Milestone Scientific Inc (MLSS) 2021 Q1 法說會逐字稿

Greetings, and welcome to the Milestone Scientific First Quarter Conference Call.

(Operator Instructions) Please note, this conference is being recorded.

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

Good morning, everyone, and thank you for joining Milestone Scientific's First Quarter 2021 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 Keisha Harcum, Controller.

The company issued a press release today, Monday, May 17, containing first quarter 2021 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 first quarter ended March 31, 2021.

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 revenues and future success.

These statements involve a number of risks and uncertainties that 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 -- without -- Milestone's report on Form 10-K for the 3 months ended December 31, 2020, and Milestone's report on Form 10-Q for the first quarter ended March 31, 2021. The forward-looking statements are -- made during this call are based upon management's reasonable beliefs as of today's date, May 17, 2021. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

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

Thank you, David, and thanks to everyone for joining us today. The first quarter and subsequent period have been highly productive for the company. First, I am pleased to report that our revenue for the first quarter of 2021 increased more than 61% to $2.9 million versus $1.8 million for the same period last year. We also achieved a strong sequential increase in sales of 32% versus the fourth quarter of 2020.

Importantly, our dental segment remains cash flow positive on a stand-alone basis with continued growth opportunities. Clearly, our dental business is back on track. In terms of our CompuFlo Epidural and CathCheck Systems, we have already added new hospitals that have purchased our disposables with the prospects of increased business in the coming months. We have many more that are starting trials and others that are at later stages of development. Existing trails that we expect to convert to commercial orders.

During the first quarter of '21, we began selling CompuFlo Epidural and CathCheck disposables to 3 premier medical centers in the United States and 1 in Europe. These hospitals include Regional Medical Center, a premier regional health care system in South Carolina; the University of Texas Medical branch at Galveston, an institution of the University of Texas System, an agency of the state of Texas; and the nationally recognized medical University of South Carolina; and a leading German hospital, University Hospital of Wurzburg.

The purchase orders received on these 4 medical centers reinforces our confidence in the outlook for both CathCheck and CompuFlo and the value proposition to other health care systems across Europe and the United States. As we strive to become the new standard of care in epidural procedures in labor and delivery. It is also a validation that our technology provides a level of safety and efficiency not currently available to medical professionals. The clinical and safety benefits of the CompuFlo Epidural and CathCheck Systems are backed by extensive published clinical data, demonstrating significant reductions in epidural procedures as well as the complication rates and contributes to the savings of time on the part of anesthesiologists.

Moreover, the CompuFlo instrument has the potential to significantly reduce costs associated with morbidity, providing a direct economic benefit to 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 1 to 2 minutes versus 20 to 40 minutes using the present method.

In summary, we are aggressively accelerating our commercialization efforts in both the domestic and global markets as we pursue our goal to become the new standard of care for epidural procedures in labor and delivery.

A key element of our sales strategy focuses on the disposable components of our system, which we believe will contribute to high margins and recurring revenue. In addition to hiring more salespeople, and expanding our sales funnel, as I mentioned earlier, several advanced trials are already underway with hospitals that we believe will convert to commercial orders.

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

Thank you, Len. Our dental business is recovering nicely and continues to generate strong cash flow as a result of successful sales and marketing initiatives as well as dental offices reopening across the country and around the world. We have begun implementing our 3-year strategy to expand the worldwide global dental market. We believe our rapid progress illustrates the positive response and growing market demand for our dental instruments. Through our decentralized sales strategy, we accomplished our goal of building a robust distribution network, covering important territories in the United States and Canada.

We are now accelerating our efforts into new global markets while supporting our present distributors. We believe we have developed a highly cost-effective and scalable platform to help drive our dental instruments and hand piece of sales in the coming years.

In regards to our medical business, we were saddened by the tragic loss of our Vice President of Sales, Eric Gilbert. I would like to express our condolences to his family, and we continue to support his family in these difficult times.

