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Operator: Welcome to the Electromed Third Quarter Fiscal 2023 Financial Results Conference Call [Operator Instructions]. I will now turn the call over to your host, Mike Cavanaugh, Investor Relations. Mr. Cavanaugh, you may begin.

Mike Cavanaugh: Good afternoon, and thank you for joining the Electromed earnings call. Earlier today, Electromed, Inc. released financial results for the third fiscal quarter of 2023, the quarter ended March 31, 2023. The release is currently available on the company’s website at www.smartvest.com. Joining me on the call today is Kathleen Skarvan, President and Chief Executive Officer; and Brad Nagel, Chief Financial Officer. Before we get started, I’d 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 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 Kathleen Skarvan, President and CEO of Electromed.

Kathleen Skarvan: Thank you, Mike, and thank you to everyone joining the call today. As we report fiscal third quarter results, I’m very pleased to report a strong quarter as we achieved record quarterly revenues of $12.1 million, a 19% increase year-over-year from the same period last year. In the key home care segment, the results were even more impressive, generating $11 million in home care revenue, which represents a 21% increase year-over-year from the same period in fiscal 2022. These results were driven by strong referral flow and strong productivity from our expanded sales force. We also benefited from the introduction of our next-generation Clearway device earlier this year to positive reviews from patients. In short, this quarter’s results were due to the team’s excellent execution, the blocking and tackling every successful company needs to do well.

Additionally, we experienced a short period of longer component lead times in the quarter, but the team managed that well demonstrated by our revenue growth. Needless to say, I’m proud of this team’s execution during the quarter, delivering excellent top line growth. I’d like to touch on the strong reception our Clearway device has received thus far, one of the factors contributing to our strong referral and top line growth. We have received excellent feedback from clinicians and patients who appreciate Clearway’s state-of-the-art touchscreen user interface, which is very intuitive and easy to navigate. And Clearway includes remote monitoring of patient data. We’ve also received positive feedback regarding the size of the device, which is the lightest HFCWO generator on the market.

Our primary design goal was to enhance the patient therapy experience. And with Clearway, Electromed has made significant advances in HFCWO technology that we believe gives us a tangible advantage over the competition. Operating income during the fiscal third quarter was $1.2 million, which compares to $863,000 in the same period a year ago. This was achieved despite an inflationary macro environment, which was manifested in higher component and shipping costs and demonstrates the strong operating leverage in our business. Net income for the quarter was $1.1 million, an increase of 71% year-over-year. Brad will review our expenses and margins in more detail. But at a high level, our strong revenue growth was able to offset our higher investments in head count expansion and other growth initiatives.

Overall, this was a strong quarter financially. Turning to an update on our strategic growth initiatives. It is extremely gratifying to see progress across all our strategic growth initiatives, key among them being the continued expansion of the sales force, which includes 48 direct reps in the field as of the end of quarter three. I’ve been extremely impressed and pleased by this group’s performance, and it takes significant effort to onboard new personnel and then support them to ramp to full productivity. Despite new sales rep additions, the productivity of that team continues to be strong. This past quarter, average annualized revenues per rep was $908,000, well within our expected range of $850,000 to $950,000. As you know, we achieved a key strategic milestone when we introduced the new Clearway HFCWO device.

A recent patient testimonial highlights the early feedback we’ve received. Blown away, compact, everything that I could want to make my life easier while still improving the quality of my life. Looks great, updated, classy, sleek and clean, excited, all the way around. We expect Clearway to help accelerate our growth. And clearly, we have strong momentum. One of our other key strategic goals is to generate further data supporting the use of HFCWO therapy and the SmartVest as a treatment for bronchiectasis. As we mentioned on our last quarterly call, we are excited to share data from our quality-of-life outcome study with COPD patients using SmartVest at the American Thoracic Society 2023 International Conference later this month. Our bronchiectasis quality-of-life outcome study is complete, and we are evaluating submissions for those results.

Our prospective outcome study with bronchiectasis patients is enrolled at 40%, with an additional site beginning enrollment in fiscal quarter three as we target 100 patients. The goal behind all of this work is to gather data supporting the benefits of SmartVest HFCWO therapy and targeted to physicians and key opinion leaders who treat bronchiectasis patients every day and should welcome more information regarding a therapy that can make a huge difference for these patients. Our final growth initiative is focused on our strong push in direct-to-consumer efforts as well as marketing targeted at pulmonologists who treat bronchiectasis. We are on target with our initiatives and pleased with our return on this investment. I’d like to now take a few minutes to address the expected expiration of the CMS waiver, which was implemented during and tied to the public health emergency for COVID-19.

