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Electromed, Inc. Announces Fiscal 2019 Third Quarter Financial Results

May 7, 2019 Off By BusinessWire

NEW PRAGUE, Minn.–(BUSINESS WIRE)–Electromed, Inc. (NYSE American: ELMD), a leader in innovative airway
clearance technologies, today announced financial results for the three
months ended March 31, 2019 (Q3 FY 2019).

Q3 FY 2019 Highlights

Net revenue increased 3.4% to $7.4 million from $7.2 million during
the three months ended March 31, 2018 (Q3 FY 2018).
Net revenue, gross profit and operating income in Q3 FY 2019 were
negatively impacted by a lower average selling price based on payor
mix as compared to the prior year.
Gross profit rose 1.2% to $5.6 million from $5.5 million in Q3 FY 2018.
Operating income declined to $462,000, from $578,000 in Q3 FY 2018,
reflecting a $128,000 increase in research and development (R&D)
spending to support a new product feature.
Net income equaled $350,000, or $0.04 per diluted share, compared to
$376,000, or $0.04 per diluted share, in Q3 FY 2018.
Cash flow from operating activities totaled $351,000, compared to
$342,000 in Q3 FY 2018.
In March 2019, the Company restructured its sales force to drive
enhanced productivity and annualized cost savings of approximately
$500,000.
Total field sales employees totaled 42 of which 36 were direct sales
at the end of Q3 FY 2019, compared to 52 at the end of Q2 FY 2019 of
which 44 were direct sales, and 48 at the end of Q3 FY 2018 of which
43 were direct sales.

Kathleen Skarvan, President and Chief Executive Officer of Electromed,
commented, “This quarter we achieved double-digit growth in home care
approvals and shipments, reflecting ongoing excellence in our
reimbursement operations and solid execution by our sales force across
most of our territories. Home care revenue growth was moderated by lower
average revenue per approval based on payor mix and below par sales
performance primarily in two of our five sales regions. We took action
in March 2019 to restructure these two underperforming regions by
reducing our direct sales force by seven and realigning our regions from
five to four. We believe that this action will create an optimal
foundation for strong and profitable revenue growth.”

Ms. Skarvan continued, “We announced in April the appointment of a new
Vice President of Sales, Bud Reeves, who will play a critical role in
maximizing our sales force’s effectiveness. Bud brings over two decades
of sales and marketing experience in the healthcare industry and a
proven track record of driving profitable growth and achieving targeted
metrics, specifically in emerging respiratory markets at organizations
like Philips Healthcare and Respironics. With these changes, we believe
we have the right sales leadership, the right sales team, the right
service and the right product in our SmartVest® high frequency chest
wall oscillation device to capitalize on the large and growing
Bronchiectasis market opportunity.”

Q3 FY 2019 Review

Net revenue increased 3.4% to $7.4 million, from $7.2 million in Q3 FY
2018, primarily driven by higher home care revenue. Home care revenue
rose 4.6% to $6.9 million from $6.6 million in Q3 FY 2018, primarily due
to growth in referrals as a result of a greater productivity from our
field sales staff and continued improvements in the Company’s
reimbursement operations. These improvements led to a greater percentage
of referrals getting approved as compared to the prior year. The higher
level of referrals and approvals was offset partially by a lower average
allowable due to payer mix compared to the prior year.

Gross profit increased 1.2% to $5.6 million, or 75.2% of net revenue,
from $5.5 million, or 76.9% of net revenue, in Q3 FY 2018. The increase
in gross profit resulted primarily from an increase in home care
revenue. The decrease in gross profit as a percentage of net revenue was
driven primarily by a lower average allowable due to payer mix compared
to the prior year.

Operating expenses, which include selling, general and administrative
(SG&A) as well as R&D expenses, totaled $5.1 million, or 69.0% of net
revenue, compared with $4.9 million, or 68.8% of net revenue, in the
same period of the prior year. SG&A expenses increased 1.1% to $4.9
million, primarily due to higher sales incentives driven by higher
revenue than the prior year, which was partially offset by lower
professional fees. As a percentage of revenue, SG&A expenses improved to
66.7% compared to 68.2%, reflecting ongoing cost-containment efforts.
R&D expenses increased to $171,000, from $43,000 in Q3 FY 2018, due to
work on an innovative product feature designed to improve patients’
access to treatment adherence data.

