Q2 2025 Electromed Inc Earnings Call

Speaker Change: Good afternoon, and welcome to the Electro-Med Second Quarter 2025 Earnings Conference Call.

Speaker Change: 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.

Speaker Change: After today's presentation, there will be an opportunity to ask questions.

Please note, this event is being recorded.

Speaker Change: I would now like to turn the conference over 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 second fiscal quarter of 2025.

The quarter ended December 31st, 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'd like to remind everyone that some of the statements that management will make on this call are considered forward-looking statements.

Speaker Change: 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: We 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, ElectroMed's President and Chief Executive Officer, and Brad Nagel, Chief Financial Officer.

Speaker Change: As on previous calls, Jim will provide color-around operational highlights from the quarter, and Brad will then review the financials, and we will close with a question-and-answer session.

Speaker Change: With that, I will now turn the call over to Jim Cunniff, President and Chief Executive Officer of Electrobed.

Speaker Change: Thanks Mike and welcome everyone to ElectroMED's second quarter earnings call. It's a pleasure to begin a new calendar year by reporting on another excellent quarter for ElectroMED.

Speaker Change: Our entire team did a remarkable job executing on all facets of our business, most visibly in our sales, fulfillment, and manufacturing groups.

Speaker Change: These highly cohesive teams collaborated in delivering yet another quarter of record revenues, which came in at $16.3 million. This was also the ninth consecutive quarter that ElectroMet's revenue and net income grew on a year-over-year basis.

Speaker Change: Property income was a record 2.5 million in the quarter and net income came in at 2 million or 22 cents per fully diluted share.

Speaker Change: I would note that the strong record of operational performance has been rewarded by the market. Our stock has appreciated significantly over the past 6 and 12 month periods to the benefit of our shareholders.

Speaker Change: Many of you know a key goal of ours has been to enhance shareholder value and I think it's safe to say we have succeeded in that regard.

Speaker Change: However, as an organization, we are focused on continued improvement to ensure our sustained operational momentum and the financial success that follows. With that, let's jump into some of the details of our quarter.

Speaker Change: An important aspect of our performance is to diversify our customer base beyond our core home care segment.

Speaker Change: Homecare remains our most important segment by far, but we acknowledge that there are other market segments we can fruitfully tap into that are synergistic revenue streams for us.

Speaker Change: Of note, the hospital segment grew in the quarter by 17 percent.

Speaker Change: Also, our Durable Medical Equipment, or DME, distributor relationships have resulted in year-over-year growth of 188% in a quarter.

Speaker Change: albeit from a relatively small base, reflecting strong demand from our carefully curated network of DMV partners.

Speaker Change: Along with a singular focus on airway clearance and marketing what we believe is the most advanced and user-friendly HFCWO technology on the market.

Speaker Change: A key differentiator in electromed's business is our direct patient model.

Speaker Change: We take great pride in handling the fulfillment process, beginning with the doctor's prescription, continuing through the payer reimbursement process, and culminating in delivery to a patient's home.

Speaker Change: In previous quarters, we have commented on the investments we have made in personnel, technology, and process improvements in this area of our business.

Speaker Change: For example, we improved our working capital by reducing inventory 35% compared to Q2 of fiscal 2024, while also continuing to consistently meet our patient's therapy needs.

Speaker Change: We continue to make investments in the sales team that drives the adoption of SmartBets ClearWay into the market. We ended the quarter with 54 direct sales reps which puts us on track to achieve our internal goal of 57 sales reps by the end of Q3 of fiscal 2025.

Speaker Change: Along with the additional headcount, we also initiated an investment in a new CRM system during the quarter, which will further enhance our commercial team's productivity, improve market insights, and enable better internal collaboration.

Speaker Change: There are also some other, less obvious things we're doing around the edges to improve our processes and the customer experience. For example, we consolidated our various phone numbers so customers have one phone number to call, which then can route them to the department they need to reach.

Speaker Change: We also moved the printing of our marketing materials from stock printing to digital on-demand printing, which will enable us to make immediate changes to our marketing materials so they remain relevant, while also reducing the cost and the size of our inventory of marketing collateral.

Speaker Change: During the last quarter, I announced that we had kicked off the Triple Down on Bronchiectasis campaign, focused on raising awareness of bronchiectasis, as well as the critical and often overlooked role that SmartBest Clearway plays in a patient's treatment protocol.

Speaker Change: The campaign focuses on the needs for patients with bronchiectasis to reduce their inflammation, treat their infection, and use SmartVest Clearway technology to clear their airways of mucus to help break the vicious vortex by removing the fuel for future infections and inflammation.

