Q1 2023 Electromed Inc Earnings Call
Hello, and welcome to the election that fiscal first quarter 2023 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Mike Cavanaugh. Please go ahead.
Good afternoon, and thank you for joining the electromagnet earnings calls earlier today electromagnet corporate it released financial results for the first fiscal quarter of 2023 the quarter ended September 32022.
The release is currently available on the company's website at Www Dot Smart first dot com.
Joining me on the call today is Kathleen scar Van President and Chief Executive Officer, and Michelle works interim Chief Financial Officer.
Before we get started I'd like to remind everyone that some of these 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.
Any such statements represent management's expectations as of today's date.
Not place undue reliance on them most 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 SEC filings for further information.
I will now turn the call over to Kathleen scar van President and CEO of electric.
Thank you, Mike and thank you to everyone joining the call today, our fiscal first quarter strengthened our conviction that our strategic growth initiatives continue to bear fruit and will place us on an accelerated growth trajectory.
We grew our topline year over year, 7% and continue to generate operating profit through strong efforts by our team.
But we are not immune to the evolving macroeconomic environment and inflationary pressures that many med tech companies are experiencing.
We are focused on addressing the opportunities to mitigate these risks to continue to execute on our strategic growth initiatives.
As a reminder, these key pillars to grow our market share or expand our sales force in targeted geographies with high potential 248 direct reps launch our next generation smart bets device with innovative features that will appeal to patients.
[noise] spans smart best brand awareness through direct to consumer and physician marketing and.
And further develop and promulgate the body of bronchiectasis clinical evidence to increase physician adoption of the smart bed system.
Our approvals and revenue were negatively impacted by the lingering impacts of the COVID-19 pandemic on the supply chain.
We were though encouraged as the team achieved multiple key operational milestones during the quarter and we continue to generate operating profits while investing in the business to support tapping into the large underpenetrated HFC W. Ell market.
We historically experienced declines in referral and approvals in fiscal quarter, one although I would note that referrals were higher compared to the first three quarters of fiscal 2022 higher year over year, and we achieved an increase in referrals per sales rep demonstrating improved productivity.
We expect overall productivity to improve during the fiscal year as newer sales reps ramped their activity.
Despite the solid referral volume of disruption with one of our electronics suppliers meant that we simply didn't have enough devices to ship.
With strong efforts of our team we were able to fulfill 97% of planned shipments in the fiscal quarter and now have a steady supply restored that we expect will minimize fiscal year revenue impact over the past two plus years, we've been managing the supply chain issues.
Specifically electronics supply effectively but it did finally catch up to us in the case of one supplier.
On the topic of our sales force expansion a key pillar for growth.
To provide a more detailed update Chris Holland, our chief commercial officer has done a remarkable job overseeing the effective head count growth and improved productivity of the sales team.
Growth is always something that needs to be handled judiciously and we have continued to find excellent candidates in a challenging hiring environment.
Overall home care revenue productivity per Rep was $890000 on an annualized basis, well within our targeted 850000 to $950000 range and we expect to see that number improve as the newer reps become fully embedded in their sales territory.
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Our percent of tenured to new reps was 65% to 36% at the end of the quarter and provides added context on the fluctuation quarterly.
We ended the quarter with 44 sales reps and expect to reach our increased goal of 48 reps in fiscal second quarter.
Turning to our operating performance I want to provide additional context on the significant uptick in operating expenses during the quarter largely due to nonrecurring and annual expenses.
And inflationary pressures.
Q1 annual expenses that won't recur in the remaining year included expenses associated with our annual sales meeting.
And there were one time legal expenses.
To address the inflationary pressures, we are taking steps to mitigate the increases which added approximately 10% to 15% to travel and entertainment expenses in the quarter.
Taking all those factors into account, we expect that opex will be at more normalized levels through the remaining fiscal year.
We were also pleased to have submitted the five 10-K application to the FDA for Nexgen Smart fast there.
We are eagerly anticipating the Fda's response.
And hope to receive clearance in calendar 2022.
