Greetings, and welcome to Electromed Inc's first quarter fiscal 2022 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kalle Ahl of The Equity Group.
Thank you, Melinda, and good afternoon, everyone. Electromed's first quarter fiscal 2022 financial results were released today after the market closed. A copy of the earnings release can be found in the investor relations section of the company's website at smartvest.com. As a reminder, 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 these 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. Joining us from Electromed this afternoon are Kathleen Skarvan, President and Chief Executive Officer, and Mike MacCourt, Chief Financial Officer. Kathleen will begin with some opening remarks, after which Mike will present a summary of the company's financial results. Then we will open the call for questions. Now it's my pleasure to turn the call over to Kathleen.
Thank you, Kalle. Good afternoon, everyone, and thank you for joining us today. We began fiscal 2022 on a strong note with record quarterly revenue of $10 million, corresponding to 25% growth versus the first quarter of fiscal 2021. We achieved exceptional year-over-year growth in both our home care and institutional businesses, which is driven by strong execution and we believe an early indication that our strategic investments in our growth initiatives is paying off. Our home care revenue grew 24.4% year-over-year to $9.3 million, driven by higher referrals and approvals. This quarter's increase in referrals reflects the expansion of our direct sales force as well as enhanced sales productivity. Our total field sales employees increased to 51 at the end of the first quarter compared to 42 at the end of the prior year comparable period.
During the same timeframe, direct field sales employees grew to 41 from 35 a year ago. Of note, we expanded our sales force without sacrificing productivity. In the fiscal year 2022 first quarter, our annualized home care revenue per direct sales representative was approximately $955,000, a new company record and comfortably above our targeted range of $750,000-$850,000. We applaud our sales team for successfully executing a hybrid virtual and face-to-face selling model, adapting to the ebb and flow of clinic access during the COVID-19 pandemic and delivering excellent results despite the dampening impact of the Delta variant on patient visits to pulmonologists in the quarter.
Our institutional revenue grew 61.5% to $449,000 in the first quarter of fiscal 2022, reflecting both increased capital purchases and higher disposable volumes as many hospitals resumed greater utilization of high-frequency chest wall oscillation or HFCWO protocols after pausing during the early phases of the pandemic. Our strong start to the fiscal year gives us confidence to continue our strategy of investing in growth of Electromed's SmartVest HFCWO business while maintaining near-term profitability and building scalable and efficient processes that will enhance operating leverage over the long term. Related to sales force expansion, we are confident in our plan to staff 43 territories in the near term. Although not at that staffed level at the end of quarter, we are selling in all 43 territories, leveraging our sales support staff as we recruit, hire, and onboard toward that plan.
Strengthened recruiting, onboarding, training, accountability measures, target account planning, and coaching all have contributed to stronger sales force productivity and our overall home care revenue increases. Given this backdrop, we are confident that expanding our sales force will drive value. Typically, it takes a new sales rep 6 months to reach full productivity in established territories and 9-18 months in expansion territories. Based on our historical productivity actual performance, we are revising our productivity range to between $800,000 and $900,000 of home care revenue per sales rep from our previous range of $750,000-$850,000. In fiscal 2022, we will continue to deploy funds into direct-to-consumer and digital marketing programs, which are providing us with a new stream of high-quality leads, referrals, and revenue.
We are continuing to invest an elevated amount in research and development this year to finalize our next generation device, which is designed to further advance the attributes of our existing SmartVest SQL device while providing us with raw materials cost advantages. We anticipate the launch of our next generation device in the first half of fiscal year 2023, by which point our R&D expenses should return to normalized levels in the range of 2%-3% of sales. In fiscal 2022, we are continuing to invest in clinical studies, including the previously disclosed prospective multicenter bronchiectasis outcome study utilizing SmartVest. That study is now approximately 30% enrolled after a several-month pause due to the pandemic.
We also are enrolling a post-surveillance study with chronic obstructive pulmonary disease and bronchiectasis patients, prescribing SmartVest, utilizing quality of life questionnaires to measure outcomes prior to therapy and at two intervals following initiation of the therapy. We expect to complete the enrollment through the two-interval follow-up in the second half of fiscal 2022. We believe we are the industry leader in advancing clinical studies, providing Electromed with further differentiation during the sales process and increasing physician awareness of using SmartVest for the effective treatment of bronchiectasis. Finally, this year, we are continuing to make critical infrastructure investments designed to drive operational excellence and growth. Among our systems projects in July, we commenced implementation of a new ERP software platform designed to create more efficient and scalable operational processes while enhancing the quality of business analysis.
