Electromed, Inc.

Previous wording

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

Current wording

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

Previous wording

Homecare revenue*.*Homecare revenue increased by $2,058,000, or 18.5%, for the three months ended September 30, 2024, compared to the same period in fiscal 2024. The increase in revenue was due to an increase in referrals driven by an increase in direct sales representatives, higher net revenues per approval, and efficiencies within our reimbursement department.

Current wording

***Homecare revenue.***Homecare revenue increased by $1,925,000 or 15.2%, for the three months ended December 31, 2024, compared to the same period in the prior year. For the six months ended December 31, 2024, homecare revenue was $27,804,000, representing an increase of $3,983,000, or 16.7%, compared to the same period in the prior year. The increases were primarily due to increases in referrals and approvals, driven by an increase in direct sales representatives, higher net revenues per approval, and efficiencies within our reimbursement department.

Previous wording

***Hospital revenue.***Hospital revenue increased by $183,000, or 36.1%, for the three months ended September 30, 2024, compared to the same period in fiscal 2024. This increase was primarily due to an increase in capital and disposable demand.

Current wording

***Hospital revenue.***Hospital revenue was $723,000, an increase of $104,000, or 16.8%, for the three months ended December 31, 2024, compared to the same period in the prior year. For the six months ended December 31, 2024, hospital revenue was $1,413,000, an increase of $287,000, or 25.5%, compared to the same period in the prior year. The increases were primarily due to increased capital and disposable demand.

Previous 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.

Current wording

Homecare distributor revenue*.*Homecare distributor revenue increased by $527,000, or 188.2%, for the three months ended December 31, 2024, compared to the same period in the prior year. For the six months ended December 31, 2024, homecare distributor revenue was $1,394,000, an increase of $541,000, or 63.4%, compared to the same period in the prior year. The increases 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 and increased demand from our distribution partners.

Previous 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.

Current wording

Other revenue*.*Other revenue was $132,000, an increase of $10,000, or 8.2%, for the three months ended December 31, 2024, compared to the same period in the prior year. For the six months ended December 31, 2024, other revenue was $312,000, an increase of $99,000, or 46.5%, 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 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.

Previous wording

Though we have not identified a material impact to our net revenues for the three months ended September 30, 2024, we continue to monitor the potential impact of natural disasters such as hurricanes, which may have an impact on providers and their patients getting access to our product.

Current wording

We continue to monitor the potential impact of natural disasters such as hurricanes and wildfires, which may have an impact on providers and their patients getting access to our product. However, we have not identified a material impact to our net revenues caused by such events for the three or six months ended December 31, 2024.

Previous wording

Gross profit increased to $11,491,000, or 78.3% of net revenues, for the three months ended September 30, 2024, from $9,498,000, or 77.1% of net revenues, in the same period in fiscal 2024. The increase in gross profit dollars for the three months ended September 30, 2024, was primarily due to increased revenue volume and a higher average net revenue per device. The gross margin rate increased year over year driven by a higher average net revenue per device.

Current wording

Gross profit increased to $12,627,000, or 77.7% of net revenues, for the three months ended December 31, 2024, from $10,545,000, or 77.0% of net revenues, in the same period in the prior year. Gross profit increased to $24,118,000, or 78.0% of net revenues, for the six months ended December 31, 2024, from $20,043,000, or 77.1% of net revenues, in the same period in the prior year. The increases in gross profit dollars and percentage were primarily a result of an increased revenue volume and higher net revenue per device.

Previous 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.

Current wording

*Selling, general and administrative expenses.*Selling, general and administrative (“SG&A”) expenses were $9,834,000 and $19,221,000 for the three and six months ended December 31, 2024, respectively, representing increases of $1,659,000 and $1,896,000, or 20.3% and 10.9%, respectively, compared to the same periods in the prior year.

Previous 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.

Current wording

Payroll and compensation-related expenses were $6,875,000 and $13,332,000 for the three and six months ended December 31, 2024, respectively, representing increases of $1,250,000 and $1,942,000, or 22.2% and 17.1%, respectively, compared to the same periods in the prior year. The increases in the current year periods were primarily due to the accelerated recognition of share-based compensation associated with the vesting of performance-based equity awards, and 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 December 31, 2024, 54 of which were direct sales representatives, compared to 58 field sales employees and 49 direct sales representatives as of December 31, 2023.

Previous 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.

