Milestone Scientific - Q2 2024

Transcript

Operator (participant)

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.

David Waldman (Head of Investor Relations)

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 are Arjan Haverhals, Chief Executive Officer, and Keisha Harcum, Vice President of Finance at 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 or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. The company's management will now provide prepared remarks reviewing the financial and operational results for the second quarter ended June 30th, 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 or 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 31st, 2023, and Milestone's Report on Form 10-Q for the second quarter ended June 30th, 2024. These forward-looking statements made during this call are based upon management's reasonable belief as of today's date, August 15th, 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.

Arjan Haverhals (CEO)

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 Epidural System, ensuring that the jurisdictional Medicare administrative contractors, also known as JMACs, understand in 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 treatment. 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. The positive outcome from these JMACs is not only a significant 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 JMACs in the U.S. In tandem with this progress, we are excited to announce our partnership with Axial Biologics, whose extensive experience and deep relationships within 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 Axial's established clinic-clinician relationships in the key states belonging to the JMACs 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 SAM approval and working to secure approval within the FSS, the Federal Supply Schedule. FSS approval would open up the sizable government market. 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 their territories.

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 the cervicothoracic 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 the 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 treatment. Independent research estimates that 4 million-5 million epidural 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 U.S. 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 U.S. and abroad.

We look forward to providing further updates and continuing to build on this momentum, ensuring that more patients and practitioners benefit from the precision and safety of our technology. Turning to our dental division, U.S. 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 our previous distributors and instead 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 after-sales 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 U.S.

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 pause sales in China based on a reassessment of our strategy in that market, had an impact on our year-over-year comparisons. 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 the 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 as Axial 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, I'd like to turn the call over to Keisha Harcum, Vice President of Finance, to go over the financials in detail.

Please go ahead, Keisha.

Keisha Harcum (VP of Finance)

Thank you, Arjan. Revenue for the three months ending June 30th, 2024 and 2023 was approximately $1.9 million and $2.9 million, respectively. The U.S. e-commerce revenue for the three months ended June 30th, 2024, was approximately $1.3 million, compared to $1.2 million for the three months ended June 30th, 2023. For the three months ended June 30th, 2024, international revenue was approximately $400,000, a decrease of $710,000 compared to June 30th, 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 30th, 2024, compared to approximately $270,000 for the three months ended June 30th, 2023. The gross profit for the second quarter ended June 30th, 2024, was $1.4 million, or 76% of revenue, versus $1.9 million, or 65% of revenue for the second quarter ended June 30th, 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 30th, 2024, was approximately $1.8 million versus $2.3 million for the second quarter ended June 30th, 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% per share for the three months ended June 30th, 2024, versus a loss of $1.3 million, or $0.02 per share for the comparable period in 2023. Net income for the three months ended June 30th, 2024, included approximately $2 million net expenses for sales of the New Jersey net operating losses. For the six months ending June 30th, 2024 and 2023, revenue was approximately $4.1 million and $5.5 million, respectively.

The U.S. e-commerce and dental service revenue for the six months ending June 30th, was approximately $2.7 million, compared to $2.2 million at June 30th, 2023. For the six months ending June 30th, 2024, international revenue was approximately $1.4 million, a decrease of $1 million compared to June 30th, 2023. International sales decreased due to issues with freight forwarder carriers during the six months. The company recorded no revenue for China for the six months ended June 30th, 2024, compared to approximately $270,000 for the six months ending June 30th, 2023.

Gross profit for the first six months of 2024 was $3.1 million, or 75% of revenue, versus $3.8 million, or 69% of revenue 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 would like to turn your attention to the liquidity and the capital reserve.

We continue to carefully manage expenses to have maintained a solid balance sheet. At June 30th, 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 Haverhals.

Arjan Haverhals (CEO)

Thank you. 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 30th, 2024, which we believe provides us sufficient resources 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 further developments in our medical division as we advance initiatives on both the e-commerce 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 (participant)

Thank you very much. We will now be conducting our question-and-answer session. If you would like to ask a question, please press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please wait a moment while we poll for questions. Thank you. Your first question is coming from Anthony Vendetti of the Maxim Group. Anthony, your line is live.

