Milestone Scientific Inc (MLSS) 2024 Q2 法說會逐字稿

Good morning, and welcome to the Milestone Scientific second-quarter 2024 financial results and business update conference call. (Operator instructions) Please note this conference is being recorded.

I will now turn the conference over to your host, Mr. David Waldman, Investor Relations of Crescendo Communications. David, the floor is yours.

Thank you, Jenny. Good morning, and thank you for joining Milestone Scientific's second-quarter 2024 financial results conference call. On the call with us today [Arjan] Haverhals, Chief Executive Officer, and Keisha Harcum, Vice President of Finance Milestone Scientific. The company issued a press release this morning containing second-quarter 2024 financial results, which is also posted on the company's website. If you have any questions after the call would like any additional information about the company, please contact Crescendo Communications at 2126711020.

The company's management will now provide prepared remarks reviewing the financial and operational results for the second-quarter ended June 30,2024. Before we get started, we'd 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 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 other 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, 2023 and Milestone's report on Form 10-Q for the second quarter ended June 30, 2024. These forward looking statements made during this call are based upon management's reasonable belief as of today's date, August 15, 2024. 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 Adriaan Haverhals, Chief Executive Officer. Please go ahead, Arjan.

Thank you, David, and thanks to everyone for joining us today. This has been a momentous year for the company as we recently achieved a major milestone with the grant of Medicare Part B, physician payment rate assignment for our CompuFlo Epidural System. As we have previously reported, our approach to reimbursement has been methodical and strategic.

We've worked closely with clinicians to thoroughly document the medical necessity of our technology. And by engaging with Medicare jurisdictions, we have been able to educate payers on the clinical utility, safety, predictability and efficacy of the CompuFlo system, ensuring that the jurisdictional Medicare Administrative Contractors also known as JMAC understand full our technology prior to their pricing ruling.

This favorable Medicare price assignment granted across multiple JMAC regions, including key states such as Florida, Texas, Pennsylvania, New Jersey, Maryland, Colorado, Oklahoma, Louisiana, Arkansas, Mississippi, New Mexico the District of Columbia and Delaware represents a significant achievement. An estimated 3 million epidural steroid injection procedures are performed each year across these three jurisdictions, accounting for approximately one-third of the total epidural steroid injection procedures conducted in the United States for chronic back pain treatments.

With Medicare believed to account for up to 40% of this clinical practice volume. These regions represent an initial addressable market of approximately $250 million among Medicare patients alone. Positive outcome from these JMAC is not only a significant value validation of the safety benefits of our technology, but also a major step forward in increasing penetration and adoption of our technology. We recognize there's still more work ahead to introduce our technology across these jurisdictions and throughout the rest of the country.

However, this achievement marks a crucial turning point in our journey. I'm extremely proud of our entire team who have worked tirelessly to reach this milestone, and we are committed to continuing our efforts, targeted at additional JMAC in the US. In tandem with this progress, we are excited to announce our partnership with actual biologics, whose extensive experience and deep relationships with the pain management sector make them an ideal partner.

This collaboration represents a strategic laser focused and disciplined commercial approach to expanding our reach by leveraging [Axiall's], established clinician relationships and the key states belonging to the JMAC of New Jersey, Texas and Florida. By aligning with a specialized partner instead of a large distributor or building our own sales force, we can accelerate the penetration and adoption of the CompuFlo Epidural System more effectively.

This collaboration marks the next phase of our sales strategy, and we are confident that it will drive growth and enhance patient outcomes. We also believe there's a market opportunity for CompuFlo within federal and other government agencies. As we have discussed in the past, we are advancing initiatives following some approval and working to secure approval rates within the FSS, the federal supply schedule. FSS as approval, would open up the sizable government markets.

Turning to the international front, we are expanding our network of distribution partners for CompuFlo. We are targeting independent distributors with existing relationships within key global markets and proven track records of introducing medical devices within that territory. I'm particularly pleased to announce that we have received regulatory approval from Brazil's national health surveillance agency to market and sell the CompuFlo Epidural System in Brazil covering the lumbar thoracic and cervical thoracic junction of the spine.

As the ninth largest economy globally with over 200 million people, Brazil presents a significant opportunity for us. Ahead of this key approval, we've proactively established relationships with leading medical institutions and hospitals and commercial partners in Brazil, setting the stage for a successful product launch. Final negotiations are ongoing and we look forward to announcing the new cooperation in the near future.