This quarter, we also deployed resources to enhance our existing customer relationship management system and optimization of our revenue cycle management system. In closing, the growth-oriented investments we are making today reflect our confidence in Electromed's ability to capture incremental share of the significant expanding non-cystic fibrosis bronchiectasis market. We believe that approximately 630,000 people with a bronchiectasis diagnosis could benefit from HFCWO therapy. Yet only an estimated 77,000 patients in the Medicare population are currently being treated with a device like SmartVest. Therapy with SmartVest improves patient quality of life, prevents emergency room visits and intensive care stays, and reduces the need for antibiotics, all positive outcomes underpinning our mission of making life's important moments possible, one breath at a time.
By investing in our mission, we believe we will and can enhance Electromed's long-term revenue growth rate, ultimately driving operating leverage, improved margins, and durable shareholder value creation. With that, I will turn it over to Mike for a more detailed discussion of our financial results.
Thank you, Kathleen, and good afternoon, everyone. Our net revenue in the first quarter of fiscal 2022 increased 25% to $10 million from $8 million in the first quarter of fiscal 2021, primarily driven primarily by higher home care and institutional revenue. Home care revenue increased 24.4% to $9.3 million, primarily due to an increase in referrals and approvals. As Kathleen noted, we benefited from an increase in direct sales representatives and an increase in overall sales representative productivity. Institutional revenue increased 61.5% to $449,000 due to an increase in volume of devices and garments sold as hospitals returned to more normal purchasing activity.
Distributor revenue totaled $156,000 in the first quarter of fiscal 2022 versus $178,000 in the comparable prior year period. International revenue totaled approximately $112,000 during the first quarter of fiscal 2022 versus $262,000 in the comparable prior year period. Gross profit in the first quarter of fiscal 2022 increased to $7.7 million or 77% of net revenue from $6.1 million or 76.8% of net revenue in the first quarter of fiscal 2021. The increase in gross profit dollars this quarter was primarily due to stronger home care revenue. The increase in gross profit percentage this quarter was primarily due to favorable revenue mix, partially offset by increased raw material and shipping costs.
During the quarter, we did experience progressively increasing raw material and shipping costs, which we expect to continue through fiscal year 2022. These cost increases will place downward pressure on our gross margin percentage. We expect our gross margin percentage to be in the mid 70% range for the remainder of fiscal year 2022, which is on the low end of our historical gross margin percent range. We do expect an increase in gross profit percentage once our next generation device is fully launched in fiscal year 2023 due to a lower product cost structure compared to our current device.
Selling, general, and administrative expenses increased to $6.8 million in the first quarter of fiscal 2022 from $5 million in the prior year period, primarily due to increased payroll and compensation related expenses, higher professional fees, and greater travel, meals, and entertainment expenses. Higher payroll and compensation related expenses were primarily due to a larger average number of employees in sales and marketing roles, increased commissions on higher home care revenue, merit-based increases, and higher health insurance costs.
Higher professional fees were primarily due to increased costs related to the shareholder activism matter, which concluded with a cooperation agreement that became effective in September of 2021, and increased investment in our systems infrastructure, including initiating our ERP system implementation and enhancing our existing customer relationship management and revenue cycle management systems. Higher travel, meals, and entertainment expenses were primarily due to an increase in travel by sales representatives compared to the heavily COVID-19 driven travel restrictions in the prior year period and a national sales meeting that was held in the current fiscal quarter but was not held in the prior year due to COVID-19. As a percentage of revenue, SG&A expenses were 67.9% compared to 62.5% in the first quarter of fiscal 2021.
Research and development expenses totaled $376,000 in the first quarter of fiscal 2022, or 3.8% of revenue, compared to $481,000 , or 6.0% of revenue, in the comparable prior year period. As Kathleen mentioned, we continue to invest in our next generation device this quarter and expect to launch the product in the first half of fiscal year 2023, following 510(k) clearance by the U.S. Food and Drug Administration. Operating income totaled $538,000 compared to $663,000 in the first quarter of fiscal 2021, reflecting our increased strategic investments in SG&A and costs related to the shareholder activism matter, partially offset by stronger revenue performance.
Income tax expense totaled $108,000 this quarter, compared to $137,000 in the same period of the prior year. We expect our effective tax rate for the fiscal year to be in line with recent historical tax rates. Net income for the first quarter of fiscal 2022 was $439,000 , or $0.05 per diluted share, compared to $535,000 , or $0.06 per diluted share in the first quarter of fiscal 2021. Now moving to the balance sheet and operating cash flow. Our balance sheet as of September 30, 2021, included cash of $11.0 million, accounts receivable of $18.4 million, no debt, working capital of $27.6 million, and shareholders' equity of $33 million.
