal 2020.
At quarter end, our field sales employees totaled 42 of which 35 or direct sales compared to 38 at the end of the first quarter fiscal 2020 of which 32 were direct sales.
[laughter] institutional revenue decreased 55.5% year over year to 278000 due to a decrease in the volume of devices and disposable repsold as hospitals and long term care facilities adjusted their operating protocols and procurement management in relation to the COVID-19 pandemic [noise].
Distributor revenue increased 48.3% to 178000 from 120000 in the first quarter of fiscal 2020.
International revenue, which is not a strategic growth area for Electromed totaled 84000 compared to 66000 in the prior year period.
Quarter to quarter sales variability can be expected due to the nature of our business and the COVID-19 pandemic adds an additional degree of uncertainty.
As Kathleen mentioned, however, we were encouraged by the strong growth in home care revenue compared to the prior quarter.
Gross profit dollars decreased 3.1% to 6.1 million.
76.8% of net revenue from 6.3 million or 76.4% of net revenue in the prior year comparable period.
The decrease in gross profit dollars was primarily due to the decrease in institutional revenue.
The increase in gross profit as a percentage of net revenue was due primarily to a higher mix of home care revenue.
We expect our longer term gross margins will be in the mid to high 70% range.
Operating expenses, which include EPS DNA as well as R&D expenses totaled 5.5 million or 68.5% of revenue in the first quarter fiscal 2021, compared to 5.0 million or 60.2% of revenue in the same period of the prior year.
[laughter] asked you know expenses increased by 109000 to 5.0 million in the first quarter of fiscal 2021 from 4.9 million in the same period of the prior year.
Primarily due to increased payroll expenses associated with a higher average number of sales and marketing employees, an increase direct to consumer marketing, partially offset by lower travel meals and entertainment expenses.
R&D expenses increased to $481000 in the first quarter fiscal 2021 from $99000 in the same period of the prior year, primarily due to increased investment in our next generation product development.
We estimate that R&D expenses will be in the 4% to 6% of net revenue range for the duration of fiscal 2021.
Operating income totaled 663000 compared to $1.3 million in the first quarter of fiscal 2020.
Net income before income tax totaled 672000 in the first quarter fiscal 2021 compared to 1.4 million in the prior year quarter.
Income tax expense was 137000 compared to 374000 in the same period of the prior year.
Income taxes this quarter benefited from a discrete tax benefit of $39000 related to the exercise of stock options.
Our net income totaled 535000 or six cents per diluted share in the first quarter fiscal 2021, compared to 1.0 million or 12 cents per diluted share in the prior year period.
Now moving to the balance sheet, an operating cash flow.
Balance sheet at September 32020 included cash and cash equivalents of 11.1 million no long term debt working capital of 25.8 million and shareholders' equity of 30.9 million.
Cash flow from operations in the first quarter fiscal 2021 totaled $822000 compared to $629000 in the same period of the prior year.
We're very pleased to be debt free and well positioned to continue building our cash reserves to support Electromed long term growth strategies morever given uncertainty surrounding the COVID-19 crisis. We are fortunate to have the financial flexibility that our balance sheet affords us.
Although we have continued to evaluate our options regarding the optimal use of our cash to maximize shareholder value the discussions internally and with the board of extended due to the COVID-19 pandemic.
We expect to share more information on plans for the use of our cash by the end of fiscal year 2021.
This concludes our prepared remarks, operator, please start the Q and a portion of the call.
Certainly without are conducting a question and answer session. If you have to be placed in the question queue. Please press star one under telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question, probably Q4 participants using speaker equipment, maybe necessary to pick up your handset.
Before pressing star one one moment, please while we poll for questions.
First question today is coming from Kyle <unk> from called Securities. Your line is.
Great. Thanks, Hi, Kathleen and Mike Thanks for all the updates today.
Appreciate that color on on everything and and the.
CMS waiver in particular getting extended to I think through January any sense as to whether this might get extended again be on January.
Hi, Kyle Thanks for the question.
Well I I think that a <unk> based on some of the what we're hearing relative to the case increases of COVID-19.
Listening a little more about the announcements on vaccines I think that that I'm not going to make a prediction, but I think there's a.
Certainly the chance that it will be extended if we continue to believe that we're in a pandemic situation and so again I don't have a crystal ball for sure, but again based on what we're hearing around the number of cases and how soon we might see those start.
Decreasing I I think that there's so there's a good chance I'll just I'll just put it that way got.
