Good day, and welcome to the Electromed First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note today’s event is being recorded. I would now like to turn the conference over to Mike Cavanaugh with ICR Westwicke. Please go ahead.

Good afternoon, and thank you for joining the Electromed earnings call. Earlier today, Electromed Inc. released financial results for the first fiscal quarter of 2024, the quarter ended September 30, 2023. The 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 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 Jim Cunniff, President and Chief Executive Officer of Electromed.

Thanks, Mike, and thank you to everyone joining today’s call. I’m thrilled to report another strong quarter for Electromed to kick off fiscal year 2024 as we generated quarterly revenue of $12.3 million, representing year-over-year growth of 16%. All 3 of our revenue categories, homecare, hospital and international, saw revenue growth over the same period of fiscal 2023, demonstrating that our strategic growth initiatives are yielding impressive results. In addition to the strong revenue growth in the quarter, operating income came in at $142,000 compared to $44,000 in the same quarter of fiscal 2023. Brad will provide more detail later in the call regarding our financial results. Our increased revenue are a direct result of the hard work and execution of the entire Electromed team. We continue to attract high-quality talent to expand our direct selling efforts, which is a key component of our commercial plan. We ended the quarter with 51 sales representatives, up from 46 reps at the end of fiscal year 2023. In the second quarter, we intend to continue to thoughtfully expand the team, aiming to hire three additional reps to deepen our penetration in key markets for Electromed and to support a larger pool of physician prescribers. Additionally, we have initiated a revamp of our training and onboarding program with the goal of decreasing the ramp-up time to productivity for new sales reps. We have a track record of strong productivity from our sales reps, and the first quarter was no exception, coming in at an annualized rate of $876,000 in homecare revenue per rep, well within our target range of $850,000 to $950,000. We look forward to sharing the results of our revamped sales rep onboarding process in future business updates and feel confident that these efforts will have a beneficial impact on our…

Thank you, Jim. Net revenue for our first quarter grew 16% over Q1 of last year to $12.3 million. Homecare revenue for the quarter was $11.2 million, an increase of 16% over Q1 last year. This growth was driven primarily by the increase in the number of our direct sales representatives. As we continue to reduce ramp time to productivity for new hires with our new training and onboarding initiative, we expect to see continued growth. Q1 hospital revenue increased year-over-year by 30% to $507,000. This revenue increase was due to the addition of a strategic account manager focused on delivering hospital revenue. Homecare distributor revenue for the quarter was $573,000, an increase of 3% from Q1 last year. Q1 international revenue increased year-over-year by 12% to $91,000. As mentioned in previous updates, we continue to support and maintain our current distributors in the international markets, but growing our international business is currently not a primary focus for us. Gross profit increased to $9.5 million or 77.1% of net revenues for the quarter compared to $8.3 million or 78.2% of net revenues in Q1 FY ‘23. The increase in gross profit dollars for the quarter was primarily due to increased revenue, while the gross margin rate decrease year-over-year was a result of increased material and labor costs. Selling, general and administrative or SG&A expenses were $9.2 million for Q1, representing an increase of $1.2 million or 14.5% compared to the same period last year. SG&A expenses in Q1 contained several onetime expenses totaling over $600,000 that are not expected to be recurring throughout the remainder of the year, including our annual sales meeting, investments in market research as well as recruiting and expenses associated with changes to our leadership team. Research and development expenses decreased $92,000 or 31% versus Q1 of last year to $206,000. The decrease was primarily due to reduced costs associated with our Clearway product development. Net interest income increased $73,000 or 1,820% to $77,000 for the quarter. The increase is primarily due to increased savings rates associated with our cash balances. As of September 30, 2023, Electromed had $7 million in cash, $23.5 million in accounts receivable and no debt, achieving a working capital of $30.4 million and an increase in total shareholders’ equity of $600,000 to $38.2 million. The cash balance reflects a decrease of $0.4 million compared to fiscal year-end 2023. The decrease is primarily a result from payment of annual incentive compensation in Q1, which is not expected to occur in the remaining quarters. With that, we’d like to move to the Q&A portion of our call. Operator, please open the call to questions.

[Operator Instructions] Today’s first question comes from Aaron Wukmir with Lake Street Capital Markets.

This is Aaron on the line for Brooks here. Congrats on the strong momentum in the quarter. I guess I just want to start with something you mentioned in the press release and the prepared remarks, that being that you launched an improved way of sort of gathering, tracking and reporting that patient quality of life feedback to the physicians. I was just wondering if I could get a bit more color on that, what that sort of looks like and what things you’re sort of looking and thinking about moving forward here.