Although this sudden passing of Eric caused us a temporary setback, we are now adding new sales territory managers with the necessary sales skills and experience that will help propel us moving forward. We have increased our sales team to 9 territory managers covering the Central, Northeast and Southeast area. We've also appointed a territory manager in California, assisting us to penetrate major hospitals in this state.

We continued the execution of our digital marketing strategy, and recently launched our new website presence. Furthermore, we increased our social media communication activities. All these activities are focused on increasing our brand awareness and should result in additional lead generation for our sales team.

I'd also like to take a moment on behalf of myself, the Milestone team and our Board of Directors, to personally thank Len Osser for his immeasurable contribution to the company over the years. He has been a visionary and guiding force for the company since its inception. He has helped Milestone navigate through both good and difficult market environments, investing his own capital when needed, carefully managing expenses and serving as a strong steward looking after and protecting shareholder interests. We truly appreciate everything he has done for the company, building a foundation for growth and success in the years to come. We truly look forward to his ongoing contributions to the success of the company.

At this point, I'd like to turn the call over to our Controller, Keisha Harcum, to go over the financials in detail. Please go ahead, Keisha.

Thank you, Arjan. Total revenue for the 3 months ended March 31, 2021, was $2.9 million versus $1.8 million from the same period last year. Dental revenues increased approximately $1 million. Medical revenue for the 3 months ended March 31, 2021, increased by approximately $63,000 to $71,000 as compared to the 3 months ended March 31, 2020.

Gross profit for the 3 months ended March 31, 2021, was $1.8 million or 62% versus $1.3 million or 71% of revenue for the 3 months ended March 31, 2020. The decrease in gross profit margin is due to the lower margins in sales in China.

Operating losses for the 3 months ended March 31, 2021 was approximately $1 million versus approximately $1.6 million for the 3 months ended March 31, 2020.

Net losses was approximately $1 million or $0.01 per share of 3 months ended March 31, 2021, versus net loss of $1.6 million or $0.03 per share for the comparable period in 2020.

Now I would like to turn your attention to the liquidity and capital resources. At March 31, 2021, the company had cash and cash equivalents of approximately $17 million and working capital of approximately $18.6 million versus working capital of $15.7 million on December 31, 2020.

At this point, I'll turn the call back over to Len.

Thank you, Keisha, and thank you, Arjan, for the kind comments earlier. Our strong balance sheet was approximately $17 million of cash and cash equivalents as of March 31, '21, provides a substantial resources and the ability to accelerate our sales and marketing activities around both our dental and medical instruments. We are very well-funded and have no plans and no need to raise additional capital.

Included in the $17 million of cash, we generated over $3 million from the exercise of warrants and nearly $700,000 from the exercise of options. Our strong balance sheet also allows us to advance the development and commercialization of other indications for our proprietary DPS Dynamic Pressure Sensing technology, which we believe represents to further growth opportunities for our company. We believe the potential for this technology platform is quite robust with multiple opportunities available in large and underserved markets, such as Botox and peripheral nerve blocks, to name just a couple.

Additionally, last week, we announced that we are promoting Arjan Haverhals to CEO and hired Scott Kahn, as our new CFO. Since joining the company last June, Arjan has been instrumental in implementing successful sales and marketing activities around the dental instrument and accelerating the commercialization of CompuFlo and CathCheck. As he described earlier, we're taking bold steps to further accelerate our medical sales going forward.

Arjan's strong leadership will be invaluable as we work towards our goal of establishing our technology as standard of care and epidural procedures during labor and delivery around the world. In addition, many contributions he's already made to the Milestone organization, he brings more than 30 years of senior management's experience and an impressive track record leading rapid growth initiatives across a broad range of industries, including dental and medical. We believe having such a strategic leader will support our transition from a research and development organization to a commercially focused medical device company.

We are also excited to welcome Scott Kahn to the management team. Scott brings more than 40 years of leadership with a proven track record in corporate and finance operations. Scott will be instrumental not only overseeing our financial infrastructure, but also helping us to increase investor awareness as we execute on key milestones.

