Electromed, Inc. Reports Fiscal Year 2014 Second Quarter Results

NEW PRAGUE, Minn.--(BUSINESS WIRE)--

Electromed, Inc. (NYSE MKT: ELMD) today announced financial results for the Company's second quarter of fiscal 2014.

Net revenues in the quarter were approximately $3.50 million, a 9% decrease compared to $3.86 million in the same period of fiscal 2013. The Company reported a net loss of approximately $0.2 million, or three cents per basic and diluted share, for the second quarter of fiscal 2014, compared to a net loss of approximately $0.4 million, or five cents per basic and diluted share, for the same period of fiscal 2013.

The modest decline in total revenues in the second quarter of fiscal 2014 was attributable to lower average prices received from health care insurers due to their increased focus on controlling health care costs as well as more rigorous scrutiny by insurers of reimbursement requests for a wide range of medical devices and other health care products.

The decline in homecare revenue of approximately $0.4 million in the second quarter was partially offset by an increase in government/institutional revenue of $0.1 million compared to the same period of fiscal 2013. Gross margins in the second quarter rose to 72.1% as compared to 65.2% in the same period in the prior year. This was primarily due to the buildup of inventory in anticipation of the launch of the SmartVest SQL product for which we received FDA clearance in late December 2013. Overall, the smaller net loss in the second quarter was primarily due to the improved gross margins and lower operating expenses.

Operating expenses declined about $0.3 million compared with the second quarter of last year and were essentially flat as a percentage of sales due to the lower revenues in the second quarter of fiscal 2014 as compared to the second quarter of the prior year.

The Company had positive operating cash flow of approximately $0.4 million and increased its cash balance by approximately $0.2 million during the quarter.

Commenting on the Company's results, Electromed's Chief Executive Officer, Kathleen Skarvan said, “We continued to see pressure on our revenues in the second quarter of fiscal 2014 driven by uncertainty surrounding health care reform and the Affordable Care Act combined with ongoing efforts by health insurers to control costs. Despite these challenges, we reduced the reported net loss and added cash to the balance sheet and I am proud of the team for the progress they continue to make in improving the Company's overall financial position.

“On a very positive note, we announced the launch of the Company's newest product, the SmartVest SQL, in late December and began shipping it to patients in mid-January. It is a significant step forward in high frequency chest wall oscillation therapy as it is smaller, lighter and quieter than our previous model, the SV2100. Patients have been asking for these improvements and we delivered with SQL. We believe it will make therapy adherence even easier, a goal long sought by physicians and clinicians.

“While the environment remains challenging, we believe SQL gives us an advantage in competing for the attention of doctors, clinicians and patients. We will be rolling SQL out in the domestic HomeCare market as the third quarter progresses.”

About Electromed, Inc.
Electromed, Inc. manufactures, markets, and sells products that provide airway clearance therapy, including the SmartVest^® Airway Clearance System and related products, to patients with compromised pulmonary function. Further information about the Company can be found at www.electromed.com.

