Q1 2025 Electromed Inc Earnings Call
Speaker Change: Hello and welcome to the ElectroMed First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode.
Speaker Change: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
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Speaker Change: I would now like to turn the call to Mike Cavanaugh, Investor Relations. Please go ahead.
Speaker Change: Good afternoon and thank you for joining the ElectroMed earnings call. Earlier today, ElectroMed Incorporated released financial results for the first fiscal quarter of 2025. The quarter ended September 30, 2024.
Speaker Change: The press release is currently available on the company's website at www.smartvest.com.
Speaker Change: Before we get started, I would like to remind everyone 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.
Speaker Change: 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.
Speaker Change: You should not place any undue reliance on those 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.
Speaker Change: Please refer to the company's SEC filings for further guidance on this matter.
Speaker Change: Joining me on the call today are Jim Cunniff, Electro-Med's President and Chief Executive Officer, and Brad Nagel, Chief Financial Officer.
Speaker Change: Jim will provide some operational highlights from the quarter. Brad will then review the financials and we will close with a question and answer session. With that, I will now turn the call over to Jim Cunniff, President and Chief Executive Officer of ElectroMed.
Jim Cunniff: Thanks, Mike, and welcome everyone to ElectroMed's first quarter earnings call. Continuing our momentum from a record-setting fiscal year 2024, I'm pleased to report another strong quarter for ElectroMed to kick off fiscal year 2025.
Jim Cunniff: It was our eighth consecutive quarter of year-over-year revenue and profit growth. In the quarter, we generated net revenue of $14.7 million, representing year-over-year growth of 19 percent, albeit against a lower prior-year revenue comparison.
Jim Cunniff: For the fifth consecutive quarter, all of our revenue categories increased, demonstrating that our strategic growth initiatives have continued to yield impressive results.
Jim Cunniff: Notably, home care revenue grew 18.5% year-over-year, while revenue from our hospital business, where we see a marked expansion opportunity for electromed, grew 36.1%.
Speaker Change: As is our normal practice, Brad will provide an in-depth review of our financials, so I will only touch on some of the high points in the quarter.
Speaker Change: In addition to the strong net revenue growth in the quarter, operating income came in at $1.9 million compared to $0.1 million in the same quarter of fiscal year 2024.
Speaker Change: Earnings before taxes was $2.1 million and we generated diluted earnings per share of $0.16. Overall, very robust results. I want to thank the entire ElectroMed team for delivering on our company's operational and financial initiatives in the quarter.
Speaker Change: The management team's incentive compensation is largely based on our ability to grow profitably, and it's noteworthy that our share price has more than doubled in the past 12 months.
Speaker Change: With that in mind, we spent a lot of time developing our goals for the year and have entered fiscal 2025 with a focus on growing, raising awareness of our airway clearance technology, and improving operational efficiencies, thereby building further shareholder value.
Speaker Change: Among other things, we took step towards our goals of a continued but thoughtful expansion of the sales team.
investments in our direct-to-consumer business.
and our plan to overhaul our manufacturing process.
Speaker Change: that is designed to reduce waste, improve productivity, and result in increased product supply to meet our accelerating growth trajectory.
Speaker Change: Let's review our commercial initiatives in more detail, starting with the sales team.
Speaker Change: During the quarter, we continued to add direct sales reps and ended the quarter with 53 in total. We have a near-term target of 57 sales reps, which we intend to achieve by the end of the second fiscal quarter.
Speaker Change: Our approach to the sales team is to hire reps who have the skills and experience to be successful in what is largely a clinical sale and who can make a positive impact to our growth in the near term. We're not simply hiring reps for the sake of a larger team, and our hiring will continue to be measured.
Speaker Change: For our reps to be more successful, we invested in route-optimizing software in the quarter so they can better plan their call schedules and be more productive. In a related move, we also invested in optical character recognition software for our reimbursement team.
