Good morning, and welcome to the CHF Solutions Earnings Conference Call for the Fourth Quarter ended December 31, 2019. [Operator Instructions] Participants of this call are advised that the audio of this conference call is being broadcast live over the Internet and is also being recorded for playback purposes. A replay of the call will be available approximately one hour after the end of the call. I would now like to turn the conference over to Claudia Drayton, the Company’s Chief Financial Officer, please go ahead madam.

Thank you, Josh. Thank you for joining today's conference call to discuss CHF Solutions corporate developments and financial results for the fourth quarter and year ended December 31, 2019. With us today are John Erb, the company's CEO and Chairman of the Board; myself Claudia Drayton, the company's CFO; and Nestor Jaramillo, the company's Chief Commercial Officer. At 8:00 a.m. Eastern Time today, CHF Solutions released financial results for the quarter and year ended December 31, 2019. If you have not received CHF Solutions' earnings release, please visit the Investors page at www.chf-solutions.com. During the course of this conference call, the company will be making forward-looking statements. Except for historical information mentioned during the conference call, statements made by the management of CHF Solutions are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that are based on management's beliefs, assumptions, expectations and information currently available to management. Those risks include, but are not limited to, risks associated with the possibility that the company may be unable to grow revenue in future quarters, that the company may be unable to execute in its commercialization strategy, the possibility that it may be unable to raise the funds necessary for the company's anticipated operations, that the company may not be able to commercialize its products successfully and the other risk factors described under the caption Risk Factors and elsewhere in the company's filings with the Securities and Exchange Commission. By providing this information, the company undertakes no obligation to update or revise any projections or forward-looking statements, whether as a result of new information, new developments or otherwise. You should review the cautionary statements and discussion of risk factors included in the company's press release issued today, the company's latest 10-K, subsequent reports as well as its other filings with the Securities and Exchange Commission under the titles Risk Factors or Cautionary Statements Related to Forward-Looking Statements, for additional discussion of risk factors that could cause actual results to differ materially from management's current expectations. Those discussions regarding risk factors, as well as the discussion of forward-looking statements in such sections, are incorporated by reference in this call and are readily available on the company's website at www.chf-solutions.com. With that said, I would now like to turn the call over to John Erb, CHF Solutions' Chief Executive Officer and Chairman of the Board. John?

Thank you, Claudia, and good morning, everyone. Welcome to the fourth quarter 2019 earnings call and corporate update. Our goal is to grow our global market leadership in fluid management with solutions that change patients' lives. During the past two years, we have steadily leveraged our human and financial assets, expanding beyond our core business serving the needs of the chronic heart failure patients to meeting acute needs in cardiovascular surgery and life-saving needs in pediatric kidney care. Happily, these two new areas of focus are characterized by much quicker sales cycles than we've experienced in chronic heart failure. As this bodes well, not only for console placements, but also greatly increased demand for our disposable filter circuits. We made a lot of progress in 2019. Going into 2020, we are positioned to leverage important investments made during the past two years in areas that we believe will enable us to meet and exceed the expectations of our stakeholders. Those investments fall into three basic categories: first, we restructured our domestic sales organization from top to bottom to add more specialized firepower in our two new growth segments of cardiovascular surgery and pediatrics, and we more than tripled the size of our clinical support team to serve our growing customer base. Second, we expanded our internal manufacturing capacity to significantly increase gross margins, which averaged 25 percentage points higher in 2019 than the previous year, and we expect them to climb higher, especially with our disposable filter circuits. Third, we made the investments to get FDA market clearance for both the new Aquadex SmartFlow console and our new pediatric indication, which I will discuss later in more detail. In just a few minutes, Claudia Drayton, our CFO, will review our financial results for the fourth quarter and year. Before turning…

Thanks, John. Good morning, everyone. Turning to the P&L. Revenue for the fourth quarter was $1.357 million, an increase of 9.2% from Q3 2019 and a decline of 8.8% from Q4 of 2018. Revenue performance for the quarter was impacted by the sales force realignment we announced earlier in the fall of 2019. For the year 2019, revenue totaled $5.5 million, a 10% growth over 2018. Regarding our operating cost and expenses; total cost and expenses for Q4 2019 were $5.8 million, consistent with the levels of Q4 2018. I will briefly comment about major drivers. First, regarding our cost of goods sold. We continue to see improvements in our gross margins resulting from the transition to in-house manufactured inventory. Our margins were about 51% for the quarter, 16 percentage points above last year's Q4 margins. For the year 2019, our gross margins were 51.7%, an increase of 25 percentage points over the prior year. Second, regarding our SG&A expenses, Q4 2019 expenses were $4.2 million, an increase of 10% over Q4 of 2018. The increase results from additional clinical specialists we hired during 2019 to assist in opening and training new accounts. Our R&D expenses were flat in Q4 2019 compared to Q4 2018 and decreased by 14% from Q3 2019. Earlier in 2019, we had reported an increase in product development spending to support a pediatric submission and improvements for the next-generation Aquadex SmartFlow console, which just received FDA clearance and CE Mark. The net loss for the quarter was $4.4 million or $1.12 per share compared to a net loss in the fourth quarter of 2018 of $4.3 million or $8.37 per share. For the year, the loss for 2019 was $18.1 million or $9.30 per share compared to a net loss of $17 million or $42.14…

