Electromed, Inc. Announces Fiscal 2017 Second Quarter Financial Results -- Reports Record Revenue and Cash Flow from Operations -- New Prague, Minnesota

Electromed, Inc. Announces Fiscal 2017

Second Quarter Financial Results

-- Reports Record Revenue and Cash Flow

New Prague, Minnesota - February

7, 2017 - Electromed, Inc. ("Electromed" or "the Company") (NYSE MKT: ELMD), a leader in innovative

airway clearance technologies, today announced financial results for its three months ended December 31, 2016 ("Q2 FY 2017").

Q2 FY 2017 Highlights

Kathleen Skarvan, President and Chief Executive

Officer of Electromed, commented, "In our second quarter we achieved record revenue and cash flow from operations while continuing

to invest in our sales team, reimbursement platform, and product innovation. These investments, combined with an evidence-based

sales approach and improved sales force productivity, drove a record level of referrals and higher approvals in Q2 FY 2017, positioning

Electromed for ongoing revenue growth during the second half of the fiscal year. We remain excited about the large market opportunity

for our SmartVest Airway Clearance System and are extremely pleased with this quarter's improving level of referrals

per sales representative and our progress in educating physicians to better identify patients who may benefit from therapy with

Ms. Skarvan continued, "Our sales

team has gained significant traction using two recently published studies verifying the effectiveness of SmartVest use by patients

with non-cystic fibrosis bronchiectasis. The most recent study, published in January 2017, demonstrates a 60% reduction in overall

health care utilization and cost as a result of a material decrease in bronchiectasis-related exacerbations for a population of

patients who used our SmartVest device. Our field reps also are hearing enthusiasm from patients and clinicians about the opportunity

to further personalize their therapy with our new garment colors and first-to-market generator color choices, which we began shipping

in October 2016. As announced last quarter, we are developing wireless connectivity for the SmartVest SQL and this January

began shipping wireless enabled devices to patients in five clinics throughout the country as part of our beta testing process.

We remain on target for a formal launch by the end of fiscal 2017. We believe that continued product innovation, combined with

SmartVest SQL's light weight, quiet operation and ease-of-use, will promote greater patient acceptance and satisfaction."

Net revenues in Q2 FY 2017 increased 1.8%

to $6.4 million from $6.3 million in Q2 FY 2016.

Home care revenue in Q2 FY 2017 was negatively

impacted by the retroactive repayment of previously collected and recognized revenue to a state Medicaid program totaling approximately

$212,000. The repayment resulted from the state Medicaid program's reinterpretation of its reimbursement process and a reduction

in its allowable payments. We believe that the repayment is a one-time event and is not reflective of other state Medicaid reimbursement

processes. During the three months ended December 31, 2015, home care revenue benefited by approximately $250,000 from processing

a backlog of referrals from the prior fiscal year in a certain state. The backlog accumulated while we reapplied for a state home

medical equipment license until we met a newly imposed requirement to have an approved in-state presence. The license was reinstated

After taking into consideration the negative

impact of the retroactive repayment during Q2 FY 2017, and the favorable impact of the processing of the backlogged referrals during

Q2 FY 2016, home care revenue increased primarily due to an increase in both approvals and referrals. The increase in referrals

was predominately due to growth in the number of field sales employees and a higher referral per field sales employee as compared

to the comparable prior year period.

Gross profit in both Q2 FY 2017 and Q2

FY 2016 approximated $4.9 million. Gross profit in Q2 FY 2017 was 77.3% of net revenues, compared to 78.2% of net revenues in Q2

Operating expenses, which include selling,

general and administrative ("SG&A") as well as research and development ("R&D") expenses, totaled

$4.2 million, or 65.9% of revenue, in Q2 FY 2017 compared with $3.6 million, or 58.3% of revenue, in the same period of the prior

year. SG&A expenses increased 14.0% to $4.1 million in Q2 FY 2017 from $3.6 million in Q2 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 $101,000 in Q2 FY 2017 from $57,000 in Q2 FY 2016, primarily driven by incremental investment in the Company's

wireless connectivity project. In Q2 FY 2017 the Company capitalized an additional $190,000 related to software development of

its patient and clinician communication portal for its wireless connectivity project.

Operating income in Q2 FY 2017 declined

to $729,000 from $1.2 million in Q2 FY 2016, reflecting higher operating expenses. The year-over-year decrease in operating income

was driven primarily by increased payroll and compensation expenses in sales and administrative positions and increased research

and development costs, which were partially offset by increased gross profit driven by higher revenue.

Net income before income tax expense in Q2

FY 2017 was $714,000, compared to $1.2 million in Q2 FY 2016.

The Company reported net income of $444,000,

or $0.05 per basic and diluted share, in Q2 FY 2017, compared to $1.1 million, or $0.13 per basic and diluted share, in Q2 FY 2016.

In Q2 FY 2017, the Company reported income tax expense of $270,000, compared to $164,000 in the same period of the prior year.

The prior year benefited by a discrete tax benefit of $294,000.

Year-to-Date FY 2017 Summary

For the six months ended December 31, 2016,

revenue increased 5.8% to $11.9 million from $11.3 million in the same period of fiscal 2016. Gross margins were 77.7%, compared

to 77.8% in the same period of the prior year, while net income was $635,000, or $0.08 per diluted share, compared to $1.4 million,

or $0.17 per diluted share in the same period of the prior year.

Electromed's balance sheet at December

31, 2016 included cash and cash equivalents of $4.8 million, long-term debt including current maturities of $1.2 million, working

capital of $13.7 million, and shareholders' equity of $17.2 million.

Management will host a conference call

on February 8, 2017 at 8:00 am CT (9:00 am ET) to discuss Q2 FY 2017 financial results and other matters.

Interested parties may participate in

the call by dialing:

The conference call will also be accessible

via the following link:

http://www.investorcalendar.com/IC/CEPage.asp?ID=175581.

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: