Milestone Scientific Inc. (AMEX:MLSS) Q3 2023 Earnings Call Transcript

Milestone Scientific Inc. (AMEX:MLSS) Q3 2023 Earnings Call Transcript November 15, 2023

Operator: Greetings, and welcome to Milestone Scientific's Third Quarter 2023 Financial Results and Business Update Conference Call. At this time, all participants have been placed in a listen-only mode, and the floor will be opened for questions following the presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. David Waldman, Investor Relations. David, over to you.

David Waldman: Thank you, Jenny, and good morning, everyone. Thank you for joining Milestone Scientific's third quarter 2023 financial results conference call. On the call with us today are Arjan Haverhals, Chief Executive Officer; and Keisha Harcum, Controller of Milestone Scientific. The company issued a press release today containing third quarter 2023 financial results, which is also posted on the company's website. If you have any questions after the call, would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. The company's management will now provide prepared remarks reviewing the financial and operational results for the third quarter ended September 30, 2023.

A biomedical technician testing and calibrating medical equipment to be deployed.

Before we get started, we would like to remind everyone that during this conference call, we may make forward-looking statements regarding the timing and financial impact of Milestone's ability to implement its business plan, expected revenues and future success. These statements involve a number of risks and uncertainties and are based on assumptions involving judgments with respect to future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond Milestone's control. Some of the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements are general economic conditions, failure to achieve expected revenue growth, changes in our operating expenses, adverse patent rulings, FDA or legal developments, competitive pressures, changes in customer and market requirements and standards and the risk factors detailed from time to time in Milestone's periodic filings with the Securities and Exchange Commission, including without limitation, Milestone's report on Form 10-K for the year ended December 31, 2022, and Milestone's report on Form 10-Q for the third quarter ended September 30, 2023.

The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, November 15, 2023. Milestone undertakes no obligation to revise or publicly update any forward-looking statements for any reason. With that, we'll now turn the call over to Arjan Haverhals, Chief Executive Officer. Please go ahead, Arjan.

Jan Haverhals: Thank you, David, and thanks to everyone for joining us today. We achieved revenues of $2.1 million for the third quarter of 2023. However, these results do not reflect the true underlying improvements in the business. Most notably, domestic dental sales increased by 45% due to the early success of our new online store for selling and shipping the STA, single-tooth anesthesia system, and hand pieces directly to dental offices and dental groups within the United States. We achieved these results while moving away from our former distributor, Henry Schein and thus an important validation of our strategy. Even more notably, the new direct selling model has resulted in an increase in gross profit for the third quarter of 2023.

In fact, our gross profit margins increased from 66% for the third quarter last year to 73% for the third quarter of this year. We achieved growth in our domestic revenue and margins despite a small sales team, which shows the potential of our new business model. And while we could spend more to bring on more sales representatives, our focus for the time being is on maximizing profitability with a streamlined operating structure. In addition to higher margins, this strategy has provided us a closer and more direct relationship with our customers, thereby increasing our stickiness with the dentists allowing us to do a better job selling and improving customer service. In other words, based on the obtained customer identification and purchase patterns, we can now focus on the basic principles of sales execution, being new customer acquisition, developing existing customers, waking up so-called sleeping or dormant customers and upselling activities.

At the same time, we have engaged in more direct-to-consumer marketing. These activities have resulted in leads from dentists, contacting us directly to order our instruments because patients requested them to do so. We will continue to increase our marketing efforts with dedicated campaigns directly targeted at patients. Given the domestic traction, we are expanding our efforts to enter new international markets and deepen our penetration within existing international markets. While international sales declined, it's important to note that orders from third-party distributors can be lumpy due to the timing and the size of the orders. Nevertheless, our international pipeline remains solid, and we expect our international sales to resume growth.

We also look forward to announcing the addition of new international partners, which should support our global expansion strategy over the coming quarters. It's also worth noting that our Dental division continues to operate profitably. In fact, the Dental division generated over $458,000 of operating income on a stand-alone basis, which is a 48% increase over the same period last year. So to summarize, we believe that through our new sales strategy, in combination with our increased marketing efforts, we aim to further grow the Dental business at attractive margins in the coming quarters. As we continue to grow our revenues, we expect to benefit from economies of scale as well as the recurring nature and high margins on our disposables. Turning to our Medical division.

We have made significant progress rolling out our CompuFlo Epidural System. Specifically, we have added a new distributor and expanded adoption of the CompuFlo technology in a prominent hospital system and pain management clinics. Towards this end, we commenced sales of CompuFlo Epidural disposables into Island Ambulatory Surgery Center in Brooklyn, New York. Adoption of the technology by this clinic follows a successful evaluation process by its founder and Medical Director, Dr. Leon Reyfman, an interventional pain medicine physician. Sales to Island Ambulatory Surgery Center represent the company's first foray in the ambulatory surgery center market, an addressable market of more than 9,000 centers across the U.S. Dr. Reyfman was one of a team of four doctors who completed 18 cases using the CompuFlo Epidural System in which they reported 100% success.

