Q3 2023 Milestone Scientific Inc Earnings Call

Participants

David K. Waldman; IR; Crescendo Communications, LLC

Adriaan Haverhals; President, CEO & Director; Milestone Scientific Inc.

Keisha Harcum; Controller of Milestone Scientific; Milestone Scientific Inc.

Presentation

Operator

Greetings, and welcome to Milestone Scientific's third-quarter 2023 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.
David over to you.

David K. Waldman

Thank you, Jenny, and good morning, everyone, and thank you for joining Milestone Scientific's third quarter 2023 financial results conference call. On the call with us today are Adriaan Haverhals, Chief Executive Officer; and Keisha Harcum, Controller of Milestone Scientific.
The company issued a press release today containing third quarter 2023 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 third quarter ended September 30, 2023.
Before we get started, we would 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, 2022, and Milestone's report on Form 10-Q for the third quarter ended September 30, 2023.
Forward-looking statements made during this call are based on management's reasonable belief as of today's date, November 15, 2023, 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 Adriaan Haverhals, Chief Executive Officer. Please go ahead, Adriaan.

Adriaan Haverhals

Thank you, David, and thanks to everyone for joining us today. We achieved revenues of $2.1 million for the third quarter of 2023. However, these results do not reflect the true underlying improvements in the business. Most notably, domestic dental sales increased by 45% due to the early success of our new online store for selling and shipping the Single Tooth Anesthesia System and handpieces directly to dental offices and dental groups within the United States.
We achieved these results while moving away from our former distributor, Henry Schein and thus an improved an important validation of our strategy. Even more notably, the new direct selling model has resulted in an increase in gross profit for the third quarter of 2023.
In fact, our gross profit margins increased from 66% for the third quarter last year to 73% for the third quarter of this year, we achieved growth in our domestic revenue and margins despite a small sales team, which shows the potential of our new business model. And while we could spend more to bring on more sales representatives. Our focus for the time being is on maximizing profitability with a streamlined operating structure.
In addition to higher margins, this strategy has provided us a closer and more direct relationship with our customers, thereby increasing our stickiness with the dentists, allowing us to do a better job selling and improving customer service.
In other words, based on the obtained customer identification and purchase patterns. We can now focus on the basic principles of sales execution, being new customer acquisition, developing existing customers waking up so-called sleeping or dormant customers and upselling activities.
At the same time, we have engaged in more direct-to-consumer marketing. These activities have resulted in leads from dentists contacting us directly to order our instruments because patients requested them to do so. We will continue to increase our marketing efforts with dedicated campaigns directly targeted at patients.
Given the domestic traction, we are expanding our efforts to enter new international markets and deepen our penetration within existing international markets. While international sales declined, it's important to note that orders from third party distributors can be lumpy due to the timing and size of the orders.
Nevertheless, our international pipeline remains solid and we expect our international sales to resume growth. We also look forward to announcing the addition of new international partners, which should support our global expansion strategy over the coming quarters. It's also worth noting that our dental division continues to operate profitably. In fact, the dental division generated over $458,000 of operating income on a stand-alone basis, which is 48% increase over the same period last year.
So to summarize, we believe that through our new sales strategy, in combination with our increased marketing efforts, we aim to further grow the dental business at attractive margins in the coming quarters. As we continue to grow our revenues, we expect to benefit from economies of scale, as well as the recurring nature and high margins on our disposables.
Turning to our medical division, we have made significant progress rolling out our CompuFlo Epidural System. Specifically, we have added a new distributor and expanded adoption of the CompuFlo technology in a prominent hospital system and pain management clinics.
Towards this end, we commenced sales of CompuFlo Epidural disposables into Ireland, ambulatory surgery center in Brooklyn, New York. Adoption of the technology by this clinic follows a successful evaluation process by its founder and Medical Director. Dr. Leon Reyfman on interventional pain medicine physicians.
Sales to Ireland ambulatory surgery center represent the company's first foray in the ambulatory surgery center market and addressable market of more than 9,000 centers across the US. Dr. Reyfman was one of a team of four doctors who completed 18 cases using the CompuFlo Epidural System in which they reported a 100% success.
The evaluation included epidural step section procedures within the lumbar thoracic and cervical thoracic junction of the spine. Additionally, we are working closely with a major hospital system to expand use of the CompuFlo beyond labor and delivery to now include use with neurostimulation, spinal cord stimulator implantation procedures.
The CompuFlo Epidural System has proven to be of tremendous assistance in performing spinal cord stimulator cases. Specifically, CompuFlo helps to minimize postoperative complications of spinal cord stimulator implementation. These complications include intra operative cerebral loop fluid leakage and trauma to underlying nerve roots.
Cerebral fluid leakage requires a post operative block patch as well as radical elitist cases that require extended postoperative admission and post-operative steroid injections as a potential complication of this procedure. It has also decreased operative time for the surgery by around 15 to 20 minutes per procedure according to the clinicians' feedback.
As more and more physicians and anesthesiologists perform procedures and submit for reimbursement. Our goal is to secure broad coverage for our technology as we continue to execute on our goal of establishing the CompuFlo Epidural System as the standard of care in epidural analgesia.