Got it.
Fair enough and and I know you provided some color on that in your prepared remarks, but just wanted to get a sense on you know how you.
You're thinking about capital allocation I know you pointed to sit tight through cobot here, but you have been able to maintain profitability.
So how are you I guess thinking about utilizing the cash balance I mean I have.
Have you in the meantime, kind of explored accretive acquisitions, or maybe thought of dividends or even buyback with with the pullback in share price I'm, just kind of trying to get a sense of you know whats kind of on the table and and what you're considering and what we might get an update on.
I'd say, it's a I appreciate you asking the question.
From our standpoint and in discussions with the board I would say that most all of the options that you just outlined are on the table, we definitely want to think through how we can continue to accelerate growth beyond.
What what we've seen historically and what investment that that might take that's going to be our priority.
Once we understand that those strategies that investment, which we're continuing to work through here.
Then those other options I think become more available and again we're old.
Nothing's off the table right now I think that's probably the best way to say it we've gotten some some yeah. We'll continue that analysis and as I said, we'll be back with everyone. Before the end of the fiscal year, I believe with with that direction and it will be much clear to our shareholders.
Got it and and you've mentioned that the larger prospective multi center study is enrolling from what I understand. This study will also kind of exam and overlapping conditions. So for example, asthma with bronchiectasis or interstitial lung disease with Bronco.
This is.
Yeah, some color around those I think would expand the total addressable market. So two questions first.
What might this study provide that the original you a b study did not and and then second what what's your best guess for timing on when we might see some results from this.
Yes, so first of all as far as the as the study and what.
Different from the prospective study we are underway with enrollment now versus the retrospective that was conducted at the University of Alabama, one of the primary differences would be we're at we're at multi multi centers. So this will be four centers in the United States versus just the way.
One center with the retrospective.
Ah the other differences that were using quality of life.
Surveys with these patients and the F.D.A. certainly recognize as quality of life as a as a outcome that's important and will Ah, we believe make a difference and and changed the weight decisions think about the value of Hfs CW low.
Those are two of the primary changes that are underway and of course, it will have more patience with the multi center study were targeting 100 patients versus the retrospective was I believe in that that that's about half of that or so.
And so that that number of patients will be more meaningful to the to physicians as well when we get through that so yes enrollments underway I will say, though because of COVID-19. It is still somewhat slow compared to what we would have expected.
But all centers have.
Provided.
Or have approval to continue to enroll at this time, but there are quite a few cobot studies that are out there that do seem to take some some priority as you can imagine right no I'm definitely and I appreciate that color that's helpful and.
And just one more if I may I, I know, you're not getting into the new product enhancements for the Nexgen smart bets, but maybe you could I provide a ballpark estimate on when we might see this I forgot is this a special five 10-K application that that show.
Need for this yeah, we see it and 2021 or any any additional color would be helpful. Thank you.
Oh, certainly so as much as I'd like to give you a date I will not provide that at this time, but I appreciate the question.
We'll continue to keep you updated as we can and we do believe that we will be able to use a special five 10-K at this at this time, although that could change as well, but that's our plan.
Right now.
Got it.
Okay, great Congrats on the nice quarter here and I appreciate you taking my questions. Thanks.
Thanks, a lot Kyle.
Thank you as a reminder, that star one to be placed and good question queue. Our next question today is coming from Mike Defleur from Ametek's Holdings, why there's not a lot.
Good afternoon folks high Kathleen and Mike how are you.
Two things really fast as you know I'm, a long term long term personal with Electromed as you all are.
Your new make.
Relatively I just want to say I think you've navigated through incredibly tough times and I.
I think you've done excellent job and you know once again your calls are crystal clear are you pretty much alluded everybody to the increase in R&D spending and that leads me to my question, which will be brief and that is do you intend to keep it pretty much at the same level as you did first quarter somewhere in that 40 kind of range for them.
Next coming quarters, I suspect you will but I'd, rather you answer [laughter] yeah.
Yeah, we're likely to invest in that similar range for the duration of fiscal 21.
Okay that was pretty much it I. Thank you for doing such a good job navigating people all the folks healthy out there and.
And then I will get back in the queue and look forward to next quarter.
Thank you Mike we always said I appreciate hearing from our long term shareholders.
Once again, ladies and gentlemen that star one to be placed in the question.
Our next question today is coming from James Terwilliger from Northland Capital markets. Your line is alive.
Hello can it can never when you hear me.
Hello, James Nice to hear from you, yes no.
