Electromed (AMEX:ELMD) held its fourth-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.
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Summary
Electromed Inc. reported a record fourth quarter with net revenue reaching $19.4 million, a 12% increase year-over-year, and operating income growing by 26% to $3.8 million.
The company expanded its direct sales force to 64 representatives, preparing for territory expansion in fiscal 2027, while maintaining strong U.S.-based manufacturing operations.
Electromed's strategic initiatives include the Triple Down on Bronchiectasis campaign and expanding payer coverage, with 87% of U.S. covered lives under contract.
The company achieved a gross margin of 78.5% for fiscal 2026, with annual revenues growing 15.3% to $73 million, driven by strong performance in the home care market.
CEO Jim Cunniff announced his retirement planned for April 2027, with a succession plan in place, and expressed confidence in the company's future growth and leadership transition.
Full Transcript
OPERATOR
If anyone should require operator assistance during the conference, please press star-0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mike Cavanaugh, Investor Relations. Thank you, Mike. You may begin.
Mike Cavanaugh, Investor Relations
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 Nagle, 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.
Jim Cunniff, President and Chief Executive Officer
Thank you, Mike, and thank you all for joining us today. I'm 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 6 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 COPD Foundation Journal.
Using data from the NTM Bronchiectasis Research Registry, the study found that 58% of qualifying 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 the void in patient and provider education. I've talked previously about our Smart Order e-prescribed solution, which is changing how prescribing clinics submit orders more efficiently to our fulfillment team. Of note, the Centers for Medicare & 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 e-prescribed 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 United States 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 United States.
Given the supply chain disruptions we've seen across the industry, we believe our U.S.-based operations are a competitive advantage. Ninety-nine percent 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 8th 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 have 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.
Brad Nagle, Chief Financial Officer
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 twelve months ended June 30, 2026, which I will refer to as fiscal 2026, and compare to the twelve 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 $73.0 million, or 15.3% growth from $64.0 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 $1,000,000 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.
Gross profit increased to $57.9 million, or 78.5% of net revenues, from $50.0 million, or 78.1% of net revenues in fiscal 2025. The increase in gross profit and gross margin was primarily due to increased revenue and higher net revenue per device. Selling, general and administrative, or SG&A, expenses were $42.7 million, representing an increase of $3.4 million, or 8.7%, from $39.3 million. The increase was primarily due to increased salaries and incentive compensation related to the higher average number of personnel in the sales, sales support, marketing, and reimbursement teams to process more patient referrals.
Operating income this year was $13.9 million, or 18.8% of net revenues, compared to $9.7 million, or 15.1% of net revenues last year. The growth of 43.7% in operating income reflects the leveraged benefit of mid-teen growth in net revenues and gross profit balanced with the disciplined investment into the business's operating expenses, which grew about 9%. When putting these full year results together, we're excited to have delivered a record year with pre-tax income of $14.4 million, net income of $11.3 million, and full year EPS of $1.30 per diluted share.
As of June 30, 2026, Electromed had $20.0 million in cash, $29.8 million in accounts receivable, and no debt, achieving a working capital of $45.1 million and total shareholders' equity of $54.0 million. The cash balance reflects an increase of $5.2 million for the year ended June 30, 2026, compared to a decrease in cash of $0.8 million in the same period in the prior year. The increase in cash for the 12 months ended June 30, 2026 was driven primarily by positive operating cash flow of $9.7 million, partially offset by repurchases of Electromed common stock totaling $3.9 million.
I'll close by saying that Jim and I are very encouraged by the commitment and energy of the Electromed team as we continue bringing our innovative SmartVest technology to patient populations that remain significantly underserved. It's rewarding to see how that dedication to the patients and physicians we serve has translated into strong financial performance throughout fiscal 2026, creating meaningful value for Electromed and our shareholders. As we look forward into fiscal 2027, we continue to see opportunity to leverage the investments we've made to drive both our mission and our financial commitments forward, delivering double-digit top-line growth, expanded operating leverage, and strong operating cash flow in the new year. Operator, please open the call to questions.
OPERATOR
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. So that we may address questions from as many participants as possible, we ask that you limit yourself to one question and one follow-up.
If you have additional questions, you may requeue and, time permitting, those questions will be addressed. One moment please while we poll for questions. Thank you. Our first question comes from the line of Kyle Bowser with Titan Partners. Please proceed.
Kyle Bowser, Analyst at Titan Partners
Great. Thanks for taking my questions. But first, Jim, congrats on your retirement next year. Wish you all the best.
Jim Cunniff, President and Chief Executive Officer
Hey, thank you, Kyle. I appreciate that.
Kyle Bowser, Analyst at Titan Partners
Yep, glad to see there's some time to make the transition. So thanks for the update there. And maybe for my first question, obviously another really strong quarter of operating leverage. And you talked a little bit about it, but maybe you could just discuss a bit about your expectations for continued leverage in fiscal 27 and any expectations to kind of add more reps and territories as well.
