Electromed, Inc. Announces Fiscal 2017 First Quarter Financial Results

— Boosts R&D Investment to Develop Wireless Connectivity for the
SmartVest® SQL® AirWay Clearance System —

NEW PRAGUE, Minn.–(BUSINESS WIRE)–Electromed, Inc. (“Electromed” or “the Company”) (NYSE MKT: ELMD), a
leader in innovative airway clearance technologies, today announced
financial results for its fiscal 2017 first quarter (“Q1 FY 2017”) ended
September 30, 2016.

Q1 FY 2017 Highlights

• Net revenues increased 10.9% to $5.5 million from $5.0 million in Q1
  FY 2016.
• Gross profit rose 12.1% to $4.3 million from $3.9 million in Q1 FY
  2016.
• Investment in research and development increased to $351,000 from
  $42,000 in Q1 FY 2016.
• Operating income declined to $289,000 from $585,000 in Q1 FY 2016,
  primarily reflecting higher investment in R&D and increased SG&A
  expense to support the growth of the business, partially offset by
  higher home care revenues and lower cost of sales.
• Net income totaled $191,000, or $0.02 per diluted share, compared to
  $341,000, or $0.04 per diluted share, in Q1 FY 2016.
• Commenced development of an innovative wireless connectivity and
  reporting solution to improve therapy adherence; beta testing expected
  to begin in January 2017.
• Increased field sales staff to 31 at the end of Q1 FY 2017 from 29 at
  the end of Q1 FY 2016 to further enhance growth.

Subsequent Events

• Introduced new color options for SmartVest® garments and SmartVest
  SQL® generators.

Kathleen Skarvan, President and Chief Executive Officer of Electromed,
commented, “We are pleased to follow up a record FY 2016 revenue year
with 10.9% growth in Q1 FY 2017 revenue, profitable operations, and a
commitment to investing in our future growth in the areas of personnel,
product evolution, marketing, and efficiency improvements. Both revenue
and referrals accelerated on a month-to-month basis throughout Q1 FY
2017 and we ended September 2016 with the highest level of referrals in
our history. While quarterly revenue may fluctuate based on the referral
mix of payers, among other factors, we believe that our ongoing efforts
will translate into continuing growth during FY 2017.”

Ms. Skarvan continued, “In Q1 FY 2017, we boosted investment in product
innovation and personnel, reflecting our strong optimism about the
significant market opportunity for our SmartVest® Airway Clearance
System in high frequency chest wall oscillation (“HFCWO”) therapy. In
late FY 2016, we commenced development of an exciting new wireless
connectivity feature that we believe will strengthen our patient and
clinician partnerships, leading to greater therapy adherence and
improved quality of life for individuals with compromised pulmonary
function. We expect to launch this solution prior to the end of FY 2017.
In response to patient feedback, in October 2016 we introduced new color
options for our SmartVest garments and SmartVest SQL generators. We
believe that these advancements, combined with SmartVest’s light weight,
quiet operation and ease-of-use, will promote greater patient acceptance
and satisfaction. We also continued to recruit, hire and train
additional sales staff to increase awareness of SmartVest’s advantages
and further penetrate domestic regions, particularly in higher populated
metropolitan areas.”

Development of Wireless Connectivity for the
SmartVest SQL AirWay Clearance System

Electromed is developing the SmartVest SQL Airway Clearance System to
include wireless connectivity for integration with interactive dashboard
applications to encourage patient engagement with HFCWO therapy and
promote adherence to prescribed treatment. The SmartVest System with
wireless connectivity will allow data connection between physicians and
patients with impaired airway clearance, offering real-time visibility
to HFCWO treatment information to better collaborate in making
patient-centered care decisions. Electromed will pilot the integrated
SmartVest System the second half of fiscal year 2017, with planned
expansion prior to the end of the fiscal year.

Q1 FY 2017 Review

Net revenues in Q1 FY 2017 increased 10.9% to $5.5 million from $5.0
million in Q1 FY 2016, driven by strong results in the home care market
where revenue increased by 14.4%, or $0.6 million, compared to Q1 FY
2016. Home care sales increased primarily due to a higher average rate
of reimbursement per approval, an increase in referrals and an increase
in approvals from third-party payers as a result of continued
improvements in our reimbursement operations.