Brazil has over 2.8 million births each year and 21 million people suffering from chronic back pain. However, with just 60% seeking treatments, independent research estimates that 4 million to 5 million of dual anesthesia procedures are performed annually in Brazil. We believe that with the right partners we can expand the addressable market by offering a safer alternative to traditional epidural procedures, especially in rural areas with limited resources and training. This approval in Brazil is also a significant milestone in our global expansion strategy, providing an entry point into Latin and South America by building on our previous FDA approval in the United States.

Lastly, we remain focused on increasing the value of our intellectual property and patent portfolio. We recently announced receipt of multiple notices of allowance for key patent applications in both the US and Europe that broaden the IP protection around our injection and drug delivery systems.

So to summarize our progress as it relates to the medical division, we are advancing our nationwide reimbursement initiatives and executing a disciplined commercial rollout strategy, both in the US and abroad. We look forward to providing further updates and continuing to build on this momentum and ensuring that more patients and practitioners benefit from the precision and safety of our technology.

Turning to our dental division, US E-commerce sales increased to $1.3 million in the second-quarter of 2024 compared to $1.2 million during the same period last year. This growth is a direct result of our strategic decision to transition from a previous distributors and [In-Stat] channel. Our sales through our own online platform.

By bringing this process in-house, we've been able to create a more direct line of communication with our customers, enhancing our ability to respond to their needs and preferences. This shift has also led to a significant improvement in our gross margins, which increased to 76.1% in the second-quarter of this year from 65% in the same quarter last year.

This margin expansion reflects not only the cost efficiencies we have gained, but also the value that our customers place on the quality reliability of our products and more importantly, the provided aftersales service by our team. We believe that the foundation we have established will continue to support steady growth in domestic sales.

Our renewed focus on E-commerce has been bolstered by targeted marketing campaigns designed to directly reach both customers and patients, reinforcing the benefits of purchasing through our online portal. As we continue to refine and expand these efforts, we expect to see further traction and increased market shares in the US.

On the international front, while we did encounter some temporary challenges due to issues with our distributors freight forwarders. These have since been resolved, allowing us to stabilize and resume normal operations. Additionally, our proactive decision to pull sales in China based on the reassessment of our strategy in that market had an impact on a year-over-year comparison. Nevertheless, we currently believe that international sales in the second half of this year will show improvement over both the second half of last year and first half of this year.

Looking ahead, we are optimistic about the future of our dental business. The changes we have implemented have not only strengthened our current operations but have also laid the foundation for a scalable, high margin business model that is designed to generate positive cash flow. We are confident that our approach will continue to yield strong results, driving growth, profitability and customer satisfactions in the quarters and years to come.

So to wrap up, we are at a pivotal inflection point following the grant of the first Medicare Part B physician payment rate assignment for our CompuFlo Epidural System, a milestone that underscores the value and safety of our technology. The combination of our reimbursement strategy, partnerships such at actual biologics, the start of commercialization.

Our expansion into key markets like Brazil, as well as our growing E-commerce platform for the dental division, provide us with the necessary ingredients for success. We remain committed to enhancing patient outcomes and driving value for our shareholders as we continue to build on this momentum.

At this time, I'd like to turn the call over to Keisha Harcum, Vice President Finance, to go over the financials in detail. Please go ahead, Keisha.

Thank you, Arjan. Revenue for the three months ending June 30, 2024 and 2023 was approximately $1.9 million and $2.9 million, respectively. US E-commerce revenue for the three months ended June 30, 2024, was approximately $1.3 million compared to $1.2 million for the three months ended June 30, 2023. For the three months ended June 30, 2024 international revenue was approximately [$490,000] a decrease of $710,000 compared to June 30, 2023.

International sales decreased due to issues with freight forwarder carriers during the quarter. The company recorded no revenue for China for the three months ended June 30, 2024, compared to the approximately $270,000 for the three months ended June 30, 2023.

The gross profit for the second quarter ended June 30, 2024 was $1.4 million or 76% of revenue versus $1.9 million or 65% of revenue for the second quarter ended June 30, 2023. The decrease in gross profit was due to higher margins in sales associated with the launch of the E-commerce platform, offset by a decrease in international sales.

Operating losses for the three months ending June 30, 2024, was approximately $1.8 million versus $2.3 million for the second quarter ended June 30, 2023. The reduction in the operating loss reflects a decrease in the selling and general administrative expenses by $1.1 million. Net income was approximately $0.2 million or [$0.06] per share for the three months ended June 30, 2024 versus a loss of $1.3 million or [2%] per share for the comparable period in 2023.

Net income for the three months ended June 30, 2024, included approximately $2 million. Net expenses for sales of the New Jersey net operating losses. For the six months ending June 30, 2024 and '23 revenue was approximately $4.1 million and $5.5 million, respectively. The US, E-commerce and digital service revenue for the six months ended June 30th was approximately $2.7 million compared to $2.2 million at June 30, 2023.

