Electromed, Inc. 10-Q

Item 1. Financial Statements. Electromed, Inc. Condensed Balance Sheets March 31, 2026 June 30, 2025 (Unaudited) Assets Current Assets Cash and cash equivalents $ 16,985,000 $ 15,287,000 Accounts receivable (net of allowances for credit losses of $ 45,000 ) 28,251,000 24,660,000 Contract assets 1,086,000 1,036,000 Inventories 3,295,000 3,299,000 Income tax receivable 15,000 408,000 Prepaid expenses and other current assets 596,000 392,000 Total current assets 50,228,000 45,082,000 Property and equipment, net 5,209,000 4,714,000 Finite-life intangible assets, net 354,000 371,000 Other assets 1,221,000 1,173,000 Deferred income taxes 2,462,000 2,462,000 Total assets $ 59,474,000 $ 53,802,000 Liabilities and Shareholders' Equity Current Liabilities Accounts payable $ 2,595,000 $ 2,667,000 Accrued compensation 4,530,000 5,079,000 Warranty reserve 1,784,000 1,645,000 Other accrued liabilities 1,317,000 1,077,000 Total current liabilities 10,226,000 10,468,000 Other long-term liabilities 81,000 125,000 Total liabilities 10,307,000 10,593,000 Shareholders' Equity Common stock, $ 0.01 par value per share, 13,000,000 shares authorized; 8,279,845 and 8,349,176 shares issued and outstanding, as of March 31, 2026, and June 30, 2025, respectively 83,000 83,000 Additional paid-in capital 23,949,000 21,941,000 Retained earnings 25,135,000 21,185,000 Total shareholders' equity 49,167,000 43,209,000 Total liabilities and shareholders' equity $ 59,474,000 $ 53,802,000 See Notes to Condensed Financial Statements (Unaudited). 1 Table of Contents Electromed, Inc. Condensed Statements of Operations (Unaudited) Three Months Ended Nine Months Ended March 31, March 31, 2026 2025 2026 2025 Net revenues $ 18,575,000 $ 15,684,000 $ 54,359,000 $ 46,607,000 Cost of revenues 3,932,000 3,455,000 11,700,000 10,260,000 Gross profit 14,643,000 12,229,000 42,659,000 36,347,000 Operating expenses Selling, general and administrative 10,516,000 9,812,000 31,617,000 29,033,000 Research and development 361,000 277,000 986,000 694,000 Total operating expenses 10,877,000 10,089,000 32,603,000 29,727,000 Operating income 3,766,000 2,140,000 10,056,000 6,620,000 Interest income, net 100,000 142,000 343,000 489,000 Net income before income taxes 3,866,000 2,282,000 10,399,000 7,109,000 Income tax expense 863,000 391,000 2,499,000 1,776,000 Net income $ 3,003,000 $ 1,891,000 $ 7,900,000 $ 5,333,000 Income per share: Basic $ 0.37 $ 0.22 $ 0.96 $ 0.63 Diluted $ 0.35 $ 0.21 $ 0.91 $ 0.59 Weighted-average common shares outstanding: Basic 8,211,220 8,495,005 8,268,605 8,493,715 Diluted 8,647,794 8,967,838 8,673,345 8,980,218 See Notes to Condensed Financial Statements (Unaudited). 2 Table of Contents Electromed, Inc. Condensed Statements of Cash Flows (Unaudited) Nine Months Ended March 31, 2026 2025 Cash Flows From Operating Activities Net income $ 7,900,000 $ 5,333,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 642,000 663,000 Amortization 162,000 112,000 Share-based compensation expense 1,960,000 2,409,000 Changes in operating assets and liabilities: Accounts receivable ( 3,591,000 ) ( 109,000 ) Contract assets ( 50,000 ) ( 405,000 ) Inventories ( 123,000 ) 564,000 Prepaid expenses and other assets ( 364,000 ) ( 779,000 ) Income tax receivable, net 393,000 ( 1,209,000 ) Accounts payable and accrued liabilities 291,000 877,000 Accrued compensation ( 549,000 ) 78,000 Net cash provided by operating activities 6,671,000 7,534,000 Cash Flows From Investing Activities Expenditures for property and equipment ( 1,033,000 ) ( 117,000 ) Expenditures for finite-life intangible assets ( 44,000 ) ( 32,000 ) Net cash used for investing activities ( 1,077,000 ) ( 149,000 ) Cash Flows From Financing Activities Issuance of common stock upon exercise of options 268,000 381,000 Taxes paid on net share settlement of stock awards ( 246,000 ) ( 2,278,000 ) Repurchase of common stock ( 3,918,000 ) ( 6,331,000 ) Net cash used for financing activities ( 3,896,000 ) ( 8,228,000 ) Net increase (decrease) in cash 1,698,000 ( 843,000 ) Cash and cash equivalents Beginning of period 15,287,000 16,080,000 End of period $ 16,985,000 $ 15,237,000 Supplemental Disclosures of Cash Flow Information Cash paid for income taxes $ 2,106,000 $ 2,985,000 Supplemental Disclosures of Noncash Investing and Financing Activities Property and equipment and intangible asset acquisitions in accounts payable $ 71,000 $ 30,000 Demonstration equipment transferred between inventory and property and equipment $ 127,000 $ 180,000 Obligation for unsettled share repurchases in accrued liabilities $ - $ 118,000 Issuance of common stock upon the vesting of performance-based stock units $ - $ 1,000 See Notes to Condensed Financial Statements (Unaudited). 3 Table of Contents Electromed, Inc. Condensed Statements of Shareholders ’ Equity (Unaudited) Additional Total Common Stock Paid-in Retained Shareholders’ Shares Amount Capital Earnings Equity Balance at June 30, 2024 8,637,883 $ 87,000 $ 20,790,000 $ 23,668,000 $ 44,545,000 Net income - - - 1,474,000 1,474,000 Exercise of common stock options, vesting of performance stock units and issuance of restricted stock, net of cancellations and tax withholdings 81,944 1,000 ( 671,000 ) - ( 670,000 ) Share-based compensation expense - - 697,000 - 697,000 Repurchase of common stock ( 262,756 ) ( 3,000 ) - ( 4,555,000 ) ( 4,558,000 ) Balance at September 30, 2024 8,457,071 $ 85,000 $ 20,816,000 $ 20,587,000 $ 41,488,000 Net income - - - 1,968,000 1,968,000 Exercise of common stock options, vesting of performance stock units and issuance of restricted stock, net of cancellations and tax withholdings 99,773 1,000 ( 831,000 ) - ( 830,000 ) Share-based compensation expense - - 955,000 - 955,000 Repurchase of common stock - - - 22,000 22,000 Balance at December 31, 2024 8,556,844 $ 86,000 $ 20,940,000 $ 22,577,000 $ 43,603,000 Net income - - - 1,891,000 1,891,000 Exercise of common stock options, net of cancellations and tax withholdings 30,072 - ( 397,000 ) - ( 397,000 ) Share-based compensation expense - - 757,000 - 757,000 Repurchase of common stock ( 77,297 ) ( 1,000 ) - ( 1,913,000 ) ( 1,914,000 ) Balance at March 31, 2025 8,509,619 $ 85,000 $ 21,300,000 $ 