Good afternoon. I'd like to introduce our next presenter of the afternoon, Jim Cunniff, CEO of Electromed. Welcome.
Thank you. Good afternoon, everybody. How's everyone settling in? Good? All right. Let me tell you about the Electromed story. I'm Jim Cunniff. I'm the CEO. With me today is our CFO, Brad Nagel, who's over here to my left. For those of you who aren't familiar with Electromed, this is a forward-looking statement. I'm not going to read this to you, but this is the standard disclosures. We're a Minnesota-based company. We're about an hour southwest of the Twin Cities in Minnesota. We've been around, unlike some of the other companies that are here at the LD Micro Conference, we've actually been around since 1992. We're not a brand-new company. We have about 200 employees. We are publicly traded. Our market cap, this is a little dated. This was after our fourth quarter earnings where our market cap was $350.
In full disclosure, I actually announced when we announced our fourth quarter earnings as well as our full-year results, which were both records, that I'm retiring in April of next year. Our market cap took a little bit of a punishment from that. Just a terrific management team, a great company, and I'll share more about our story here as we go along. Here's some of the highlights. Again, we're a bit of anomaly, unlike some of the other companies that are probably presenting at this conference, in that we're growing, we're profitable, we're generating cash, and we have no debt. When you take a look at our history over time, one of the things that's most interesting is that we've always been profitable. But really up until last three years, we haven't been getting operating leverage on our P&L, and that's really changed.
When you take a look at our stock price about three years ago, we were trading at about $10.60 a share. Today, we're at about $28 a share. A lot of that is not only are we growing the top line, but we've been really effective in growing our operating income and earnings per share. The market that we serve, it's called bronchiectasis, so it's a little bit of a mouthful. I'm going to be referring to that quite a bit during my presentation. Bronchiectasis is a chronic, and it's an irreversible condition. Really what it's caused by is that these patients basically have reoccurring bouts of lung infections, and what that does is it widens their air passages.
If you take a look at this, there is a lot on this, but the disease is misdiagnosed, it is under-diagnosed, and a consequence of that is our type of technology, which is HFCWO. That really stands for high-frequency chest wall oscillation. That is the mechanism of action for how our SmartVest works, and I will talk more about that in a minute. As you can see here on the right, this gives a depiction of really what this disease state does. Basically what happens is these patients have their airways that enlarge. Mucus gets trapped in those airways, and it is really preventing these patients from breathing. A consequence of that also is that you have this mucus that is building up in your airways, which then leads to the fuel for future infections. This is a huge market that we are in.
When you take a look at the prevalence of this, there is basically about 1 million people in the U.S. that have bronchiectasis, yet only about 166,000 are on our technology or one of our competitors' technology. When you take a look at the remaining 850-ish thousand people in the U.S. that are not on high-frequency chest wall oscillation, and you multiply that times the amount of patients that are actually being seen by a pulmonologist, which is about 35% of these patients. I bring that stat up because we have a direct sales force, and our direct sales force, their primary call point is clinics that have pulmonologists. Then you multiply that times our average sale price, which is about $10,500 per device. This is a $3.1 billion market opportunity.
Part of the opportunity for Electromed and all of our competitors in this market is really unlocking this iceberg that you see here. That does not include the 4.1 million people in the U.S. that have COPD, bronchiectasis overlap. If we can uncover that as well, that basically doubles the market opportunity for us. How is bronchiectasis treated? As I mentioned before, this is a chronic, irreversible condition. The first thing you want to do is you want to clear the airways. That is really where we come into play, and I will show you how that mechanism of action works. But you want to get that mucus out of the patient's lungs. That is the first thing you want to do.
Many of these patients, though, if you have mucus that is accumulated in your lungs, that is really the fuel for a future infection, so you want to treat that infection with an antibiotic. About a year ago, there was a new drug that hit the market that is specifically to help thwart future inflammation from a company called Insmed. That is really the three-pronged treatment paradigm. You want to clear the airways, you want to treat the infection, and then you want to reduce the inflammation for future exacerbations, which could lead to a hospitalization and/or an ED visit. We want to keep these patients in the home. We want to keep them out of the hospital. Since this is a chronic, irreversible condition, the patients are basically treating themselves at home twice a day. It takes about 15 minutes per treatment session.
They typically will do it in the morning and in the early evening. You are clearing out the mucus so you can breathe easier. We are not curing anything. Basically what we are doing is improving the patient's quality of life. This kind of cartoon depiction in the middle here really shows how our product works. You have a generator that is attached to a hose. The patients wear a very lightweight vest that is attached to that hose. Basically that vest gently squeezes and releases the patient's torso. That shears the mucus that is in the patient's lungs, forcing it into the larger airways so that they can cough up that mucus or swallow it, and clear the airways so they can breathe easier. This is a better picture of what our technology looks like. But one of the things that differentiates us is we have a direct-to-patient model.
