U.S. Markets open in 8 hrs 47 mins

Edited Transcript of MSON earnings conference call or presentation 8-Nov-18 9:30pm GMT

Q1 2019 Misonix Inc Earnings Call

FARMINGDALE Nov 10, 2018 (Thomson StreetEvents) -- Edited Transcript of Misonix Inc earnings conference call or presentation Thursday, November 8, 2018 at 9:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Joseph P. Dwyer

Misonix, Inc. - CFO, Treasurer & Secretary

* Norberto Aja

* Stavros George Vizirgianakis

Misonix, Inc. - President, CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Alexander David Nowak

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Kyle William Rose

Canaccord Genuity Limited, Research Division - Senior Analyst

* Michael Kaufman

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by. Good day, and welcome to the Misonix First Quarter Fiscal Year 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Norberto Aja, Investor Relations. Please go ahead.

--------------------------------------------------------------------------------

Norberto Aja, [2]

--------------------------------------------------------------------------------

Thank you, operator. Good afternoon, everyone. We'll get started in just a minute with management's presentation and comments. But before doing so, let me take a minute to read the safe harbor disclosure.

Today's call and webcast contain forward-looking statements within the meaning of the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as anticipate, intend, plan, goal, believe, estimate, expect, future, likely, may, should, will and other similar references to future periods. Examples of forward-looking statements include, among other, statements we make regarding guidance relating to our financial results. Forward-looking statements are neither historical facts nor assurance of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risk and changes and circumstances. They are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial conditions to differ materially from those indicated in the forward-looking statements today include, among others, our ability to achieve operational efficiencies and meet customer demand for products and solutions and the risks described in today's news announcement and in the company's filings with the Securities and Exchange Commission including the company's reports on Form 10-K and Form 10-Q. Any forward-looking statement made by us in today's conference call is based solely on information currently available to us and speaks only as of the date on which it is made, November 8, 2018. We undertake no obligation to publicly update any forward-looking statements that may be made from time to time, whether as a result of new information, future developments or otherwise.

Today's call and webcast will also include non-GAAP financial measures within the meaning of the SEC Regulation G. When required, a reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in today's press release as well as in the company's website. With that, I'd now like to turn the call over to Mr. Stavros Vizirgianakis, President and CEO of Misonix. Please go ahead, Stavros.

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [3]

--------------------------------------------------------------------------------

Thank you, Norberto, and good afternoon, everyone. Thank you for joining us on the call today to review our fiscal 2019 first quarter results. Joining me on the call today is Joe Dwyer, our Chief Financial Officer.

The demonstrated clinical benefits of Misonix's ultrasonic surgical devices are a clear driver behind the strong demand for our product and improved competitive position across our domestic and international markets. As outlined in today's release, despite some supply chain challenges during the quarter, we are pleased with our Q1 top line financial results, including 29% overall revenue growth, 71% gross margin and a continued healthy capital structure.

The 29% top line increase reflects strong growth across BoneScalpel, our precise bone-cutting solution; and SonicOne for wound debridement applications.

Looking at our revenue sources, consumable sales increased 18% and accounted for 68% of total first quarter sales, while equipment sales grew 59% and represented 32% of sales. BoneScalpel, our state-of-the-art ultrasonic bone-cutting and sculpting system capable of making precise cuts with minimal impact, continued its growth trajectory with a steady increase in overall revenue. We experienced a small decline in our traditional SonaStar business related to a reduced focus in the aging platform. During the quarter, we saw a strong growth of over 38% in SonicOne disposables on the domestic front.

Doctors are seeing the superior healing outcomes associated with the use of ultrasonic debridement for lower extremity wounds, and that is being reflected in increased usage of SonicOne and the continued growth in demand for disposables.

Geographically, international revenue was driven by strong sales in China, as well as a solid sales performance in a number of other key markets. During the quarter, we continued to focus on expanding our share of market, particularly in geographic regions that we have identified as high-growth opportunities. In this regard, we recently conducted a number of international training sessions in Dubai, Portugal and Singapore to further educate and empower our distributors and the sales teams. Over 100 sales professionals attended the training sessions, and feedback was very positive, which is critical to the organization in terms of delivering a uniform global message and cultivating a strong global brand.