22,555,000 $ 43,940,000 Additional Total Common Stock Paid-in Retained Shareholders’ Shares Amount Capital Earnings Equity Balance at June 30, 2025 8,349,176 $ 83,000 $ 21,941,000 $ 21,185,000 $ 43,209,000 Net income - - - 2,136,000 2,136,000 Exercise of common stock options, vesting of restricted stock units, and issuance of restricted stock awards, net of cancellations and tax withholdings 48,519 1,000 ( 46,000 ) - ( 45,000 ) Share-based compensation expense - - 458,000 - 458,000 Repurchase of common stock ( 40,848 ) - - ( 1,013,000 ) ( 1,013,000 ) Balance at September 30, 2025 8,356,847 $ 84,000 $ 22,353,000 $ 22,308,000 $ 44,745,000 Net income - - - 2,761,000 2,761,000 Exercise of common stock options, vesting of restricted stock units, and issuance of restricted stock awards, net of cancellations and tax withholdings 28,377 - 64,000 - 64,000 Share-based compensation expense - - 656,000 - 656,000 Repurchase of common stock ( 105,593 ) ( 1,000 ) - ( 2,786,000 ) ( 2,787,000 ) Balance at December 31, 2025 8,279,631 $ 83,000 $ 23,073,000 $ 22,283,000 $ 45,439,000 Net income - - - 3,003,000 3,003,000 Exercise of common stock options and vesting of restricted stock units, net of cancellations and tax withholdings 5,684 - 30,000 - 30,000 Share-based compensation expense - - 846,000 - 846,000 Repurchase of common stock ( 5,470 ) - - ( 151,000 ) ( 151,000 ) Balance at March 31, 2026 8,279,845 $ 83,000 $ 23,949,000 $ 25,135,000 $ 49,167,000 4 Table of Contents Electromed, Inc. Notes to Condensed Financial Statements (Unaudited) Note 1. Interim Financial Reporting Nature of business: Electromed, Inc. (the “Company”) develops, manufactures and markets innovative airway clearance products that apply High Frequency Chest Wall Oscillation (“HFCWO”) therapy in pulmonary care for patients of all ages. The Company markets its products in the U.S. to the homecare and hospital markets. The Company also sells internationally through distributors. Since its inception, the Company has operated in a single industry segment: developing, manufacturing, and marketing medical equipment. Basis of presentation: The accompanying unaudited Condensed Financial Statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial statements and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. In the opinion of management, the accompanying unaudited Condensed Financial Statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations as required by Regulation S- X. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by U.S. GAAP for annual reports. This interim report should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10 -K for the fiscal year ended June 30, 2025 (“fiscal 2025” ). A summary of the Company ’ s significant accounting policies and estimates: Our significant accounting policies are detailed in Note 1. Nature of Business and Summary of Significant Accounting Policies of the Annual Report on Form 10 -K for the year ended June 30, 2025. There have been no significant changes to these policies that have had a material impact on the Unaudited Condensed Financial Statements and the accompanying disclosure notes for the three and nine months ended March 31, 2026 . Recently Issued Accounting Standards ASU 2023 - 09 - Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures The standard introduces increased transparency about income tax information through the requirement of increased disclosures around specific categories in the rate reconciliation and requires additional information on reconciling items. It is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company expects to adopt this standard for its fiscal year ending June 30, 2026. Except for the required expanded disclosures, the Company does not expect the adoption of this ASU to have a material effect on the consolidated financial statements. ASU 2024 - 03 - Reporting Comprehensive Income : Expense Disaggregation Disclosures The standard introduces increased disclosure requirements for certain costs and expenses. It is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company expects to adopt this standard for its fiscal year ending June 30, 2028, and is evaluating the impact of adoption and additional disclosure requirements. ASU 2025 - 06 - Intangibles - Goodwill and Other - Internal Use Software The standard modernizes the accounting for software costs that are accounted for under Subtopic 350 - 40. It is effective for annual reporting periods beginning after December 15, 2027, and for interim periods within those annual reporting periods, with early adoption permitted. The Company expects to adopt this standard for its fiscal year ending June 30, 2029, and is evaluating the impact of adoption and additional disclosure requirements. Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s financial statements and related disclosures. 5 Table of Contents Note 2. Revenues Revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates of variable consideration and other factors affecting the transaction price. Estimates of variable consideration primarily relate to capped installment payment arrangements with third‑party payers and patient responsibility amounts, including deductibles, coinsurance, copayments, and similar amounts. Estimating variable consideration requires significant judgement, including selecting estimation methodologies, evaluating historical payment experience, and assessing factors that may affect future collections. Electromed estimates variable consideration using the expected value method, as it best predicts the amount of consideration to which Electromed expects to be entitled, given the large number of contracts with similar characteristics and a wide range of possible outcomes. In applying this method, management considers quantitative inputs such as historical claims approval rates, payment timing and recovery patterns, historical termination experience, and patient demographic data, as well as qualitative factors including changes in insurance coverage, mortality, patient utilization patterns, and other relevant circumstances. Capped installment payment arrangements represent the majority of Electromed’s variable consideration. For the periods