Milestone Scientific Inc (MLSS) 2010 Q3 法說會逐字稿

Greetings, and welcome to the Milestone Scientific Incorporated third quarter financial results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Cheryl Schneider of Porter, LeVay & Rose. Thank you, Ms. Schneider, you may begin.

Thank you, Bob, and good morning, everyone. I'm pleased to welcome you to today's conference call to discuss Milestone Scientific's financial results for the third quarter and nine months ending September 30, 2010. However, before I turn the call over to Joseph D'Agostino, Chief Financial Officer of Milestone Scientific, I wanted to take the time to review the Company's Safe Harbor statement.

Today's conference call may include forward-looking statements regarding the timing and financial impact of Milestone Scientific'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 Scientific's control.

Some of the factors that could cause actual results to differ materially from those indicated in 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 annual report on Form 10-K for the year ended December 31, 2009.

The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, November 15, 2010. Management undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

With that, I am pleased to turn the call over to Joseph D'Agostino. Following Joseph's prepared remarks, we will open the call for questions. Joseph, please go ahead.

Thank you, Cheryl. We are glad that you could all join us for Milestone's third quarter 2010 earnings conference call. As Cheryl mentioned, I will be conducting the call in its entirety. Leonard Osser, our CEO, is currently in China, and unfortunately unable to participate in the call. With that in mind, I will proceed with discussions regarding Milestone's performance this quarter, as well as discuss our growth strategy.

Total revenue for the quarter ended September 30, 2010, was $1.93 million, slightly ahead of last year's $1.19 million. International sales totaling $1.1 million accounted for approximately 55.1% of our overall sales for the quarter. This compares with last year's international sales of $758,000, or 39.7% of overall sales for the third quarter. The 40% increase in international sales was the result of the strengthening of our international distribution team, and the concentration on this sector. We have been traveling the globe, meeting our existing distributors, introducing our technology, as well as creating agreements with a number of new distributors. Our sales efforts have provided a new vitality, and level of recognition in the international market for our instruments.

US sales for the quarter was $866,000, or 44.9% of overall sales, compared with $1.2 million or 60.3% of overall sales during last year's comparable quarter. The decline in domestic sales resulted from new factors, including the reduced demand for CompuDent handpieces, due in part to the continued economic slowdown. It also was the result of our planned reduction in our sales force in 2009, making way for the transition of our sales strategy to include a team of professionally trained independent dental hygienists to augment the work done by our distributors.

Sales of instruments were $177,000 for the quarter, compared with $263,000 last year's third quarter, while sales of disposable handpieces were $673,000 compared with $866,000 during last year's third quarter. Instruments comprise 23.6% of our sales for this quarter compared with 32.7% last year, and handpieces accounted for nearly 76% of sales compared with 67% during last year's third quarter. Gross profit margins for the quarter was 62.3% compared with 62.9% in last year's third quarter.

SG&A for the quarter was $1.7 million compared with $1.5 million in the year ago third quarter. The increase in SG&A was due to the Company's investment in its future growth through ramped up sales and marketing efforts, including the hiring of new staff to market and sell our products. Also as you may recall, during last year's third quarter, we had substantially reduced our expenses, and third quarter 2009 reflected those much lower expenses.

The largest increases in SG&A was impacted by increase in international sales commissions, reflecting an increase in these sales, and increased salaries reflecting an increase in employee bonuses. This increase was offset somewhat by decreases in consulting expense and royalty payments.

Research and development expenses for the quarter was $60,500, comparable to the same quarter last year. It is our expectation that much of the remaining buildout for epidurals and intra-articular devices will be funded through our potential joint ventures with partners in China, which are currently in negotiation. In addition to agreements in China, we are also meeting with potential partners in the US to create similar funding agreements for several additional new medical devices.

The loss from operations for the quarter was $564,000 compared to a loss from operations of $336,000 during last year's third quarter. The third quarter is traditionally the slowest quarter for our industry in terms of sales, impacted by summer vacations. Net loss for 2010 third quarter was $584,000, or $0.04 per share, compared to a loss of $373,000, or $0.02 per share, in the year ago third quarter.