Speaker Change: The campaign includes the launch of a landing page, digital advertisements, and sales tools. We've engaged with over 10,000 clinicians through this campaign since launch, and we believe these efforts will result in greater awareness and more prescriptions over time.

Speaker Change: Overall I'm very happy with our performance across all facets for our business. Our team is executing at a high level which generated strong positive financial results.

and those results are being rewarded by the market.

Speaker Change: We will continue to follow the blueprint that has worked so well.

Speaker Change: specifically to improve our execution and further penetrate new sources of revenue while investing in people, processes, and infrastructure to provide the tools and equipment our team needs.

Speaker Change: to achieve our goals. With that, I will now turn the call over to Brad for more detailed review of our financials. Brad?

Brad Nagel: Thank you, Jim. All announcements I'm about to review are for the three months ended December 31st, 2024, hour Q2 FY 2025, and compared to the three months ended December 31st, 2023, or Q2 FY 2024.

Brad Nagel: Net revenues grew 18.7% to $16.3 million, up from $13.7 million.

Brad Nagel: Revenue in our direct home care business increased year-over-year by 15.2% to $14.6 million from $12.7 million.

Brad Nagel: The growth in revenue was due to incremental referrals and approvals driven by an increase in direct sales representatives and efficiencies within our reimbursement department, as well as higher net revenues per approval.

Brad Nagel: The annualized home care revenue per weighted average direct sales representative in the quarter was $1,077,000, slightly higher than ElectroMed's annual target range of $900,000 to $1,000,000.

Brad Nagel: U2 hospital revenue increased year-over-year by 16.8% to $723,000. This revenue growth was primarily due to increased capital and disposable demand.

Brad Nagel: Home care distributor revenue for the quarter was $807,000, an increase of 188% year-over-year.

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 8.2% to $132,000.

Brad Nagel: The growth in other revenue was primarily due to the timing of international distributor purchases and timing of purchases by customers that do not fall within the other markets described above, which can cause fluctuations in reported revenue on a quarterly basis.

Brad Nagel: Gross profit increased to $12.6 million, or 77.7% of net revenues, from $10.5 million, or 77.0% of net revenues in Q2 last year.

Brad Nagel: The increase in gross profit dollars is primarily a result of higher revenue volumes.

Brad Nagel: The increase in gross margin percentage was primarily due to the higher average net revenue per device.

Brad Nagel: Selling General and Administrative, or SG&A, expenses were $9.8 million, representing an increase of $1.7 million, or 20.3% year-over-year.

Brad Nagel: The increase in the current year period was primarily due to compensation costs.

Brad Nagel: including higher share-based compensation associated with the vesting of performance-based equity awards, as well as salaries and incentive compensation related to the higher average number of sales, sales support, marketing, and reimbursement personnel to process higher patient referrals.

Brad Nagel: Operating income was a record $2.5 million compared to $2.3 million in Q2 2024.

Brad Nagel: The growth in operating income was driven primarily by increased revenue and gross profit.

Brad Nagel: When putting all these Q2 results together, we are thrilled to have executed a record earnings quarter with pre-tax income of $2.7 million, record net income of $2.0 million, and record quarterly EPS for our shareholders of $0.22 per diluted share.

Brad Nagel: As of December 31st, 2024, ElectroMed had $16.2 million in cash, $22.8 million in accounts receivable, and no debt, achieving a working capital of $35.5 million and total shareholders' equity of $43.6 million.

Brad Nagel: The cash balance reflects an increase of $0.2 million for the six months ended December 31st, 2024, compared to an increase in cash of $3.1 million in the same period in the prior year.

Brad Nagel: The increase in cash in FY25 was driven by $5.5 million of positive operating cash flow, offset by share repurchases of approximately $4.5 million, and $0.8 million of taxes paid from net share settlement of vested stock.

Brad Nagel: While we're excited about our 19% revenue growth and our improvement in earnings per share over Q2 last year, our focus and expectation for the full year remains on delivering double-digit top-line growth and expanded operating leverage.

Brad Nagel: With that, we'd like to move to the Q&A portion of the call. Operator, please open the call to questions.

We will now begin the question and answer session.

Speaker Change: To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.

Speaker Change: Our first question is from Brooks O'Neill with Lake Street Capital Markets. Please go ahead.

Brooks O'Neill: Thank you very much. Good afternoon, guys. Congratulations on the terrific results.

Thanks, Brooks. Appreciate it.