During the third quarter, we reported an important milestone. Reimbursement from commercial payers for patients who were involved in motor vehicle accidents. We are now building on this success and making continued progress advancing our reimbursement strategy. Specifically, we are supporting clinicians utilization of the CompuFlo Epidural System across a variety of use cases, which is building support for the appropriate level of reimbursement from insurance providers. These physicians have reported back on claims activities for their payers, and we are encouraged by the feedback from the insurance providers.
I'd now like to take a moment to discuss our reimbursement strategy in more detail. As this is really critical to understanding our overall strategy and the outlook of our medical business. Significant progress has been made in three important areas related to reimbursement, one - provider utilization of CompuFlo, secondly, claim submissions for CompuFlo. And last but not least, acceptance of the CompuFlo new CPT code by health care payer systems for claim processing.
We have established adviser advisory sites across the US direct and actively utilizing CompuFlo and submitting claims to payers across the country. This is important in demonstrating widespread utilization of the technology. To date, physicians have submitted a total of 87 claims to their respective payers using our tracking codes to identify the use of CompuFlo technology when used with an epidural steroid injection primary procedure CPT code also called the primary code for epidural steroid injections.
If you recall, the American Medical Association assigned this CPT code our code as an add-on code to be used in conjunction with one of the eight existing epidural steroid injection codes. We are on target to meet our projection of over 100 claims submitted before the end of the year to payers across the country, claims are being submitted to Medicare as well as commercial payers.
Additionally, some clinicians have submitted claims for motor vehicle accident patients. And as we reported previously, three commercial payers have responded through these claims submissions and paid for it. [Our courage] that health care payer systems appear to have our code loaded into their systems and the code is accepted for claim processing versus a claim rejection because the code is not recognized.
Category three codes like ours are designed for tracking utilization of new and emerging technologies. The submission of claims by our providers and recognition of the category three code by the payers is an important positive step along the journey to positive reimbursement for CompuFlo, which will drive further commercialization of the CompuFlo Epidural System.
Our advisory physicians are beginning to report back on claims activities from that players. There's a wide range of responses. And I'm very happy to report that the mix of responses has been exactly as anticipated. Some of the payers are asking for more information about the CompuFlo because it is new to them. Others are covering based on their established policies.
While there have been denials reported rest assured all the nice claims are being appealed through each payer's individual appeals process. Denials are expected as part of establishing utilization and payment for a new code. Moreover, the high level of claim activity that is being generated by our advisory sites is providing an opportunity to engage with the payers to directly educate them on CompuFlo technology and the unmet patient need the technology serves.
So to summarize our reimbursement progress, we are on target to deliver on our original plan to drive utilization by supporting our advisory clinicians and claims submissions with over 100 claims expected to be submitted by year end. Additionally, we are providing support for each individual claim to have an appropriate response. Finally, the increase in utilization provides Milestone the opportunity to engage with payers to directly educate them on CompuFlo technology.
Turning to the international front, we are expanding our network of distribution partners for CompuFlo. Most recently, we appointed a premier distributor in Spain, which we look forward to announcing in the near term. Spain represents an important market for us with a population in excess of 48 million people and a growing number of epidural procedures each year in pain management and anesthesiology.
Overall, we are targeting independent distributors with existing relationships within key global markets and proven track records, introducing medical devices within their territories. We look forward to announcing additional international distributors as we advance our commercial rollout. We also believe there is a market opportunity for our CompuFlo Epidural instrument within federal and other government agencies as our system can contribute to both improved patient outcomes as well as increased efficiencies.
As we have discussed in the past, we are advancing initiatives following some approval and working to secure approval within FSS, The Federal Supply System. At this point, we believe it's not a question of if it's a question of when. FSS approval would open up the sizable government market.
With this goal in mind, we are doubling down on our efforts to penetrate the DOD and government markets. We were recently invited to present at the international health care summit, which took place last week in Kiev, Ukraine. The event was an initiative by the US Department of Defense in which they invited companies like ours that bring new technologies to collaborate with Ukrainian Ministry of Health and Hospitals.
We are advancing these initiatives with the DOD, whereby we could conduct trials in Ukraine using our technology, which would be funded by the DOD. In addition to the humanitarian aspects of our work. We believe this would be an ideal opportunity to fortify our relationship with the DOD, by highlighting the safety and efficiency of our technology.
So to summarize, we are continuing our efforts to seed the market with our technology among key physicians, which we believe will ultimately translate into widespread adoption. We remain committed to our goal of establishing the CompuFlo Epidural instrument as the new standard of care in epidural anesthesia by providing patients with effective pain relief while reducing the risk of complications.
At this point, I'd like to turn the call over to Keisha Harcum, Controller to go over the financials in detail. Please go-ahead Keisha.