With the public health emergency being declared over, we expect the waiver for respiratory devices to expire after May 11. As a reminder, the waiver allowed indication and documentation typically required for HFCWO to be bypassed, allowing for an easier and faster approval for patients on Medicare. Upon termination, we will revert to pre-COVID CMS requirements for HFCWO reimbursement. However, we are proactively working with physicians to mute the effect of the waiver expiration, and it should be noted that physicians operated under the rules prior to the waiver. It is also worth noting that commercial plans by and large never waived the documentation requirements, meaning that the waiver benefited only a subset of our referrals and approvals.

All that being said, we do expect our average Medicare patient referral-to-approval time frame will lengthen for the remaining calendar 2023, with the potential to reduce our revenue growth in quarter 4. But I remain confident with the plans we have in place that the team will manage this transition effectively. Close my prepared remarks, I’d like to provide an update on the search for my successor as Chief Executive Officer. We have engaged with a very capable and highly recommended executive search firm and are in the process of identifying the best candidates to step in and continue the progress we have enjoyed. With that, I’d like to hand the call over to Brad for a review of our financials.

Brad Nagel: Thank you, Kathleen. Net revenues for the quarter were $12.1 million, a 19% increase over the same period in the prior year. Home care revenue for the quarter was $11 million, a year-over-year increase of 21% from the same period in the prior year. This growth was primarily due to an increase in direct sales representatives as well as positive market momentum from the introduction of our newest generation SmartVest Clearway in the quarter and was partially offset by a temporary interruption in supply chain and associated operations in the quarter. And as Kathleen mentioned, the CMS referral waiver continues to benefit the Medicare portion of our home care revenue. Home care distributor revenue for the quarter was $501,000, a year-over-year decrease of 4% from the same period in the prior year.

Home care distributor sales are affected by the timing of distributor purchases that could cause significant fluctuations in reported revenue on a quarterly basis. And our year-to-date growth remains at 31% after 3 quarters of our fiscal year 2023. Institutional revenue was $440,000 and increased by $48,000 or 12% for the quarter primarily due to increased consumable sales to institutional customers. International revenue was $156,000 and decreased by $40,000 or 20% for the quarter. Gross profit for the quarter increased to $9.1 million or 75% of net revenues compared to $7.7 million or 76.4% of net revenues in Q3 of FY ’22. While gross profit dollars increased due to higher sales volume, the decrease in gross profit as a percentage of net revenues compared to the same period in the prior year was primarily due to increased material costs and electronic component broker fees incurred to ramp up supply for the Clearway product.

Selling, general and administrative or SG&A expenses were $7.7 million for Q3, representing an increase of $1.2 million or 18% compared to the same period in the prior year. This increase was primarily due to the additional head count and associated costs in our sales and reimbursement departments, representing our investments in growth. Travel, meals and entertainment expenses were $658,000 for Q3, representing an increase of $20,000 or 3% compared to the same period in the prior year driven by a higher average number of direct field sales representatives. Operating income for Q3 FY ’23 was $1.2 million compared to $863,000 for the same period in the prior year. The increase in operating income in the quarter was primarily due to revenue growth and a decrease in research and development expenses but partially offset by increased SG&A expenses related to our sales and reimbursement investments as well as increased material costs and broker fees incurred to accelerate the ramp-up of supply for the Clearway product.

Net income for Q3 FY ’23 was $1.1 million or $0.12 per diluted share compared to $645,000 or $0.07 per diluted share for the same period in the prior year. As of March 31, 2023, Electromed had $6.8 million in cash, $22 million in accounts receivable and no debt for a working capital of $29 million and total shareholders’ equity of $36 million. With that, we’d like to move to the Q&A portion of the call. Operator, please open the call to questions.

Operator: [Operator Instructions] And our first question comes from Brooks O’Neil with Lake Street Capital Markets.

Operator: And I’d now like to turn the conference back to Kathleen Skarvan for any additional or closing remarks.

Kathleen Skarvan: As always, thank you very much for joining us today and for your interest in Electromed. We continue to execute against our strategic growth plans, and we are excited as we look forward to scaling up distribution of our Clearway in calendar 2023 and beyond. If you would like to schedule a follow-up call, please contact our Investor Relations partners at ICR Westwicke. Thank you very much.

Operator: And this concludes today’s conference call. Thank you for attending.