The evaluation included Epidural selection procedures within the lumbar, thoracic and cervical thoracic junction of the spine. Additionally, we are working closely with a major hospital system to expand use of the CompuFlo beyond labor and delivery to now include use with neurostimulation spinal cord stimulator implantation procedures. The CompuFlo Epidural System has proven to be of tremendous assistance in performing spinal cord stimulator cases. Specifically, CompuFlo helps to minimize postoperative complications of spinal cord stimulator implementation. These complications include intraoperative cerebral fluid leakage and trauma to underlying nerve routes. Cerebral fluid leakage requires a postoperative block patch as well as radiculitis cases that require extended postoperative admission and postoperative steroid injections as a potential complication of this procedure.

It has also decreased operative time for the surgery by around 15 to 20 minutes per procedure according to the clinician's feedback. As more and more physicians and anesthesiologists perform procedures and submit for reimbursement, our goal is to secure growth coverage for our technology as we continue to execute on our goal of establishing the CompuFlo Epidural System as a standard of care in epidural analgesia. During the third quarter, we reported an important milestone, reimbursement from commercial payers for patients who were involved in motor vehicle accidents. We are now building on this success and making continued progress advancing our reimbursement strategy. Specifically, we are supporting clinicians' utilization of the CompuFlo Epidural System across a variety of use cases, which is building support for the appropriate level of reimbursement from insurance providers.

These physicians have reported back on claims activities for their payers, and we are encouraged by the feedback from the insurance providers. I'd now like to take a moment to discuss our reimbursement strategy in more detail as this is really critical to understanding our overall strategy and the outlook of our Medical business. Significant progress has been made in three important areas related to reimbursement. One, provider utilization of CompuFlo. Secondly, claims submissions for CompuFlo and last but not least, acceptance of the CompuFlo new CPT code by health care payer systems for claim processing. We have established advisory sites across the U.S. that are actively utilizing CompuFlo and submitting claims to payers across the country.

This is important in demonstrating widespread utilization of the technology. To date, physicians have submitted a total of 87 claims to their respective payers using our tracking code to identify the use of CompuFlo technology when used with an epidural steroid injection, primary procedure CPT code, also called the primary code for epidural steroid injections. If you recall, the American Medical Association assigned this CPT code, our code as an add-on code to be used in conjunction with one of the eight existing epidural steroid injection codes. We are on target to meet our projection of over 100 claims submitted before the end of the year to payers across the country. Claims are being submitted to Medicare as well as commercial payers. Additionally, some clinicians have submitted claims for motor vehicle accident patients.

And as we reported previously, three commercial payers have responded to these claims submissions and paid for it. I'm encouraged that health care payer systems appear to have our code loaded into their systems and the code is accepted for claim processing versus a claim rejection because the code is not recognized. Category III codes like ours are designed for tracking utilization of new and emerging technologies. The submission of claims by our providers and recognition of the Category III code by the payers is an important positive step along the journey to positive reimbursement for CompuFlo, which will drive further commercialization of the CompuFlo Epidural System. Our advisory physicians are beginning to report back on claims activities from their payers.

There is a wide range of responses, and I'm very happy to report that the mix of responses have been exactly as anticipated. Some of the payers are asking for more information about the CompuFlo because it is new to them. Others are covering based on their established policies. While there have been denials reported rest assured, all denied claims are being appealed through each payer's individual appeals process. Denials are expected as part of establishing utilization and payment for a new code. Moreover, the high level of claim activity that is being generated by our advisory sites is providing an opportunity to engage with the payers to directly educate them on CompuFlo technology and the unmet patient need the technology serves. So to summarize our reimbursement progress, we are on target to deliver on our original plan to drive utilization by supporting our advisory clinicians in claims submissions, with over 100 claims expected to be submitted by year-end.

Additionally, we are providing support for each individual claim to have an appropriate response. Finally, the increase in utilization provides Milestone the opportunity to engage with payers to directly educate them on CompuFlo technology. Turning to the international front. We are expanding our network of distribution partners for CompuFlo. Most recently, we appointed a premier distributor in Spain, which we look forward to announcing in the near term. Spain represents an important market for us with a population in excess of 48 million people and the growing number of epidural procedures each year in pain management and anesthesiology. Overall, we are targeting independent distributors with existing relationships within key global markets and proven track records introducing medical devices within their territories.