Operating income totaled $462,000, compared to $578,000 in Q3 FY 2018.

Net income before income tax expense totaled $489,000 compared to
$578,000 in Q3 FY 2018.

Net income equaled $350,000, or $0.04 per diluted share, compared to
$376,000, or $0.04 per diluted share, in Q3 FY 2018. In Q3 FY 2019,
income tax expense totaled $139,000, compared to $202,000 in the same
period of the prior year.

Year-to-Date FY 2019 Summary

For the nine months ended March 31, 2019, revenue grew 11.1% to $22.7
million, from $20.4 million in the same period of fiscal 2018, driven by
a 10.3% increase in home care revenue. Gross margins were 75.7%,
compared to 76.4% in the prior fiscal year, while net income was
approximately $882,000, or $0.10 per diluted share, compared to
approximately $877,000, or $0.10 per diluted share, in the first nine
months of fiscal 2018.

Financial Condition

The Company’s balance sheet at March 31, 2019 included cash of $7.5
million, no debt, working capital of $20.8 million, and shareholders’
equity of $24.5 million.

Conference Call

Management will host a conference call on May 8, 2019 at 8:00 am CT
(9:00 am ET) to discuss Q3 FY 2019 financial results and other matters.

Interested parties may participate in the call by dialing:

(877) 407-9753 (Domestic)
(201) 493-6739 (International)

The conference call will also be accessible via the following link: https://78449.themediaframe.com/dataconf/productusers/elctr/mediaframe/30174/indexl.html

For those who cannot listen to the live broadcast, an online webcast
replay will be available in the Investor Relations section of the
Company’s web site at: http://investors.smartvest.com/

About Electromed, Inc.

Electromed, Inc. manufactures, markets, and sells products that provide
airway clearance therapy, including the SmartVest^® Airway
Clearance System, to patients with compromised pulmonary function. The
Company is headquartered in New Prague, Minnesota and was founded in
1992. Further information about the Company can be found at www.smartvest.com.

Cautionary Statements

Certain statements in this release constitute forward-looking
statements as defined in the U.S. Private Securities Litigation Reform
Act of 1995. Forward-looking statements can generally be
identified by words such as “believe,” “estimate,” “expect,” “may,”
“plan” “potential,” “should,” “will,” and similar expressions, including
the negative of these terms, but they are not the exclusive means of
identifying such statements. Forward-looking statements cannot be
guaranteed and actual results may vary materially due to the
uncertainties and risks, known or unknown associated with such
statements. Examples of risks and uncertainties for the Company include,
but are not limited to: the competitive nature of our market; risks
associated with expansion into international markets; changes to
Medicare, Medicaid, or private insurance reimbursement policies; new
drug or pharmaceutical discoveries; changes to health care laws; changes
affecting the medical device industry; our need to maintain regulatory
compliance and to gain future regulatory approvals and clearances; our
ability to protect and expand our intellectual property portfolio; our
ability to renew our line of credit or obtain additional credit as
necessary; our ability to develop new sales channels for our product;
and general economic and business conditions, as well as other factors
described from time to time in our reports to the Securities and
Exchange Commission (including the Company’s most recent Annual Report
on Form 10-K, as amended from time to time, and subsequent reports on
Form 10-Q and Form 8-K). Investors should not consider any list of such
factors to be an exhaustive statement of all of the risks, uncertainties
or potentially inaccurate assumptions investors should take into account
when making investment decisions. Shareholders and other readers should
not place undue reliance on “forward-looking statements,” as such
statements speak only as of the date of this release.

