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Section 1: 8-K (FORM 8K DATED MAY 7, 2019)

 
 

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported): May 7, 2019

 

 

 

ELECTROMED, INC.

 (Exact Name of Registrant as Specified in Its Charter)

 

Minnesota 001-34839 41-1732920

(State or Other Jurisdiction of

Incorporation)

(Commission File Number)

(I.R.S. Employer Identification

Number)

 

500 Sixth Avenue NW 

New Prague, MN 56071

(Address of Principal Executive Offices)(Zip Code)

 

(952) 758-9299

(Registrant’s Telephone Number, Including Area Code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
        
   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
        
   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
        
   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

  

 

 

Item 2.02Results of Operations and Financial Condition

 

On May 7, 2019, Electromed, Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended March 31, 2019. The full text of the press release is attached as Exhibit 99.1.

 

Item 9.01Financial Statements and Exhibits

 

(d) Exhibits:

 

99.1 Press Release dated May 7, 2019.

 

The information contained in this Current Report on Form 8-K, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, and shall not be incorporated by reference into any registration statement pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

   ELECTROMED, INC.
     
Date:  May 7, 2019 By: /s/ Jeremy T. Brock
   Name: Jeremy T. Brock
   Title:

Chief Financial Officer

 

 

 

EXHIBIT INDEX

 

Exhibit Number   Description   Method of Filing
99.1   Press Release dated May 7, 2019   Furnished Electronically

 

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Section 2: EX-99.1 (PRESS RELEASE DATED MAY 7, 2019)

 

Exhibit 99.1

 

(GRAPHICS)

 

FOR IMMEDIATE RELEASE

 

Electromed, Inc. Announces Fiscal 2019 Third Quarter Financial Results

 

New Prague, Minnesota – May 7, 2019 – Electromed, Inc. (NYSE American: ELMD), a leader in innovative airway clearance technologies, today announced financial results for the three months ended March 31, 2019 (Q3 FY 2019).

 

Q3 FY 2019 Highlights

 

Net revenue increased 3.4% to $7.4 million from $7.2 million during the three months ended March 31, 2018 (Q3 FY 2018).

 

Net revenue, gross profit and operating income in Q3 FY 2019 were negatively impacted by a lower average selling price based on payor mix as compared to the prior year.

 

Gross profit rose 1.2% to $5.6 million from $5.5 million in Q3 FY 2018.

 

Operating income declined to $462,000, from $578,000 in Q3 FY 2018, reflecting a $128,000 increase in research and development (R&D) spending to support a new product feature.

 

Net income equaled $350,000, or $0.04 per diluted share, compared to $376,000, or $0.04 per diluted share, in Q3 FY 2018.

 

Cash flow from operating activities totaled $351,000, compared to $342,000 in Q3 FY 2018.

 

In March 2019, the Company restructured its sales force to drive enhanced productivity and annualized cost savings of approximately $500,000.

 

Total field sales employees totaled 42 of which 36 were direct sales at the end of Q3 FY 2019, compared to 52 at the end of Q2 FY 2019 of which 44 were direct sales, and 48 at the end of Q3 FY 2018 of which 43 were direct sales.

 

Kathleen Skarvan, President and Chief Executive Officer of Electromed, commented, "This quarter we achieved double-digit growth in home care approvals and shipments, reflecting ongoing excellence in our reimbursement operations and solid execution by our sales force across most of our territories. Home care revenue growth was moderated by lower average revenue per approval based on payor mix and below par sales performance primarily in two of our five sales regions. We took action in March 2019 to restructure these two underperforming regions by reducing our direct sales force by seven and realigning our regions from five to four. We believe that this action will create an optimal foundation for strong and profitable revenue growth."

 

Ms. Skarvan continued, “We announced in April the appointment of a new Vice President of Sales, Bud Reeves, who will play a critical role in maximizing our sales force's effectiveness. Bud brings over two decades of sales and marketing experience in the healthcare industry and a proven track record of driving profitable growth and achieving targeted metrics, specifically in emerging respiratory markets at organizations like Philips Healthcare and Respironics. With these changes, we believe we have the right sales leadership, the right sales team, the right service and the right product in our SmartVest® high frequency chest wall oscillation device to capitalize on the large and growing Bronchiectasis market opportunity.”

