Electromed, Inc. 2026 Q4 Earnings Call

Good afternoon, and thank you for joining the Electromed earnings call. Earlier today, Electromed, Inc. released financial results for the fourth quarter of fiscal 2026. The press release is currently available on the company's website at www.smartvest.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 because of new information, future events, or otherwise.

Please refer to the company's SEC filings for further guidance on this matter. Joining me on the call today are Jim Cunniff, Electromed's President and Chief Executive Officer, and Brad Nagel, Chief Financial Officer. As on previous calls, Jim will provide operational highlights from the quarter. Brad will then review the financials, and we will close with a question and answer session. With that, I will now turn the call over to Jim Cunniff, President and Chief Executive Officer of Electromed.

Thank you, Mike, and thank you all for joining us today. I am pleased to report on another record quarter for Electromed. Q4 marks our 15th consecutive quarter of year-over-year revenue and profit growth, a track record that reflects the durability of our direct-to-patient model and the growing recognition of SmartVest within the bronchiectasis community. Net revenue for the fourth quarter was a record $19.4 million, up 12% versus the fourth quarter of last year. We again delivered operating leverage in the quarter. Operating income was $3.8 million in Q4, representing 26% year-over-year growth. Earnings per share was also a quarterly record at $0.39 per share on a fully diluted basis. Growth in the quarter was led by our core home care channel, which grew 15%, and our distributor channel, which grew 2%, both reflecting consistent demand for our SmartVest. Hospital revenue declined 29% in the quarter.

As we've discussed on prior calls, hospital orders have a longer sales cycle and are inherently less predictable than our other channels. We are bullish on our hospital as a gateway to the home and will continue to invest in this area of our business. We ended the quarter with 64 direct sales representatives, an increase of six reps versus the third quarter. This increase reflects hiring ahead of our planned territory expansions in fiscal 2027, and we're pleased with the caliber of talent we've been able to bring onto the team. We continue to expand our sales force deliberately, and I continue to be impressed with the revenue growth the team has delivered. As many of you know, the largest strategic opportunity for Electromed is within the underserved bronchiectasis market.

Today, approximately 1 million patients in the United States are diagnosed with bronchiectasis, yet only about 16% are currently benefiting from high-frequency chest wall oscillation therapy. That leaves approximately 800,000 patients who have been diagnosed with bronchiectasis that could benefit from SmartVest but have not been prescribed the therapy. We also estimate that more than 4 million additional individuals may have undiagnosed bronchiectasis, which underscores the market opportunity and necessity for further patient and provider education. To address this, we initiated our Triple Down on Bronchiectasis campaign last year to raise awareness of our therapy to highlight the integral part airway clearance plays in the treatment of bronchiectasis. The campaign is built around our three-part treatment approach. Number one, clear airways first with SmartVest to remove the mucus that fuels future infections. Second, treat the infection with antibiotics, and third, reduce inflammation.

Together, these three steps are designed to break the cycle of chronic infection, persistent inflammation, and airway damage that drives progressive lung disease and declining quality of life for these patients. This year, we've expanded this campaign with a new initiative we're calling Treat Smart from the Start, which is designed to help clinicians identify patients whose current airway clearance therapy isn't working and determine whether it's time to reassess treatment. Beyond these campaigns, our clinical team remained active, raising awareness among providers this quarter. We presented at two regional respiratory conferences, reaching a combined audience of more than 200 clinicians. Additionally, we conducted three peer-to-peer webinars this quarter, each with at least 100 clinicians in attendance, and attended several national conferences. On the research side, we completed a manuscript, which was accepted for publication in the September issue of the Chronic Obstructive Pulmonary Diseases: Journal of the COPD Foundation.

Using data from the Bronchiectasis and NTM Research Registry, the study found that 58% of qualified patients were not prescribed HFCWO therapy despite meeting all the clinical criteria needed for insurance coverage. That's a meaningful gap we are addressing by engaging physicians who diagnose high volumes of bronchiectasis patients but are not yet prescribing HFCWO therapy. Separately, the BE NTM Association launched a new educational website for physicians and patients, including a quick guide on airway clearance. We're proud to be a sponsor of their airway clearance resource library, helping close a void in patient and provider education. I've talked previously about our Smart Order ePrescribe solution, which is changing how prescribing clinics submit orders more efficiently to our fulfillment team. Of note, the Centers for Medicare and Medicaid Services finalized its rule on administrative simplification, adopting new standards for healthcare claims, attachment transactions, and electronic signatures.

