Greetings, and welcome to the Electromed, Inc.’s First Quarter Fiscal 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kalle Ahl of The Equity Group. Thank you. You may begin.

Thank you, Donna, and good morning, everyone. Electromed's first quarter fiscal 2020 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. Before we get started, I need to remind you that today’s call will contain forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual performance or achievements to be materially different from those discussed in the forward-looking statements. Due to many factors including the risks and uncertainties identified in our earnings press release which we have furnished on a Form 8-K and in other filings with the Securities and Exchange Commission. 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 first quarter fiscal 2020 financial results, and then we will 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. We commenced fiscal 2020 with strong performance in the first quarter, which is typically a seasonally light period of the year for us. Our net revenue grew 14.1% year-over-year to $8.3 million driven by 11.4% increase in Home Care revenue and a 49.2% increase in institutional revenue. In our Home Care market, all key revenue metrics improved year-over-year including referrals, approvals and approvals as a percentage of referrals. This performance is attributed to our employees’ team work and their focus and passion for helping people breathe easier and to live better. Additionally the average selling price per device increased compared to the same period in the prior year coming in at the high-end of our normal range due primarily to payer mix. We anticipate that ASP will moderate from the above average first quarter level for the remainder of the fiscal 2020 year. Importantly, this quarter , we continued to deliver improved sales force productivity with approximately 879,000 of annualized Home Care revenue per direct field sales employee, well ahead of the comparable figure of 659,000 for the first quarter of fiscal 2019 and above our target range of between $750,000 and $850,000. We believe that we are benefiting from several actions initiated last fiscal year including the pause in our sales force expansion and the restructuring of our sales footprint from five to four regions. New sales leadership appointment, enhanced sales training programs, better communication of SmartVest patient wellness feedback to clinicians, improved targeting approaches and clinic call frequency and the publication of a first-of-its-kind, independent study published in BMC Pulmonary Medicine in April 2019, which concluded that early initiation of therapy with SmartVest decreases severe exacerbation, reduces antibiotic use and stabilizes lung function for bronchiectasis patients.…

Thank you, Kathleen and good morning, everyone. Our net revenue in the first quarter of fiscal 2020 increased 14.1% to $8.3 million from $7.3 million in the same period in the prior year driven primarily by Home Care revenue growth. Home care revenue increased 11.4% to $7.5 million, primarily due to a higher average allowable based on payer mix as compared to the prior year and a greater referral to approval percentage. Institutional revenue increased 49.2% to $625,000 from $419,000 in the same period in the prior year due to a higher average selling price per device and an increase in the number of devices we sold. Home care distributor revenue, which commenced this quarter with our first sales to Home Care Medical distributors was approximately $120,000 and international revenue, which is not been a strategic growth area for us total approximately $66,000 compared to a $135,000 in the prior year period. As a reminder, quarter-to-quarter sales variability can be expected due to the nature of our business. Gross profit increased 14.4% to $6.3 million or 76.4% of net revenue in the first quarter of fiscal 2020 from $5.5 million or 76.2% of net revenue in the same period of the prior year. The increase in gross profit resulted primarily from an increase in Home Care revenue, a slight increase in gross profit as a percentage of net revenue was driven by a higher average allowable due to payer mix as compared to the same period in the prior year. Operating expenses, which include SG&A as well as R&D expenses, totaled $5 million or 60.1% of revenue in the first quarter of fiscal 2020, compared to $5.3 million or 73.4% of revenue in the same period of the prior year. In the first quarter of fiscal 2020, SG&A expenses decreased…

[Operator Instructions] The floor is now open for questions. [Operator Instructions] Our first question is coming from Kyle Bauser of Dougherty & Company. Please go ahead.

Hi. Good morning, Kathleen and Jeremy.

Good morning.

Good morning, Kyle.

Really strong quarter here. Appreciate all the updates and you gave some nice color on how we should approach the financials this year. So, maybe I’ll focus on the market opportunity. It still sound like significant businesses – opportunities here, bronchiectasis is obviously highly under-diagnosed. So, if we look at your sales year-to-date, ballpark, what sort of percentage do you think is share gains from competitors versus percent from increased market penetration?

Thanks for the question, Kyle. We – as we’ve talked to our shareholders in the past, getting that detailed information, it can be rather difficult as you are increasing the size of the pie as well as looking at competitive – taking competitive share. So, typically, we think about that as probably higher percent of market development right now and that a little less on the competitive side. I think, as we bring on these new sales people that we are talking about here this quarter and probably throughout some into next quarter, but that focus will be stronger on that competitive share and taking that since we find that new sales people that is often the best approach to reaching productivity at a faster pace. So, I’d probably put that at, maybe an estimate of about 70% market development and 30% share.

Okay. That’s helpful. And if we stick with the bucket for the increased market penetration. Those are sales from physicians that didn’t prescribe HFCWO previously, is that right?

