Milestone Scientific Inc. Q3 FY2024 Earnings Call

Good morning, everyone. Welcome to the Milestone Scientific’s Third Quarter 2024 Financial Results and Business Update Conference Call. At this time, all participants are in a listen-only mode and we will open for questions following the presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, David Waldman, Crescendo Communications. David, the floor is yours.

Thank you, Jeni. Good morning, and thank you for joining Milestone Scientific's third quarter 2024 financial results conference call. On the call with us today are Neal Goldman, Chairman of the Board, Arjan Haverhals, Chief Executive Officer; and Keisha Harcum, Vice President of Finance at Milestone Scientific. The company issued a press release yesterday afternoon containing third quarter 2024 financial results, which is also posted on the company's website. If you have any questions after the call or need 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, 2024. Before we get started, we'd like to remind everyone that during this conference call, we may make forward-looking statements regarding the 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 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, 2023, and Milestone's report on Form 10-Q for the third quarter ended September 30, 2024. These forward-looking statements made during this call are based upon management's reasonable belief as of today's date, November 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 Arjan Haverhals, Chief Executive Officer. Please go ahead, Arjan.

Thank you, David. And thanks to everyone joining us on the call today. This quarter was an important one for Milestone Scientific as we achieved a 22% increase in year-over-year revenue, reaching $2.5 million, primarily driven by strong growth in our dental division. In particular, international dental sales increased by 57% as logistics challenges seen in the second quarter of 2024 were resolved. Domestically, our shift to an e-commerce sales model is paying off by allowing us to connect directly with our customers and offer a streamlined, responsive experience that enhances customer loyalty and satisfaction. This approach has strengthened our gross margins, which remain high at 73%. In our medical division, we continue to see substantial progress rolling out the CompuFlo Epidural System. This technology, which offers real-time pressure feedback to assist physicians with precise needle placement and verification, addresses a critical need in pain management and anesthesiology. Earlier this year, we achieved a Medicare Part B physician payment rate assignment for the CompuFlo Epidural System, which applies across several major Jurisdictional Medicare Administrative Contractors, JMAC regions, including New Jersey, Texas, and Florida. This assignment has sparked interest in our system, and we are excited to share that respected clinics such as Hudson Specialty Care, led by Dr. Elbaz, and the iHEAL Pain Center in Texas have now adopted the CompuFlo Epidural System, demonstrating the traction we are gaining among top pain management providers. Both clinics are renowned for their expertise in pain management, and their decision to adopt CompuFlo reflects recognition of the system's value in improving patient safety, predictability, procedure efficacy, and provider efficiency. Expanding Medicare reimbursement has been a cornerstone of our US strategy as it addresses a significant barrier to adoption by making the system financially accessible to more providers and patients. Through our collaboration with Medicare jurisdictions and the engagement of JMAC, we are continuously working to educate payers on CompuFlo’s clinical utility, safety benefits, and predictive reliability. By doing so, we aim to build a foundation that will enable broader adoption across the country. Currently, additional JMAC regions are evaluating the system, and we are optimistic about extending our coverage. Notably, CompuFlo already serves a large addressable market, with 3 million epidural steroid injection procedures performed each year in the JMAC regions where we have received Medicare payment rate assignments. Medicare patients alone represent an estimated $250 million market opportunity for these procedures, offering us a robust entry point for growth. Our strategic partnership with Axial Biologics is a key component of our commercial approach. Axial has a strong presence and deep relationships in the pain management space, particularly in the JMAC regions of New Jersey, Texas, and Florida. By partnering with a specialized distributor like Axial, we can target key clinics more efficiently and deepen our footprint within these critical markets. This partnership enables us to deploy CompuFlo into the hands of providers who are best positioned to advocate for its benefits and build awareness among patients. In line with our commercial strategy, we are encouraged by the growing sales pipeline for CompuFlo. We have additional pilot programs underway with pain management clinics across the United States, which are designed to further validate the system's utility and showcase its value to practitioners. These pilots have provided valuable real-world insights and allow clinics to experience firsthand the clinical advantages and safety profile that CompuFlo brings to epidural procedures. With positive results from these pilots, we anticipate that clinics will continue to move from trial to full-scale adoption, contributing to increased sales in the coming quarters. On the international front, we recently secured regulatory approval from Brazil's health agency to market CompuFlo for use in epidural procedures. Brazil represents a significant opportunity, with over 2.8 million births annually and a large population experiencing chronic back pain. Our market entry strategy in Brazil involves establishing relationships with leading medical institutions and local commercial partners who will help us launch CompuFlo effectively within the region. As the ninth largest economy globally, Brazil opens the door to Latin and South America, providing a promising growth avenue for Milestone Scientific. In addition to Brazil, we are expanding our global reach by forging relationships with distributors in key markets, each selected for their proven ability to introduce innovative medical devices within their territories. By targeting these independent distributors, we are strategically entering markets where there is demand for safe and effective alternatives to traditional epidural procedures, particularly in regions with limited training and resources. As we look ahead, our focus remains on advancing reimbursement initiatives, strengthening our commercial infrastructure, and deepening our market penetration. With the traction we're seeing from Medicare coverage, respected clinics like Hudson Specialty Care and iHEAL Pain Center adopting our CompuFlo Epidural System, and ongoing pilot programs contributing to a growing sales pipeline, we are confident in our ability to drive further adoption of CompuFlo in both the United States and international markets. Lastly, I'd like to briefly touch on our dental division, where the positive effects of our e-commerce transition continue to be felt. By selling directly through our online platform, we've created a seamless purchasing experience, resulting in increased customer engagement and improved margins. This e-commerce model has set a strong foundation for steady growth in the domestic market. Over the nine-month period for this year, we were able to grow the e-commerce business by 11.4%, and we are complementing this with targeted marketing campaigns aimed at expanding our customer base further. As I approach my retirement as CEO of Milestone Scientific at the end of this year, I want to express how deeply fulfilling it has been to lead Milestone Scientific during this transformative period. Together, we have made substantial strides, securing a stable financial and operational foundation and achieving significant advancements, including the Medicare Part B Physician payment rate assignment for the CompuFlo Epidural System. This milestone, along with strengthened partnerships and broadened commercial reach, has positioned Milestone on solid footing for continued growth and innovation. While I'm looking forward to spending more time with family and pursuing other interests, I remain committed to Milestone’s success. I'm honored to continue contributing to the company's future as a member of the board, where I will work closely with our leadership team to support the full realization of a shared vision for Milestone’s role in enhancing patient care and taking drug delivery from the 1900s to the 21st century. With the remarkable groundwork we have laid, I'm confident that Milestone Scientific is well-equipped to achieve its next phase of growth, and I'm excited for what lies ahead. Thank you. Now I'd like to turn the call over to Keisha Harcum, our Vice President of Finance, to go over the financials in more detail. Keisha, please go ahead.

Thank you, Arjan. Revenue for the three months ending September 30, 2024, was approximately $2.5 million compared to $2.1 million for the same period in 2023. The US e-commerce and dental service revenue for the three months ending September 30, 2024, was approximately $1.2 million. For the three months ending September 30, 2024, international revenue was approximately $1.3 million, an increase of $0.5 million compared to September 30, 2023. International sales increased due to the company resolving the freight forwarder delay in the second quarter of 2024. The company recorded no revenue from China for the three months ending September 30, 2024, and 2023. Gross profit for the third quarter ended September 30, 2024, was $1.8 million, or 73% of revenue, versus $1.5 million and 73% of revenue for the third quarter ending September 30, 2023. The increase in gross profit was due to higher international sales. Operating loss for the three months ending September 30, 2024, was approximately $1.5 million, a decrease of approximately $38,000 compared to the same period in 2023. Net loss was approximately $1.5 million, or $0.02 per share for the three months ending September 30, 2024. For the nine months ending September 30, 2024, revenue was approximately $6.6 million compared to $7.6 million for the same period in 2023. The US e-commerce and dental service revenue for the nine months ending September 30, 2024, was approximately $3.9 million compared to $3.5 million at September 30, 2023. For the nine months ending September 30, 2024, international revenue was approximately $2.7 million, a decrease of $0.6 million compared to September 30, 2023. International sales decreased due to issues with freight forwarder carriers during the second quarter of 2024. The company recorded no revenue for the nine months ended September 30, 2024, compared to approximately $270,000 for the nine months ended September 30, 2023. The gross profit for the first nine months of 2024 was $4.9 million, or 74% of revenue, versus $5.3 million, or 70% of revenue for the first nine months of 2023. Operating losses for the nine months of 2024 were approximately $4.7 million versus approximately $5.1 million for the first nine months of 2023. The net loss for the nine months of 2024 was $2.7 million or $0.03 per share, compared to a net loss of $5 million and $0.07 per share for the comparable period in 2023. The decrease in net loss was primarily driven by the company's receipt of approximately $2 million net of expenses for the sale of New Jersey net operating losses. Now I would like to turn your attention to liquidity and capital resources. We continue to carefully manage expenses and have maintained a solid balance sheet. At September 30, 2024, the company had cash and cash equivalents of approximately $4.8 million and working capital of $6.9 million with no long-term debt. At this point, I'll turn the call back over to Arjan Haverhals.