presented, amounts subject to capped installment payment arrangements represented a significant portion of net revenues, accounting for approximately 96 % of net revenues in the homecare market. Electromed’s estimates of consideration related to these arrangements are based on historical payment and termination patterns and are subject to contractual caps that limit the total consideration to which Electromed may be entitled. When a contract with a customer has been established, revenue is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer, typically upon shipment or delivery. Disaggregation of revenues. In the following table, net revenues are disaggregated by market: Three Months Ended March 31, Nine Months Ended March 31, 2026 2025 2026 2025 Homecare $ 16,732,000 $ 14,102,000 $ 48,895,000 $ 41,906,000 Hospital 1,032,000 724,000 2,734,000 2,137,000 Homecare distributor 715,000 696,000 2,449,000 2,090,000 Other 96,000 162,000 281,000 474,000 Total $ 18,575,000 $ 15,684,000 $ 54,359,000 $ 46,607,000 In the following table, net homecare revenue is disaggregated by payer type: Three Months Ended March 31, Nine Months Ended March 31, 2026 2025 2026 2025 Commercial $ 8,190,000 $ 7,151,000 $ 23,346,000 $ 21,329,000 Medicare 6,447,000 5,126,000 19,035,000 15,371,000 Medicare Supplemental 1,559,000 1,314,000 4,618,000 3,813,000 Medicaid 256,000 238,000 1,034,000 676,000 Other 280,000 273,000 862,000 717,000 Total $ 16,732,000 $ 14,102,000 $ 48,895,000 $ 41,906,000 Contract balances. The following tables provide information about accounts receivable and contract assets from contracts with customers: As of March 31, 2026 As of June 30, 2025 Receivables, included in “Accounts receivable, net of allowances for credit losses” $ 28,251,000 $ 24,660,000 Contract Assets $ 1,086,000 $ 1,036,000 Total Accounts receivable, net of allowances for credit losses, as of June 30, 2024 , were $ 23,333,000 . Accounts receivable outstanding for greater than one year totaled $ 473,000 and $ 430,000 as of March 31, 2026, and June 30, 2025, respectively. Our accounts receivable balance contains amounts due from governmental and other third -party payers, including Medicare. Under certain payer programs, cash collection occurs through interim payments and final settlement over a period greater than one year, generally approximating thirteen months. The Company has determined that this collection period represents its normal operating cycle. In accordance with ASC 210‑10‑45, the Company classifies these receivables as current assets. Nine Months Ended Fiscal Year Ended March 31, 2026 June 30, 2025 Contract assets, beginning $ 1,036,000 $ 719,000 Reclassification of contract assets to accounts receivable ( 1,411,000 ) ( 2,577,000 ) Contract assets recognized 1,439,000 2,694,000 Increase as a result of changes in the estimate of amounts to be realized from payers, excluding amounts transferred to receivables during the period 22,000 200,000 Contract assets, ending $ 1,086,000 $ 1,036,000 6 Table of Contents Note 3. Selected Balance Sheet Information Inventory consists of the following: As of March 31, 2026 As of June 30, 2025 Raw materials $ 2,222,000 $ 2,075,000 Work in process 198,000 180,000 Finished goods 775,000 928,000 Estimated inventory to be returned 429,000 393,000 Less: Reserve for obsolescence ( 329,000 ) ( 277,000 ) Total $ 3,295,000 $ 3,299,000 Other assets consist of the following: As of March 31, 2026 As of June 30, 2025 Capitalized software costs $ 1,061,000 $ 952,000 Right-of-use assets 146,000 198,000 Other assets 14,000 23,000 Total $ 1,221,000 $ 1,173,000 Other accrued liabilities consist of the following: As of March 31, 2026 As of June 30, 2025 Accrued insurance recoupments $ 850,000 $ 602,000 Other accrued expenses 467,000 475,000 Total $ 1,317,000 $ 1,077,000 Note 4. Warranty Reserve The Company provides a lifetime warranty on its products to the prescribed patient for sales within the U.S. and a one - to five -year warranty for all homecare distributor, hospital and other sales. The Company estimates the costs that may be incurred under its warranty and records a liability in the amount of such costs at the time the product is shipped. Factors that affect the Company’s warranty reserve include the number of units shipped, historical and anticipated rates of warranty claims, the product’s useful life and cost per claim. The Company periodically assesses the adequacy of its recorded warranty reserve and adjusts the amounts as necessary. Changes in the Company’s warranty reserve were as follows: Nine Months Ended Fiscal Year Ended March 31, 2026 June 30, 2025 Warranty reserve, beginning $ 1,645,000 $ 1,567,000 Accrual for products sold 452,000 441,000 Expenditures and costs incurred for warranty claims ( 313,000 ) ( 363,000 ) Warranty reserve, ending $ 1,784,000 $ 1,645,000 7 Table of Contents Note 5. Income Taxes Income tax expense was estimated at $ 863,000 and $ 2,499,000 , and the effective tax rate was 22.3 % and 24.0 % for the three and nine months ended March 31, 2026 . Estimated income tax expense for the three and nine months ended March 31, 2026 , includes a discrete current tax benefit of $ 94,000 and $ 197,000 , respectively, primarily related to the windfall tax benefit of vested stock awards, the exercise of stock options, and the true up for the prior year Federal R&D credit. Income tax expense was estimated at $ 391,000 and $ 1,776,000 , and the effective tax rate was 17.1 % and 25.0 % for the three and nine months ended March 31, 2025 . Estimated income tax expense for the three and nine months ended March 31, 2025 , includes a discrete current tax benefit of $ 338,000 and $ 478,000 , respectively, primarily related to the exercise of stock options. The Company is subject to U.S. federal and state income tax in multiple jurisdictions. With limited exceptions, years prior to the Company’s fiscal year ended June 30, 2023 , are no longer open to U.S. federal, state or local examinations by taxing authorities. The Company is not under any current income tax examinations by any federal, state or local taxing authority. