Milestone Scientific Inc. (MLSS) Q1 2023 Earnings Report, Transcript and Summary

Good morning, everyone. And welcome to Milestone Scientific’s First Quarter 2023 Financial Results and Business Update Conference Call. [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, you may begin.

Thank you, Jenny. Good morning, and thank you for joining Milestone Scientific’s First Quarter 2023 Financial Results Conference Call. On the call with us today are Arjan Haverhals, Chief Executive Officer; and Peter Milligan, Chief Financial Officer of Milestone Scientific. The company issued a press release today, May 11, containing first quarter 2023 financial results which is also posted on the company’s website. If you have any questions after the call or 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 first quarter ended March 31, 2023. Before we get started, we would like to remind everyone that during this conference call, we may make forward-looking statements regarding 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 first quarter ended March 31, 2023. The forward-looking statements made during this call are based upon management’s reasonable belief as of today’s date, May 11, 2023. Milestone undertakes no obligation to revise or update publicly 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.

Thank you, David. And thanks to everyone for joining us today. I’m pleased to report we achieved revenue of more than $2.6 million, making it a solid quarter. Most notably, domestic dental sales increased 47% due in part 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 U.S. This strategy has provided us a closer and more direct relationship with our customers, which, in turn, resulted in improved gross margins. As a result, we recorded an increase of 12% in gross profit for the first quarter of 2023. We continue to bring on new strategic distribution and channel partners that sell through their respective networks of dental customers in the U.S. The launch of the online sales portal has also enabled us to directly serve several dental service organizations, or DSOs. Our goal is to strengthen our position with these DSOs, thus increasing the penetration of a dental offering with these customers. Our investment in direct-to-patient marketing activities has resulted in several 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. We’re also expanding our efforts to enter new international markets and deepen our penetration within existing international markets. Towards this end, early in the first quarter, we announced TEKMIKA Health Technologies as exclusive distributor of the STA system in Brazil. As mentioned during prior calls, the Brazilian dental market is one of the three largest markets in dentistry. We also recently appointed Sweden & Martina as our exclusive distributor in Italy, France, Spain and Portugal. We look forward to announcing additional international distribution agreements as we continue to build our global network. 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. It’s also worth noting that our dental division continues to operate profitable. In fact, the dental division generated over $600,000 of operating income on a stand-alone basis, which is an 81% increase over the same period last year. Turning to our medical segment, we continue to advance our commercial efforts around the CompuFlo Epidural System as we target hospitals, health care systems and pain management clinics. The fact that our technology was adopted by leading physicians and hospital systems, reinforces our confidence in the market potential for our instrument, particularly within pain management and labor and delivery market segments. Importantly, we have witnessed that the decision-making time or sales cycle is much shorter in the private compared to the labor and delivery department at hospitals. In addition, the recent 510(k) FDA clearance of our instrument for us in the thoracic region of the spine, including the cervical thoracic junction is also helping drive interest in our technology within a number of prominent pain management clinics, given the added complexity and risks associated with these procedures. Specifically, the incident rates of morbidity and the thoracic and cervical region of the spine are believed to be much higher than in the lumber spine region at 17% and 30%, respectively, due to the difficulties accessing the epidural space. We recently commenced sales of CompuFlo Epidural disposables into the regenerative sports and spine center in Tualatin, Oregon. Adoption of the technology by this clinic follows a successful evaluation process by Dr. Jimmy Hubert, a regenerative sports and pain medicine physician and the owner of Regenerative Sports and Spine Center which further validates the safety and efficacy of our technology. Dr. Hubert initially conducted several cases using the CompuFlo Epidural instrument in which he reported 100% success. The evaluation included epidural steroid injection procedures in the lumbar, thoracic and cervical thoracic junction of the spine. The incorporation of our technology by this recognized physician illustrates his commitment to implementation of the latest technologies to improve patients’ outcomes and safety by helping them recover more efficiently from sports injuries. This follows similar evaluation earlier this year by Dr. Brad Sisson and Dr. Didier Demesmin, two of the prominent thought leaders that have recently begun incorporating the CompuFlo Epidural instrument into their practices. Collectively, the procedures by the pain management physicians marked the first in a series of epidural steroid injections using the CompuFlo Epidural System for artificial intelligence assistant analgesic needle placement in patients. Providers may consult the American Academy Association, AMA CPT changes 2023, regarding AI-assisted analgesic epidural needle placement in patients. This publication addresses AMA's new technology specified Level 3 CPT code set which came into effect on January 1, 2023. It describes technologies that integrate artificial intelligence to place an epidural needle. It's typically utilized during analgesic epidural needle placement in patients. It is real-time software to assist the physician by transmitting key data points and we believe medical necessary and compliantly documented use of this data may be eligible for reimbursement for the CompuFlo Epidural System. The clinicians mentioned before have been or are in the process of submitting their claims to healthcare insurance providers. The expectation is that they will receive the first responses by the providers within 30 days after submission. Depending on the response, item information could be requested by the insurance providers to the clinicians or an acceptance or denial could be obtained. In the case of an acceptance this would potentially lead to payment to clinicians of a reimbursement fee for epidural steroid injections using our technology. We are not allowed to reach out to clinicians or insurance providers directly on pricing, and we are following the strict rules and regulations and policies by the American Medical Association, thus doing our utmost to service the clinicians with all the documentations for their submissions in a high-quality professional way. We are not aware of any systems other than the CompuFlo Epidural System that would meet these artificial intelligence criteria, as mentioned before. And as I'm sure most of you are aware, our technology is backed by a broad portfolio of domestic and international patents, which we believe will both preserve and further enhance our leadership in the market. We remain encouraged by the interest in our epidural instruments by anesthesiologists and pain management providers especially for patients with complex anatomy and difficult cases that involve the thoracic and cervical thoracic junction. We believe that the efforts we are taking to seed the market with our technology among leading pain specialists will ultimately translate into increased adoption as we continue to execute on our goal of establishing the CompuFlo Epidural System as standard of care in epidural analgesia. We also believe there is a market opportunity for our CompuFlo Epidural instrument within federal and other government agency as our system can contribute to both improved patient outcomes as well as increased efficiencies. We were recently granted registration with the U.S. government system for award management, which is a key step in the overall governmental decision-making and payment process. In addition, we are actively pursuing U.S. Federal Supply Service approval for the CompuFlo Epidural instrument, which have granted – would provide uniform pricing across government agencies. In addition to our direct sales channel we are also expanding our network of distribution partners to assist in further adoption of the CompuFlo Epidural System. Specifically, 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. At the same time, we continue to carefully manage our expenses while investing in sales direct-to-patient marketing and product development. At this point, I'd like to turn the call over to Peter Milligan, Chief Financial Officer to go over the financials in detail. Please go ahead, Peter.

