Milestone Scientific Inc (MLSS) 2011 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by and welcome to the Milestone Scientific's second-quarter 2011 financial results conference call. During the 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, August 15, 2011.

I would now like to turn the conference over to Mrs. Klea Theoharis. Please go ahead, ma'am.

Thank you. Good afternoon and thank you for joining Milestone Scientific's second-quarter conference call. On the call with us today are Leonard Osser, CEO of Milestone Scientific, and Joseph D'Agostino, Chief Financial Officer. The Company issued a press release this morning containing second quarter 2011 financial results which is also posted on the Company's website. If you have any questions after the call or would like additional information about the Company, please contact Crescendo Communications at 212-671-1020. The Company's Management team will now provide prepared remarks reviewing the financial and operational results for the second quarter ended June 30, 2011.

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 it's business plans, 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 development, competitive pressures, changes in customer or market-- end 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 June 30 report on Form 10-Q for the quarter ended June 30, 2011. The forward-looking statements made during this call are based upon Management's reasonable beliefs as of today's date August 15, 2011. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

With that we will turn the call over to Leonard Osser, CEO. Please go ahead, Leonard.

Good afternoon. We are please to report that we achieved significant growth in domestic and international instrument sales in the second quarter of 2011 with the exclusion of China where approval delays for our technology negatively impacted our overall results and year-over-year comparison. Instrument sales in the US grew by 96.4% in the second quarter of 2011 to approximately $653,000 versus the second quarter of 2010. This is especially important because it lays the foundation for recurring revenue resulting from the ongoing sale of disposable handpieces for our single tooth anesthesia system.

A well formatted strategic shift in our marketing strategy targeting dental groups combined with our new network of hygienists in the field for training and support of our dental clientele we believe will drive the very strong top line growth in the United States. We implemented this strategy in mid-2010 coupled with the hiring of a well seasoned domestic sales director with over 15 years of experience selling products to dental groups. This news is sales strategy is now beginning to prove itself. There are currently dental groups in North America conducting beta tests of our single tooth anesthesia systems for painless injections with at least 1 of these groups consisting of over 500 dentists. We anticipate at least 3 dental groups signing on with Milestone by year end.

I will get into more detail on our strategic thinking and our recent joint venture with Beijing's 3H Group for the development, commercialization and distribution of our pressure sensing technology for the Medical market later the call. But at this point, I'd like to turn the call over to our CFO, Joseph D'Agostino, who will review our financial performance in detail.

Thank you, Leonard. Milestone's overall revenue decreased by $754,000 to $2.5 million in the second quarter of 2011 versus $3.2 million in the second quarter of 2010. This decrease is the result of a reduction in the STA instrument sales to our Chinese distributor as well as a reduction in handpiece sales in the US, resulting mainly from the decision by some of our customers who pushed their handpiece purchases up to the first quarter of this year to avoid a price increase of 13.7% that went into effect on April 1, 2011. The quarter ending June 30, 2011 does not include instrument sales to a Chinese distributor as compared to sales to the distributor of $1.3 million in the second quarter of 2010.

The major area of growth in revenue was in the sale of instruments in the domestic market where sales increased by 96.4% to $653,000 versus $333,000 in the second quarter of 2010. Instrument sales worldwide decreased 37% to $1.2 million from $1.8 million in the second quarter of 2010 resulting from a delay in receiving registration approval for our STA instrument and handpieces by the State Food and Drug Administration in China. We expect this approval to come through by year-end 2011. Overall domestic sales volume increased 8.5% to $1.4 million from $1.3 million in the second quarter 2010.

The team of hygienists we deployed in the field in the second half of 2010 is having a positive impact on our sales initiative. The hygienists are especially crucial to full utilization of our painless injection technology by the dentist and the accompanying disposable handpiece which would be the source of recurring revenue stream for Milestone going forward. In fact, our domestic STA instrument sales increased $280,000, or 96.4% in 2011 over Q2 2010 is indicative of our success of our marketing strategy.

Internationally, sales volumes decreased to $861,000 in the second quarter of 2011 from $2 million in the second quarter of 2010. This decrease is principally due to the inclusion of $1.3 million of the STA instrument sales to a distributor in China in Q2 2010. Excluding the $1.3 million in STA instrument sales for comparison purposes, the international business increased by $453,000 in the second quarter of 2011 as compared to the second quarter of 2010. STA instrument sales in Q2 2011 increased $149,000 over the same period in 2010. Gross profit margin increased by 1% in second quarter of 2011 over the same period in 2010. Gross profit dollars decreased by $461,000 due to the decrease in revenue.