Gross profit in Q1 FY 2017 rose 12.1% to $4.3 million from $3.9 million
in Q1 FY 2016, driven by an increase in domestic home care revenue,
higher average selling price per unit, and a decrease in the Company’s
manufacturing costs of the SmartVest SQL. Gross margin in Q1 FY 2017
increased to 78.1% from 77.2% in Q1 FY 2016, primarily reflecting higher
average selling price per unit and a decrease in our manufacturing costs
of the SmartVest SQL as compared to the prior fiscal year.

Operating expenses, which include selling, general and administrative
(“SG&A”) as well as research and development (“R&D”) expenses, totaled
$4.0 million, or 72.8% of revenue, in Q1 FY 2017 compared with $3.3
million, or 65.5% of revenue, in the same period of the prior year. SG&A
expenses increased 14.1% to $3.7 million in Q1 FY 2017 from $3.2 million
in Q1 FY 2016, primarily due to higher payroll and compensation-related
expenses, higher professional fees, and increased travel, meals and
entertainment expenses. R&D expenses increased to $351,000 in Q1 FY 2017
from $42,000 in Q1 FY 2016, primarily driven by incremental investment
in the Company’s wireless connectivity project.

Operating income in Q1 FY 2017 declined to $289,000 from $585,000 in Q1
FY 2016, reflecting higher operating expenses, which were partially
offset by higher revenue and gross profit.

Net income before income tax expense in Q1 FY 2017 was $272,000,
compared to $565,000 in Q1 FY 2016. In Q1 FY 2017, the Company reported
income tax expense of $81,000, compared to $224,000 in the same period
of the prior year.

The Company reported net income of $191,000, or $0.02 per basic and
diluted share, in Q1 FY 2017, compared to $341,000, or $0.04 per basic
and diluted share, in Q1 FY 2016.

Financial Condition

Electromed’s balance sheet at September 30, 2016 included cash and cash
equivalents of $3.8 million, long-term debt of $1.1 million, working
capital of $13.2 million, and stockholders’ equity of $16.7 million.

Conference Call

Management will host a conference call tomorrow at 8:00 am CT (9:00 am
ET) to discuss Q1 FY 2017 financial results and other matters.

Interested parties may participate in the call by dialing:

• (877) 407-9753 (Domestic)
• (201) 493-6739 (International)

The conference call will also be accessible via the following link: http://www.investorcalendar.com/IC/CEPage.asp?ID=175358.

For those who cannot listen to the live broadcast, an online webcast
replay will be available in the Investor Relations section of
Electromed’s web site at: http://www.smartvest.com/electromed/investor-relations/.

About Electromed, Inc.

Electromed, Inc. manufactures, markets, and sells products that provide
airway clearance therapy, including the SmartVest^® Airway
Clearance System, to patients with compromised pulmonary function. The
Company is headquartered in New Prague, Minnesota and was founded in
1992. Further information about Electromed can be found at www.smartvest.com.

Cautionary Statements

Certain statements in this release constitute forward-looking
statements as defined in the U.S. Private Securities Litigation Reform
Act of 1995. Forward-looking statements reflect current views with
respect to future events and financial performance and include any
statement that does not directly relate to a current or historical fact.
Forward-looking statements can generally be identified by the words
“anticipate,” “believe,” “estimate,” “expect,” “will” and similar words.
Forward-looking statements in this release include estimated revenue
trends, changes in sales opportunities and our sales force, product and
service innovations, referral quality and processing, financial
performance, profitability and market trends. Forward-looking statements
cannot be guaranteed and actual results may vary materially due to the
uncertainties and risks, known and unknown, associated with such
statements. Examples of risks and uncertainties for the Company include,
but are not limited to, the impact of emerging and existing competitors,
the effect of new legislation on the Company’s industry and business,
the effectiveness of the Company’s sales and marketing and cost control
initiatives, changes to reimbursement programs, as well as other factors
described from time to time in the Company’s reports to the Securities
and Exchange Commission (including the Company’s most recent Annual
Report on Form 10-K, as amended from time to time, and subsequent
reports on Form 10-Q and Form 8-K). Investors should not consider any
list of such factors to be an exhaustive statement of all of the risks,
uncertainties or potentially inaccurate assumptions investors should
take into account when making investment decisions. Shareholders and
other readers should not place undue reliance on “forward-looking
statements,” as such statements speak only as of the date of this
release.