Thank you, Keisha. And as Keisha mentioned, we continue to maintain a strong balance sheet with approximately $4.8 million of cash and cash equivalents as of September 30 this year, which we believe provides us with sufficient resources to support our growth within both the dental and medical divisions without the need for additional outside capital. We have maintained a lean operating structure and remain committed to driving shareholder value. On the medical side, we remain encouraged by the outlook for the business given our sales pipeline, the addition of new pain management clinics, as well as the expansion of our international distribution partners. Most importantly, we are making progress advancing our reimbursement strategy around the CompuFlo Epidural System. We are advancing discussions with additional JMAC regions to further expand our coverage, and we look forward to providing further updates. The medical segment represents a large addressable market, and we remain confident that CompuFlo will ultimately become the standard of care in epidural procedures with a focus on clinical precision and safety. So to wrap up, we believe we have developed an efficient and scalable platform to help drive high-margin, recurring dental sales in the coming years, and we look forward to announcing further developments in our medical segments 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?

Your first question is coming from Nick Sherwood of the Maxim Group.

Hi, good morning. Thank you for taking my questions. How are discussions going with pain clinics and hospitals following the positive reimbursement decisions?

Thank you for your question, Nick, and good morning. I am pleased with the initiatives that we undertook since we launched after the reimbursement to refresh our minds a little bit. On July 23rd, we got our last reimbursement of positive price assignments by the Medicare Jurisdictions; in the middle of August, I think, on the top of my head, we were able to sign the partnership with Axial Biologics. We finalized our pricing strategy, and the week after Labor Day, so that was the second week of September, we officially launched the product, thereby providing different pricing options for clinicians and actively reaching out to clinics in the three jurisdictions where we received the positive Medicare price assignment. In particular, through the knowledge that Axial provided, we have about 40 hot leads. I'd like to express that and explain that to you because our company did not have any background or history in private pain clinics. Axial Biologics knows them in all these three jurisdictions, so that resulted immediately in our opportunity to provide what we call pilots. The sales process is that we will do a number of cases with the clinicians, with support from our people and actual people, clinicians will then do a number of procedures themselves, and then based on their patient schedule and decision-making process, they will decide to purchase the equipment and purchase the components. That has actually resulted in two clinics that have already adopted the technology. As we speak, last week, we had a major event in New York and New Jersey that was very successful, where we were able to sign up additional clinics for demos and pilots. So I'm pleased with the activities that we are undertaking, and I do not have any complaints based on these activities. Look, it's very simple. It's six days a week. We are in clinics, doing demos, doing trials and getting people more interested in the technology that we provide.

Understood. And kind of following up on that a little bit, you mentioned that you have a growing sales pipeline. How are you balancing growing that sales pipeline but also sort of converting those leads? What is the balance there? Are you trying to keep converting at the same rate but build a large backlog? Or can you kind of just give me a little bit of insight into your process there?

Yes, I think this is the basic principles of sales management, right. And I don't want to sound arrogant here; that's not my point. But my comment is based on, of course, when we follow the sales process, you have to build up the funnel. On a daily basis, I track which clinics are in an evaluation phase or which clinics have received quotes. So it is a combination. On a daily basis, we want to increase the sales funnel. I'm not calling it a backlog. These sales funnels, as I said, are clinics that have confirmed to us that they would like to receive a demo. Of course, at the same time, we are focusing on once we have been in the clinic, in a very short period thereafter, to convert this clinic into purchasing products based on that patient schedule. It's not that one day we focus on this and the next day we focus on the other thing. No, continuously, we're focusing on two things: A) to increase the sales funnel, improve the quality of the sales funnel, perform our demos and trials and pilots, and then last but not least, to ensure that we can convert those clinics as well.

Okay, I understood. And then if you allow me a third question, can you share any information on utilization and reorder rates from clinics who have been using the CompuFlo for some time now?