We are ready to launch the limited market release as soon as clearance communication is received.
Another key pillar for growth is to generate further data supporting the positive outcomes using H F. C. W O therapy, and the smart bed system as treatment for Bronchiectasis, which we hope will also serve to raise awareness with physicians and key opinion leaders who are active in the airway clearance space.
We've completed enrollment and data analysis of our quality of life outcome study with both COPD and bronchiectasis patients.
Expected to submit for publication in early 2023, secondly, our multicenter prospective bronchiectasis outcome study to further demonstrate the clinical benefits of smart bed system has picked up in enrollment over 35% of the expected 100 patients.
We have now engaged two additional sites to improve enrollment.
Load according to physicians due to a general trend on other observational studies since the pandemic Ah patients concerns with face to face follow one visit.
To further drive referrals and grow revenue, we continue to make a strong push in direct to consumer efforts as well as marketing targeted at physicians, who can potentially prescribed the smart best to their patients who need it.
Turning to our cash position. It is important to emphasize that fiscal first quarter is historically and again this quarter, our highest period of cash utilization.
Additionally, we repurchased $145000 worth of stock in the quarter, which we believe was a good use of cash while the stock was at favorable valuations during the quarter.
With the nonrecurring and annual expense business cycle now behind us in this fiscal year. It is important to note that we expect our cash balance to build throughout the year.
To close my prepared remarks, I'd like to welcome Brad Nagel as our incoming Chief Financial Officer.
Brad has over 15 years of strategic planning and leadership experience with Fortune 500 companies most recently at Medtronic.
He will formally take the role on November 14th and we're so pleased to have someone with his proven strategic planning and team building success at a pivotal time at Elektra met.
I would also like to thank Michele where it's once again for stepping into the interim CFO role and Capably handling this strategic role, while we found a permanent replacement.
With that I'd like to hand over the call to Michele for a review of our financials.
Yeah.
Thank you Kathleen.
Net revenues for the quarter were $10 7 million, a 7% increase over the same period in the prior year.
Homecare revenue for the quarter was $9 6 million a year over year increase of 4% from the same period in the prior year, primarily due to increases in both referrals and approval and we also benefited from a Medicare allowable rate increase that took effect on January one 2020.
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The increase in referrals was primarily due to an increase in direct sales representatives.
This was slightly offset by a temporary interruption in supply chain in September of 2022.
Home care distributor revenue for the quarter was 554000, a year over year increase of 255% from the same period in the prior year.
The revenue increase was primarily due to demand from one of our key distribution partners.
Gross profit for the quarter increased to $8 3 million or 78% of net revenues from $7 7 million or 77% of net revenues in the same period in the prior year the.
The increase in gross profit dollars and percentage for the quarter was primarily due to increased revenue and operational efficiencies related to shipping.
Historically, we have occasionally experience variability in our sales and gross profit due to payer mix as well as changes in clinic access or patient flow due to COVID-19 related issues.
Future sales and gross profit may experience similar quarter to quarter fluctuations in fiscal 'twenty to 'twenty three.
Yeah.
Selling general and administrative or SG&A expenses for the quarter were 8 million, representing an increase of $1 2 million or 17, 7% compared to the same period in the prior year.
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The remaining SG&A increase includes additional head count in our sales and reimbursement department, representing our investments in revenue growth.
Operating income for the quarter was $44000 compared to $547000 from the same period in the prior year.
The decrease was driven by the increase in SG&A related expenses offset by the 7% revenue growth compared to the same period in the prior year.
R&D expenses for the quarter were 298000, representing a 21% decrease from the same period in the prior year.
The decrease was primarily due to reduced professional consulting costs associated with our next generation platform development activities are.
R&D expenses were two 8% of revenue in the first quarter I shouldn't call. It 2022 compared to three 8% of revenue for the same period in the prior year.
We expect R&D spending to be between two and 3% of revenue during fiscal 2023, as we look to finalize our development and product testing work in preparation for an anticipated Q2 next generation product launch.
Net income for the quarter was 81000 compared to 439000 for the same period in the prior year.
