Good morning. Thank you all for joining us today for the Lytham Partners 2024 Investor Select Conference. My name is Joe Dorame, Managing Partner of Lytham Partners. I would like to welcome Electromed Inc, ticker symbol ELMD, trading on the Nasdaq. Joining us today from the company are Jim Cunniff, President and Chief Executive Officer, and Brad Nagel, Chief Financial Officer. Also joining us today is Brooks O'Neil, Senior Research Analyst with Lake Street Capital Markets. I have asked him to moderate today's fireside chat.
Brooks covers healthcare service and device companies, including Electromed. Before I turn it over to Brooks, management will be available for one-on-one meetings. If you'd like to sign up, please visit lythampartners.com/select2024. One further note, Brooks and I will be engaging in an analyst roundtable at 11:30 AM Eastern today. We will look to dive a little bit deeper into the medical device market. A link is available on the conference homepage. Again, that's lythampartners.com/select2024. I hope you can all join us. With that said, Brooks, the floor is yours.
Thank you very much, Joe, and thank you all for joining us today for a discussion with the senior team from Electromed. As Joe said, my name is Brooks O'Neil, and I'm a senior healthcare research analyst at Lake Street Capital Markets in Minneapolis. Lake Street seeks to cover high quality, but underappreciated small cap companies we think have big potential, and we believe Electromed is such a company today. With us today from Electromed are Jim Cunniff, CEO, and Brad Nagel, CFO. Will you and Brad please introduce yourself and tell us just a little bit about your background, Jim?
Yeah, Brooks, first up, it's great to be here with you today. Good to see you, and Happy New Year.
Thank you.
In healthcare for over 30 years. I started my career in sales and marketing roles with multinational companies like Baxter. But really for the past two decades, I've been running companies both here in the United States as well as internationally for companies like Stryker, KCI, which is a very large wound care company that's now part of 3M. And then most recently, I have been the President and CEO of Provista. Provista is the largest non-acute group purchasing organization in the country.
And in the last seven months or so, I've been part of Electromed, and I'm really excited to be part of this company. I was looking for a small dynamic company to join and a company where I could help them in their next chapter of growth. It's been great to be here and great to be here with you as well, Brooks.
Great.
I am Brad Nagel, also excited to be here with you guys. I've spent about the past 20 years in the finance and accounting world. Did a couple of stints with banks and then worked for Target Corporation for about a decade. Then most recently, before coming to Electromed, spent seven or eight years with Medtronic.
And I think the theme of my career has been, even when I've been in large companies, have gravitated toward smaller businesses within those companies and have enjoyed being a part of crossing the chasm as businesses look to move from kind of small startup mode into a period of sustained growth. Electromed, I see, as no exception to that.
I joined Electromed a little over a year ago and have been really excited to be a part of a company that is serving a very underserved patient population with a great technology and a great team. So it's been a first great year and looking forward to the coming years of continuing to drive growth.
Great, guys. Thank you very much for that. Now, Jim, will you give us a brief overview of what Electromed is and what it does, and tell us what you think will carry the company's prospects going forward?
No, I appreciate that. I think the slide that we put up here, Brooks, we're somewhat anticipating the questions that you're asking us. But, Electromed is a Minnesota-based company. One of the questions I get asked a lot is, "Do you actually manufacture the products domestically?" And the short answer is yes. So, we're a US-based company, and all of our manufacturing is done here. We're a medical device company.
The market that we play in is respiratory, and what we have is a really unique airway clearance device that's called SmartVest. And, you know, one of the things that really motivates us as a team is our mission.
You know, we are serving patients that are having a very difficult time breathing, and the device that we have actually helps release the mucus within their airways so that they can breathe, and they can have a quality of life that heretofore they don't have. So our mission, we're very excited about, and the opportunity that I see for this business is really strong. As Brad had mentioned, you know, we're in a growing but underserved market right now, and we've got the newest technology that's in the market to treat this disease state, which in the technology is high-frequency chest wall oscillation.
