Greetings and welcome to Electromed Inc.'s Fourth Quarter and Full Year 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 pleasure to introduce your host, Kalle Ahl of The Equity Group. Thank you, Mr. Ahl. You may begin.

Thank you, Diego and good afternoon everyone. Electromed’s fourth quarter fiscal 2020 financial results were released today after the market close. 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 you that some of the statements that management will make on this call are considered forward-looking statements, including statements about the company’s future operating and financial 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. Any such statements represent management’s expectations as of today’s date. You should not place undue reliance on these forward-looking statements and the company does not undertake any obligation to update or revise forward-looking statements whether as a result of new information, future events or otherwise. Please refer to the company’s SEC filings for further guidance on this matter. Joining us from Electromed this afternoon are Kathleen Skarvan, President and Chief Executive Officer and Mike MacCourt, Chief Financial Officer. Kathleen will begin with some opening remarks, after which Mike will present a summary of the company’s financial results, then we will open the call for questions. Now, it’s my pleasure to turn the call over to Kathleen.

Thank you, Kelly. Good afternoon, everyone and thank you for joining us today. In fiscal 2020, we delivered increased revenues, enhanced profitability and achieved significant bottom-line improvement with record net income of $4.2 million, or $0.47 per diluted share more than doubling from fiscal 2019. We accomplished these results despite a challenging fourth quarter, during which the pandemic disrupted global economies, health care systems and people's lives. Our thoughts are with those individuals whose health has been jeopardized by this crisis. And we extend our gratitude to the healthcare professionals fighting COVID-19 on the frontlines. Our fourth quarter revenues declined 20.1% year-over-year to $6.9 million as COVID-19 dampened industry-wide interaction among clinicians and patients, leading to lower homecare referrals. During the quarter, we accelerated our virtual sales and patient training efforts, boosted direct to patient marketing, and generated awareness of centers for Medicare and Medicaid system waivers that temporarily relax certain rules for prescribing SmartVest airway clearance devices to our non-commercial Medicare population. These actions combined with an upward trend in physician office reopenings, and greater clinician activity as the quarter progressed, allowed us to exit the quarter and commence fiscal 2021 with homecare referrals approaching near pre-COVID-19 levels. We are encouraged by the recent trends and referrals, which is a leading indicator for our business, and commend the excellent work of our sales team to balance virtual and in-person visits during the pandemic. Moreover, the CMS waivers, which eliminate certain clinical indications, documentation and face-to-face prescribing requirements for respiratory devices like SmartVest have been extended to the end of October. With the CMS waiver, we believe that a higher than average percentage of CMS referrals we receive can turn into approvals. CMS business represents between 50% and 55% of our homecare revenue. In the fourth quarter, we successfully navigated…

Thank you, Kathleen. And good afternoon, everyone. I'm really excited to be participating in my first call with Electromed and look forward to many more to come. Our net revenue in the fourth quarter of fiscal 2020 decreased 20.1% to $6.9 million from $8.6 million in the fourth quarter of fiscal 2019, driven primarily by lower homecare revenue. Homecare revenue declined $21.3 million to 21.3% to $6.3 million, primarily due to lower referrals as a result of the COVID-19 pandemic. At quarter end, our field sales employees totaled 44, of which 37 were direct sales compared to 40 at the end of the fourth quarter of fiscal 2019, of which 34 were direct sales. Annualized homecare revenue was $678,000 per direct field sales employee below our target productivity range of $750,000 to $850,000 due to the revenue decline associated with the COVID-19 pandemic. Institutional revenue decreased 25.9% to $273,000, primarily due to a decrease in the volume of devices and garments sold, as hospitals and long term care facilities have adjusted their operating protocols and procurement management in relation to the COVID-19 pandemic. In the first quarter of fiscal 2020, we began selling the home medical equipment distributors. Distributor revenue totaled $14,000 during Q4 fiscal year 2020. International revenue, which is not a strategic growth area for Electromed, totaled approximately $262,000 compared to $192,000 in the prior year period. Quarter-to-quarter sales variability can be expected due to the nature of our business and the COVID-19 outbreak will likely continue to have a temporary overall negative impact on our revenue. As Kathleen mentioned, however, we were encouraged to see a pickup in home care referrals as we exited the fourth quarter to near pre-COVID-19 levels. Gross profit decreased 16.2% to $5.6 million or 81.3% of net revenue in Q4 fiscal year…

Thank you. [Operator Instructions] Our first question comes from Kyle Bauser with Colliers Securities. Please state your question.

Hi, good evening, Kathleen and Mike, thanks for taking the questions and congrats on an impressive fiscal ‘20 year. First, you talked a little bit about it. But can you provide any metrics that can give us a sense of how beneficial the relaxed guidelines are, for example, you know, turnaround time or conversion rate or just anything would be helpful?

