Milestone Scientific Inc (MLSS) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Milestone Scientific Inc. year-end conference call. (Operator Instructions). As a reminder, this conference is being recorded today, Monday, April 4, 2011.

I would now like to turn the conference over to Mr. Leonard Osser, Chief Executive Officer of Milestone Scientific Inc. Please go ahead, sir.

(technical difficulty)

Are you ready?

I have been speaking, Joseph.

Sorry, could not hear you.

The Company's management team will provide prepared remarks reviewing their financial and operational results of the 12-month period ended December 31, 2010. My name is Leonard Osser, and I am CEO of Milestone Scientific Inc. Following the reading of the Safe Harbor statement, Joseph D'Agostino will present the statement summary of the financial results for 2010. Immediately following I will provide prepared remarks, focusing on key corporate events achieved during 2010 and on current growth strategies being implemented by Milestone.

Allow me to remind you 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 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, 2010.

The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, April 4, 2011. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

With that, Joseph will now begin discussion of the results.

Ladies and gentlemen, to begin I will summarize the financial results for you. We filed our Form 10-K for the 2010 fiscal year with the SEC on Wednesday, March 30, 2011. We issued a related press release shortly before the market opened this morning. Milestone's SEC filings, including the 10-Qs and the 10-Ks, include a detailed analysis of our financial condition and operation and generally are informative documents. So I encourage you to thoroughly review them.

Milestone's revenue for growth in 2010 was a consistent, positive trend with prior years, noting an increase of 14% on a year-over-year basis and representing the best sales performance for our Company since 1998. Total 2010 revenues rose to $9.75 million from $8.55 million reported for the prior fiscal year ended December 31, 2009. The major area of growth in revenue was in the international arena with a shipment of STA instruments and hand pieces to a distributor in China in June 2010.

Domestic sales volume, $4.53 million, decreased by $849,000 as compared to 2009 as the Company changed its strategic focus to concentrate sales efforts and support directly to our current and potential customers. Our efforts to create a group of independent clinical consultants, mostly hygienists, was expedited in the second half of 2010. This group of technically trained individuals is expected to increase instrument sales and more importantly increase hand piece revenue. To date the Company can identify a positive impact of the change.

Internationally sales volume increased $5.22 million in 2010 from $3.17 million in 2009. This increase of $2.05 million is principally due to shipments of STA instruments in hand pieces to a distributor in China. Gross profit margin increased by 4% in 2010 over 2009 as the Company began to receive the benefits of previously negotiated cost savings on the production costs of our STA instruments.

Gross profit margin increased and gross profit dollars increased by $1.13 million. Sales, general and administrative expenses were $6.65 million at December 31, 2010, as compared to $6.95 million in 2009 or a $300,000 decrease. The reduction in SG&A expenses vary across several categories. With a keen eye on reducing expenses, sales and marketing expenses decreased by $649,000. The categories of decrease were in marketing, media placement, third-party sales representative commissions, and in market consultants.

Payroll costs decreased by $616,000 due to reduced executive costs. However, there was a $1 million increase in other costs, including an increase in international commissions of $401,000, royalty expense increase of $67,000 with international travel increasing $59,000. An additional major expense was a $636,000 increase in bad debts to arrive at a net realizable value of a significant large account receivable due from a Chinese distributor for a shipment of 1000 STA instruments in June of 2010. This reserve was necessary due to a change in the payment terms from the distributor as a result of a delay with the Chinese regulatory authority to approve the sale of our instrument and hand pieces to China.

Net loss from operations of $700,000 was a significant decrease over December 2009 loss of $2,103,000. Other income decreased by $593,000 due to a decrease in the amount of New Jersey technology business tax certificate programs. The Company has sold all of its applicable New Jersey tax losses through December 2009.

As a result, our net loss for 2010 was $615,000, $0.04 per share, as compared to a net loss of $1.53 million, $0.11 per share for 2009.

I would now like to turn our attention to -- (technical difficulty) and capital resources. At December 31, 2010, the Company had cash and cash equivalents of $627,000 and a negative working capital of $6685. The significant decrease in working capital of $1.63 million in 2010 as compared to 2009 was caused by a delay in obtaining regulatory approval to sell our instruments and hand pieces in China. Based on the initial purchase order from our distributor in China in 2009, the Company increased its purchasing of parts in anticipation of significant 2010 and future sales into China. As a result of the way in selling our instruments in China, our advances to contract manufacturers and related payables have increased significantly both current and long-term as compared to 2009.

