Q2 2021 Electromed Inc Earnings Call
Greetings and welcome to the electrical mid second quarter fiscal 'twenty 'twenty, one financial results conference call.
At the time, all participants sort of listen only mode, it's sort.
And once you require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded if somebody of pleasure to turn the call over to Devin Sullivan and Investor Relations for of that from Ed. Please go ahead of Devin.
Thank you Kevin and good afternoon, everyone. The electric second quarter fiscal 'twenty 'twenty one financial results were released today. After the market closed a copy of the earnings release can be found in the Investor Relations section of the company's website at Www Dot smart vest Dot com.
Company has asked me 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 and uncertainties that could cause actual performance or achievements to be materially different from those projected and.
Any such statements represent management's 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 any forward looking statements for any reason, even if new information becomes available or other events occur and the future. Please.
Please refer to the company's SEC filings for further guidance on this matter.
Joining us from electric met this afternoon, our Kathleen Scorpion, 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 second quarter of fiscal 'twenty 'twenty, One financial results and then we will open the call for questions.
And it's now my pleasure to turn the call over to Kathleen Garvin Kathleen. Please go ahead.
Thank you Devin and good afternoon, everyone and thank you for joining us to discuss the electronics second quarter fiscal 'twenty 'twenty one of the financial results we.
We are pleased to report that our net revenue this quarter increased 11, 1% year over year to a record $9 $5 million driven by 16, 1% growth and home care revenue.
On the home care side of our business successful execution of our hybrid virtual and face to face selling approach.
And with the ability for prescribers tomorrow easily provide care with the provision of CMS waiver drove a $16 one per cent increase and homecare revenue compared to the prior year period the.
And I'm curious success more than offset the ongoing challenges to the other portions of the business negatively impacted by the pandemic, most clearly seen and the year over year decline and our institutional business.
However, compared to the first quarter of our current fiscal year, our business benefited from our sales team's execution of the hybrid virtual and face to face selling approach.
<unk> face to face the interaction between patients and physicians and improved access to clinics for our sales staff.
The CMS waiver temporarily relaxed the certain rules for prescribing HFC WL devices to the non commercial and Medicare population during the COVID-19 pandemic.
With the CMS waiver and we have experienced an increase and approvals for previously non covered diagnosis and faster approval times for covered diagnosis.
Noncommercial Medicare of historically represents approximately 50% of our total payer mix per home care revenue.
We believe that the CMS waiver has helped offset a challenging and still ever changing environment related to COVID-19 pandemic that has impacted our sales team execution due to patient face to face clinic visit concerns and reduce chronic access for Iraq.
We were pleased that CMS recently extended this waiver until April of 2021.
And the additional positive trend is with our commercial homecare revenue that also increased compared to prior year benefiting from strong sales team execution and and improve on and improved on the sequential quarter basis for the same reason, but also due to improved clinic access for sales reps and increased patient face to face the visits.
At the end of the second quarter, we did have 45 field sales employees of which 38 were direct sales and this compares to 40 total field sales employees of which 34 were direct sales at the end of the prior year period.
Well the patient and the sales rep access the clinics has remained depressed due to the pandemic. We are communicating the benefits of smart best you Pulmonologists and end users increasingly via virtual platforms and direct to consumer marketing.
We continue to gain traction with the following fundamental sales and marketing messages. The differentiates my best from the competition as we focus on increasing market share, which we believe are key to driving near term growth.
Mark best produces less squeezing and competitive devices, because it releases more air between compressions, providing greater comfort during each of CW of therapy.
Smart best is associated with the lower risk of respiratory infections, which can be serious or life, threatening and that can result, and costly hospital and hospital.
Hospital admission and reducing the comprehensive cost of care.
We have published multiple outcome studies, demonstrating the bronchiectasis exacerbation rates dropped significantly when using our devices.
Our latest prospective bronchiectasis outcome study, which was placed on hold last year due to the pandemic has resumed at foresight the patient enrollment understandably has been slower than normal given COVID-19 concerns.
Smart best improves quality of life, we are leveraging our growth number of patient positive testimonials and they come directly from them. Here's an example of the patient feedback and this is Diane I word twice a day for 20 minutes each and it has been a godsend and totally turned my life.
Round.
I have said it saved my life as I constantly was and the hospital with lung infections now I still do the two treatments daily as ordered by my doctors and haven't been in the hospital for seven years.
Finally, when it comes to customer service and clinician support we believe electro med is second to none.
We are a premier HFC W device partner, providing comprehensive patient training and support well the streamlining the ordering process and working with insurers to ensure reimbursement is covered.