On the domestic front, we were able to achieve healthy growth in domestic consumables sales despite some supply chain challenges. The equipment was slightly down, which was anticipated, due to the upcoming commercial launch of our new platform, nexUS, while consumables performed well.

Commenting on our sales force, we made some strategic changes to the sales team during the quarter that we are confident will better align our sales efforts with our performance-based culture, which demands accountability, responsibility and results. The team is now better prepared and re-energized with the support they are getting for their business development initiatives from across the company, and this is leading to much improved sales productivity.

With regard to the U.S. sales force, we now have over 51 dedicated sales resources in the market. Just recently, we conducted our first national domestic training session at the MARC Institute in Miami. I'm happy to report that it was extremely successful and included numerous cadaver labs and KOL interactions to further improve our sales team.

In order to support the rapid growth of our business, we underwent a necessary ERP system conversion and upgrade in order to install the necessary tools and framework to support the company. The company has traditionally not invested in the required IT systems and infrastructure required to adequately support a growing business, and we felt it was important to make these changes prior to the commercial launch of nexUS late in fiscal '19. While we expect to experience some disruptions in future quarters, we're confident the new system implementation and technology enhancements will enable Misonix to emerge as a more efficient company going forward.

Looking ahead, we're excited about our future. Right now we're running on 2 growth engines, and we're excited for our next-generation platform nexUS to enter the market, as we are confident that it will represent a powerful third engine of growth for the company as we will benefit from cross-selling opportunities, especially by further penetrating current customer accounts and expanding our addressable market to avoid a range of procedures beyond those served by our current products. nexUS is the first truly new product Misonix has developed in over a decade. We're excited to share with you that the field testing, surgeon feedback and overall market reaction at recent industry conferences was overwhelmingly positive and exceeded our already high expectations. This further validates that we're on the right path and that we should expect big things for nexUS in fiscal 2020 and beyond. We're hoping to file our 510(k) application with the FDA by 2018 calendar year.

Regarding guidance, we remain confident in our ability to meet our guidance for full year fiscal 2019, product revenue to grow at least 20% and the gross profit margin remain in the 70% range.

In summary, in spite of the various challenges during the quarter, our team managed to extend the growth trajectory from previous quarters. We're encouraged by our results so far when we think about our ability to grow the business and drive shareholder value. We're very conscious that we have a lot of improvements to get done and a lot more opportunities to address in front of us. We will remain disciplined with our growth plans. If there's anything the recent past has shown us, discipline and profitable growth is clearly possible for us. With that, I would like to now turn the call over to our CFO, Joe Dwyer, to review our financial results and future outlook. Joe?

--------------------------------------------------------------------------------

Joseph P. Dwyer, Misonix, Inc. - CFO, Treasurer & Secretary [4]

--------------------------------------------------------------------------------

Thanks, Stavros, and good afternoon, everyone. I'll begin by reviewing our financial results in greater detail. Revenue increased 28.6% in the first quarter of fiscal 2019 to $9.4 million, marking our best quarter ever for product revenue and our fourth consecutive quarter of record product revenue. Domestic sales for Q1 increased by 14.3% and international sales rose 55% compared with last year's first quarter.

This quarter does not include any license revenue related to our previously announced agreement with one of our partners for the manufacturing and distribution rates of SonaStar across China. It does, however, include $1.5 million in product revenue from our new Chinese BoneScalpel part distributor.

Taking a closer look at the top line, equipment revenue increased 59% or $1.1 million to $3 million in the first quarter. This increase was primarily attributable to higher international equipment revenue. Consumables revenue, our high-margin recurring revenue stream that brings added predictability to our results, increased approximately 18% overall, reflecting a 21.6% growth in international consumables revenue and a 16.7% growth in domestics -- domestic consumables revenue.

Our gross profit margin was a healthy 70.6% for the first quarter compared with 70.1% in the same period last year.

Selling expenses increased by $1.2 million or 32.6% to $4.7 million in the first quarter, reflecting higher compensation costs and travel-related expenses resulting from the continued build-out of the company's direct sales force, along with higher tradeshow and sales training expenses, which are generally front-loaded in our fiscal year. We ended Q1 with 55 global sales resources compared to 28 at the end of the first quarter of last year.