We are not only a manufacturer, but we also are a durable medical equipment distributor. What that means is we have payer contracts. About 87% of the U.S. population we can serve that is under contract, both with Medicare as well as commercial payers. What that also means is that as a manufacturer and a DME, we get to actually keep all of the margin. We are not selling through a distributor that we then have to share the margin with. But the other thing that is differentiated about us is that unlike a couple of other competitors, we have the lightest weight vest that is on the market. Since you are using this twice a day, really forever, you want to have something that is really ergonomic and easy to put on and take off, and it is comfortable. But we also have a single hose device.
Two of our major competitors have two hoses that come off of their vest that attach to a generator, and it is very clunky and cumbersome. We do not have that. The other thing that is unique about Electromed is after the billing cycle is completed, we have a capitated rental. That is how this product is actually reimbursed over the course of 10 months- 13 months. At the end of that duration of the billing cycle, the patient actually owns the technology, and we have a lifetime warranty on our product, unlike our competitors. So really intuitive, comfortable device with an incredible story relative to the warranty. The other thing that we do is unique is many of our providers or the physicians, they want to know, prescribe this technology, how is it actually working on the patient? One of the things that we do is we deploy 1099s.
These are all respiratory therapists. Once we deliver the product to the patient's home, we actually have a respiratory therapist that does the training on our device at the patient's home. We document kind of what the current state of that patient is relative to their lung health. Then we come back five days later, we do an update to that documentation to see if they are progressing at all. Then we come back 30 days later and do a final assessment. We compile all of that in what we call a Smart Note, and we provide that back to the pulmonologist so that they can see that with Brad, we prescribed this technology. Is Brad improving or not? That also is a really good entree for our sales reps to work with our clinics to say, "It worked really well on Brad.
Are there any other candidates that you have that you're treating right now that can benefit from the SmartVest?" We have really terrific testimonials from our patients. As you can see here on the upper right-hand corner, 94% of patients would recommend SmartVest to others. 97% of patients report feeling better or the same after use of the product. 99% of patients report an increase in sputum production. You may say, "Well, aren't you trying to not have sputum production?" No, you want that because that's the stuff that's clogging the patient's lung and preventing them from breathing. We want that mucus out of their lungs. As you can see on the lower right-hand portion of this slide as well, by using this technology routinely, we reduce antibiotic use, which is great. We want to keep these patients off drugs. Many of them have many comorbidities.
A very significant decrease in hospitalizations of 59% and a 75% reduction in ED visits. Again, these patients are being treated at the home. We want to keep them out of the hospital, which is a much more expensive care setting. I mentioned this before, but it's worth kind of reiterating is the fact that if you take a look at the top end of this slide, within the home market, this is not when a manufacturer is selling into a hospital, but when they're selling into the home, how does that transaction actually work? Most manufacturers in the home care space, they make the product, then they market that product to a home medical distributor. That home medical distributor has payer contracts. They're also the ones that are generating demand for the product.
They're also the ones that are training the patient on the product and also collecting from the payer. A consequence of that is they have to actually share the margin the manufacturer does with this home medical equipment distributor. In our model, Electromed, we're not only the manufacturer, but we also have all the payer contracts. We deliver the product to the patient's home. We do the training. A consequence of that is we get to keep all of that margin. Whereas some of our competitors, their margins may be in the 50s, our gross profit margin is in the high 70s. Where's our revenue coming from? We're about a $75 million company. Most of that is actually coming from the home care market segment. That's where our sales reps are focused. They're focused on identifying patients who can benefit from this technology in the home.
That's about 94% of our revenue. We have a nascent hospital business. It's about 5% of our business. We feel like selling capital equipment into the hospital is a good investment for us because many of these patients who do get admitted into a hospital are going to need that technology when they're admitted. If they have a good experience, we can actually hopefully capture those patients when they get discharged into the home. Then we have a very small portion of our revenue, which is generated OUS. We get asked this a lot, where is your revenue actually coming from? About 50% of our revenue comes from Medicare. The other 50% comes from private payers. I've talked a lot about bronchiectasis, but this is also technology that can be used for neuromuscular diseases as well as for cystic fibrosis. How are we going to grow?
Well, it is really kind of a three-pronged approach. We have a single product. We are expanding the breadth of our product portfolio predominantly on the SmartVest sizes because we are treating a whole raft of different patients, everything from infants all the way up to adults. We want to really protect our core in the home care market, and we are going to do that by continuing to add to our sales team. Every year we add anywhere from four to five sales reps and expand our territories. We are also going to expand into natural adjacencies. I talked about the hospital market, but also there are a lot of these patients that are treated at an early age in children's hospitals. On the lower end of our product vest portfolio, that is really kind of a gap that we have right now.
We are investing in R&D to close that gap, and we feel like that is a really good use of our resources. We also have a direct-to-consumer component of our business to really get. As I showed that iceberg slide of the market opportunity, part of our challenge has been in the past, and it is getting a lot better, is just generating awareness for this disease state and what treatment options are out there for the patients. We are going to continue to do that. I have on here GPO contracts. That is group purchasing organizations. Most hospitals across the country belong to a group purchasing organization. That is not a guarantee that they are going to buy your product if you are on contract. It does enable us and other companies, if you are on contract, to at least get an audience with those decision-makers within those hospitals.
