Electromed Inc

Previous wording

We manufacture, market, and sell products that provide HFCWO, including the SmartVest® Airway Clearance System (“SmartVest System”) that includes our newest generation SmartVest Clearway® Airway Clearance System (“Clearway”), previous generation SmartVest SQL®, and related garments and accessories to patients with compromised pulmonary function. The SmartVest Clearway, which received 510(k) clearance from the U.S. Food and Drug Administration in December 2022, provides patients with proven quality of life outcomes while offering a state-of-the-art patient experience with a simple touch screen user interface, small footprint and lightest HFCWO generator on the market.

Current wording

We manufacture, market and sell products that provide HFCWO, including the SmartVest® Airway Clearance System (“SmartVest System”) that includes our newest generation SmartVest Clearway® Airway Clearance System (“Clearway”), previous generation SmartVest SQL®, and related garments and accessories to patients with compromised pulmonary function. The SmartVest Clearway, which received 510(k) clearance from the U.S. Food and Drug Administration in November 2022, provides patients with proven quality of life outcomes while offering a state-of-the-art patient experience with a simple touch screen user interface, small generator footprint and comfortable, lightweight vests.

Previous wording

Net revenues for the three and nine months ended March 31, 2024, and 2023 are summarized in the table below.

Current wording

Net revenues for the three months ended September 30, 2024, and 2023 are summarized in the table below.

Previous wording

Homecare distributor revenue*.*Homecare distributor revenue increased by $23,000, or 4.6%, for the three months ended March 31, 2024, compared to the same period in the prior year. For the nine months ended March 31, 2024, homecare distributor revenue was $1,377,000, a decrease of $14,000, or 1.0%, compared to the same period in the prior year. The change in Homecare distributor sales were primarily a result of the timing of distributor purchases that can cause significant fluctuations in reported revenue on a quarterly basis.

Current wording

Homecare distributor revenue*.*Homecare distributor revenue increased by $14,000 or 2.4%, for the three months ended September 30, 2024, compared to the same period in fiscal 2024. The change in Homecare distributor sales was primarily a result of the timing of distributor purchases that can cause fluctuations in reported revenue on a quarterly basis.

Previous wording

Other revenue*.*Other revenue was $277,000, an increase of $121,000, or 77.6%, for the three months ended March 31, 2024, compared to the same period in the prior year. For the nine months ended March 31, 2024, other revenue was $490,000, an increase of $181,000, or 58.6%, compared to the same period in the prior year. The increase in other revenue was primarily due to the timing of international distributor purchases and purchases by customers that do not fall within the other markets described above, which caused significant fluctuations in reported revenue on a quarterly basis.

Current wording

Other revenue*.*Other revenue increased by $89,000, or 97.8%, for the three months ended September 30, 2024, compared to the same period in fiscal 2024. The increase in other revenue was primarily due to the timing of international distributor purchases and purchases by customers that do not fall within the other markets described above, which can cause fluctuations in reported revenue on a quarterly basis.

Previous wording

*Selling, general and administrative expenses.*Selling, general and administrative (“SG&A”) expenses were $8,374,000 and $25,699,000 for the three and nine months ended March 31, 2024, respectively, representing increases of $680,000 and $2,762,000, or 8.8% and 12.0%, respectively, compared to the same periods in the prior year.

Current wording

*Selling, general and administrative expenses.*Selling, general and administrative (“SG&A”) expenses were $9,387,000 for the three months ended September 30, 2024, representing an increase of $237,000 or 2.6%, compared to the same period in the prior year.

Previous wording

Payroll and compensation-related expenses were $5,721,000 and $17,111,000 for the three and nine months ended March 31, 2024, respectively, representing increases of $684,000 and $2,191,000, or 13.6% and 14.7%, respectively, compared to the same periods in the prior year. The increase in the current year periods were primarily due to increases in share-based compensation, salaries, and incentive compensation related to the higher average number of sales, sales support, marketing, and reimbursement personnel to process higher patient referrals. We have also continued to provide regular merit-based increases for our employees and are regularly benchmarking our compensation ranges including share-based compensation for new and existing employees to ensure we can hire and retain the talent needed to drive growth in our business. Field sales employees totaled 59 as of March 31, 2024, 51 of which were direct sales representatives, compared to 57 field sales employees and 48 direct sales representatives as of March 31, 2023.

Current wording

SG&A payroll and compensation-related expenses including health insurance benefits and other compensation increased by $691,000, or 12.0%, to $6,457,000 for the three months ended September 30, 2024, compared to the same period in the prior year. The increase in the current period was primarily due to increases in share-based compensation associated with the vesting of performance-based equity awards, salaries, and incentive compensation related to the higher average number of sales, sales support, marketing, and reimbursement personnel to process higher patient referrals. We have also continued to provide regular merit-based increases for our employees and are regularly benchmarking our compensation ranges including share-based compensation for new and existing employees to ensure we can hire and retain the talent needed to drive growth in our business. Field sales employees totaled 60 as of September 30, 2024, 53 of which were direct sales representatives, compared to 59 field sales employees and 51 direct sales representatives as of September 30, 2023.

