Electromed, Inc. (ELMD) Q1 2027 Earnings Call Transcript

Thank you.

And welcome to the ElectroMed Fiscal First Quarter 2027 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Mike Cavanaugh, Investor Relations. Please go ahead.

Good afternoon, and welcome to ElectroMed's first quarter fiscal 2027 earnings call. Earlier today, we issued our quarterly results, which are available on the company's website at www.smartvest.com. 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. 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. 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 because of new information, future events, Please refer to the company's SEC filings for further guidance on this matter. Joining me today are Jim Kinniff, Electromed's President and Chief Executive Officer, and Brad Nagel, Chief Financial Officer. Jim will discuss the quarter's strategic and operating progress, Brad will cover the financial results and balance sheet, and then we'll open the call to questions. With that, I will now turn the call over to Jim Kinniff, President and Chief Executive Officer of ElectroMed.

Thank you, Mike, and good afternoon. Fiscal 2027 is underway, and our first quarter performance gives us a useful read on the outcomes of the operational priorities we establish entering the year. First, expanding patient access. Second, increasing the reach and productivity of our commercial organization. And third, converting sustained awareness of bronchiectasis into smart best prescriptions. Our first quarter results reflect continued execution against that agenda. We delivered Q1 fiscal year 27 revenue growth of 10.6% and operating income growth of 30.7%. This is the 16th consecutive quarter we have increased both our revenue and operating income year-over-year. Net revenue for the first quarter was $18.7 million, an increase of 10.6% compared with the prior year quarter. Operating income was $3.5 million compared with $2.7 million in the first quarter of fiscal 2026, demonstrating our team's ability to extract operating leverage from the business. We continue to maintain focus on profitable growth and investment discipline, which resulted in diluted earnings per share of $0.32, representing a 28% year-over-year increase versus $0.25 in the prior year quarter. By channel, our primary home care revenue increased 17.6% in the quarter compared to the prior year, driven by additional sales reps and improving sales rep productivity. Distributor and hospital revenues decreased 56% and 32% respectively compared to the prior year. The quarters mix reinforces why we manage the business around sustained referral growth rather than any single period's channel variability. Home care remains our primary growth engine. It constitutes 94% of our revenue and remains the core focus of our sales team, while the much smaller distributor and hospital channels provide additional avenues to broaden access to SmartVest. We ended the quarter with 63 direct home care sales representatives and four open territories. Our emphasis is not simply on adding territories. It's on recruiting effectively, onboarding well, and helping new representatives progress towards full productivity. Also, as of today's call, we have four strategic account managers to create additional and durable demand for SmartVest in the hospital channel. Regarding the hospital channel, we are excited to announce that we have renewed our contract with the largest hospital GPO in the country, which provides their members with access to SmartVest. From a strategic standpoint, accessing the large scale of the bronchiectasis opportunity remains central to our strategy. Rather than repeat the market statistics we've shared previously, I want to focus today on how we are converting awareness into action. Identifying appropriate patients earlier, helping clinicians evaluate airway clearance options, simplifying the prescription process, and expanding access through payer relationships. Our triple down on bronchiectasis campaign continues to provide the clinical foundation for that work by emphasizing a three-part approach. Number one, clear the airways first. Number two, treat the patient's infection, and three, reduce inflammation. In Q1, our focus shifted from introducing the framework to embedding it more consistently in provider education and field execution. We extended this strategy by initiating the Treat Smart from the Start campaign, which provides clinicians with a practical way to recognize when a patient's current airway clearance approach may be insufficient and signaling that it may be time to prescribe SmartVest. We are encouraged by early feedback from our providers, and we'll continue refining the program as we learn from field use. While at medical conferences, we're consistently asked about the DPP-1 inhibitor that addresses a patient's inflammation. The question is often specifically, does the drug replace airway clearance, or should airway clearance be used along with DPP-1 inhibitors? During a recent California Thoracic Society webinar titled, Bronchiectasis, the Most Misunderstood Cough in the Room, the answer from a prominent pulmonologist's key opinion leader was, and I quote, We still recommend continuing airway clearance, and patients are continuing their airway clearance, in addition to being put on a DPP-1 inhibitor. In short, DPP-1 inhibitors are complementary to airway clearance, not a substitute, since the drug does not clear the patient's lungs so they can breathe easier. I'd like to now address some of the synergistic clinical and educational work we are performing. During the first quarter, we held four peer-to-peer programs with approximately 400 clinicians participating. The objective is consistent across each program. Pair credible clinical education with a clear path to identify and serve appropriate patients. On the evidence generation front, our manuscript titled Low Incidence of High-Frequency Chest Well Oscillation in Bronchiectasis Registry Data Despite Indications and Reimbursement was published in the September issue of the COPD Foundation Journal. Using data from the NTM Bronchiectasis Research Registry, the study found that 58% of qualifying patients were not prescribed HFCWO therapy despite meeting all the clinical criteria needed for insurance coverage. This work is important because it helps clinicians recognize the treatment gap and supports more informed conversations about when HFCWO therapy may be appropriate. The electronic smart order e-prescribe system continues to move from a differentiating capability to an important part of our operating model. The recently finalized CMS Administrative Simplification Rule reinforces the direction towards electronic documentation and signatures versus faxes, with compliance required by May 2028. In the first quarter, 48% of orders were submitted through smart order, and those orders shipped approximately five days faster than fax-based orders. We are focused on increasing adoption because faster, cleaner submissions can improve the experience for clinics, patients, and our reimbursement team. Pair access remains essential to reaching more eligible patients, and our team has made progress in reaching most covered lives in the United States. At quarter end, 87% of covered lives in the United States were under contract, reflecting eight new or expanded agreements, totaling nearly 500,000 additional covered lives during the period. Beyond the headline coverage percentage, our team is working to improve contracting efficiency and the consistency of the patient experience across plans. Our use-based manufacturing model continues to support dependable service and supply continuity. In Q1, we maintained our record of on-time deliveries and robust gross margins. Our recently upgraded operations foundation remains an important advantage as we scale. I also want to recognize the ElectroMed team for a strong start to fiscal 2027. Our people continue to translate our mission into disciplined execution, and that connection between employee engagement and customer service remains a meaningful strength. Before I turn the call over to Brad, I want to briefly update you on the leadership transition announced last quarter. As announced, I expect to retire as Chief Executive Officer in April 2027. The board succession plan is underway, and we are approaching the transition with the same discipline we bring to operating the business. In the meantime, my priorities are unchanged. Execute our fiscal 2027 plan, support our team, and position the next leader for a smooth handoff. We have a clear strategy, a strong leadership group, and significant runway to expand access to SmartVest. My goal is to ensure that this performance continues and that my successor can step in seamlessly to work with this great team. Brad, over to you.

