Earnings call transcript: Electromed Q2 FY2025 reports record net income

Electromed Inc . (NYSE:ELMD) reported its financial results for the second quarter of fiscal year 2025, showcasing a robust performance with a record net income of $2 million, or $0.22 per diluted share, surpassing earnings forecasts. Revenue reached $16.3 million, marking an 18.7% year-over-year growth. Following the earnings announcement, Electromed’s stock saw a significant increase of 8.6% in aftermarket trading, closing at $31.71. According to InvestingPro data, the company has maintained impressive momentum with a 188.63% return over the past year, despite a recent 14.89% pullback over the last week.

Key Takeaways

• Electromed achieved record net income and exceeded earnings expectations.
• Revenue grew by 18.7% year-over-year, driven by strong performance in key market segments.
• The stock surged 8.6% in aftermarket trading following the earnings announcement.
• The company continues to focus on its SmartVest Clearway (NYSE:CWEN) technology and sales infrastructure investments.

Company Performance

Electromed demonstrated strong financial performance in Q2 FY2025, continuing its trend of revenue and net income growth for the ninth consecutive quarter. The company has maintained its market leadership in airway clearance technology, driven by its innovative SmartVest Clearway system. The focus on expanding its sales team and improving operational efficiencies has contributed to this sustained growth.

Financial Highlights

• Revenue: $16.3 million, up 18.7% year-over-year.
• Net income: $2 million, translating to $0.22 per diluted share.
• Gross profit: $12.6 million, representing 77.7% of net revenues.
• Cash balance: $16.2 million with no debt.
• Working capital: $35.5 million.

- Total (EPA:TTEF) shareholders’ equity: $43.6 million.

InvestingPro analysis reveals that Electromed operates with virtually no debt and maintains excellent liquidity, with a current ratio of 5.53x. The company’s financial health score is rated as "GREAT" by InvestingPro’s comprehensive evaluation system. For detailed insights and additional metrics, investors can access the full Pro Research Report, available exclusively to InvestingPro subscribers.

Earnings vs. Forecast

Electromed’s earnings per share of $0.22 exceeded the forecast of $0.19, representing a surprise of approximately 15.8%. This beat highlights the company’s effective cost management and revenue growth strategies. The revenue of $16.3 million surpassed the forecasted $15.3 million, indicating strong demand across its product lines.

Market Reaction

Following the announcement, Electromed’s stock price rose by 8.6% in aftermarket trading, closing at $31.71. This positive reaction reflects investor confidence in the company’s financial health and growth prospects. The stock movement contrasts with its 52-week range, where it has fluctuated between $10.05 and $35.56, indicating a strong recovery and upward trend. With a low beta of 0.33, the stock has shown relatively low volatility compared to the broader market, while delivering substantial returns with a 104.78% gain over the past six months. InvestingPro subscribers can access additional technical analysis and valuation metrics to better understand the stock’s momentum.

Outlook & Guidance

Looking ahead, Electromed anticipates double-digit top-line growth and expanded operating leverage. The company is investing in its sales infrastructure and monitoring potential complementary drug treatments for bronchiectasis patients, which could further bolster its market position.

Executive Commentary

• "We take great pride in handling the fulfillment process beginning with the doctor’s prescription," said Jim Kniff, CEO, emphasizing the company’s comprehensive service approach.
• "We anticipate delivering double-digit top-line growth and expanded operating leverage," stated Brad Nagle, CFO, highlighting the company’s optimistic outlook for future growth.

Risks and Challenges

• Supply chain disruptions could impact product availability and cost.
• Market saturation in the home care segment may limit growth potential.
• Macroeconomic pressures, such as inflation, could affect consumer spending and operational costs.
• Competition from emerging technologies and new market entrants poses a threat to market share.
• Regulatory changes in healthcare reimbursement policies could impact revenue streams.

Q&A

During the earnings call, analysts inquired about the impact of a competitor’s product upgrade, to which Electromed responded that there has been no significant market impact. Questions also focused on the potential of new bronchiectasis drug treatments, expected later in 2025, which could complement Electromed’s product offerings and enhance patient outcomes.

