Electromed, Inc. Announces Fiscal 2019 Fourth Quarter and Full Year Financial Results

Company Release - 8/27/2019 4:30 PM ET

-- Fourth quarter results driven by 10.1% year-over-year growth in home care revenue and operating margin improvement to 17.3% --

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 June 30, 2019 (Q4 FY 2019).

Q4 FY 2019 Highlights

  • Net revenue increased 9.3% to $8.6 million from $7.9 million during the three months ended June 30, 2018 (Q4 FY 2018).
  • Operating income grew 17.5% to $1.5 million, from $1.3 million in Q4 FY 2018, notwithstanding the recognition of a refund of a medical device excise tax in the prior year quarter that increased Q4 FY 2018 operating income by $406,000 and higher current year depreciation and amortization expense of $117,000 due to our decision to terminate a lease of office space, requiring us to accelerate the leasehold amortization associated with the property.
  • Net income expanded 13.9% to $1.1 million, or $0.13 per diluted share, from $1.0 million, or $0.11 per diluted share, in Q4 FY 2018.
  • Cash flow from operating activities increased 148.6% to $1.4 million from $0.6 million in Q4 FY 2018.

FY 2019 Highlights

  • Net revenue increased 10.6% to $31.3 million from $28.3 million during the fiscal year ended June 30, 2018 (FY 2018).
  • Operating income grew 6.5% to $2.9 million, from $2.7 million in FY 2018, notwithstanding the recognition of a refund of a medical device excise tax in the prior year that increased FY 2018 operating income by $406,000 and higher current year depreciation and amortization expense of $151,000 due to our decision to terminate a lease of office space, requiring us to accelerate the leasehold amortization associated with the property.

Kathleen Skarvan, President and Chief Executive Officer of Electromed, commented, “In the fourth quarter of fiscal 2019, we delivered record revenue of $8.6 million, driven by a 10.1% year-over-year increase in home care revenue. Moreover, we achieved strong growth in operating income and cash flow from operating activities, reflecting our continuing cost containment efforts and the sales force restructuring we implemented in March 2019. Regarding our emphasis on sales force productivity, this quarter we produced approximately $908,000 of annualized home care revenue per direct field sales employee, exceeding our target range of between $750,000 and $850,000. While quarter to quarter fluctuations in our business can be expected, in fiscal 2020 we are confident about attaining target productivity levels and low double-digit revenue growth.”

Ms. Skarvan continued, “Educating physicians on the value of SmartVest® Airway Clearance therapy for bronchiectasis patients is key to our growth. This quarter BMC Pulmonary Medicine published a first-of-its-kind independent study that concluded early initiation of therapy with SmartVest decreases severe exacerbations, reduces antibiotic use and stabilizes lung function for bronchiectasis patients. This study along with published outcomes studies in Respiratory Therapy in 2016 and 2018 demonstrate the growing body of clinical evidence supporting the use of our SmartVest® Airway Clearance device as a standard of care among individuals with non-Cystic Fibrosis Bronchiectasis. Guided by our patient-centric mission of making life’s important moments possible, one breath at a time, we aim to further penetrate the large and growing bronchiectasis market.”

Q4 FY 2019 Review

Net revenue increased 9.3% to $8.6 million, from $7.9 million in Q4 FY 2018, primarily driven by higher home care revenue. Home care revenue rose 10.1% to $8.0 million from $7.3 million in Q4 FY 2018, primarily due to a higher average allowable due to payor mix as compared to the prior year and greater productivity from the Company’s field sales staff. Field sales employees totaled 40, of which 34 were direct sales, at the end of Q4 FY 2019, compared to 42 at the end of Q3 FY 2019, of which 36 were direct sales, and 50 at the end of Q4 FY 2018 of which 42 were direct sales.

Gross profit increased 8.1% to $6.7 million, or 77.5% of net revenue, from $6.2 million, or 78.4% of net revenue, in Q4 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 by a lower selling price per device in our institutional market.

Operating expenses, which include selling, general and administrative (SG&A) as well as R&D expenses, totaled $5.2 million, or 60.2% of net revenue, compared with $4.9 million, or 62.3% of net revenue, in the same period of the prior year. SG&A expenses increased by $212,000 to $5.1 million from $4.9 million in Q4 FY 2018. The prior year quarter benefited from a refund of a medical device tax that reduced Q4 FY 2018 SG&A expense by $406,000 while the current year included additional depreciation and amortization of $117,000 due to terminating a lease of office space, requiring us to accelerate the leasehold amortization associated with the property. As a percentage of revenue, SG&A expenses improved to 59.0% compared to 61.8%, reflecting ongoing cost-containment efforts. R&D expenses increased to $107,000, from $41,000 in Q4 FY 2018, due to work on an innovative product feature designed to improve patients’ access to treatment adherence data.

Operating income totaled $1.5 million, compared to $1.3 million in Q4 FY 2018.

Net income before income tax expense totaled $1.5 million compared to $1.3 million in Q4 FY 2018.

Net income equaled $1.1 million, or $0.13 per diluted share, compared to $1.0 million, or $0.11 per diluted share, in Q4 FY 2018. In Q4 FY 2019, income tax expense totaled $432,000, compared to $339,000 in the same period of the prior year.

FY 2019 Full Year Summary

For the fiscal year ended June 30, 2019, revenue grew 10.6% to $31.3 million, from $28.3 million in fiscal 2018, driven by a 10.3% increase in home care revenue. Gross margins were 76.2%, compared to 76.9% in the prior fiscal year, while net income was approximately $2.0 million, or $0.23 per diluted share, compared to approximately $1.8 million, or $0.21 per diluted share, in fiscal 2018.