In practice, this means covered entities will need to modernize how they process orders and phase out faxes by May of 2028. Our ePrescribe solution already meets CMS's requirements for electronic signatures and order processing, which positions us well as the industry moves away from faxes. in the fourth quarter, more than 45% of the orders we received came through Smart Order, and those orders shipped, on average, five days faster than orders submitted by fax. Expanding payer coverage remains one of our core strategies because it's what ultimately gives patients in need access to SmartVest. We ended the year with 87% of covered lives in the U.S. under contract. This is a tremendous accomplishment by our market access team, which ended the year by having executed 40 new payer contracts and expanded our network by more than 6 million covered lives.

I'm also proud that Electromed's products are manufactured here in the U.S. Given the supply chain disruptions we've seen across the industry, we believe our U.S.-based operations are a competitive advantage. 99% of our net revenue is generated domestically, and that concentration gives us confidence in our ability to maintain our strong track record of on-time delivery and our mid-70%-or-better gross margins. I also want to recognize the Electromed team, which continues to operate at a high level. Recently, the Minneapolis/St. Paul Business Journal named Electromed the eighth fastest-growing public company in Minnesota, and we were named a top workplace in Minnesota this year by the Star Tribune. In fiscal 2026, 45% of our new hires came through employee referrals. Our employees are engaged and want to bring others like them onto the team.

We believe engaged employees lead to engaged customers, and that virtuous cycle is a big part of how we built this business. Before I turn the call over to Brad, I'd like to take a moment to address an important leadership transition that we also announced today. After considerable thought and discussion with our board, I have decided to retire as Chief Executive Officer of Electromed, with expected timing in April 2027. My decision is accompanied by a thoughtful succession planning process led by our board, and I believe the timing will be right for the company and for me personally. I'm extremely proud of what our team has accomplished over the past three years. We've built a strong business, established a clear strategy for growth, and most importantly, developed a talented leadership team that gives me tremendous confidence in the company's future.

Between now and my retirement, my focus will remain exactly where it's been, on executing our strategy, delivering against our commitments to shareholders, and ensuring a smooth transition of leadership. I've never been more confident in the strength of the organization or in its opportunities. I'm grateful to our employees, customers, shareholders, and board for the opportunity to lead this company, and I look forward to continuing to work with the team over the coming months. With that, Brad, over to you.

Thank you, Jim. I've enjoyed our partnership and your leadership of the Electromed team over the past few years, and I look forward to continuing to work with you until your retirement. Turning to our financial results, all amounts I'm about to review are for the 12 months ended June 30, 2026, which I will refer to as fiscal 2026, and compared to the 12 months ended June 30, 2025, or fiscal 2025, unless otherwise noted. Net revenues for Q4 grew 11.6% to $19.4 million, bringing net revenues for our full fiscal year 2026 to a record $73.8 million, or 15.3% growth from $64 million last year. Annual revenues in our direct home care market increased year-over-year by 16.3% to $66.6 million from $57.3 million in the prior year.

The increase in revenue was due to an increase in direct sales representatives, increased sales representative productivity, and higher net revenues per approval. The annualized home care revenue per weighted average direct sales representative in fiscal year 2026 was $1,145,000, exceeding Electromed's target range of $1 million to $1,100,000 per rep. With our strong performance in fiscal 2026 and continued efficiency expected in fiscal 2027, we're increasing our target range for fiscal year 2027 home care revenue per rep to a range of $1,050,000 to $1,150,000 as we balance the record sales rep productivity we saw in fiscal 2026 with the sales team expansion plans for fiscal 2027. Revenue in our non-home care business grew 6.7% to $7.2 million in fiscal 2026. The increase was primarily due to increased distributor and hospital revenue, which grew 12.7% and 9.6% respectively.