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into U.S. law. This legislation primarily modifies certain provisions of the 2017 Tax Cuts and Jobs Act. The Company has determined that the most significant impact of the OBBBA relates to the deductibility of U.S.-based research and experimental expenditures. Under the new law, taxpayers may elect to either expense or amortize domestic research expenditures incurred in tax years beginning after December 31, 2024. Additionally, for expenditures incurred in prior years (i.e., after December 31, 2021, and before January 1, 2025), the legislation permits an election to accelerate the remaining deductions over either a one -year period ( 2026 ) or a two -year period ( 2026 and 2027 ). The Company anticipates it will elect to accelerate the remaining deductions over a one -year period ( 2026 ). The expected reduction of cash paid for taxes is estimated to be approximately $ 428,000 in 2026. Note 6. Financing Arrangements On December 16, 2025, the Company entered into a credit agreement with BMO Bank N.A. The credit agreement provides the Company with a senior secured credit facility with a $ 10,000,000 revolving line of credit. The credit agreement provides that the credit facility will mature on December 16, 2026 , if not renewed or replaced before such date. Any borrowings under the credit facility will bear interest at the applicable one -month Term SOFR rate ( 3.67 % on March 31, 2026), plus 1.75 %, payable monthly. There was no outstanding principal balance on the line of credit as of March 31, 2026. The Company provided a first priority security interest in substantially all of its existing and future assets to secure the payment obligations under the credit agreement. In connection with the execution of the BMO Bank N.A. credit facility, the Company allowed its existing credit facility with Choice Financial Group to expire on its terms, effective December 18, 2025. The documents governing the credit facility contain certain customary financial and non-financial covenants that include a maximum total funded debt ratio of not more than 2.50x and a minimum fixed charge coverage ratio of at least 1.20x (as each such term is defined in the credit agreement), as well as restrictions on the Company's ability to incur certain additional indebtedness. Note 7. Common Stock Authorized shares: The Company’s Articles of Incorporation, as amended, have established 15,000,000 authorized shares of capital stock consisting of 13,000,000 shares of common stock, par value $ 0.01 per share, and 2,000,000 shares of undesignated stock. On September 9, 2025, the Company announced the approval of a stock repurchase authorization. Under the authorization, the Company may repurchase up to $ 10,000,000 of its outstanding shares of common stock. This repurchase authorization has no expiration date. As of March 31, 2026 , a total of 151,911 shares have been repurchased and retired under this authorization for a total cost of $ 3,918,000 , or an average of $ 25.79 per share. Repurchased shares are automatically retired and constitute authorized but unissued shares. 8 Table of Contents Note 8. Share-Based Compensation The Company’s share-based compensation plans are described in Note 8 to the financial statements included in the Company’s Annual Report on Form 10 -K for fiscal 2025. Share-based compensation expenses were $ 1,960,000 and $ 2,409,000 for the nine months ended March 31, 2026 , and 2025 , respectively. This expense is included in selling, general and administrative, research and development, and cost of revenues in the Condensed Statements of Operations. Stock Options Stock option transactions during the nine months ended March 31, 2026 , are summarized as follows: Weighted-Average Exercise Price Number of Shares per Share Outstanding at June 30, 2025 605,379 $ 9.75 Granted 58,500 $ 23.95 Exercised ( 26,740 ) $ 10.02 Canceled or Forfeited ( 4,988 ) $ 22.36 Outstanding at March 31, 2026 632,151 $ 10.95 The following assumptions were used to estimate the fair value of stock options granted: Nine Months Ended Fiscal Year Ended March 31, 2026 June 30, 2025 Risk-free interest rate 3.80 % 3.69 - 4.14 % Expected term (years) 6 6 Expected volatility 54 % 53 % The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. On March 31, 2026 , the weighted-average remaining contractual term for all outstanding stock options was 5.7 years, and the aggregate intrinsic value of the options was $ 7,906,000 . Outstanding on March 31, 2026 , there were 632,151 stock options issued to employees, of which 446,848 were vested and exercisable and had an aggregate intrinsic value of $ 6,518,000 . As of March 31, 2026 , $ 677,000 of total unrecognized compensation expense related to stock options is expected to be recognized over a weighted-average period of approximately 2.1 years. Restricted Stock During the nine months ended March 31, 2026 , the Company issued restricted stock awards to employees totaling 22,300 shares of common stock, with a weighted average vesting term of 3 years and a weighted average fair value of $ 23.95 per share. During the nine months ended March 31, 2026 , the Company issued restricted stock awards to its Board of Directors totaling 21,000 shares of common stock, with a vesting term of six months and a fair value of $ 27.42 per share. There were 65,374 shares of unvested restricted stock with a weighted average fair value of $ 22.02 per share outstanding as of March 31, 2026 . As of March 31, 2026 , $ 636,000 of total unrecognized compensation expense related to restricted stock awards is expected to be recognized over a weighted-average period of approximately 1.6 years. During the nine months ended March 31, 2026 , the Company issued restricted stock units to employees totaling 58,548 shares of common stock underlying restricted stock units, with a weighted average vesting term of 3 years and a weighted average fair value of $ 24.01 per share. During the nine months ended March 31, 2026 , there were 8,073 restricted stock units canceled or forfeited. There were 94,891 shares of unvested restricted stock units with a weighted average fair value of $ 21.30 per share outstanding as of March 31, 2026 . As of March 31, 2026 , $ 1,109,000 of total unrecognized compensation expense related