Hi, Kyle. Thank you so much. And Mike's going to take that question for us.

Yeah. Sure, Kyle. Yeah, so the CMS waiver really benefits us in two distinct ways. First, we're receiving a higher number of approvals for previously non-covered diagnosis like COPD. And those referrals are being approved at a much higher rate than normal. So non-covered diagnosis are still a small overall percentage of our total referrals, but we have seen an increase with the CMS waiver. Second, with the waiver, virtually all of our covered diagnoses are being approved. We typically have very high approval rates on our covered diagnosis in a normal operating environment. But with the CMS waiver in place, these approval percentages are getting close to 100%. The waivers also reduce the amount of time required to gain approval due to the less documentation being required. So overall, as a rough rule of thumb, the time it's taking us to gain a Medicare approval has been reduced by about 50%. One other minor - one other benefit is there's a sequestration tax of 2%, that's been applied I believe, since 2014. That's temporarily been suspended, starting in May of this year through December of the end of the year. And that has the net effect of improving the revenue by 2% on our Medicare approvals.

Okay. Okay. That's great. Appreciate that. And I was surprised to see the homecare channel was actually down less than institutional channel early on in the pandemic and it seemed like hospitals were using anything and everything to treat COVID patients with respiratory conditions, including with SmartVest. Has this cooled off a bit? And are you starting to see the ordering patterns kind of resemble pre-COVID levels?

No, great question, Kyle. So you're absolutely correct in that prior to COVID really increasing cases across the United States, we did see an uptick in our institutional revenue. And as we look historically at that, it appears that that was somewhat of a stocking order, a lot of hospitals were preparing for the cases knowing it was respiratory, thinking that they would be using more airway clearance, including HFCWO. What turned out and we've been visiting with our physician advisory board on a number of occasions about this situation is that there was a pullback due to COVID-19 because those hospitals treating COVID-19 patients were very concerned due to the contagious nature of the disease, through droplets and a lack of access to personal protective equipment, that their health care professionals, other patients might be in jeopardy of contracting that in the hospital. And so, that protocol of limiting all airway clearance that has to do with nebulizers, as well as HFCWO in the hospital has continued to be limited. I will comment though that we have seen in the early part of quarter one some pickup in some of our disposable rep sales. So that could be an early indicator that hospitals are figuring out how to use these safely in the hospital. Or it could also indicate that there are less individuals being hospitalized for COVID-19 as well.

Got it. And kind of following up on that, to the extent you can share. You talked a little bit about rep sales, but how have adoption trends kind of looked in July and August.

So as we stated exiting quarter four, we did see homecare referrals then be returning to near pre-COVID levels. We would see similar trends in the early part of quarter one. As far as for institutional again, it is starting to show some pickup, but I think it will take some time to return to normal levels for institutional business.

Okay. And can you talk a little bit more about the development of the next-gen device? How is that been going? Will it give you an advantage in the marketplace? And are these enhancements kind of a function of consumer demand and requests you've received from docs in the field?

So, we are on schedule for our - on the development timeline for next-gen product. We have not talked specifically about those innovations for competitive reasons, nor specifically when we plan to launch, but we will continue to update as we believe that makes sense. But I will say that I will say to your question, that we are taking primarily into account voice of the customer from patients and from physicians around what they believe will be innovative in helping patients to find the treatment easier and more simple to use. And that seems to continue be the focus that - that we're on there.

Okay, great. And just lastly, any plans to kind of utilize your cash balance any more than kind of what you talked about? Are you just sitting tight until we get through COVID here? Thank you.

You know, as we've talked on previous calls, Kyle, we've engaged the Board in talking about our longer range plans for the organization, for the company, and what the appropriate uses of cash may be to support that long term strategy. We did temporarily suspend them. We are going to those discussions again, start our internal planning on those long range plans here over the next six to nine months. I think so that because of the uncertainty of COVID-19, we think the best use right now is to hold on to the cash for the foreseeable future.

Okay, got it. Thanks so much for the updates.

Thank you, Kyle.

Thank you. [Operator Instructions] Ladies and gentlemen, there seems to be no additional request for questions at this time. I'll turn it back to Kathleen Skarvan for closing comments. Thank you.

Thank you, Diego. Thank you all for participating on our call this afternoon. While we won't be on the road for investor conferences in the near term given COVID-19, we will be participating in the Colliers Institutional Investor Virtual Conference on September 10. And we do remain accessible for one on one calls. Please reach out to our Investor Relations firm, The Equity Group, if you are interested in scheduling a follow up call. We do look forward to reporting back to you in November when we will release our first quarter fiscal 2021 financial results. Have a good day and stay safe.

Thank you. That concludes today's conference. All parties may disconnect. Have a good day.