Hello and welcome to Electromed Fiscal 2021 First Quarter Financial Results Conference Call and Webcast. As a reminder, this conference is being recorded. It is now pleasure to turn the call over to Kalle Ahl with The Equity Group. Please go ahead.

Thank you, Kevin and good afternoon everyone. Electromed’s first quarter fiscal 2021 financial results were released today 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. 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, Kalle. Good afternoon, everyone and thank you for joining us today. In the first quarter of fiscal 2021, we delivered strong financial and operational performance in the face of COVID-19 related disruptions. Overall net revenue was $8 million, down 3.6% versus the comparable prior year period. Home care revenue increased 17.9% compared to the fourth quarter of fiscal year 2020, driven primarily by state and local government restrictions beginning to ease, increasing patient face-to-face reengagement with clinicians, and an increasing number of clinics allowing face-to-face access by our sales team. We've adapted nimbly across the entire organization to this crisis, with our sales team specifically shifting to a hybrid selling approach consisting of virtual and face-to-face interactions. The home care business has also continued to benefit from the CMS waiver that relaxes certain requirements for high-frequency chest wall oscillation, or HFCWO, which has recently been extended through late January, in conjunction with the extension of the public health emergency by the Department of Health and Human Services. Home care referral and revenue growth improved throughout the quarter and has continued into October though uncertainty surrounding COVID-19 persists. The institutional side of our business remains soft due to reduced hospital purchases in light of COVID-19 and for costs related to aerosol spread, though we did register a sequential increase in single-use disposable wrap orders in the first quarter of fiscal year 2021 compared to the fourth quarter of fiscal year 2020. We are seeing a resumption in hospital orders in tandem with declining garment inventories and an increase in the census of non-COVID patients. Our institutional strategy remains unchanged. We are focused on fortifying the hospital call point and strengthening our partnerships with the integrated delivery networks. As a reminder, growth in our institutional business should augment our home care revenue as the HFCWO brand used in the hospital is often the default brand prescribed when discharging a patient. While our direct sales channel remains our primary focus, our Home Care distributor segment continues to add revenue from those areas of the country where our SmartVest brand is under recognized, and we see opportunities for accelerating growth on a supplemental basis. In the first quarter, we generated $178,000 of revenue through this channel. Moving to the bottom line, this quarter we remained profitable with net income of roughly $535,000 or $0.06 per diluted share. We continue to fund strategic investments for our long-term growth and during the first quarter of fiscal year 2021 we invested nearly five times as much research and development expense compared to the prior year period. While we can't disclose additional information on this project for competitive reasons, we are very excited about its prospects to drive future growth. We also continue to invest in building our sales and marketing organizations and launched additional direct-to-consumer marketing efforts intended to increase awareness of bronchiectasis and SmartVest as an effective treatment. This quarter, we successfully navigated COVID-19 challenges and could not have done so without the amazing dedication of our employees whose health, safety, and well-being remain our top priority. The majority of our corporate employees will continue to work remotely for the foreseeable future. Our operations and manufacturing groups continue to practice safe work using our COVID-19 preparedness plan and protocols. We are pleased to report that we haven't had any significant disruptions in manufacturing, shipping, or the supply chain. Briefly touching on a recent change to our leadership team, in October we were excited to appoint Kristine Owata as Vice President of Reimbursement and Payer Relations. She brings to Electromed approximately 15 years of diverse leadership experience in people management, client relationships, and process improvement. Prior to Electromed, Kristine was President and Director of Intelligere, Incorporated, where she drove strategic planning initiatives, process improvement, revenue cycle management efficiencies, business development, and growth. She is an expert in revenue cycle solutions for the healthcare industry and has a high-performing sales track record, including at MP, DGO global, where she achieved multiple years’ sales quota overachievement. We believe in her in-depth understanding of the interconnections among sales, reimbursement, and business processes functions will help us further optimize Electromed’s operations to support our long-term growth. In closing, our long-term thesis remains intact. Non-cystic fibrosis bronchiectasis represents a significant and growing market opportunity, conservatively estimated at more than 4 million individuals in the United States. We believe that approximately 630,000 people with a bronchiectasis diagnosis could benefit from HFCWO therapy. Yet only an estimated 77,000 patients in the Medicare population have been treated with a device like SmartVest to date. As the impact of COVID-19 abates, we believe we can resume longer-term low double-digit revenue growth and improve profitability while continuing to serve our clinicians and patients with best-in-class customer service and differentiated SmartVest air clearance products. With that, I will now turn it over to Mike for a more detailed discussion of our financial results.

