Electromed, Inc. (ELMD) Q2 2024 Earnings Name Transcript

Electromed, Inc. (NYSE:ELMD) Q2 2024 Earnings Convention Name February 13, 2024 5:00 PM ET

Firm Members

Mike Cavanaugh – Investor Relations, ICR Westwicke

Jim Cunniff – President & Chief Government Officer

Brad Nagel – Chief Monetary Officer

Convention Name Members

Aaron Wukmir – Lake Avenue Capital Markets

Operator

Greetings and welcome to the Electromed Second Quarter Fiscal 2024 Earnings Name. [Operator Instructions] As a reminder, this convention is being recorded.

It’s now my pleasure to introduce your host, Mike Cavanaugh, Investor Relations. Thanks. You might start.

Mike Cavanaugh

Good afternoon and thanks for becoming a member of the Electromed earnings name. Earlier right now, Electromed, Integrated launched monetary outcomes for the second fiscal quarter of 2024, the quarter ended December 31, 2023. The discharge is at present obtainable on the corporate’s web site at www.smartvest.com.

Earlier than we get began, I want to remind everybody that a number of the statements that administration will make on this name are thought of forward-looking statements, together with statements concerning the firm’s future working and monetary outcomes and plans. Such statements are topic to dangers and uncertainties that would trigger precise efficiency or achievements to be materially totally different from these projected. Any such statements symbolize administration’s expectations as of right now’s date. You shouldn’t place any undue reliance on these forward-looking statements and the corporate doesn’t undertake any obligation to replace or revise forward-looking statements whether or not because of new info, future occasions or in any other case. Please seek advice from the corporate’s SEC filings for additional steerage on this matter.

With that, I’ll now flip the decision over to Jim Cunniff, President and Chief Government Officer of Electromed.

Jim Cunniff

Thanks, Mike and thanks to everybody becoming a member of right now’s name. I am thrilled to announce one other document income quarter for Electromed. Complete web income for the second quarter of fiscal 12 months 2024 got here in at $13.7 million, representing 17% year-over-year progress from the identical interval in fiscal 12 months 2023. That is the fifth straight quarter of mid-teens or higher income progress and resulted in document quarterly earnings of $1.7 million or $0.19 per share.

Equally, I am proud to spotlight working revenue for the quarter was a document $2.3 million, a progress of 78% over the identical interval within the prior fiscal 12 months. As with the primary quarter, we noticed progress throughout all 3 of our income classes: dwelling care, hospital and worldwide which additional reinforces the strategic progress investments we’ve got made are yielding appreciable outcomes. I am going to hand the decision over to Brad to debate the quarter’s financials in additional element shortly.

However first, I wished to take a while to replicate on what I’ve realized and noticed since becoming a member of the corporate in July as CEO, present a market replace and increase on what our targets will appear to be shifting ahead. First, the corporate’s constant progress methods specializing in creating best-in-class merchandise, exemplary customer support, disciplined industrial enlargement and operational excellence are producing constructive outcomes. We see these investments paying off via continued income progress and elevated profitability.

Going ahead, we stay dedicated to rising our prime line however we’re additionally centered on capturing the working leverage our progress investments had been designed to supply. Moreover, since becoming a member of the corporate, I’ve spent a variety of time assembly with and gathering suggestions from each present and potential traders. From these discussions, a couple of themes have emerged. First, we’re a microcap standout in that we’re rising, but worthwhile, producing money and haven’t any debt. This makes us distinctive in a small medtech house and our sturdy monetary place will allow us to proceed to spend money on our industrial groups and market growth initiatives.

Second, in a excessive rate of interest atmosphere, money is king and the traders like that our enterprise is producing money from operations. And third, traders like that my incentive reward relies on growing complete shareholder return and administration’s incentive compensation is concentrated solely on delivering monetary outcomes which aligns us to our traders’ targets.

Lastly, with over $10 million of money at present on our steadiness sheet and our perception that Electromed shares are undervalued, there was a variety of questions on how we’re interested by deploying our surplus capital. We’ll proceed to evaluate each alternative that might be useful to Electromed and our shareholders and all choices are being thoughtfully reviewed and brought into consideration.