Keisha Harcum

Thank you Arjan. Revenue for the three months ended September 30, 2023, and 2022 for approximately $2.1 million and $2.2 million respectively, due to an increase in domestic revenue sales of $386,000 offset by a decrease in international dental sales of $539,000.
Gross profit for the third quarter ended September 30, 2023, was $1.5 million or 73% of revenues versus $1.5 million or 66% of revenue for the third quarter ended September 30, 2022. The increase in gross profit was due to the higher margin sales with the launch of the new online portal. Operating losses for the three months ended September 30, 2023, was approximately $1.5 million versus approximately $2 million for the third quarter ended September 30, 2022.
The reduction in operating losses reflects the increase of gross profit and the decrease of selling and general and administrative expenses. The net loss was approximately $1.5 million or $0.02 per share for the three months ended September 30, 2023, versus net loss of $2 million or $0.03 per share for the comparable period in 2022.
For the nine months ended September 30, 2023, group revenue increased 15% to approximately $7.6 million compared to $6.6 million for the same period last year, driven by an increase of domestic dental sales of $1.3 million particularly offset by a decrease of international sales of $135,000.
Gross profit for the nine months of 2023 was $5.3 million or 70% of revenue versus $3.8 million or 58% of revenue for the first nine months of 2022. Operating losses for the first nine months of 2023 was approximately $5.1 million versus approximately $6.8 million for the first nine months of 2022.
Net loss for the first nine months of 2023 was $5 million or $0.07 per share versus net loss of $6.8 million or $0.1 per share for the comparable period. As of September 30, 2023, the company had cash and cash equivalents and short-term securities of approximately $4.6 million and working capital of approximately $6.7 million at this point, I'll turn the call back over to Adriaan Haverhals.

Adriaan Haverhals

Thank you Keish. Through our new dental sales strategy, including our online store and our enhanced marketing efforts, we are increasing domestic sales at higher margins. While our international sales pulled back. This was largely a result of the timing of orders and our focus on the domestic market. That said, we expect to resume solid international growth going forward and continue to add new distributors.
Our dental business continues to generate positive cash flow on a stand-alone basis. And as we continue to grow our revenues, we expect to benefit from economies of scales due to the recurring nature and high margins on our disposables. We believe we have developed a scalable platform to drive our dental instrument and handpiece sales in the coming years.
On the medical side, we remain encouraged by the outlook for the business given our sales pipeline, the addition of new hospitals and expansion in existing pain management clinics as well as expansion of our distribution partners.
Most importantly, we are now making progress advancing our reimbursement strategy around the CompuFlo Epidural System. As I mentioned earlier, we expect to reach over 100 claims submitted by year end, and these physicians have reported back on claims activities from the payers. We are encouraged by feedback from the insurance providers to the clinicians and are engaging with that directly payers to educate them on the CompuFlo technology.
We are also advancing initiatives following our SAM approval and leading up to potential federal supply system approval, which would open up the sizable government market.
So to wrap up, we are witnessing growing interest in both our dental and medical instruments, and we believe we are well positioned to take advantage of the opportunities available in the market. The medical segment represents a large addressable market, and we remain confident in our belief that CompuFlo will ultimately become the standard of care, given both the safety advantages as well as cost savings to the providers and payers.
These factors, coupled with our reimbursement strategy, should ultimately lead to increased sales and adoption of the CompuFlo system. At the same time, we continue to maintain a lean operating structure, and we are laser-focused on driving shareholder value, we look forward to providing further updates as developments unfold.
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?