For the six months ending June 30, 2024 international revenue was approximately $1.4 million, a decrease of $1 million compared to June 30, 2023. International sales decrease due to issues with freight forwarder cabinet during the six months, the company recorded no revenue for China for the six months ended June 30, 2024, compared to approximately $270,000 for the six months ending June 30, 2023.

Gross profit for the first six months of 2024 was $3.1 million or 75% of revenue versus $3.8 million or 59% of revenue for the six months ending for the first six months of 2023. Operating losses for the first six months of 2024 was approximately $3.2 million versus $3.6 million for the first six months of 2023. Net loss for the first six months of 2024 was $1.2 million or $0.02 per share versus a net loss of$3.5 million or $0.05 per share for the comparable period in 2023.

Now I'd like to turn your attention to the liquidity and capital resources. We continue to carefully manage expenses to have maintained a solid balance sheet. At June 30, 2024, the company had cash and cash equivalents of approximately $5.8 million and working capital of $7.7 million and no long-term debt.

At this point, I will turn the call back over to Arjan.

Thank you. And as Keisha mentioned, we continue to maintain a strong balance sheet with approximately $5.8 million of cash and cash equivalents at hand as of June 30, 2024. Which we believe provides us sufficient resources support supporting our growth within both the dental and medical divisions without the need for additional outside capital.

In addition to our improved gross margins, we have taken steps to further streamline operations across the organization. Most notably, we reduced selling, general and administrative expenses by over $1.1 million compared to the same period last year.

Further aligning us with our goal of achieving positive cash flow company-wide. Overall, we believe we have developed an efficient and scalable platform to help drive high-margin recurring sales in the coming years and look forward to reporting for the developments in our medical division as we advance initiatives on both the commercial and reimbursement fronts.

I'd like to thank you for joining the call today. And at this point, we would like to open the call up to questions. Operator?

(Operator instructions)

Anthony Vendetti, Maxim Group.

Thank you the morning. So I agreed the REMs great milestone and to have the MAC coverage starting in Florida, can you talk about the potential for broadening adoption and getting other MAC coverage. Are you in discussions with other MACs at this point and then them what this means for the in terms of the price to Simon and what your internal plans are and to expand the sales force and drive adoption? I know there's a lot in there, but.

Yes, I counted four questions in one sentence. Good morning, Anthony, thank you for asking the question. And just let me make a small slight correction.

The JMAC, it's not only in Florida. It's the JMAC in Florida, New Jersey and Texas, right? So like we stated, always that is gigantic for the company. It's a third of the of the total epidural injection procedures in the United States performed annually. So following your questions, you had the pricing, the sales expansion and the rollout.

So on purpose, as we are restricted by rules and regulations, we cannot in writing I cannot share what the pricing is, but it is publicly available and we are allowed to share with you. The investment community would the reimbursement price when clinicians and in the claims and show medical necessity. So then these Medicare jurisdictions, all three Medicare jurisdictions have granted payment as Part B physician payment rate of three under $25.

In addition to the primary code, which is roughly about $280. So that is the fee. It has been granted by these jurisdictions for procedures, ESI procedures when our technology it is used after sending in the claims and in this necessary documents. So your question about sales force expansion and what it would mean for the company.

So you know what we have been doing, and I keep everybody in mind, you know, our focus is strong execution. So if I look at the time line, I'm pretty proud of what the team including myself have been able to perform on June, July 10. We had the first Florida release on July 23, we had New Jersey and Texas.

We got on July 30, the patent release on August seventh, we have been able to finally negotiate and announce the relationship with actual biologic. So everything in three weeks time, we have been able to make a tremendous step forward in preparing for the commercialization.

In addition, what we have been doing as we have expanded our team towards so the clinical surface specialist and why clinical service specialists because we own and we know and we have the insight know-how about our technology, that means that we can train a commercial partner. So at the same time, we have trained the representatives of actual biologics. We have been in contact with lawyers to set up the right sales agreement.

And the sales approach is really that we are focusing what I call quote, unquote, sort of the big fish strategy, meaning that we are focusing on larger institutions, larger clinicians that do not have a problem, so to say, to commit to a reasonable number of consumables per year, and that is in the range of 100 to 200 consumables per year. As a minimum return, we will not sell the instrument at a high price.