Thank you, Jim. Turning to the quarter, I will focus on the key drivers of first quarter performance and our financial position as of September 30, 2026. Unless otherwise noted, the results I will discuss compare the three months ended September 30, 2026 with the three months ended September 30, 2025. First quarter net revenue was $18.7 million, an increase of 10.6% from $16.9 million. Home care revenue grew 17.6% to $17.5 million. The increase in revenue was due to an increase in direct sales representatives and increased sales representative productivity. Annualized home care revenue per weighted average direct sales representative was $1,109,000 in Q1, just above the midpoint of our fiscal 2027 target range of $1,050,000 to $1,150,000. Non-home care revenue was $1.2 million, compared with $2.0 million in the prior year quarter. The 41% decline in non-home care revenue was driven by a combination of elevated distributor inventory in the market, which negatively impacted the sales we make to our DME partners, and lower sales of capital into hospitals when compared to the record hospital revenue we achieved in Q1 last year. Gross profit was $14.9 million, or 80.0% of net revenue, compared with $13.2 million, or 78.1% in the prior year quarter. The increase in gross profit dollars was due to increased revenue, and the gross profit percentage increase was due to revenue mix as high-value home care revenue grew and lower-margin non-home care sales declined. Selling general and administrative, or SG&A, expenses were $11.2 million, an increase of $0.9 million, or 8.6%. The increase was primarily due to increased salaries and incentive compensation related to the higher average sales representative headcount and higher overall compensation costs. Operating income was $3.5 million, or 18.7% of net revenue, compared with $2.7 million, or 15.8%, in the prior year quarter. The growth of 30.7% in operating income was primarily due to the increases in revenue and gross profit. First quarter net income was $2.8 million and diluted earnings per share of $0.32 compared with $2.1 million or $0.25 last year. As of September 30, 2026, ElectraMed had $15.9 million in cash, $30.3 million in accounts receivable, and no debt, achieving a working capital of $44.9 million and shareholders' equity of $52.5 million. The cash balance reflects a decrease of $4.6 million for Q1 compared to a decrease in cash of $1.2 million in the same period in the prior year. The decrease in cash for the three months ended September 30, 2026, was driven primarily by repurchases of ElectraMed common stock totaling $4.3 million. To summarize, Q1 demonstrated our disciplined execution and operating leverage while we continued investing in the capabilities needed for our future growth. We remain focused on serving more patients, supporting our commercial organization, and converting revenue growth into sustainable earnings and cash flow. With that, operator, please open the call to questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, please limit to one question and one follow-up.

First question comes from Ben Hinnor with Lake Street Capital Markets. Please go.

Good afternoon, gentlemen. Can you hear me okay? Yeah, we can. Thank you.

There's a little music going on. I don't know if I got pushed off into the queue or something. Just real quickly on the home care distributor revenue, you know, the impact there that you've seen, when do you expect that to get back to kind of more normalized levels, and, you know, how many DMEs that you deal with, is this kind of affecting?

Yeah, that's a great question, Ben. I think we addressed that last quarter, and again, in the prepared comments that we had made. You know, my expectation, truthfully, is that we probably won't see that rebound until the beginning of the calendar year. You know, as I've spoken to our DME partners, you know, one of the things that they're struggling with is their inventory position versus their customer demand right now. And so I think you're going to see some of them have too much inventory of different HFCWO devices versus the demand that they have, but they do anticipate that that will abate probably at the beginning of next calendar year.

Okay, got it. I apologize for missing the remarks. And then just kind of thoughts on refreshing the buyback here, and then I think the credit facility, if I'm not mistaken, that you have expires in a handful of weeks. Any thoughts there?

Yeah, thanks for the question, Ben. So yeah, as of end of quarter, we've exhausted $8.2 million of the $10 million authorization that we set up last year. I can't speak to future periods, but as we've discussed in the past, as we weigh our options for uses of cash, we will do whatever is going to drive the most shareholder value, including both investment in the business and considering future share repurchases as well.

Okay, fair enough. Thanks for taking the question, gentlemen.

Thank you. Once again, if you would like to ask a question, please press star 1 on your telephone keypad.

There are no further questions.

I would like to turn the floor over to Jim for closing remarks.

Thank you, Operator. Before I close the call, I want to leave you some key takeaways from this quarter. In summary, our first quarter of fiscal 2027 demonstrated ElectroMed's continued growth and operating leverage with positive home care momentum, measurable progress in smart order adoption, and disciplined investment in the sales force. With a strong balance sheet and a focused strategy, we believe ElectroMed is well positioned to build on the start over the balance of the year. As always, I want to thank you for joining us today. If you have questions or would like to schedule a call with the ElectroMed team after today's report, please reach out to our investor relations partners at ICR Healthcare. Operator, with that, please close the call.

This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.