to restricted stock units is expected to be recognized over a weighted-average period of approximately 2.3 years. Performance-Based Restricted Stock Units The Company granted 175,000 performance-based restricted stock units (“PSUs”) to our President and Chief Executive Officer in connection with his commencement of service on July 1, 2023. The PSUs were eligible to vest and settle into shares of common stock based on the extent to which performance goals tied to Total Shareholder Return (“TSR”) of our common stock were achieved. TSR was evaluated from the initial grant date through the end of each subsequent fiscal quarter using the three -month volume-weighted average closing prices in accordance with the underlying award agreement. The PSUs were eligible to vest and settle into shares of common stock on a 1 -for- 1 basis with respect to one -half of the shares upon achieving a TSR of 50 % and the remaining shares upon a TSR of 100 %, in each case within four years of the date of grant. The grant date fair value of the awards was determined using a Monte Carlo valuation model with an expected term of four years. As of September 30, 2024, TSR exceeded the 50 % target, resulting in a partial vesting and the issuance of an initial 87,500 shares of common stock to our CEO. As of December 31, 2024, TSR exceeded the 100 % target, resulting in the vesting of the remaining 87,500 shares of common stock. As a result of both vesting, unrecognized stock-based compensation expense totaling $ 648,000 was recognized in the nine months ended March 31, 2025, which was set to be recognized in future periods. There were no performance-based restricted stock units issued or outstanding during the nine months ended March 31, 2026. 9 Table of Contents Note 9. Commitments and Contingencies The Company is occasionally involved in claims and disputes arising in the ordinary course of business. The Company insures certain business risks where possible to mitigate the financial impact of individual claims and establishes reserves for an estimate of any probable cost of settlement or other disposition. Note 10. Segment Reporting We have determined that we have a single reportable and operating segment structure. Our President and Chief Executive Officer is our chief operating decision maker (“CODM”). The CODM reviews financial information, including long-lived assets, presented on a consolidated basis, accompanied by information about revenue by market, for purposes of allocating resources and evaluating financial performance. Furthermore, the CODM uses consolidated net income (loss) as the measure of our sole segment’s profit or loss. Significant segment expenses are those expenses reported in the Consolidated Statements of Operations. We have a single active product and engage in the single business activity of selling and supporting that single product. There are no managers who are held accountable for operations, operating results or plans for levels or components below the consolidated level. We and our CODM evaluate our performance based on revenue from our single product in the markets in which the Company operates and consolidated net income (loss), which is reflected in the Consolidated Statements of Operations. Revenue by market is described above in Note 2. Note 11. Earnings Per Common Share ( “ EPS ” ) The computations of the basic and diluted EPS amounts were as follows: Three Months Ended March 31, Nine Months Ended March 31, 2026 2025 2026 2025 Net Income $ 3,003,000 $ 1,891,000 $ 7,900,000 $ 5,333,000 Weighted-average common shares outstanding: Basic 8,211,220 8,495,005 8,268,605 8,493,715 Effect of dilutive common stock equivalents 436,574 472,833 404,740 486,503 Diluted 8,647,794 8,967,838 8,673,345 8,980,218 Earnings per common share: Basic $ 0.37 $ 0.22 $ 0.96 $ 0.63 Diluted $ 0.35 $ 0.21 $ 0.91 $ 0.59 Common stock equivalents excluded from the calculation of diluted earnings per share because their impact was anti-dilutive were 56,030 and 3,196 for the three months ended March 31, 2026 , and 2025 , respectively, and were 43,592 and 47,971 for the nine months ended March 31, 2026, and 2025 , respectively. 10 Table of Contents Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited Condensed Financial Statements and related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and our audited financial statements and related notes thereto included in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended June 30, 2025 (“fiscal 2025”). Overview Electromed, Inc. (“we,” “our,” “us,” “Electromed” or the “Company”) develops and provides innovative airway clearance products applying High Frequency Chest Wall Oscillation (“HFCWO”) technologies in pulmonary care for patients. We manufacture, market and sell products that provide HFCWO, including the SmartVest® Airway Clearance System (“SmartVest System”) that includes our newest generation SmartVest Clearway® Airway Clearance System (“Clearway”), previous generation SmartVest SQL®, and related garments and accessories to patients with compromised pulmonary function. The SmartVest Clearway, which received 510(k) clearance from the U.S. Food and Drug Administration in November 2022, provides patients with proven quality of life outcomes while offering a state-of-the-art patient experience with a simple touch screen user interface, small generator footprint and comfortable, lightweight vests. Our products are sold in both the homecare market and the hospital market for inpatient use, which we refer to as “hospital sales.” Since 2000, we have marketed the SmartVest System and its predecessor products to patients suffering from bronchiectasis, cystic fibrosis, and other chronic pulmonary conditions that require external chest manipulation to enhance mucus transport. Additionally, we offer our products to a patient population that includes neuromuscular disorders such as cerebral palsy, muscular dystrophies, amyotrophic lateral sclerosis (“ALS”), patients with post-surgical complications or who are ventilator dependent and patients who have other conditions involving excess secretion and impaired mucus transport. The SmartVest System is often eligible for reimbursement from major private