So it is actually a sort of a payback on the instrument or the capital equipment cost for the clinicians. And then taking into account that these clinicians of course, I need to have a price below that $325 because otherwise there would not be an interest to purchase the product. So there is a whole, I call it a discount percentage scheme dependent on the volume that the clinicians are able and willing to purchase our products. And that will trigger then a scale of pricing for these clinicians.

Now what it means for revenues, look it is very simple. On purpose we are focusing on the business plan. It is what I say bring a book of business. They know the pain market, they know the players, they know they know the larger chains, they know the physicians, you know, I would almost say inside out, they have more than 20 years of experience variance in this field.

And in all fairness, that is not what our company is having. So that's the reason why we are liaising and engaging with actual biologic because they bring the know-how, the customer and the clients know how and the client base that we are currently not having.

So actually, this year this week we started with the official rollout. We have a list of institutions that we are targeting at. And like I said, it's a disciplined commercial launch, and I'm very positive and confident that we will be able to get also clinicians that already have used the technology to get them over on that longer-term commitment.

Now the question will come up about revenues. You know all know my style, I will not make any forward-looking statements. But of course for me, I sincerely hope that we can and that's what we are working on that we will be able to have revenues in the third and the fourth-quarter this year. And I think it's a little bit tricky to say what that revenue is going to be because it depends on the first sales calls feedback, and it depends on the institutional and the clinician feedback. But I do foresee that that we will get contributions this year. That's the goal.

And I think we are in a good shape. We have done our homework are we making long hours as always, but we are positive and suggested and comfortable with where we are and the you know, let's get started selling the inventory that we have at hand and then in the next call, we can share more in detail. I would say what's the projections will be, but I think it is fair. Ask and comment to make that let's first do I worked first be in the marketplace, get the first feedback might be that we have to adjust the pricing if that is needed. That's the phase that we are currently. Does that answer your question, Anthony?

Yes, Arjan. And so maybe it's a little early, but have any claims been submitted yet? If so, what does that look like so far?

I know we have submitted more than close to 200 claims since the start. Now it is, of course, different, right? Like I said, the clinicians now we don't have an advisory side in these jurisdictions now it is to get these clinicians over with a sales agreement with the new pricing. Like I said, that we have launched this week to start doing patient cases and get payments that we are in the midst of that process Anthony.

That's correct. What you said it news early, but it sounds like you'll give us an update following the third quarter our results. One, look, one question on the dental business. You know, I know there were no sales from China this quarter, but the international sales and that has been resolved through.

Is it was there lost revenue this quarter that you believe will be recovered in 3Q '24 shifted to 3Q '24? Or is it just that was lost revenue in 3Q and we shouldn't expect any our revenue to shift over into Q3 that was potentially lost in the second-quarter?

So what I what I meant also in this call, I'm not concerned at all about on, let's say, the dental revenues this year. And you know, I know what in the internal planning has always been in the first quarter and the second quarter this year, we we had foreseen, let's say, lower sales than what we anticipate in the second half of the year for several reasons, seasonality, second-quarter seasonality, feedback from the distributors that we actively reached out to.

Well, it is fair to say that of course, the second-quarter results were a little bit lower than we anticipated, but just for everybody to understand what we mean by freight forward issues, those are issues that are in a way out of our control.

Just to give you a flavor, by the end of the second-quarter, we had about $250,000 of products that were finally tax that were on the dock that were eight that were believed or planned to be picked up by the freight forwarder that is directed by the distributor.

So in the last five days of the month back and forth, back and forth. The distributor was not able to get his or her specific trade war forwarder to get to the dock and to pick up the shipments or to pick up the packages and the products that will lead the pack.

So in other words, if that would come in, then we would be quote unquote at par at the initial plans that we had for the second quarter. I can share with you that we had a very strong month of July, and therefore, I'm also making that statement that, our sales are international and both international and domestic will and has to be approved improve by the third quarter or end of third quarter and the fourth quarter this year. So we are on a good trajectory there.

Okay. I appreciate all that color in. I will hop back into queue. Thank you.

You're welcome.

And thank you very much. While there appears to be no further questions in the queue and back over to Arjan for any further comments.

Yes. Well, first of all, thank you for your time today. Like we have said, and I will repeat what we have stated before. We as management of the company, we are still in that in that period that we have celebrated the success in internally on the reimbursement news, we are 100% aware that the expectations have been created to roll this out further commercially to focus full attention full support and full energy on that.

And we absolutely will keep you posted in the in the next couple of months about any news that we will and are able to share with you and thank you for your time today. In case you have any questions, you always can reach out to me directly on the easy accessible and stay safe and looking forward to seeing you or hearing you soon. Have a great day. Thank you.

Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time and have a warm. Thank you for your participation.