Thank you, Kathleen and good afternoon everyone. Our net revenue in the first quarter of fiscal 2021 decreased 3.6% to $8.0 million from $8.3 million in the first quarter of fiscal 2020 primarily due to lower institutional revenue. Home care revenue totaled approximately $7.5 million in the first quarter of both fiscal 2021 and fiscal 2020. Home care revenue increased to 17.9% compared to the fourth quarter of fiscal 2020. At quarter-end, our field sales employees totaled 42, of which 35 were direct sales compared to 38 at the end of the first quarter of fiscal 2020, of which 32 were direct sales. Institutional revenue decreased 55.5% year-over-year to $278,000 due to a decrease in the volume of devices and disposable wraps sold as hospitals and long-term care facilities adjusted their operating protocols and procurement management in relation to the COVID-19 pandemic. Distributor revenue increased 48.3% to $178,000 from $120,000 in the first quarter of fiscal 2020. International revenue, which is not a strategic growth area for Electromed, totaled $84,000 compared to $66,000 in the prior year period. Quarter-to-quarter sales variability can be expected due to the nature of our business and the COVID-19 pandemic as an additional degree of uncertainty. As Kathleen mentioned, however, we were encouraged by the strong growth in home care revenue compared to the prior quarter. Gross profit dollars decreased 3.1% to $6.1 million, or 76.8% of net revenue from $6.3 million or 76.4% of net revenue in the prior year comparable period. The decrease in gross profit dollars was primarily due to the decrease in institutional revenue. The increase in gross profit as a percentage of net revenue was due primarily to a higher mix of home care revenue. We expect our longer-term gross margins will be in the mid to high 70% range. Operating expenses, which include SG&A as well as R&D expenses, totaled 5.5 million, or 68.5% of revenue in the first quarter of fiscal 2021 compared to $5.0 million or 60.2% of revenue in the same period of the prior year. SG&A expenses increased by $109,000 to $5.0 million in the first quarter of fiscal 2021 from $4.9 million in the same period of the prior year, primarily due to increased payroll expenses associated with a higher average number of sales and marketing employees, and increased direct-to-consumer marketing, partially offset by lower travel, meals, and entertainment expenses. R&D expenses increased to $481,000 in the first quarter of fiscal 2021 from $99,000 in the same period of the prior year, primarily due to increased investment in our next-generation product development. We estimate that R&D expenses will be in the 4% to 6% of net revenue range for the duration of fiscal 2021. Operating income totaled $663,000, compared to $1.3 million in the first quarter of fiscal 2020. Net income before income tax totaled $672,000 in the first quarter of fiscal 2021, compared to $1.4 million in the prior year quarter. Income tax expense was $137,000 compared to $374,000 in the same period of the prior year. Income taxes this quarter benefited from a discrete tax benefit of $39,000 related to the exercise of stock options. Our net income totaled $535,000 or $0.06 per diluted share in the first quarter of fiscal 2021 compared to $1.0 million or $0.12 per diluted share in the prior year period. Now moving to the balance sheet and operating cash flow. Our balance sheet at September 30, 2020 included cash and cash equivalents of $11.1 million, no long-term debt, working capital of $25.8 million, and shareholders’ equity of $30.9 million. Cash flow from operations in the first quarter of fiscal 2021 totaled $822,000 compared to $629,000 in the same period of the prior year. We're very pleased to be debt-free and well positioned to continue building our cash reserves to support Electromed long-term growth strategies. Moreover, given uncertainty surrounding the COVID-19 crisis, we are fortunate to have the financial flexibility that our balance sheet affords us. Although we have continued to evaluate our options regarding the optimal use of our cash to maximize shareholder value, the discussions internally and with the Board have extended due to the COVID-19 pandemic. We expect to share more information on plans for the use of our cash by the end of fiscal year 2021. This concludes our prepared remarks. Operator, please start the Q&A portion of the call.

Our first question today is coming from Kyle Bauser from Colliers Securities. Your line is now live.

