Milestone Scientific Inc (MLSS) 2020 Q3 法說會逐字稿

Greetings, and welcome to Milestone Scientific's Third Quarter 2020 Business Update Call. (Operator Instructions)

I will now turn the conference over to your host, David Waldman, Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining Milestone Scientific's Third Quarter 2020 Financial Results Conference Call. On the call with us today are Len Osser, Interim Chief Executive Officer; Arjan Haverhals, President of Milestone and CEO of Wand Dental, Inc; and Joseph D'Agostino, Chief Financial Officer.

The company issued a press release today, Tuesday, November 17, containing third quarter 2020 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 third quarter ended September 30, 2020.

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 revenue 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, 2019, and Milestone's report on Form 10-Q for the third quarter ended September 30, 2020.

The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, November 17, 2020. Milestone undertakes no obligation to revise or publicly update any forward-looking statements for any reason.

With that, we'll now turn the call over to Len Osser, interim CEO. Please go ahead, Len.

Good morning. Thank you, David, and thanks to everyone joining us for the call today. I am pleased to report that our dental sales increased more than sevenfold versus the second quarter of 2020 as dental offices began to reopen across the country and around the world. Our marketing initiatives and back-to-work promotions have been well received, and we are working hard to address the needs of both dentists and their patients during the pandemic.

Although we continue to witness the negative impact of the COVID-19 pandemic, the dental business has proven quite resilient, illustrating the loyalty of our current users and reinforcing the long-term positive outlook for the business. Moreover, we have enhanced our sales and marketing activities, which should boost sales of our dental instruments as the market recovers, which in turn should help drive incremental high-margin recurring disposable sales.

Our sales and marketing initiatives around the CompuFlo Epidural System are also taking hold. With a number of hospitals reopening to outside vendors, we are advancing our sales efforts around the CompuFlo Epidural System and the new CathCheck technology. Specifically, we are expanding our business development pipeline while concentrating our efforts to close our first U.S. hospital.

Most recently, we were awarded a group purchasing agreement for CompuFlo Epidural System and CathCheck with Premier, a leading group purchasing organization with approximately 4,100 U.S. hospitals and 200,000 other providers within their network. This agreement provides us enhanced access to Premier's members, and we believe should help accelerate our mission to become the standard of care. We believe this agreement is further validation of the growing awareness and importance of our instruments in improving health outcomes and significantly lowering costs for health care institutions.

The clinical and safety benefits of the CompuFlo Epidural System are backed by extensive published clinical data, demonstrating significant reductions in epidural punctures and complication rates. Moreover, the CompuFlo instrument has been shown to significantly reduce total cost for hospitals stays, providing a direct economic benefit to the health care institutions. Similarly, the CathCheck technology has the potential to transform the monitoring of catheter placement following an epidural procedure by confirming the placement of a catheter within 2 minutes versus 20 to 40 minutes using conventional methods. This will make a significant difference to cost and to the time that a patient has to suffer pain after birth.

We are expanding our trials in major hospitals and medical schools as well as partnering with anesthesiologists to approach the purchasing departments of hospitals together. We're very encouraged with the feedback we've received from anesthesiologists in the U.S. Most recently, we published a video interview on our website with Dr. Ayman Alian, Division Chief of Obstetric & Gynecological Anesthesiology at the Yale School of Medicine, who discussed the benefits of the CompuFlo Epidural system and CathCheck, including verification of epidural placement during an epidural procedure and confirmation of catheter placement. Dr. Alian stated, "It does improve the block. It does help you make a decision. It does decrease complications. It does decrease length of stay and improve patient satisfaction." We believe the support from Dr. Alian and other anesthesiologists is further validation of our technology and advances us towards our goal of CompuFlo and CathCheck becoming the new standard of care, replacing the 1860 technology of the hypodermic syringe and a procedure that came forth in the 1920s. Moreover, we are in late-stage discussions at the committee levels with a number of hospitals, and will provide further updates as soon as they unfold.