Speaker Change: so they get our life-changing technology sooner. Our direct sales and fulfillment model has been a real differentiator for electromed, and we're always striving to make the fulfillment process more streamlined, which directly benefits patients getting our therapy sooner and ultimately improves our revenue.
Speaker Change: In another move designed to improve efficiency, reduce the time to delivery, and support future growth, we plan to make investments to increase our manufacturing capacity by optimizing our production floor.
Speaker Change: which we believe will improve flow and reduce product movements during the manufacturing process. We expect this initiative to reduce the time to manufacture product, reduce operating expenses, and ensure we have the adequate supply of product to feed our accelerating growth.
Speaker Change: In addition to improving operational efficiencies, we continue to work hard to raise awareness of bronchiectasis, which despite being widespread, is often underdiagnosed.
Brachiectasis is a chronic, irreversible condition.
Speaker Change: To help improve physician and patient awareness of the disease, we successfully launched our Triple Down on Bronchiectasis campaign.
Speaker Change: The campaign focuses on the recommended three-pronged bronchiectasis treatment protocol to manage a patient's vicious vortex of repeat infection, inflammation, and mucous buildup, which often leads to irreversible lung damage.
Speaker Change: Specifically, our campaign highlights the need for a comprehensive treatment approach for patients with bronchiectasis to treat their infections, to reduce their inflammation, and to use our SmartVest ClearAway technology to clear their airways of mucus.
Speaker Change: Antibiotics are prescribed to control infections and there's promising new drugs coming to the market to help those suffering from bronchiectasis which target inflammation.
Speaker Change: SmartVest ClearWay is the third component of the three-pronged treatment protocol to clear mucus. Removing mucus from a patient's airway via SmartVest ClearWay technology is a critical treatment step as it removes the fuel for future cycles of inflammation and infections.
Speaker Change: The Awareness Campaign has included the launch of a landing page, digital advertisements, and sales tools. The campaign is off to a tremendous start, with over 6,000 clinicians engaging with the content on our landing page in the first three weeks post-launch.
Speaker Change: I'd also like to mention that we recently completed our annual ISO 13485 Notified Body Surveillance Audit.
Speaker Change: These audits are important because they verify that an organization continues to meet the quality management system standards and regulatory requirements for medical devices.
Speaker Change: Our audit was focused on production, record control, complaints, CAPAs, and internal audits. The audit was very thorough, and we were very pleased with the positive results.
Speaker Change: Lastly, before I turn the call over to Brad to review our financials, I want to welcome Peter Horwich as the new VP of Marketing. His hiring was announced in late October and we are excited to have him join our dynamic team.
Speaker Change: He is an experienced marketing executive and his expertise in medical technology market development is perfectly suited to help lead LectureMed through its next stage of growth.
Speaker Change: Peter's position is a strategic role for LectureMed that will strengthen our marketing team and provide leadership in driving therapy adoption for SmartBest Clearway in support of our revenue growth goals. We look forward to leveraging Peter's talent for further market expansion and to strengthen our commercial efforts.
Speaker Change: Overall, I'm very pleased with our results this quarter. We are off to an excellent start to fiscal 2025 and I look forward to future updates on our continued positive operational momentum over the remainder of the year.
Speaker Change: Lastly, I would once again like to thank the entire ElectroMed team for their contributions and hard work that culminated in another successful quarter. With that, I'd like to hand the call over to Brad to discuss our financials in more detail.
Thank you, Jim.
Brad Nagel: All amounts I am about to review are for the three months ended September 30, 2024, RQ1 Fiscal 2025, and compared to the three months ended September 30, 2023, or Q1 FY 2024.
Brad Nagel: Net revenues grew 19.0% to $14.7 million, from $12.3 million in Q1 FY 2024.
Brad Nagel: The increase in revenue was driven by an increase in referrals due to a higher number of direct sales representatives and efficiencies within our reimbursement department.
Brad Nagel: Field Salesforce employees totaled 60 at quarter end, 53 of which were direct sales representatives.
Brad Nagel: The annualized home care revenue per weighted average direct sales representative in Q1 was $985,000 at the higher end of ElectroMed's increased annual target range of $900,000 to $1 million per rep.
