Welcome to the Electromed Third Quarter Fiscal 2023 Financial Results Conference Call [Operator Instructions]. I will now turn the call over to your host, Mike Cavanaugh, Investor Relations. Mr. Cavanaugh, you may begin.

Good afternoon, and thank you for joining the Electromed earnings call. Earlier today, Electromed, Inc. released financial results for the third fiscal quarter of 2023, the quarter ended March 31, 2023. The release is currently available on the company's website at www.smartvest.com. Joining me on the call today is Kathleen Skarvan, President and Chief Executive Officer; and Brad Nagel, Chief Financial Officer. Before we get started, I'd 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 undue reliance on those forward-looking statements. And the company does not undertake any obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise. Please refer to the company's SEC filings for further guidance on this matter. With that, I will now turn the call over to Kathleen Skarvan, President and CEO of Electromed.

Thank you, Mike, and thank you to everyone joining the call today. As we report fiscal third quarter results, I'm very pleased to report a strong quarter as we achieved record quarterly revenues of $12.1 million, a 19% increase year-over-year from the same period last year. In the key home care segment, the results were even more impressive, generating $11 million in home care revenue, which represents a 21% increase year-over-year from the same period in fiscal 2022. These results were driven by strong referral flow and strong productivity from our expanded sales force. We also benefited from the introduction of our next-generation Clearway device earlier this year to positive reviews from patients. In short, this quarter's results were due to the team's excellent execution, the blocking and tackling every successful company needs to do well. Additionally, we experienced a short period of longer component lead times in the quarter, but the team managed that well demonstrated by our revenue growth. Needless to say, I'm proud of this team's execution during the quarter, delivering excellent top line growth. I'd like to touch on the strong reception our Clearway device has received thus far, one of the factors contributing to our strong referral and top line growth. We have received excellent feedback from clinicians and patients who appreciate Clearway's state-of-the-art touchscreen user interface, which is very intuitive and easy to navigate. And Clearway includes remote monitoring of patient data. We've also received positive feedback regarding the size of the device, which is the lightest HFCWO generator on the market. Our primary design goal was to enhance the patient therapy experience. And with Clearway, Electromed has made significant advances in HFCWO technology that we believe gives us a tangible advantage over the competition. Operating income during the fiscal third quarter was $1.2…

Thank you, Kathleen. Net revenues for the quarter were $12.1 million, a 19% increase over the same period in the prior year. Home care revenue for the quarter was $11 million, a year-over-year increase of 21% from the same period in the prior year. This growth was primarily due to an increase in direct sales representatives as well as positive market momentum from the introduction of our newest generation SmartVest Clearway in the quarter and was partially offset by a temporary interruption in supply chain and associated operations in the quarter. And as Kathleen mentioned, the CMS referral waiver continues to benefit the Medicare portion of our home care revenue. Home care distributor revenue for the quarter was $501,000, a year-over-year decrease of 4% from the same period in the prior year. Home care distributor sales are affected by the timing of distributor purchases that could cause significant fluctuations in reported revenue on a quarterly basis. And our year-to-date growth remains at 31% after 3 quarters of our fiscal year 2023. Institutional revenue was $440,000 and increased by $48,000 or 12% for the quarter primarily due to increased consumable sales to institutional customers. International revenue was $156,000 and decreased by $40,000 or 20% for the quarter. Gross profit for the quarter increased to $9.1 million or 75% of net revenues compared to $7.7 million or 76.4% of net revenues in Q3 of FY '22. While gross profit dollars increased due to higher sales volume, the decrease in gross profit as a percentage of net revenues compared to the same period in the prior year was primarily due to increased material costs and electronic component broker fees incurred to ramp up supply for the Clearway product. Selling, general and administrative or SG&A expenses were $7.7 million for Q3, representing an increase…

[Operator Instructions] And our first question comes from Brooks O'Neil with Lake Street Capital Markets.

Congratulations on a terrific quarter. I have a couple of questions. I guess I'd start off by asking you, Kathleen, if you anticipate being able to generate leverage on your investment in SG&A over the next few quarters.

Certainly, we're always looking at when is the right timing to leverage that SG&A cost for improving profitability. I would say that we're still in a growth cycle and an investment cycle. And so we would see that certainly in the future, we don't have an exact projection at this point to share with our investors. I think that right now, we think that this is a growing market. It's an opportunity to take advantage of that. And so I would expect that we'll see some leverage on that as we move forward into the new fiscal year. But again, we're in a -- still in an investment cycle here to capture that top line growth.

And then it wasn't completely obvious to me whether the supply chain issues you encountered in the quarter were resolved. I kind of think I heard you say they were, but I wanted to check and make sure.

We appreciate the question around the supply chain, Brooks. So it's a lingering area of focus for us, is how I would say. It's certainly still an area that has some risk to it. We've been very successful in managing that. And for that reason, we don't expect an impact this quarter, and so that's why we didn't talk much about it, but it certainly is a focus. The other thing I'd mention is that we have recently added a leader who is going to be focused on our supply strategy. And with the growth that we're experiencing, it was time for us to have more focus there so that we could be working as a partner with our suppliers and helping them anticipate how they can manage our growth and what our expectations will be going forward.

And then maybe I'll just ask one more. I'm guessing it's too early to have seen much of a competitive response to your well-acclaimed new product. But has there been any change in the competitive dynamic from others in, I guess, response to the moves you've made in the field?

Well, I think you've characterized it really well, Brooks. It's a little early in our introduction. I would say based on what I'm hearing anecdotally, we're not seeing a response that we're -- that's worth noting. I expect that, that could come. But currently, we're continuing to enjoy the physician and patient reaction to the enhanced patient experience that they're seeing with the device.

And I'd now like to turn the conference back to Kathleen Skarvan for any additional or closing remarks.

As always, thank you very much for joining us today and for your interest in Electromed. We continue to execute against our strategic growth plans, and we are excited as we look forward to scaling up distribution of our Clearway in calendar 2023 and beyond. If you would like to schedule a follow-up call, please contact our Investor Relations partners at ICR Westwicke. Thank you very much.

And this concludes today's conference call. Thank you for attending.