Greetings and welcome to the KORU Medical Systems reports First Quarter 2020 Financial Results. [Operator Instructions]. I would now like to turn the conference over to your host, Devin Sullivan, Senior Vice President of Equity Group. Please proceed, sir.

Thank you, Latanya, and good morning. Thank you all for joining us for KORU Medical Systems first-quarter 2020 financial results conference call. Our 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 today. 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 this call, management will 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 are posted on our website, you will find additional disclosure regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Our strategic plan goals incorporate the trends that we've seen today and what we believe today to be appropriate assumptions. Our results are inherently unpredictable and may be material - materially affected by many factors, including the introduction of competitive products, availability of insurance reimbursement, success of our research and development efforts, acceptance than 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, the impact of COVID-19 and other factors described in our filings with the SEC. Therefore, our actual results could differ materially from the goals set forth in our strategic plan. For the benefit of the - for the benefit of those of you listening to the replay, this call was held and recorded on Tuesday, May 5th, 2020, at approximately 9 a.m. 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 KORU Medical Systems. Don, please go ahead.

Thank you, Devin. Good morning, everyone, and thank you for joining us today. I hope all of you and your families are safe and well. I want to make you aware of the safe harbor statement on Slide 2 before I move on to Slide 3. We'll cover just a few topics this morning, leading with a discussion of COVID-19, followed by a review of our first-quarter financial performance and an overview of our strategy. We'll then open things up for questions. I want to first draw your attention to Finnegan, who you can see on the left, especially in times like this, we are guided by our mission to improve the quality of life for people like Finnegan by providing products that allow him to manage his treatment regimen with a sense of independence and control. In a time when we were all being asked to social distance; the freedom 60 integrated infusion system is allowing Finnegan in thousands of other patients like him who are battling chronic medical conditions to treat their chronic medical conditions from the safety and comfort of their own home. These are certainly challenging times. And despite the unprecedented impact of the virus on our daily lives, KORU Medical has both a privilege and responsibility to do everything in our power to ensure that our essential products continue to reach the patients we serve, while protecting the health and safety of our employees and their families. And I'm proud to say we're doing just that. It takes a very complete team to manage through a crisis like this, and I'm very proud of our employees and their remarkable response during these challenging times. KORU Medical currently qualifies as an essential business under New York state guidelines, and we remain operational. We are committed to…

Thanks, Don. Good morning, everyone. Beginning on Slide 9, net sales rose 27% to 6.3 million in the first quarter from 5 million in last year's Q1, with growth across our infusion product lines. We believe this growth was primarily driven by an increased utilization of our products by PIDD patients and ongoing expansion of HIZENTRA into CIDP. Net sales for Q1 2020 also reflected increased clinical trials sales compared to Q1 2019. Gross profit in Q1 2020 rose 24% to 3.8 million from 3.1 million in Q1 2019, primarily due to increased sales volume. As Don mentioned, the decline in gross margin reflected a noncash $100,000 obsolescence reserve related to the discontinuation of Rescue VAC, as well as an increase in overtime, partially offset by some price increases that we implemented last year. Total operating expenses for Q1 2020 were stable at 3.2 million when compared to Q1 2019. Selling, general and administrative expenses were 2.8 million or 44% of net sales compared to 2.5 million or 50% of net sales in Q1 2019. I litigation costs declined to under $100,000 in the 2020 first quarter from $500,000 in the same period last year, reflecting a decrease in ongoing legal activity with our competitor. While litigation continues, we have had several favorable rulings in the New York and Texas courts. In April, the Federal Circuit Court affirmed an earlier decision by the United States District Court for the Eastern District of Texas that granted KORU Medical's motion for summary judgment of non-infringement against Emed. Research and development expenses increased to approximately $300,000 from $100,000 in last year's first quarter, reflecting increased salary and related benefits due to higher headcount as we increase our development initiatives. Net income for the first quarter was $449,000 or $0.01 per share, a $535,000…

Sorry about that. So thank you, Karen. I want to close by thanking the brave men and women who are on the front lines keeping us safe, and this includes our team, especially our production staff at KORU Medical. We send our best wishes that you and your families are safe and healthy. Thank you again for your continuing interest in coal room medical, and we can now open the call for questions.

[Operator Instructions]. Our first question comes from Alex Nowak with Craig-Hallum. Please proceed with your question.

Don, do you believe the moment of patients from IV to subcu that you mentioned is just a one quarter benefit due to COVID? Or is COVID really amplifying a bigger secular trend unfolding here and this benefit of switching to subcu is going to have a much longer tail than potentially we even think right now. And you mentioned that - you mentioned that the pharmacies are pushing more subcutaneous drugs. But are the drug companies doing the same? Are they pushing more of their subcu portfolio during the COVID pandemic?

