Electromed, Inc.

Previous wording

Our products are sold in both the homecare market and the hospital market for inpatient use, which we refer to as “hospital sales.” Since 2000, we have marketed the SmartVest System and its predecessor products to patients suffering from bronchiectasis, cystic fibrosis, and other chronic pulmonary conditions which require external chest manipulation to enhance mucus transport. Additionally, we offer our products to a patient population that includes neuromuscular disorders such as cerebral palsy, muscular dystrophies, amyotrophic lateral sclerosis (“ALS”), patients with post-surgical complications or who are ventilator dependent and patients who have other conditions involving excess secretion and impaired mucus transport.

Current wording

Our products are sold in both the homecare market and the hospital market for inpatient use, which we refer to as “hospital sales.” Since 2000, we have marketed the SmartVest System and its predecessor products to patients suffering from bronchiectasis, cystic fibrosis, and other chronic pulmonary conditions that require external chest manipulation to enhance mucus transport. Additionally, we offer our products to a patient population that includes neuromuscular disorders such as cerebral palsy, muscular dystrophies, amyotrophic lateral sclerosis (“ALS”), patients with post-surgical complications or who are ventilator dependent and patients who have other conditions involving excess secretion and impaired mucus transport.

Previous wording

There were no material changes in our critical accounting estimates and assumptions since the filing of our Annual Report on Form 10-K for fiscal 2025.

Current wording

There have been no material changes to our critical accounting estimates and assumptions since the filing of our Annual Report on Form 10-K for fiscal 2025.

Previous wording

Net revenues for the three and six months ended December 31, 2025, and 2024 are summarized in the table below.

Current wording

Net revenues for the three and nine months ended March 31, 2026, and 2025 are summarized in the table below.

Previous wording

***Homecare revenue.***Homecare revenue increased by $2,681,000, or 18.4%, for the three months ended December 31, 2025, compared to the same period in the prior year. For the six months ended December 31, 2025, homecare revenue increased by $4,359,000, or 15.7%, compared to the same period in the prior year. The increases were primarily due to an increase in direct sales representatives and higher net revenues per sales representative. For the three months ended December 31, 2025, we averaged 58 homecare field sales representatives.

Current wording

***Homecare revenue.***Homecare revenue increased by $2,630,000, or 18.6%, for the three months ended March 31, 2026, compared to the same period in the prior year. Approximately $1,959,000 of the increase in revenue was due to higher volume, which was driven by additional sales representatives and increased sales representative productivity, and approximately $671,000 was due to higher net revenues per approval. For the nine months ended March 31, 2026, homecare revenue increased by $6,989,000, or 16.7%, compared to the same period in the prior year. Approximately $5,699,000 of the increase in revenue was due to higher volume, which was driven by additional sales representatives and increased sales representative productivity, and approximately $1,290,000 was due to higher net revenues per approval. For the three months ended March 31, 2026, we averaged 57 homecare field sales representatives.

Previous wording

***Hospital revenue.***Hospital revenue was $655,000, a decrease of $68,000, or 9.4%, for the three months ended December 31, 2025, compared to the same period in the prior year. For the six months ended December 31, 2025, hospital revenue was $1,702,000, an increase of $289,000, or 20.5%, compared to the same period in the prior year. The decrease in the three months ended December 31, 2025, was due to fewer capital equipment orders as hospital capital revenue is a long-cycle sale and revenue from quarter to quarter can vary depending on capital budget allocations at the hospital. The growth in the six months ended December 31, 2025, primarily reflects an increase in sales representatives focused on the hospital market and higher capital and disposal demand.

Current wording

***Hospital revenue.***Hospital revenue was $1,032,000, an increase of $308,000, or 42.5%, for the three months ended March 31, 2026, compared to the same period in the prior year. For the nine months ended March 31, 2026, hospital revenue was $2,734,000, an increase of $597,000, or 27.9%, compared to the same period in the prior year. The growth in the three and nine months ended March 31, 2026, primarily reflects an increase in sales representatives focused on the hospital market and higher capital and disposal demand.