Full transcript - Electromed Inc (ELMD) Q2 2025:

Conference Operator: After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mike Cavanagh, Investor Relations.

Please go ahead.

Mike Cavanagh, Investor Relations, Electromed: Good afternoon, and thank you for joining the Electromed earnings call. Earlier today, Electromed Incorporated released financial results for the second fiscal quarter of twenty twenty five. The quarter ended 12/31/2024. The press release is currently available on the company’s website at www.smartvest.com. 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, 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 as a result of new information, future events or otherwise. Please refer to the company’s SEC filings for further guidance on this matter. Joining me on the call today are Jim Kniff, Electromed’s President and Chief Executive Officer and Brad Nagle, Chief Financial Officer.

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. With that, I will now turn the call over to Jim Kneff, President and Chief Executive Officer of Electromed.

Jim Kniff, President and Chief Executive Officer, Electromed: 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. Our entire team did a remarkable job executing on all facets of our business, most visibly in our sales, fulfillment and manufacturing groups. These highly cohesive teams collaborated in delivering yet another quarter of record revenues, which came in at $16,300,000 This was also the ninth consecutive quarter that Electromet’s revenue and net income grew on a year over year basis. Property income was a record $2,500,000 in the quarter and net income came in at $2,000,000 or $0.22 per fully diluted share.

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

An important aspect of our performance is to diversify our customer base beyond our core Home Care segment. Home Care 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. Of note, the hospital segment grew in the quarter by 17%. Also our durable medical equipment or DME distributor relationships have resulted in year over year growth of 188% in the quarter, albeit from a relatively small base, reflecting strong demand from our carefully curated network of DME partners. Along with the singular focus on airway clearance and marketing what we believe is the most advanced user friendly HFCWO technology on the market, a key differentiator in ElectraMed’s business is our direct patient model.

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. In previous quarters, we have commented on the investments we have made in personnel, technology and process improvements in this area of our business. For example, we improved our working capital by reducing inventory 35% compared to Q2 of fiscal twenty twenty four, while also continuing to consistently meet our patients therapy needs. We continue to make investments in the sales team that drives the adoption of SmartVest 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 ’20 ’20 ’5.

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

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. 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. We believe these efforts will result in greater awareness and more prescriptions over time. Overall, I’m very happy with our performance across all facets of 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. We will continue to follow the blueprint that has worked so well, 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 to achieve our goals. With that, I will now turn the call over to Brad for more detailed review of our financials. Brad?

Brad Nagle, Chief Financial Officer, Electromed: Thank you, Jim. All amounts I’m about to review are for the three months ended 12/31/2024, our Q2 FY twenty twenty five and compared to the three months ended 12/31/2023 or Q2 FY twenty twenty four. Net revenues grew 18.7% to $16,300,000 up from $13,700,000 Revenue in our Direct Home Care business increased year over year by 15.2 to $14,600,000 from $12,700,000 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. The annualized home care revenue per weighted average direct sales representative in the quarter was $1,077,000 slightly higher than ElectraMed’s annual target range of $900,000 to $1,000,000 Q2 hospital revenue increased year over year by 16.8% to $723,000 This revenue growth was primarily due to increased capital and disposable demand. Homecare distributor revenue for the quarter was $807,000 an increase of 188% year over year.

Homecare 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 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. Gross profit increased to $12,600,000 or 77.7% of net revenues from $10,500,000 or 77 percent of net revenues in Q2 last year. The increase in gross profit dollars is primarily a result of higher revenue volumes. The increase in gross margin percentage was primarily due to the higher average net revenue per device.

Selling, general and administrative or SG and A expenses were $9,800,000 representing an increase of $1,700,000 or 20.3% year over year. The increase in the current year period was primarily due to compensation costs, 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. Operating income was a record $2,500,000 compared to $2,300,000 in Q2 twenty twenty four. The growth in operating income was driven primarily by increased revenue and gross profit. When putting all these Q2 results together, we are thrilled to have executed a record earnings quarter with pre tax income of $2,700,000 record net income of $2,000,000 and record quarterly EPS for our shareholders of $0.22 per diluted share.