Thank you, Arjan. Total revenue for the quarter – first quarter of 2023 was $2.6 million versus $2.7 million for the same period last year. The decrease was driven by lower revenue from China of $360,000, decrease in other international sales of $180,000 offset by increase in domestic dental revenue of $443,000. The increase in domestic dental revenue was primarily driven by the launch of our new online store for U.S. dentists to order the STA, single tooth system, instruments and hand pieces as well as the reversal of allowance for returns of $179,000, which was related to the distribution agreement that we terminated with Henry Schein at the end of 2022. Gross margins improved significantly from 62% last year to 73% this quarter. This increase was largely driven by the company's change in its U.S. distribution, which Arjan referenced earlier, is going extremely well. The operating loss for the three months ended March 31, 2023 decreased by $600,000 versus a $1.9 million loss for the first quarter of last year. This was driven by higher gross margin and lower operating costs, trends that we expect to see continue throughout the year. The net loss was $0.02 per share versus $0.03 per share for the comparable period in 2022. The company did use $2 million in cash in the first quarter, but it's important to highlight that the accounts receivable and prepaid expenses increased by $550,000. And we saw a significant reduction in current liabilities of over $650,000. We expect our cash used to decline in each of the remaining quarters throughout 2023. At the end of the quarter, March 31, 2023, the company had cash and cash equivalents of $6.7 million, total current assets of $11.6 million and working capital of $8.9 million and has no long-term debt. At this point, I'd like to turn the call over back over to Arjan.

