Electromed, Inc.

Greetings and welcome to the ElectroMed, Inc. fourth quarter fiscal 2021 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Callie Ahl of the Equity Group. Thank you, Mr. Ahl. You may begin.

Thank you, Diego, and good afternoon, everyone. Electromid's fourth quarter fiscal 2021 financial results were released today after the market closed. A copy of the earnings release can be found in the investor relations section of the company's website at www.smartvest.com. As a reminder, 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 undue reliance on these 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 us from ElectroMed this afternoon are Kathleen Scarbon, President and Chief Executive Officer, and Mike McCourt, Chief Financial Officer. Kathleen will begin with some opening remarks, after which Mike will present a summary of the company's financial results. Then we'll open the call for questions. Now it's my pleasure to turn the call over to Kathleen.

Thank you, Callie. Good afternoon, everyone, and thank you for joining us. On today's call, I will recap our key accomplishments during fiscal 2021, introduce our long-range capital allocation and strategic growth plan, and review the primary reasons we remain highly optimistic about the non-cystic fibrosis bronchiectasis market and our ability to create enhanced and sustainable value for shareholders over the long term. Our fiscal 2021 financial results for both the full year and quarter four were exceptional, with double-digit revenue growth and strong cash flows. Among the past year's successes, we maintained profitability while making investments in strategic initiatives to position ElectroMed for enhanced future growth. Increased investment in new commercial team headcount, including marketing, and clinical field support to better support our existing and new direct field sales representatives. During the past year, we further deployed funds into direct-to-consumer and digital marketing programs, which are providing us with a new stream of leads, referrals, and revenue. Increased spending in research and development to advance our next generation product. For patients, we believe this device will be easier to use, lighter, and maintain our differentiated comfort inherent in our current SQL SmartVest therapy. For ElectroMed, this device is expected to have a lower cost structure given the composition of raw materials that will be used in its manufacturing. We expect to launch the next generation product during the first half of fiscal 2023, by which point our R&D expenses should return to normalized levels in the range of 2% to 3% of sales. We also implemented a new revenue cycle management system that will improve operational efficiencies and provide enhanced business analytics. We made investments in strategic market analytics and commercial planning, which provided valuable information that has helped strengthen our growth strategies for the sales team expansion, clinical study opportunities, and identifying new market development strategies. Finally, we continue to invest in clinical studies, including a prospective multicenter bronchiectasis outcome study utilizing SmartVest that is now approximately 25% enrolled after a several-month pause during the pandemic. We are also enrolling a post-surveillance study with chronic obstructive pulmonary disease and bronchiectasis patients prescribed SmartVest utilizing quality of life questionnaires to measure outcomes prior to therapy and at two intervals following initiation of the therapy. We are planning to launch additional studies later in fiscal 2022. We are confident that these strategic investments will drive profitable revenue growth and enhance shareholder value creation. In addition to strategic investments, our new repurchase program underscores our go-forward confidence. During the quarter, we bought back approximately $1.1 million of our common stock under our new $3 million share repurchase program. Turning to our financial highlights, in the fourth quarter, we achieved year-over-year revenue growth of 37.7%, driven by 33.6% increase in home care revenue and 90.6% increase in institutional revenue, reflecting improved clinic and hospital access for our sales reps, particularly strong lead generation among existing prescribers of SmartVest and tremendous Salesforce productivity. In fact, annualized home care revenue per representative was approximately $884,000 for the full year and $906,000 for the fourth quarter. both exceeding our target range of $750,000 to $850,000. Our sales team is benefiting from improved onboarding, training, target account planning, sales leadership coaching, and accountability measures. We're making meaningful progress in executing our strategy of adding new prescribing physicians to our base while going deeper among existing prescribers. Also during the quarter, we generated approximately $765,000 in operating cash flow, while using approximately $1.1 million of cash to repurchase shares under our recently authorized share repurchase program. For the full year, we achieved year-over-year revenue growth of 10.1%, driven by 12.5% increase in home care revenue, delivered continued profitability while investing in key strategic initiatives, and generated approximately $3.1 million in operating cash flow. Our robust cash flow generation and strong year-end balance sheet included $11.9 million of cash and no debt position us well to execute on our long-range capital allocation and strategic growth plan. Key priorities for allocation of our capital include continued reinvestment in ElectroMed's market expansion, technology differentiation, sales force footprint and continued repurchase of electromed shares on an opportunistic basis regarding investment in electromed's market expansion and product differentiation our long-range strategic growth plan for fiscal 2022 and beyond encompasses the following key pillars expanding our sales force and sales territories investing in prescriber targeting tools growing our direct-to-consumer and digital marketing programs, as well as