As of 12/31/2024, Electromet had $16,200,000 in cash, $22,800,000 in accounts receivable and no debt, achieving a working capital of $35,500,000 and total shareholders’ equity of $43,600,000 dollars The cash balance reflects an increase of $200,000 for the six months ended 12/31/2024, compared to an increase in cash of 3,100,000 in the same period in the prior year. The increase in cash in FY 2025 was driven by $5,500,000 of positive operating cash flow offset by share repurchases of approximately $4,500,000 and $800,000 of taxes paid from net share settlement of vested stock. 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. With that, we’d like to move to the Q and A portion of the call. Operator, please open the call to questions.

Conference Operator: We will now begin the question and answer session. Our first question is from Brooks O’Neil with Lake Street Capital Markets. Please go ahead.

Brooks O’Neil, Analyst, Lake Street Capital Markets: Thank you very much. Good afternoon guys. Congratulations on the terrific results.

Jim Kniff, President and Chief Executive Officer, Electromed: Thanks, Brooks. Appreciate it.

Brooks O’Neil, Analyst, Lake Street Capital Markets: Yes. So I’m curious, obviously, maybe you’re something close to a year into new marketing of the SmartVest that you improved last year. Have you seen any kind of competitive response, any activity from anybody else to improve their products to try to keep up with what you guys are doing?

Jim Kniff, President and Chief Executive Officer, Electromed: Yes, actually Brooks, great question. We’ve actually had the SmartVest out now for two years. Two years. We’ve gotten great traction obviously in the market as demonstrated by our results. Recently at the end of calendar year 2024, Helmron did upgrade their best technology, but quite candidly, as you can see with our results that we just posted for Q4, it really hasn’t impacted our business.

So they’ve done a nice refresh of their product portfolio, but we still feel like we’ve got a best in class portfolio. 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. And we’re the only manufacturer in the marketplace with a lifetime warranty in our product, which we think again 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.

Brooks O’Neil, Analyst, Lake Street Capital Markets: Yes, 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 brachyectasis 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?

Jim Kniff, President and Chief Executive Officer, Electromed: Well, there’s as we’ve discussed even 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. 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 drugs that are being developed and looking to be marketed this calendar year.

What we do understand is that the one drug in question, which is targeted for bronchiectasis patients specifically, 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 we’re not we don’t know where they sit relative to commercializing that drug, but we do anticipate that it’s going to be later on this year. And what we are hearing from our KOLs in the market is that the drug will be complementary 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 we want to try to get them out of that vicious vortex. And part of it though is they are going to need airway clearance to clear their lungs and improve their quality of life.

Brooks O’Neil, Analyst, Lake Street Capital Markets: Right. 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. Are you do you think you could stay there? Do you think you could get better on a per rep basis?

What are you thinking about those numbers?

Jim Kniff, President and Chief Executive Officer, Electromed: Well, we’re really happy about it. I can’t commit to whether or not we’re going to maintain at that level or improve it. But one of the good news stories, Brooks, is I think in the last probably year or so, we’ve been doing a much better job of performance managing non performers within our sales team, hiring better caliber sales reps who have hit the ground running and been more productive sooner rather than later. As I’ve mentioned on previous calls, we’ve done some changes to our onboarding of those reps and in fact did kind of a two point zero enhancement just this past January. And so I feel really good about the impact that our new sales reps are having as well as our tenured reps.

And I think the good news too is we’re starting to see a disbursement of where our revenue is coming from our reps. It’s not concentrated with just our top reps where most of the volume is coming. We’re starting to see much better disbursement across our entire sales team.

Brooks O’Neil, Analyst, Lake Street Capital Markets: Great. Well, Hugh 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.

Jim Kniff, President and Chief Executive Officer, Electromed: Thanks, Brooks. Appreciate it.

Conference Operator: This concludes our question and answer session. I I would like to turn the conference back over to Jim Knuff for any closing remarks.

Jim Kniff, President and Chief Executive Officer, Electromed: Yes. 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. We will continue to strive for even better operating performance and shareholder value in the second half of fiscal twenty twenty five and beyond. And as always, we’re 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. Operator, please close the call.

Conference Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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