Hi, Kathleen and Mike, thanks for all the updates today. Appreciate the color on everything and the CMS waiver in particular getting extended to I think through January any sense as to whether this might get extended again beyond January?

Hi, Kyle, thanks for the question. Well, I think that based on some of what we're hearing relative to the case increases of COVID-19, listening a little more about the announcements on vaccines, I think that I'm not going to make a prediction, but I think there's certainly the chance that it will be extended if we continue to believe that we're in a pandemic situation. And so, again I don't have a crystal ball for sure. But again, based on what we're hearing around the number of cases and how soon we might see those start decreasing. I think that there's a good chance, I'll just put it that way.

And I know you've provided some color on this in your prepared remarks, but just wanted to get a sense on how you're thinking about capital allocation? I know you wanted to sit tight through COVID here, but you have been able to maintain profitability. So, how are you thinking about utilizing the cash balance? I mean, have you in the meantime kind of explored creative acquisitions or maybe thought of dividends or even buyback with the pullback in share price, just kind of trying to get a sense of what's on the table and what you're considering and what we might get an update on?

No, so it’s a - I appreciate you asking the question. From our standpoint, and in discussions with the Board, I would say that most all of the options that you've just outlined are on the table. We definitely want to think through how we can continue to accelerate growth beyond what we've seen historically and what investment that might take, that's going to be our priority. Once we understand those strategies, that investment, which we're continuing to work through here. Then those other options, I think, become more available. And again, nothing is off the table right now. I think that's probably the best way to say it. We've gotten some, we'll continue that analysis. And as I said, we'll be back with everyone before the end of the fiscal year, I believe with that direction, and it will be much clearer to our shareholders.

And you've mentioned, the larger prospective multicenter study is enrolling. From what I understand this study will also examine overlapping conditions for example, asthma, with bronchiectasis, or interstitial lung disease with bronchiectasis. And some color around those, I think would expand the total addressable market. So two questions first, what might this study provide that the original UAB study did not? And then second, what's your best guess for timing on when we might see some results from this?

Yes, so first of all, as far as the study and what's different from the prospective study, we're underway, with enrollment now versus the retrospective that was conducted out of the University of Alabama. One of the primary differences would be we're at multi-centers. So this will be four centers in the United States versus just the one center with the retrospective. The other difference is that we're using quality of life surveys with these patients. The FDA recognizes quality of life as an outcome that's important and will - we believe make a difference and change the way physicians think about the value of HFCWO. Those are two of the primary changes that are underway and of course, it will have more patients with the multicenter study, we're targeting 100 patients versus the retrospective was, I believe in that about half of that or so. And so, that number of patients will be more meaningful to physicians as well when we get through that. So yes, enrollments underway. I will say, though, because of COVID-19, it is still somewhat slow compared to what we would have expected. But all centers have provided or have approval to continue to enroll at this time. But there are quite a few COVID studies that are out there that do seem to take some priority, as you can imagine.

Right, no, definitely and I appreciate that color, it's helpful. And just one more if I may. I know you're not getting into the new product enhancements for the next gen SmartVest, but maybe you could provide a ballpark estimate on when we might see this. I forgot, is this a special 510(k) application that you'll need for this? We’ll see it in 2021. Any additional color would be helpful? Thank you.

Certainly, so as much as I'd like to give you a date. I will not provide that at this time. But appreciate the question. We'll continue to keep you updated as we can. And we do believe that we will be able to use a special 510(k) at this time, although that could change as well. But that's our plan right now.

Our next question today is from Mike Distler from MNX Holdings. Your line is now live.

Hi, Kathleen and Mike, how were you? Two things really fast as you know, I'm a long-term person with Electromed as you all are your new mate, relatively. I just wanted to say, I think you've navigated through incredibly tough times. And I think you've done an excellent job. And, once again, your calls are crystal clear, you pretty much alerted everybody to the increase in R&D spending? And that leads me to my question, which will be brief. And that is, do you intend to keep it pretty much at the same level? As you did first quarter somewhere in that 80 kind of range for the next coming quarters, I suspect you will, but rather you answer?

Yes, we're likely to invest in that similar range for the duration of fiscal 2021.

Okay, that was pretty much it. I thank you for doing such a good job navigating keeping all the folks healthy out there. And I will get back in the queue and look forward to next quarter.