Question and Answer Session

Operator

Thank you very much. At this time we will be conducting a question-and-answer session.(Operator Instructions)
Anthony Vendetti, Maxim Group.

Thank you. Good morning. This is actually Jeremy on the line for Anthony. Just a just a general question overall, macroeconomic conditions in a lot of other companies were following they are being affected by higher interest rates and inflation over the last couple of months here. Have you seen any of that affecting your business at all or was the softer sales than we had expected more just like just like you mentioned, like you mentioned on the call and the earnings was just the lumpiness of international?

Adriaan Haverhals

I have not seen, let's say, any effect on interest or macro-economic environment, changes that affect that affect our business. On the contrary, we have announced our price increase in this in the fourth quarter. We have to do that because we did have to give our international business partners 90 days so to say, pre warning of price increases. And also during the months July, we increased our prices on the handpieces by 10% we have not received any firm complaints about customers about pricing or, the availability to pay for these components and for our product. So the answer to the first part of your question is no.

Sounds good.

Adriaan Haverhals

Yes. Secondly, you asked a question about lumpiness. I think we you know, there's always the story behind the numbers, right? Seasonality is mainly in the international markets in Europe where we are coming from. And I want to refresh everybody if we look in the second quarter last year and the third quarter last year, our business was dramatically hit by the Ukrainian-Russian war. That was a result of $1.6 million in the second quarter in net revenues in last year. If you compare and it's pretty obvious if you compare our current second quarter results and you combine the second quarter and the third quarter results, we have surpassed and close that gap of the loss in the second quarter of and the third quarter of this year.
So in other words, over the nine months, I think we are trading about $1 million compared to last year, which is a 15% growth. So we should not just look at seasonality or lumpiness there some reason why things are happening. Some of the markets, like, for example, in last year, we won a big tender business in Qatar, onetime, a one-time event, which is about $100,000.
And you know, those one-time events will definitely influence your further revenues as well. And another distributor that we signed up a year ago then the first year they they bought it for about $500,000. This year. They will buy for $210,000. So it's not a matter of of the business lagging behind. It's a matter of adding new distributors as we continuously doing, they stock up their inventory.
And in the second year, they purchase less than in the first year. Nevertheless, of course, what is key for the company is to enter new markets now where we currently are not present. I mentioned in previous call, Brazil, the ramp-up is slow but the investment of this company, they go from two salespeople to six salespeople. So it is a matter of time when we really can harvest the efforts of these distributors based on their investments. And there are other markets where we have already been given presentations for larger dental service organizations, in particular in countries.
And I can mention that we have to be seen with that when the agreement is going to be signed. But there are a couple of countries in Latin America. We recently have been also in Lithuania, which is an important market within dentistry. So it is not that nothing is happening on the execution side. On the contrary, increased activities, we do not see them yet, but I'm 100% convinced that in the future we will see the results of these activities.
And then, of course, I know people might believe that the portal is simple and easy to establish and the customers will call up automatically. That's not always the case. We have to make an effort to reach out to these customers as we have been doing to the third quarter. And we have been able to, you know, to get upselling activities and wake up sleeping customers. And have changed our current instrumentation from the old instrumentation. So there's a heck of a lot of activities going on in the background of which I believe that we will see the results moving forward.
Sorry, for my little bit, lengthy reply and I think it's important that everybody understands this.

It was really informational, thanks. And then switching to the medical side, one question there, you had you said you had 87 claims submitted using your tracking code, you expect to have 100 by the end of 2023. So just trying to have what is that what how many claims you think need to be submitted? How much data do you need to collect before you think you'll really be able to approach payers and really just across the board you'll get the broad coverage that we're looking for that would really help [snowball] the adoption of the CompuFlo.