Thank you, Peter. Through our new sales strategy and our enhanced marketing efforts around the STA, Single Tooth Anesthesia instrument, we believe we can accelerate the growth of our dental business at higher margins in the months ahead. We believe we have developed an efficient and scalable platform to help drive our dental instruments and handpiece sales in the coming years. Our dental business continues to generate positive cash flow on a stand-alone basis, and 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 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. We continue to believe the medical segment represents a large addressable market, not only driven by cost and convenience for the providers, but driven by the safety considerations and cost savings. These factors, coupled with our activities following the issuance of a tracking CPT code should ultimately lead to increased sales and reimbursement of the CompuFlo system. We remain encouraged by the outlook for the business given our sales pipeline, the addition of new hospitals and pain management clinics as well as expansion of our distribution partners and streamlined operating structure. We are excited about the recent 510(k) FDA clearance for the use of CompuFlo Epidural system in the thoracic region of the spine, including the cervical thoracic junction. In addition, we are advancing a number of key initiatives following SAM approval, and we are actively pursuing U.S. federal supply service approval for the CompuFlo Epidural instrument, which potentially opens us up to the sizable government market opportunities. We remain committed to driving shareholder value and 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?

Thank you, Arjan. [Operator Instructions] Thank you. Your first question is coming from Anthony Vendetti of the Maxim Group. Anthony, your line is live.

Thank you. And just, Arjan, I wanted to talk a little bit about the e-commerce site. How are you determining the effectiveness of the digital marketing? And then I wanted to follow up with – on the medical side. I know you've signed up some pain clinics, which is a large market opportunity. How are you driving utilization for those accounts that you're signing up? And then I have one other follow-up. Thank you.

Okay. Good morning, Anthony. Thank you for your question. Your first question, the combination of digital marketing and the success of the portal. A couple of comments from my side. First of all, we have in the first quarter of this year on purpose invested heavily in not only digital marketing, but also partnering with leading dental journals and organizations to make the people and the dentists aware about the launch of our portal. I was perhaps conservative in my target setting for the first quarter because we were not sure what could happen in the aftermath of the loans of the portal because the distributor of which the agreement was ended by the end of last year, had the opportunity and the right to return goods to us, that's one thing. But they also had the right to continue their commercial activities for a 90-day period, so that would be until the end of March. As we mentioned during our earnings call for the annual results about a month ago, we saw, of course a negative effect in the fourth quarter last year as Henry Schein ordered less products than normally. But we were very pleased that the – it was offset by an enhanced penetration in the current existing Henry Schein customer base or distributor base during the first quarter, and that has resulted in significantly success and growth of our revenues within the domestic market. But more importantly, the effect and the contribution of an increase of our gross margin, as Peter alluded on, and as you can see in the financials that we reported today. It is now from 62%, it is 73% gross margin, and we definitely expect that, that trend is going to continue because that's important also for our balance sheet and also for our account receivables because the majority of these transactions are paid by credit card. So that's the comment on the dental side. Turning to the medical side, what we are doing to enhance the utility and usage of our consumables and of the CompuFlo Epidural System, it is important that we identify those clinicians that are evaluating as we have reported now three clinics, I think in the recent media releases that assist us and are also interested in sending in the billing and coding materials to the health care insurance providers, that is very important. As I said earlier, we are not entitled to have direct contact with the clinicians on pricing or the quality or what they are submitting to the healthcare insurance providers. We can only help them by giving them the right documentation on our products so that they have everything available to submit that. Now that is important and also based on their enthusiastic reactions and 100% success rates. I know a couple of them automatically are extending. There are number of procedures based on the initial results that they have obtained and they are very enthusiastic about our technology. Of course, and when healthcare insurance providers will pay a price or we'll pay a reimbursement fee for the technology I think it's going to be an automatic process sort of like a domino effect where definitely these clinicians will use our technology moving forward. Does that answer your question, Anthony?

Yes. I think just on the medical side, though, Arjan, maybe just a little more color. I think Milestone has a history of managing cash very well, keeping expenses down, but as you roll this out into these pain clinics, what resources are you putting behind the rollout to ensure, I mean, you can't obviously tell a physician exactly what to do, but how do you help drive that utilization? Are there any clinical specialists that you have that are working at least initially hand in glove with the physicians to get them comfortable using it.

No, absolutely. And thank you for asking that question because it's a good one. Because based in the environment that we are living in and the focus on giving the support to these clinicians, we all know as I have repeated several times that we are living in an environment that safety and efficiency of a new technology is not sufficient as you have to show to the clinicians that there is also a business aspect and an opportunity to make money for them. That's where all the large companies active in this field are working in, right? So to your point, we have our three salespeople that we still have and that are sales/clinical specialists, every case that is performed in the beginning for these clinicians that we have reported is with the assistance in the OR room of our clinical specialist. And that is also a service that we have to provide with clinicians. If you look, for example, companies that are doing spinal cord stimulators, it is seldom that the clinician is along with his news or his staff in the operatory room. He always has a clinical specialist from companies that are active and that have these products in their portfolio. They always have these clinical specialists in the operatory room. So we continue to maintain the champions that we are having that have been with us for a longer period of time, and what they are doing day in, day out, they are traveling across the country and get on-site active support, clinical support during these procedures.