For the nine month period, revenue of $7.7 million compared with $6.2 million in the year ago period, a 25% increase, reflecting shipments of our STA, Single Tooth Anesthesia system instruments and handpieces to China. This increase in international revenue was offset by a decline in domestic sales, which was the result of our planned reduction in domestic sales force in 2009, and lower advertising expenditures which paved the way for our new sales strategy that utilizes our professionally trained independent hygienists to support our sales efforts.

Operating loss for the nine month period was $334,000 compared with an operating loss of $1.5 million in the year ago nine month period. Net loss for the nine month period was $319,000, or $0.02 per share, compared with a net loss of $1.6 million, or $0.12 per share, in the year ago nine month period.

Turning to our balance sheet, we had $208,000 in cash and cash equivalents, working capital of $2 million, total shareholders equity of $2.8 million as of September 30, 2010. Additionally, advances to contract manufacturers increased by $1.7 million from December 31, 2009, as the Company prepared for production and shipment of instruments for the 12,000 unit purchase order from China. These advance payments approximated $900,000 for the nine months ended September 30, 2010. Had these advance payments not been made, cash balances would have been increased by the amount of these advances.

Now, with the financial discussion completed, let me turn to what Leonard Osser would normally discuss, an overview of our business, progress and strategy. As I mentioned, Leonard is currently in China, which as you know is a very important market for us. I know that you are all curious about the progress we are making in China. Let me just say that we continue to wait for regulatory approval in China to sell the STA, Single Tooth Anesthesia system. We are not aware of any regulatory issues, and are basically just awaiting the government's final decision. Once we get the approval, our distribution partner stands ready to begin selling our products into the Chinese market.

As you will probably recall, China National Medicines, doing business as Sinopharm, is China's largest domestic manufacturer, distributor and marketer of pharmaceuticals, and importer of medical devices. They already have in their possession 1,500 STA, Single Tooth Anesthesia, instruments, 500 training and demonstration units shipped in 2009, and 1,000 instruments shipped in the second quarter of 2010 for field deployment. With the remaining purchase order quantity of 11,000 instruments that we would be ready to fulfill. As training continues in China, we have all the pieces in place, and we stand ready to penetrate this market as soon as we get the go ahead to do so.

As we await approval, Leonard is continuing our efforts on finalizing Milestone's medical device joint venture in China, in which our partner will help fund the development of our new generation of products. While there are literally hundreds of potential applications for our CompuFlo technology, we are focusing on a handful of applications that we believe have the best growth prospects for the Company, and provide the best return on investment. These areas include epidurals and intra-articular injections.

We also anticipate that future instruments that use CompuFlo technology, which already has 510(k) approval, require an amendment to our existing 510(k) from the FDA, which would minimize the cost and the time to market these instruments. Let me remind you that as I discussed during my review of our financial performance, we anticipate funding for these new medical products will come from our joint venture partners, both in China and the US.

Now let me turn to our domestic efforts, where we have made a significant amount of progress. As announced a few months ago, we hired two new key members of our sales and marketing teams. Each of them have brought fresh, new ideas into the Company, and their contributions are already paying off. The area I want to touch on today is our newly implemented sales and marketing strategy, whereby we are engaging dental hygienists to educate, train and sell the STA, Single Tooth Anesthesia, instruments, and of course the related disposable handpieces. We began the deployment of hygienists in earnest during the second quarter of this year, and rapidly increased those efforts during the third quarter. We now have on staff approximately 30 hygienists who cover key markets throughout the United States and Canada.

Our dental hygienists work with our distributors to sell the STA instruments. Our program involves training the hygienists, who not only represent us at leading trade shows throughout the US, but also make sales calls to dental offices throughout their region. They accompany distributors on sales calls, do their own cold calls, and also train customers on the proper use of the instruments. We find this model results in more effective sales, and where the users are properly trained, their comfort level increases as does their usage, often resulting in an increase of instrument sales as well as sales of handpieces.

Dental hygienists are providing to be a great asset to our Company. They are well trained in our product, speak the same language as the dentists and decision maker in the dental offices, and importantly make the sale. While the hygienists are making an impact on sales to single operating dental offices, having this army of trained professionals geographically disbursed, at the ready, provides us a clear advantage when we approach regional and national dental practices throughout the US. In other words, the training can take place quickly and effectively, with teams of professionals able to service multiple offices at once.

Not only are our hygienists effective, but since they are located directly in our key selling markets, we have cut down on our SG&A costs. While it is too early to enumerate their contributions, let me just say that the system is working, and we have found an effective method to penetrate the domestic dental market, and sell our award winning patented STA, Single Tooth Anesthesia, system. We expect that in the upcoming quarters, we will see measurable contributions from their efforts. So we have a lot on our plate, and a lot of good things to look forward to.

We intend to continue our strategy of expanding our domestic and international sales through effective use of our hygienist program in the US and Canada, and internationally through our distribution partners. We look forward to finalizing our partner agreements in China to develop new medical products using our CompuFlo technology, and explore similar agreements in the US, and importantly we look forward to gaining regulatory approval in China, and entering this burgeoning market, as well as other international markets.

With that, let me thank you for your time, and I will turn the floor back to the operator, who will open the call to questions. Bob?

Thank you. (Operator Instructions). Our first question comes from the line of Roger Bensen with Number One Corporation. Please proceed with your question.

Hi, Joe.

Good morning, Roger.

Could you expand a little more on the recent announcement about the relationship with Ordway, how big are they, and what are we hoping to accomplish there?

Yes, Ordway, as the press release indicated, is a research institute in upstate New York, in the Albany area. They are one of the largest pharma research laboratories, and the hope is that with their new drugs that they are working on, that we will be able to utilize that drug with our CompuFlo technology to inject larger quantities of their mediciments directly into cancer and tumor sites, thus providing a much quicker and painless injection into a targeted area. And provide a quicker relief for the patient, as well as providing a higher concentration of the medicament into the patient, and avoid collateral problems with other parts of the body.

Okay, well how far along are they in getting these drugs approved?

Right now, as we understand it, I think the one that they are talking about first is Tetrac. They have studies prepared. I think they have at least one animal study completed, and they are working forward in getting that in front of the FDA, so I would say that realistically, we're probably 18 months to two years away from having that finished.

You mean having the IND finished? Certainly you aren't going to get a drug approved in that period of time.

No, if you remember, the Tetrac already is approved. What they are doing is preparing, I think they are called nanoparticles that attach to the Tetrac, which provide a way of coating the cancer cells. So their understanding is that they believe that they could be able to get this done in a relatively short timeframe.

Okay, and then who would distribute and sell this stuff?

Actually, what we're trying to do now is working with a few pharma companies, and Ordway already has some indications that they have pharma companies that are able to do the dispensing of the product. At this point, we have not joined with them in those conversation with the pharma companies, but we plan to do that in the near future.

Thank you.

You're welcome.

Thank you. (Operator Instructions). Mr. D'Agostino, there are no further questions at this time. I'd now like to turn the floor back over to you for closing comments.

Thank you very much, Bob. Thank you, and in closing I just wanted to say that we believe that we have made a significant amount of progress in our efforts on both the domestic and international side of our business, and have a lot on our plate in terms of new business opportunities involving our CompuFlo technology on both the domestic and international fronts. We also have high expectations for our new domestic business model that involves the trained hygienists, and look forward to reporting on their accomplishments as we further penetrate the marketplace in the months ahead. We remain very excited about our business, and look forward to reporting on our continued progress in the months ahead.

On behalf of Leonard Osser, and the rest of the team at Milestone, I thank you for your continued interest in the Company. Thank you, Bob.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.