Electromed, Inc.

Greetings and welcome to ElectroMed Fiscal Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A 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, Mike Cavanaugh, Investor Relations. Thank you. You may begin.

Good afternoon and thank you for joining the ElectroMed Earnings Call. Earlier today, ElectraMed Incorporated released financial results for the second fiscal quarter of 2023. The quarter ended December 31, 2022. The release is currently available on the company's website at www.smartbest.com. Joining me on the call today is Kathleen Scarvin, President and Chief Executive Officer, and Brad Nagel, Chief Financial Officer. Before we get started, I'd like to remind everyone that 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. We 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. I'll now turn the call over to Kathleen Scarvan, President and CEO of ElectroMed.

Thank you, Mike, and thank you to everyone joining the call today. It is a pleasure for me to report strong results for the second fiscal quarter as Electromet's team's hard work resulted in record quarterly net revenue of $11.7 million, a 15% year-over-year increase from the same period in 2022. The record revenue resulted in an improved operating margin and cash flow compared to our first fiscal quarter. Revenues for the first six months of the fiscal 2023 were also a record at $22.4 million. I'm especially proud of the team's efforts despite lingering macroeconomic inflationary pressures that continue to weigh on our component and shipping costs and certain component availability. The highlight of the record quarter was a highly anticipated next-generation SmartVest Clearway airway clearance system receiving 510K clearance from the FDA in November, allowing for limited commercialization of this device to commence in December. The Clearway is smaller, easier to use, and more comfortable than any other high-frequency Cheswell oscillation systems on the market, and all these benefits are achieved without sacrificing efficacy. We are confident that an improved airway clearance therapy will gain solid traction as our singularly focused organization brings it to the growing market of bronchiectasis patients who turn increasingly to HFCWO over manual percussive therapy, antibiotics, and other legacy treatments. We have received extremely positive feedback from our patients during our limited commercialization of Clearway and estimate volume shipments beginning later in fiscal quarter three, although we expect a mix of Clearway and our previous generation, SQL, through the fiscal year. Referrals in the quarter were higher year over year as our expanded sales force continues to get results and generate a strong return on our investment in that team. The productivity of the team was $927,000 per rep in the quarter, solidly within our target range of $850,000 to $950,000 per rep. We do expect this level to fluctuate quarter to quarter as we onboard new sales personnel and they ramp their productivity. However, we also expect that productivity will continue to improve over the long term. We ended the quarter with 48 sales reps and have a fully staffed reimbursement team, which takes the administrative burden from the patients and providers and converts the incoming referrals efficiently into approvals and shipped product. Chris Holland, our Chief Commercial Officer, has done a remarkable job in expanding the sales team while also overseeing improved productivity per rep, an impressive feat as newly hired reps do take time to reach their targeted productivity. Referral volume once again benefited from the CMS waiver, which removes some bureaucratic hurdles making the prescription process easier and faster, which benefits both providers and patients. The CMS waiver tied to the public health emergency for COVID-19 was renewed again by Health and Human Services through April 11th. And recently, the Biden administration communicated that they planned to end the public health emergency for COVID-19 on May 11th, one month after the current public health emergency was previously set to expire. Without further action from the US federal government, we expect the CMS waiver will terminate May 11th for certain respiratory devices, including HFCWO. The benefit of the waiver allowed indications and documentation typically required not to be enforced. So upon termination of the public health emergency, we will revert to pre-COVID CMS requirements for HFCWO reimbursement. We understand these requirements very well, And most physicians do too, since they followed them pre-COVID-19. And most commercial insurance plans did not waive these requirements during the public health emergency. During the fiscal quarter four, we do expect our average Medicare patient referral to approval timeframe will extend. And referrals with a diagnosis not covered pre-COVID-19 pandemic, like COPD, may be canceled or need to be submitted to CMS for an appeal. We have a plan in place to minimize the impact of the waiver termination, which includes extensive physician education on the anticipated change and adding temporary reimbursement capacity. Turning to an update on our strategic growth initiatives, it is extremely gratifying to see progress across all our strategic growth initiatives, key among them being the continued expansion of the sales force and finalizing development and beginning the commercialization of the new Clearway Vest. We clearly have strong momentum in both of these areas. One of our other key strategic goals is to generate further data supporting the use of HFCWO therapy and the SmartVest as a treatment for bronchiectasis. Our prospective multi-site outcome study with bronchiectasis patients is enrolled at 37% for the intended 100 total enrollees. To increase enrollment, an additional site has been approved and will begin enrollment in fiscal quarter three. Our bronchiectasis quality of life outcome study analysis paper is near completion, and we were informed recently that our quality of life outcome study with COPD patients was accepted as an oral presentation at the May American Thoracic Society 2023 International Conference. Our studies are designed to generate data supporting SmartVest HFCWO therapy, which is intended to raise awareness with physicians and key opinion leaders who are active in the airway clearance space. Our final growth initiative is focused on our strong push in direct-to-consumer efforts, as well as marketing targeted at pulmonologists who treat bronchiectasis. These four initiatives are synergistic. and are designed to impact the full sales cycle beginning with physician and patient awareness of HFCWO therapy as a vital treatment, all the way through to approval and final order fulfillment of the device to the patient. The results are demonstrating that our approach is working. To close my prepared remarks, I'd like to address my recently announced retirement and the pending CEO transition. I have had a wonderful experience leading Electromed since 2012, overseeing a tripling of revenue and achieving consistent profitability since 2015. With recent senior key appointments made, an expanded and effective sales force in place, and our next generation product approved and being shipped, the company is well positioned for future long-term success, and I concluded that now is the time to step away. The targeted date of my retirement as CEO is for July 1st, 2023, and afterwards, I will remain a non-employee member and chair of the board of directors. And rest assured that I will work closely with the board to identify a highly qualified successor. I want to thank you for all of your support over the years. With that, I'd like to hand the call over to Brad for a review of our financials.