G&A expenses increased by $610,000 or 23.7% to $3.2 million in the first quarter, principally leading to a noncash compensation charge of $475,000 in connection with the acceleration investing of an existing restricted stock award where the defined operational and stock price metrics were met. We also recorded a $150,000 severance charge during the quarter, and we had about $240,000 of increased regulatory professional fees relating in part to our nexUS 510(k) filing and our NetSuite certification. So while G&A expenses were higher this quarter, most was noncash. A typical G&A run rate for us is about $2.4 million per quarter.

R&D expenses increased by $400,000 or 45% to $1.3 million in the first quarter, resulting from the critical investments we're making in the design and development of nexUS and bringing that product to market in addition to the development we're making and undertaking to improve product packaging. nexUS developed and expenses for the quarter were $600,000 compared with $500,000 for the first quarter of last year. We expect a similar R&D run rate for Q2 while we finish the nexUS work, and then R&D expenses should settle in to a quarterly run rate of $700,000 to $800,000. This led us to a net loss of $2.6 million for the first quarter or $0.29 per share compared with $1.2 million loss last year or $0.14 per share.

Taking a look at EBITDA. For the first quarter, adjusted EBITDA was a loss of $644,000 compared with the first quarter EBITDA loss of $34,000 last year. The increase in EBITDA loss is principally the cost of the expanded direct sales force along with higher R&D expenses, partially offset by higher gross profit from stronger sales, while we define adjusted EBITDA as earnings before interest, depreciation, amortization, taxes and noncash compensation expense and R&D expenses for the nexUS project. We exclude the nexUS-related expenses as they're not typically part of the company's R&D run rate.

Moving on to our cash flow and balance sheet. Working capital at September 30 was $15.9 million and cash used in operations was $1.7 million, mainly due to the use of $500,000 for working capital and another $1.2 million relating to the net loss for the quarter.

We ended the first quarter of fiscal 2019 with $9.3 million in cash and no debt. This compares with $11 million in cash on June 30, 2018. While we used some cash during the quarter to support our near- and long-term growth initiatives, we remain well funded with a strong cash position.

In closing, while there's still a lot of work to be done, with much of the heavy lifting behind us in terms of sales force adjustments, systems integration and supply-chain improvements, we expect the coming quarters to show continued and improved growth as we begin to benefit from these initiatives. I'd like to now turn the call over to the operator for questions. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And our first question will come from Alex Novak with Craig-Hallum Capital Group.

--------------------------------------------------------------------------------

Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

--------------------------------------------------------------------------------

So a huge increase in instruments sales this quarter. I know in some cases, you're discounting the box and making up the revenue over time with the tip sales. So that's kind of towards the growth. But perhaps, a way of asking it, what was the year-over-year growth in placements in the quarter?

--------------------------------------------------------------------------------

Joseph P. Dwyer, Misonix, Inc. - CFO, Treasurer & Secretary [3]

--------------------------------------------------------------------------------

Placements and boxes. We haven't actually reported that. Outlooks in prior quarters were when we're talking about revenue growth rate as opposed to box placements rates.

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [4]

--------------------------------------------------------------------------------

Also, just on that Alex, I think the equipment revenue, the growth that's significant has really been on the international side.

--------------------------------------------------------------------------------

Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [5]

--------------------------------------------------------------------------------

Got it. Got it. Okay. And then on BoneScalpel, any update on the competitive front there? At NASS, I really didn't see anything too much from your competitors on that. And it looked like the Misonix was pretty busy throughout the show. So any update on that?

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [6]

--------------------------------------------------------------------------------

Yes. I think, good observation. We had a very, very successful NASS. There was record booth traffic and a lot of interest in nexUS because we were showing nexUS for the first time at a conference. So I think that created a lot of buzz. We didn't see anything from the local, domestic U.S. companies. We did see a little bit of interest of a Chinese company pop-up, but there was really not a lot of traffic in the line of booth traffic. We remain confident that nexUS will really extend our lead because when we start thinking about nexUS, we -- really, in terms of bone-cutting capabilities, we have higher restriction rates. So we believe that our blades are going to be more effective tools. We also believe that nexUS gives us the ability to improve the performance of our shavers. So we think it addressed with a lot of the procedures that we aren't in today, and I think one of the most significant enhancements from a spine portfolio is the ability for us to look at soft tissue applications as well with nexUS. So we're confident that, nexUS is really coming at the right time and from a product perspective, can really help us further the lead that we've developed in the bone-cutting arena.