At this point, I'd like to turn the call over to Arjan Haverhals, Chief Executive Officer of Wand Dental, to describe the sales and marketing activities around the Wand instrument in more detail. Please go ahead, Arjan.

Thank you, Leonard. As Leonard mentioned, our Wand dental business has begun to recover as dental offices reopen across the country and around the world. While we are not back to pre-pandemic levels, I'm pleased to report our sales are trending in the right direction. An important revenue driver in our business model is the recurring sales of our disposables. However, to drive further growth, we are working aggressively to expand our installed unit base. For this reason, we have launched a series of back-to-work promotions on both our Wand instrument and disposables to incentivize our distributors and dentists as well as support them in the business and practice growth during this difficult period.

The initial feedback has been promising on both the domestic and international fronts. As an example, I'm pleased to report we recently signed an important new agreement in Russia as a result of our efforts. It is important to note that the Wand instrument offers significant benefits in terms of establishing a safe environment for patients and staff as we use sterile single-use disposables. In addition, when using the Wand, a dental procedure can start in as little as 60 seconds after making the injection. For this reason, unlike conventional procedures, the dentist does not need to move from one operatory room to another and change protective gear while waiting for the anesthesia to set in.

Accordingly, we believe there is significantly less risk of cross-contamination, which has been reinforced based on the feedback we've received from dentists. Our enhanced marketing efforts around the Wand, focused on the significant value drivers of our instrument, including safety, efficiency and importantly, supporting the growth of dental practices.

That said, I'm pleased to report that sales for the dental business are trending in the right direction. This positive trend continues, and we expect sales for the dental business to be a minimum of $1.7 million in Q4. This does not include sales to China of $450,000 because we can only recognize these sales once sold through by our Chinese distributor.

With hospitals reopening to outside vendors, we are advancing sales efforts around the CompuFlo Epidural System and CathCheck technology. To support the hospitals in performing procedures during the pandemic, we decided to make the CompuFlo instruments more readily available to hospitals by lending the instrument to the hospital in exchange for the commitment to purchase a minimum number of disposables. This offering is limited to the first hospitals that sign-up for this program.

At the same time, we are partnering with anesthesiologists in order to approach the purchasing departments of the hospitals together. We believe our current strategy allows us to streamline the value analysis team approval process and thereby shorten the sales cycle. The response thus far has been encouraging, and we are increasing new trials in major hospitals over the coming weeks. Our sales pipeline is more robust than ever, and we look forward to finalizing agreements with several Premier hospitals in the near future.

At this point, I'd like to turn the call over to our CFO, Joseph D'Agostino, to go over the financial details in detail.

Thank you, Arjan. Revenue for the 3 months ended September 30, 2020, was $1.2 million versus $1.9 million for the third quarter of 2019. Dental revenue decreased by approximately $644,000 due to the impact of the COVID-19 pandemic on the company's customers, suppliers, vendors and other business partners.

Medical revenues for the 3 months ended September 30, 2020 and 2019 were nominal, reflecting our strategy to place the instruments with KOLs at no cost to drive awareness and then adoption of the instrument.

Gross profit for the third quarter ended September 30, 2020, was approximately $836,000 or 67% of revenue versus approximately $1.4 million or 72% of revenue for the third quarter of September 2019. Operating loss for the 3 months ended September 30, 2020, was approximately $1.5 million versus approximately $1 million for the quarter ended September 30, 2019. The increase in loss is the result of decrease in dental revenues. Net loss for the 3 months ended September 30, 2020, was approximately $1.5 million or $0.02 per share versus a net loss of $2.8 million or $0.06 per share in the prior period.

Now I'd like to turn your attention to liquidity and capital resources. At September 30, 2020, the company had cash and cash equivalents of $14.4 million compared to cash and cash equivalents of approximately $1.5 million as of December 30, 2019. As of September 30, 2020, the total current assets were approximately $18.9 million and working capital was $15.4 million.