 

 

 

Q3 FY 2019 Review

 

Net revenue increased 3.4% to $7.4 million, from $7.2 million in Q3 FY 2018, primarily driven by higher home care revenue. Home care revenue rose 4.6% to $6.9 million from $6.6 million in Q3 FY 2018, primarily due to growth in referrals as a result of a greater productivity from our field sales staff and continued improvements in the Company’s reimbursement operations. These improvements led to a greater percentage of referrals getting approved as compared to the prior year. The higher level of referrals and approvals was offset partially by a lower average allowable due to payer mix compared to the prior year.

 

Gross profit increased 1.2% to $5.6 million, or 75.2% of net revenue, from $5.5 million, or 76.9% of net revenue, in Q3 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 primarily by a lower average allowable due to payer mix compared to the prior year.

 

Operating expenses, which include selling, general and administrative (SG&A) as well as R&D expenses, totaled $5.1 million, or 69.0% of net revenue, compared with $4.9 million, or 68.8% of net revenue, in the same period of the prior year. SG&A expenses increased 1.1% to $4.9 million, primarily due to higher sales incentives driven by higher revenue than the prior year, which was partially offset by lower professional fees. As a percentage of revenue, SG&A expenses improved to 66.7% compared to 68.2%, reflecting ongoing cost-containment efforts. R&D expenses increased to $171,000, from $43,000 in Q3 FY 2018, due to work on an innovative product feature designed to improve patients’ access to treatment adherence data.

 

Operating income totaled $462,000, compared to $578,000 in Q3 FY 2018.

 

Net income before income tax expense totaled $489,000 compared to $578,000 in Q3 FY 2018.

 

Net income equaled $350,000, or $0.04 per diluted share, compared to $376,000, or $0.04 per diluted share, in Q3 FY 2018. In Q3 FY 2019, income tax expense totaled $139,000, compared to $202,000 in the same period of the prior year.

 

Year-to-Date FY 2019 Summary

 

For the nine months ended March 31, 2019, revenue grew 11.1% to $22.7 million, from $20.4 million in the same period of fiscal 2018, driven by a 10.3% increase in home care revenue. Gross margins were 75.7%, compared to 76.4% in the prior fiscal year, while net income was approximately $882,000, or $0.10 per diluted share, compared to approximately $877,000, or $0.10 per diluted share, in the first nine months of fiscal 2018.

 

 

 

Financial Condition

 

The Company’s balance sheet at March 31, 2019 included cash of $7.5 million, no debt, working capital of $20.8 million, and shareholders’ equity of $24.5 million.

 

Conference Call

 

Management will host a conference call on May 8, 2019 at 8:00 am CT (9:00 am ET) to discuss Q3 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/30174/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.

 

 

 

Contacts:    
     
Electromed, Inc.   The Equity Group Inc.
Jeremy Brock, Chief Financial Officer   Kalle Ahl, CFA
(952) 758-9299   (212) 836-9614
[email protected]  [email protected]
     
    Devin Sullivan
    (212) 836-9608
    [email protected]

 

Financial Tables Follow:

 

 

 

Electromed, Inc. 

Condensed Balance Sheets

 

   March 31, 2019   June 30, 2018 
         
         
Assets          
Current Assets          
Cash  $7,535,891   $7,455,844 
Accounts receivable (net of allowances for doubtful accounts of $45,000)   12,275,708    11,811,308 
Contract assets   843,801    776,338 
Inventories   2,706,756    2,486,848 
Prepaid expenses and other current assets   400,760    751,541 
Income tax receivable   239,989     
Total current assets   24,002,905    23,281,879 
Property and equipment, net   2,745,121    3,091,242 
Finite-life intangible assets, net   602,684    649,103 
Other assets   5,807    5,907 
Deferred income taxes   337,000    364,000 
Total assets  $27,693,517   $27,392,131 
           