Previous wording

Homecare distributor revenue.* *Homecare distributor revenue increased by $98,000, or 12.1%, for the three months ended December 31, 2025, compared to the same period in the prior year. For the six months ended December 31, 2025, homecare distributor revenue increased by $340,000, or 24.4%, compared to the same period in the prior year. The increases in homecare distributor sales were primarily a result of increased orders from distribution partners.

Current wording

Homecare distributor revenue.* *Homecare distributor revenue increased by $19,000, or 2.7%, for the three months ended March 31, 2026, compared to the same period in the prior year. For the nine months ended March 31, 2026, homecare distributor revenue increased by $359,000, or 17.2%, compared to the same period in the prior year. The increases in homecare distributor sales were primarily a result of increased orders from our distribution partners.

Previous wording

Other revenue.* *Other revenue was $63,000, a decrease of $69,000, or 52.3% for the three months ended December 31, 2025, compared to the same period in the prior year. For the six months ended December 31, 2025, other revenue was $185,000, a decrease of $127,000, or 40.7%, compared to the same period in the prior year. Thedecreasesin other revenue were primarily due to the lower demand for purchases by international distributors and other customers that do not fall within the markets described above.

Current wording

Other revenue.* *Other revenue was $96,000, a decrease of $66,000, or 40.7%, for the three months ended March 31, 2026, compared to the same period in the prior year. For the nine months ended March 31, 2026, other revenue was $281,000, a decrease of $193,000, or 40.7%, compared to the same period in the prior year. Thedecreasesin other revenue were primarily due to the lower demand for purchases by international distributors and other customers that do not fall within the markets described above.

Previous wording

Gross profit dollars increased to $14,819,000, or 78.4% of net revenues, for the three months ended December 31, 2025, from $12,627,000, or 77.7% of net revenues, in the same period in the prior year. Gross profit dollars increased to $28,016,000, or 78.3% of net revenues, for the six months ended December 31, 2025, from $24,118,000, or 78.0% of net revenues, in the same period in the prior year. The increases in gross profit were primarily a result of increased overall revenue and higher net revenues per device.

Current wording

Gross profit dollars increased to $14,643,000, or 78.8% of net revenues, for the three months ended March 31, 2026, from $12,229,000, or 78.0% of net revenues, in the same period in the prior year. Gross profit dollars increased to $42,659,000, or 78.5% of net revenues, for the nine months ended March 31, 2026, from $36,347,000, or 78.0% of net revenues, in the same period in the prior year. The increases in gross profit were primarily a result of increased overall revenue and higher net revenues per device.

Previous wording

*Selling, general and administrative expenses.*Selling, general and administrative (“SG&A”) expenses were $10,815,000 and $21,101,000 for the three and six months ended December 31, 2025, respectively, representing an increase of $981,000 and $1,880,000, or 10.0% and 9.8%, 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 $10,516,000 and $31,617,000 for the three and nine months ended March 31, 2026, respectively, representing an increase of $704,000 and $2,584,000, or 7.2% and 8.9%, respectively, compared to the same periods in the prior year.

Previous wording

Payroll and compensation-related expenses were $7,496,000 and $14,372,000 for the three and six months ended December 31, 2025, respectively, representing an increase of $621,000 and $1,040,000, or 9.0% and 7.8%, respectively, compared to the same periods in the prior year. The increases in the current-year periods were primarily due to the increase in salaries and incentive compensation related to the higher average number of sales representatives and higher overall compensation costs. 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.

Current wording

Payroll and compensation-related expenses were $6,955,000 and $21,326,000 for the three and nine months ended March 31, 2026, respectively, representing an increase of $363,000 and $1,402,000, or 5.5% and 7.0%, respectively, compared to the same periods in the prior year. The increases in the current-year periods were primarily due to the increase in salaries and incentive compensation related to the higher average number of sales representatives and higher overall compensation costs. 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.

Previous wording

Travel, meals and entertainment expenses were $1,013,000 and $2,287,000 for the three and six months ended December 31, 2025, respectively, representing an increase of $20,000 and $330,000, or 2.0% and 16.9%, respectively, compared to the same periods in the prior year. The increases in the current year were primarily due to a higher average number of direct sales representatives, training, and increased travel to support sales activity as well as market development.