Revenue for the 9 months ended September 30, 2020, was $3.2 million versus $6.1 million for the 9 months ended September 30, 2019. Dental revenues decreased by approximately $2.8 million, which is related to the decrease in sales of handpieces and devices throughout the country and internationally due to the COVID-19 pandemic.

Gross profit for the 9 months of 2020 was $2.2 million or 68% of revenue versus $4.2 million or 69% of revenue for the 9 months of 2019. Operating loss for the 9 months of 2020 was approximately $6.3 million versus approximately $2.9 million for the 9 months of 2019. This increase in loss is due to the result of decrease in dental revenues. Net loss for the 9 months of 2020 was $6.3 million or $0.11 per share versus a net loss of $4.7 million or $0.11 per share for the comparable period in 2019.

At this point, I'd like to turn the call back over to Leonard Osser. Leonard?

Thank you, Joseph. We remain encouraged by the outlook for the business as the dental business is starting to bounce back. In addition, we remain confident in the market potential of the CompuFlo Epidural and the CathCheck, which we believe will transform the industry and ultimately become the standards of care.

Overall, we are in a strong financial position, given the fact that we had over $14 million in cash on hand as of September 30, 2020. In the meantime, gross margins from the dental business have held steady in the high 60% range. We continue to carefully monitor expenses, and we have maintained appropriate inventory levels to ensure available stock as dental offices begin to return to more normal levels. Given the increase in dental sales, which contribute substantial margin, our burn has remained approximately the same for the present -- in the present quarter. We are 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. At this point, we would like to open the call for questions.

(Operator Instructions) Our first question is from Anthony Vendetti with Maxim Group.

I just wanted to talk a little bit about the agreement that was announced for -- it was an agreement in Russia. Just if you can talk a little bit about the magnitude of that or what the implications are? And then talk a little bit about Premier. And how being on their preferred list either has started to open doors or if COVID-19 is making that a slow go at this point?

Thank you for the question, Anthony. In regards to Russia, we have signed a renewed 3-year agreement with our distributor. Without going too much into the details, there is a significant growth of the business in the order of 20% to 25% year-over-year compared to the previous agreement. And that's definitely encouraging as a stat moving forward.

The second point of your question in relation to Premier, of course, we are very delighted that we have been awarded that agreement prior to signing or being rewarded the agreement. We already were active with demos and trials, and we're targeting hospitals that belong to the Premier group. And it's definitely -- the agreement has definitely helped us in lowering the threshold of entering these hospitals and also performing the number of demos and trials. So we remain positive about the first commercial sale of one of the hospitals belonging to the Premier group.

Okay. Great. And then just in terms of COVID-19, obviously, you had a sevenfold increase in dental sales sequentially. So things have picked back up. Would you say, based on what's going on in the country right now, has that slowed? Or have your customers as well as Milestone, figured out a way to still conduct meetings and still be able to consummate sales in this environment?

Yes. At the moment, Anthony, we are in a position in the dental where we will increase sales, maintain margin in the dental division in this -- in the quarter that we're in right now. We will increase sales to China. We have started sales, again, as I mentioned earlier. But we can't -- as Arjan mentioned earlier, until there is -- but we sell to our distributor and they're obligated to pay for it, obviously. We cannot book it because we own 20 -- approximately 28% of that distributor. So we cannot book that until they have sell-through.

But putting that aside, the number where we are today has given us the opportunity to let our shareholders know that this quarter, the fourth quarter, is significantly better than the third quarter. How that will continue in the first quarter next year, we have no idea. We believe that given the efforts that dentists are making, both here and around the world in keeping their patients safe, remaining safe themselves is significantly enhanced that they use our product.

So without having a crystal ball going forward, it would seem that we would maintain the level of the fourth quarter, which significantly -- which is significantly better than the second and the third. However, there's no way to tell because we don't know what will happen with the pandemic. But we do offer to dentists a better way of doing anesthesia than using the 1860 competitor.

