Greetings, and welcome to the Electromed Inc., Fourth Quarter Fiscal 2018 Financial Results conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Kalle Ahl of The Equity Group. Thank you. You may begin.

Thank you Melissa and good morning everyone. Electromed's fourth quarter fiscal 2018 financial results were released yesterday after the market closed. A copy of the earnings release can be found in the Investor Relations section of the company's website at www.smartvest.com. As a matter of formality, I need to remind participants that remarks made by management during the course of this call may contain forward-looking statements about the company's 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. The words believe, expect, plan, intend, estimate, anticipate, should or could, and similar expressions are words that are used to identify forward-looking statements, but their absence does not mean a statement is not forward-looking. In addition, any projections as to the company's future performance represent management's estimates as of today September 26, 2018. You should not place undue reliance on these forward-looking statements. We expressly do not undertake any duty to update forward-looking statements whether as a result of new information, future events or otherwise. We ask that you please refer to the company's SEC filings for further guidance on this matter. Joining us from Electromed this morning are Ms. Kathleen Skarvan, President and Chief Executive Officer; and Mr. Jeremy Brock, Chief Financial Officer. Kathleen will begin with some opening remarks, after which Jeremy will present a summary of the company's fourth quarter fiscal 2018 financial results, and then we'll open the call for questions. Now, it's my pleasure to turn the call over to Kathleen.

Thank you, Kalle. Good morning everyone and thank you for joining us to discuss Electromed’s fourth quarter fiscal 2018 financial results. This quarter we delivered strong homecare sales growth of 15% despite a difficult comparison against the prior year period which included a favorable CMS settlement agreement totaling $703,000. Targeted improvements in our reimbursement skills, processes and capacity, combined with a larger field sales force which expanded to 50 at the end of the year from 40 at the start of fiscal 2018, drove higher approvals and referrals this quarter. We were particularly pleased with our approvals in the fourth quarter, which increased significantly due to higher referral to approval conversion rate and faster speed to process referrals. The higher level of investment we made earlier this fiscal year in our sales and reimbursement organizations clearly is beginning to pay off and puts us in a good position to achieve double digit revenue growth long term. Higher spending on growth initiatives across sales, marketing and reimbursement functions drove higher SG&A expense throughout the year, yet we remained profitable and generated significant operating cash flow. With the investments initiated in fiscal 2018 Electromed has emerged a larger, stronger organization and we plan to deliver profitable revenue growth in fiscal 2019. In the fourth quarter Electromed’s net income grew 18% and our cash flow provided by operating activities expanded 48%. I'd like to point out that we achieved an uptick in sales productivity in the fourth quarter due to the decisive action we took when productivity dipped in the third quarter. We have opportunity for additional meaningful sales productivity improvement in fiscal 2019, and to achieve that improvement we will continue to focus on leadership co-travel with new sales employees in the field, higher frequency of visits to strategic clinics and continuing…

Thank you, Kathleen and good morning everyone. Our net revenue in the fourth quarter of fiscal 2018 increased 13.3% to $8.2 million from $7.3 million in Q4 of fiscal 2017, driven by strong growth in home care sales. Home care sales increased 14.8% to $7.7 million, primarily due to the increase in approvals and referrals driven by improved reimbursement processes and a higher number of field sales employees. As a reminder, in the fourth quarter of the prior year we recognized $700,000 of net revenue from a settlement with the centers for Medicare and Medicaid services with respect to approximately 700 Medicaid fee for service claims submitted between calendar years 2012 and 2015. Institutional revenue increased 25.9% to $466,000 from $370,000 in the prior year quarter and international revenue, which is not a strategic growth area for Electromed totaled approximately $114,000 compared to $229,000 in the prior year period. Although quarter-to-quarter sales variability can be expected due to the nature of our business, we anticipate double digit revenue growth in fiscal 2019 as we execute our organic growth strategy. Gross profit increased 12.2% to $6.7 million or 81.7% of net revenue in Q4 of fiscal 2018 compared to $6 million and 82.5% of net revenue in the fourth quarter of fiscal 2017. The increase in gross profit resulted primarily from an increase in home care revenue. While this quarter we exceeded the 80% gross margin threshold we believe gross margins will return to the mid upper 70’s, which is more in-line with our previously communicated expectations. Operating expenses which include SG&A as well as R&D expenses totaled $5.1 million or 62.4% of revenue in the fourth quarter of fiscal 2018 compared to $4.5 million or 61.7% of revenue in the same period of the prior year. SG&A expenses increased 14.4%…

Thank you [Operator Instructions]. Thank you. Our first question comes from the line of Paul Carter with Adoptable Capital Management. Please proceed with your question.

Hi, good morning. Thanks for taking my question. Very nice results there. So just curious, you highlighted your sales productivity improvement in the quarter. Excluding international, your sales per average field sales employee increased I think about 8% to about $166,000 in the quarter. Does your sales organization tend to be more active during your fourth fiscal quarter relative to your third or is there any reason to think that that kind of greater growth from Q3 to Q4 shouldn't continue into Q1?

Hi Paul, it's great to hear from you and we appreciate that question. We do see occasionally seasonality throughout the year. We will reference that often as during the height of influenza season you may see more patients visiting their physician due to an increase in exacerbations just because of the way we see that in the United States. So, I think that there could be some of that. I think we have experienced some pick-up from three to four in prior years and so I think that’s a consideration and we would have seen also, I think the last year when we moved from four to one, some change in that. So I think it's a fair question and we would be monitoring that and working through that as well.

