Milestone Scientific Inc.
Q3 2019 Earnings Call Transcript

Published: 15 Nov 2019

[Operator:]

Good day and welcome to the Milestone Scientific Incorporated Third Quarter 2019 Investor Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. David Waldman, Investor Relations. Please go ahead, sir.

[David Waldman:]

Good morning and thank you for joining Milestone Scientific’s third quarter 2019 financial results conference call.On the call with us today are Len Osser, Interim Chief Executive Officer; and Joseph D'Agostino, Chief Financial Officer.The Company issued a press release yesterday, Thursday, November 15th, (sic) [November 14th] containing third quarter 2019 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 third quarter ended September 30, 2019.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 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, 2018, and Milestone's report on Form 10-Q for the third quarter ended September 30, 2019.The forward-looking statements made during this call are based upon management's reasonable beliefs as of today's date, November 15, 2019. 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 Len Osser, Interim CEO. Please go ahead, Len.

[Len Osser:]

Good morning. Thank you, David, and thanks to everyone taking the time to join us this morning.I’m pleased to report that we achieved revenue growth of 17% for the third quarter, due to increased sales of both the dental instruments and disposables. As we stated in the past, our Wand Dental subsidiary remains cash flow positive on a standalone basis. However, our primary focus has been and continues to be the commercialization of the CompuFlo Epidural System. On that note, we have made considerable progress advancing our commercial efforts in this area.Last month, we reported important results of an international, multicenter study that compared accidental dural puncture rate and complications while using the CompuFlo Epidural System versus the traditional loss of resistance technique in patients undergoing epidural procedures prior to labor.It is important to note that none of the 812 patients who received epidural anesthesia with CompuFlo at an accidental dural puncture. This compares to 5% of patients that experienced accidental dural puncture using the loss of resistance technique, in the earlier non-inferiority trial the results -- in the earlier non-inferior trial. Keep in mind that, the technique that is our primary competitor in the market uses technology born in the 1860s.The results of this study are significant. Epidurals create one of the highest levels of morbidity of any drug delivery, and we achieved a 100% success in this study. The results of the study were presented at the ANESTHESIOLOGY 2019 Annual Meeting, which has generated significant interest within the industry. There are numerous implications; First and foremost is patient safety; second is reducing the potential liability for physicians and hospitals; third ,this procedure is also a major expense for the insurance companies that provide malpractice of coverage; fourth, in the event of missed epidural placement, there is a direct economic impact to the hospitals if patients have to go undergo a second epidural procedure, requiring a new physician or a new nurse to do another epidural, draw blood and attempt to close the hole created by an inadvertent puncture of the dural. This is quite costly, and the patients, even with the successful closure of the puncture will suffer morbidity. This is also an extraordinary waste of time for the facility when the OB/GYN and the patients are in a rush to deliver the baby. Fifth is the cost of extending the patient and the newborn stay in the hospital in the event of the dural puncture. Dural puncture is a known risk of epidural anesthesia and occurs when the needle accidentally punctures the dural, resulting in the leakage of cerebral spinal fluid. This can lead to severe headaches, pain, additional procedures, transient paralysis and even permanent paralysis.At the end of the day, our technology is about providing the best possible care for the patients. And we strongly believe that our technology for these and other reasons, including cost saving, safety, record keeping, dramatically reducing learning curve, avoidance of litigation, all become available as we move from the 1860 technologies to the CompuFlo. Given the positive results of our study, we are gaining additional traction and believe that in the future CompuFlo Epidural will become the standard of care.As I’ve stated in the past, our strategy involves initially placing the instruments with top physicians at the leading hospitals. That has been accomplished. Now that they have been using the instrument and are comfortable with it, the feedback has been positive. We have already signed our first hospital in Italy. We have deployed the instrument with additional key opinion leaders and are now in advanced discussions with health systems to broadly adopt the instrument across their organization. Although we can't control timing and are working through the system, we do expect to announce our next hospital and hospitals soon. Most recently, we announced the addition of Paragon Care Limited, our exclusive distribution partner in Australia.At this point, I'd like to turn the call over to our CFO, Joseph D'Agostino to go over the financials in detail. Btu, I will be back at the conclusion of Joseph’s discussion. Please go ahead, Joseph.

[Joseph D'Agostino:]

