Milestone Scientific Inc (MLSS) 2008 Q1 法說會逐字稿

Welcome to the Milestone Scientific's 2008 first quarter conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded today, Monday, May 19th of 2008. I would now turn the conference over to Dodi Handy. Please go ahead.

Thank you, Mary, and good morning and welcome to today's conference call and we are going to be discussing Milestone Scientific's first quarter financial and operational results for the three months ended March 31st. 2008. My name is Dodi Handy and I am President and CEO of Elite Financial Communications Group and we're Milestone's investor and media relations firm. Following my reading of the Safe Harbor statement, Joe Martin, Milestone's Chief Executive Officer and Joseph D'Agostino, the Company's acting Chief Financial Officer, will be sharing their prepared comments with you. Immediately thereafter, we will provide you instructions again on how you can queue into the question-and-answer forum. Allow me to remind you 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 results to differ materially from those indicated by the forward-looking statements include general economic conditions, failure to achieve expected revenue growth, changes in the Company's 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 its annual report on form 10-K for the year ended December 31st, 2007. The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, May 19th, 2008. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason. So with that, we will begin the discussion of the results. Ladies and gentlemen, it is now with pleasure that I introduce Joe Martin. Hi Joe.

Hello, Dodi. I too would like to welcome everyone to our call this morning and thank you for your interest in Milestone Scientific. The format for today's call will provide for Joe D'Agostino to first summarize our first quarter financial performance. I will comment briefly on the progress that Milestone is making on our go to strategy for our new STA system and, just as important, critical progress we are making on our efforts to penetrate the medical marketplace with new applications for our CompuFlo technology. And then, as Dodi mentioned, we'll take some questions. So, Joseph, let's get started.

Okay, Joe. Thanks. I'll start by confirming that we filed our 10-Q reflecting our first quarter results this past Thursday, May 15th, 2008. It bears repeating that Milestone's SEC filings including the 10-Qs and the 10-Ks include a detailed analysis of our financial condition and operations and generally are informative documents, so I encourage you to thoroughly review that. First, looking at our consolidated statement of operations. Total revenue for the three months ended March 31st, 2008 was $1.4 million, a 39% decrease with a total revenue of $2.3 million reported for the same three months in 2007. Breaking this down geographically, total domestic sales decreased to $898,000, down 53% from $1.9 million in the comparable three-month period in 2007.

Let me explain these differences. 2007 first quarter sales included a significant first-time STA instrument and hand piece purchase by Henry Schein as our new distributor. The 2008 first quarter sales do not include such a major buy-in. We also put forth a substantial internal sales effort toward the CompuDent instruments in North America during the first quarter of 2007, before turning over the product line responsibility to Henry Schein. Consequently, the first quarter 2008 CompuDent instrument sales are below that of the same period in 2007. Let me also add that 2007 first quarter sales of CompuDent hand pieces also includes a substantial buy-in by Henry Schein as part of their distribution pipeline filling activities. As you can see, the first quarter of 2007 benefited from substantial buy-in by Henry Schein. Our sales in North America have continued to gain momentum but at a rate below our expectation.

Now looking at the international markets, for the three months ended March 31st 2008, total international sales rose 37% to $490,000 from $358,000. More specifically, CompuDent sales abroad increased 34% to $69,000 from $51,000. Sales of hand pieces used by CompuDent system were up 19% $348,000 from $292,000. STA sales totaled 69,000, which compared to zero in the previous year and STA hand piece sales to our international customers was approximately $3,600. For the three months ended March 31st, 2008, our gross margin improved to 67% compared to 64% posted for the same three months in the prior year.