insurance providers, health maintenance organizations (“HMOs”), state Medicaid systems, and the federal Medicare system, which we believe is an important consideration for patients considering an HFCWO course of therapy. For domestic sales, the SmartVest System may be reimbursed under the Medicare-assigned billing code (E0483) for HFCWO devices if the patient has cystic fibrosis, bronchiectasis (including chronic bronchitis or COPD that has resulted in a diagnosis of bronchiectasis), or any one of certain enumerated neuromuscular diseases and myopathies and can demonstrate that another less expensive physical or mechanical treatment did not adequately mobilize retained secretions. Private payers consider a variety of sources, including Medicare, as guidelines in setting their coverage policies and payment amounts. Critical Accounting Estimates For a description of our critical accounting estimates and assumptions used in the preparation of our financial statements, including the unaudited Condensed Financial Statements in this Quarterly Report on Form 10-Q, see Notes 1 and 2 to our unaudited Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Part II, Item 7, and Note 1 to our audited financial statements included in Part II, Item 8, of our Annual Report on Form 10-K for fiscal 2025. There have been no material changes to our critical accounting estimates and assumptions since the filing of our Annual Report on Form 10-K for fiscal 2025 . 11 Table of Contents Results of Operations Net Revenues Net revenues for the three and nine months ended March 31, 2026, and 2025 are summarized in the table below. Three Months Ended Nine Months Ended March 31, March 31, 2026 2025 Increase (Decrease) 2026 2025 Increase (Decrease) Homecare $ 16,732,000 $ 14,102,000 $ 2,630,000 18.6 % $ 48,895,000 $ 41,906,000 $ 6,989,000 16.7 % Hospital 1,032,000 724,000 308,000 42.5 % 2,734,000 2,137,000 597,000 27.9 % Homecare distributor 715,000 696,000 19,000 2.7 % 2,449,000 2,090,000 359,000 17.2 % Other 96,000 162,000 (66,000 ) (40.7 )% 281,000 474,000 (193,000 ) (40.7 )% Total $ 18,575,000 $ 15,684,000 $ 2,891,000 18.4 % $ 54,359,000 $ 46,607,000 $ 7,752,000 16.6 % Homecare revenue. Homecare revenue increased by $2,630,000, or 18.6%, for the three months ended March 31, 2026, compared to the same period in the prior year. Approximately $1,959,000 of the increase in revenue was due to higher volume, which was driven by additional sales representatives and increased sales representative productivity, and approximately $671,000 was due to higher net revenues per approval. For the nine months ended March 31, 2026, homecare revenue increased by $6,989,000, or 16.7%, compared to the same period in the prior year. Approximately $5,699,000 of the increase in revenue was due to higher volume, which was driven by additional sales representatives and increased sales representative productivity, and approximately $1,290,000 was due to higher net revenues per approval. For the three months ended March 31, 2026, we averaged 57 homecare field sales representatives. Hospital revenue. Hospital revenue was $1,032,000, an increase of $308,000, or 42.5%, for the three months ended March 31, 2026, compared to the same period in the prior year. For the nine months ended March 31, 2026, hospital revenue was $2,734,000, an increase of $597,000, or 27.9%, compared to the same period in the prior year. The growth in the three and nine months ended March 31, 2026, primarily reflects an increase in sales representatives focused on the hospital market and higher capital and disposal demand. Homecare distributor revenue. Homecare distributor revenue increased by $19,000, or 2.7%, for the three months ended March 31, 2026, compared to the same period in the prior year. For the nine months ended March 31, 2026, homecare distributor revenue increased by $359,000, or 17.2%, compared to the same period in the prior year. The increases in homecare distributor sales were primarily a result of increased orders from our distribution partners. Other revenue. Other revenue was $96,000, a decrease of $66,000, or 40.7%, for the three months ended March 31, 2026, compared to the same period in the prior year. For the nine months ended March 31, 2026, other revenue was $281,000, a decrease of $193,000, or 40.7%, compared to the same period in the prior year. The decreases in other revenue were primarily due to the lower demand for purchases by international distributors and other customers that do not fall within the markets described above. Gross profit Gross profit dollars increased to $14,643,000, or 78.8% of net revenues, for the three months ended March 31, 2026, from $12,229,000, or 78.0% of net revenues, in the same period in the prior year. Gross profit dollars increased to $42,659,000, or 78.5% of net revenues, for the nine months ended March 31, 2026, from $36,347,000, or 78.0% of net revenues, in the same period in the prior year. The increases in gross profit were primarily a result of increased overall revenue and higher net revenues per device. Operating expenses Selling, general and administrative expenses. Selling, general and administrative (“SG&A”) expenses were $10,516,000 and $31,617,000 for the three and nine months ended March 31, 2026, respectively, representing an increase of $704,000 and $2,584,000, or 7.2% and 8.9%, respectively, compared to the same periods in the prior year. Payroll and compensation-related expenses were $6,955,000 and $21,326,000 for the three and nine months ended March 31, 2026, respectively, representing an increase of $363,000 and $1,402,000, or 5.5% and 7.0%, respectively, compared to the same periods in the prior year. The increases in the current-year periods were primarily due to the increase in salaries and incentive compensation related to the higher average number of sales representatives and higher overall compensation costs. We have also continued to provide regular merit-based increases for our employees and are regularly benchmarking our compensation ranges, including share-based compensation, for new and existing employees to ensure we can hire and retain the talent needed to drive growth in our business. 