Thank you, Mike. We always appreciate hearing from our long-term shareholders.

Our next question today is coming from James Terwilliger from Northland Capital Markets. Your line is now live.

Thank you very much for taking my questions. You guys have done a very nice job navigating COVID. So I've just got two or three questions from a very high level, is there any change in the trend in terms of your reimbursement or your pricing strategies as you look into the next fiscal year?

So we don't believe so one of the items that we're watching very carefully is with the CMS waiver, we have experienced some change in the volume related to Medicare and as you may be aware and most shareholders with Medicare that is a higher allowable for us. And so, we do see some advantage there from a home care revenue standpoint. So that is something that we're keeping an eye on and does again, help us with a little bit of a lift there for that home care revenue.

Okay and I am sorry?

No, that's good. Thank you.

So my next question, then just looking again at the R&D line and I know, you don't want to say anything in terms of competition. And so I completely understand and respect that. Is there - it seems to me that part of the R&D increase, which is fantastic, because that's the future is clinical studies or clinical data. And the other part is a new product, a next-generation type of product? Am I thinking about that correctly and is there a way to put a percentages on how much is going to the clinical data and how much to the next generation in terms of a percentage of R&D? I don't want to pin you down because I agree, I'm very glad you're increasing the R&D. And I understand there's no reason to show your cards at the table to your competition? But I'm just trying to quantify it a certain way - am I thinking about it correctly it's clinical data and next generation. And then - is there a percentage that we can break it down is it 50/50 on each of those, if that's correct?

Well actually, James, our R&D right now is exclusively related to product development and does not include any of our studies. And part of the reason is that our product is already approved by the FDA and we already have reimbursement codes. And so, we do not categorize it in R&D. It is in the SG&A area, but not R&D. So the product development is exclusively for next generation HFCWO product. And there also has been some additional R&D for converting from our wireless patient monitoring that's been using more of a cellular connection, and we're going to move more toward a Bluetooth connection. And so there's quite a bit of software development and some firmware with that. So hopefully that helps answer your question.

No, it does. Thank you. And so that leads me to my third question, and then I'll jump in the queue just some high level when I'm looking at SG&A and I'm thinking of how companies have navigated through COVID. A lot of companies seem to have taken that down and yours again, you've done a great job navigating through this global pandemic, yours seems to be flat? So when the top-line is flat. But underneath that, I would imagine there's some changes is your sales force will position as you move into 2021 are you looking to hire people there? And should I think about SG&A going forward?

Yes, so it certainly a terrific question. As we continue to see strength in the home care revenue and being able to overcome what we're seeing is that COVID-19 the environment. We are certainly going to be looking at how to continue to expand the sales organization to support additional growth in 2022 and beyond. We also are investing in infrastructure right now in the sales organization, sales ops, clinical education, that will support that growth when the time comes, making sure we have the right leadership structure in place also. And then we also have been investing in additional direct to patient or direct-to-consumer marketing that we mentioned also in our call today. But those are, what we would believe an infrastructure investments, but also starting to think about those investments for future growth.

Thank you so much for taking my questions and very nice quarter in terms of everything you've had to navigate through considering not just your core market, which is difficult, but also COVID. Thank you very much. I'll jump back in queue.

Thanks, James.

Our next question today is coming from Stephen Globus from Globus Generation Group. Your line is now live.

Hi, everybody from New York. Kathleen I just wondering what the geography of your home care sector is, is it mainly Upper Midwest or around your business sites or is it more diverse?

So we do have reps covering all of the geography in the 48 lower states. I would say though, that the majority of our sales are coming from East of the Mississippi would be probably the best way to characterize that. With our growth opportunities, we believe in the Western United States as well as the Southwest United States. And so that's where we're starting to position more reps and would be a future opportunity.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you all for participating on our call this afternoon. While we won't be on the road for in-person investor conferences in the near term, given COVID-19, we will be participating in the Sidoti Virtual Microcap Conference 2020 on November 19. We do remain accessible for one-on-one calls. Please reach out to our Investor Relations firm if you are interested in scheduling a follow-up call. We look forward to reporting back to you in February when we will release our second quarter fiscal 2021 financial results. Have a great evening and stay safe.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.