Subsequent, since becoming a member of the corporate, we’ve got seen a crucial want for additional market growth Our current market research confirmed that there are roughly 824,000 sufferers within the U.S. which were identified with bronchiectasis. Of that complete, roughly 230,000 are managed by pulmonologists and the remaining sufferers are being managed by a main care doctor. If all these 230,000 sufferers had been prescribed HFCWO at an estimated common sale worth of $10,000 per affected person, it equates to a $2.3 billion income alternative. Nonetheless, solely a fraction of those sufferers are being prescribed HFCWO remedy. We imagine there may be work to be accomplished in unlocking the market alternative via creating extra consciousness with suppliers on the advantages in treating bronchiectasis sufferers with our SmartVest Airway Clearance know-how earlier within the care continuum.

There’s additionally a must publish tips for treating bronchiectasis sufferers with HFCWO which at present don’t exist. We’ll interact with key opinion leaders and societies to ascertain tips and get these revealed. These outcomes won’t occur in a single day however it’s an space of focus for us. This segues properly into an replace on our industrial initiatives. We plan to proceed our gross sales drive enlargement plan to drive additional market penetration. We ended the quarter with 49 gross sales representatives and within the second half of our fiscal 12 months; we intend to rent 5 extra reps to deepen our penetration in key markets for Electromed and to help a bigger pool of doctor prescribers. Being a gross sales rep at Electromed is like proudly owning a franchise however with out the required capital outlay. Our reps have an uncapped fee plans, so the extra they develop the extra they’ll earn.

We take a conservative method to hiring the precise gross sales reps who can efficiently execute what is basically a scientific sale. That’s Electromed’s reps work with well being care suppliers to reveal the utility of our SmartVest Clearway system to each sufferers and by extension to suppliers observe. Moreover, to enrich our direct gross sales staff, I have been partaking our distributor companions to higher help our gross sales staff’s efforts within the area. We have had a passive relationship with our distributors and imagine they’ll present extra focus for us within the hospital market the place we’ve got a small presence in addition to assist increase our rural market protection. Lately, we signed a brand new distribution settlement with Marathon Medical, a medical provide distribution firm and service-disabled veteran-owned small enterprise.

As a distributor accomplice, Marathon Medical focuses on offering medical merchandise to federal companies, together with VA hospitals and clinics and different federal companies. This partnership will enhance the ordering course of for all authorities services, permitting simpler entry to our merchandise, serving to our veterans to breathe simpler and stay higher. Whereas direct dwelling care gross sales mannequin continued to serve us nicely, we imagine forging new partnerships just like the Marathon Medical settlement enhances our industrial initiatives and permits us to additional drive market enlargement and growth.

Additionally in Q3, we can be rolling out SmartAdvantage which our gross sales packages and clinic help assets that showcase our distinctive customer support and seamless ordering course of in help of the clinics we serve. SmartAdvantage is one other means for Electromed to distinguish ourselves and strengthen our place available in the market. If my final reflection is centered across the sheer caliber of expertise of the Electromed staff, what will not be well-known to traders is that within the final 12 to 18 months we have added a brand new CEO, a brand new CFO, a brand new Controller and new leaders throughout quite a few crucial departments, operations, R&D, RA/QA and gross sales operations. These seasoned leaders convey collectively strong backgrounds of area experience, new concepts and recent vitality to the corporate. This vitality and pleasure lengthen to our teammates in all positions all through the corporate.

Our Glassdoor ranking on the finish of 2023 was a stable 4.44, up from 3.7 solely 2 years in the past, reflecting the sturdy chemistry and connectedness of the staff. As any good chief is aware of, engagement is a number one indicator of success and it reveals up in how we work collectively as a staff, how we work together with our prospects and the sufferers we serve. Furthermore, having an engaged staff helps us to recruit equally sturdy candidates for us to proceed to execute on our strategic deliverables.

I might wish to share some real-world examples of how our expertise has made a distinction in a short while. Final 12 months, we struggled with some operational points like many different corporations had throughout the pandemic. At present, underneath the management of our Senior Director of Operations and Supplies, Steve Trnka, we had 0 backorders and first-pass yield of 99% which permits us to get merchandise to sufferers sooner to allow them to breathe simpler. Additionally, whereas centered on sustaining glorious service ranges, our operations staff is concentrated on decreasing our nonfinished items stock which was constructed up throughout the pandemic when uncooked supplies had been briefly provide. This enchancment will occur within the subsequent quarters.