Moving to the institutional side of our business revenue remained challenged due to reduced hospital purchases in light of COVID-19, and precautions related to the aerosol spread. So we did register another sequential quarter increase and single use disposable wrap orders.
Our institutional strategy remains unchanged, we are focused on fortifying and the hospital call point and strengthening our partnership with the integrated delivery networks is.
As a reminder of growth in our institutional business should augment our current care revenue as the HFC W. O brand used and the hospital is often the default brand prescribed when discharging a patient.
Shifting to the bottom line, we achieved strong second quarter net income of approximately $1.2 million or 13th and.
Per diluted share despite higher strategic investments reflected in R&D and SG&A.
We are encouraged by this quarter's strong financial results and pleased with our sales team's execution and ability to adapt to ever changing conditions and the market due to COVID-19 pandemic.
Well, we continue to operate within the constraints of the pandemic. We are cautiously optimistic about our prospects for continued revenue growth and the second half of fiscal 'twenty and 'twenty one.
Against this backdrop, we continue to fund the strategic investments for our long term growth, including research and development on our next generation device for HFC W on therapy, and expanding our direct to patient marketing to increase awareness of bronchiectasis and smart best as an effective treatment.
We also plan to expand our sales team beginning recruitment in quarter four.
And for three to four additional direct reps and continuing the expansion throughout fiscal 'twenty and 'twenty two.
And the past years, we have benefited from our focus on sales rep productivity.
Fine tuned our recruiting profile and revised our onboarding and training to improve time to productivity and return on investment and.
Our planned sales team expansion will incorporate metrics to measure and manage the new sales reps to maximize our return on investment.
In closing this quarter, we continued to successfully navigate COVID-19 challenges and could not have done so without the amazing dedication of our employees, whose health and safety and well being remain our top priority.
Non cystic fibrosis bronchiectasis represents a significant and growing market opportunity estimated at more than 4 million individuals here and the United States for those of you who are new to the electro Med story, we believe that approximately 630000 people with of bronchiectasis diagnosis could benefit from HFC.
The W. O therapy, yeah. The only an estimated 77000 patients in the Medicare population are currently being treated with the device like smart fast the.
And the body of clinical evidence combined with the powerful patient testimonials that we routinely here and support the use of our smart best as the standard of care of among individuals with bronchiectasis.
In this context, we are committed to delivering long term profitable growth, while maintaining the highest standards of integrity respect and privacy with that I will turn it over to Mike for a more detailed discussion of our financial results.
Thank you Kathleen and good afternoon, everyone.
As Kathleen shared our net revenue and the second quarter of fiscal 'twenty and 'twenty, one increased 11, 1% to $9 5 million from $8 5 million and the second quarter of fiscal 'twenty, and 'twenty driven by growth and home care revenue.
Home care revenue increased $16, one per cent to $8 9 million, primarily due to higher referrals on approvals compared to the prior year period.
Institutional revenue decreased 37, 4% of 309000 from 494000 and the prior year period, primarily due to a decrease and the volume of devices and disposable rep sold due to COVID-19 has continued impact on hospital purchasing activity.
Home care distributor revenue increased 13, 7% to 149000 from 131000 and the prior year period.
International revenue, which is not of strategic growth area for electro med decreased 46, 6% to 135000 compared to 253000 and the prior year period.
Gross profit and the second quarter of fiscal 2021 increased 12, 7% to $7 5 million or 79, 2% of net revenue.
On the $6 7 million or 71% of net revenue and the prior year period.
The increase in gross profit percentage was primarily due to a higher mix of home care revenue and a favorable mix of Medicare within the home care market.
Operating expenses, which include SG&A as well as R&D expenses totaled $5 9 million or $62 six per cent of revenue and the second quarter of fiscal 'twenty 'twenty, one and <unk>.
Paired with $5 1 million or 59 eight per cent of revenue and the same period of the prior year.
SG&A expenses increased nine 5% of $5 4 million and the second quarter of fiscal 'twenty and 'twenty. One from five point of 1 million in the same period of the prior year, primarily due to increased payroll and compensation related expenses associated with higher incentive payments on stronger home care revenue and higher average sales and marketing head count.
As well as increased direct to consumer marketing expenses, partially offset by lower travel meals and entertainment expenses.
R&D expenses increased to 507000 or five 3% of net revenue and the second quarter of fiscal 2021 from 143000 or one 7% of net revenue and the prior year comparable period, primarily due to investment and our next generation product development.
We estimate that R&D expenses will be and the four per cent to 6% of net revenue range for the duration of fiscal 'twenty and 'twenty one.
Operating income totaled approximately $1.6 million and both the second quarter of fiscal 'twenty and 'twenty, one and the second quarter of fiscal of 'twenty 'twenty.