As an additional issue, with respect to the delay on receiving regulatory approval to sell in China, our distributor in China has delayed their payment for the shipment of the instrument. The delay in payment and the requirement to obtain regulatory approval before payment was remitted to the Company was not a condition of the original purchase order.

As a result of regulatory approval delay, the distributor in China has proposed a payment schedule that they are complying with as of today.

Now I would like to spend a few minutes to provide a brief review of the fourth-quarter 2010 as compared to 2009. For the three-month period ending December 31, 2010, our revenues were $2.04 million, a decrease of $356,000 as compared to the same period in 2009. The decrease is attributable to zero sales in China in the fourth quarter of 2010. China sales approximated $300,000 in the fourth-quarter 2009.

The gross profit for the fourth-quarter 2010 was $1.29 million, 64%, as compared to $1.42 million, 60%, for the same period in 2009. Gross profit percentage continued to show an increase; however, gross profit dollars decreased by $129,000, essentially all due to the lack of China sales in 2010 fourth quarter.

Total expenses decreased by approximately $411,000 in the fourth quarter of 2010 as compared to the same period in 2009. The reduction in expenses was due to payroll and marketing expenses. The result is that the net loss from operations in 2010 as compared to the same period in 2009 was a decrease of $281,000.

Now that I have presented the 2010 financials, I would like to note that for the first quarter of 2011 the Company has achieved our targeted revenue goal of approximately $2.4 million.

Now that concludes my summary of results. However, should you have any questions related to our financial performance, please feel free to ask them during our question and answer forum that will follow Leonard's remarks.

With that, I would like to turn the floor over to Leonard Osser, Milestone's Chief Executive Officer. Leonard?

Thank you, Joseph. Let me now take a few minutes and provide you with my summary of Milestone's operational performance in 2010.

It is important to first recognize that Milestone had three mission-critical objectives last year. The first objective was to optimize our tactical approach to product sales and marketing in order to increase penetration of the global dental market with our award-winning STA instrument while promoting recurring sales of the related hand pieces.

Our second objective was to define our strategy for the domestic market. Once this was accomplished to staff up, train and implement this new opportunity, our third objective was to identify and pursue strategic collaborations with select healthcare companies to jointly develop new products, utilizing our patented CompuFlo pressure force technology for novel new medical applications.

With these objectives in mind, let's look at what we accomplished.

As noted in Joseph's comments, Milestone achieved significant growth last year and delivered our best sales performance since 1998. This growth can be attributed to Milestone success and aggressively expanding and supporting our global dental distribution market.

In fact, during 2010 we welcomed a significant number of new distribution partners to the Milestone family. Our strategy for the international market was first to bring the entire effort under Milestone's control. Next, we brought onboard Dale Johnson, a seasoned executive with broad international experience in dentistry, as our Director of International Sales. The mission then would be to evaluate all present distributors, determining which should remain and which should not, then establish precisely what we agreed were their needs to increase performance.

After this was accomplished, including the signing of new contracts with new minimums, Milestone significantly enhanced its support of our distributors and began an effort to change their model from one of selling instruments to understanding that their long-term interest is best served by training and viewing themselves as distributors of disposables. Having accomplished this goal to an acceptable degree, we then move to Phase 2. This phase was to bring on, train and support new distributors. We are now at the point where we have over 50 foreign distributors trained, motivated and yielding very good results for both themselves and Milestone. We will continue evaluating, supporting and engaging new distributors through 2011.

The domestic strategy was also changed during 2010. As we continue to lower our marketing and sales expenses, we decided to modify our target market in the US and Canada. Over the last five years, group practices in the US and Canada have grown to 9% market share. These groups of multiple practices are anticipated to achieve 15% market share within the next five years.

As we know, the cost of selling into the dental market in the US is very high. The sales effort, support and level of training given by foreign distributors does not exist in the US and Canada. It, therefore, falls to the manufacturer to sell, train and support the dentist domestically. Given this unfortunate but well-known situation, Milestone has and is directing most of its US Canadian effort to have our product be the sole answer for anesthesia for group practices.

In order to implement this strategy, we brought onboard our Director of Domestic Sales approximately six months ago. Mr. Terrell has over 15 years experience selling instruments and disposables to these very same groups while providing training and support through a network of dental hygienists. Our Company since implementing this program has trained 40 hygienists and through a distributor entered into an arrangement where a group will implement our STA system throughout their practices.

The group will charge as some dentists do for the computerized injection. This program is sold first as a profit center model for the group. The profit of the group is very significant. The ability to deliver painless injections without collateral anesthesia and also eliminate approximately 24 days a year per dentist and waiting time for profound anesthesia is of enormous value for these groups.

