Q4 2023 Milestone Scientific Inc Earnings Call

Participants

David Waldman; IR; Crescendo Communications, LLCescendo Communications

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

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

Presentation

Operator

Good morning, everyone, and welcome to the Milestone Scientific 2023 Year-End Financial Results and Business Update Conference Call. At this time, all participants have been placed on a listen-only mode. And we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, David Waldman, Investor Relations of Milestone Scientific. Sir, the floor is yours.

David Waldman

Good morning, and thank you for joining Milestone Scientific's 2023 year end financial results conference call. On the call with us today, our REN Hover halls, Chief Executive Officer, Mary Kay Sharpton, Vice President of Finance of Milestone Scientific Company, issued a press release today, April first, 2024, containing 2023 year-end 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 two one two six seven one one zero two zero. The company's management will now provide prepared remarks reviewing the financial and operational results for the year ended December 31st, 2023.
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 and are based upon 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 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 31st, 2023. The forward looking statements made during this call are based on management's reasonable belief as of today's date, April first, 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 Ari and have our host, Chief Executive Officer. Please go ahead, Ari.

Adriaan Haverhals

And thank you, David, and thanks to everyone for joining us today.
I'm pleased to report that we achieved solid financial results in 2023, with revenue increasing 12% to $9.8 million.
We also reported an increase in gross profit of 39% for the full year 2023 to $6.8 million.
And I'm especially proud to report that our dental operating income increased by 90% to $2.1 million in 2023 This strong margin improvement and improved profitability within our dental division was due in large part to a streamlined operations and the success of our new portal for selling and shipping. The SDA single tooth anesthesia system and handpieces directly to dental clinics and dental service organizations or DSOs.
Within the U.S., we achieved solid growth despite 2023 being a transitional year having terminated the agreement with our prior distributor Henry shown at the end of 2022.
We also terminated all nonexclusive agreements with other distributors in the US in September 2023, we didn't make that decision lightly. And in hindsight, this was the right decision. I'm confident our new strategy is working and anticipate enhanced benefits from this transition to a direct model in 2024, establishing a closer and more direct relationship with our dental customers has not only improved margins, but has also allowed us to do a much better job selling and providing outstanding customer service, which has led to much greater stickiness and repeat orders within existing clients. Since the launch of the portal, we have been able to track sales data and conduct sales analysis. We now know the customer's identity and purchase patterns, enabling us to really improve sales execution with existing customers and reactivate dormant customers in the U.S. In addition, we have implemented educational programs to enhance the customer experience as well as maximize the relationship over time.
This direct relationship allows us to provide the necessary training and ongoing support to ensure continued usage by dentist and hygienists.
Importantly, this approach has proven effective within individual practices, dental service organizations and large group practices. The direct sales model provides greater interaction with the customer and higher level support for both large and small practices. In turn, this has helped attract premier customers.
For example, we added Maine dental group to our growing roster.
Of dental practices, which includes 21 practices across the northeastern United States. Additionally, we commenced direct sales to Meridian, Endo and perio, a large endodontics, periodontists and implant dentistry practices with three offices invents in Wisconsin. This includes the deployment of the SDA in each of the operatory rooms and across all the endodontics and periodontists within the practice. These latest agreements illustrate the benefits of our new sales strategy and our ability to cost effectively scale the business by adding large dental practices. We also believe that having such prestigious large group practices will help shorten our sales cycle and enable us to aim at further penetration of the DSO. and large group practice market grow going forward.
We are clearly executing our new sales strategy with a much leaner sales organization, allowing us to enhance our margins and maximize profitability. We are also rolling out a variety of marketing initiatives to drive greater awareness of our technology among dental practices nationwide. Specifically, we have engaged in more direct-to-consumer marketing. These activities have resulted in lead 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, while our international sales pulled back slightly. This was largely due to the timing of orders, certain distributors working through inventory and our focus on the domestic market. We also made the decision to pull back from China until market conditions improve. That said, we expect to resume solid international business heading into 2024 and to continue to add new international partners, which should support our global expansion strategy.
On a final note, we are on track with our next-generation dental instrument and look forward to unveiling it in the near future.
It's also worth reminding everyone that our dental division continues to operate profitably. As I mentioned earlier, the dental business generated over $2.1 million of operating income, which is a 90% increase over the same period last year.
So to summarize, within our dental business through our new direct sales strategy and our increased marketing efforts, we aim to further grow our dental business 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 business.