Net income before income tax expense totaled approximately $1 6 million and both the second quarter of fiscal 'twenty 'twenty, one and the second quarter of fiscal 'twenty and 'twenty.
And the quarter income tax expense totaled 389000, compared to 419000 and the same period of the prior year.
Our effective tax rate and the second quarter of fiscal 'twenty and 'twenty, one was $24 four per cent compared to $26 one per cent and the prior year period.
Our net income totaled $1 2 million or 13 cents per diluted share and the second quarter of fiscal 'twenty 'twenty, one compared to $1 2 million or 14th on per diluted share and the prior year period.
Now moving on to the balance sheet and operating cash flow.
Our balance sheet on December 31, 'twenty and 'twenty included cash and cash equivalents of $11 7 million and no long term debt working capital of $27 4 million and shareholders equity of $32 3 million cash.
Cash flow from operations and the second quarter of fiscal 2021 totaled 669000 compared to $1 4 million and the comparable prior year period.
Cash flow from operations was impacted by a $1 8 million increase and accounts receivable compared to the end of the prior quarter, primarily due to an increase on the Medicare portion of our home care business, which has a 13 month payment cycle.
On the Medicare portion of of home care is high quality accounts receivable and we expect this revenue to the convert to future cash flow and similar ratios at prior periods.
We are pleased to be debt free and with a strong balance sheet to support our long term growth strategies, we have.
We're currently evaluating options regarding the optimal use of our cash to maximize shareholder value and we expect to share more specific strategies for the use of our cash by the end of fiscal year 'twenty 'twenty, one and this.
This concludes our prepared remarks, operator, please start the Q&A portion of the call.
Thank you and I'll be conducting a question and answer session, if you'd like to be placed and the question queue. Please press star one on your telephone keypad of confirmation tone will indicate your line is and the question queue. You May press star two if you'd like to move of your question from the queue from participants using speaker equipment, and maybe necessary to pick up your handset.
Before pressing the SAR one one moment, please what we pull for questions.
Our first question today is coming from call of Bowser from Colliers. Your line is that of life.
Hi, good afternoon, and thanks for all of the updates today.
Great to see that the CMS waiver was extended and.
Is it reasonable to assume that this should continue to be extended.
And and even if it wasn't.
Do you think there'll be some some lasting efforts to it seems like the turnaround has become very quick for the the Medicare channel and just kind of.
Wondering how you think that plays out.
Hi, Kyle.
Thank you for the question. So yeah. The seamless waiver is really an interesting dynamic that's been a positive outcome from many many patients since the pandemic and so we think about the waiver is yes, it's tied with the public health emergency and so with.
With the public health emergency being extended in 90 day increments, we would expect as long as Theres still are.
You know many people that haven't been vaccinated.
I can't see into the mind of health and human services, specifically, but I think the Biden and administration is going to be as as the positive as possible and doing everything that will help us to get through the pandemic as easily as possible and and with.
And with the benefits that had been in place that they will continue so I do think there's a strong chance that it will continue for a period of time yet and.
And as far as the benefits, we would describe the benefits and are in a couple of ways.
For sure patients are benefiting.
With those that May not have had a diagnosis that was reimbursed in the past for those noncommercial Medicare patients and previously we would receive those but we would have to push those into an appeal process. As you know so now those patients and quite of few of them are our COPD patients as you can imagine.
Since there are many COPD patients with the phenotype, where they do have mucociliary issues. They have frequent exacerbations, they're frequently hospitalized with the lower respiratory infections and so now the physician has the opportunity to prescribe a therapy that they now and will benefit that patients and they also know that that patient.
Will receive reimbursement and so we're gonna take that information and that we're going to we're going to take that position, who may have been maybe reluctant to to prescribe maybe because they thought it was burdened zone to manage the medical records that are needed for reimbursement of the.
And we're going to provide that that physician 530, and 90 day feedback on their COPD patients are there non covered diagnosis of patients and we're gonna be able to show them what the value is for that patient and while while we're doing that we're going to continue educating them on how reimbursement works for those net noncommercial meta.
Care of patients and we were just really pleased this quarter to see that our commercial payer.
That waiver doesn't apply that that even grew sequentially and year over year. So those are ways that we're looking at this as a longer term benefit even if the CMS waiver goes away and then finally not to be so long winded, but I do want to mention that we think of the waivers and offset to the issues that are that are keeping our sales reps.
And from being able to access clinics right now during the pandemic and also due to some of those patients that are reluctant to go and face to face. So I think there's multiple Dennis the fits and thank you for the question interesting and I appreciate that.
And and then remind me on the on the status of the enhancements to the smart fast or are these something that.
