Electromed, Inc.

Hello and welcome to the ElectraMed fiscal first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, This event is being recorded. I would now like to turn the conference over to Mike Cavanaugh. Please go ahead.

Good afternoon, and thank you for joining the ElectroMed earnings call. Earlier today, ElectroMed Incorporated released financial results for the first fiscal quarter of 2023. The quarter ended September 30, 2022. The release is currently available on the company's website at www.smartvest.com. Joining me on the call today is Kathleen Scarvan, President and Chief Executive Officer, and Michelle Wertz, Interim Chief Financial Officer. Before we get started, I'd like to remind everyone that some of these 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 most 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 information. I will now turn the call over to Kathleen Scarvin, President and CEO of ElectroMed.

Thank you, Mike, and thank you to everyone joining the call today. Our fiscal first quarter strengthened our conviction that our strategic growth initiatives continue to bear fruit and will place us on an accelerated growth trajectory. We grew our top line year over year 7% and continue to generate operating profits through strong efforts by our team. But we are not immune to the evolving macroeconomic environment and inflationary pressures that many med tech companies are experiencing. We are focused on addressing the opportunities to mitigate these risks to continue to execute on our strategic growth initiatives. As a reminder, these key pillars to grow our market share are expand our sales force in targeted geographies with high potential to 48 direct reps. Launch our next generation SmartVest device with innovative features that will appeal to patients. expand SmartVest brand awareness through direct-to-consumer and physician marketing, and further develop and promulgate the body of bronchiectasis clinical evidence to increase physician adoption of the SmartVest system. Our approvals and revenue were negatively impacted by the lingering impacts of the COVID-19 pandemic on the supply chain. We were, though, encouraged as the team achieved multiple key operational milestones during the quarter, And we continue to generate operating profits while investing in the business to support tapping into the large under-penetrated HFCWL market. We historically experienced declines in referral and approvals in fiscal quarter one, although I would note that referrals were higher compared to the first three quarters of fiscal 2022, higher year over year, and we achieved an increase in referrals per sales rep demonstrating improved productivity. We expect overall productivity to improve during the fiscal year as newer sales reps ramp their activity. Despite the solid referral volume, a disruption with one of our electronics suppliers meant that we simply didn't have enough devices to ship. With strong efforts of our team, we were able to fulfill 97% of planned shipments in the fiscal quarter and now have a steady supply restored that we expect will minimize fiscal year revenue impact. Over the past two plus years, we've been managing the supply chain issues and specifically electronic supply effectively, but it did finally catch up to us in the case of one supplier. On the topic of our Salesforce expansion, a key pillar for growth, I'd like to provide a more detailed update. Chris Holland, our Chief Commercial Officer, has done a remarkable job overseeing the effective headcount growth and improved productivity of the sales team. Growth is always something that needs to be handled judiciously, and we have continued to find excellent candidates in a challenging hiring environment. Overall, home care revenue productivity per rep was $890,000 on an annualized basis, well within our targeted $850,000 to $950,000 range, and we expect to see that number improve as the newer reps become fully embedded in their sales territories. Our percent of tenured to new reps was 65% to 36% at the end of the quarter and provides added context on the fluctuation quarterly. We ended the quarter with 44 sales reps and expect to reach our increased goal of 48 reps in fiscal second quarter. Turning to our operating performance, I want to provide additional context on the significant uptick in operating expenses during the quarter largely due to non-recurring and annual expenses and inflationary pressures. Q1 annual expenses that won't recur in the remaining year included expenses associated with our annual sales meeting, and there were one-time legal expenses. To address the inflationary pressures, we are taking steps to mitigate the increases, which added approximately 10% to 15% to travel and entertainment expenses in the quarter. Taking all those factors into account, we expect that OpEx will be at more normalized levels through the remaining fiscal year. We are also pleased to have submitted the 510K application to the FDA for our NextGen SmartVest. We are eagerly anticipating the FDA's response and hope to receive clearance in calendar 2022. We are ready to launch the limited market release as soon as clearance communication is received. Another key pillar for growth is to generate further data supporting the positive outcomes using HFCWO therapy and the SmartVis system as treatment for bronchiectasis, which we hope will also serve to raise awareness with physicians and key opinion leaders who are active in the airway clearance space. We've completed enrollment and data analysis of our quality of life outcome study with both COPD and bronchiectasis patients, expecting to submit for publication in early 2023. Secondly, our multicenter prospective bronchiectasis outcome study to further demonstrate the clinical benefits of SmartVis system has picked up in enrollment over 35% of the expected 100 patients. We have now engaged two additional sites to improve enrollment, slowed according to physicians due to a general trend on other observational studies since the pandemic of patients' concerns with face-to-face follow-on visits. To further drive referrals and grow revenue, we continue to make a strong push in direct-to-consumer efforts, as well as marketing targeted at physicians who can potentially prescribe the SmartVest to their patients who need it. Turning to our cash position, it is important to emphasize that fiscal first quarter is historically, and again this quarter, our highest period of cash utilization. Additionally, we repurchased $145,000 worth of stock in the quarter, which we believe was a good use of cash while the stock was at favorable valuations during the quarter. With the non-recurring and annual expense business cycle now behind us in this fiscal year, it is important to note that we expect our cash balance to build throughout the year. To close my prepared remarks, I'd like to welcome Brad Nagel as our incoming Chief Financial Officer. Brad has over 15 years of strategic planning and leadership experience with Fortune 500 companies, most recently at Medtronic. He will formally take the role on November 14th, and we are so pleased to have someone with his proven strategic planning and team-building success at a pivotal time at ElectroMeds. I would also like to thank Michelle Wertz once again for stepping into the interim CFO role and capably handling this strategic role while we found a permanent replacement. With that, I'd like to hand over the call to Michelle for a review of our financials.