And the other thing is, we've got a fantastic new dynamic leadership team. And, you know, one of the things that's really been e ngaging for me is seeing, you know, we've got a lot of leaders who've only been with the company for less than 12 months, but they're adding a lot of fresh ideas and a lot of really great domain experience to the business, and we're gonna capitalize on that.
Fantastic. Maybe you mentioned the slides, but maybe you could just tell us a little bit about the market dynamics, the space in which Electromed competes, and why you think Electromed can prosper in this environment.
That's great. Well, you know, I put a couple of other slides in here just because we're in a pretty niche market. So I wasn't sure for the investors who are listening in on this call, if they're very familiar with who we are and who we serve. So I appreciate the question. The disease state, we're basically in the respiratory care market, Brooks, and the disease state that we are trying to support is bronchiectasis. This is an irreversible chronic condition that patients have, and it's typically a result of repeated infection within your airways. And as a consequence, what happens is your airways have inflammation.
There's mucus that gets built up in those airways, and unfortunately, the patient has a difficult time discharging that mucus, and a consequence of which is they have a hard time breathing. And so what our product basically does is, if you look at it, and this is the device in a kind of a cartoon depiction, but we have a product, as I mentioned before, called SmartVest. And essentially, it's a system where you have a vest that the patient wears. It's connected to a hose that's then connected to a generator.
And what that does is once you turn this product on, it gently squeezes and releases the patient's airways and causing the mucus to then get freed up and driven into the larger airways within a patient's respiratory system.
Then they can cough the mucus out. So by doing so, you can imagine if you can't breathe, it really compromises your quality of life. So this is really a way for people to get back to having some normalcy in their life, taking a walk, going to the movies, going to a restaurant. We get asked this a lot: So is this something that, you know, it's kind of a one and done with the patient? They use it, they clear their airways, they don't have to use it again. As I mentioned before, bronchiectasis is a chronic disease that patients have, and so once they get this condition, they really need to use this product on a daily basis.
Typically, the protocol is to use it two times a day, 30-minute sessions, and they use it seven to five days a week. So this is a product that somebody would use really pretty much for their lifetime once it's been prescribed to them. If you take a look at the market that we play in, this is a really exciting slide because there's a lot to unpack here. But essentially, for those people who have bronchiectasis, there's only 127,000 of them who've actually been put on high-frequency chest wall oscillation, the vest product that I showed you before.
But what we're excited about, Brooks, and I think this is really where our opportunity lies, is there's millions of people who have this condition today that have been undiagnosed. But for those folks who have been diagnosed, and there's 824,000 of them, roughly 230 of that 824,000 are under the care of a pulmonologist. And if you think about it, if we can get those patients sooner in their care path onto this technology versus later in their care path, it expands the market dramatically. We estimate that the total addressable market is about $2.3 billion if we can unlock that top portion of the iceberg.
But one of the things that's preventing that from happening is a lot of these patients are getting put on antibiotics, really just to treat some of the infection that they have, but they're not getting treated with having their mucus actually getting promulgated and discharged.
So we think that's a great opportunity for us. It's gonna take us doing some market development work, really with the prescribing physicians, to get them exposed to the benefits of getting patients on HFCWO sooner rather than later. And what we know, if happens when that occurs, is that there's less ER visits from these patients and less hospitalizations, which is beneficial for the patients, and it's obviously beneficial for cost containment in the healthcare industry.
Great. I didn't put this in the list of questions I was thinking about, but perhaps you could just touch base on the competitive environment a little bit and why you think you might have an advantage over competitors that you're seeing in the market today?
I'd love to. Well, there's really four major competitors in this market. Three of us are vest manufacturers, Brooks, and what I mean by that is the patient wears a vest that's connected to a generator. Two of those competitors, one is Hillrom, which is owned by Baxter, the other one is RespirTech, which is owned by Philips. One of the things that's unique about us is our sales team and our company is focused solely on HFCWO. Those other companies have a broader portfolio. Their reps are selling other products like non-invasive ventilation and oxygen. That's not a distraction for us.