Moving down the income statement, Milestone's total operating expenses declined 25% to $1.5 million from $2 million. The decrease was primarily attributable to a notable reduction in research and development expense, which fell 73% to $48,000 from $179,000 as we shifted our focus and resources to launch of the STA system. Further, we saw a 20% decrease in our selling, general, administrative expenses which totaled $1.47 million for the first three months this year as compared to $1.84 million for the first quarter of 2007. We did experience operating cost increases due to the addition of a new CEO and Vice President of Sales and Marketing. We also saw increases professional fees compared to prior year which include a cost incurred with a third party for the implementation of Sarbanes-Oxley compliance documentation and testing. These stated increases in SG&A expense were more than offset by material savings in other areas of our operations. We have worked hard to decrease manufacturing cost and to find efficiencies in all of our operations. The net loss for the three months ended March 31st, 2008, was $616,000 or $0.05 per basic and diluted share compared to a net loss of $535,000 or $0.05 loss per basic and diluted shares reported for the same period in the prior year.

Moving now to our balance sheet. As of March 31st, 2008, the Company had cash, cash equivalents and accounts receivable of $582,000. It is also important to note that during the first quarter of this year, we reduced our long-term debt from approximately $1.38 million at December 31st, 2007, to $941,000. Further, our current liabilities were also reduced, dropping from $2.07 million at the end to $1.78 million as of March 31st, 2008. Consequently, our working capital stood at $1.6 million as of March 31st, 2008 and shareholders' equity also at $1.6 million. Now that completes my review of the results. Should anyone have any questions related to financial or accounting matters, I'll be pleased to attempt to address them during the question-and-answer period later on this call. With that, I'd like to return the call back to Joe. All yours.

Thank you, Joseph. I believe I would be remiss if I did not acknowledge the outstanding job that Joseph and the rest of our team have done with managing our expenses. As Joe just noted in his review of the numbers, we succeeded in cutting our total operating expenses by 25% in the first quarter. This represents savings in the range of $0.5 million when compared to the prior year's first quarter period. I am very proud of the effort being made by everyone at Milestone to maintain strict expense discipline. As a result, we are operating much more efficiently at all levels and we are continuing to identify ways to further improve.

At this time last year Milestone was engaged in the soft domestic market launch of the STA system in collaboration with Henry Schein our North American distributor. Through the summer and fall of 2007, we carefully evaluated our pricing, positioning and marketing strategies for the STA system. Toward the end of last year, we started implementing a comprehensive new messaging platform designed to emphasize key benefits that we have learned are of most value to dental professionals. What's more, we believe that our newly refined product messaging, which includes submessaging on productivity is finally beginning to resonate through the dental community. Helping to boost our confidence is the level of traffic we are seeing at major dental shows, at which we are selling dozens of units directly to attendees. In fact, we set a new conference sales record at the Chicago mid-winter meeting and, earlier this month, we nearly matched it at the California Dental Association 2008 Spring Scientific Session held in Anaheim, California.

Another important event for Milestone was the first international CCLAD summit, a forum we hosted in New Orleans where we assembled many of the dental industry's leading authorities to review, discuss and explore opportunities for Milestone's proprietary computer control (inaudible) delivery technologies. A monograph summarizing the summit's proceeding will be issued within a few days and we'll highlight a series of compelling suggestions and recommendations made by the attendees to the dental community regarding the clinical value and practical utility of the STA system. We are also proud that just last month the STA system was distinguish as the winner of 2008 medical design excellence award in the dental instruments equipment and supplies product category. It's worth noting that of the 33 products that received this prestigious industry award, Milestone's STA system was one of only two winning products that serve dental practitioners. We look forward to attending the MDEA award ceremony next month in New York City. You may recall that in July of last year the STA was also voted as one of the top 100 products of the year by Dentistry Today, one of the industry's most respected and widely read trade publications.

So you may be wondering, if the product is so great, why sales have not increased at a faster rate. The management teams at Milestone at Schein both recognize that we have not delivered the sales execution necessary to deliver a successful product launch in North America. But as I've already noted, critical modification to our product messaging and marketing platforms have been implemented. In addition, we have also been carefully examining critical strengths and weaknesses in our product distribution strategy. I can confirm that I, along with other members of Milestone's management team, are actively engaged in employing new sales and marketing resources that will accelerate Milestone's sales momentum around the world. Announcements regarding key developments in this regard will be forthcoming shortly.