Excellent. And then last question, Arjan, then I'll hop back in the queue is what conferences – what medical conferences is Milestone attending where the KOLs are there? And are there any KOLs that you feel you need to maybe, I don't know, sign up, get on a medical advisory board to help spread the word, maybe just give us a little color on that? Thank you.

No, absolutely. So I always say KOLs for me, the typical KOL is the person that has done or primarily is interested in scientific clinical research and publications. I do strongly believe that we have done our homework on the clinical side, but I always call the KOL, the key opinion leader or the ambassador. Now to your point, physicians that we have been working with and are still working with. I mentioned, for example, de la Garza, who is the President of the physician – Pain Physicians in Florida. He is on our advisory board, and as we speak the latest developments with the other clinicians what we have done as well is we have called for a special advisory board for a number of clinicians that are – when they are interested in working with us that are doing a number of cases of which we then later can do a white paper publication out of that in the process of the adoption of our technology and the use of our system. So I never called that out because it’s sort of a common practice within the medical field. But absolutely, we are signing our clinicians on an advisory board. In particular, in these early stages and early days, in particular on the cervical and the thoracic junction, all these clinicians that recently has joined us, they have showed a very high interest because of the thoracic and the cervical indication because it is almost a no-brainer to use it in that area due to the high morbidity rates.

Okay, thanks very much. I’ll hop back in the queue.

Thank you, Antony. Have a good day.

[Operator Instructions] We have a question from Richard Gerando [ph] who is a Private Investor. Richard your line is live.

Good morning Arjan.

Good morning Richard.

How are you?

I’m doing well. And you?

Good. I’m on the West Coast, and I got into the call late, so I missed most of your preamble. I guess the question is how close or far is the company to really starting to sell product? I mean I’m a dentist, I’ve been using your device for 20 years and it is a fantastic device. And I just saw the intuition to use it right away. And then on the medical side, obviously, it’s a little bit more complicated, but is there some clarity or you can – with some sense of confidence, say that this thing is going to be adopted commercially by the vast majority of physicians.

Yes, so that’s a very good question. Well, first of all, seriously, we are selling products every day, right? That’s the reason why we have the revenues that we are reporting this quarter. But that, as you say, it’s of course, primarily in the dental business. What I have to say, of course, is that we should not forget that the dental business is still a rather underpenetrated market. And I strongly believe there is a huge potential. And I do foresee the trend moving forward that we can continue to grow the dental business. Now on the medical sales side, yes, I do believe depending on all the activities that we have undertaken. FDA helping the clinicians, the tracking code, a lot of direct-to-patient marketing, a lot of digital marketing. The people that we have in our team, we are very well set up to enjoy commercial success. Now the question that you are having, and that was my comment before, it is not enough just to have your clinical data and to have your safety and efficiency data. I do believe that there are two major events or major issues that could definitely further drive growth. One is whether there is over time acceptance of a reimbursement code in terms of insurance providers willing to include our technology in their payment in addition to already the primary code for epidural spinal injections. Secondly, I do believe that it is important to also include our technology in spinal cord stimulators procedure. And thirdly, that’s the reason why through our business partners also why we look not only look at, but actively pursuing the governmental and the military business, so to say, because one of those two elements that they are running pretty well and there is positive feedback that will definitely drive growth. Now to your question, is that happening today or tomorrow? We have to continue doing what we know we are doing well, and that is executing on the strategy that we have identified. Once we do that, it is dependent on, for example, the government, how much time the process is taken. It has taken much more time than I anticipated. And the reimbursement project as such where we have to follow all the strict guidelines and rules associated with those is completely dependent on the clinicians sending in the billing and the coding material and documentation. My goal is what – and of course, there’s nothing like a rule of thumb. If you do 100 patients or 200 or 500 patients. There is no guaranteed success or whatsoever for obtaining reimbursement, right? But we are making very good headwinds in getting more and more patients enrolled in this program. As a matter of fact, today and tomorrow, we do an additional 10 million over the next coming weeks, we have a 10-fold of additional patients. So we are continuously fueling those activities. But it depends on when the health care insurance providers come back. As I have explained in this call, it’s in a way out of our control. The only thing that we can do is providing clinicians with high-quality and professional services. But I’m very positive about that. But like you said, it’s a matter of time, but it can happen any day.

