Greetings and welcome to the KORU Medical Systems Reports Third Quarter 2019 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Devin Sullivan, Senior Vice President of The Equity Group. Thank you. You may begin.

Thank you, Donna. Good morning everyone and thank you for joining us for KORU Medical Systems third quarter 2019 financial results conference call. Speakers for today's call are Don Pettigrew, President and Chief Executive Officer and Karen Fisher, our Chief Financial Officer. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our predictions and expectations as of today. Actual events or results could differ materially due to several risks and uncertainties, including those mentioned in the associated slide presentation and our most recent filings with the SEC, along with the associated press releases. We assume no obligation to update any forward-looking statements. The associated slide presentation will be posted to the Investor Relations section of our website www.korumedical.com. I encourage listeners to have our press release in front of you, which includes our financial results, as well as commentary on the quarter. During the call management, we'll discuss certain non-GAAP financial measures in our press release and slide presentation, accompanying this webcast and our filings with the SEC. Each of which is posted on our website. You will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Our strategic plan and goals incorporate the trends we've seen today and what we believe today to be appropriate assumptions. Our results are inherently unpredictable and maybe materially affected by many factors, including the introduction of competitive products, availability of insurance reimbursement, success of our research and development efforts, acceptance of and demand for new and existing products, expanded market acceptance of the Freedom system, the cost, duration and ultimate outcomes of litigation, general economic and business conditions in the United States and abroad, and other factors described in our filings with the SEC. Therefore, our actual results could differ materially from the goals, set forth in the strategic plan. For the benefit of those of you listening to the replay, this call was held and recorded on Wednesday, November 6, 2019 at approximately 9 AM Eastern Time. Since then, the company may have made additional comments related to the topics discussed. Please reference the company's most recent press releases and filings with the SEC. With that said, I'd now like to turn the call over to Don Pettigrew, President and CEO of the KORU Medical Systems. Don, please go ahead.

Thank you, Devin, and thanks all of you for joining today's call. This is our first conference call as KORU Medical Systems. I'd like to ask all of you to note the slides addressing Safe Harbor and the non-GAAP measures we'll refer to on today's call. As you'll see on Slide 3, we will be discussing several things on today's call including our results for the third quarter of 2019, our strengthened financial position and a number of encouraging industry tailwinds. But, first and foremost, we've had two recent significant advances in October. One, we are proud to be listed on the NASDAQ. And two, we've gone through a corporate rebranding initiative. So, if you go to Slide 4, we're incredibly excited to rebrand the company to KORU Medical Systems, as it reflects the great strides, we've made in evolving our corporate culture, mission and patient-centric focus. The rebranding is inspired by the koru, a widely recognized symbol of a spiral-shaped unfurling fern that represents new life and new beginnings. KORU Medical's focus on providing patients new beginnings with our at-home infusion systems is at the heart of our brand. The following core values will drive everything that we do at KORU medical. First is the patient experience; we're committed to patient safety and product efficacy, with enhanced patient outcomes as our top priority. Integrity, we want to form transparent, trusting relationships with all of our stakeholders, including patients, employees, customers, industry partners and investors. Teamwork, we've assembled a strong management team and a Board that we believe will lead our continuing development and drive us towards our long-term operational and financial goals. We made the rebranding announcement on the eve of this year's Immunoglobulin National Society Conference in Las Vegas, whereas honored to be joined by our management team…

Thanks Don, and good morning everyone. Beginning on Slide 15, net sales rose 45.5% to $6.6 million in Q3 2019, up from $4.5 million in Q3, 2018. This growth was due to the continued expansion of our presence in the PIDD and CIDP markets, as well as large orders from a domestic distributor and a new customer in Europe, clinical trial activity, and to a lesser extent, price increases in the quarter. We cannot predict whether such large distributor orders or volume generally will continue in the future. The large domestic distributor orders followed the acquisition of Medical Specialties Distributors by McKesson Medical-Surgical, as they move forward with our integration. We ended the third quarter with approximately 800,000 open orders, which have since been fulfilled. Excluding the two large orders, clinical trials and adjusting for the open orders for the quarter, net sales grew in excess of 25% year-over-year. Gross profit in Q3 2019 rose to $4.4 million or 66.2% of net sales, up from $2.9 million or 63.6% of net sales in Q3 2018, driven by the increase in net sales and to a lesser extent, the price increases. Total operating expenses for Q3 2019 rose to $3.6 million, up from $2.4 million in Q3 2018. Of these, SG&A expenses rose to $2.4 million from $1.9 million in Q3 2018, primarily due to higher salary and related benefits, including 300,000 of stock option expense, all resulting from the executive management changes and the addition of senior leadership in key roles. SG&A expenses decreased as a percentage of net sales to 36.9% of net sales in Q3 2019, as compared to 42.2% of net sales in Q3 2018. Litigation costs increased to approximately $900,000 from $300,000 in Q3, 2018, reflecting the ongoing litigation with the competitor. While litigation continues, the…

Thank you, Karen. So all in all, exciting times here at KORU Medical, I want to thank you all for your participation today. And I'd like to open things up for questions. Donna, we are ready, whenever you are.