Anthony, we also believe, obviously, and that's why we raised the capital that we have a balance sheet that now helps us mitigate any risk going forward for at least the next 12 months, regardless of what happens with COVID-19. That's why we raised the capital, and that's why we no longer need to raise capital. We have enough to expand whatever the virus does over the next 12 months or even 24 months, which we don't obviously hope -- we think our hope would happen. But we also have enough in the system with the money that we raised to also move ahead with other products that were in the various stages of development.

So the money that we have on hand can both give us the money that we need to do the marketing and sales and increase the dental business significantly, which we haven't had for the last 4 years or so. But also allow us to bring forth other technology and will also allow us to do the necessary marketing and sales, both in the United States and out of the United States for both the CompuFlo and the CathCheck.

Okay. And that's helpful, Len. And it sounds like in terms of where you are with the products and with your balance sheet, it's arguably the best position you've been in, even in face of the pandemic, correct?

Absolutely. I think that we're in the best position that we've been in many years, given the patent portfolio, the teams that we presently have working with us and the enormity of the success that we've had with key opinion leaders throughout the world on the present technology. So yes, I think that we're in the best position we've been in, in many years.

And then just lastly, and then I'll hop back in the queue. On the hospitals that have been given the CompuFlo system, what has been the reception? And has -- is it too early yet? Or have they made commitments based on how well it's performing to make additional purchases?

Yes. It definitely has helped the sales process or the potential shortening of the sales cycle because the value analysis team, normally, we have to go through the hospitals for that value analysis team assessment, which especially for the capital equipment is a longer process. So we eliminate that part, and it is easier to sort of process to go through the value analysis team for the new products, which is going to be then the disposables. So that is -- that's definitely a benefit.

And the feedback also, as we said, we have increased the number of demos and trials, as we speak, the feedback has been very promising because the initial hurdle of the cost of the capital equipment is not longer existing anymore. Also, based on the demos and the trials we are doing, in particular, also based on the CathCheck let's say, unique selling proposition. And also, in a way, the ease of using the CathCheck with immediately giving the confirmation of the right positioning of the catheter is very well perceived and received by the clinicians once we are doing the trials and the demonstration.

So my comment also to your question is that as we speak, all our individual salespeople are in the field and are conducting trials and demonstrations, and that is a daily activity for the next coming weeks.

Yes. As Arjan has said, Anthony, the product is continuing to perform as it has over the last year. The anesthesiologists recognize the value. They certainly recognize the value of CathCheck because it's patently obvious how much time they can save and avoid the pain of the patient, and the old way of analyzing the 20 to 40 minutes can be reduced to 2 minutes or less. So as far as the anesthesiologists, they recognize this very quickly. And the fact that we have such a broad array of clinical studies published in the major journals throughout the world assures them that they should try it. But then once they try it, they're convinced for themselves.

That's not the issue. The issue at the moment and what's delayed the sales is the pandemic, is the budget committees in the hospitals are gate at the moment. And we're getting around that gate now in the way that Arjan has explained by removing the capital equipment for one unit as a loaner to the institution when they commit to a predetermined amount of disposables over a 12-month period. So there is no issue that we've had with the anesthesiologists. It's all based on the unfortunate situation with COVID-19.

(Operator Instructions) Our next question is from James Terwilliger with Northland Capital Markets.

Len, can you hear me?

Yes, James, I can.

Very quickly, nice quarter. Just for some housekeeping. In the prepared remarks, did you say $1.7 million for the fourth quarter of 2020 for revenue? Is that correct?

Yes. Our projection at the moment, and obviously, we never did this in the past, but given COVID-19, we've decided to give some forward-looking information. So obviously, we're being extraordinarily conservative. Yes, Arjan is projecting a minimum of $1.7 million, excluding the China sales. We believe that the China sales this quarter will be around $450,000. But we can't book it as Arjan explained earlier until they have their own sell-through.

