ELMD Electromed Inc

Electromed, Inc. (NYSE Amex: ELMD) today announced financial results for the three-month period ended December 31, 2011. Net Revenues for the three months ended December 31, 2011, were approximately $4,790,000, a 2.2% increase compared to Net Revenues of approximately $4,686,000 for the same period last year. The Company also announced Net Income of approximately $25,000, or $0.00 per basic and diluted share, for the three months ended December 31, 2011, compared to Net Income of approximately $292,000, or $0.03 per basic and diluted share, for the same period last year. The reduction in Net Income results was attributable to missed sales goals reflecting underperformance by a number of former Clinical Area Managers. This resulted from termination-driven turnover of approximately 16% of the sales force. Management continues to believe that planned increases in the Company’s sales force, reimbursement and production personnel, coupled with the expansion of marketing and research and development efforts, will provide strong impetus for continued solid annual sales growth.

Robert Hansen, Chairman and CEO, commented on the Company, saying,

“When some employees fail to achieve planned goals, the performance of all the employees is compromised. In Sales, this fact is especially relevant. When momentum falters, the solution is to make summary changes and to replace weakness with strength. The Regional Sales Managers of Electromed, Inc. and I have acted swiftly to recruit new, highly-trained, and experienced sales staff to succeed the sales staff who failed to keep pace with the growth needs of the Second Quarter. New and exciting successors have replaced underperformers. I remain confident that the balance of Fiscal Year 2012, and the First Half of FY2013, beginning July 1, 2012, will reflect strong sales growth accompanied by continued profitability.”

Gross Profit decreased to approximately $3,480,000, or 72.6% of Net Revenues, for the three months ended December 31, 2011, compared to $3,540,000, or 75.6% for the same period in Fiscal 2011. The decrease in gross profit percentage was primarily the result of a change in average reimbursement from the mix of referrals during the three month period. Factors such as diagnoses that are not assured of reimbursement and insurance programs with lower allowable reimbursement amounts (for example, state Medicaid programs) affect average reimbursement received on a short-term basis. These factors tend to fluctuate on a quarterly basis. However, management does not believe the results of the quarter ended December 31, 2011, are indicative of a long-term trend in decreasing margins.

Operating Expenses, which consist of Selling, General, and Administrative Expenses and Research and Development expenses, were approximately $3,380,000 for the three months ended December 31, 2011, an increase of approximately 12.6% over Operating Expenses for the same period last year. These planned increases resulted from higher payroll related to increasing the size of the sales team, increases in reimbursement, administration, patient services staff, and patient training costs related to the higher Sales volume, increased expenses relating to being a new public Company, and increased Research and Development expenses.

Total cash was approximately $1,745,000 as of December 31, 2011. For the three months ended December 31, 2011, cash used in financing activities was approximately $86,000, consisting primarily of $90,000 in payments of long-term debt, capital lease obligations, and deferred financing fees. An aggregate of $405,000 was used for investing activities during the three months ended December 31, 2011, for purchases of property and equipment. The Company used approximately $710,000 in operating activities composed primarily of an increase in the Company’s accounts receivables and inventory, which increased approximately $304,000 and $234,000, or 2.9% and 10.8%, respectively. Accounts payable and accrued liabilities decreased approximately $302,000, or 14.0%, during the three months ended December 31, 2011.

About Electromed, Inc.Electromed, Inc., founded in 1992 and headquartered in New Prague, Minnesota, 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 StatementsCertain 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 plans and expectations regarding sales growth, profitability, margins, planned increases in sales force, reimbursement and production personnel, and expansion of marketing and research and development. 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 effectiveness of our sales and marketing initiatives, changes to reimbursement programs, 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.

  Electromed, Inc. and Subsidiary Condensed Consolidated Balance Sheets       December 31,     June 30, 2011 2011 Assets (Unaudited) Current Assets Cash and cash equivalents $ 1,745,468 $ 4,091,739 Accounts receivable (net of allowances for doubtful accounts of $45,000) 10,704,705 9,593,105 Inventories 2,397,634 1,855,957 Prepaid expenses and other current assets 466,976 371,257 Deferred income taxes   722,000     722,000   Total current assets 16,036,783 16,634,058 Property and equipment, net 3,255,311 2,807,082