Thank you, Claudia. We anticipate further accelerated sales growth by continuing to position ourselves as the primary provider of ultrafiltration therapy for cardiologists, hospitalists, intensivists, cardiac surgeons, pediatricians and nephrologists who treat fluid overload. We are spearheading the growing awareness of the current challenges of using IV diuretic therapy only, and thereby, introducing the clinical value of the Aquadex therapy as an opportunity to improve clinical outcomes, reduce rehospitalization rates, improve patient satisfaction, reduce a major expense to the health care system and save lives of pediatrics. We are at the execution stage of commercialization and growth, and I should reemphasize the opportunity we have moving into 2020 as we leverage our previous investments with only minor incremental costs required in commercialization. CHF Solutions is devoting its energy to building new solutions to assist in the treatment of fluid management. We are dedicated to bringing proven solutions that improve the quality of life for these patients and the clinicians who have the passion to treat them. Operator, please open the call for questions.

[Operator Instructions] Our first question comes from Jeffrey Cohen with Ladenburg Thalmann. You may proceed with your question.

Hey, John and Claudia. How are you?

We are good. Good morning.

Hi. Good morning.

So John, I heard you correctly, you were talking about the rollout into the first 20 pediatric centers as we speak earlier in the call?

That’s correct.

Wonderful. So again, congrats on the label expansion. So North America FTE is now about 27 in the field, commercial, 13 reps and 14 specialists, a 27 total. And what's total FTE account now according to company as a whole?

It's just shy of 70 people, about 67 as we speak.

Okay. That’s fantastic. So john, based on some of the kind of past due diligence, it sounds like these pediatric centers could be using hundreds through high hundreds of filters, perhaps depending on the specific vein, which they're using your filter and how long they're using it for. Would you agree with that? Does it sound like – it sounded like we knew of a couple of handfuls of centers that were using product in the pediatric center. So is that inclusive in your number? Would you expect to be at that 20 number, say, over the next two months, by April or May?

Well, I think we have to be careful here. As you – as we've reported in the past, our Q4 revenue, 33% of that revenue came from four children's hospitals. We anticipate growing the business, continuing to grow in heart failure, but growing a bit more rapidly in cardiac surgery, so that overall percent going into 2020, I still expect it to pediatrics or children's hospitals to be in that 30% to 35% total revenue. As these hospitals come online, there's a training period. There's a start-up period. We're actually using three of our pediatric physicians that – after the paper that I referenced in the talk, that are doing a lot of the training. So as we go through that, it's not going to be a hockey stick in overnight, all 20 hospitals are going to come online, but definitely through 2020, I think we will exceed more than 20 children's hospitals to start implementing the therapy, but the start-up will ramp gradually as they learn how to use it, as they become more comfortable using it.

Got it. Okay, that’s very helpful. And then can you talk about at least with those existing 20s, what kind of overlap do you see between peds and the CV area? And will you be able to use that to your advantage either coming from the CV side, which probably won't be needed for some of these peds, but more from the peds side over to CV and some of these centers?

Well, there will be some overlap. But I would say that those 20 are specific children's hospitals. So they are often a part of a larger hospital system. And as the therapies introduced in the children's or in pediatric use, it will grow to the other portion of those hospitals. So there's – it's not a specific overlap. It's really somewhat distinct in the pediatric care versus cardiac surgery care.

Got it. Okay. Claudia – it looks like the margins are pretty strong. I would expect some pull-through on that. Any thoughts about breaking out G&A for 2020? Or at some point, do you plan on breaking out G&A from sales and marketing?

I have not given that any thought, but it's something that we could certainly look into. Would that be helpful to you as you model out?

Yes, I think it would be moderately helpful. And then lastly for me, John, I saw a couple of blogs, and I got a couple of inbound calls, folks asking about recent action in coronavirus and speaking of CHS and their solutions. Are you aware of anyone out there that's tried Aquadex for any of these patients, U.S. or ex U.S.?

Interesting enough is just this week; we've had a couple of inquiries. And we're pursuing it. We're looking into it. As we look at the World Health Organization announcements around the coronavirus, there isn’t need for fluid management. There is a need for administering a lot of whether it's drugs, antibiotic, whatever it may be, along with a lot of fluid, and they have to balance that. And the World Health Organization has actually put this in these couple of announcements they've put out. So we're pursuing that at this time. We also are pursuing it internationally because we have some strong use of our product in Italy, where there's certainly a large number of patients with coronavirus. So it's at hand, we're looking into it, and I think there'll be an opportunity for us to help.

Got it. But you're not aware of any use to date?

No.

Okay. That’s it for me. Perfect, thanks for taking the questions.

Thank you, Jeff.

Thank you, Jeff.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to John for any further remarks.

Thanks, Josh. I want to thank you for joining our fourth quarter 2019 conference call and I wish you all a great day. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.