Adriaan Haverhals

Yes. No, that's a very good question. And if somebody would be able to give me that answer. I'm all ears because there's no rule of thumb, but there's no golden rule of how many claims do you have to submit? I think it is of extremely importance that -- like I've always said, you cannot reach out to insurance providers if you have not submitted claims and if you are not within the process, and this is what I meant with my statement, and I would like to repeat that again.
The fact that our code is uploaded in the insurance systems that is that is fantastic because what other people tell me what other companies have been seeing in the past is that if insurance providers would not be interested in a new technology like ours, you will get a denial within two weeks. On the contrary, we are uploaded in the index system. They look at it. They evaluate it. They give response some denials from payers, some motor vehicle as we as we have reported previously.
But the opportunity for us is now that we finally can help the clinicians to educate directly and ask for meeting with healthcare insurance providers that we are active in the region to explain in detail, not only the technical and the clinical benefit, but why it is a no-brainer that health care insurance providers, should adopt our technology and should allow for the payment to this to these clinicians, in particular for Medicare.

No, I understood. And then just and then maybe just last question. How are you finding a balance between your over the last many months, even over a year, you're always putting out the news.
It's great. You're signing up new pain clinics, new hospital center, selling that CompuFlo. But how are you finding about that's enough focus on this advisory physicians who are leading the pack when it comes to submitting the claims and trying to get that, you said that's what's going to be needed to get that broad adoption and also just signing up new new centers, new hospitals where you know how you split you're the , you said you're limiting you're trying to keep your cost limiting your resources, your sales team down. Where are you finding that balance between signing up new customers and also focusing on being laser focused on getting that broad coverage, which would then hopefully, lead to just wider adoption across the board.

Adriaan Haverhals

Yes. that goes hand in hand of course for me and for the company, personally, it goes back to your question, is there a number of 100 or 200 or 500. What we need to do is I need to drive utilization and it goes hand in hand. First of all, yes, we will work further because I would like to add additional clinics that drive that volume. But also existing customers that were joining us, let's say, a year ago. And they are also willing to do to do these cases and particularly from fueled by the forensic and surgical forensic junction approval by the FDA right.
Now, what is important to understand, of course, the existing customer base, we are in continuous contact and the simple fact and I want to allude on that a little bit more this hospital that I alluded on for spinal cord stimulator procedures. I can share with you that that's a major breakthrough for the company. The breakthrough is that it is an existing hospital and that we have been working with in the last one to two years. And the neurosurgery department, they have used a system for spinal cord stimulators.
At a price level, which is three times the price level that we did two years ago, 2.5 years ago when I started with this company. Driving the margins to almost 90% for these procedures. So what we are doing is we are establishing a pricing that is important for the reimbursement and also of what we believe is and is the right balance on the price you scale. So to say perceived value to versus what the company, what the customers willing to pay for that.
And in this case, we followed the entire process within the hospital, having meetings with the financing department and with the value assessment committee department and it went through. So that's the reason why I'm very encouraged also that we get access and that we increased the penetration in these type of hospitals for this type of procedures, which is important.
So the balance is really we take whatever opportunity there is even in the aftermath of the motor vehicle reimbursement that was obtained. You know that clinician and question has increased the number of these patients in the number of these cases, it has enjoyed an increase in coverage for these patients.
But in the aftermath of that, it also opens up other clinicians and other clinics that we are talking to. Now the reason I only release clinics when there is real news. And by meaning data that I released the news on these clinics when we have signed them up when they have ordered the products when they have paid for the products and when they have done 18 to 20 patients. Because it also gives us the opportunity to get a quotation and get the feedback by the clinician.
I'm not going to, you know, hindsight and say, okay, it might come in a couple of weeks now. This is the real world. And this is the transparency and directness that we provide with our company.

Okay, great. Thanks for all that additional information. I'll join the queue

Adriaan Haverhals

Thanks a lot.

Operator

Thank you very much. Well, we appear to have reached the end of ours. I will now hand back over to Arjan for any closing comments as well.

Adriaan Haverhals

Thank you. Thank you all for joining this call. Again, I would like to confirm and repeat that there is increased level of activities, we create a solid baseline and there's a lot of activities going on of which we believe that the company and the shareholders will benefit from in the future. And I wish you a good day, stay safe and we will keep you updated and reach out to you with any further news that we can provide in due time. Thank you for your time and have a good day. Bye-bye.

Operator

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