China has been not buying for a long period of time. They are now through their inventory. And China, fortunately, is pretty much through, as you know, with the virus. But also, of course, having moved through the virus, economically, they're coming back very strongly, though they're not where they were last year at this period with their GDP. But the trajectory is very, very good in China.

So we will be able to project. We have internal projections for China for next year as they come back into the fold, having not had any sales in the first, second and third quarter in China. But yes, the information that Arjan gave of the $1.7 million is where we believe, at a minimum, we will end up in the fourth quarter.

No. That's a nice number, and it's a little bit higher than what I was looking for, and it's a nice bounce from that COVID bottom there in Q2 in terms of revenue. My next question then is on SG&A expenses. You did a very nice job sequentially, controlling expenses, much lower than my estimates. How should I think -- and I don't want to get too far into guidance, and I know you don't want to get there either. But how should I think of SG&A expenses going forward? Can you maintain the level of $2.3 million that you're at here? I know you've got to expand as COVID allows you to. But how should I think of SG&A expenses going forward in actual dollars?

Well, where we are now with the run of the business, our burn rate, to use very round numbers, in the third quarter was approximately $350,000. And it's different time-wise when certain things hit. But it was about $350,000 burn in the third quarter. Given the increased sales in the fourth quarter, we anticipate that number to -- obviously, to be about the same.

Now as we go forward next year, we will be working on various projects that are not yet finished, development projects for other instruments and other areas of medicine. But the burn should remain relatively the same because at the same time, we expect increase in sales of both our medical products, the Epidural, the CathCheck and the dental product as well. So if we look at that and the fact that our CFO of many years, Joseph D'Agostino, does what my father suggested many years ago, which is basically to squeeze the nickel until the buffalo yells out, I think that will be successful.

And then lastly, with that -- 2 more, then I'll jump back in queue. So remind me again of what your U.S. sales and marketing platform looks like. And then with that balance sheet, and I know you kind of tightened the belt here, what else are you looking at in R&D because you do have a platform technology that has some very attractive other clinical indications? So I'll jump back in queue after that. Again, a nice quarter.

Thank you very much, James. Okay. Sales and marketing activities in organization. When I look at the medical or the epidural segment that we are serving, for the time being, we have 3 dedicated salespeople in the field, and we have 1 vacancy in 1 territory in the marketplace. So what we also are doing, of course, prior to expand to the sales organization, we first want to have the commercial success. And we first want to have, let's say, the results that we all believe. And that we will do that prior to invest that money than in a virtual expansion of the sales organization.

So that's more the sale side of the marketing and sales activities based on your question. On the marketing side, we continue to build on our web presence. We continue to have research performed also to have an optimal understanding of the target groups in terms of -- both of the dental and the medical field, the target groups that we are communicating with and communicating, too. I think that would be my answer to your question about the marketing itself.

Now on the research and development pipeline, we are, of course, looking into using the technologies in other indications and other areas. We -- as we have said earlier as well, in last year or previous years, we are looking into a cosmetic injector for both of injections. We do not have finalized or identified the details of that project. But that's definitely an area where we will bundle our forces and put efforts into -- in the way moving forward.

Priorities really, for us, based on our technology and our current portfolio is further really accelerate, if I can use a terminology on the epidural business, growing further the dental business or at least as a minimum, bringing that back to the levels prior to the pandemic and then undertake the right activities to use our technology into future applications.

(Operator Instructions) There don't appear to be any more questions at this time. I would like to turn the conference back over to management for closing remarks.

I'd like to thank you very much for joining the call today. I know everyone is certainly eager for us to close our first hospital and hospitals in the United States. I assure you that we're working everyday tenaciously to make that happen. And as soon as we do, we will certainly let you know. All the best, stay safe. Thank you very much for your support.

This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.