Jim Cunniff, President and Chief Executive Officer
Well, I think Brad said it well. We're expecting this year to be not necessarily a repeat of last fiscal year, but we're certainly projecting that we will be able to deliver double-digit top-line growth and operating leverage. And that's been the mantra that we've been beating the drum on for the last three years, and we've been able to deliver on that. So yes, we're confident we'll be able to do that. You know, we have added sales reps, which we're excited about.
So as you heard in the prepared remarks, we really ended the year with 64 direct sales reps. A lot of those actually came in in June of the last fiscal year. But the good news is they were to help fill the void for territory expansions that we have for this fiscal year. So we're kind of hitting the ground running. That includes actually two hospital account liaisons. These are folks that we're actually doing a pilot with in a couple of key markets to see if we can capture some of those patients that are in the hospital that then get transitioned to the home and get those referrals.
In addition to that, we also have three additional territories that we're looking to fill. So, you know, touch wood, our expectation is to have 67 territories filled this year, including two hospital account liaisons. And, you know, Brad had also mentioned in his comments that we have raised our guidance on the revenue per rep for this year, albeit it's below where we ended up last year. And that's mainly because, as you know, Kyle, some of these reps are going to take some time to ramp up and become productive for us.
But yeah, we're really bullish on the business and, you know, the new talent that we're bringing onto the team.
Kyle Bowser, Analyst at Titan Partners
Got it. Appreciate that. And maybe for my follow-up, obviously the cash balance continues to grow amid very strong share price. Any thoughts on your capital allocation strategy and how you're thinking about deploying cash going forward?
Brad Nagle, Chief Financial Officer
Thanks for the question, Kyle. Yeah, the strategy remains the same. We continue to think in terms of priorities with our cash. First, just de-risking the business. Second, investing back into the business. And as Jim mentioned, we are adding quite a few sales reps as we come into 2027 and want to support them, not just the headcount, but also with sort of the right marketing support, the right investment into R&D, continuing to reinvest into the business to the extent that we can and still show leveraged growth across the P&L. Beyond that, as we have in the past, we'll continue to look for ways to add shareholder value. Our key method of operation has been through share repurchases, which we've done over the past couple of years. So, opportunistically, when we have the option to, we'll continue to find ways to create that shareholder value.
Kyle Bowser, Analyst at Titan Partners
Okay, got it. Well, thanks for taking my question, guys.
Jim Cunniff, President and Chief Executive Officer
Yeah, thank you, Kyle.
OPERATOR
Thank you. Our next question comes from the line of Heirloom with Freedom Broker. Please proceed.
UNKNOWN, Analyst at Freedom Broker
Hi, and hi Jim. Hi, Brad. Before I get to my questions, congratulations on the announcement. Three years and 15 straight quarters is a good place to hand off from. So I want to say thanks for taking my questions.
Jim Cunniff, President and Chief Executive Officer
Oh, thank you, and thank you for the kind words.
UNKNOWN, Analyst at Freedom Broker
So first question is about R&D spend was up meaningfully year over year in percentage terms, though it's still a small name for the P&L. Can you give us a sense of what that dollar is actually going forward or going forward to? Is it iteration on the Clearway generator? Is it the connectivity and data side of things like smart nodes, or is it work on something adjacent to the current platform?
Jim Cunniff, President and Chief Executive Officer
That's a great question. And to your point, it's actually on a really small base, our R&D investment. You know, we are a single-product company, and so when you take a look at our R&D spend, it's really bifurcated for sustaining engineering. So we're always looking at upgrading the technology that we have today. That's one element to it, and so we're investing in that. The other side of it is innovation. And I think I've mentioned this on previous calls in the past.
One of the areas that we believe needs a little bit more innovation on our side—there's really two areas—one of which is connectivity, and we're working on that right now, as you had mentioned. And then the second piece of it is really just expanding our vest line, and to do that predominantly on the smaller sizes of our vests. That's really where a big focal point of our R&D team is, is to enhance that and expand it.
UNKNOWN, Analyst at Freedom Broker
Great, thank you. And I also have a related question. So acquisition shows up in the deck as one of the three named pillars of the growth strategy. I want to know the detail behind it. When you talk about inorganic opportunities, what problem are you trying to solve? Is it adding a second product the reps are already carrying? Or is it acquiring a capability like monitoring data? Or is it about diversification?
Jim Cunniff, President and Chief Executive Officer
Yeah, it could be all of the above. No, I think those are great questions. So, you know, we're always looking at—we are a single-product company. It would be great if we could add another leg to the stool for our sales reps: add something to their bag that complements the call point that they focus on and enhances the customer relationship. And, you know, we are constantly on the lookout. If there's a one-plus-one-equals-three, you know, we're interested in it; we just haven't found it yet. And, you know, to your question, we're not pigeonholing ourselves into one inorganic opportunity. If it makes sense for our sales rep and it complements what they're doing, that's something that we're very much open to. Conversely, we've got a terrific reimbursement team and contracting engine, and in the home care space, that's a very valuable asset. And so that's another area we could see—leveraging that capability through an acquisition and bringing somebody on board who may have a technology that fits this space, but they don't have that same type of capability.