Current wording

Travel, meals and entertainment expenses were $1,070,000 and $3,357,000 for the three and nine months ended March 31, 2026, respectively, representing an increase of $148,000 and $477,000, or 16.1% and 16.6%, respectively, compared to the same periods in the prior year. The increases in the current year were primarily due to a higher average number of direct sales representatives, training, and increased travel to support sales activity as well as market development.

Previous wording

Total discretionary marketing expenses were $443,000 and $853,000 for the three and six months ended December 31, 2025, respectively, representing an increase of $88,000 and $234,000, or 24.8% and 37.8%, respectively, compared to the same period in the prior year. The increases in the current year were due to increased investment in our direct-to-consumer advertising and other market development initiatives in the six months ended December 31, 2025.

Current wording

Total discretionary marketing expenses were $293,000 and $1,146,000 for the three and nine months ended March 31, 2026, respectively, representing a decrease of $32,000 and an increase of $203,000, or a decrease of 9.8% and an increase of 21.5%, respectively, compared to the same period in the prior year. The decrease in the three months ended March 31, 2026, was due to timing of routine marketing spend. The increase in the nine months ended March 31, 2026, was due to increased investment in our direct-to-consumer advertising and other market development initiatives.

Previous wording

Professional fees were $1,166,000 and $2,256,000 for the three and six months ended December 31, 2025, respectively, representing a decrease of $13,000 and $63,000, or 1.1% and 2.7%, 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, insurance and consulting fees. The decrease in the sixth months ended December 31, 2025, was primarily due to external recruiting spend in the prior year that did not recur in the six months ended December 31, 2025.

Current wording

Professional fees were $1,452,000 and $3,708,000 for the three and nine months ended March 31, 2026, respectively, representing an increase of $167,000 and $104,000, or 13.0% and 2.9%, 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, insurance and consulting fees. The increases in the current periods were primarily due to increased legal and insurance costs.

Previous wording

Research and development expenses. Research and development (“R&D”) expenses were $384,000 and $625,000 for the three and six months ended December 31, 2025, respectively, representing an increase of $133,000 and $208,000, or 53.0% and 49.9%, respectively, compared to the same periods in the prior year. The increases were primarily due to increased average headcount and consulting expenses related to product enhancements and sustaining engineering.

Current wording

Research and development expenses. Research and development (“R&D”) expenses were $361,000 and $986,000 for the three and nine months ended March 31, 2026, respectively, representing an increase of $84,000 and $292,000, or 30.3% and 42.1%, respectively, compared to the same periods in the prior year. The increases were primarily due to increased average headcount and consulting expenses related to product enhancements and sustaining engineering.

Previous wording

Operating income increased by $1,078,000 or 42.4% to $3,620,000, or 19.2% of net revenues, for the three months ended December 31, 2025, compared to the same period in the prior year. Operating income increased by $1,810,000 or 40.4% to $6,290,000 for the six months ended December 31, 2025, compared to the same period in the prior year. The increases were primarily due to an increase in revenue and gross profit.

Current wording

Operating income increased by $1,626,000 or 76.0% to $3,766,000, or 20.3% of net revenues, for the three months ended March 31, 2026, compared to the same period in the prior year. Operating income increased by $3,436,000 or 51.9% to $10,056,000, or 18.5% of net revenues, for the nine months ended March 31, 2026, compared to the same period in the prior year. The increases were primarily due to an increase in revenue and gross profit.

Previous wording

Net interest income for the three and six months ended December 31, 2025, was $109,000 and $243,000, respectively, compared to $152,000 and $347,000, respectively, for the same period in the prior year. The decreases were primarily due to decreased interest rates and lower cash balances.

Current wording

Net interest income for the three and nine months ended March 31, 2026, was $100,000 and $343,000, respectively, compared to $142,000 and $489,000, respectively, for the same period in the prior year. The decreases were primarily due to decreased interest rates and lower average cash balances throughout the period.