--------------------------------------------------------------------------------

Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [7]

--------------------------------------------------------------------------------

And when do you expect nexUS to be approved? Are you still thinking end of this year, early 2019 and -- accounted 2019, of course? And when would you expect to launch with your sales force?

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [8]

--------------------------------------------------------------------------------

We're hoping that we file the FDA 510(k) approval before the end of this calendar year. And we're hoping that by beginning of April, which was our fourth quarter, so calendar year second quarter, Misonix fiscal fourth quarter that we'd be looking at launching nexUS commercially. Obviously, it's going to be a domestic launch first, and we're already making the investments in terms of training the sales people in advance of nexUS coming to market.

--------------------------------------------------------------------------------

Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [9]

--------------------------------------------------------------------------------

Okay. And are any of your customers holding back and saying, we'll wait for nexUS before placing an order BoneScalpel system?

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [10]

--------------------------------------------------------------------------------

As yet, we haven't seen that. I think as people start becoming more aware of that, as we get closer to launch, that may be an issue that comes up, but we're not seeing that in the market just yet.

--------------------------------------------------------------------------------

Alexander David Nowak, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [11]

--------------------------------------------------------------------------------

Okay. Got it. And then just last one for me. What happened on the supply chain side? If you can quantify it how much revenue do you think you missed out on?

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [12]

--------------------------------------------------------------------------------

In terms of supply chain side, a couple of things happened. We obviously changed our system. We had a very antiquated supply chain management system in the building, which made forecasting pretty, pretty complex. So there was the -- a little bit of system integration delay when we went over to the new system on the 1st of July, and then we also saw spike demand in certain areas. The one really, really bright spot has been on the domestic wound business. So coming out of July, we saw growth on the SonicOne disposables of -- in excess of 50%. At the end of August, that number was close to 50% again, and the result, by the time we got at September, we're completely sold out of inventory and our supply is really not in a position to respond adequately. So I don't have a hard number, but it's in the hundreds of thousands in terms of some revenue that was forgone in the quarter. I think what we've also done proactively is brought on more suppliers within the process of validating them because we've seen that the wound business has had lots of promise but it's certainly really exploding. I think there's a lot of good data out there, but it's difficult to predict a 50% jump in revenue and see that you can keep pace with it. So I think the good thing is the demand is there, and we're finding ways to address the increased demand.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

And moving on, we'll go to Kyle Rose with Canaccord.

--------------------------------------------------------------------------------

Kyle William Rose, Canaccord Genuity Limited, Research Division - Senior Analyst [14]

--------------------------------------------------------------------------------

I apologize in advance, I'm hopping between several calls here. So if I ask something that's repetitive, you'll have to forgive me. Wanted to touch a little bit on the international strength, came in stronger than we were looking for. Just wanted to see was there anything that was onetime in nature or just some sort of stocking event? I think you called out the $1.5 million in product revenue to your Chinese BoneScalpel distributor. Just wanted to see anything else we should keep in mind when we're thinking about the context of the -- or U.S. performance in the Q1?

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [15]

--------------------------------------------------------------------------------

Yes. I think our U.S. performance made us pretty happy. We obviously did have a nice stocking order from the Chinese partner on the BoneScalpel. Last year, that partner had acquired SonaStar units in the first quarter. So we're happy that we now have somebody that is representing the full product line. We also saw great performance in some of the bigger markets in Europe, like Italy and the U.K. Some of the smaller markets like South Africa also performed pretty well. What was encouraging was that there was good consumable growth as well in the international market. So we definitely seeing that there's a growing demand for the procedures to be used more routinely in surgery. So I think there's a lot that we've done already a year back in terms of rejigging and re-engineering that international team to support the international markets. And I think yes, we spent a lot of time in China, getting a better understanding of that market, training the distributor, finding the right partner. So we're pretty upbeat as to the international prospects for the business going forward. And we think that China is certainly not a onetime event. We are pretty bullish going into the second quarter as well with the demand from our Chinese partner.