Net cash used in the quarter was $2 2 million.
This amount $1 7 million was used in operating activities, primarily payment of annual incentive compensation and an increase in inventory too.
256000 was used in investing activities, primarily investments related to our ERP implementation and other equipment.
And 205000 was used in financing activities, mostly a result of our share repurchase program.
Our cash receipt collection remains strong the quarter ended September 32022 had a record cash received collection building upon our prior record set in the previous quarters.
As of September 30th 2022, electric Med had $6 million in cash.
21 million in accounts receivable and no debt for working capital of 27 million and shareholders equity of $34 million.
With that we'd like to move to the Q&A portion of the call.
Operator, please open the call to question.
Of course, we will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Today's first question comes from Kyle Bowser with Lake Street Capital markets. Please go ahead.
Hey, guys. This is Jake on here for Kyle Thanks for taking the questions I just have a few questions for you guys to get started has there been any changes to the estimate of overall H C. W. O market growth I believe last quarter. It was asked maybe around 5% annually.
To elaborate on that.
Absolutely Hi, Jay how are you doing today, yes, we.
We would continue to believe that that is in our best estimate the growth for the overall industry is approximately 5% on an annualized basis. So yeah, you think about our growth and even though it was stunted a bit by the supply chain issue or demand is strong and.
We were able to even with that situation exceed the growth of the industry.
Yeah.
Awesome. Thanks for elaborating. So do you guys anticipate needing to update the target range for our home care revenue per rep. Once the Nextgen smart bus comes to market.
Okay.
At this time that range is based on the more related to that ratio of tenured versus new reps.
And until we have a little more a few months of building on the new Rep experience. We don't plan to change that are if.
If we would see ourselves exceeding it over the next two to three quarters, we would review that but at this time I think we're in the right range at the 850 to 950000.
Awesome. Thank you and for your sales reps in house compensation change at all and have you revised the comp structure or anticipate changing it.
So annually, we do a review of our comp structure overhaul, particularly looking at that incentive plan assuring that the sales incentive lines up with our strategic growth expectations.
Expectations and show that went into effect July burst.
Did I say, though that overall comp we've seen inflationary pressures absolutely I would say for our sales reps, that's primarily on their base pay.
Our base pay is around a two incentive is around a 70, 30% ratio that that ratio is still is approximately in the ballpark of what we're expecting but we would.
We are continuing to watch it carefully we though are concentrated burst on hiring to the highest caliber experience of employees and with that often comes up some some of that salary inflation, but we review our our salaries on an ongoing basis and believe that we're attracting the right quality.
City candidate would be incentive plan and comp plan that we have at this time.
Yeah that makes a lot of sense I got one more question for you guys. Here can you talk about what steps need to occur for H F. C. W. O therapy to get included into the Society guidelines.
Yeah, that's a terrific question Jake.
In talking with a number of physicians, particularly those on our advisory board as well as those that are part of the bronchiectasis registry sites throughout the United States.
We do believe that there is work that is going on right now to develop a draft for U S guidelines for treating.
Bronchiectasis.
We are not Privy to what those details are but that's based on the growing evidence that is being published for HFC double yellow and those positive outcomes for bronchiectasis. That's why we're focused on continuing our clinical road map and continuing our studies. So that we can add to that body of evidence.
And so that airway clearance is included as a a a guideline or a treatment protocol as well as at some point assuring that HFC W. O as part of that that airway clearance and treatment guidelines. So.
That's really what we know so far and we'll keep we'll keep everyone updated if we learn new information around guidelines.
Awesome, that's all for me thanks for answering the questions. Thank you Jake.
Okay.
That is all the time, we have for questions and this concludes our question and answer session I would like to turn the conference back over to coffee and Scarlett for any closing remarks.
Thank you very much for joining us today and for your interest in electric Med our employees continue to execute at a high level and we look forward to updating you on our progress as our team continues to advance our strategic plans.
If you would like to schedule a follow up call. Please reach out to our Investor Relations partners at ICR Westlake. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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