You know, as I mentioned before, part of the opportunity for us, and quite candidly for our competitors, is to unlock more of these patients, which have been diagnosed with bronchiectasis, but they're not on the best technology. That's those other two competitors. There's a fourth competitor called AffloVest. They have a very different technology than we do. It's really a portable device that's battery-operated, that vibrates. Ours has a pulsation technology that covers, you know, all the lobes of the patients' lungs, and we feel like our technology is superior.
As I mentioned before, we also have the newest technology on the market. It's lighter, it's smaller, it's quieter, and the reception from not only our prescribing physicians, but also their patients, has been outstanding.
Great. Brad, maybe you could tell us a little bit about the company's recent performance, and give us a quick overview of the company's current financial position.
Yeah, happy to. So I think the key headlines, we're roughly $50 million in revenue. We are growing, and we are profitable, so we're generating cash and currently have no debt. We're most excited about the momentum in the business, and Jim talked a bit about the market opportunity. As of first quarter, which we finished back in September, we've delivered four straight quarters of mid-teens or better top-line growth, and we're wrapping up our second quarter right now, which ended 31 December 2023, and we'll be announcing here on 13 February 2024. So would love to have folks stay tuned.
As we look forward, we do expect to continue delivering that consistent top-line growth, but we also look to gain further leverage on the investments that we've made over the past few years to improve our profitability and gain further operating leverage. From a financial perspective, cash is always king, so we want to generate more cash, which gives us more options and more ability to drive shareholder value.
Great. Jim, both you and Brad are relatively new at Electromed. What would you say are your highest priorities to focus on this year, and what do you think you need to do to make sure Electromed continues to be successful?
I love it, Brooks. Yeah, as you had mentioned, both Brad and I are relatively new with the company, and, as I mentioned before, the other thing a lot of investors I don't think appreciate is, within the last 12 months, we have a new CEO, new CFO, leaders that are in charge of operations, RAQA, and compliance, sales operations, and R&D. So as I mentioned before, we've got a really exciting new leadership team, and they're bringing fresh ideas and a lot of energy to the business, so I'm excited about that.
But to answer your question, really, this is some of our focal points, and some of these things, you know, the company has been focused on in the past, but I think we have an opportunity to expand some of these.
So as you see on the slide, you know, one of the keys to our success is our commercial team, and we're gonna be adding. You know, we ended last fiscal year with 46 reps. We expect to conclude fiscal year 2024 with 54 reps, and we're on a trajectory to do that. And, you know, part of, as Brad had mentioned, getting more leverage in our business, is we do have to have the complementary infrastructure to support our sales reps.
But our team and reimbursement, in particular, has done a fantastic job in really stabilizing that team and getting it into a position where there's really not a one-to-one add. When you add a sales rep, you have to add somebody in the reimbursement. So we feel like that's a nice leverage point for us.
As I mentioned before, there's market development that needs to be done, so we do have outreach as it relates to not only patients, because there's a lot of people, you can imagine, if you can't breathe, you're looking for what options are out there. So we do have direct consumer initiatives, but we also do physician marketing, because we want to... You know, if you're a pulmonologist, sometimes, you know, you see a patient with COPD, you don't necessarily think that they may have bronchiectasis, and we want to put that on the forefront of what they're thinking.
We are, this year, gonna be spending more time, if you look at that third bullet point, to that market development, is spending time with some of the key areas of the business with KOLs as well as societies.
Because one of the things that this market is missing is guidelines when patients come in, for getting them on HFCWO. So we think that there's a great opportunity there to really unlock that market potential that I talked about before. And then, last but certainly not least is, you know, I'm coming to the business with fresh eyes, and I'm looking for ways in which we can become more effective and efficient. And I think by doing that, not only will we become more profitable, but we will become leaner and, a lot more nimble in, in supporting the market.
Great. So, I think I saw this morning a press release from you guys talking about a new initiative, a new partnership you have. Will you just take a minute to talk about that?
I'd love to. So, we just signed an agreement with a company called Marathon Medical that's based in Colorado. Essentially, what Marathon Medical is, is they are a disadvantaged veteran-owned business, and so, you know, as we're looking, you know. It's pretty much a nascent part of our portfolio right now, market-wise, Brooks, and that is the hospital market.