Finite-life intangible assets, net

1,198,279 1,235,828

Other assets

  239,332     191,964   Total assets $ 20,729,705   $ 20,868,932     Liabilities and Shareholders’ Equity Current Liabilities Revolving line of credit $ 1,768,128 $ 1,768,128 Current maturities of long-term debt 437,297 438,267 Accounts payable 623,370 733,621 Accrued compensation 702,274 868,229

 

Warranty reserve 469,624 444,096

Other accrued liabilities

  68,753     161,166   Total current liabilities 4,069,446 4,413,507 Long-term debt, less current maturities 1,426,934 1,582,102 Deferred income taxes   167,000     167,000   Total liabilities 5,663,380 6,162,609 Commitments and Contingencies   Shareholders’ Equity Common stock, $0.01 par value; authorized: 13,000,000; shares issued and outstanding: 8,102,252 and 8,100,485 shares respectively 81,023 81,005 Additional paid-in capital 12,861,759 12,794,368 Retained earnings 2,123,543 1,853,450 Common stock subscriptions receivable for 15,000 shares outstanding as of June 30, 2011   -     (22,500 ) Total shareholders’ equity   15,066,325     14,706,323 Total liabilities and shareholders’ equity $ 20,729,705   $ 20,868,932       Electromed, Inc. and Subsidiary Condensed Consolidated Statements of Income

(Unaudited)

   

For the Three Months Ended

 

 

For the Six Months Ended

December 31,

 

December 31,

2011   2010 2011   2010   Net revenues $ 4,790,344 $ 4,685,546 $ 10,169,262 $ 8,850,975 Cost of revenues   1,310,416   1,145,391       2,631,734   2,377,092 Gross profit   3,479,928   3,540,155       7,537,528   6,473,883   Operating expenses Selling, general and administrative 3,129,447 2,778,415 6,527,000 5,265,999 Research and development   250,339   218,703       457,924   417,089 Total operating expenses   3,379,786   2,997,118       6,984,924   5,683,088 Operating income 100,142 543,037 552,604 790,795 Interest expense, net of interest income of $1,634, $4,017, $3,662, and $5,988 respectively   43,588   53,165       87,511   112,852 Net income before income taxes 56,554 489,872 465,093 677,943   Income tax expense   (32,000 )   (198,000 )     (195,000 )   (274,000 ) Net income $ 24,554 $ 291,872   $   270,093 $ 403,943   Earnings per share attributable to Electromed, Inc. common shareholders: Basic $ 0.00 $ 0.04 $   0.03 $ 0.05 Diluted $ 0.00 $ 0.04 $   0.03 $ 0.05   Weighted-average Electromed, Inc. common shares outstanding: Basic   8,101,745   8,087,885     8,101,330   7,537,342 Diluted   8,125,458   8,115,621     8,121,971   7,573,453     Electromed, Inc. and Subsidiary Condensed Consolidated Statements of Cash Flows

(Unaudited)

    For the Six Months Ended December 31, 2011     2010 Cash Flows From Operating Activities Net income $ 270,093 $ 403,943 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 193,790 162,010 Amortization of finite-life intangible assets 60,199 54,784 Amortization of debt issuance costs 6,066 27,593 Share-based compensation expense 62,108 86,260 Loss on disposal of property and equipment 9,865 5,653 Changes in operating assets and liabilities: Accounts receivable (1,111,600 ) (1,271,774 ) Inventories (541,677 ) (64,429) Prepaid expenses and other assets (138,627 ) 4,769 Accounts payable and accrued liabilities   (343,091 )   355,257   Net cash used in operating activities   (1,532,874 )   (235,934 )   Cash Flows From Investing Activities Expenditures for property and equipment (618,966 ) (208,253 ) Expenditures for finite-life intangible assets   (22,650 )   (648,616 ) Net cash used in investing activities   (641,616 )   (856,869 )   Cash Flows From Financing Activities Net payments on revolving line of credit - (500,000 ) Principal payments on long-term debt including capital lease obligations (189,056 ) (215,708 ) Payments of deferred financing fees (10,526) (4,659 ) Proceeds from warrant exercises 5,301 - Proceeds from sales of 1.9 million shares of common stock, net of offering costs of $1,236,287 - 6,363,713 Proceeds from subscription notes receivable   22,500     -   Net cash provided by (used in) financing activities   (171,781)     5,643,346   Net increase (decrease) in cash and cash equivalents (2,346,271) 4,550,543 Cash and cash equivalents Beginning of period   4,091,739     610,727   End of period $ 1,745,468   $ 5,161,270