Previous wording

Income tax expense was estimated at $968,000 and 1,636,000, and the effective tax rate was 26.0% and 25.1%, for the three and six months ended December 31, 2025, respectively. Estimated income tax expense for the three and six months ended December 31, 2025, includes a discrete current tax benefit of $22,000 and $103,000, respectively, primarily related to the windfall tax benefit of vested restricted stock and the exercise of stock options.

Current wording

Income tax expense was estimated at $863,000 and $2,499,000, and the effective tax rate was 22.3% and 24.0%, for the three and nine months ended March 31, 2026, respectively. Estimated income tax expense for the three and nine months ended March 31, 2026, includes a discrete current tax benefit of $94,000 and $197,000, respectively, primarily related to the windfall tax benefit of vested stock awards, the exercise of stock options, and the true up for the prior year Federal R&D credit.

Previous wording

Income tax expense was 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 current tax benefit of $135,000 and $139,000, respectively, primarily related to the exercise of stock options and the vesting of restricted stock awards.

Current wording

Income tax expense was estimated at $391,000 and $1,776,000, and the effective tax rate was 17.1% and 25.0%, for the three and nine months ended March 31, 2025, respectively. Estimated income tax expense for the three and nine months ended March 31, 2025, includes a discrete current tax benefit of $338,000 and $478,000, respectively, primarily related to the exercise of stock options.

Previous wording

Net income for the three and six months ended December 31, 2025, was $2,761,000 and $4,897,000, representing an increase of 40.3% and 42.3%, respectively, compared to $1,968,000 and $3,442,000 for the same periods in the prior year. The increases in net income were primarily due to increased revenue and gross profit.

Current wording

Net income for the three and nine months ended March 31, 2026, was $3,003,000 and $7,900,000, representing an increase of 58.8% and 48.1%, respectively, compared to $1,891,000 and $5,333,000 for the same periods in the prior year. The increases in net income were primarily due to increased revenue and gross profit.

Previous wording

For the six months ended December 31, 2025, net cash provided by operating activities was $3,195,000. Cash flows provided by operating activities consisted of net income of $4,897,000, non-cash expenses of $1,631,000, and an increase in income tax payable, net of $790,000. These cash flows from operating activities were offset by an increase in accounts receivable of $1,600,000, a decrease in accrued compensation of $1,368,000, an increase in prepaid expenses and other assets of $691,000, an increase in inventories of $260,000, an increase in contract assets of $116,000, and a decrease in accounts payable and accrued expenses of $88,000.

Current wording

For the nine months ended March 31, 2026, net cash provided by operating activities was $6,671,000. Cash flows provided by operating activities consisted of net income of $7,900,000, non-cash expenses of $2,764,000, a decrease in income tax receivable, net of $393,000, and an increase in accounts payable and accrued expenses of $291,000. These cash flows from operating activities were offset by an increase in accounts receivable of $3,591,000, a decrease in accrued compensation of $549,000, an increase in prepaid expenses and other assets of $364,000, an increase in inventories of $123,000, and an increase in contract assets of $50,000.

Previous wording

For the six months ended December 31, 2025, cash used for investing activities was $923,000. Cash used for investing activities consisted of $886,000 in expenditures for property and equipment and $37,000 in expenditures for intangible assets.

Current wording

For the nine months ended March 31, 2026, cash used for investing activities was $1,077,000. Cash used for investing activities consisted of $1,033,000 in expenditures for property and equipment and $44,000 in expenditures for intangible assets.

Previous wording

For the six months ended December 31, 2025, cash used for financing activities was $3,768,000. Cash used for financing activities consisted of $3,766,000 used for our share repurchase program and $234,000 for taxes paid on net share settlement of stock awards, partially offset by $232,000 from the issuance of common stock upon exercise of options.