But we think that there's a really great opportunity, predominantly in the VA system, in some of the Indian-owned health systems, et cetera, for them to get access to our technology, because a lot of those patients that come through the doors of those facilities have this condition. So Marathon is, is, kind of an easy button for those health systems, VAs, Indian-owned health systems, et cetera, to order product.
Actually, as you know, many of the government-run facilities are looking to support some of those veteran-owned, disadvantaged distributors, and this is a means to do that. So we're really excited about it. They're a great group of folks, and we think it's gonna give us more access to those facilities.
Great. Sounds fantastic. So you've hit on a lot of the high points, but if you, as we approach, close, if you wanna take a second to just sort of summarize why you believe Electromed represents a great investment opportunity now, I think that'd be fantastic.
Love it, and that's this slide that's here. Yeah, Brooks has mentioned you've been covering us for quite some time. As I mentioned before, you know, we're in a large, expanding market with industry tailwinds. We've got proven technology, which we think makes a difference in the lives of the patients that we serve.
We get asked this question all the time, Brooks, you know, "What's the reimbursement landscape look for?" The good news is we have a well-established reimbursement code, ICD-10. We have Medicare reimbursement. We have commercial reimbursement. We don't have a lot of gaps as it relates to reimbursement, so that's not a limiting factor for us.
As Brad had mentioned, you know, we are a consistent grower, double-digit on the top line, and we've done all of that organically, and we think that there's still a lot of runway for that to continue. Brad didn't mention this, but we're a really profitable company at the top line. You know, we have mid-70% gross profit margins for our technology itself, which is pretty remarkable in the space. You know, we are generating cash, as Brad had mentioned.
We have no debt, and we're becoming more profitable as we're getting more leverage out of the business. We have a very attractive valuation. So if you look at, you know, where we are in the market versus the Russell Medical Index, I mean, you can see that we're a pretty good story here.
Our sales growth is above what the Russell Medical Index is. You know, our ratio, our multiple of enterprise value to revenue is about, you know, four times less than what the Russell Medical Index is, and we think that that's showing that our stock is actually undervalued right now. Our gross profit margin, as I mentioned, is robust, and we've got a strong operating margin at the bottom line. Brad, I'm not sure if there's anything else you wanna add to this.
Nope, well said.
No, I think that was a great summary. I will just say, you know, from my perspective, Electromed offers everything we're looking for in investment opportunities. I think, you know, you represent a terrific company with outstanding long-term prospects that I truly believe has been below the radar screen for many investors. So given, you know, strong performance, strong balance sheet, good prospects, and a low valuation, what more does investor need than the opportunity you guys offer?
So we really appreciate you guys taking the time today to talk with me. We're excited about the outlook for Electromed, and we look forward to working with you guys to grow the business and the investor base over time.
We really appreciate that, Brooks, and appreciate the time today and your ongoing support. I guess the last comment I would make, and I wanna just dovetail on what you've mentioned, and this sometimes gets lost, is the fact that, you know, our incentives, Brad's incentives, my incentives, are really aligned with our investors.
So, you know, my incentive reward is based on increasing total shareholder value, and one of the changes that I made since coming to Electromed is all of management's bonuses are predicated on us growing the top line and improving our profitability. And so, hopefully, you know, potential and existing investors appreciate the fact that, you know, how we're incentivized is aligned with hopefully what they are looking for for us to generate as a business.
Fantastic. Well, guys, we really appreciate the time today. Joe, thanks for the opportunity, and with that, we'll turn it back to you.
Jim, Brad, and Brooks, thank you very much for your time today. As we wrap up, just a couple reminders. If you'd like to sign up for a one-on-one meeting, please visit lythampartners.com/select2024. Also, webcast links are available via the same link by clicking Presentations in the top left-hand corner to view them. Again, gentlemen, thank you very much. We hope you all enjoy the conference.
Thank you. Appreciate it.
Thank you, Joe. Have a nice day.