12 Table of Contents Travel, meals and entertainment expenses were $1,070,000 and $3,357,000 for the three and nine months ended March 31, 2026, respectively, representing an increase of $148,000 and $477,000, or 16.1% and 16.6%, respectively, compared to the same periods in the prior year. The increases in the current year were primarily due to a higher average number of direct sales representatives, training, and increased travel to support sales activity as well as market development. Total discretionary marketing expenses were $293,000 and $1,146,000 for the three and nine months ended March 31, 2026, respectively, representing a decrease of $32,000 and an increase of $203,000, or a decrease of 9.8% and an increase of 21.5%, respectively, compared to the same period in the prior year. The decrease in the three months ended March 31, 2026, was due to timing of routine marketing spend. The increase in the nine months ended March 31, 2026, was due to increased investment in our direct-to-consumer advertising and other market development initiatives . Professional fees were $1,452,000 and $3,708,000 for the three and nine months ended March 31, 2026, respectively, representing an increase of $167,000 and $104,000, or 13.0% and 2.9%, respectively, compared to the same periods in the prior year. Professional fees are primarily for services related to legal costs, shareowner services and reporting requirements, information technology technical support, insurance and consulting fees. The increases in the current periods were primarily due to increased legal and insurance costs. Research and development expenses . Research and development (“R&D”) expenses were $361,000 and $986,000 for the three and nine months ended March 31, 2026, respectively, representing an increase of $84,000 and $292,000, or 30.3% and 42.1%, respectively, compared to the same periods in the prior year. The increases were primarily due to increased average headcount and consulting expenses related to product enhancements and sustaining engineering. Operating income Operating income increased by $1,626,000 or 76.0% to $3,766,000, or 20.3% of net revenues, for the three months ended March 31, 2026, compared to the same period in the prior year. Operating income increased by $3,436,000 or 51.9% to $10,056,000, or 18.5% of net revenues, for the nine months ended March 31, 2026, compared to the same period in the prior year. The increases were primarily due to an increase in revenue and gross profit. Interest income, net Net interest income for the three and nine months ended March 31, 2026, was $100,000 and $343,000, respectively, compared to $142,000 and $489,000, respectively, for the same period in the prior year. The decreases were primarily due to decreased interest rates and lower average cash balances throughout the period. Income tax expense Income tax expense was estimated at $863,000 and $2,499,000, and the effective tax rate was 22.3% and 24.0%, for the three and nine months ended March 31, 2026, respectively. Estimated income tax expense for the three and nine months ended March 31, 2026, includes a discrete current tax benefit of $94,000 and $197,000, respectively, primarily related to the windfall tax benefit of vested stock awards, the exercise of stock options, and the true up for the prior year Federal R&D credit. Income tax expense was estimated at $391,000 and $1,776,000, and the effective tax rate was 17.1% and 25.0%, for the three and nine months ended March 31, 2025, respectively. Estimated income tax expense for the three and nine months ended March 31, 2025, includes a discrete current tax benefit of $338,000 and $478,000, respectively, primarily related to the exercise of stock options. Net income Net income for the three and nine months ended March 31, 2026, was $3,003,000 and $7,900,000, representing an increase of 58.8% and 48.1%, respectively, compared to $1,891,000 and $5,333,000 for the same periods in the prior year. The increases in net income were primarily due to increased revenue and gross profit. 13 Table of Contents Liquidity and Capital Resources Cash Flows and Sources of Liquidity Cash Flows from Operating Activities For the nine months ended March 31, 2026, net cash provided by operating activities was $6,671,000. Cash flows provided by operating activities consisted of net income of $7,900,000, non-cash expenses of $2,764,000, a decrease in income tax receivable, net of $393,000, and an increase in accounts payable and accrued expenses of $291,000. These cash flows from operating activities were offset by an increase in accounts receivable of $3,591,000, a decrease in accrued compensation of $549,000, an increase in prepaid expenses and other assets of $364,000, an increase in inventories of $123,000, and an increase in contract assets of $50,000. Cash Flows from Investing Activities For the nine months ended March 31, 2026, cash used for investing activities was $1,077,000. Cash used for investing activities consisted of $1,033,000 in expenditures for property and equipment and $44,000 in expenditures for intangible assets. Cash Flows from Financing Activities For the nine months ended March 31, 2026, cash used for financing activities was $3,896,000. Cash used for financing activities consisted of $3,918,000 used for our share repurchase program and $246,000 for taxes paid on net share settlement of stock awards, partially offset by $268,000 from the issuance of common stock upon exercise of options. Adequacy of Capital Resources Our primary working capital requirements relate to adding employees to our sales force and support functions, continuing infrastructure investments, and supporting general corporate needs, including financing equipment purchases and other capital expenditures incurred in the ordinary course of business. Based on our current operational performance, we believe our working capital of approximately $40,002,000 and available borrowings under our existing credit facility will provide sufficient liquidity to meet our anticipated working capital and other liquidity needs for the next twelve months from the date of this report. We maintain a credit facility that was entered into in December 2025, which provides us