Previous wording

Travel, meals and entertainment expenses were $760,000 and $2,453,000 for the three and nine months ended March 31, 2024, respectively, representing increases of $102,000 and $163,000, or 15.5% and 7.1%, respectively, compared to the same periods in the prior year. The increase in the current year periods were due to a higher average number of direct sales representatives, higher travel costs, an increased number of sales territories, and a mid-year sales meeting held in Q3 FY 2024.

Current wording

Travel, meals and entertainment expenses increased $47,000, or 5.1%, to $964,000 for the three months ended September 30, 2024, compared to the same period in the prior year. The increase in the current year was primarily due to a higher average number of direct sales representatives and higher travel costs.

Previous wording

Professional fees were $978,000 and $3,222,000 for the three and nine months ended March 31, 2024, respectively, representing decreases of $410,000 and $628,000, or 29.5% and 16.3%, respectively, compared to the same periods in the prior year. Professional fees are primarily for services related to legal costs, shareowner services and reporting requirements, information technology technical support and consulting fees. The decrease in the three months ended March 31, 2024, were primarily related to legal and consulting costs associated with the termination of the Public Health Emergency for COVID-19 and recruiting costs for multiple senior leadership positions that has not recurred in the fiscal year ending June 30, 2024 (“fiscal 2024”). In addition to those fees that did not recur in the third quarter, the decreases in the nine months ended March 31, 2024, were due to legal fees in fiscal 2023 related to a reimbursement project that has not recurred in fiscal 2024.

Current wording

Professional fees decreased $171,000, or 13.0%, to $1,140,000 for the three months ended September 30, 2024, compared to the same period in the prior year. Professional fees are primarily for services related to legal costs, shareowner services and reporting requirements, information technology technical support and consulting fees. The decrease was primarily due to clinical fees in the prior year related to the finalization of a clinical study that did not recur in the three months ended September 30, 2024.

Previous wording

Research and development expenses. Research and development (“R&D”) expenses were $167,000 and $480,000 for the three and nine months ended March 31, 2024, respectively, representing an increase of $1,000, or 0.6%, and a decrease of $138,000, or 22.3%, respectively, compared to the same periods in the prior year. The decrease in the nine months ended March 31, 2024, were primarily due to reduced costs associated with our SmartVest Clearway platform development in the prior year which has now been launched into the Homecare and Hospital markets.

Current wording

Research and development expenses. Research and development (“R&D”) expenses decreased $40,000, or 19.4%, to $166,000 for the three months ended September 30, 2024, compared to the same period in the prior year. 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 Homecare and Hospital markets.

Previous wording

Net interest income for the three and nine months ended March 31, 2024, was $120,000 and $293,000, respectively, compared to $26,000 and $37,000, respectively, for the same periods in the prior year. These increases were due to increased savings rates on higher cash balances.

Current wording

Net interest income increased $118,000, to $195,000 for the three months ended September 30, 2024, compared to the same period in the prior year. The increase is due to increased savings rates on higher cash balances.

Previous wording

Income tax expense was estimated at $468,000 and $1,217,000, and the effective tax rate was 23.9% and 26.8%, for the three and nine months ended March 31, 2024, respectively. Estimated income tax expense for the three and nine months ended March 31, 2024, includes a discrete tax benefit of $99,000 and $95,000, respectively, primarily related to the exercise of stock options.

Current wording

Income tax expense was estimated at $659,000 for the three months ended September 30, 2024, compared to an estimated income tax expense of $64,000 for the three months ended September 30, 2023. The effective tax rates were 30.9% and 29.3% for the three months ended September 30, 2024, and 2023, respectively. The income tax expense for the three months ended September 30, 2024, included a discrete tax benefit of $4,000 primarily related to the vesting of restricted stock awards.

Previous wording

Net income for the three and nine months ended March 31, 2024, was $1,493,000 and $3,322,000, respectively, compared to $1,075,000 and $2,133,000 for the same periods in the prior year. The increases in net income were driven primarily by net revenues growth and an increase in interest income.

Current wording

Net income for the three months ended September 30, 2024, was $1,474,000 compared to $155,000 for the same period in the prior year. The increase in net income was primarily due to increased revenue and gross profit.

Previous wording

For the nine months ended March 31, 2024, net cash provided by operating activities was $4,578,000. Cash flows provided by operating activities consisted of net income of $3,322,000, non-cash expenses of $1,920,000, a decrease in prepaid expenses and other assets of $1,234,000, an increase in income tax receivable, net, of $627,000, a decrease in accounts receivable of $223,000, and a decrease in inventory of $78,000. These cash flows from operating activities were offset by a decrease in accounts payable and accrued liabilities of $1,386,000, an increase in contract assets of $155,000, and a decrease in accrued compensation of $31,000.