Yes. Thanks, Aaron. This is Jim Cunniff, and I appreciate you being on the call. We’ve introduced what we call smart notes. It’s basically a mechanism to trace the patients’ journey from the time that they actually get trained on the therapy at home to after -- about 10 days after training to 30 days after they’ve been on the therapy. And it measures different things like how often they utilize the therapy. We expect most of our patients will be using the SmartVest twice a day. We want to see the duration of how long they’re using the product so that we’re ensuring that the patient is compliant with their therapy. And then also we’ve incorporated CAT scores, which is basically a measurement to which -- really for most COPD patients, but it does apply to bronchiectasis patients as well. It’s really quality of life metrics. And so we gather all that information. We report it back to our clinicians, and that helps them gauge how the patient is doing on the therapy after it’s been prescribed.

Got you. Okay. That’s helpful. And I guess a quick follow-up, Jim. You’ve been there for a few months now. I’m wondering just on a broader level, if you could just give an updated impression of the space and the company specifically and where you sort of see the biggest opportunities going forward. If you could just mention, I don’t know, 1 or 2 things that really stood out to you maybe this quarter and moving forward as sort of untapped potential or maybe some major focus points for the company as you continue into fiscal ‘24 here.

No. I mean I’ve been thrilled with the team that I’ve inherited. I think that the space that we operate in, especially as a singularly focused company on HFCWO and bronchiectasis patients and people who need airway clearance, the prevalence for the disease state is enormous, as I think you’re aware, Aaron. And the recognition that this is afflicting a lot more patients, I think we’re starting to see more and more of that, not only with the clinician space. But also, we’re at a CHEST conference in Hawaii about a month ago. And even the pharmaceutical companies are starting to recognize the prevalence of bronchiectasis, and they’re looking at introducing drugs that are anti-inflammatories. They’re not airway clearance drugs, but they are inflammation reduction products. And so I think more and more, there’s a lot more awareness of this disease state. And that’s only going to help us as we continue to get more and more patients adopted to HFCWO. Obviously, as you know, this is a chronic irreversible condition, and the SmartVest product really just improves the patient’s quality of life if they use the therapy. And we think we’ve got the best technology in the marketplace today. We’re really excited because we did a beta launch of our Clearway for hospital launch last quarter. We’re launching that full bore this quarter. So we think that there’s some additional opportunities for patients who get admitted to a hospital because of an exacerbation. But then again, those patients are going to need the device when they get discharged. And we think getting them on our therapy, our device, where we’ve got a very intuitive product to use, we’ve got a vest that’s very comfortable, we feel that we’re going to be able to get some traction for -- from those patients who get discharged from hospitals. So that’s one opportunity. And then the other is, we’re -- Brad mentioned this in his comments about the international market. We’re evaluating who we want to be in that market, and we don’t want that to be a distraction for the rest of the business because we really do believe that the domestic market here in the United States is really where the golden opportunity is near term.

Great. Great. Yes, that is super helpful. And just to make sure I caught this right, you ended with 51 sales reps. Is that correct? And then you plan to hire 3 more?

Correct, yes. And we intend to have those 3 positions filled there in this month.

This month. Okay. Okay. Got you. And then I guess just a quick question for Brad here. You mentioned the SG&A was a bit higher this quarter, and it sounds like that’s going to be nonrecurring. Just thinking about how we should think about that line moving forward.

Thanks, Aaron.

Yes, exactly, Aaron. I think we’ve talked a lot about the opportunity that we have as we continue to grow our top line in the mid-teens or better and wanting to be able to show leverage on the bottom line over time. We know that our Q1 tends to be a heavy quarter for us when we’re ramping up sales reps ahead of their kind of reaching sort of full productivity but do anticipate that as a rate of revenue, we’ll see improvement in our SG&A over the balance of the year. And really, it’s a goal of us to show improvement of that year-over-year going forward.

Got you. Okay. Makes sense. Congrats on the strong momentum.

Thank you. Ladies and gentlemen, that’s all the time we have for questions today. So I’d like to turn the conference back over to Jim Cunniff for any closing remarks.

Thank you very much for joining the call today, and thank you for your continued support of Electromed. As I mentioned to Aaron, I’m excited to continue executing against our strategic growth plans and to scale the Electromed business to drive increased value to our shareholders. If you are interested in a follow-up call, please contact our Investor Relations partners at ICR Westwicke. Also, I want to let everybody know that we’ll be hosting an investor meeting in person and virtually in the back half of this quarter. And likewise, if you’re interested in more information or you’d like to participate, please contact our Investor Relations contacts again at ICR Westwicke. So thank you again. Appreciate your time today and appreciate your investment on Electromed. Thank you, everyone.

Thank you. Ladies and gentlemen, this concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful day.