Before asking for questions, allow me to share some perspective on Milestone's efforts in the medical arena. In keeping with our stated goals and objectives for leveraging our patented CompuFlo technology and new medical applications, we continue to pursue collaborations in the areas of self-administered drug delivery, arthritic joint pain management and epidural. It is our hope that the collaboration with the globally diversified health company, with whom we conducted a study at the end of last year, will result in future product development opportunities. We are also currently in active discussions with other companies of similar size and scope. Looking ahead, Milestone will remain squarely focused on two objectives, accelerating worldwide sales of the STA system and pursuing strategic opportunities for CompuFlo. We now have the senior leadership in place that is capable of achieving both these objectives and we are confident that we will do just that. So, Dodi, why don't we now invite some questions from our call participants.

Okay, Joe. Mary, would you now kindly provide instructions to our listeners on how they may ask Joe or Joseph some questions?

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Jim David with David and Capital. Please go ahead.

Hi. You mentioned the dental shows in Anaheim and Chicago. You were selling the STA system there?

Yes.

And what was the average selling price and what did you gross at both conventions?

Well, we announced at the mid-winter show that we sold over 80 instruments and we did have a discounted price at the show there for $1,495, a few hundred dollars off the current list price. So we did quite well at that show. We have not announced what we did at the Anaheim show, but we did -- as I mentioned in my comments here, we did just as well right there.

Okay. That's helpful.

We are seeing the messaging resonating through the industry and starting to have an impact on the business.

Great. And I didn't check, but do you have an internet site where dentists can access your products?

We have several websites for dentists. We don't sell them that way, but they can certainly look at the company, they can look at the products, they can see dentists in their area and they can see information and literature on the products. If they want to buy the products, of course, they have to go to Schein.

Okay. And what is Schein's (inaudible) for selling, what is their license sales concession, commission, whatever, percentage, deal? I just can't remember.

We don't have a -- we have not announced what their deal is.

Okay. In my experience, if it's terribly low, your product's going to be the last thing out of the bag at Schein salesmen, but if it's comparable to Schein products or higher, your product will be front case. Do you think it's appropriately generous?

It's very comparable in the industry, yes.

Okay. That's helpful.

That is not the reason.

I understand. Thank you very much.

You're very welcome.

Thank you. (OPERATOR INSTRUCTIONS) Our next question comes from the line of [Kevin Shivar] with Shivar Financial Services. Please go ahead.

Good morning Joe.

Good morning, Kevin.

I have a few questions for you. One, with the weakness in the U.S. dollar, you should have a tremendous opportunity to I believe sell into Europe and Japan. First, does your equipment have ability to translate into the appropriate languages and do you have the approvals, do you have distributors lined up? Where are you on that?

Okay. A lot of questions. Let me answer it this way, Kevin. We have been testing the product and evaluating the product from a clinical standpoint and getting potential distributors lined up. The product has all the CE marks. It has all the appropriate documentation. There is not much language involved. Most of it with the symbols and signs and tones and those types of things, and we have several distributors all lined up and kind of ready to go, and we are just in the final phases of those discussions. So yes, the product is absolutely ready for sale internationally.

So at what point do you think you'll start selling product into that market?

In a very short period of time. We have our plan for expanding our distribution of the STA both domestically and internationally and we are actively engaged in trying to get that plan in place. My hope is that within the next few weeks we would be making some announcements on that distribution program.

Okay. And based on your financial results and your balance sheet, how much of a run rate do you have before you need to raise additional funds, or do you believe cash flow from upcoming sales will negate the need to raise additional capital?

This is Joseph D'Agostino responding. Good question. Right now we are actively pursuing with outsiders some capital infusion into the Company. I can't get into any more detail about that, but we are steadily moving forward on a basis of becoming profitable and also on a break even focus for us in the future.