Brad Nagel: For comparison, in Q1 of last year, our average revenue per rep was $876,000.
Q1 hospital revenue was $690,000.
an increase of $183,000 or 36.1%.
Brad Nagel: and the disposable products used to provide care for each hospital patient.
Brad Nagel: Home care distributor revenue for the quarter increased by $14,000 or 2.4% to $587,000.
Brad Nagel: Home care distributor sales are affected by the timing of distributor purchases that can cause significant fluctuations in reported revenue on a quarterly basis.
Other revenue increased year-over-year by $89,000 or 97.8% to $180,000.
Brad Nagel: The increase in other revenue was primarily due to increased demand of international distributor purchases and purchases by customers that do not fall within the other markets previously described.
Brad Nagel: Gross profit increased to $11.5 million, or 78.3% of net revenues, from $9.5 million, or 77.1% of net revenues in Q1 FY 2024.
Brad Nagel: The increase in gross profit dollars for the quarter was primarily due to higher revenue and the gross margin rate increased year-over-year primarily because of higher average net revenue per device.
Turning now to operating expenses.
Brad Nagel: Selling General and Administrative, or SG&A, expenses were $9.4 million, representing an increase of $0.2 million, or 2.6%, compared to Q1 FY 2024.
Brad Nagel: Payroll and compensation related expenses increased by $691,000 or 12.0% to $6.5 million.
Brad Nagel: sales support, marketing, and reimbursement personnel to process higher patient referrals.
Brad Nagel: Travel meals and entertainment expenses increased $47,000 or 5.1% to $964,000.
Brad Nagel: The increase in the current year was primarily due to a higher average number of direct sales representatives and higher travel costs.
Brad Nagel: Total discretionary marketing expenses decreased $263,000, or 49.9%, to $264,000. The decrease was primarily due to a one-time investment in market research in the prior year.
Professional fees decreased $171,000 or 13.0% to $1,140,000.
Brad Nagel: Professional fees are primarily for services related to legal costs, share owner services and reporting requirements, IT support, and consulting fees.
Brad Nagel: The decrease was primarily due to clinical fees in the prior year related to the finalization of a clinical study.
Brad Nagel: Research and Development, or R&D, expenses decreased $40,000, or 19.4%, to $166,000.
Brad Nagel: The decrease was primarily due to reduced costs associated with our SmartVest Clearway platform development in the prior year, which has now been launched into the home care and hospital markets.
Brad Nagel: Operating income was $1.9 million, or 13.2% of revenue, compared to $0.1 million, or 1.2% of revenue in the first quarter last year.
Brad Nagel: Also, our slower SG&A growth, which was less than 3% in the quarter and well below our revenue growth rate of 19%, played a meaningful role.
Brad Nagel: This leveraged growth was possible even with the ongoing investments into our sales force and the investments in the people, processes, and technology across the business to enable sustainable and efficient growth.
Brad Nagel: Looking below our operating income line, interest income increased $118,000 to $195,000 for the quarter.
Brad Nagel: The 150% plus increase over Q1 of last year is due to increased savings rates on our higher cash balances.
Brad Nagel: When putting all these Q1 results together, we are happy to report another strong earnings quarter with pre-tax income of $2.1 million.
Brad Nagel: net income of $1.5 million and quarterly EPS for our shareholders of 16 cents per diluted share.
Brad Nagel: In addition to these results, we announced on September 11, 2024, that the ElectroMed Board of Directors authorized a share repurchase of up to $5 million of ElectroMed stock.
Brad Nagel: As of September 30, 2024, a total of 262,756 shares were repurchased under this authorization for a total cost of $4,536,000.
or $17.26 per share.
Brad Nagel: Net of other activity, the number of shares issued and outstanding at the end of the period on our balance sheet decreased from 8,637,883 at FY24 year-end to 8,457,071 shares.
Brad Nagel: As of September 30, 2024, ElectroMed had $13.9 million in cash.