Electromed's brand awareness, driving operational excellence and system enhancements, expanding the body of clinical evidence to increase the adoption of SmartVest, and developing innovative device features that appeal to a broader range of patients. Additionally, we will continue to explore and execute initiatives to further develop the HFCWO market so that more physicians treat bronchiectasis with our proven therapy. Related to Salesforce and territory expansion, we are targeting 43 total direct sales reps by early October, up from 37 as of June 30, 2021. Indeed, we added three new direct sales representatives, three of the four expansion territories, and one new regional manager in July 2021. Given the success of our improved recruiting profile, revamped onboarding and training procedures, strong Salesforce productivity, and lower turnover, we are confident that expanding our Salesforce will drive value. Our planned sales team expansion will incorporate metrics to measure and manage new sales reps to maximize our return on investment. These include annualized home care revenue, contribution margin, and number of competitive account wins. Typically, it takes the new sales representative six months to reach full productivity in established territories and nine to 18 months in expansion territories. Therefore, a blended target productivity range of $750,000 to $850,000 of home care revenue per sales rep continues to be, in our view, appropriate in the near term. as we grow the team to account for the time to ramp up to full productivity during onboarding. We will provide additional information on future sales team expansions with successful execution of these expansion territories. We are investing in targeting tools to identify geographical areas where high percentages of physicians are diagnosing bronchiectasis and or prescribing HFCWO devices. Based on that initial analysis, we have identified attractive opportunities to expand into new territories in our western, northeastern, and southeastern regions. We have 43 existing territories and are evaluating expanding into additional new territories again later in fiscal 2022. We are closely monitoring sales force productivity and increase headcount accordingly as we expand to ensure profitable growth. By raising awareness of bronchiectasis, educating prospective patients and caregivers, and referring them to pulmonologists with a focus on bronchiectasis care, we intend to continue driving meaningful home care revenue growth through direct-to-consumer marketing. We believe direct-to-consumer marketing will provide an efficient and effective approach to reach more patients that could benefit from HFCWO technology. In the category of driving operational excellence and making system enhancements, We are planning for an ERP software implementation in fiscal 2022 designed to create more efficient and scalable operational processes while enhancing the quality of business analytics. We also intend to institute a premier customer service and internal account management model that is scalable and that provides an exceptional experience to patients, providers, and internal customers. Through this model, we believe we can improve the time to convert an approval to an approved referral. We believe our organic growth strategy focused on unpenetrated bronchiectasis market, our differentiated therapy SmartVest and world-class service will support our long-term goal of double-digit revenue growth and improved operating margins. In addition to prioritizing the allocation of capital to our organic growth initiatives, we intend to periodically evaluate and opportunistically pursue share repurchase on an ongoing basis. On this note, in the fourth quarter of fiscal 2021, we established the new $3 million share repurchase program under which we repurchased approximately 1.1 million of common stock, demonstrating our confidence in ElectroMed's meaningful upside potential and our ability to capture the significant growing non-cystic fibrosis bronchiectasis market opportunity. We believe approximately 630,000 people with bronchiectasis diagnosis could benefit from HFCWO therapy. Yet only an estimated 77,000 patients in the Medicare population are currently being treated with a device like SmartVest. When it comes to customer support, clinician support, we believe ElectroMed is second to none. We have a multi-year track record of double-digit organic revenue growth, high gross margins in the 70% range, robust operating cash flow, consistent profitability, and a strong balance sheet, all testament to our talented team, our leading product, and the attractive HFCWO franchise we have built. Against this backdrop, we look forward to capitalizing on the significant opportunities provided by this growing market and generating enhanced long-term value to our shareholders. I applaud the entire ElectroMed team for demonstrating resilience in the face of many challenges caused by the COVID-19 pandemic. In response to dampened face-to-face interaction industry-wide among clinicians and patients, we accelerated our virtual sales efforts and generated awareness of the Centers for Medicare and Medicaid system waiver that improves patient access for SmartVest airway clearance devices to our non-commercial Medicare population by waiving certain requirements that burden the patient and physician with additional face-to-face visits and healthcare utilization. As the year has progressed and nationwide deployment of vaccines rolled out, we have observed an upward trend in physician office reopenings and greater clinician activity. Our team has executed a hybrid virtual and in-person sales approach to great success. As you can see the results, our home care referrals in both fiscal quarter four and fiscal 2021 exceeded pre-pandemic levels. Above all, throughout our efforts this year, we upheld measures to protect health, safety, and well-being of our teammates, clinicians, and patients, and we are incredibly proud of our team's work. With that, I will turn it over to Mike for a more detailed discussion of our financial results.