We look forward to announcing additional international distributors as we advance our commercial rollout. We also believe there is a market opportunity for our CompuFlo Epidural Instrument within federal and other government agencies as our system can contribute to both improved patient outcomes as well as increased efficiencies. As we have discussed in the past, we are advancing initiatives following SAM approval and working to secure approval within FSS, the federal supply system. At this point, we believe it's not a question of if, it's a question of when. FSS approval would open up the sizable government markets. With this goal in mind, we are doubling down on our efforts to penetrate the DoD and government markets. We were recently invited to present at the International Healthcare Summit, which took place last week in Kyiv Ukraine.

The event was an initiative by the U.S. Department of Defense in which they invited companies like ours that bring new technologies to collaborate with the Ukrainian Ministry of Health and Hospitals. We are advancing these initiatives with the DoD whereby we could conduct trials in the Ukraine using our technology, which would be funded by the DoD. In addition to the humanitarian aspects of our work, we believe this would be an ideal opportunity to fortify our relationship with the DoD by highlighting the safety and efficiency of our technology. So to summarize, we are continuing our efforts to seed the market with our technology among key physicians, which we believe will ultimately translate into widespread adoption. We remain committed to our goal of establishing the CompuFlo Epidural Instrument as the new standard of care in epidural anesthesia by providing patients with effective pain relief while reducing the risk of complications.

At this point, I'd like to turn the call over to Keisha Harcum, Controller, to go over the financials in detail. Please go ahead, Keisha.

Keisha Harcum: Thank you, Arjan. Revenue for the three months ended September 30, 2023 and 2022 were approximately $2.1 million and $2.2 million, respectively. Due to an increase in domestic revenue, sales of $386,000, offset by a decrease in international dental sales of $539,000. Gross profit for the third quarter ended September 30, 2023 was $1.5 million or 73% of revenue versus $1.5 million or 66% of revenue for the third quarter ended September 30, 2022. The increase in gross profit was due to the higher margin sales with the launch of the new online portal. Operating losses for the three months ended September 30, 2023, was approximately $1.5 million versus approximately $2 million from third quarter ended September 30, 2022.

The reduction in operating losses reflects the increase of gross profit and the decrease of selling and general and administrative expenses. The net loss was approximately $1.5 million or $0.02 per share for the three months ended September 30, 2023, versus net loss of $2 million or $0.03 per share for the comparable period in 2022. For the nine months ended September 30, 2023, revenue increased 15% to approximately $7.6 million compared to $6.6 million for the same period last year, driven by an increase of domestic dental sales of $1.3 million, particularly offset by a decrease of international sales of $135,000. Gross profit for the nine months of 2023 was $5.3 million or 70% of revenue versus $3.8 million or 58% of revenue for the first nine months of 2022.

Operating losses for the first nine months of 2023 was approximately $5.1 million versus approximately $6.8 million for the first nine months of 2022. Net loss for the first nine months of 2023 was $5 million or $0.07 per share versus net loss of $6.8 million or $0.10 per share for the comparable period. As of September 30, 2023, the company had cash and cash equivalents and short-term securities of approximately $4.6 million and working capital of approximately $6.7 million. At this point, I'll turn the call back over to Arjan Haverhals.

Jan Haverhals: Thank you, Keish. Through our new dental sales strategy, including our online store, and our enhanced marketing efforts, we are increasing domestic sales at higher margins. While our international sales pulled back, this was largely a result of the timing of orders and our focus on the domestic market. That said, we expect to resume solid international growth going forward and continue to add new distributors. Our Dental business continues to generate positive cash flow on a stand-alone basis. And as we continue to grow our revenues, we expect to benefit from economies of scale due to the recurring nature and high margins on our disposables. We believe we have developed a scalable platform to drive our Dental instrument and hand piece sales in the coming years.

On the Medical side, we remain encouraged by the outlook for the business given our sales pipeline, the addition of new hospitals and expansion in existing pain management clinics as well as expansion of our distribution partners. Most importantly, we are now making progress advancing our reimbursement strategy around the CompuFlo Epidural System. As I mentioned earlier, we expect to reach over 100 claims submitted by year-end and these physicians have reported back on claims activities from their payers. We are encouraged by feedback from the insurance providers to the clinicians and are engaging with the directly payers to educate them on the CompuFlo technology. We are also advancing initiatives following our SAM approval and leading up to potential federal supply system approval, which would open up the sizable government market.

So to wrap up, we are witnessing growing interest in both our Dental and Medical instruments, and we believe we are well positioned to take advantage of the opportunities available in the market. The Medical segment represents a large addressable market, and we remain confident in our belief that CompuFlo will ultimately become the standard of care, given both the safety advantages as well as cost savings to the providers and payers. These factors coupled with our reimbursement strategy, should ultimately lead to increased sales and adoption of the CompuFlo system. At the same time, we continue to maintain a lean operating structure and we are laser-focused on driving shareholder value. We look forward to providing further updates as developments unfold.

I'd like to thank you for joining the call today. And at this point, we would like to open the call up to questions. Operator?

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