Selling, general, administrative expenses were $1.8 million at June 30, 2011 as compared to $1.78 million, or a 23% increase. The increase in SG&A expenses was focused to the areas of domestic sales and marketing expenses as the Company continues it's field hygienist trainer program. Net loss for operations of $261,000 was a significant change over the June 30, 2010 profit of $198,000. This decrease is due to a lower gross profit and increased marketing costs in the quarter ending June 30, 2011. Interest expense was $34,000 in the second quarter of 2011, and amortization of debt issuance was $1,500. Our net loss for June 30, 2011 was $298,000, or a negative $0.02 per share compared to a net profit of $180,000 or $0.01 per share in the second quarter of 2010.

Now I would like to turn our attention to liquidity and capital resources. As of June 30, 2011 the Company had cash and cash equivalents of $98,000 and negative working capital of $568,000. It is important to note that subsequent to the end of the quarter -- the second quarter 2011, -- Milestone's joint venture partner Beijing 3H Group completed the first tranche of capital funding to the joint venture in the amount of $500,000. The total amount of 3H's investment will be $1.5 million. And our expectation for commercialization of this product is between 18 to 24 months from today.

Effective July 13, 2011, we terminated our agreement with China National Medicines Limited and Yichang Humanwell Pharmaceutical Limited to develop medical devices for the epidural and intraarticular markets. However, this does not impact the relationship with them regarding the distribution of our STA instruments in the dental market throughout China, pending China's regulatory approval of our device. On June 29, 2011, we refinanced a loan in the amount of $450,000 and extended the due date to July 2013.

I will now turn the call back over to Leonard to discuss the value proposition for our injection technology, our strategic thinking and our joint venture with Beijing 3H Group.

Thank you, Joseph. I'd like to spend a few minutes discussing the economics of our CompuFlo technology. It is especially compelling for the group dental practices we have been targeting over the past year, and we believe this will ultimately translate into shareholder value as we gain traction in the marketplace and move closer to creating a standard of care in the industry. We signed on our first dental group in January of 2011 and we are aggressively pursuing additional opportunities to expand our customer base with the expectation that we will close at least 3 deals by the end of 2011. Pain-free dentistry has an obvious benefit for the patients from the standpoint of comfort. But dentists have even more to gain because they are now able to convert a cost center related to traditional hypodermic syringes into a revenue center by charging patients a comfort fee of anywhere from $10 to $15 for administering Milestone's pain-free single tooth anesthesia injection. Additionally, dentists are increasing their practices as a result of patient referrals. It is these factors and many more that are driving the sale of Milestone.

A dentist administers about 2,000 injections per year in the United States. With traditional hypodermic syringes, a group of 500 dentists spends approximately $800,000 per year on syringes and needles that they don't get reimbursed for. With Milestone's computer-controlled technology, dentists can charge a $10 comfort fee and make an $8 profit per injection since the handpiece cost them only $2. If you multiply 500 dentists by 2,000 injections per year, you wind up with 1 million injections for the Dental practice group. 1 million injections multiplied by $8 in profit per injection amounts to $8 million per year with the dental practice. For Milestone, if we charge $2 for a handpiece, with a group of 500 dentists, revenue to Milestone would be $2 million. We estimate selling about 1,000 computer instruments to a practice of 500 dentists, which would equate to 2 instruments per dentist.

Our recent analysis shows current usage of our technology at 1,000 to 1,400 injections per year per dentist trained in our new system. However, we feel that we can increase that usage through the training we offer by way of our hygienist in the field and our Skype training. About 9% of dentists in the US currently belong to group dental practices. According to Henry Schein, that number should grow to 15% over the next 3 years. This is an enormous opportunity for Milestone.

While we have spent a good portion of this call discussing the domestic market, we are making significant strides in the international arena. At first glance this is not evident in our numbers since China has been a drag on our overall performance due to the delay at the regulatory level for approval of our instruments. But elsewhere around the globe, sales are improving. We are presently selling in to over 50 countries compared with 26 countries 2 years ago. The quality of the distributor and the enhanced support from Milestone has made a significant positive difference in our international efforts.

Although longer range and scope, we are excited about the opportunities that exist for Milestone's pressure sensing technology in the Medical arena, and we recently entered into a joint venture with Beijing 3H Group to accelerate our entry into that market. Under the joint venture agreement, Beijing 3H and Milestone will have a 50/50 in the entity where Beijing 3H will provide $1.5 million for the development, design and commercialization of an instrument using Milestone's CompuFlo technology. And we will provide an exclusive worldwide royalty-free license to use our patents for these 2 instruments. Beijing 3H is headed by an anesthesiologist that represents [J&J stents] in many areas throughout China. They sell to a large group of major hospitals throughout China.