In terms of my own involvement, I look forward to playing an active role in the growth and success of the company going forward as Vice Chairman, as well as spearheading some of our international expansion opportunities, especially within China, where I have very deep, long-standing relationships.

So to wrap up, I truly believe 2021 will be a transformative year for our medical business and an important turning point as we move to our goal of establishing our medical instruments and disposables as the new standard of care for epidural procedures and labor and delivery. We remain 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 for our company.

At this point, we would like to open the call to questions. Operator?

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

So congrats, Arjan, on the promotion and, Len, continued success and thanks for all your contributions. I just wanted to ask some questions on the medical side. Obviously, this could be an important year, and ramping up by adding some salespeople. Can we talk about how many sales reps have you added? And when they were added? Because there's a cycle, a training period to get them up to speed before they can probably contribute right away. I was just curious, is that 3 months or is it longer before they can hit the ground running?

It's a very good question. Thank you, Anthony. So we already started the recruitment earlier this year during the first quarter. By the end of the first quarter, we had about 4 territory managers or a sales team of 4. And then, of course, the tragic news with the passing of Eric, that was a situation that we had to handle.

And then we expanded on the sales organization. So as of today, we have now a sales organization of 9 individuals, 1 sales director, 8 territory managers. And they all started primarily end of March, beginning of April. As we speak, we have trained 3 of the new reps already during the course of April, and the second onboarding is starting right now.

Now to your question, is it going to take 3 months? No, because the whole goal and the objective of the onboarding is to get the people up to speed as soon as possible. And that is, for me, a 3-weeks lead time, including the onboarding, including the technicalities, the product knowledges. More importantly, including building of the sales funnel because the people that we have recruited as well, they are experienced in either pain management, have worked in anesthesiology department. There's actually 1 territory manager that was a director of a surgery department. So we have focused also the skill set that is required to be successful in the industry and the field of expertise that we are working in. Does that answer your question?

Yes. So it sounds like you've been able to compress the training period because the people you've hired have some experience already in the industry, and you feel that within 3 weeks they can be trained and ready to go out and sell. So that is helpful.

Can you talk about the hospitals that you're trying to access? We've heard over the last several weeks that most of the hospitals have opened up and they're easier to access than they were during the pandemic, but there's still a percentage that are still difficult to access. Can you talk about, in terms of your target market, your ability to access them, has that been helped by your relationship with the GPOs? And can you talk about how that's going to play in with your 9-person sales force, 8 direct sales reps?

Yes. So I think you raised a couple of questions here. So let me try to answer them in a chronological order. GPO focus, of course, the endorsement that we got last year in November by being awarded the contract with Premier has helped us and also the hospitals that we are active in. And a couple of them that have purchased the product from us belong to the Premier Group. That is an endorsement, but you still have to undergo and follow the sales process within these hospitals anyhow.

But we continue to target hospitals that belong to the Premier Group because, like I said, it lowers the threshold and it lowers the barrier of getting a foot in the door of the hospital. So that's one aspect, absolutely.

Secondly, we are now in the process also that the hospitals that we have been in contact with prior to the pandemic, and there are a number of larger accounts that we have been in contact with them more than a year ago, that said it was okay. You have to wait a year until the situation is back on the control, you can return, and that's actually taking place as we speak.

So since a month, we have been going back to accounts that asked us more than a year ago not to come, but showed interest -- initial interest, and that have made it possible for us to revisit them again.

And then a third tier, of course, is a mix of, I would say, regional, smaller hospitals and larger accounts that come through our network, that come through our marketing activities and that come also through the salespeople that potentially bring these accounts with them. So that's also the reason why we remain positive. And also, as we speak, there is a high activity level from a demo and trial perspective going on. And that also allows me to say here as well that we remain positive that, that turning point, as we have mentioned several times, that, that actually is taking place and that we have to work hard to execute on all the plans and all these accounts that we are having.