Turning to our medical division, we are also advancing the rollout of our CompuFlo Epidural System. Specifically, we have made significant progress in penetrating key hospitals, health care systems and pain management clinics. We are also witnessing existing customers expand their use of CompuFlo an important example is UTMB. health. Clearly, campus Hospital, which has commenced use of the CompuFlo beyond labor and delivery to now include neurostimulation, spinal cord stimulator, implantation procedures, illustrating the versatility and growth potential of our instruments. Spinal cord stimulator is an implanted device that cents. low levels of electricity directly into the spinal cord to relieve pain, an estimated 60,000 spinal cord stimulators are implanted each year.
This implies a potential company revenue of $18 million alone.
In this segment, we need to remind ourselves that the total market of epidural injections is $11 million, assuming a 20% penetration in this market. That is the equivalent of $80 million in net profits on the consumables for the Company on an annual basis. Approval and adoption of the technology for neurostimulation spinal cord stimulator implementation followed a successful USV evaluation process by Dr. Patrick tariffs, a full-time faculty neurosurgeon at UTMB. who operates at both the Galveston and Clear Lake campuses. Dr. Krebs completed 10 cases using CompuFlo in which he reported 100% clinical success and no complications.
I'm pleased to report that further expansion of our technology at UTMVB is underway.
Compuflo has Pro proven to be of tremendous assistance in performing spinal cord stimulator cases, specifically CompuFlo helps to minimize the risk of interoperative cerebral fluid leakage and trauma to underlying nerve roots, both potential complications of spinal cord stimulator procedures. Cerebral fluid leakage can require a postoperative blood patch, which while nerve root irritation can cause severe ready colitis requiring extended post operative admission and postoperative steroid injections, CompuFlo has also decreased operative time. One of the major hospital cost drivers by around 20 minutes per procedure according to clinicians' feedback.
Most recently, we commenced sales of CompuFlo Epidural disposables to Omaha pain physicians, a comprehensive medical pain management center in Omaha, Nebraska.
This approval follows an extensive trial and evaluation by Dr. Matthew startle, its founder and Medical Director. Of this total, completed 10 cases using CompuFlo in Omaha pain physicians in which we reported 100% clinical success evaluation included epidural steroid injection procedures within the lumbar, thoracic and cervical forensic junction of spine. As more and more physicians, anesthesiologists perform procedures and submit for reimbursement. Our goal is to secure coverage for our technology as we continue to execute on our goal of establishing CompuFlo to become the standard of care in epidural analgesia.
I'd now like to take a moment to provide an update on our reimbursement strategy. We are making good progress in advancing our broad reimbursement strategy through a carefully staged approach we are working closely with key pain management providers in the use of the new CPT tracking code for accurate and timely CompuFlo claims submission. Additionally, we are providing support to the clinical facilities for each individual claim to have an appropriate response.
We have established sites across the U.S. that are actively utilizing QuantaFlo and submitting claims to payers across the country rather than spreading ourselves thin by bringing on too many hospitals and paying clinics before reimbursement approval, we realized it was better to focus on working closely with a handful of pain clinics and provide them the necessary professional support to help ensure positive payer reimbursement.
We are supporting these clinicians utilization of the CompuFlo across a variety of use cases, which is important in demonstrating widespread utilization of the technology use of our system by these providers followed successful evaluation periods by the clinics and physicians. And in each case, they reported 100% success with zero Dura punches. I'm pleased to report that our clinical sites have submitted claims for over 45 patient procedures in the first three months of 2024 alone, which is nearly half of the team's resubmitted in all of 2023. All claims submitted to date using the CPT triple 70 codes have been uploaded by payer systems for processing claims are being submitted to Medicare as well as commercial payers.
We are encouraged by the high level of claim activity that is being generated by pain management providers, which provides milestone the opportunity to indirectly engage with payers to educate them on the CompuFlo technology and helping build support for the appropriate level of reimbursement from insurance providers.
Our review and analysis of 100 claims data indicated that roughly one-third of claims have already received payments.
More than half of these payments were paid by commercial payers followed by Medicare. Moreover, we have initiatives underway that we believe will help build support for broad reimbursement of the CompuFlo clinicians have the opportunity to engage with Medicare jurisdictions prior to final payment position of the jurisdiction.
Turning to the international front, we are expanding our network of distribution partners for CompuFlo. In November, we announced a distribution agreement with BioLife supply to distribute the CompuFlo and disposables across Spain. 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 of introducing medical devices within their territories. We look forward to announcing additional partners as we expand our global fleet footprint.
We also believe there is a market opportunity for CompuFlo within federal and Northern 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 SCM approval and work closely to secure approval within the federal supply schedule. FSS. approval would open up the sizable government market.
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 adoption.
We remain committed to a goal of establishing the CompuFlo 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 Kay Sharpton, Vice President Finance, to go over the financials in detail. Please go ahead, Keisha.