Financial Condition

The Company’s balance sheet at June 30, 2019 included cash of $7.8 million, no debt, working capital of $20.9 million, and shareholders’ equity of $25.7 million.

Conference Call

Management will host a conference call on August 28, 2019 at 8:00 am CT (9:00 am ET) to discuss Q4 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/31950/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

 
June 30, 2019 June 30, 2018
 
Assets
Current Assets
Cash

$

7,807,928

$

7,455,844

Accounts receivable (net of allowances for doubtful accounts of $45,000)

 

12,760,042

 

11,811,308

Contract assets

 

995,847

 

776,338

Inventories

 

2,622,000

 

2,486,848

Prepaid expenses and other current assets

 

353,214

 

757,448

Total current assets

 

24,539,031

 

23,287,786

Property and equipment, net

 

3,604,744

 

3,091,242

Finite-life intangible assets, net

 

581,413

 

649,103

Deferred income taxes

 

629,000

 

364,000

Total assets

$

29,354,188

$

27,392,131

 
Liabilities and Shareholders’ Equity
Current Liabilities
Current maturities of long-term debt

$

-

$

1,101,043

Accounts payable

 

586,575

 

810,644

Accrued compensation

 

1,404,662

 

1,269,849

Income taxes payable

 

288,511

 

397,390

Warranty reserve

 

810,000

 

760,000

Other accrued liabilities

 

530,454

 

464,357

Total current liabilities

 

3,620,202

 

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 June 30, 2019 and June 30, 2018, respectively

84,084

82,887

Additional paid-in capital

 

16,127,826

 

14,953,103

Retained earnings

 

9,522,076

 

7,552,858

Total shareholders’ equity

 

25,733,986

 

22,588,848

Total liabilities and shareholders’ equity

$

29,354,188

$

27,392,131

Electromed, Inc.

Condensed Statements of Operations

 

For the Three Months Ended
June 30,

 

For the Twelve Months Ended
June 30,

2019

 

2018

 

2019

 

2018

Net revenues

$

8,603,602

$

7,872,266

$

31,299,750

$

28,306,696

Cost of revenues

 

1,935,289

 

1,702,546

 

7,451,806

 

6,534,084

Gross profit

 

6,668,313

 

6,169,720

 

23,847,944

 

21,772,612

 
Operating expenses
Selling, general and administrative

 

5,076,201

 

4,864,400

 

20,446,122

 

18,808,867

Research and development

 

106,526

 

40,641

 

583,311

 

251,443

Total operating expenses

 

5,182,727

 

4,905,041

 

21,029,433

 

19,060,310

Operating income

 

1,485,586

 

1,264,679

 

2,818,511

 

2,712,302

 
Interest income, net

 

33,358

 

28,296

 

90,707

 

19,871

Net income before income taxes

 

1,518,944

 

1,292,975

 

2,909,218

 

2,732,173

 
Income tax expense

 

432,000

 

339,000

 

940,000

 

901,000

Net income

$

1,086,944

$

953,975

$

1,969,218

$

1,831,173

 
Income per share:
Basic

$

0.13

$

0.12

$

0.24

$

0.22

Diluted

$

0.13

$

0.11

$

0.23

$

0.21

 
 
Weighted-average common shares outstanding:
Basic

 

8,341,684

 

8,221,437

 

8,306,338

 

8,207,365

Diluted

 

8,615,207

 

8,578,295

 

8,631,469

 

8,620,102

Electromed, Inc.

Condensed Statements of Cash Flows

 

Twelve Months Ended June 30,

2019

 

2018

Cash Flows From Operating Activities
Net income

$

1,969,218

 

$

1,831,173

 

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation

 

804,587

 

 

676,426

 

Amortization of finite-life intangible assets

 

120,640

 

 

113,601

 

Amortization of debt issuance costs

 

1,958

 

 

6,351

 

Share-based compensation expense

 

924,071

 

 

862,674

 

Deferred taxes

 

(265,000

)

 

(359,000

)

Loss on disposal of property and equipment

 

11,186

 

 

25,990

 

Loss on disposal of intangible assets

 

4,840

 

 

4,122

 

Changes in operating assets and liabilities:
Accounts receivable

 

(948,734

)

 

(1,278,581

)

Contract asset

 

(219,509

)

 

19,047

 

Inventories

 

(106,174

)

 

228,988

 

Prepaid expenses and other assets

 

404,234

 

 

(472,594

)

Income tax payable

 

(108,879

)

 

240,866

 

Accounts payable and accrued liabilities

 

(2,564

)

 

543,137

 

Net cash provided by operating activities

 

2,589,874

 

 

2,442,200

 

 
Cash Flows From Investing Activities
Expenditures for property and equipment

 

(1,330,598

)

 

(526,227

)

Proceeds from sales of fixed assets

 

1,750

 

 

-

 

Expenditures for finite-life intangible assets

 

(57,790

)

 

(45,550

)

Net cash used in investing activities

 

(1,386,638

)

 

(571,777

)

 
Cash Flows From Financing Activities
Principal payments on long-term debt including capital lease obligations

 

(1,103,001

)

 

(50,700

)

Issuance of common stock upon exercise of options

 

251,849

 

 

62,412

 

Net cash provided by (used in) financing activities

 

(851,152

)

 

11,712

 

Net increase in cash

 

352,084

 

 

1,882,135

 

Cash
Beginning of period

 

7,455,844

 

 

5,573,709

 

End of period

$

7,807,928

 

$

7,455,844

 

 

Electromed, Inc.
Jeremy Brock, Chief Financial Officer
(952) 758-9299
investorrelations@electromed.com

The Equity Group Inc.
Kalle Ahl, CFA
(212) 836-9614
kahl@equityny.com

Devin Sullivan
(212) 836-9608
dsullivan@equityny.com

Source: Electromed, Inc.