Liabilities and Shareholders’ Equity          
Current Liabilities          
Current maturities of long-term debt  $   $1,101,043 
Accounts payable   622,434    810,644 
Accrued compensation   1,199,115    1,269,849 
Income taxes payable       397,390 
Warranty reserve   780,000    760,000 
Other accrued liabilities   639,527    464,357 
Total current liabilities   3,241,076    4,803,283 
           
Commitments and Contingencies          
           
Shareholders’ Equity          
Common stock, $0.01 par value; authorized: 13,000,000 shares; 8,408,351and 8,288,659 issued and outstanding at March 31, 2019 and June 30, 2018, respectively   84,084    82,887 
Additional paid-in capital   15,933,225    14,953,103 
Retained earnings   8,435,132    7,552,858 
Total shareholders’ equity   24,452,441    22,588,848 
Total liabilities and shareholders’ equity  $27,693,517   $27,392,131 

 

 

 

Electromed, Inc. 

Condensed Statements of Operations

 

   For the Three Months Ended   For the Nine Months Ended 
   March 31,   March 31, 
   2019   2018   2019   2018 
Net revenues  $7,407,779   $7,167,064   $22,696,149   $20,434,430 
Cost of revenues   1,833,478    1,657,506    5,516,517    4,831,538 
Gross profit   5,574,301    5,509,558    17,179,632    15,602,892 
                     
Operating expenses                    
Selling, general and administrative   4,941,773    4,889,070    15,369,921    13,985,146 
Research and development   170,757    42,665    476,785    170,123 
Total operating expenses   5,112,530    4,931,735    15,846,706    14,155,269 
Operating income   461,771    577,823    1,332,926    1,447,623 
                     
Interest income (expense), net   27,374    668    57,348    (8,425)
Net income before income taxes   489,145    578,491    1,390,274    1,439,198 
                     
Income tax expense   139,000    202,000    508,000    562,000 
Net income  $350,145   $376,491   $882,274   $877,198 
                     
Income per share:                    
Basic  $0.04   $0.05   $0.11   $0.11 
Diluted  $0.04   $0.04   $0.10   $0.10 
                     
                     
Weighted-average common shares outstanding:                    
Basic   8,325,346    8,210,695    8,294,568    8,203,599 
Diluted   8,612,448    8,613,370    8,637,414    8,634,452 

 

 

 

Electromed, Inc.

Condensed Statements of Cash Flows

 

   Nine Months Ended March 31, 
   2019   2018 
Cash Flows From Operating Activities          
Net income  $882,274   $877,198 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   527,472    495,797 
Amortization of finite-life intangible assets   89,728    85,166 
Amortization of debt issuance costs   1,958    5,373 
Share-based compensation expense   729,470    604,056 
Deferred taxes   27,000    (21,000)
Loss on disposal of property and equipment   1,710     
Changes in operating assets and liabilities:          
Accounts receivable   (464,400)   (111,573)
Contract assets   (67,463)   (16,209)
Inventories   (205,524)   363,043 
Prepaid expenses and other assets   350,881    (114,391)
Income tax receivable   (239,989)   (91,103)
Income tax payable   (397,390)   (156,524)
Accounts payable and accrued liabilities   (63,774)   (48,059)
Net cash provided by operating activities   1,171,953    1,871,774 
           
Cash Flows From Investing Activities          
Expenditures for property and equipment   (197,445)   (379,328)
Expenditures for finite-life intangible assets   (43,309)   (27,818)
Net cash used in investing activities   (240,754)   (407,146)
           
Cash Flows From Financing Activities          
Principal payments on long-term debt including capital lease obligations   (1,103,001)   (37,927)
Issuance of common stock upon exercise of options   251,849    62,412 
Net cash provided by (used in) financing activities   (851,152)   24,485 
Net increase in cash   80,047    1,489,113 
Cash          
Beginning of period   7,455,844    5,573,709 
End of period  $7,535,891   $7,062,822 

 

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