Keisha Harcum

Thank you, Ardian for the year ended December 31st, 2023 and 2022 revenue was approximately $9.8 million and $8.8 million, respectively, an increase of approximately $1 million. The Company launched an e-commerce platform, selling and shipping the SCA single tooth anesthesia system and handpieces directly to end users, including dental office and dental groups. Within the U.S. E-commerce revenue for the year ended December 31st, 2023, was approximately $4.8 million. The Company ended the agreement with its major U.SU.S. distributor, Henry signed as of December 31st, 2022, the company recorded no revenue for Henry change for the year ended December 31st, 2023, compared to approximately $2.6 million reported for the year ended December 31st, 2022. Revenue from other U.S. distribution was approximately $485,000 for the year ended December 31st, 2023, a decrease of $97,000 compared to December 31st, 2022. The company also terminated all non-disclosed nonexclusive agreements with other distributors in the US in September of 2023. For the year ended December 31st, 2023, international revenue was approximately $4.1 million, a decrease of $724,000 compared to December 31st, 2022. Gross profit for the year ended December 31st, 2023 was $6.8 million versus $4.9 million for the year ended December 31st, 2022. The increase in gross profit was due to higher margin sales with the launch of the new online portals. Operating losses for the year ended December 31st, 2023 was $7.1 million versus $8.8 million for the year ended December 31st, 2022. The decrease in loss from operations was driven by higher dental sales and increased margins was offset by higher selling, general and administrative expenses during the period, net loss was approximately $6.9 million $0.10 per share for the year ended December 31st, 2023, versus net loss of $8.7 million, or $0.12 per share for the comparable period in 2022.
To now, as you turn your attention to liquidity and capital resources, we continue to carefully manage expenses and have maintained a solid balance sheet at December 31st, 2023, the company had cash and cash equivalents and marketable securities of approximately $6 million, working capital of $7.7 million and no long-term debt at this point, I'd like to turn the call over to Arjun Hamel.
Thank you, Keisha.

Adriaan Haverhals

As Kasia mentioned, we continue to maintain a strong balance sheet with approximately $6 million of cash cash equivalents and marketable securities as of December 31st, 2023, which we believe provides us more than sufficient capital to execute on our sales and marketing activities around both our dental and medical instrument without the need for additional funds.
We also expect to receive a large payments from the tech selling on the New Jersey operating loss program.
We expect this will further enhance our balance sheet. In addition to our revenue growth and improved margins, we also reduced our loss from operations by over $1.7 million through our new dental sales strategy, including our online store and our enhanced marketing efforts, we are increasing domestic sales at higher margins, although our primary focus in 2023 was on the domestic front we have renewed our international focus heading into 2024.
That said, we expect to resume solid business going forward.
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 year.
The medical segment represents a large addressable market, as I said, $11 million procedures, 20% penetration would result in $80 million of net profit on the consumables alone on an annual basis for the Company. 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.
Within our medical segment, we continue to add prominent hospitals and pain management clinics as well as expand our international business.
But most importantly, we are making progress advancing our reimbursement strategy around the CompuFlo system. We are also advancing initiatives following the same 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. At the same time, we continue to streamline our operating structure and remain committed to driving shareholder value. We look forward to providing further updates as developments unfold. Overall, we are encouraged by the outlook for the business and look forward to executing on a number of key initiatives in 2024 that we believe will drive significant value for our shareholders. 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

(Operator Instructions)
Your first question is coming from Anthony Vendetti from Maxim Group. Your line is live.

I think it is actually Jeremy online for Anthony.
Good morning.
Just two questions. Firstly, on the dental side, I know you mentioned multiple times on the call that you're planning to reintroduce or push forward back into the international markets, does that include reentering the China market? And also maybe if you could just talk a little bit of in maybe some more detail around the strategy going forward to add to re-enter the ramp a bigger push into these international markets.
Thank you.

Adriaan Haverhals

Okay. Thank you, Jeremy, and good morning. On the strategy for the dental business, as we alluded on, is to continue to grow the platform business in the United States because for reasons that I have alluded on, there is a there's a high uptake potential, and that's where the growth in the dental business domestically should come from. That's also the reason why we have terminated at the end of September last year, all non-exclusive distributors in the United States because that would bring us more revenues moving forward, simply due to a price volume mix effect.
The international business strategy is actually based on two things. First, what you have to do and what we have been doing in the past, but even more so last year is looking in the segmentation of the distributors. We have to divide them into groups. So you have an AB. and C. segment in a that's the highest tier where let's say 90% of our business is coming from.
That's about 15, 15 distributors, a middle group we have developed programs to develop those distributors and grows those distributors from smaller revenues or to larger revenues.
Then your question on reentering China, I do not foresee that we have any commercial activities in China, simply based on the fact that the market conditions are not in favor for us. And historically, we have been installed in China for instruments and handpieces but the market situation changed to that extent that we are not entering low margin business in the Chinese market.
Does that answer your question?