Cautionary Statements
Certain statements found in this release may constitute forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect the speaker's current views with respect to future events and financial performance and include any statement that does not directly relate to a current or historical fact. Forward-looking statements can generally be identified by the words “believe,” “expect,” “anticipate” or “intend” or similar words. Forward-looking statements made in this release include the Company's beliefs regarding the impact of industry trends and legislation on revenue, the Company's revenue growth and cost control strategies, and the Company's beliefs and expectations regarding its SQL product, including the timing of shipments in the domestic homecare market. Forward-looking statements cannot be guaranteed and actual results may vary materially due to the uncertainties and risks, known and unknown, associated with such statements. Examples of risks and uncertainties for Electromed include, but are not limited to, the impact of emerging and existing competitors, the effect of new legislation on our industry and business, the effectiveness of our sales and marketing and cost control initiatives, changes to reimbursement programs, and delays in manufacturing and shipment of our products, as well as other factors described from time to time in our reports to the Securities and Exchange Commission (including our Annual Report on Form 10-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. and Subsidiary
Condensed Consolidated Balance Sheets
		December 31,				June 30,
		2013				2013
Assets			(Unaudited)
Current Assets
Cash and cash equivalents		$	1,236,576			$	503,564
Accounts receivable (net of allowances for doubtful accounts of $45,000)			7,040,935				9,014,043
Inventories			2,266,734				1,379,594
Prepaid expenses and other current assets			298,611				428,843
Income taxes receivable			868,645				538,285
Deferred income taxes			557,000				557,000
Total current assets			12,268,501				12,421,329
Property and equipment, net			3,761,465				3,743,675
Finite-life intangible assets, net			1,019,724				1,080,734
Other assets			348,093				310,089
Total assets		$	17,397,783			$	17,555,827
Liabilities and Equity
Current Liabilities
Current maturities of long-term debt		$	45,156			$	57,540
Accounts payable			1,301,835				643,681
Accrued compensation			321,072				565,023
Warranty reserve			700,000				680,000
Other accrued liabilities			234,337				247,267
Total current liabilities			2,602,400				2,193,511
Long-term debt, less current maturities			1,274,775				1,332,455
Deferred income taxes			103,000				103,000
Total liabilities			3,980,175				3,628,966
Commitments and Contingencies (Note 7)
Equity
Common stock, $0.01 par value; authorized: 13,000,000; shares issued and outstanding: 8,114,252 shares			81,143				81,143
Additional paid-in capital			13,200,352				13,134,938
Retained earnings			136,113				710,780
Total equity			13,417,608				13,926,861
Total liabilities and equity		$	17,397,783			$	17,555,827

Electromed, Inc. and Subsidiary
Condensed Consolidated Statements of Income
(Unaudited)		For the Three Months								For the Six Months Ended
		Ended December 31,								December 31,
		2013				2012				2013				2012
Net revenues		$	3,501,075			$	3,856,370			$	6,919,253			$	7,887,656
Cost of revenues			978,029				1,342,002				2,040,375				2,552,455
Gross profit			2,523,046				2,514,368				4,878,878				5,335,201
Operating expenses
Selling, general and administrative.			2,739,104				3,000,532				5,463,032				5,816,544
Research and development			92,735				109,250				301,843				210,440
Total operating expenses			2,831,839				3,109,782				5,764,875				6,026,984
Operating loss			(308,793	)			(595,414	)			(885,997	)			(691,783	)
Interest expense, net of interest income of $3,940, $10,975, $11,338, and $15,322 respectively			19,469				25,777				34,670				62,516
Net loss before income taxes			(328,262	)			(621,191	)			(920,667	)			(754,299	)
Income tax benefit (expense)			89,000				210,000				346,000				272,000
Net loss		$	(239,262	)		$	(411,191	)		$	(574,667	)		$	(482,299	)
Loss per share:
Basic and diluted		$	(0.03	)		$	(0.05	)		$	(0.07	)		$	(0.06	)
Weighted-average common shares outstanding:
Basic			8,114,252				8,114,252				8,114,252				8,114,252
Diluted			8,114,252				8,114,252				8,114,252				8,114,252

Electromed, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)		For the Six Months Ended
		December 31,
		2013				2012
Cash Flows From Operating Activities
Net loss		$	(574,667	)		$	(482,299	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation			259,074				231,918
Amortization of finite-life intangible assets			63,235				66,234
Amortization of debt issuance costs			8,136				6,377
Share-based compensation expense			65,414				86,382
Loss on disposal of property and equipment			28,178				22,020
Changes in operating assets and liabilities:
Accounts receivable			1,973,108				1,125,717
Inventories			(887,140	)			493,388
Prepaid expenses and other assets			(210,972	)			(272,371	)
Accounts payable and accrued liabilities			407,275				(74,972	)
Net cash provided by operating activities			1,131,641				1,202,394
Cash Flows From Investing Activities
Expenditures for property and equipment			(291,044	)			(482,122	)
Expenditures for finite-life intangible assets			(2,225	)			(28,092	)
Net cash used in investing activities			(293,269	)			(510,214	)
Cash Flows From Financing Activities
Net payments on revolving line of credit			-				(1,168,128	)
Principal payments on long-term debt including capital lease obligations			(70,064	)			(220,871	)
Payments of deferred financing fees			(35,296	)			-
Net cash used in financing activities			(105,360	)			(1,388,999	)
Net increase (decrease) in cash and cash equivalents			733,012				(696,819	)
Cash and cash equivalents
Beginning of period			503,564				1,702,435
End of period		$	1,236,576			$	1,005,616