Okay. No, that's very helpful. And just in terms of looking at the pipeline, compared to last year, like you said, it was a difficult year to access hospitals. But how would you quantify the pipeline today versus 12 months ago? Is the pipeline of potential customers based on the sales leads you have plus based on hospitals opening up? Would you say that, that pipeline is 2x what it was last year? 1.5x? 3x? How should we look at the potential customer opportunities?

Yes. So I will refrain from mentioning a number where it is a factor, 1.5, 2 or 3. My comment or my answer to this question would be that we are in a better situation than 12 months ago in relation and in regards to the pipeline and the contact that we have established with the hospitals.

I would say, not only nationally, but definitely from an international point of view as well, where we have been able, in a rather short period of time, to come in front of a number of key universities in Europe as well. So the situation is definitely better than compared to a situation 12 months ago.

Okay. And last question is on China. That put a little bit pressure on the gross margin this quarter. I know those sales can be somewhat volatile in the sense that sometimes they come in, in a particular quarter, in certain quarters they don't come in at all, they're much lower. Are you expecting gross margins to move back up or are in the second quarter? Or is China going to be in more of a consistent contributor on a quarter-to-quarter basis?

Well, this is Leonord. We're hoping that they will be as China has significantly opened over the last 90 days. So even though the margins are far less and it brings down our margin, it does bring in money. We do double our money on the containers, which we send to China.

So it is important that they've reopened, and we're certainly hoping that we'll have quarter-by-quarter container delivery. But because of the way -- because of shipments, we don't -- we cannot guarantee that it will come in quarter-by-quarter. We are looking to a minimum 4 containers to China this year.

However, as I say, because of the shipments and the form of payment and because they are a variable interest entity, and the way we deal with that. It may not come in -- you may not see it quarter-by-quarter, but I believe we'll see a minimum of 4 for the year.

(Operator Instructions) Our next question comes from [James Vista].

To piggy back on the gross profit, that was kind of disturbing that it's decreased from 71% to 62%. And I guess you've kind of answered that. The second question I have is, was the need to get pharmaceutical salespeople in there for the medical sales, has there been any thought given to working with a large pharmaceutical organization to either utilize some of their sales force or purchase a portion of Milestone in order to extend the -- and improve the sales abilities worldwide?

Yes, this is Arjan answering your question. Yes, it has been given a thought. And also, we have to remind ourselves that we historically also worked with, what I would call a hybrid model in terms of -- we had our own direct sales people. But we also worked with other distributor companies in the United States that gave us the lead and gave us access to the hospitals. We have not made any attempt to reach out to larger pharmaceutical hospitals and to look at that from a global perspective because we strongly believe that we first have to create that baseline and that platform from where we can act from. And then over time, we first have to deserve the place in the market and create a basis, build that baseline further out, expand on it, until we have reasonable revenues. And then perhaps at a later stage, reach out to other companies. Now whether it was a pharmaceutical company or a medical device company that can be seen.

But we do get from time to time, also requests, and we continue having discussions with organizations that see it as a benefit, including from a distribution point of view, our concept, our instruments into their sales activities. But for the time being, there's no formal agreement in the make or even considered with any larger entities like you mentioned.

Just to add to that, the integrities of the margins has held pretty much as it has been in rest of world other than China. So -- but as China plays a smaller and larger role, you will certainly see that effect with blended margins, but we have either kept or increased our margins to rest of world.

Our next question comes from [Gary Carroll].

Arjan, I'm glad to hear your consideration moving forward into expanding into a further distribution network perhaps. So in the interim, what do you guys have for a target of employing direct people. I think now we're at 8 plus a sales director. Do you have plans any further this year to add some more direct sales reps in the U.S.?

Yes, we have more plans. If you ask a number, we are not going to expand into a sales team of 20 or 25 or 30 people. I think where we are currently at, that's the right level, but I will foresee that we will add 2 to 3 additional positions, in particular, also dependent on territory to territory, and that's the plan moving forward. So with the 8 plus 1, we will probably end up in the first phase, ramp it up to a 10, 10 plus 1, 10 plus 2 type sales organization to establish that baseline that I mentioned earlier in the call.