Yes, absolutely. I think those clinics that have been part of the advisory board or advisory clinics that we used in the beginning—our flagship is definitely the clinic of Dr. Demesmin in New Jersey that has a very strong reordering pattern. They are also increasing the utilization of our technology. So that's probably the fifth tier right in the sales process that I already explained to you after conversion. Of course, we want to ensure that we are able to increase the reordering pattern. One of the clinics recently appointed purchased products that immediately included five boxes of consumables, which are materials for the first 50 patients. I talked with the doctor a couple of days ago, and he already completed 15 procedures, which is very encouraging for us. He is also committed to a pricing based on the volumes; that is very positive for us. I think another question could be, do we get any feedback or pressure on the price proposal for the consumable? The answer is no. This tells us that the strategy we have chosen, the sales strategy we have defined, is accepted by the clinicians as they see the immediate benefit of receiving the reimbursement fee once they submit the documentation and medical necessity confirmation to the Medicare insurance providers within their region.

Okay, thanks for the detail. Yes, I guess maybe just one last question: you mentioned that the international dental had a really strong quarter. What are the specific drivers of that, and how do you plan on maintaining that momentum?

Yes. As I explained in the second quarter, there were logistics hiccups and challenges with our freight forwarder; those have been resolved. So that's not the only reason. Another reason is that we were able to close the gap; I think there was an additional difference of about $0.5 million of sales compared to the quarter last year. So the business is growing, and as we continue in the fourth quarter, the goal is, of course, to surpass the international dental sales in the fourth quarter of last year, and we are making good progress on that. So again, I'm positive that the international sales will continue. A caveat being, of course, we have not sold anything to China this year compared to last year, which was $270,000. E-commerce is going fantastic. The strategy we had in the United States by terminating the current agreements with other distributors as of September last year has paid off. It seems that the strategies we have chosen are working. At the end of the day, it's very simple; it's all about execution, and that is what we are focusing on.

Your next question is coming from Bruce Jackson of the Benchmark Company.

Hi. Good morning, and thank you for taking my questions. If we could just talk a little bit more about the JMAC and the strategy for getting additional JMACs. Of course, there's a process involved with that. Can you kind of give us a sense of how long it takes to get a JMAC on board, and if we're going to see continued progress on that in the next couple of quarters?

Absolutely. Good morning, Bruce, and thanks for your question. The last part of your question, if there is continuous progress, the answer is absolutely yes. We have received the price assignment in three states—Texas, Florida, and New Jersey. We are in advanced steps in four other JMACs. We have reached out to the JMAC; that relates to part of your question about what the process is, because of the positive response we got from the first three. We reached out to the other four, which has resulted in meetings similar to what we did with the first three—where we are able to educate and explain in detail what the technology is about, with the support of clinicians in those JMACs. Then the clock starts ticking again, depending on the JMAC and how fast they will make the decision on the positive pricing assignment for our technology. So again, with a limited team that we have, I'm positive and encouraged that we will be able to move forward with this process as well.

And then a follow-up to that: in conjunction with that process, do you have distributors and other partners identified for those JMACs, so that once you get the JMAC reimbursement, you're able to commercialize quickly?

Yes, we have what I always call a target list of distributors in those JMACs. In all fairness, these distributors will only want to engage once there is a confirmation that there is a positive pricing assignment. That's the situation we are in. But yes, we know who they are, and it's up to us to ensure that we identify the right partners, like I explained in the past. We are interested in those distributors that have strong relationships with customers who know the pain segment and pain clinics that can provide leads, what I would call hot leads to us in those JMACs instead of having a national or larger distributor, where you have to fight to become top of mind to be able to execute on the commercialization.

Okay. And then, moving over to the revenue numbers, you mentioned that you've addressed the freight forwarding issue internationally and that revenue there should be up year-on-year for the fourth quarter. In general, for the total revenue number, will that also be up year-over-year?

Well, the goal, of course, is without making a forward-looking statement, the goal for us is to reduce the gap we have seen compared to the nine months last year. We are striving to close that gap with all the efforts and resources we have. We are also pushing it domestically. We will have a special Thanksgiving campaign, which was very successful last year. We are doing everything we can to develop our existing customer base by actively reaching out to reactivate dormant customers, while also acquiring new ones. There is a wide array of activities to further support and enhance the total year results for 2024.

Well, we appear to have reached the end of our question and answer session. I will now hand back over to Arjan for any closing remarks.

And again, thank you for joining the call today. Our purpose and our goal are to continue to apply pressure on the market and on the clinicians. I will continue to urge the organization to produce the results that not only I am looking for but more importantly, those that all shareholders and investors are looking for. If you have any questions, you know where to find me. Please do reach out to me, and I will be available to answer any further questions you might have. I wish you a good and safe day, and we will talk soon. Thank you. Have a good day. Bye, bye.