Current wording

For the nine months ended March 31, 2026, cash used for financing activities was $3,896,000. Cash used for financing activities consisted of $3,918,000 used for our share repurchase program and $246,000 for taxes paid on net share settlement of stock awards, partially offset by $268,000 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 $36,192,000 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 $40,002,000 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 entered into in December 2025, which provides us with a revolving line of credit. The credit agreement provides the Company with a senior security credit facility with a $10,000,000 revolving line of credit. Any borrowings under the credit facility will bear interest at one-month Term SOFR (3.87% on December 31, 2025), plus 1.75%, payable monthly. The credit agreement provides that the credit facility will mature on December 16, 2026, if not renewed before such date. There was no outstanding principal balance on the line of credit as of December 31, 2025. The Company provided a first priority security interest in substantially all of its existing and future assets to secure the payment obligations under the credit agreement.

Current wording

We maintain a credit facility that was entered into in December 2025, which provides us with a revolving line of credit. The credit agreement provides the Company with a senior security credit facility with a $10,000,000 revolving line of credit. Any borrowings under the credit facility will bear interest at the applicable one-month Term SOFR (3.67% on March 31, 2026), plus 1.75%, payable monthly. The credit agreement provides that the credit facility will mature on December 16, 2026, if not renewed before such date. There was no outstanding principal balance on the line of credit as of March 31, 2026. The Company provided a first priority security interest in substantially all of its existing and future assets to secure the payment obligations under the credit agreement.

Previous wording

For the six months ended December 31, 2025, and 2024, we spent approximately $886,000 and $270,000, 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 flow.

Current wording

For the nine months ended March 31, 2026, and 2025, we spent approximately $1,033,000 and $117,000, 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 flow.

Previous wording

While the impact of macroeconomic factors such as inflation are difficult to predict, we believe our cash, cash equivalents and cash flows from operations will be sufficient to meet our working capital, capital expenditure, operational cash requirements for fiscal 2026 and the foreseeable future. We will continue to evaluate our projected expenditures relative to our available cash and evaluate financing alternatives to satisfy our working capital and other cash requirements.

Current wording

While the impact of macroeconomic factors such as inflation are difficult to predict, we believe our cash, cash equivalents and cash flows from operations will be sufficient to meet our working capital, capital expenditure, and operational cash requirements for fiscal 2026 and the foreseeable future. We will continue to evaluate our projected expenditures relative to our available cash and evaluate financing alternatives to satisfy our working capital and other cash requirements.

Previous wording

Statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, but are not limited to, statements regarding: our business strategy, including our intended level of investment in research and development and marketing activities; our expectations with respect to earnings, gross margins and sales growth, industry relationships, marketing strategies and international sales; estimated sizes of markets into which our products are or may be sold; our business strengths and competitive advantages; our ability to grow additional sales distribution channels; our intent to retain any earnings for use in operations rather than paying dividends; our expectation that our products will continue to qualify for reimbursement and payment under government and private insurance programs; our intellectual property plans and practices; the expected impact of applicable regulations on our business; our beliefs about our manufacturing processes; our expectations and beliefs with respect to our employees and our relationships with them; our belief that our current facilities are adequate to support our growth plans; our expectations with respect to ongoing compliance with the terms of our credit facility; our expectations regarding the ongoing availability of credit and our ability to renew our line of credit; enhancements to our products and services; expected excise tax exemption for the SmartVest System; and our anticipated revenues, expenses, capital requirements and liquidity. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “ongoing,” “plan,” “potential,” “project,” “target,” “should,” “will,” “would,” and similar expressions, including the negative of these terms, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Although we believe these forward-looking statements are reasonable, they involve risks and uncertainties that may cause actual results to differ materially from those projected by such statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or our industry’s actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by the forward-looking statements.

Current wording

Statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, but are not limited to, statements regarding: our business strategy, our expectations with respect to ongoing compliance with the terms of our credit facility and the ongoing availability of credit; anticipated tax benefits; and our anticipated revenues, expenses, capital requirements and liquidity. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “ongoing,” “plan,” “project,” “should,” “will,” “would,” and similar expressions, including the negative of these terms, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Although we believe these forward-looking statements are reasonable, they involve risks and uncertainties that may cause actual results to differ materially from those projected by such statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or our industry’s actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by the forward-looking statements.