Electromed, Inc.

Greetings and welcome to the ElectroMed second quarter fiscal 2024 earnings 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, Mike Cavanaugh, Investor Relations. Thank you. You may begin.

Good afternoon, and thank you for joining the ElectroMed earnings call. Earlier today, ElectroMed Incorporated released financial results for the second fiscal quarter of 2024. The quarter ended December 31st, 2023. The release is currently available on the company's website at www.smartbest.com. Before we get started, I would 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. You should not place any undue reliance on those 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. With that, I will now turn the call over to Jim Kniff, President and Chief Executive Officer of Electromed.

Thanks, Mike, and thank you to everyone joining today's call. I'm thrilled to announce another record revenue quarter for ElectraMed. Total net revenue for the second quarter of fiscal year 2024 came in at $13.7 million, representing 17% year-over-year growth from the same period in fiscal year 2023. This is the fifth straight quarter of mid-teens or better revenue growth and resulted in record quarterly earnings of $1.7 million, or 19 cents per share. Similarly, I'm proud to highlight operating income for the quarter was a record 2.3 million, a growth of 78% over the same period in the prior fiscal year. As with the first quarter, we saw growth across all three of our revenue categories, home care, hospital, and international, which further reinforces the strategic growth investments we have made are yielding considerable results. I'll hand the call over to Brad to discuss the quarter's financials in more detail shortly, but first I wanted to take some time to reflect on what I've learned and observed since joining the company in July as CEO, provide a market update, and expand on what our objectives will look like moving forward. First, the company's consistent growth strategies focusing on developing best-in-class products, exemplary customer service, disciplined commercial expansion, and operational excellence are generating positive results. We see these investments paying off through continued revenue growth and increased profitability. Going forward, we remain committed to growing our top line, but we are also focused on capturing the operating leverage our growth investments were designed to produce. Additionally, since joining the company, I've spent a lot of time meeting with and gathering feedback from both current and potential investors. From these discussions, a few themes have emerged. First, we are a micro-cap standout in that we are growing yet profitable, generating cash and have no debt. This makes us unique in the small med tech space, and our strong financial position will enable us to continue to invest in our commercial teams and market development initiatives. Second, in a high interest rate environment, cash is king, and the investors like that our business is generating cash from operations. And third, investors like that my incentive reward is based on increasing total shareholder return and management's incentive compensation is focused solely on delivering financial results, which aligns us to our investors' goals. Lastly, with over $10 million of cash currently on our balance sheet and our belief that Electromed shares are undervalued, there has been a lot of questions about how we are thinking about deploying our surplus capital. We will continue to assess every opportunity that would be beneficial to Electromed and our shareholders, and all options are being thoughtfully reviewed and and taken under consideration. Next, since joining the company, we have seen a critical need for further market development. A recent market study confirmed that there are roughly 824,000 patients in the U.S. that have been diagnosed with bronchiectasis. Of that total, roughly 230,000 are managed by a pulmonologist, and the remaining patients are being managed by a primary care physician. If all these 230,000 patients were prescribed HFCWO at an estimated average sale price of $10,000 per patient, it equates to a $2.3 billion revenue opportunity. However, only a fraction of these patients are being prescribed HFCWO therapy. We believe there is work to be done in unlocking the market opportunity through creating more awareness with providers are the benefits in treating bronchiectasis patients with our SmartVest airway clearance technology earlier in the care continuum. There's also a need to publish guidelines for treating bronchiectasis patients with HFCWO, which currently do not exist. We will engage with key opinion leaders and societies to establish guidelines and get those published. These results will not happen overnight, but it's an area of focus for us. This segues nicely into an update on our commercial initiatives. We plan to continue our Salesforce expansion plan to drive further market penetration. We ended the quarter with 49 sales representatives, and in the second half of our fiscal year, we intend to hire five additional reps to deepen our penetration in key markets for Electromed and to support a larger pool of physician prescribers. Being a sales rep at Electromed is like owning a franchise, but without the required capital outlay. Our reps have an uncapped commission plan, so the more they grow, the more they can earn. We take a conservative approach to hiring the right sales reps who can successfully execute what is largely a clinical sale. That is, ElectroMed's reps work with healthcare providers to demonstrate the utility of our SmartVest Clearway device to both patients and, by extension, the provider's practice. Additionally, to complement our direct sales team, I've been engaging our distributor partners to better support our sales team's efforts in the field. We've had a passive relationship with our distributors and believe they can provide additional focus for us in the hospital market where we have a small presence as well as help expand our rural market coverage. Recently, we signed a new distribution agreement with Marathon Medical, a medical supply distribution company and service-disabled veteran-owned small business. As a distributor partner, Marathon Medical focuses on providing medical products to federal agencies including VA hospitals and clinics and other federal agencies. This partnership will improve the ordering process for all government facilities, allowing easier access to our products, helping our veterans to breathe easier and live better. While a direct home care sales model continues to serve us well, we believe forging new partnerships like the Marathon Medical Agreement enhances our commercial initiatives and allows us to further drive market expansion and development. Also in Q3, we will be rolling out Smart Advantage, which are sales programs and clinic support resources that showcase our exceptional customer service and seamless ordering process in support of the clinics we serve. Smart Advantage is another way for ElectroMed to differentiate ourselves and strengthen our position in the market. My last reflection is centered around the sheer caliber of talent of the ElectroMed team. What may not be well known to investors is that in the last 12 to 18 months, we've added a new CEO, a new CFO, a new controller, and new leaders across a number of critical departments, operations, R&D, REQA, and sales operations. These seasoned leaders bring together robust backgrounds and domain expertise, new ideas, and fresh energy to the company. This energy and excitement extend to our teammates in all positions throughout the company. Our Glassdoor rating at the end of 2023 was a solid 4.44, up from 3.7 only two years ago, reflecting the strong chemistry and connectedness of the team. As any good leader knows, engagement is a leading indicator of success, and it shows up in how we work together as a team, how we interact with our customers, and the patients we serve. Moreover, having an engaged team helps us to recruit equally strong candidates for us to continue to execute on our strategic deliverables. I'd like to share some real-world examples of how our talent has made a difference in a short time. Last year, we struggled with some operational issues like many other companies had during the pandemic. Today, under the leadership of our Senior Director of Operations and Materials, Steve Trinka, we have zero back orders and first-pass yield of 99%. which allows us to get products to patients sooner so they can breathe easier. Also, while focused on maintaining excellent service levels, our operations team is focused on reducing our non-finished goods inventory, which was built up during the pandemic when raw materials were in short supply. This improvement will happen in the subsequent quarters. Additionally, as mentioned on our last call, Amy Yanta, our head of RAQ and compliance in her team, have upgraded our quality systems, and have had three successful external audits in the last quarter. Lastly, I'd like to recognize my predecessor, Kathleen Scarvan, for leading the charge in developing the next-gen Vest technology we are now commercializing. As someone who grew up in the medical device world with a commercial background, I'm excited about the market reception for our new SmartVest Clearway product introductions to the hospital and home markets. We are the only HFCWO supplier in the market with new technology that is smaller, lighter, and more intuitive to use than competitive products in the field. I look forward to continuing to drive top-line growth combined with expanding operating leverage as we grow and take market share of the coming quarters and years ahead. And with that, I will turn the call to Brad to discuss our financials. Brad?