Okay. And Len, you're the connection with China. Do we have any issues at all with ships regarding our instruments as far as getting a supply?

Yes. We would have, but the company has taken a move to add to the inventory with ships for the next perhaps 2 years. So we feel very confident that, that will not be an issue for us.

Okay. Excellent. Because I know that as we close accounts, the instruments are going to be going out the door fairly quickly, whether on consignment or being purchased. So I know going forward, if we open a fair number of accounts that we need enough instruments to go into a hospital, let's say, need 6 or 8 instruments. So that's good to know that we have an adequate supply.

Yes. We've taken that -- we've had the presence to take care of that and then the other problem would develop, if it does develop into a problem with the amount that we just ordered, that would be extraordinarily good news.

Yes. All right. And continued good luck and success. Good to hear the growth and the plan sounds like it's coming together. And we look forward to some announcements on some more new accounts.

As do we. Thank you very much, Gary.

(Operator Instructions) Our next question comes from [John Corb].

Congratulations, Arjan, on the new position, and all the best going forward. I have a question for both of you. Let me start with Len first. And thank you, Len, for your efforts over the years. I've talked to you many times as a shareholder for many years.

When you first talked about China, as I recall, it was a while back, you considered China to have really open-ended possibilities in the dental arena because of their culture, their extreme reticence to go to a dentist and their fear of the dental procedures. And over time, there's been a number of changes and setbacks. But as of today, how do you view the dental prospects in China? Do you still feel as confident as you get in the beginning? Or if things change, how do you look at Milestones possibilities in China?

I think they're very strong. I think that what has occurred is a huge investment and a move towards group practices in China. It's grown from, actually, 20 years ago, 0, to about an 18% market share at this point with extraordinarily high investment, opening up offices with 12 to 20 operatories, the best equipment available. Our partner there has sold to quite a number of these, and those instruments are in each operatory. So as the economy comes back with great strength in China over the last few months, we look forward to increased sales. And given the change in the amount of people that would be viewed as middle and upper middle class, the importance of dental care is certainly recognized. So I'm very optimistic regarding China and dentistry.

Good. Arjan, then I have a question for you also on the dental. A change in strategy from Milestone from 1 big distributor, maybe Schein or whatever, to the smaller distributorships with more of a local relationship with dentists. You mentioned there were a few or a number of them signed on with distributorships with Milestone. My question is, how many of these smaller of distributors, either in North America, how many do you have? And how many are you looking forward to possibly signing on with Milestone as distributors?

Yes. Thank you for your question. So currently, we have, since the beginning of this year, where we have the full dependency prior to that on Henry Schein, we have added 7 distributors in the United States and 1 in Canada. So that brings the total number of distributors in Canada to 2 and in the United States to 8. But we continue to add distributors to that, call it, portfolio of distribution channels. We are currently in discussions with a couple of them as we additionally or continue on to have additional distributors to further expand the sales activities and to make it possible that we increase our footprint in terms of the number of new customer acquisitions and a number of new instruments placed in the marketplace because, as we have said in all the other calls as well, that's the -- one of the main growth drivers for our business moving forward.

Now if that's going to be -- I do not have a target if it's going to be 14, 15 or 20, I'm more looking at the quality of the distributor, in terms of having their own sales team, having feet on the ground, having the experience with the sales of, call it, medium to high-tech capital equipment, have a familiarity with the razor and the razor blade business model, having their own marketing activity.

So there are different set of criteria that apply to the final selection of the distributors. So it is not just adding a distributor wherever we might feel that we need one. It is a continuous selection process. But what was important for us, of course, earlier in the year as possible to have a number of distributors because that is important for growing the business moving forward.

There are no further questions at this time. I'll now turn it back to Leonard Osser for closing remarks.

I'd like to thank the investors for all the support they've given the company. Over the years, I feel very confident that with our new staff and Arjan in charge of the company, that we will move forward rapidly. All the best. Stay safe.

Thank you. This concludes today's conference. All parties may disconnect. Have a great day.