with a revolving line of credit. The credit agreement provides the Company with a senior security credit facility with a $10,000,000 revolving line of credit. Any borrowings under the credit facility will bear interest at the applicable one-month Term SOFR (3.67% on March 31, 2026), plus 1.75%, payable monthly. The credit agreement provides that the credit facility will mature on December 16, 2026, if not renewed before such date. There was no outstanding principal balance on the line of credit as of March 31, 2026. The Company provided a first priority security interest in substantially all of its existing and future assets to secure the payment obligations under the credit agreement. The documents governing the credit facility contain certain customary financial and non-financial covenants that include a maximum total funded debt ratio of not more than 2.50x and a minimum fixed charge coverage ratio of at least 1.20x (as each such term is defined in the credit agreement), as well as restrictions on the Company's ability to incur certain additional indebtedness. So long as there is no default or event of default, the governing documents do not restrict the Company's ability to pay dividends or repurchase common stock. Any failure to comply with these covenants in the future may result in an event of default, which if not cured or waived, could result in the lender accelerating the maturity of our indebtedness, preventing access to additional funds under the line of credit, requiring prepayment of outstanding indebtedness, or refusing to renew the line of credit. If the maturity of the indebtedness is accelerated or the line of credit is not renewed, sufficient cash resources to satisfy the debt obligations may not be available and we may not be able to continue operations as planned. If we are unable to repay such indebtedness, the lender could foreclose on these assets. 14 Table of Contents For the nine months ended March 31, 2026, and 2025, we spent approximately $1,033,000 and $117,000, respectively, on property and equipment. We currently expect to finance planned equipment purchases with cash flows from operations or borrowings under our credit facility. We may need to incur additional debt if we have an unforeseen need for additional capital equipment or if our operating performance does not generate adequate cash flow. While the impact of macroeconomic factors such as inflation are difficult to predict, we believe our cash, cash equivalents and cash flows from operations will be sufficient to meet our working capital, capital expenditure, and operational cash requirements for fiscal 2026 and the foreseeable future. We will continue to evaluate our projected expenditures relative to our available cash and evaluate financing alternatives to satisfy our working capital and other cash requirements. Information Regarding Forward-Looking Statements Statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, but are not limited to, statements regarding: our business strategy, our expectations with respect to ongoing compliance with the terms of our credit facility and the ongoing availability of credit; anticipated tax benefits; and our anticipated revenues, expenses, capital requirements and liquidity. Words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” “ongoing,” “plan,” “project,” “should,” “will,” “would,” and similar expressions, including the negative of these terms, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Although we believe these forward-looking statements are reasonable, they involve risks and uncertainties that may cause actual results to differ materially from those projected by such statements. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or our industry’s actual results, levels of activity, performance, or achievements to be materially different from the information expressed or implied by the forward-looking statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, the following: • ability to obtain and maintain reimbursement from Medicare, Medicaid, or private insurance payers for our products; • component or raw material shortages, changes to lead times or significant price increases and changes to trade regulations (including, but not limited to, changes to tariffs); • adverse changes to state and federal health care regulations; • our ability to maintain regulatory compliance and to gain future regulatory approvals and clearances; • entry of new competitors including new drug or pharmaceutical discoveries; • adverse economic and business conditions or intense competition; • wage inflation; • technical problems with our research and products; • the risks associated with cyberattacks, data breaches, computer viruses and other similar security threats; • changes affecting the medical device industry; • our ability to develop new sales channels for our products such as the hospital or homecare distributor channels; • adverse international health care regulation impacting current international business; • our ability to renew our line of credit or obtain additional credit as necessary; and • our ability to protect and expand our intellectual property portfolio. This list of factors is not exhaustive, however, and these or other factors, many of which are outside of our control, could have a material adverse effect on us and our results of operations. Therefore, you should consider these risk factors with caution and form your own critical and independent conclusions about the likely effect of these risk factors on our future performance. Forward-looking statements speak only as of the date on which the statements are made, and we undertake no obligation, and expressly disclaim any such obligation, to update any forward-looking statement for any reason other than as required by law, even if new information becomes available or other events occur in the future. You should carefully review the disclosures, and the risk factors described in this and other documents we file from time to time with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for fiscal 2025. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth herein. 15 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.