Electromed Inc. Q3 2023 Earnings Call

[music].

Yes.

Welcome to the electrical bad third quarter fiscal 2023 financial results Conference call.

At this time, all participants will be in a listen only mode.

We will conduct a question and answer session.

I will now turn the call over to your host Mike Cavanaugh Investor Relations.

Mr. <unk> you may begin.

Good afternoon, and thank you for joining the electromagnet earnings call.

Earlier today Electromagnet cooperated released financial results for the third fiscal quarter of 2023, the quarter ended March 31 2023.

The release is currently available on the company's website at Www Dot Smart best Dot com.

Thank you, Mike and thank you to everyone joining the call today.

As we report fiscal third quarter results I am very pleased to report a strong quarter as we achieved a record quarterly revenues of $12 1 million.

A 19% increase year over year from the same period last year.

In the key homecare segment.

The results were even more impressive generating $11 million in homecare revenue, which represents a 21% increase year over year from the same period in fiscal 2022.

These results were driven by strong referral flow and strong productivity from our expanded sales force.

We also benefited from the introduction of our next generation clear way device earlier this year to positive reviews from patients.

In short this quarter's results were due to the team's excellent execution blocking and tackling every successful company needs to do well.

Additionally, we experienced a short period of longer component lead times in the quarter.

<unk> managed that well demonstrated by our revenue growth.

Needless to say I'm proud of this team's execution during the quarter delivering excellent top line growth.

I'd like to touch on the strong reception are clearway device has received thus far.

One of the factors contributing to our strong referral and topline growth.

We have received excellent feedback from clinicians and patients who appreciate clearway state of the art touch screen user interface, which is very intuitive and easy to navigate.

And clearly includes remote monitoring of patient data.

We have also received positive feedback regarding the size of the device, which is the lightest HFC nwo generator on the market.

Our primary design goal was to enhance the patient therapy experience and with clear way electric met has made significant advances in HFC. The REO technology that we believe gives us a tangible advantage over the competition.

Operating income during the fiscal third quarter was $1 2 million, which compares to $863000 in the same period a year ago.

This was achieved despite an inflationary macro environment, which was manifested in higher component and shipping costs and demonstrates the strong operating leverage in our business.

Net income for the quarter was $1 1 million, an increase of 71% year over year.

Brad will review our expenses in margins in more detail, but at a high level. Our strong revenue growth was able to offset our higher investments in head count expansion and other growth initiatives. Overall this was a strong quarter financially.

Turning to an update on our strategic growth initiatives. It is extremely gratifying to see progress across all our strategic growth initiatives key among them being the continued expansion of the sales force, which includes 48 direct reps in the field as of the end of quarter three.

I've been extremely impressed and pleased by this group's performance.

And it takes significant effort to onboard new personnel, and then support them to ramp to full productivity.

Despite new sales rep additions the productivity of that team continues to be strong this past quarter average annualized revenues per rep was.

It was $908000 well within our expected range of $850000 to $950000.

As you know we achieved a key strategic milestone when we introduced the nuclear way HFC W. Rowe device.

A recent patient testimonial highlights the early feedback we've received.

Going away compact everything that I could want to make my life easier, while still improving the quality of mine life.

It looks great updated classic fleet can clean excited all the way around.

We expect clearly to help accelerate our growth and clearly we have strong momentum.

One of our other key strategic goals is to generate further data supporting the use of HFC CW out therapy, and the smart best as a treatment for bronchiectasis.

As we mentioned on our last quarterly call. We are excited to share data from our quality of life outcome study with COPD patients using smart burst at the American Thoracic Society 2023 International Conference later this month.

Our bronchiectasis quality of life outcome study is complete and we are evaluating submissions for those results.

Our prospective outcome study with bronchiectasis patients is enrolled at 40% with an additional site beginning enrollment in fiscal quarter three as we target 100 patients.

The goal behind all of this work is to gather data supporting the benefits of smart dust HFC W. O therapy and targeted to physicians and key opinion leaders, who treat bronchiectasis patients every day.

And should welcome more information regarding a therapy that can make a huge difference for these patients.

Our final growth initiative is focused on a strong push in direct to consumer efforts.

As well as marketing targeted at Pulmonologists, who treat bronchiectasis.

We are on target with our initiatives and pleased with a return on this investment.

I'd like to now take a few minutes to address the expected exploration of the CMS waiver, which was implemented during and tied to the public health emergency for COVID-19.

With the public health emergency being declared over.

We expect the waiver for respiratory devices to expire after may 11th.

A reminder, the waiver allowed indication and documentation typically required for HFC, WOTC bypassed, allowing for an easier and faster approval for patients on Medicare.

Upon termination, we will revert to pre Covid CMS requirements for HFC WL reimbursement.

However, we are proactively working with physicians to mute the effect of the waiver exploration and it should be noted that positions operated under the rules prior to the labor.

It is also worth noting that commercial plan by and large never waived the documentation requirements.

That the waiver benefited only a subset of our referrals and approvals all that being said, we do expect our average Medicare patient referral to approval timeframe will lengthen for the remaining calendar 2023 with the potential to reduce our revenue growth in quarter four.

But I remain confident with the plans we have in place that the team will manage this transition effectively.

Close my prepared remarks, I'd like to provide an update on the search for my successor as Chief Executive Officer.

We have engaged with a very capable and highly recommended executive search firm and are in the process of identifying the best candidates to step in and continue the progress we have enjoyed.

With that I'd like to hand, the call over to Brad for a review of our financials.