Yep, so I'm curious

Brooks O'Neill: Obviously maybe you're something close to a year into new marketing of the smart vest that you improved last year. Have you seen any kind of competitive response, any activity from anybody else to

Brooks O'Neill: improve their products to try to keep up with what you guys are doing?

Brooks O'Neill: Yeah, actually, Brooks, great question. We've actually had the SmartBest out now for two years, and we've gotten great traction, obviously, in the market as demonstrated by our results.

Brooks O'Neill: Recently, at the end of calendar year 2024, Hilmrom did upgrade their BESS technology, but quite candidly, you know, as you can see with our results that we just...

Brooks O'Neill: impacted our business. So, you know, they've done a nice refresh of their product portfolio, but we still feel like we've got a best-in-class portfolio.

Brooks O'Neill: We're the only product in the market with a single-hose design. We feel like our garments are best-in-class and comfortable, which is really important for patient compliance.

Speaker Change: And we're the only manufacturer in the marketplace with a lifetime.

Brooks O'Neill: warranty on our product which we think again you know for these patients who have a chronic irreversible condition is not only a benefit to the patient but it's also a benefit to the payer where they don't have to continue to reinvest in this technology.

Speaker Change: Yeah, that's great. I appreciate that color. So also I guess last year we read some things about the development of some drugs to treat some of the symptoms of bronchiectasis.

Speaker Change: And I haven't seen anything recently, and I'm just curious if there's any developments that you're aware of in that regard.

Speaker Change: Well, you know the there's as we've discussed even in the

Brooks O'Neill: in the prepared remarks relative to our triple down on bronchiectasis campaign. Really, for these patients, you're trying to treat their underlying infection, which is done by antibiotics. The drug that you're referencing, Brooks, that's coming out is really to treat the inflammation.

Brooks O'Neill: But these patients, when they present, these are bronchiectasis patients, and so this is a chronic, irreversible condition.

And so, these patients may benefit from...

Brooks O'Neill: drugs that are being developed and looking to be marketed this calendar year.

Brooks O'Neill: What we do understand is that the one drug in question, which is targeted for bronchiectasis patients specifically,

Brooks O'Neill: As of, I think, a week ago, they had a new drug approval priority review by the FDA for August of this year. And so, you know, we're not, we don't know where they...

Brooks O'Neill: said relative to commercializing that drug, but we do anticipate that it's going to be later on this year.

Brooks O'Neill: What we are hearing from our KOLs in the market is that the drug will be complementary.

Brooks O'Neill: to airway clearance. It won't be a replacement for it because what these patients still need to do is they need to remove the mucus that's in their airways, which is really the fuel for future infections, inflammation, and you know, we want to try to get them out of that vicious vortex.

Brooks O'Neill: And part of it, though, is they are going to need airway clearance to clear their lungs and improve their quality of life.

Speaker Change: That's great. And then my last question, obviously you did a little bit above the top end of your sort of guidance range for revenue per sales rep.

Speaker Change: Do you think you could stay there? Do you think you could get better on a program basis? What are you thinking about those numbers?

Brooks O'Neill: Well, you know, we're really happy about it. You know, I can't commit to whether or not we're going to maintain at that level or improve it, but, you know, one of the good news stories, Brooks, is I think in the last probably year or so,

Brooks O'Neill: We've been doing a much better job of performance managing non-performers within our sales team.

Brooks O'Neill: As I've mentioned on previous calls, we've done some changes to our onboarding of those reps.

Brooks O'Neill: and in fact did kind of a 2.0 enhancement just this past January. And so I feel really good about the impact that our.

Brooks O'Neill: new sales reps are having as well as our tenured reps.

Brooks O'Neill: And I think the good news too is we're starting to see a disbursement of where our revenue is coming from from our reps It's not concentrated With just you know our top reps where most of the volume is coming We're starting to see much much better disbursement across our entire sales team

Bye.

Brooks O'Neill: Well you and Brad are doing a great job and the rest of the team. We're really looking forward to getting you out in front of some investors in March and we appreciate that very much.

Thanks, Brooks, appreciate it.

Brooks O'Neill: This concludes our question and answer session. I would like to turn the conference back over to Jim Cunniff for any closing remarks.

Jim Cunniff: Yeah, well thank you all for joining today's call and thank you for your continued support of ElectroMed. I'm very pleased with our Q2 results.

Brooks O'Neill: We will continue to strive for even better operating performance and shareholder value in the second half of fiscal 2025 and beyond.

Brooks O'Neill: And as always, we're happy to speak with investors, and if you're interested in a follow-up call, please contact our investor relation partners at ICR Healthcare. Thanks again for your time today. Operator, please close the call.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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