Yes. Alex, thanks for the question. So first and foremost, the movement of IV patients to subcu is real. It's very active, and I believe it's very sustainable. When you talk about a bigger secular trend, no doubt. We've been seeing movement from IVIg to subcu all along. I think when you actually look at it from a patient perspective and analyze the benefits of subcu versus IV, the solution, I think, it's pretty easy to come to that the subcu is better for most patients. And I absolutely see a longer term impact. I think COVID-19 has put a big spotlight on what I think is best for patients, most of the time and also what is good for healthcare economics. So as a result, you've heard me talk about the stickiness of the business that once patients are on a certain therapy, I see this having a long-term and sustainable impact. In regards to your second question on the drug companies, I do hear and see about their movement to really supply product based on consumer demand, which is influenced heavily by physicians and patients. And with the same secular shift that you see from IVIg to subcu IG, we think that is very validated by companies like CSL Behring in their sales of HIZENTRA. But we also think, as I mentioned earlier in this presentation, Grifols coming out with a subcu formulation when they have the market - they have a strong market share position with their IV product, we think really validates a few things. One, the shift to subcu that they can control, but also, we feel that they have the ability or the ability to influence movement from IV to subcu. So both those questions, both are good questions, Alex.

Okay. That's great. Understood. And April is the month that's going to see the biggest impact here from COVID. Can you maybe talk to what you saw during the month of April, how you're feeling about Q2 generally, it sounds like the business is resilient here and maybe some tailwind in Q2 due to the shifting in subcu. Is that the correct way to read your commentary, Don?

Yes. As I mentioned, we've seen increased demand that we attribute to COVID-19. And as you - as we just talked about with the movement of IV over to subcu being sustainable, we certainly anticipate that. But in terms of trends spilling into the second quarter, we've definitely seen an increased demand that has spilled into this quarter. But as you've seen from past calls and the history of our business, we have a fairly predictable business based on patient population, and we feel that even though maybe there's some lumpiness that could be created from something like this, the business is largely normalized with a, in my opinion, a very strong tailwind of new patients moving from IV to subcu.

Okay. Got it. And how is the launch of Xembify going in the market so far? And how is their early launch of Xembify tracking the initial launch trajectory of HIZENTRA?

You know, that's a great question. If you go back to when HIZENTRA launched, it was very - it was a slow, slow role, if you will, where they're introducing a new drug and a new modality for delivering that drug with subcu therapy. So we feel they've done a really nice job of paving the road for setting the tone for the benefits of subcu. But Grifols is - we feel that the launch has been relatively slow, but it's starting to pick up some momentum. We're super excited by the increase of supply of subcu formulations. But we feel a lot of the slow role has been tied to contract - Grifols contracting with specialty pharmacies and allocating accordingly. So we expect that to continue to pick up more momentum going forward. And frankly, I see them being part of the solution for this conversion of IV to subcu patients by having more supply in the market.

Okay, got it. That's helpful. And then the hematology announcement was a bit of a surprise to the upside last quarter. Should we be expecting any other announcements or data releases from any of the other pharma companies that you're working with throughout 2020?

So what I typically do is as there's information available, I share that. So in the last earnings call, we talked about a successful hematology trial that met its clinical efficacy endpoint. We don't know all the details in terms of commercialization. But in a case like that one, we anticipate commercialization sometime in the next 12 months. And as there's updates on other current - other current trials and the success of them, I will report those accordingly.

Okay. That sounds good. And then just last question for me. Just looking at gross margins sequentially. They again came under pressure in the quarter. I get there's a onetime piece with Rescue VAC, but even backing that out, what is driving the declines in the gross margin over the last couple of quarters? And when should that pressure start to moderate?

So as I mentioned earlier, one of the things that we've just announced is that we've invested in a consultant to improve our manufacturing efficiency. So trying to meet up - stay operational with COVID-19 and increased demand. We've been putting a lot of pressure on our production line and actually added a second line. So that had a contribution in terms of employees and efficiency that doesn't necessarily match the first-line efficiency right away. But going forward, I'll report more on what those efficiencies look like, but we're heavily focused on cost of goods reduction, and I'll report on those accordingly.

Okay, understood that we are in the great results.

Thank you, Alex.

[Operator Instructions]. There are no further questions in queue at this time. I would like to turn the call back over to Mr. Pettigrew for closing comments.

Thank you very much, Latanya. So thank you all for your time and interest in KORU Medical. I hope you've been able to convey our passion about our business and the opportunities that lie ahead. We're committed to doing everything in our power to ensure that our products reach the patients that need the most. With respect to COVID-19, we are certainly aware of the challenges and acknowledge that the situation is rapidly evolving. Still, the underlying demand for our products remains very strong, and we are confident in our long-term fundamentals. If you have additional questions, feel free to contact Karen or myself or Devin Sullivan at the Equity Group, our investor relations firm. Thank you all again, and I hope you all have a wonderful day.