You envision talking about ahead of a potential five 10-K clearance or is this something that we'll learn and upon learn about upon clearance and I should just stop asking [laughter] well you can always ask Kyle right right. So I think that we will be quite close to the.
And to the to the vast or the chest on sharing much about what those new benefits may be from our next generation product I think for competitive reasons, we certainly want to be doing that and also that before we have clearance, we wouldn't want to share what possible claims could be or those performance.
Or a feature and benefit enhancements. So yes, I think we will be waiting until that timeframe got it understood that makes sense and and then just lastly, there's some really good testimonials out there and places like Youtube that highlight the the clear advantages of smart fast.
Over the competition I'm pretty compelling cases, and I'm curious.
If you of a sense for where your new business is coming from so if if we're talking just new business you know what percent I guess ballpark is coming from taking share from.
This is actually growing the the bronchiectasis and COPD market.
Thank you yeah. Thank you again for that question Kyle.
So we do measure.
The percentage of referrals that are coming in from our current prescribers for smart best and.
And those that have not prescribed smart best over the last year to two years and so if we would look at that day that I can tell you that about.
Almost half of our referrals now are coming in from previously.
And from prescribers that previously were not prescribing smart best Mhm and that that's across a number of of physicians and the number of clinics, but that can give you. Some sense of based on the way we are being able we're able to track that those referrals.
And I wouldn't say, that's all market share and necessarily but you can get some sense that there is some momentum building around market share.
Okay. No that's helpful and that's it for me thanks for all of the updates yeah, you're welcome. Thanks Kyle.
Thank you as a reminder, the star one to be placed and the question queue. One moment. Please while we poll for further questions.
Yeah.
Yeah.
Yeah.
Our next question today is coming from the James Terwilliger from Northland Capital. Your line is not of life.
Yes, Hi can you guys hear me, we can James and nice to hear from you.
Thank you and and nice job with the numbers I mean, very nice quarter, and my opinion and both of your year over year and sequential growth.
I don't want the box you want in terms of of guidance, but how should because these numbers in my opinion because of strong how should we think of.
Of the second half of fiscal 2021 with all of the different moving parts, what's your true internal growth rate with the developing the market with COVID-19, the new bite and the administration can you give any high level expertise on how we should think of maybe the second half of fiscal 2021.
Well I think you answered some of your own question. There. It's a it's quite Ah theres. So many variables right now James again, and we did say that we are positioned to grow.
If it you know the second half compared to prior year, but to put something definitive around that at this point based on that uncertainty is something that where we're gonna.
We're going to be where we're gonna be less precise about that right now.
No I I understand again, you've got to manage what's coming through the door and is there any type of seasonality and as we move you know kind of you here just closing out the December month going into the core.
On the winter months of March and then moving on is there any type of seasonality and your and your core business with with your with what you're treating.
And so in the past James we have often seen the march quarter be one of our are seasonally higher quarters and that was often we believe linked to the influenza season, and so you might have more people with bronchiectasis or COPD or other lung function issues that.
It might be more susceptible to influenza and so they're going and see their doctor and it's at a point, where the Doctor says Hey, Now's a good time for us to prescribe HFC WR of smart bets as you know the influenza season is not here like it was in years past due to the fact that people are staying home and they're not.
Socializing and they're wearing masks.
So we're not expecting that same type of seasonality necessarily.
Okay. Thank you that helps a lot of and that makes complete sense and then just kind of lastly at a high level with this waiver.
Which which makes tremendous sense is this.
Two questions here one I would think this is this is expanding and growing your Tam of your total addressable market and to once they open the door to this type of treatment is it going to be hard for them. The maybe close the door if they expand some of the clinical indications that debt that you can.
That you can treat and address and help human beings.
Well I think it's the it's a great question and we've been.
Given that we've been exploring that situation here in depth and we've been talking to a number of people and the industry to understand better when CMS has a waiver like this in place for as long as they did how easily is it to go back to what was historically the requirements.
And so stay tuned we'll continue to provide updates on these calls if we're learning more about what that potential might be for an extension or if this is.
If these might be if this might now be of phenotype that would continue being approved for HFC W and the future, but right now again, we're exploring what that might look like but it's unknown at this time.
Okay. Thank you very much for taking my questions and again congratulations on the very nice quarter. Thank you.
Thank you James.
Thank you guys. The reminder, that the star one to be placed in the question Q1 moment. Please while we poll for further questions.
We've reached the end of our question and answer session and I'd like to turn the floor back over to management for any further of closing comments.
And I'd like to thank you all for participating on our call. This afternoon, we look forward to reporting back to you and me when we will release, our third quarter fiscal 'twenty and 'twenty one financial results have a good evening.
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.
Yeah.