So what is your hope as to when the Company will be cash flow break even?

I think the -- I think we are focusing in the area of 2009, based on our projected sales and our GP, gross profit.

All right. Thank you. Joe, one more question. As far as the evidence that your message is resonating with users, meaning the dentists, other than the sales you've generated at these two recent shows, have you seen any type of hockey stick in the sales through your existing distributors?

Well, our distributor in the U.S. is Schein and we have -- we are seeing some -- I wouldn't call it a hockey stick, certainly activity at all levels, the number of trials, the number of leads, the number of sales calls, the number of follow-up calls that we get back from customers, all of those things are moving in the right direction. I wouldn't call them a hocky stick yet, but we are hoping that hockey stick will be sometime not too far off into the future.

Thank you. That is all the questions I have.

Thanks Kevin.

Thank you. (OPERATOR INSTRUCTIONS) Our next question comes from the line of David Levine with Growth Network. Please go ahead.

Do you -- this may not be too relevant to your product, but first could you tell us, is it affected much by equipment sales in the dental industry, and do you detect any difference in the trend of general equipment sales? Is there any change? Somebody mentioned in Barron's this week some factor that may not affect your industry.

Good morning, David. It's a good question. The STA and the CompuDent products really are not in the category of dental equipment per se, because of the price tag and it is actually sold by people who sold more of their disposable type products. So it's not really like an x-ray machine or something where you're spending $25,000 or $30,000 or $50,000 or $100,000. And that is part of the reason why the $1,995 price has been resonating a little bit. It kind of dodges all the bullets of capital equipment purchase. Most of the purchases made by dentists are on their credit card or cash or just a monthly billing. So we don't really see much impact that changes in the typical dental manufacturing equipment industry.

I see. Thank you.

You're very welcome.

Thank you. I'm showing that there are no further questions.

Okay. Thank you Mary. Before we close, let's take some closing comments from management. Joseph, let's start with you, please.

I'd like to thank everyone for participating on the call today. I think that our business is moving forward. I believe that we are hitting our budgets as well as monitoring our cash flow and our -- keeping our expenses in line with tight controls and looking forward to participating in the annual meeting, which will happen on June 5th, and also for the six-month review at the end of June 30th. Thank you very much.

And Mr. Martin?

Yes. Thanks, Dodi. I would like to also say two things. One, my sincere thanks, as I mentioned in my comments, to Joseph D'Agostino and the rest of the employees for a lot of work that they've put in in driving our costs down, making us more efficient in all areas of operations. And the second thing I'd like to mention is that I do appreciate the patience of the shareholders and the Chairman and the Board of Directors. I've been here a year now, almost one year on May 22nd, and we've worked very hard to get the people that we need in place here, to get the product positioned properly, to get our pricing and our messages corrected. And it's obvious to me that with the quality of the products that we have and the technologies that we have, that this team and the efforts that we're putting behind the products, we will be successful in a relatively short period of time and I do appreciate everyone's patience and their continued support.

Thank you, Joe. And as Joseph mentioned, the annual meeting is going to be held on June 5th in New York City. I invite everyone on the call to attend if possible. You will have an opportunity to meet both Joe and Joseph, if you haven't already, along with other key members of the management team and the Board of Directors. In the interim, if you would like to receive ongoing information and you are not already on one of the Company's databases, please called the offices of Elite. Our number is 407-585-1080 or you can reach us via email at mlss@efcg.net. And with that, I would like to wish everyone a great afternoon. Thank you, Joe. Thank you, Joseph.

Thank you. Ladies and gentlemen, that will conclude today's teleconference. If you would like to listen to a replay of today's conference, please dial into 303-590-3000 or 1-800-405-2236 and enter the access code of 11114224 followed by the pound sign. We thank you for your participation in today's conference, and at this time you may disconnect.