Yes, that was really helpful.
Thank you.
For that information.
And then jumping to that to the medical side. And it's really good news that this claim submissions that seems to be picking up some speed in, especially in the first quarter of 2024. And I assume that we could expect that to continue through the rest of 2024.
Just as you mentioned, third of the claims submitted have received payments. Maybe you can provide a little information around what are the other two thirds? How are you waiting for that? Have some of those been denied and if and if they had been denied and what's your strategy for appeal?

Adriaan Haverhals

Okay.
So so in the others, like I said, all claims have been uploaded.
So that means that there's coverage by insurance providers for these procedures, we have not received 100% permanent denials by by any of these insurance providers.
To your point, to your point, the other two thirds that is still in the processing. What we did with the first 100 claims you have to you have to take it over time. We were very encouraged about that feedback when we did the data analysis and we see an increase of the number of cases of these founders claims plus the 100 and plus the 42 claims moving forward. So long story short, they have been uploaded. The code has been uploaded in the system of which we are aware of.
Yes, we are continuously adding other clinics and clinicians because we want to increase the utilization and the volume.
In case of your last part of the question, denial or appeal, of course, what we do every time when the office manager or the coding manager of the clinicians reaching out to us and they want to appeal and appeal can be providing more information about the technology, a sending in duplicates of the invoice that they have, I have to submit to the insurance providers all to come to a final position of one of these jurisdictions to state that they are willing to pay for our technology for the cases use cases on steroid injection at a certain price.
We are following the process.
That's very important. We are following the process, and I'm extremely pleased and positive and confident and also impressed by our team and our organization, how they have been able to drive this forward as low as a smaller entity because there are numerous companies that have not been, you know, following the pathway that we are doing and have not had the success, the initial success that we are facing today. So I remain very confident about this whole process and getting a payment at a certain price level by the by the providers.

And then just last question is the plan for 2024 to start approaching commercial payer coverage and trying to use the data that you're getting from these claims submissions and the data that you have already about the saving the money that had not sold, they are paying for it?

Adriaan Haverhals

Absolutely.
So twofold.
I think what people need to understand is the acceptance for spinal cord stimulators at UGMB. following the entire process. That is tremendous because it is not related to any reimbursement in the hospital or for these procedures because neurosurgeons see a direct clinical financial and efficiency benefit of using our technology.
So as we speak, I know that we have applied in other hospitals as well for these procedures.
But based on previous calls, like I always said, there isn't a value assessment committee. But having said that, that it has been accepted by UTMPUTMB., it will have a triggering effect of other hospitals as well the second part is the commercial approach, absolutely on the mode in, for example, just motor vehicle cases is a tremendous source of revenue for clinicians.
I cannot explain the amount of money because I'm not entitled to do so. But I would say covering one or two motor vehicle cases will potentially cover the cost of one box of consumables of a of the CompuFlo Epidural System.
So in other words, we are using that as well in the commercial rollout where we can get more sites to actively engage and helping us and assisting us in driving volume and in driving utilization moving forward. I know that we are, you know, in a number of clinics that we are currently running trials with and also hospital systems. So there will be more to come and we will share that, you know, in the future with everybody on the phone and with all the shareholders of the Company and investors as well as.

Great. Thank you so much for all that information on our back. And if you have a great day, you're welcome.

Operator

(Operator Instructions)
Thank you. That concludes our Q&A session. I will now hand the conference back to David Waldman for closing remarks. Please go ahead.

David Waldman

We'll actually turn the call back over to management for that.

Adriaan Haverhals

Thank you, and thank you all for taking the time and listening to this to this conference call.
Highly appreciated your support. Please do not hesitate to reach out to us directly in any any questions you might have.
Like we said management is positive about the outlook is a proud of what we have been able to establish. We're following the process and we look forward to share more news with you and the distance in the not-too-distant future, excuse me, when these developments unfold. So having said that, I have a great day, stay safe and looking forward to talk to you in the near future. Bye-bye.

Operator

Thank you, everyone. That concludes today's event. You may disconnect at this time, and have a wonderful day and thank you for your participation.