Net cash used in operating activities totaled $576,000 in the quarter versus net cash provided by operating activities of $822,000 in the comparable prior year period. Operating cash flow was impacted this quarter by an increase in AR related to our 24.4% home care revenue growth and higher quarterly cash income tax payment timing, which we're due in part to catch up on tax payments owed due to higher profitability than expected in the prior fiscal year. Finally, key priorities for allocation of our capital include continued reinvestment in Electromed's market expansion, technology differentiation, and sales force footprint, and continued repurchase of Electromed shares on an opportunistic basis. This concludes our prepared remarks. Operator, please start the Q&A portion of the call.
Thank you. The floor is now open for questions. If you do have a question, please press star then one on your telephone keypad to join the queue. If you're using a speaker phone, please pick up your handset to provide the best sound quality. Again, ladies and gentlemen, if you do have a question or comment, please press star then one on your telephone keypad at this time. We go first to Kyle Bauser of Colliers Securities. Please go ahead.
Hi. Thanks for taking the questions. This is Kayla Hostetler on for Kyle. I guess first off.
Hi, Kayla.
Hi. It sounds like the next gen device should launch sometime between July and December next year. Could you talk about the milestones you need to complete beforehand? Are you still finalizing the new device and you need to collect data to submit with your application?
Sure. Be happy to answer that question, Kayla. Thank you. Some of the significant milestones are part of our phase gate design process, and we're continuing to move through those phase gates. In the latter stage of those, where we would be doing certain risk management documentation, there would be certain testing that needs to be done from a performance standpoint. Those could be electromagnetic testing, UL testing and so forth. Then, of course, just finalizing the writing of the 510(k). Those are a few. We're not anticipating any concerns at this time and therefore still believe we're on track for that launch in that first half of our fiscal 2023.
Great. Are there any clinical milestones or data readouts that we should be watching for?
On for the launch of the new product?
Mm-hmm.
Not that I can think of right now that come to mind.
Okay, great. Looks like your shareholder meeting is on Friday. We'll create the Finance and Strategy Committee, which is great. What sort of timeline do you envision here in terms of initial recommendations from the committee?
Sure. You're absolutely right. At the conclusion of the shareholder meeting and the board meeting, which is taking place that same day, we will have authorization to launch or start that Finance and Strategy Committee, and they will have an approved charter also. I believe that they will convene their committee within the month to start on their review and analysis assessment and discussions around with the goal of enhancing shareholder value.
Lastly, can you provide a little more color around strategic investments you are making with respect to system infrastructure? Just curious what falls into that bucket. Thanks.
On the infrastructure, absolutely. Mike, maybe you wanna talk a little bit about infrastructure investment?
Yeah, sure.
Yeah, I mean, I think there's three major ones. I think the ERP is, of course, the big one that's holistic across the whole organization, and we kicked that off in July of this year. It will just really help us build scalable, efficient processes and get a lot better analytics for our business with far less work. We're excited to get going on that. You know, we fully implemented our revenue cycle management system in June of last year. There's always, in my experience, a 6- to 9-month cycle after you go live, where you really optimize it and figure out how to get the right analytics and performance metrics out of it. We're continuing to invest in that to make sure that we're getting all the benefit that we want out of our revenue cycle management system.
The third piece is our customer relationship management system. We've got a good CRM in place, and we're doing some good things in there as well. It's really that those are tools that help our sales team. They have their own dashboards. It helps them really be very targeted in their approach and very analytical in terms of how they go and target accounts to help drive growth. We've got a pretty good CRM now, but we're trying to take that to a different level with some incremental investments in there. Really pushing hard on all three of those here during fiscal year 2022.
Great. Thanks for all the updates. I'll jump back in queue.
Thanks, Kayla.
Next we go to the line of James Terwilliger with Northland Securities. Please go ahead.
Hey, guys. Can you hear me okay?
Yes, we can.
Okay, great.
Hi, James.
Well, hello. I hope everyone's well. Great job on the revenue number. That's a very nice number that you posted. A couple quick questions. The first one I was gonna ask this anyway, but you actually addressed it ahead of time. Can you expand a little bit on anything that's going on with the supply chain? You know, we hear that from a number of different companies, and I think you mentioned there was a little bit of a supply chain issues or costs moving in a certain direction. You know, I think you also said about 75% gross margins, which is a little bit less than what you guys have been trending, but not terrible. Could. Do I have that correct, 75% gross margins?