Moreover, as talked about on our final name, Amy Yanta, our Head of RA, QA and Compliance and her staff have upgraded our high quality programs and have had 3 profitable exterior audits within the final quarter. Lastly, I might like to acknowledge my predecessor, Kathleen Skarvan, for main the cost in creating the next-gen vest know-how we at the moment are commercializing. As somebody who grew up within the medical system world with industrial background, I am excited concerning the market reception for our new SmartVest Clearway product introductions to the hospital and residential markets. We’re the one HFCWO provider available in the market with new know-how that’s smaller, lighter and extra intuitively utilized in aggressive merchandise within the area.

I sit up for persevering with to drive prime line progress mixed with increasing working leverage as we develop and take market share within the coming quarters and years forward. And with that, I’ll flip the decision to Brad to debate our financials. Brad?

Brad Nagel

Thanks, Jim. Internet income for our second quarter grew 17% over Q2 of final 12 months to a document $13.7 million. Residence Care income for the quarter was $12.7 million, a rise of 18% over Q2 final 12 months. This progress was pushed primarily by the rise within the variety of our gross sales territories in addition to efficiencies acknowledged inside our reimbursement division because of current investments made to streamline the claims course of. The annualized dwelling care income per gross sales consultant in Q2 was $1 million, barely greater than Electromed’s annual goal vary of $850,000 to $950,000.

Q2 hospital income elevated year-over-year by 5% to $619,000. This income enhance was as a result of addition of a strategic account supervisor centered on delivering hospital income. Residence care distributor income for the quarter was $280,000, a lower of 17% from Q2 final 12 months. Residence care distributor gross sales are affected by the timing of distributor purchases that may trigger important fluctuations within the reported income on a quarterly foundation. Q2 worldwide income elevated year-over-year by 69% to $122,000. As talked about in earlier updates, we proceed to help and preserve our present distributors within the worldwide markets however rising our worldwide enterprise is at present not a main focus for us.

Gross revenue elevated to $10.5 million, or 77% of web revenues for the quarter in comparison with $8.7 million or 74% of web revenues in Q2 of FY ’23. The rise in gross revenue was primarily because of decreased transport prices in addition to elevated materials prices within the prior years to expedite stock purchases which didn’t reoccur within the present 12 months. Promoting, common and administrative or SG&A bills had been $8.2 million for Q2, representing a rise of $0.9 million or 12.7% in comparison with the identical interval final 12 months.

The rise was primarily because of extra headcount in our gross sales and supporting groups to allow our progress. Analysis and growth bills decreased $47,000 or 31% versus Q2 final 12 months to $107,000. The lower was primarily because of decreased prices related to our Clearway product growth. Internet curiosity revenue elevated $89,000 to $96,000 for the quarter. The over 1,200% enhance over Q2 of final 12 months is primarily as a result of elevated financial savings charges related to our money balances.

When placing all these Q2 outcomes collectively, we’re thrilled to have executed a document earnings quarter with pre-tax revenue of $2.4 million, document web revenue of $1.7 million and document quarterly EPS of $0.19 per diluted share. As of December 31, 2023, Electromed had $10.4 million in money, $23 million in accounts receivable and no debt, attaining a working capital of $32.7 million and complete shareholders’ fairness of $40.3 million. The money steadiness displays a document enhance of $3.1 million for the 6 months ended December 31, 2023, in comparison with a lower in money of $1.2 million in the identical interval final 12 months.

With that, we would like to maneuver to the Q&A portion of our name. Operator, please open the decision to questions.

Query-and-Reply Session

Operator

[Operator Instructions] Our first query comes from Aaron Wukmir with Lake Avenue Capital Markets.

Aaron Wukmir

That is Aaron on the road for Brooks. Congrats on the sturdy momentum and document quarter. I assume I simply wish to begin with kind of the transition of sufferers onto the HFCWO remedy. Simply attempting to get a way of the final course. You talked just a little bit final quarter about some individuals simply staying purely on antibiotics and never kind of essentially shifting in direction of the vest. So have you ever seen a rise within the stage of, I assume, consciousness, you would name, to bronchiectasis within the doctor house that might kind of trigger these sufferers to gravitate in direction of your know-how? After which I assume the second a part of the query, what components are you going to proceed to get these sufferers over the hump faster and on to your know-how to finally achieve market share?