Financial Tables Follow:

Electromed, Inc. Condensed Balance Sheets
				September 30, 2016			June 30, 2016
				(Unaudited)
Assets
Current Assets
Cash				$	3,824,012		$			5,123,355
Accounts receivable (net of allowances for doubtful accounts of $45,000)					8,043,565					7,611,437
Inventories					2,606,134					2,480,443
Prepaid expenses and other current assets					497,412					412,856
Income tax receivable					134,396					192,685
Total current assets					15,105,519					15,820,776
Property and equipment, net					3,243,775					3,375,189
Finite-life intangible assets, net					894,853					904,033
Other assets					117,372					134,519
Deferred income taxes					343,000					343,000
Total assets				$	19,704,519		$			20,577,517
Liabilities and Shareholders’ Equity
Current Liabilities
Current maturities of long-term debt				$	44,961		$			46,309
Accounts payable					425,015					589,225
Accrued compensation					523,876					1,489,798
Warranty reserve					660,000					660,000
Other accrued liabilities					255,502					287,194
Total current liabilities					1,909,354					3,072,526
Long-term debt, less current maturities and net of debt issuance costs					1,136,189					1,146,395
Total liabilities					3,045,543					4,218,921
Commitments and Contingencies
Equity
Common stock, $0.01 par value; authorized: 13,000,000 shares; 8,217,112 and 8,187,112 issued and outstanding at September 30, 2016 and June 30, 2016, respectively					82,171					81,871
Additional paid-in capital					13,658,459					13,549,551
Retained earnings					2,918,346					2,727,174
Total shareholders’ equity					16,658,976					16,358,596
Total liabilities and shareholders’ equity				$	19,704,519		$			20,577,517

Electromed, Inc. Condensed Statements of Operations (Unaudited)
					Three Months Ended September 30,
					2016				2015
Net revenues					$	5,545,363			$	5,001,188
Cost of revenues						1,217,736				1,141,758
Gross profit						4,327,627				3,859,430
Operating expenses
Selling, general and administrative						3,687,908				3,232,719
Research and development						350,840				41,543
Total operating expenses						4,038,748				3,274,262
Operating income						288,879				585,168
Interest expense, net of interest income of $3,366 and $624 respectively						16,707				20,206
Net income before income taxes						272,172				564,962
Income tax expense						(81,000	)			(224,000	)
Net income					$	191,172			$	340,962
Income per share:
Basic					$	0.02			$	0.04
Diluted					$	0.02			$	0.04
Weighted-average common shares outstanding:
Basic						8,167,112				8,133,857
Diluted						8,452,780				8,173,684

Electromed, Inc. Condensed Statements of Cash Flows (Unaudited)
				Three Months Ended September 30,
				2016				2015
Cash Flows From Operating Activities
Net income				$	191,172			$	340,962
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation					155,781				154,849
Amortization of finite-life intangible assets					30,674				30,674
Amortization of debt issuance costs					4,344				4,664
Share-based compensation expense					109,208				39,149
Loss on disposal of property and equipment and intangible assets					–				24,965
Changes in operating assets and liabilities:
Accounts receivable					(432,128	)			61,514
Inventories					(100,596	)			(67,144	)
Prepaid expenses and other assets					(12,500	)			(106,930	)
Accounts payable and accrued liabilities					(1,161,824	)			(171,273	)
Net cash provided (used) by operating activities					(1,215,869	)			311,430
Cash Flows From Investing Activities
Expenditures for property and equipment					(49,462	)			(101,006	)
Expenditures for finite-life intangible assets					(21,494	)			(13,829	)
Net cash used in investing activities					(70,956	)			(114,835	)
Cash Flows From Financing Activities
Principal payments on long-term debt including capital lease obligations					(12,518	)			(11,858	)
Net increase (decrease) in cash					(1,299,343	)			184,737
Cash
Beginning of period					5,123,355				3,598,240
End of period				$	3,824,012			$	3,782,977

Contacts

Electromed, Inc.
Jeremy Brock, 952-758-9299
Chief
Financial Officer
investorrelations@electromed.com
or
The
Equity Group Inc.
Kalle Ahl, CFA, 212-836-9614
kahl@equityny.com
or
Devin
Sullivan, 212-836-9608
dsullivan@equityny.com