So just a little follow-up. So this approval by the FDA was titled contingent, correct? Am I correct in saying that? It’s a contingent.

Yes, the FDA approval allows to use the products in the thoracic and the cervical spine. .

Right. I think the wording was contingent at one point in time. And that the reality is they really wanted to have at some point in time, I remember a number of 25,000 injections given. Can you give us a number of how many injections have been utilized to provide the CompuFlo Epidural...

I think that’s not correct. I think what you are alluding on that was five, six years ago.

Correct.

When people said that obtain a code or reimbursement code, you have to perform 25,000 injections. That is not true. That’s not correct. And in that five, six years as well and the rules and regulations have changed. That has also made it possible for us as a company to establish that tracking code during a meeting with the panel of the AMA in May last year. And that’s the reason why the tracking code became effective in January this year. But what I always say, you still have to work on it. The American Medical Association is publishing technologies that are eligible for a code, but they don’t decide on pricing. That is what clinicians have to mobilize themselves and the tracking means that you are allowed to use the code for tracking purposes and include that in the claims. But that’s what clinicians can do. That’s not what the company can do. The clinicians are responsible for that. That’s my point that we have to support those clinicians and identify pools of clinicians that’s part of an advisory board and are willing to help and support us in making that work. That’s the environment out there.

So, can you give me a number or give us a number of how many successful procedures have been done?

Yes, I can give you a number. But at the same time, if I give a number and the next question is what the probability that we’re getting. It’s just – it is a little bit guessing to that extent, and it is creating, let’s say, assumptions and hypothesis. I’m a person that when we have the facts available and when we have initial feedback that we are on the right track, then I will share that with the outside world, right? It’s the same, for example, with an FDA submission. It doesn’t make sense to make a lot of high on submitting an FDA submission if you don’t know whether it’s going to be approved. And that’s the same approach that we are taking here. We are allowed to share with the outside world and with the investor that the AMA has granted a tracking code in the beginning of the year. And that’s it. People would be very surprised the rules and the regulations and the strict policies that the American Medical Association has every information I share and that is a little bit more than what’s “is normally allowed”, including the number of procedures that we have submitted that can result in a penalty from the AMA or for future work that we would submit to them that they would neglect it. So, I’m not willing to take that risk.

No, I’m not asking me to do anything Haverhals, I just wanted to know if we have this concept of in finance visibility that you have visibility that you at some point in time I know you’re dying to say this, but you can’t, as you stated in six months, the way the kinetic energy is working that all these hospitals that over the last two to three years, you’ve announced that they are trialing the system. At some point in time, they’re going to go to their people and say, we want you to push the envelope and get something going because we want to use this thing on everybody. We don’t want to take a risk of having a puncture, epidural puncture. And so that would be something that I’m not asking you to tell me that today but tell anybody in the call or the rest of the world, but you know you’re...

I’ll take. So, of course, we have our plans and our budgets, and we have financial models and financial visibility, absolutely. What is important is, of course, also with the activities that we are undertaking is we are focusing in first instance, primarily to the pain clinics and the ambulatory surgical centers because as you know, in labor and delivery, the costs of the consumables, they are absorbed by the overall cost for labor and delivery procedure at the hospital. So, I do believe that we are on a good track. We have undertaken the right activities, and we will share with you and other shareholders and investors at the time that we are obliged and allowed to do so.

Thank you very much sir. I appreciate it.

Thank you very much.

Thank you. That does appear to be the last question. I’m now going to hand back over to Arjan for any closing remarks.

Yes. Well, thank you for your time, and thank you for joining us on this call as you – in summary, we are pleased happy with a strong first quarter. We do believe that we are well equipped and well positioned to continue our journey and to make and to tap on the potential in the medical market segment. And we will continue to hopefully share additional information when available based on the activities undertaken. So, thank you again for your time. Stay safe, and have a good day.

Thank you very much. This does conclude today’s conference. You may disconnect your phone lines at this time. And have a wonderful day. Thank you for your participation.