Jim Cunniff

That is Jim. I am going to reply that query. I believe there’s a few issues. One in every of which is, I believe, right now and I discussed this in my feedback is the truth that this can be a — there’s a variety of sufferers which can be on the market with bronchiectasis. Sadly, inside their care continuum, they’re getting on the vest at loads later date versus sooner. And that is primarily as a result of their underlying situation as many instances as you had talked about are being handled by antibiotics. And so we’re seeing that the popularity that many sufferers that the pulmonologists are seeing, they’re now beginning to diagnose bronchiectasis extra regularly. And that is a great signal.

The problem we’ve got is just not just for that to occur for them additionally to place the affected person on the vest sooner relatively than later. And so one of many areas of alternative for us and one of many areas of focus for us and really could be for the market as an entire is working with key opinion leaders and in addition societies to get tips put into place for bronchiectasis sufferers and their protocols for care. And in order that’s a focus for us going ahead.

Aaron Wukmir

Nice. Makes complete sense. And I assume one other query. So final quarter, you kind of modified the coaching program on your gross sales drive. You took down the coaching time just a little bit and there was some studying taking place with some engagement with prospects. With the gross sales staff centered solely on HFCWO, has this new technique been monitoring to your liking? And the way snug are you with the adjustments that you’ve made and reps that you have added since Q1 and are planning so as to add right here within the subsequent couple of quarters?

Jim Cunniff

Properly, we’re enthusiastic about it, Aaron. I imply the earlier we will get our gross sales reps on the market being productive in promoting, the higher off it is going to be for our firm and for the sufferers that we serve. I’d say, we have solely gone via 1 coaching class with the brand new protocols that we have put in place for our gross sales reps. And so I be ok with what we’re doing however this can be a work in course of and we’ll proceed to refine that.

As I discussed in my feedback, we’re going to be including — we’re anticipating including 5 new reps throughout the subsequent 6 months. And so I anticipate that we’ll be having a coaching class in March and there can be an opportunity for us to additional refine that coaching protocol for these reps. And we’re excited as a result of we did get some actually good suggestions from the primary group that went via and we’ll apply that to the subsequent group that goes via. However that — it is a steady course of that we’ll refine for these reps to make it extra useful for them and for them to hit the bottom working sooner relatively than later.

Aaron Wukmir

Superior, makes complete sense. After which, one final one for me. You talked about just a little bit within the ready remarks. However how is the story in hospitals with the preliminary launch of Clearway? Are you seeing the expansion that you simply’d wish to see in that house? I do know it is form of early levels and suppose you talked about common suggestions has been constructive. However simply attempting to get a greater sense or an replace in your ideas there.

Jim Cunniff

No, I recognize, Aaron, the questions that you have offered to us. The hospital market, once more, it is a fairly nascent marketplace for us proper now. And we simply launched the hospital — the Clearway system for the hospital within the final quarter. So it is early days there. Our enterprise grew 5% within the quarter. However the promoting cycle throughout the hospital market is loads longer than the house market. And so we’re anticipating that we’ll see enhancements in that house.

Additionally, as I discussed in my remarks, one in all our alternatives, I imagine, is to work with some distributors who’ve a stronger footprint inside that market house as a result of our gross sales reps are actually predominantly centered on promoting to pulmonologists and clinics. And so after we do decide up hospital enterprise many instances it is as a result of we’ve got a relationship with the pulmonologist, who’s rounding inside that facility and desires to have entry to a best-in-class product. So we really feel nice concerning the new product that we have launched however we nonetheless, I believe, have some alternatives to guarantee that in going after that hospital market, we’re not distracting our gross sales reps from their main name level which is the clinic.

Aaron Wukmir

Obtained you. Okay, makes complete sense. And congrats on the sturdy quarter. We’re excited to maintain following you guys.

Jim Cunniff

I recognize it and thanks for the questions. Properly, except there is no different questions, I will wrap up the decision and thank everyone for becoming a member of the decision right now and thanks on your continued help of Electromed. As I discussed, I am excited to proceed executing in opposition to our progress and profitability plans. If we will try this, we are going to proceed to drive elevated worth to our shareholders. And that is one in all our main targets. In the event you’re within the follow-up name, please contact our Investor Relations companions at ICR Westwicke. I recognize your time right now and recognize your funding in Electromed. Thanks, everyone.

Operator

Thanks. That concludes right now’s convention name. All events could now disconnect. Have a great day.