Oh, Thank you very much for taking my question you guys have done a very nice job navigating a cold and so so I've just got two or three questions from from a very high level is there any.
Change in the trend in terms of a your reimbursement or where your pricing strategies as you look into the next fiscal year.
So we don't believe so one of the items that were watching very carefully is with the CMS waiver. We have experienced some change in the volume related to Medicare and as you may be aware and most shareholder.
There's with Medicare that is a higher allowable for us and so we do see some advantage there from a home care revenue standpoint, so that is something that we're keeping an eye on it and it does again help us with a little bit of.
A lift there for that home care revenue.
Okay and homes or.
No. That's that's good thank you.
So so my next question then look just looking again at the at the R&D line and I know you don't want to say anything in terms of competition and so I completely understand and respect that.
[laughter] is there it seems to me that part.
Part of the R&D increased which is fantastic because that's the futures is clinical studies or clinical data and the other part is is is a new product and next generation type of product am I thinking about that correctly and is there a way to put a percentage is on how much is going to the clinical data and how much to the next generation.
In terms of percentage of R&D I don't want to pin you down because I agree I'm very glad you're increasing the R&D and I as I understand there's no reason to show. Your you know your your cards at the table to your competition, but I'm just trying to quantify that certainly is or am I thinking about it correctly it's critical.
Data and next generation and then how to is there a percentage that we can break it down is it 50 50 on each of those if that's correct.
Well actually James our R&D right now is exclusively related to product development and not and does not include any of our studies.
And part of the reason is that our product is already approved by the FDA and we already have reimbursement codes and so we do not categorize it in R&D. It is in a.
10, a SGN a area, but but not R&D. So they've product development is exclusively for a next generation HFC W.O. product and they're also has been some additional R&D for converting from our wireless patient monitoring that's been using more of a cellular connection.
And we're going to move more toward a Bluetooth connection and so there's quite a bit of software development and and some from where with that.
So hopefully that helps answer your question.
No. It does thank you and so that leads me to my third question and then I'll jump back in queue.
I love it when I'm looking at Us DNA and I'm thinking about companies have navigated through co, but a lot of companies seem to have taken that down and yours.
Then the great job navigating through this little bit pandemic yours yours seems to be flat. So on the top line, it's flat, but underneath that I would imagine there's there's some changes.
Is your sales force <unk> position as you move into 2021 are you looking to people there.
I think the best you Megan food [noise].
Yes, so certainly a a terrific question as we continue to see strength in the home care revenue and being able to overcome what we're seeing is that COVID-19.
You know environment, we are certainly going to be looking at how to continue to expand the sales organization to support additional growth in 22 and beyond we also are investing in infrastructure right now in the sales organization sales ops, a clinical education that.
Will support that growth when when the time comes making sure we have the right leadership structure in place also and then we also have been investing in additional directed to patient or direct to consumer marketing that we mentioned also in our in our call today, but but those are what we what we believe it.
Structure investments, but also starting to think about those investments for future growth.
Okay, well great. Thank you so much for taking my questions and.
Very nice quarter in terms of everything you've had to navigate through considering not just your core market, which is difficult.
But also co that thank you very much I'll jump back into that.
Thanks James.
Thank you. Our next question today is coming from Stephen Globus from Globus generation Group. Your line is.
Hi, everybody from New York I'm kind of thinking I was just wondering what the geography of your home care sector is it mainly upper Midwest or.
Around your business sites or is it more diverse.
Oh, Hi, Steve how you doing so thank you for the question. So we do.
Have reps covering all of the geography in the 48 lower states I would say, though that the majority of our sales are coming from east of the Mississippi would be probably the best way to characterize that with our growth opportunities we believe in.
In the western United States as well as Ah the southwest United States, and so that's where we're starting to position more wrapped send and would be a future opportunity.
Okay. Thank you I'm finished.
All right. Thanks, Steve.
Thank you we reached end of our question and answer session I like to turn the floor back over pretty further or closing comments.
Thank you all for participating on our call. This afternoon, well, we won't be on the road for in person investor conferences in the near term given COVID-19, we will be participating in the Sidoti virtual micro cap conference 2020 on November 19th and we do remain accessible for one on one calls.
Please reach out to our Investor relations firm the equity group. If you are interested in scheduling a follow up call. We do look forward to reporting back to you in February when we will release, our second quarter fiscal 2021 financial results have a great evening and stay safe.
Thank you that does conclude today's teleconference. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.