Thank you. [Operator Instructions] Our first question is coming from Alex Nowak of Craig-Hallum. Please go ahead.

Good morning, everyone, and congrats on the results here. Just want to clarify some of the sales dynamics in the quarter. There was a large order, but then you also had some back order in about $800,000. So, when you back out all the sales, is it fair to say the sales in the quarter should have been closer to about $5.6 million? What we should be using for modeling here going forward, assume Q3 was about a 25% standardized growth rate?

I'll let you do the math on the modeling, but it's safe to say with a large distributor order and a transition that some of the sales came in a little heavy for Q3, but if you look at Q4 expectations, your range is somewhat accurate.

Okay, understood. And then just on gross - did you want to continue, Don?

No, go ahead.

Okay. Just on gross margins; obviously, those have come in pretty nicely here over the last couple of quarters. What would you say the new gross margin run rate is here, is 65%, 66% kind of the correct range? Is there any ability to continue to improve this over the next 12 months?

Yes, I would say that range is correct and there is some opportunity to improve right now. It's largely driven by our leverage right now, our income statement, but new sales and price increases is certainly pull that up. The opportunity is really with some manufacturing cost reduction initiatives that have the ability to impact that positively as well.

Okay, understood. And then just on legal spend, it's about $1 million per quarter. You won two of the cases here. I know those are still ongoing within the courts, but you seem to have won those. When should we expect a final third case to be ultimately decided here and until then, what should the legal spend be here for the next couple of quarters?

A popular question. I wish I knew the answer to when it would end. I'm really happy about the progress we've made in the favorable rulings. We're hoping the remaining ruling come sooner than later but we're committed to getting this behind us. We continue on a similar spend run rate for the remainder of the year and right now, we're expecting a bit of a drop off for the following year, but can't comment on the specifics for what we don't know.

Okay, understood. And then, you mentioned a number of different indications that are under research for IG drugs, obviously PIDD and CIDP are already on the labels for sub-Q drugs today. What are the next indications coming for sub-QIG drugs that you're closely watching?

Another popular question, I appreciate you asking. So right now, as I highlighted earlier in the presentation, the biggest opportunity for us is to execute on the current PIDD and CIDP opportunity. You see the potential there, and there's a huge runway in those two markets. With that said, there is expansion into new markets. There is the opportunity with new products, as well as expanded indications in terms of new drug development. We are focused in the areas of neurology, hematology and oncology right now, in the addition to the PIDD market.

Okay, understood. And then just maybe one last question on the IG market. You mentioned the supply out there for IG, specifically sub-QIG, has been fairly constrained. With Xembify coming online here at the end of this quarter, is there any way or anything you're hearing to help quantify the pent-up demand of people wanting to get on a sub-Q drug, or doctors wanting to prescribe a sub-Q drug to the patients but just today cannot get access to it?

Yes, we hear quite a bit of that, we're fresh out of the IgNS meeting in Las Vegas. This was a hot topic. And, I think you have two growth engines or opportunities here, one, patients that are currently on IVIG and Grifols, as the market leader in IVIG, so for them coming to market with the sub-Q drug is very telling. But it shows the strong preference, I believe, of patients wanting to switch over from IVIG to sub-QIG based on a lot of things that I covered earlier. It's also my belief that the additional supply will free up some pent-up demand, talked with several immunologist that have many patients that could benefit from the use of IG, but limited supply doesn't allow them to get up and running with them.

Okay, got it. And then switching over to OUS [ph], you mentioned you are shipping some products here to a distributor outside the US in the quarter. On Slide 14, you said it's more of a 2020, 2021 plan. But can you explain what you're seeing outside the US? Clearly this is moving forward a little bit faster than I think you thought. How big is that market outside the US and should we be expecting to see some increasing orders outside the US over the next couple of quarters, or was this more of a stocking order in this quarter?

All right. So, a lot of questions in that question. Let me do my best to answer that. As communicated in our strategic plan and Phase II, we are planning a European expansion. One of the benefits of us being close to our pharma partners is we can work with them, as they expand into new markets including outside the US. The outside the US market, we estimate to be two to three fold that of the US market, and this order is part of the predicted expansion into the European market. One interesting thing to note, Alex, is the IG supply in the US can be exported. So, right now pharma companies are managing their supply accordingly and part of their focus is to get into the European market in the near future.

Okay, I understood. Thanks again, appreciate it.

I appreciate the question Alex.

[Operator Instructions] At this time, I'd like to turn the floor back over to management for any additional or closing comments.

All right. I will take that as a complement that we answered most of the questions. I want to sincerely thank all of you for your continued interest in now KORU Medical. We have very strong tailwinds right now and continue to advance towards our stated operational financial goals, and we are focused on improving the quality of life for patients around the world and delivering continued value to our shareholders. With that said, we have several events on the calendar for November and December, including the Craig Hallum, Alpha Select Conference and Canaccord Medical Technologies and Diagnostics Forum, both in New York City later this month, and the LD Micro Main Event in Los Angeles in December. We hope to see some of you at those conferences. Thank you again for your time and attention and interest and I hope everybody has a wonderful day.

Ladies and gentlemen, thank you for your participation, this concludes today's event. You may disconnect your lines or log off the webcast at this time. Thank you.