3H Group in 1999, was formed as the medical distribution company, mainly in vascular instruments. In 2004, Beijing 3H Group moved through many other areas of China including Beijing, Shanghai, Tianjin, Hangzhou and other areas with cardiac stents which they represented for J&J. They have expanded in 2004 both in products and geographically throughout China. They're in all the major eastern areas of China at this moment and some middle sectors. In 2009, they began to distribute also products from Medtronics. In 2010, their sales were approximately $230 million US. They have 40 highly trained sales people who sell into hospitals and are anticipating approximately 15% growth per year over the next 2 years. We have identified over 700 applications for our CompuFlo technology outside the dental industry.

The focus of our joint venture with Beijing 3H will be the epidural market representing approximately $1 billion annually in the US and the osteoarthritis sector where 21 million people in the US receive intraarticular injections. The very high morbidity rate regarding epidurals captured our attention and influenced our decision to tackle this problem. Complications using today's standard epidural procedure range from dural puncture, misplaced catheter into a vein, neurological industry, wet tap and epidural abscess among others. Much of the problem lies in the fact that locating the exact location for drug delivery is subjective and there has not been a scientific way to define the target until CompuFlo. Through various studies our CompuFlo technology has correctly identified the epidural space 100% of the time and this has been with first year anesthesiology students.

Our solution to the epidural problem should come as a great relief to the 2.5 million US women who give birth each year and receive epidurals as well as the doctors who administer the injections. Other near-term applications of our technology include neurosurgical injections, ophthalmic surgery, cosmetic surgery, to name a few. The opportunities are extensive and we look forward to rolling out new instruments utilizing our pressure sensing technology in the near future.

So to wrap up, I'd like to thank you for joining the call today. We are making progress at Milestone and look forward to keeping you apprised of new developments as they unfold. At this point, we would like to open the call to questions.

(Operator Instructions)

Hello? This is Art Thompson, Morgan Stanley, how are you?

We're very good today, how are you, sir?

Terrific, terrific. Can you give us some idea as to how your balance sheet has changed over the last, I don't know, last couple of quarters or so? I mean are you looking to-- are you seeing some progress or do you need to do some financings? I mean what-- how is that balance sheet shaping up?

Well the balance sheet, if you take a look at it, you'll notice that the balance sheet is light on cash, principally as I have identified in the past, because of our anticipated build up of parts necessary to build the STA instruments for the 12,000 instrument purchase order from China. That's been delayed, so our cash has been utilized to a large extent to fund that increased purchase. We have been working diligently with our manufacturers to be able to conserve our cash flow. They've been working with us to extend our terms, and as a result, we are basically in a position where if you look at the balance sheet again, you'll see the classification between long term and short term of both the liability as well as the prepaid advances to the contractors. So overall, cash is tight. It's been tight for this Company for a number of years, but with a great operational group and a great manufacturing group that we're dealing with, we've been able to weather that storm and we expect that we'll be able to continue doing that, especially as we get closer and closer to 2 things happening.

Number 1, that the SFDA will approve the registration of the STA instrument and the handpieces in China, so we can start distributing and selling in China. As well as, if you look at our financials, you'll see that we have increased our volume internationally. So with the help of Dale Johnson who is our International Sales Manager, that volume has increased, so we have been utilizing the parts necessary for the Chinese order in the area. And finally, we've been able to take those parts and with the increase in the dental group practices that we've been working on, and as Leonard indicated we have some that are in beta testing, we've been able to provide for a small cost, the additional parts to make the instruments into a 110 English version from the parts that we purchased for the Chinese 12,000 piece order. So with all of the stars aligning, we should be in good shape over the next couple of quarters specifically with the advent of the increased in the dental practice groups along with the increase in the international business and finally, with the approval from the SFDA for the Chinese order.

Okay, thank you.

You're welcome.

(Operator Instructions) And there appears to be no questions at this time, please continue.

Okay. Thank you very much for joining us on the call. Any questions, you can certainly reach out to David Waldman or Klea at Crescendo Group. Thanks again.

Ladies and gentlemen, this concludes the Milestone Scientific's second quarter 2011 financial results conference call. You may now disconnect and thank you for using AT&T Teleconferencing.