--------------------------------------------------------------------------------

Kyle William Rose, Canaccord Genuity Limited, Research Division - Senior Analyst [16]

--------------------------------------------------------------------------------

Okay. And then you've touched on the supply chain, I know you talked about your supply has actually been in overhanged. Sounds like part of that was ERP switch. Is that fully behind the company? Or will any of that persist into the Q2?

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [17]

--------------------------------------------------------------------------------

I think we'll probably be fully behind that call by the end of Q2. I think there's always a lag of a good 60 to 90 days with suppliers. So we're hoping that by the end of Q2, we'll be out of that situation. Obviously, coming into holiday season, Thanksgiving and Christmas, doesn't help much. But I think that what we've done is we've given suppliers advanced notice. We're certainly gearing up. We're also putting in a bigger buffer. So I think going forward, when we start calendar year '19, I think we'll be through the issues. So to answer your question, by the end of Q2, December, we should be out of that back order situation.

--------------------------------------------------------------------------------

Kyle William Rose, Canaccord Genuity Limited, Research Division - Senior Analyst [18]

--------------------------------------------------------------------------------

And then when you think about -- I think you talked about 38% growth in Sonic -- with SonicOne disposables. What's driving that strength? I mean, what changed this quarter versus some of the previous quarters? I mean, that's not the SonicOne hasn't been growing historically, but just it feels like there was somewhat of an inflection point. Is that more onetime in nature? Or should we think about that's kind of your new base as far as your strong double-digit growth?

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [19]

--------------------------------------------------------------------------------

I definitely think we can look at SonicOne in the context of double-digit growth. I think there's a number of things driving the strength in the wound business. I think the one is having the direct sales force. I think one of the early benefits that we're seeing with the direct sales force is that they've been able to impact the wound business in a significant way because that is an easier market to enter with the technology that we're promoting. So I think that we'd have a lot of success with the sales force in terms of bringing on new accounts and new uses. I think that we've also been been helped in the last sort of 6-month period with good clinical data which has come out. We had that randomized control study out of Canada. We also had some data coming out of pin, which was really good on the wound side. So I think that there's a lot of buzz in the whole wound management when you look at our tools. So we've certainly seen interest in the tool that we've never ever seen before. So we think we have hit that inflection point, and internally, we're always talking about the second engine of growth, and that second engine of growth is certainly the wound business in the U.S. Outside the U.S. as well, we've launched in one international market and the response there was pretty overwhelming. And we've been a little bit surprised by all of this demand, which is a good thing. But we certainly feel that it's not a onetime occurrence, and we think that all of the work that we've done again from the last 15 months is really starting to pay dividend now with the wound business taking off.

--------------------------------------------------------------------------------

Kyle William Rose, Canaccord Genuity Limited, Research Division - Senior Analyst [20]

--------------------------------------------------------------------------------

Okay. And then I think you said -- you talked about nexUS time line, but I missed it. So if you could just remind me on what the time line of the rollout for nexUS is? I think you said it's in the 510(k) by year-end '18 and then start to launch? So maybe just remind me on what that launch looks like and how we should think about that, particularly as it relates to growth in the second half of the fiscal year?

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [21]

--------------------------------------------------------------------------------

Sure. We are definitely targeting to file before the end of calendar year. We're hoping to go live in April. I think it's going to be a soft launch, the first quarter that we launch it, which will be our fourth financial quarter between April and June. So we're looking at really going into some of our select accounts. So it's going to be pretty controlled. I think the real significant revenue impact we'll start seeing in our next calendar year, which will obviously be July of 2019. We will see handpiece sales of significant number coming through and also the new opportunity in the neuro side we're pretty bullish about. So I think we're going to use the first quarter to test the market to validate everything that we've been developing, but I would think about it in those time frames.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

And next we'll go to Michael Kaufman with MK Investments.