Thank you Kathleen.

Net revenues for the quarter were $12 1 million.

A 19% increase over the same period in the prior year.

Homecare revenue for the quarter was $11 million a year over year increase of 21% from the same period in the prior year.

This growth was primarily due to an increase in direct sales representatives as well as positive market momentum from the introduction of our newest generation Smart best clear way in the quarter and was partially offset by a temporary interruption in supply chain and associated operations in the quarter.

Maybe I'll Kathleen mentioned, the CMS referral waiver continues to benefit the Medicare portion of our home care revenue.

Home care distributor revenue for the quarter was 501.

Our year over year decrease of 4% from the same period in the prior year.

Home care distributor sales are affected by the timing of distributor purchases that can cause significant fluctuations in reported revenue on a quarterly basis and our year to date growth remains at 31% after three quarters of our fiscal year 2023.

Institutional revenue was $440000 and increased by $48000 or 12% for the quarter, primarily due to increased consumable sales to institutional customers.

International revenue was $156000 and decreased by $40000 or 20% for the quarter.

Gross profit for the quarter increased to $9 1 million.

Our 75% of net revenues.

<unk> to $7 7 million or <unk> 76, 4% of net revenues in Q3 of FY 'twenty two.

While gross profit dollars increased due to higher sales volume the decrease in gross profit as a percentage of net revenues compared to the same period in the prior year was primarily due to increased material cost and electronic component broker fees incurred to ramp up supply for the clear wave product.

Sure.

Selling general and administrative or SG&A expenses were $7 7 million for Q3, representing an increase of $1 2 million or 18% compared to the same period in the prior year.

This increase was primarily due to the additional head count and associated costs in our sales and reimbursement department, representing our investments and growth.

Travel meals and entertainment expenses were $658000 for Q3, representing an increase of $20 or 3% compared to the same period in the prior year driven by a higher average number of direct field sales representatives.

Operating income for Q3, FY 'twenty, three was $1 2 million compared to $863000 for the same period in the prior year.

The increase in operating income in the quarter was primarily due to revenue growth and a decrease in research and development expenses were partially offset by increased SG&A expenses related to our sales and reimbursement investments as well as increased material costs and broker fees incurred to accelerate the ramp.

Up of supply for the clear way product.

Net income for Q3, FY 'twenty, three was $1 1 million or <unk> 12 per.

Per diluted share compared to $645000 or <unk> <unk> per diluted share for the same period in the prior year.

As of March 31, 2023, electro Matt had $6 $8 million in cash $22 million in accounts receivable and no debt working capital of $29 million and total shareholders' equity of $36 million.

With that we'd like to move to the Q&A portion of the call.

Operator, please open the call to questions.

Thank you.

I would like to ask a question. Please press star one on your telephone keypad now you'll.

You will be placed into the queue any order received.

Please be prepared to ask your question when prompted.

Once again, if you have a question. Please press star one on your phone now.

And our first question comes from Brooks O'neil with Lake Street capital markets.

Oh, good afternoon, and congratulations on a terrific quarter.

I have a couple of questions I guess I'd start off.

I ask you to carefully and if you anticipate being able to generate.

Leverage on your investment in SG&A over the next few quarters.

Yes.

Hi, Brooks thanks for the congratulatory message we appreciate that.

Certainly we are always looking at when is the right timing to leverage.

SG&A cost for improving profitability I would say that we're still in a growth cycle in an investment cycle.

So we would we would see that certainly in the future. We don't have an exact projection at this point to share with our investors.

Think that right now we think that this is a growing.

Market, it's an opportunity to take advantage of that and so I would expect that.

We will see some leverage on that is as we move forward into the new fiscal year.

But again, we're still in an investment cycle here to capture that top line growth.

Okay. Good and then the one.

Isn't completely obvious to me.

The supply chain as you countered in the quarter were resolved I kind of think I heard you say they were but I wanted to check and make sure.

Yes, we appreciate the question around the supply chain Brooks so it's.

It's a lingering area of focus for US is how I would say.

It's certainly still an area that has some risk to it we've been very successful in managing that.

<unk>.

For that reason, we don't expect an impact this quarter and so thats why we didnt talk much about it but it certainly is a focus the other thing I'd mentioned is that we have recently added a leader who is going to be focused on our supply strategy.

And with the growth that we're experiencing it was time for us to have more focus there. So that we could be working as a partner with our suppliers and helping them anticipate how they can manage our growth and what our expectations will be going forward.

Great.

Ill just ask one more.

I'm guessing it's too early to have seen much of a competitive response to your.

Well acclaimed new product.

Has there been any change in the competitive dynamic.

Others.

And I guess response.

The moves you've made in the field.

Well I think you've characterized it really well Brooks its a little early in our introduction I would say based on what I'm hearing anecdotally, we're not seeing a response that we are.

That's worth noting.

I expect that that could come but currently we're continuing to enjoy the <unk>.

The physician and patient reaction to the enhanced.

Patient experience that that they are seeing with the device.

Great. Thank you very much for taking my questions.

Yes, Thanks Brooks.

And I would now like to turn the conference back to Catherine's carbon for any additional or closing remarks.

And as always thank you very much for joining us today and for your interest in electro med, we continue to execute against our strategic growth plans and we are excited as we look forward to scaling up distribution of our clear way in calendar 2023, and beyond if you would like to schedule a follow up calls please.

To act or Investor Relations partners at ICR Westwick. Thank you very much.

And this concludes today's conference call. Thank you for attending.

The host has ended this call goodbye.