Well, it’s typically a combination of two things, Kyle. One is, it would be from physicians that aren’t traditionally or routinely prescribing and it also can be a physician that now is finding and is identifying more patients with bronchiectasis in their practice. So it’s two-fold from a market development standpoint. We called out a little bit of that latter go deeper strategy to help that physicians see that they might, if 50% of the COPD population that has severe and very severe COPD, the likely have bronchiectasis and these and our physicians that are more mindful of that.

Okay. Understood. Just trying to kind of get at the total market opportunity, maybe in terms of prescribers and on COPD market is over $15 million and bronchiectasis is $4 million or so. So, how many relevant physicians are - maybe I’ll ask it this way, are prescribing HFCWO actively and how many you think aren’t but would be a target of yours?

So, we would estimate a range of pulmonologists that prescribe HFCWO to be probably over 50% of the pulmonologists and that number is in the 10,000 to 15,000. And, so, that could help give you a little bit of a feel for what we are looking at.

Okay. And just sticking with that, so do you – you talked about new targeting approaches and just new sales tactics are clearly ramping up the productivity of the sales force. Can you just talk about kind of how you are identifying key new targets? I mean, do you have access to procedure, prescription data to help you identify the high volume account or are you – like you say kind of more focused on driving utilization with this existing account. Just kind of wondering about more color on these sales strategies.

Sure. I’d be glad to share that with you. We have databases that provide us information on pulmonologists that are prescribing HFCWO under the E0483 reimbursement code from CMS. We also are able to have lists of pulmonologists totally in the United States. So we can compare who is prescribing and who isn’t. And so, those that do prescribe are primarily our targets and that would be from a competitive standpoint and then also those physicians that may have multiple pulmonologists in their facility or their clinic. Those would also be a target for us. And then the other area that we look at is, we look at what’s called J-codes or those J-codes are often those of a COPD diagnosis. And so, we are looking for population centers where there is a high incident rate of those J-code diagnoses, because again, we know, we should be fishing, so to say, in those population areas where there is high incident of COPD because that’s where the bronchiectasis patients are, as well. So, hopefully that helps you.

Yes. Yes. Yes. That’s really helpful. And then, just lastly if I may, regarding the first-of-its-kind UAB study of assets in the past, but just wanted to get an update couple months player here, how that has maybe won share or helped in the sales process in new business?

Yes, so I think for those physicians that maybe skeptical of the value of High Frequency Chest Wall Oscillation, this is a compelling study for them and it does help them to sit up and notice and what we used then if – then we have the opportunity for them to prescribe and to see first-hand what the value of HFCWO can be for their bronchiectasis patients or a patient with other lung function disorders that qualified for reimbursement. Once we can help them to start with one patient, then we provide them our wellness check feedback on that patient, so they can see first-hand with their patients how those outcomes are making a difference for their specific patient. And then, that helps us to – we believe help that physician make looking for bronchiectasis and diagnosing it and then prescribing more of a routine. So, we think it’s been very helpful for us in looking and addressing a physician as I just described.

Okay. Thank you. I’ll jump back in queue. Congrats on the great quarter.

Thank you, Kyle.

[Operator Instructions] Our next question is coming from Tim Chatard of Meros Investments. Please go ahead.

I have a question related to reimbursement and – I don’t know if I am barking at the wrong tree, but is there around a 2020 competitive bidding ongoing? And if so, how many collectives or competitive bidding areas are you participating? And are you part of that process with your medical equipment?

Well, hello, Tim. Thank you for the question. High Frequency Chest Wall Oscillation or the E0483 code has not been in any form of discussions around competitive bidding. And we don’t – we have not seen anything to indicate that that’s in the future – foreseeable future.

Okay. Somehow I got cut it in my head that the code, the relevant code was D0467, I was just doing some work on something else. But if I have mistaken on that, it wouldn’t be a surprise. Okay, that’s fine. That’s all I’ve got. Thanks.

Thank you. Tim.

Thank you. Our next question is coming from Mike Dessler [Ph] of MNX Holdings. Please go ahead.

Yes. Good morning, Kathleen and Jeremy. So, this is really fast. I have been on virtually every call since you’ve been there, Kathleen, perhaps longer. The – I just want to say both of you very clear presentations are always very forthcoming, and we love it. Congrats on a great quarter. You just have to listen me for one more minute. I am glad to see in here that the – that hospital first contact that we’ve discussed in years past is leading to that stickiness and it’s kind of showing up in those numbers now. So, that’s terrific. Congratulations on your new digs. And good luck on the next-generation with your R&D development this year and thanks for listening to me.

Well, thank you very much, Mike.

Thanks, Mike.

Appreciate your comments.

Absolutely. Thank you.

Thank you. At this time, I would like to turn the floor back over to Ms. Skarvan for closing comments.

In conclusion, I want to thank our Electromed team of employees for their passion and their commitment to helping more patients receive our SmartVest Airway Clearance System, so that these patients may breathe easier and live better. Thank you all for participating on our call this morning. We look forward to reporting back to you in February when we will release our second quarter fiscal 2020 financial results. Have a good day.

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and have a wonderful day.