Brad Nagel: $22.4 million in accounts receivable and no debt, achieving a working capital of $33.6 million and total shareholders' equity of $41.5 million.
Brad Nagel: We are excited about our 19% revenue growth and our significant improvement in earnings per share over Q1 last year. Our focus and expectation for the full year remains on delivering double-digit top-line growth and expanded operating leverage.
Speaker Change: With that, we'd like to move to the Q&A portion of the call. Operator, please open the call to questions.
Speaker Change: Thank you. We will now begin the question and answer session. To ask a question, you may press star 10-1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Today's first question comes from Brooks O'Neill with Lake Street Capital Market. Please go ahead.
Speaker Change: Hey, good afternoon guys. This is Aaron on the line for Brooks. Are you able to hear me okay?
Yeah, hi Aaron, how are ya?
Speaker Change: I'm doing well, thanks Jim. Congrats you guys on the strong start to the year. Just a couple from you, so with the effort that you're making in terms of bringing awareness about the underdiagnosis of the disease, are you seeing any momentum in specific diagnosis and I guess furthermore are the patients being prescribed the SmartVest earlier in that process?
Speaker Change: Well, I think there's a couple of things as you know, and we talked about it on the last earnings call
Speaker Change: that there's been an incredible amount of investment from the pharmaceutical industry in this space to address inflammation. And I think that's really helping everybody. All boats are rising from that, not only electromed, but I think other purveyors of HFCWO in the market.
Speaker Change: Relative to your question, Aaron, about other diagnosis, obviously our primary one still remains to be bronchiectasis, as we've talked about many times on these calls.
Speaker Change: You know, there's 824,000 patients that have been diagnosed with bronchiectasis, but they're not using HFCWO.
Speaker Change: Of that remaining 700,000 patients, there's about 230,000 that are seeing pulmonologists, and we really feel like that's the sweet spot for us.
Speaker Change: and we do believe, we just recently had an advisory board
Speaker Change: about two weeks ago. And one of the things that they did convey to us is that, you know, they're really excited because there is a lot more visibility to bronchiectasis as a disease state.
Speaker Change: is the patient has to have had a productive cough for the last six months, they have to have had a CT scan that recognizes that they have bronchi-actasis and
Speaker Change: And those are things from an insurance standpoint that they still need to get over. But that being said, we're seeing that bronchiectasis is the primary, but we're also seeing that some of the patients are being diagnosed with.
Speaker Change: disorders of the diaphragm and so that's another diagnosis that we're seeing come up more and more.
Speaker Change: Absolutely, no, appreciate all that color. And then I'm sort of curious if you have any longer-term targets in terms of revenue distribution, you know, recognizing the hospital setting is small right now. I think you mentioned it grew
Speaker Change: 36% albeit, you know from a small base But just kind of curious if you have any sort of internal targets there, maybe how you're just thinking about that moving forward
Speaker Change: for a couple of reasons, one of which is the hospital sales cycle is a lot longer.
Speaker Change: There's a lot of constituents within the hospital that you need to convince to buy our technology. They have to have had a budget for the technology. And the sales cycle can be sometimes over a year, even if they've budgeted to replace their HFCWO equipment. We do believe we've got best-in-class technology, which has resonated with hospitals that we've sold to. Most recently, we received an order from Cleveland Clinic, which we're really excited about. And that's the first time that they've.
Speaker Change: from ElectroMed, and they're obviously, you know, a key bronchiectasis center in the United States, so that's encouraging and that's exciting. But our primary focus still continues to be on the home market. We feel like
Speaker Change: Our technology, our clinically focused sales team, the service component that we provide to the clinics.
Speaker Change: and the time to therapy, quite candidly, when you're calling out a pulmonologist who's seeing upwards of 50 patients per day is a better use of our sales reps time. But certainly, as we add reps.
Oh yeah, that makes total sense. Thanks for that, Jim.