Anthony Vendetti (Analyst)

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

Arjan Haverhals (CEO)

Yeah, to answer the question in one sentence. Good morning, Anthony. Thank you for asking the question. Just let me make a small, slight correction. The JMACs, it's not only in Florida, it's the JMACs in Florida, New Jersey, and Texas, right? So, like we stated always, that is gigantic for the company. It's a third of the total epidural injection procedures in the United States performed annually. So following your questions, the pricing, the sales expansion, and the rollout.

So, on purpose, you know, as we are restricted by rules and regulations, we cannot, in writing, you know, share what the pricing is, but it is publicly available, and we are allowed to share with the investment community what the reimbursement price, when clinicians send 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 $325, in addition to the primary code, which is roughly about $280. So that is the fee that has been granted by these jurisdictions for procedures, ESI procedures, when our technology is used after sending in the claims and the 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 timeline, I'm pretty proud of what the team, including myself, have been able to perform. You know, on July 10th, we had the first Florida release. On July 23rd, we had New Jersey and Texas. We got on July 30th, the patent release. On August 7th, we have been able to finally negotiate and announce the relationship with Axial Biologics. 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 is we have expanded our team towards three clinical service specialists. And why clinical service specialists? Because we own, and we know, and we have the inside know-how about our technology. That means that we can train commercial partners. So at the same time, we have trained the representatives of Axial 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, "the 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, 200 consumables per year as a minimum. In 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.

Then taking into account that these clinicians, of course, need to have a price below that $325, because otherwise there would not be an interest to purchase the product. 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, 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 a business partner that, what I say, bring a book of business. They know the paying market, they know the players, 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 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 Axial Biologics, because they bring the know-how, the customer and the client 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, you know, 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 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. 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 clinicians' feedback. But I do foresee that we will get contributions this year. That's the goal. I think we are in a good shape. We have done our homework. We're making long hours as always, but we are positive, enthusiastic, and comfortable with where we are.

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 the projections will be. But I think it is a fair ask and comment to make, that let's first do our work, let's 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 what we are currently in. Does that answer your question, Anthony?

Anthony Vendetti (Analyst)

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

Arjan Haverhals (CEO)

I know, we have submitted more than, or 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 that sales agreement, with the new pricing, like I said, that we have launched this week to start doing patient cases and, and get payment. We are in the midst of that process, Anthony.

Anthony Vendetti (Analyst)

That's what I figured. Okay. I knew, I knew it was early, but it sounds like you'll give us an update following the third quarter results. Just shifting gears, one question on the dental business. You know, I know there were no sales from China this quarter, but the international sales that has been resolved, was there lost revenue this quarter that you believe will be recovered in 3Q 2024 or shifted to 3Q 2024? Or is it just, you know, that was lost revenue and, you know, 3Q we shouldn't expect any revenue to shift over into the third quarter that was, you know, potentially lost in the second quarter? Thanks.

Arjan Haverhals (CEO)

Yeah. So what I meant also in this call, I'm not concerned at all about, let's say, the dental revenues this year. You know, I know what in the internal planning has always been in the first quarter and the second quarter this year. We had foreseen, let's say, lower sales than what we anticipate in the second half of the year. Several reasons: seasonality, the 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 forwarder 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 packed, that were on the dock, 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 freight forwarder to get to the dock and to pick up the shipments, or to pick up the packages and the products that were already packed.

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 you know, our sales, international, both international and domestic, will and has to be approved, improved, by the third quarter, or in the third quarter and the fourth quarter this year. So we are on a good trajectory there.

Anthony Vendetti (Analyst)

Okay. I appreciate all that color, Arjan. I will hop back in the queue. Thank you.

Arjan Haverhals (CEO)

You're welcome, Anthony.

Operator (participant)

Thank you very much. Well, there appear to be no further questions in the queue. I can now hand back over to Arjan for any further comments.

Arjan Haverhals (CEO)

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 are still in that period that we have celebrated the success internally on the reimbursement news. We are 100% aware that the expectations have been created to roll this out further commercially. Full focus, full attention, full support, and full energy on that, and we absolutely will keep you posted 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.

I'm easy, accessible, and stay safe, and looking forward to seeing you or hearing you soon. Have a great day. Thank you.

Operator (participant)

Thank you very much. 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.