Current wording

Travel, meals and entertainment expenses were $993,000 and $1,957,000 for the three and six months ended December 31, 2024, respectively, representing increases of $248,000 and $264,000, or 33.3% and 15.6%, respectively, compared to the same periods 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

Total discretionary marketing expenses decreased $263,000, or 49.9%, to $264,000 for the three months ended September 30, 2024, compared to the same period in the prior year. The decrease was primarily due a one-time investment in market research in the prior year that did not recur in the three months ended September 30, 2024.

Current wording

Total discretionary marketing expenses were $355,000 and $619,000 for the three and six months ended December 31, 2024, respectively, representing an increase of $103,000 and a decrease of $172,000, or an increase of 40.9% and a decrease of 21.7%, respectively, compared to the same periods in the prior year. The increase in the three-month period was due to increased investment in our direct-to-consumer advertising, while the decrease in the six-month period was primarily due to a one-time investment in market research in the prior year that did not recur in the six months ended December 31, 2024.

Previous 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.

Current wording

Professional fees were $1,179,000 and $2,319,000 for the three and six months ended December 31, 2024, respectively, representing increases of $245,000 and $75,000, or 26.2% and 3.3%, 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 increase for the three and six months ended December 31, 2024, was primarily related to legal fees associated with intangible assets and increased expense recognition associated with the board of directors’ equity compensation.

Previous wording

Operating income increased by $1,796,000, to $1,938,000 for the three months ended September 30, 2024, compared to the same period in the prior year. The increase is primarily due to an increase in revenue and gross profit and growth in selling, general and administrative expense growth tracking below revenue growth.

Current wording

Operating income increased by $279,000 or 12.3% to $2,542,000 for the three months ended December 31, 2024, compared to the same period in the prior year. Operating income increased by $2,075,000 or 86.3% to $4,480,000 for the six months ended December 31, 2024, compared to the same period in the prior year. The increase is primarily due to an increase in revenue and gross profit in both the three- and six-month periods, as well as a lower growth rate in selling, general and administrative expenses in the six-month period.

Previous 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.

Current wording

Net interest income for the three and six months ended December 31, 2024, was $152,000 and $347,000, respectively, compared to $96,000 and $173,000, respectively, for the same periods in the prior year. The increase is primarily due to increased savings rates on higher cash balances.

Previous 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.

Current wording

Income tax expenses were estimated at $726,000 and $1,385,000, and the effective tax rate was 26.9% and 28.7%, for the three and six months ended December 31, 2024, respectively. Estimated income tax expense for the three and six months ended December 31, 2024, includes a discrete tax benefit of $135,000 and $139,000, respectively, related to the exercise of stock options and the vesting of restricted stock awards.

Previous 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.

Current wording

Net income for the three and six months ended December 31, 2024, was $1,968,000 and $3,442,000, respectively, compared to $1,674,000 and $1,829,000 for the same periods in the prior year. The increase in net income was primarily due to increased revenue and gross profit.

Previous 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.

Current wording

For the six months ended December 31, 2024, net cash provided by operating activities was $5,460,000. Cash flows provided by operating activities consisted of net income of $3,442,000, non-cash expenses of $2,144,000, a decrease in accounts receivable of $558,000, a decrease in inventories of $500,000 and an increase in accounts payable and accrued expenses of $434,000. These cash flows from operating activities were offset by an increase in income taxes receivable, net of $791,000, an increase in prepaid expenses and other assets of $279,000, an increase in contract assets of $278,000, and a decrease in accrued compensation of $270,000.

Previous 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.

Current wording

For the six months ended December 31, 2024, cash used for investing activities was $295,000. Cash used for investing activities consisted of $270,000 in expenditures for property and equipment and $25,000 in expenditures for intangible asset costs.

Previous 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.

Current wording

For the six months ended December 31, 2024, cash used for financing activities was $5,010,000. Cash used for financing activities consisted of $4,536,000 used for our share repurchase program and $820,000 for taxes paid on net share settlement of stock awards, partially offset by $346,000 from the issuance of common stock upon exercise of options.

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 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.

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 $35,522,000 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

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.

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 (7.5% as of December 31, 2024) less 1.0% and is payable monthly. There was no outstanding principal balance on the line of credit as of December 31, 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 December 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 our tangible and intangible assets.

Previous 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.

Current wording

For the six months ended December 31, 2024, and 2023, we spent approximately $270,000 and $180,000, 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.

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 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.

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 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 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.