Lastly, we are growing. We are profitable. We are generating cash, and we have no debt. As a single-product company, we are always looking at is there a one plus one equals three on the M&A side. We have not found that yet because as a 78% gross profit margin company in a space that is under-penetrated, we do not want to distract our reps focusing on a product that is going to dilute their opportunity in a market that is underserved, under-penetrated, and growing. Speaking of capital allocation, we are continuing to invest in our business, both on the commercial side, reimbursement, technology. About a year ago, we invested in a new salesforce.com system that basically integrated what our sales reps are doing with our reimbursement team so they are both operating on the same system.
That has been a huge efficiency boon for us and one of the reasons we have been able to get great leverage on our P&L. We are also investing in our commercial team in sales. As I mentioned before, we are typically adding about four to five new territories per year. We have a strategic account management team that focuses on the hospital business. It is a very small platoon of people. For folks that are in that group, we are going to continue to invest there as we are getting a return on that investment. If we have got this excess cash, what are we doing with it? I talked a little bit about salesforce.com. We have done that, but we have also been successful in doing share repurchases. A couple of years ago, our board approved a $10 million stock repurchase.
We did that this past fiscal year, which ended in June of 2026. Last fiscal year, they also approved another $10 million stock repurchase. In the event that we don't have a viable M&A opportunity and we have cash on hand, we want to make sure that we return that to our shareholders. Why invest? It's a large, expanding chronic lung market. We have clinically proven technology. We've got incredible payer coverage. We have 87% of the covered lives in the U.S. under contract. When we do get a prescription, we can actually fill it and the patient's going to get reimbursed for it. We have been very consistent with delivering top-line double-digit growth and expanded operating margins, and we're going to continue to do that. As I've mentioned several times, we've got very high gross profit margins.
This is a business which is really interesting. I've been in healthcare for decades and typically selling products into hospitals. That's a very competitive market because the hospital determines what the price of your technology is. In the home care market, our pricing is really dictated by Medicare, and we've been successful in getting price increases from Medicare over the last decade that's tied to the urban CPI. If the urban CPI is, say, 3%, we don't get a 3% increase, but we'll get a haircut off of that on our reimbursement rate. All the commercial payers follow that same increase in pricing. It's very different. We've got very robust margins that we expect to continue, and we expect to, even though we don't give guidance, to grow our top line double digits and continue to get operating leverage on the bottom line.
When you take a look at Electromed relative to the Russell Medical Index over time, our metrics have been really head and shoulders above what the other medical device companies are within this space, whether it's sales growth, gross profit margin, and operating margin. We're kind of a very unique business in this space. I've got time for questions if there are any. I appreciate your time and attention. If there are additional questions that you have subsequent to this discussion today, please reach out to our IR partners at ICR Healthcare, and we'd be more than happy to entertain any questions that you might have. Questions? Crystal clear?
The stock price seems to be very attractive, $27, but no debt. Why no debt? Sometimes borrowing money to grow is a good thing. You're saying you have enough cash, but cash seems to be healthy, but wouldn't there be an exponential opportunity even outside of the U.S., internationally?
That's a great question. We're not hoarding cash. That's why we give it back in the form of stock repurchases. We haven't diluted our stock count either, which I think has been really appreciated by the investment community. We would go to the commercial markets for debt in the event that we found the right acquisition target. We don't have enough cash on hand to really do acquisition if we needed to, but we're still using that cash to fund our business right now, and we're going to continue to do that. The one thing that we have to be careful of is, and I got asked this when I first started as CEO, "Jim, if we gave you $10 million, what would you do with it?" Not investing in Europe or Asia would not be one of them.
It's mainly because even here in the U.S., which is the most developed market for this type of technology, it has the highest adoption rate and the biggest patient population. We need to focus on a market. Focus on the vital few, not the useful many. Let's be great here in the U.S., and when those other markets become a little bit more mature, I think we'd be more keen to invest in them. Today, we service the distributors that we have, OUS, but it's just not a focal point for us.
Thank you.
Yes, you're welcome. Any other questions? All right. Well, thank you for your time. Yep. Sir.
Very general question. Is there any cure upcoming, any company developing a cure?
No, because this is the challenge. Once you have it, you have it. You know what I mean? Basically, what these patients have is they have a widening of their air passages, and there's nothing that's going to basically shrink those down. This is a very different disease state than coronary artery disease, where your arteries are getting constricted. This is really your airway passages have expanded, and then there's mucus that's getting trapped within those larger airways. Also, they have what's called mucus plugging, where the mucus kind of goes deep into your smaller air passages, and that's what prevents these people from being able to breathe easier. But there's really no cure on the horizon. People get diagnosed with this when they've had this chronic infection. It can be from pneumonia, it can be from seasonal allergies. It can be environmental, smoking, et cetera.
But once you get to that stage, then the way that this gets validated that you have it, is that these patients have a CAT scan that's done, and it's like, okay, you have the disease. Unfortunately, it's chronic and irreversible. All right. Thank you. Anything else? Okay. Appreciate it. Have a great rest of the afternoon.