Current wording

For the three months ended September 30, 2024, net cash provided by operating activities was $2,309,000. Cash flows provided by operating activities consisted of net income of $1,474,000, non-cash expenses of $917,000, a decrease in accounts receivable of $967,000, a decrease in inventory of $278,000, and an increase in accounts payable and accrued liabilities of $806,000. These cash flows from operating activities were offset by a decrease in accrued compensation of $1,743,000, an increase in prepaid expenses and other assets of $266,000, a decrease in income tax payable of $89,000, and an increase in contract assets of $35,000. The decrease in accrued compensation was primarily due to the payment of previously accrued annual incentives.

Previous wording

For the nine months ended March 31, 2024, cash used in investing activities was $349,000. Cash used in investing activities consisted of $265,000 in expenditures for property and equipment and $84,000 in expenditures for intangible asset costs.

Current wording

For the three months ended September 30, 2024, cash used in investing activities was $58,000. Cash used in investing activities consisted of $37,000 of expenditures for property and equipment and $21,000 in expenditures for intangible asset costs.

Previous wording

Cash Flows provided by Financing Activities

Current wording

For the three months ended September 30, 2024, cash used by financing activities was $4,467,000, consisting of $4,536,000 used to repurchase common stock and $15,000 used to pay taxes for equity issued on a net basis. These amounts were partially offset by cash received from the issuance of common stock upon the exercise of options of $84,000.

Previous wording

Our primary working capital requirements relate to adding employees to our sales force and support functions, continuing infrastructure investments, and supporting general corporate needs, including financing equipment purchases and other capital expenditures incurred in the ordinary course of business. Based on our current operational performance, we believe our working capital of $34,996,000 and available borrowings under our existing credit facility will provide sufficient liquidity to meet our anticipated working capital and other liquidity needs for the next twelve months from the date of this report.

Current wording

Our primary working capital requirements relate to adding employees to our sales force and support functions, continuing infrastructure investments, and supporting general corporate needs, including financing equipment purchases and other capital expenditures incurred in the ordinary course of business. Based on our current operational performance, we believe our working capital of approximately $33,591,000 and available borrowings under our existing credit facility will provide sufficient liquidity to meet our anticipated working capital and other liquidity needs for the next twelve months from the date of this report.

Previous wording

Our credit facility provides us with a revolving line of credit. Interest on borrowings on the line of credit accrues at the prime rate (8.50% on March 31, 2024) less 1.00% and is payable monthly. There was no outstanding principal balance on the line of credit as of March 31, 2024, or June 30, 2023. The amount eligible for borrowing on the line of credit is limited to the lesser of $2,500,000 or 57.00% of eligible accounts receivable, and the line of credit expires on December 17, 2025, if not renewed. As of March 31, 2024, the maximum $2,500,000 was available under the line of credit. Payment obligations under the line of credit are secured by a security interest in substantially all of our tangible and intangible assets.

Current wording

We maintain a credit facility that was last amended in December 2023, which provides us with a revolving line of credit. Interest on borrowings on the line of credit accrues at the prime rate (8.0% as of September 30, 2024) less 1.0% and is payable monthly. There was no outstanding principal balance on the line of credit as of September 30, 2024, or June 30, 2024. The amount eligible for borrowing on the line of credit is limited to the lesser of $2,500,000 or 57.0% of eligible accounts receivable, and the line of credit expires on December 18, 2025, if not renewed. As of September 30, 2024, the maximum $2,500,000 was available under the line of credit. Payment obligations under the line of credit are secured by a security interest in substantially all our tangible and intangible assets.

Previous wording

For the nine months ended March 31, 2024, and 2023, we spent $265,000 and $1,221,000, respectively, on property and equipment. We currently expect to finance planned equipment purchases with cash flows from operations or borrowings under our credit facility. We may need to incur additional debt if we have an unforeseen need for additional capital equipment or if our operating performance does not generate adequate cash flows.

Current wording

For the three months ended September 30, 2024, and 2023, we spent approximately $37,000 and $109,000, respectively, on property and equipment. We currently expect to finance planned equipment purchases with cash flows from operations. We may need to incur additional debt if we have an unforeseen need for additional capital equipment or if our operating performance does not generate adequate cash flows.

Previous wording

This list of factors is not exhaustive, however, and these or other factors, many of which are outside of our control, could have a material adverse effect on us and our results of operations. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Forward-looking statements speak only as of the date on which the statements are made, and we undertake no obligation, and expressly disclaim any such obligation, to update any forward-looking statement for any reason other than as required by law, even if new information becomes available or other events occur in the future. You should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for fiscal 2023. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth herein.

Current wording

This list of factors is not exhaustive, however, and these or other factors, many of which are outside of our control, could have a material adverse effect on us and our results of operations. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Forward-looking statements speak only as of the date on which the statements are made, and we undertake no obligation, and expressly disclaim any such obligation, to update any forward-looking statement for any reason other than as required by law, even if new information becomes available or other events occur in the future. You should carefully review the disclosures, and any risk factors described in this and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for fiscal 2024. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth herein.