--------------------------------------------------------------------------------

Michael Kaufman, [23]

--------------------------------------------------------------------------------

Trying to get my handle -- head around the cosmic financials that you presented. So if you look at R&D steady state, that's probably 500 more this quarter than you expect steady state, and admin is about $800,000 a quarter higher. So that's a $1.3 million that you would pick up when you reach steady state. It would be interesting to know when you get to steady phase because that would wipe out half your loss. And then the rest of the loss basically is the increase in run rate on sales going from 28 to 55 people. So the question is, you would need an extra $2 million revenue per quarter to wipe that out, assuming that you're going to attenuate your sales growth a little bit in terms of number of people. So I don't know where you stand on the growth rate. But something that would really help me understand how the business is evolving would be a longer-term expense to revenue projection. And at what different run rates will you get there? And what can we see in terms of this financial engine developing over time? And that does not include any royalties you might get. I'm just looking at the fundamental kind of business metrics with that royalties.

--------------------------------------------------------------------------------

Joseph P. Dwyer, Misonix, Inc. - CFO, Treasurer & Secretary [24]

--------------------------------------------------------------------------------

Sure, Michael. I'll take that. It's a wise question but I think, just on run rate, maybe the thing to focus on is -- for sales and marketing, we do have a larger sales force and we'll continue with that so that run rate is going to remain pretty constant. We're a little bit happier...

--------------------------------------------------------------------------------

Michael Kaufman, [25]

--------------------------------------------------------------------------------

So you need $2 million of revenue to offset that new run rate. The question is, are you going to keep doubling the sales force again? Are you going to take a pause a little bit and let -- and have a lower rate of addition of sales so that, that line won't be growing as fast?

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [26]

--------------------------------------------------------------------------------

Yes. Michael, I think to be determined. I think what we've been seeing is that from last year to this year, we have doubled the sales force. I think our stated goal this year was to add an additional 20 people. So I think if the business can cope with it, we'll keep adding at a rapid rate. If we need to pull back, we'll do that. But I would say that 20 would be the number that we're looking to still add this year, but it's certainly not going to double from what it was. I think just logistically, it's challenging adding people at the rate that we've done. We've had to make those investments because, obviously, when you move away from the distribution model to a direct model, you need people and feet on the street. But I think from a percentage perspective -- it is slowing down from a percentage perspective.

--------------------------------------------------------------------------------

Joseph P. Dwyer, Misonix, Inc. - CFO, Treasurer & Secretary [27]

--------------------------------------------------------------------------------

And we are converting distributors. So that cost will decline over time throughout the year. I think if you look at G&A, we -- I'd mentioned we've got a couple of lumpy things in the first quarter, which almost $500,000 was a noncash charge. So that goes away and a couple of other things that were a little -- were one-timers. And we should get to more like the $2.4 million run rate, which is a historical rate back in G&A. And I think R&D, we'll have another quarter, next quarter -- second quarter with additional nexUS costs and costs for developing our new sterile packs and some other initiatives we have. But we think after that R&D gets down to more $700,000 to $800,000 steady run rate per quarter, if that answers your question going out from a run rate perspective.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

And that will conclude our question-and-answer session. I'd like to turn it back to Stavros for any additional or closing comments.

--------------------------------------------------------------------------------

Stavros George Vizirgianakis, Misonix, Inc. - President, CEO & Director [29]

--------------------------------------------------------------------------------

Thank you. In closing, while we have work ahead of us, we're pleased with the progress we've made in fiscal 2018 and in fiscal 2019 to date towards moving meeting our goals for the rest of the year and beyond. We're confident we can deliver growing revenue, healthy margins, profitability and improved results and performance going forward. I would like to take this opportunity to thank the outstanding team at Misonix for all the terrific work they're doing to build the new Misonix and capitalize on our abundant opportunities. I hope to see many of you during the coming months. In November, we will be presenting at the Craig-Hallum, Canaccord and Piper Jaffray conferences in New York City in the coming weeks. If any additional questions arise in the meantime, please don't hesitate to reach out to us. Otherwise, have a great rest of the year, and we look forward to speaking with you on the fiscal second quarter call in early 2019. Thank you.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

And that does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.