We are presently in talks with a large number of groups that are optimistic that this will prove to be a huge opportunity for group practices and Milestone. We are very proud of the tangible success we achieved in our dental business last year and intend to continue working on our new model in the US and Canada. However, make no mistake, Milestone is not a dental device company nor do we strive to be one.

Milestone is a pioneer in the field of advanced computer-controlled drug delivery technologies. These technologies have brought applications across a wide spectrum of medical disciplines. The STA system is a superior, painless drug delivery instrument for use in dentistry that we feel is emerging as the new standard of care for administering dental injections. However, the STA system is simply the first commercial application of CompuFlo. We maintain that our dental business will continue to grow and prosper well into the foreseeable future. Nonetheless, there are potentially hundreds of millions of dollars in new revenue opportunities for Milestone if we succeed in bringing to market a full complement of advanced injection solutions that effectively address a multitude of prevailing healthcare delivery challenges.

Clinical studies conducted by the University of Texas Health Science Center in Houston confirmed that our CompuFlo drug delivery technology clearly and successfully identified the epidural space in 100% of the subjects tested. In this study, the use of CompuFlo instrument allowed anesthesiologists to use both hands to advance and direct the needle, gave precise and objective feedback, and reliably identified in all cases the pressure that identifies the epidural space. These researchers concluded that objective identification of the epidural space with our CompuFlo system could decrease the incidence of complications, increase the success rate of the procedure, and enhance patient safety.

In order to determine the sales opportunity for a new CompuFlo-based epidural instrument, Milestone first assessed the current epidural market in the US. Based on our findings upon achieving approximately 1% market penetration of only those epidurals administered to women giving birth, sales of our epidural instrument, coupled with the recurring sales of related disposable epidural kits, could yield combined sales in excess of $80 million per year.

The further we estimate that the US and China markets for osteoarthritis-related intra-articular injections is even larger than epidurals. 1% market penetration in this case could yield potential annual sales in excess of $100 million per year. CompuFlo has been identified to have applications addressing numerous medical disciplines. We believe that there exists in excess of 200 disposable product applications that we can develop. In order to mitigate the considerable R&D expense required to bring these new CompuFlo medical applications to market, Milestone will continue to pursue strategic collaborations with healthcare and pharmaceutical companies.

We believe that CompuFlo's value proposition to pharmaceutical companies is tangible and quantifiable, empowering such things as patent life extensions on leading injectable drugs, providing pharma with a painless marketing differentiation for their drugs, and perhaps, most important, helping to improve patient compliance, which equals greater revenue growth for their drugs.

This is the direction which Milestone will travel in 2002.

John, why don't we take some questions?

(Operator Instructions). [Steve Kleeman].

I was just curious what your capital needs and requirements are going to be for 2012?

Well, at the moment the Company looks to be cash flow neutral. As Joseph pointed out, we had a good first quarter. We believe that our programs -- both in the US -- are taking hold, and certainly our international program is doing quite well and has been profitable now for quite a number of months. So we are assessing it. Given the price of the stock, as you know, we are not eager to dilute the Company. We are in talks right now in order to have our epidural device and our intra-articular device funded by another company.

So, at this point, at this price level, we are not looking to fund the Company.

Okay. And then one follow-up, what does it look like the shipments will be in China? I mean how is that progressing now?

Well, right now we are not shipping anything because we are waiting for regulatory approval. We believe that all questions have been answered for the SFDA, which is the FDA in China. Unfortunately they are moving very, very slowly on approving any instrument regardless of whether it is made in China or the United States. They have had significant difficulties over the last few years with people that headed up the SFDA. As you are probably aware, both the last person to head that up and the one before that had criminal charges filed against them. One is in prison; one was executed. So no one is eager to sign any documents, so it is moving very slowly.

We've certainly -- neither we nor any other American company has been singled out. It is really across-the-board. So what I can tell you is, as far as we know and our Chinese partner knows, there is nothing holding it up, other than a person's signature.

(Operator Instructions). I'm not showing any audio questions at this time.

Okay. Thank you very much for taking the time to join the call. The entire Milestone team appreciates your support. Good day.

Ladies and gentlemen, this concludes the Milestone Scientific Inc. year-end conference call. If you would like to listen to the replay of today's conference, you can dial 1-800-406-7325 or 1-303-590-3030 and use access code 443-0692.

Thank you for joining today's call. You may now disconnect.