UNKNOWN, Analyst at Freedom Broker
Great, great. I'm really excited for the results, and good luck, and thanks for taking my questions.
Jim Cunniff, President and Chief Executive Officer
Thank you so much.
OPERATOR
Thank you. Our next question comes from the line of Van Haenor with Lake Street Capital Markets. Please proceed.
Ben, Analyst
Good afternoon, gentlemen. Thanks for taking the questions. First off, for me, just thinking about payer mix as we get into fiscal 2027. It looks like you had commercial go down, you know, a couple few hundred basis points over the course of fiscal 26. You know, some of that was probably comps, you know, Medicare and Medicare Advantage up a little bit. How should we think about that tracking? Does it just kind of bounce around? Is there any underlying trends that make things go towards one or the other?
Jim Cunniff, President and Chief Executive Officer
Yeah, no. First off, thanks for the question, Ben, and thanks for being on the call. You know, as you know, when we're going into a clinic and talking to a physician, we're not identifying who the payer type is that the patient has. What we're really looking for is, you know, are there patients that could benefit from using our technology? And so from that, it's kind of a black box for us. We really don't find out, you know, what type of insurance that patient has until we've gotten a prescription.
And so typically and historically, you know, the split has been pretty even between Medicare and commercial plan. I think the good news and one of the things we want to highlight is the fact that over the course of the last fiscal year, we've added 6 million additional covered lives. So in the past, we might have gotten a prescription, we may have been out of network, and we can't fulfill that because the patient doesn't want to be burdened with a large out-of-pocket expense.
And so by continuing to add payer coverage, it just helps our ability to serve our patients and our ability to no longer be out of network.
Ben, Analyst
Okay, so there's not necessarily a clear trend except for perhaps demographics.
Jim Cunniff, President and Chief Executive Officer
No, I mean, I think the reality is, what's the stat? I think there's about 10,000 people per day who turn 65. And so the trend is more towards Medicare. But again, you know, when we look historically over the last three years, the Medicare to commercial payment split has been pretty much 50-50.
Ben, Analyst
Sure. Yeah, that makes sense. And then secondly, for me on the chest guidelines, I believe those got published not all that long ago listing HFCWO, kind of across the board, I believe. What does that do for your reps when they're detailing docs? Can you give us a sense of how that helps folks out?
Jim Cunniff, President and Chief Executive Officer
Yeah, I think the good news is there have never been care guidelines in the United States on how to treat bronchiectasis patients. And the guidelines, truthfully, they're going to be published later on this quarter. And so we're excited about that. It's been on the horizon for a long time, Ben, as you know, and it's not as definitive as we would like. There's not really an algorithm for treatment of bronchiectasis patients. Really what the guidelines point to is, what are some of the different things that a provider can use to take care of bronchiectasis patients?
And included in that is airway clearance. No surprise. And as you even heard on my remarks, these patients, they have a chronic, irreversible condition. They have fluid that's building up in their lungs and they need something to remove that mucus, which is the fuel for future infections. And so we're kind of the first point of attack. The other thing I would just point you to is, and this is exciting, is that in conjunction with the chest guidelines, the Bronchiectasis NTM Foundation has actually just introduced a new BE care pathway.
And I think that's going to be a little bit better for healthcare providers to understand what tools they have in their toolbox to treat bronchiectasis patients. So it's good news for the industry in general and it's good news for us because airway clearance is included in both of those guidelines.
Ben, Analyst
Okay, that makes sense. And thanks for taking the questions. Congrats on the retirement going on on top. It was very nice.
Jim Cunniff, President and Chief Executive Officer
Yeah, appreciate it, Ben. Thank you so much.
OPERATOR
Thank you. There are no further questions at this time. I'd like to turn the floor back over to Jim Cunniff for closing comments.
Jim Cunniff, President and Chief Executive Officer
Yeah, thank you, operator. And before we close the call, I just want to leave you with some key takeaways from this past quarter. First, this was our 15th consecutive quarter of year-over-year revenue and profit growth. With record revenue and record diluted earnings per share, it's our goal to deliver continued growth and profitability. In line with this goal, we're investing ahead of demand, such as adding to our sales force. The bronchiectasis opportunity remains substantial.
And our Treat Smart from the Start campaign, together with our clinical, educational, and payer initiatives, are all designed to help us reach more patients responsibly. Our financial foundation is strong. We have a debt-free balance sheet and strong cash generation which enable us to keep investing in profitable growth. As always, I want to thank you for joining us today. If you have questions or would like to schedule a call with the Electromed team after today's report, please reach our investor relations partners at ICR Healthcare.
Operator, please close the call.
OPERATOR
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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