Financial Tables Follow:


Electromed, Inc. Condensed Balance Sheets

	March 31, 2019		June 30, 2018

Assets
Current Assets
Cash	$	7,535,891	$	7,455,844
Accounts receivable (net of allowances for doubtful accounts of $45,000)		12,275,708		11,811,308
Contract assets		843,801		776,338
Inventories		2,706,756		2,486,848
Prepaid expenses and other current assets		400,760		751,541
Income tax receivable		239,989		–
Total current assets		24,002,905		23,281,879
Property and equipment, net		2,745,121		3,091,242
Finite-life intangible assets, net		602,684		649,103
Other assets		5,807		5,907
Deferred income taxes		337,000		364,000
Total assets	$	27,693,517	$	27,392,131

Liabilities and Shareholders’ Equity
Current Liabilities
Current maturities of long-term debt	$	–	$	1,101,043
Accounts payable		622,434		810,644
Accrued compensation		1,199,115		1,269,849
Income taxes payable		–		397,390
Warranty reserve		780,000		760,000
Other accrued liabilities		639,527		464,357
Total current liabilities		3,241,076		4,803,283

Commitments and Contingencies

Shareholders’ Equity
Common stock, $0.01 par value; authorized: 13,000,000 shares; 8,408,351 and 8,288,659 issued and outstanding at March 31, 2019 and June 30, 2018, respectively		84,084		82,887
Additional paid-in capital		15,933,225		14,953,103
Retained earnings		8,435,132		7,552,858
Total shareholders’ equity		24,452,441		22,588,848
Total liabilities and shareholders’ equity	$	27,693,517	$	27,392,131

Electromed, Inc. Condensed Statements of Operations

	For the Three Months Ended March 31,				For the Nine Months Ended March 31,
		2019		2018		2019		2018
Net revenues	$	7,407,779	$	7,167,064	$	22,696,149	$	20,434,430
Cost of revenues		1,833,478		1,657,506		5,516,517		4,831,538
Gross profit		5,574,301		5,509,558		17,179,632		15,602,892

Operating expenses
Selling, general and administrative		4,941,773		4,889,070		15,369,921		13,985,146
Research and development		170,757		42,665		476,785		170,123
Total operating expenses		5,112,530		4,931,735		15,846,706		14,155,269
Operating income		461,771		577,823		1,332,926		1,447,623

Interest income (expense), net		27,374		668		57,348		(8,425	)
Net income before income taxes		489,145		578,491		1,390,274		1,439,198

Income tax expense		139,000		202,000		508,000		562,000
Net income	$	350,145	$	376,491	$	882,274	$	877,198

Income per share:
Basic	$	0.04	$	0.05	$	0.11	$	0.11
Diluted	$	0.04	$	0.04	$	0.10	$	0.10


Weighted-average common shares outstanding:
Basic		8,325,346		8,210,695		8,294,568		8,203,599
Diluted		8,612,448		8,613,370		8,637,414		8,634,452

Electromed, Inc. Condensed Statements of Cash Flows

	Nine Months Ended March 31,
		2019			2018
Cash Flows From Operating Activities
Net income	$	882,274		$	877,198
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		527,472			495,797
Amortization of finite-life intangible assets		89,728			85,166
Amortization of debt issuance costs		1,958			5,373
Share-based compensation expense		729,470			604,056
Deferred taxes		27,000			(21,000	)
Loss on disposal of property and equipment		1,710			–
Changes in operating assets and liabilities:
Accounts receivable		(464,400	)		(111,573	)
Contract assets		(67,463	)		(16,209	)
Inventories		(205,524	)		363,043
Prepaid expenses and other assets		350,881			(114,391	)
Income tax receivable		(239,989	)		(91,103	)
Income tax payable		(397,390	)		(156,524	)
Accounts payable and accrued liabilities		(63,774	)		(48,059	)
Net cash provided by operating activities		1,171,953			1,871,774

Cash Flows From Investing Activities
Expenditures for property and equipment		(197,445	)		(379,328	)
Expenditures for finite-life intangible assets		(43,309	)		(27,818	)
Net cash used in investing activities		(240,754	)		(407,146	)

Cash Flows From Financing Activities
Principal payments on long-term debt including capital lease obligations		(1,103,001	)		(37,927	)
Issuance of common stock upon exercise of options		251,849			62,412
Net cash provided by (used in) financing activities		(851,152	)		24,485
Net increase in cash		80,047			1,489,113
Cash
Beginning of period		7,455,844			5,573,709
End of period	$	7,535,891		$	7,062,822