Any other additional information on maybe what you're seeing from the supply chain?
Yeah, I'll take the gross margin. I'll let Kathleen talk about the supply chain. Yeah, I mean, we would say mid-70s% is probably the range. There's a variance around 75%, but probably in that and a little bit lower than what our historical, you know, 76%-78% has been. That's a fair assessment.
Yeah, absolutely. Let me share a little bit more about the supply chain. Our materials and engineering group has been incredibly proactive on working with our suppliers, anticipating longer lead times, placing purchase orders well in advance. Even with that, though, we can be surprised by a phone call that says, "Oh, what we plan to deliver isn't available." I think our suppliers are feeling that as well, that there are disruptions and interruptions that aren't fully predictable. We have been fortunate, though, in the work that we've been doing. We have not seen any material impact from a manufacturing or shipping standpoint, and we're cautiously optimistic that we can continue. I will say that most everyone is experiencing this situation where it isn't always as predictable as we would like it to be.
Again, we're continuing to place purchase orders well in advance. We're continuing to stay very close with our suppliers, and we'll continue to do that. There are cost increases on our raw materials that are not predictable as well, and so we do wanna be somewhat careful in giving that guidance on gross profit. Then there are shipping costs that have been impacted too. As you probably know, if you've tried to ship something for Christmas or a box, it's really incredibly increased, which of course is a lot out of our control also. Hopefully that's some helpful color.
No, the supply chain has been an issue for a number of different companies, and you've got to navigate it, but seems like you're navigating it very well. My next question, Kathleen, is probably for you, since I have you. As we go into calendar 2022, are there any reimbursement changes on the horizon that we should be looking at or you know, discussing, modeling? Any reimbursement changes as we move into 2022 on?
There's two items that come to mind. One, we'll be receiving cost of living changes from Medicare here in another month or so before the first of the year. As Mike has commented on historically, we've received some type of a small increase based on cost of living, and I've heard of other cost of living. Well, Medicare changed their monthly benefit as well. We'll see. We'll let you know, but that becomes public at that time. You know, the other, we're continuing to watch the CMS waiver that is linked with the public health emergency, and at this time, that is continuing through almost the end of January. Yeah, I think that we're still optimistic that that has benefits.
We've also talked to that if the pandemic is improving to the point where the public health emergency is no longer in effect, then we would like to think that we're gonna have more access to clinics, and there's more patients that are gonna be much more comfortable going back into the clinic. So really that's the headwind, tailwind that we talk about occasionally. But other than that, we're not anticipating any changes at this time.
All right, great. Then my last one, I think you kinda touched upon. A lot of companies, you know, had a tough time with what happened with COVID and Delta in Texas, you know, delaying procedures, referral patterns. Also Florida, certainly the Southeast got the Delta variant pretty bad. What was your exposure to the Southeast? Is that a major region for you? Did the Texas and Florida impacts hit you? Because your revenue number was really strong. Any additional color there? It had to be a negative of course, but can you quantify that at all?
Certainly there were impacts in regard to the volume of patients that were visiting their clinics. I think, though, that there were so many ebbs and flows, and it varied on which part of the United States was experiencing those increases in cases. Based on our you know where our sales reps are and where they were able to access, we were able to overcome that. The team has just been extremely flexible on that virtual and being creative about access so that we can continue to help patients. Nothing different than that at this point that I can share. I think again it's a tribute to our sales organization and how adaptable they've been.
Okay, great. I'll jump back in queue, but congratulations on a good quarter. Thanks.
Thank you, James.
Next we go to the line of Tom Harenburg with Carl M. Hennig. Please go ahead.
Yes, good afternoon. Can you give us an update on the share repurchase? I believe you bought 110,000 shares in the prior quarter, and I think that's on a 3 million share repurchase program.
Thank you and thanks for the question, Tom. You know, as we've said in our script and we've said previously, we're gonna be opportunistic about repurchasing, and we did not have any additional repurchases in this quarter.
Okay, thank you.
You're welcome.
There are no further questions. We return to Kathleen Skarvan for closing remarks.
Thank you all for joining our call this afternoon. In December, we'll be participating in the Sidoti Micro-Cap Investor Conference, which will be held virtually, and we remain accessible to one-on-one calls. Please reach out to our investor relations firm, The Equity Group, if you are interested in scheduling a follow-up call. We look forward to reporting back to you in February when we will release our second quarter fiscal 2022 financial results. Have a good evening and stay safe.
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