Okay, and then during the quarter your recruiting fees of $217,000 were almost double that what they were in the third quarter. Does that suggest that your – and you know your field sales employee count only increased a couple during the quarter. Does that suggest that a lot of the 48 sales people that you started the fourth quarter with have sort of you’ve replaced them during the quarter or is the sort of average tenure of your sales force continue to increase?

Thank you again for that question relative to the sales force and the recruiting fees and where we are with new sales people. We did address some turnover and replace a few sales people in the fourth quarter, some of that voluntary, some of that involuntary as we continue to strive to have the very best sales people in these regions, in these roles, so that our productivity and learning curve can be achieved in the time frames that we expect. And so you know we would say that our sales force now if you think about how many of those are under a year, we would put them in that – around approximately 25% of that sales force would be less than a year.

Okay, great. Well, thanks very much.

You're very welcome. Thank you, Paul.

Thank you. [Operator Instructions]. Thank you. Our next question comes from the line of Andy Summers with Summers Value Partners. Please proceed with your questions.

Good morning, guys.

Hi Andy, how are you doing?

Good, thank you.

Great!

So, maybe I'll just start with, you talked about the improvement in your referral to approval conversion rate in the quarter given that that the fiscal first quarter is almost over, can you comment on whether you saw that momentum continue into the fiscal first quarter.

Well, thanks for the question Andy. And we are not going to be commenting on the first quarter at this time.

Okay and you talked about generating doubled digit top line growth for several years going forward. That could be 10% that could be a lot higher. Historically you've talked about this bogie of like 18%. Can you maybe give a little more context around this sort of top-line growth opportunity the company has over the next few years?

I'd be glad to do that. In the 10-K we are also referring to this growth and I would put this in the context that this market is developing and we still are working on education and awareness with pulmonologist, not only about SmartVest and its differentiation with our competition, but also around the idea that they have far more bronchiectasis patience then they're diagnosing and identifying. And so for that reason we find that this can be a longer term growth opportunity and that it is somewhat challenging at times to be able to predictably nail down that absolute growth percentage quarter-over-quarter and year-over-year, because it is a little lumpy. So we're going to stick with that double digit growth, but growing faster than market as the way we will describe that at this point. As we learn more about how to project and how that penetration is going, I think we'll get to a position where we can be a little more predictable and precise on that.

Okay, and maybe I'll take it to a little bit of a higher level. So what is your current impression of how fast the market is growing and do you view yourself as a share gainer or share loser?

Over the last few years we have definitely felt that we've been a share gainer and I think occasionally when there's a competitor with a new product innovation they can have spikes in some changes there, but overall we believe we've been a steady market share gainer. Now again, I want to preface that, you know qualify that with the fact that the pie is growing and so to understand the puts and takes of market share can be a little difficult. But overall when we think about the served market we think we are continuing to make gains there.

Okay, alright great, and then you know just based on how I'm thinking about the outlook for the financials, I have you as continuing to generate cash in my model and having almost 20% of the market cap in cash and no debt by the end of fiscal ‘19. You know as cash builds on the balance sheet and becomes more prominent as a percentage of your market cap, have you guys thought any more about your capital allocation strategy or policy? Is there a potential for you to start buying back stock or other acquisitions that you are thinking about making or is there any other context you can provide around your uses of cash going forward?

So thanks again for that question Paul and I think it's a great question and I think this year you'll see that we're going to spend quite a bit more time thinking through and evaluating and accessing what is the best utilization of that capital. And one of the things we mentioned in our K is about assessing what could be the potential for engaging with certain homecare medical equipment distributors. I also talked about in the script here just recently with R&D, evaluating other opportunities that could help support our acceleration of our growth. So I think you'll hear more about that as we move through the year.

Okay, great, and last question and more of a housekeeping question for Jeremy. You talked about the fiscal ‘19 tax rate being 21%, I think on the last quarter call. Is that still the right way to be thinking about the tax rate in 2019? Thank you.

Good morning Andy. Yes, from a federal standpoint our tax rate will be 51 give or take you know the permanent items, but I would look at it at a combined rate with state taxes well closer to the 30%.

Thank you.

Thank you. Our next question comes from a line of [Inaudible]. Please proceed with your question.

Yes, good morning folks. How are you? Between Andy and Paul you pretty much covered everything and I couldn't get out of the queue fast enough, so I just want to say congratulations on a great quarter! Clearly it was not a throw away quarter; you did a great job. Pretty much I was just going to give you some softball questions, but between Paul and Andy you covered everything on my list and continued success. I hope the institutional sales continues to gain traction as a doorway to the homecare sales which you alluded to again in today's conference call as you had last quarter. So thank you, and I look forward to next quarter's call.

Well, thank you Mike for those comments and we're really excited about that institutional opportunity as well and to see that that we’ve been able to move that needle; it’s really exciting. Thank you.

Yes, thank you.

Thank you. Ms. Skarvan, there are no further questions at this time. I'd like to turn the floor back to you for any final comment.

Well, thank you all for participating on our call this morning. We look forward to reporting back to you in November when we’ll release our first quarter of fiscal 2019 financial results. Have a good day!

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.