Speaker Change: I guess, um, let's see, so there's been some consolidation in the vest market in recent years. Would you say your status as the industry's only pure play, an advantage or disadvantage in the current competitive environment?
Speaker Change: Well, you know, I think when you talk about the consolidation, I think really what's happened is you've had pure plays that have been gobbled up by larger players in the market. So, there's really four, as you know, primary competitors in this marketplace today. All of us have roughly around the same market share position. I think we're uniquely positioned.
Speaker Change: because, you know, even though there is more awareness of bronchiectasis and the benefits of SmartVest technology, the reality is it's still a nascent.
Speaker Change: and there's still a lot of education that needs to happen and we feel like we're really well positioned because as a single product company,
Speaker Change: Our sales reps wake up every day and they're the experts in this technology and can be a great asset to the pulmonologist as well as.
Speaker Change: the clinical staff that's prescribing this technology. So we feel like we've got a lot of runway. We feel like there's a great tailwinds, you know, as we discussed before with.
Speaker Change: other people entering the market to address the other elements of bronchiectasis, whether it's infection or inflammation. In the case of electromed, it's clearing the airways and we think that our prospects are really pretty rosy going forward.
Speaker Change: I appreciate all that Jen, thank you. And then maybe last one for me, if you could just summarize maybe one or two just overarching growth drivers that you can sort of point to that will able to continue to drive this this incremental growth and continued leverage in the next year and sort of beyond that. Thanks guys.
Speaker Change: No, I think that's great. I think there's, you know, we've got kind of a beating drum on the expanding sales team, so I would say that that's
in the pre-recorded comments, I think is another one.
Speaker Change: Our direct-to-consumer, which I really didn't spend a lot of time on, our direct-to-consumer efforts have really started to pay dividends for us. As
Speaker Change: Patients are becoming more aware of this disease state. They're not just believing that they have COPD, but they may have another underlying condition.
Speaker Change: outreach has been really positive as I mentioned on the call you know with our ad campaign that we just put out we've had you know 6,000 unique views from clinicians
Speaker Change: but that that translates into them, you know, having dialogue with their patients and then those patients get in contact with us We have RTs that are on staff. Those RTs can then
Speaker Change: you know, help answer any questions which the potential patients have, and then those patients can go back to their.
Speaker Change: pulmonologist to seek more information about SmartBest and how they might be able to get on that therapy. So Salesforce expansion, D2C, we talked about the hospital market. Again, I don't see that becoming, you know, a huge portion of our total revenue, but I do think it is a growth driver for us.
Speaker Change: and an area where we have seen that if we add, you know, additional resources, additional focus, we can get a return on that investment. So those are just a few of the things. But the last thing I would mention, and it's
Speaker Change: something that we really haven't invested a lot of resources on is just in payer relations and you know obviously we've got a very robust ASP on our product
Speaker Change: And, you know, annually, thankfully, we typically will get a bump to our reimbursement rate from CMS that's predicated on the urban CPI.
Speaker Change: justifies you know the price that we're charging for our product and really should be
something that those pairs take a look at.
Speaker Change: to get their patients on the product line sooner to help prevent those patients from getting either hospitalized or having to make a visit to an emergency department, which is very expensive. So that is an area that we are focusing on this fiscal year.
Speaker Change: Absolutely no, all that makes perfect sense. Yeah, congrats you guys again. We commend your efforts and look forward to continue following.
Super, thanks so much for the time today.
Speaker Change: And I want to thank, really, everybody for joining the call and for your continued support of ElectroMed. I'm really pleased with our Q1 results and feel good about our future growth prospects.
Speaker Change: Though not an issue in Q1, we continue to monitor the potential impact of natural disasters such as hurricanes.
Speaker Change: which may have an impact on providers and their patients getting access to our product.
Speaker Change: We're always happy to speak with investors, and if you're interested in a follow-up call, please contact our investor relations partners at ICR Healthcare. Thanks again for your time today, and operator, please close the call.
Speaker Change: Thank you. The conference is now concluded. Thank you again for your participation. You may now disconnect your lines.