Thank you, Leonard.Today, revenue for the three months ended September 30, 2019 was $1.9 million versus $1.6 million for the third quarter of 2018. The increase of $278,000 is due to a large part the restocking order of handpieces and devices from Henry Schein, our exclusive distributor in the U.S. and Canada, which was received in the third quarter of 2019 in the amount of $802,000.Medical revenue for the three months ended September 30, 2019 was $15,500 as we are moving forward with our ongoing strategy to place the CompuFlo Epidural system with KOLs. They are also attending medical device trade shows and introductory meetings with medical device distributors within the United States and European markets, which begun to set the stage for our broader commercial rollout.Gross profit for the third quarter ended September 30, 2019 was approximately $1.4 million, or 72% of revenue, versus a loss of approximately $120,000 for the third quarter ended September 30, 2018. Gross profit for the three months ended September 30, 2018 included an allowance for handpieces and devices sold to Milestone China of approximately $790,000 and an inventory reserve of $273,000 for certain dental handpieces. We recorded a credit to cost of goods sold of $150,000 in the third quarter of 2019 towards a claim for dental handpieces.Operating loss for the three months ended September 30, 2019 was $1 million versus approximately $4.5 million for the quarter ending September 30, 2018. The third quarter of 2018 includes a $1.5 million impairment of long-lived assets related to non-core patents.Net loss for the three months ended September 30, 2019 was approximately $2.8 million, or $0.06 per share, versus a net loss of $4.4 million, or $0.12 per share, in the prior period. Net loss for the three months ended September 30 2019 included an accounting non-cash charge of $1.9 million, $0.04 per share for a change in the fair market value of a derivative liability related to common shares that would be necessary to meet fulfillment of potential outstanding warrants and option et cetera existing at September 30, 2019 even if the exercise price of such financial instruments are well in excess of the current market price of the shares. This non-cash event will be resolved at the annual meeting of shareholders in December 2019 with the expected approval from the shareholders to change the authorized shares of common stock from 50 million to 75 million shares.Now, I'd like to turn our attention to liquidity and capital resources. As of September 30, 2019, the Company had cash and cash equivalents of $1.7 million, compared to cash and cash equivalents of $700,000 as of December 31, 2018. As of September 30, 2019, the total current assets were $5.8 million, compared to total current assets of approximately $5.9 million for December 31, 2018.At September 30, 2019, Company had a negative working capital of approximately $1.9 million of which $3.2 million relates to a derivative liability noted earlier in the presentation and which will be reversed in the fourth quarter based on the expected shareholder approval to increase the authorized shares again from 50 million to 75 million. Without this non-cash derivative liability, working capital would be a positive $1.3 million versus working capital of $1 million at December 31, 2018. The Company had no long-term debt as of September 30, 2019 or December 31, 2018.Revenue for the nine months ended September 30, 2019 was $6.1 million versus $5.9 million for the same period last year. Dental revenue increased by approximately $262,000 during the nine months ended September 2019, compared to 2018 due to the restocking order from handpieces disposables from Henry Schein, received in the third quarter in 2019 of approximately $802,000. Gross profit for the nine months of 2019 was $4.2 million or 69% of revenue versus $2.5 million or 43% of revenue for the first nine months of 2018.Gross profit for the nine months ended September 30, 2018 including the allowance for hand pieces and devices sold to Milestone China for approximately $790,000 and inventory reserve of $273,000 certain dental handpieces. We recorded a credit reimbursement to the cost of goods sold of $150,000 in the third quarter of 2019. Operating loss for the first nine months of 2019 was approximately $2.9 million versus $8 million in the first nine months of 2018 versus nine months of 2018 included $1.5 million impairment for long-lived assets related to non-core patents.The net loss for the nine month and 2019 was $4.7 million or $0.11 per share, versus a net loss of $7.6 million or $0.22 per share for the comparable period in 2018. The loss for the nine months ended September 30, 2019 included, as noted in the three-month discussion, an accounting non-charge -- non-cash of approximately $1.8 million or $0.04 per share for the change in the fair value of the derivative liabilities.At this point, I'd like to turn the conversation, the presentation back to Leonard. Leonard?

[Len Osser:]

Thank you, Joseph.Before we wrap up and go to Q&A, I'd like to take this opportunity to welcome Brent Johnson as President of Milestone Scientific. He joins us at an exciting time in our developments as we accelerate our commercial efforts around the CompuFlo Epidural system. Specifically, he brings over 25 years of experience in sales, marketing and all this organizational efficiency. He has brought a number of spines, orthopedic and other medical products to market.Prior to joining Milestone Scientific, he served as Vice President of Sales at Clariance, a spinal device company, where he restructured the sales and marketing strategy for the U.S. market, resulting in significant year-over-year growth. Previous to that, he served as CEO of ExsoMed, an upper extremity orthopedic company where he brought the company from start up to full commercialization. He also founded and served as Chief Operating Officer at Aurora Spine, where he grew the company from startup to full commercialization and oversaw the launch of 20 products.Given his impressive track record launching new commercial products, as well as driving both, top and bottom-line growth for existing products, we believe he will be an excellent addition to the team. In the short time since he joined the organization, he has already proven himself more than capable.So, to wrap up, we are encouraged by the outlook for the business that one is on a stable course, and we are carefully managing our expenses, as evidenced by our reduced SG&A. At the same time, our medical division is poised for significant growth. We have in front of us a substantial untapped market opportunity. And our technology is protected by a broad patent portfolio that continues to grow and will continue to grow. We look forward to providing further updates on our commercial rollout strategy in the weeks and months ahead.I'd like to thank you for joining the call today. At this point, we would like to open the call up for questions.

[Operator:]

[Operator Instructions] We will now take our first question from Anthony Vendetti of Maxim. Please go ahead.

[Anthony Vendetti:]

Thanks. Yes. Leonard, I was wondering if you or Brent can just talk about the commercial rollout strategy, just what the plan is. Because obviously, there's been a number of studies coming out showing the efficacy and safety of your device significantly better than the current standard of care. So, I was just curious, whether it's going to be a distribution strategy, direct sale, combination of both, and just sort of the plan over the next three to six months.

[Len Osser:]

Okay. We're at a point now where the industry tells us that we have very significant studies, far more significant than the product at this point of commercialization would have. So, we will not fund any other studies. As a matter of fact, since our original study, none of the studies have been funded by us other than lending instruments and supplying disposables. Having said that, there are studies being done for free by KOLs in various parts of the world including the United States, both in labor and delivery and other areas of epidurals. These studies are being done primarily by KOLs and for free because we are really the only product to come along since 1921 that could make a major difference with drug delivery in epidurals. So, as far as -- we do not anticipate funding any studies going forward in this area or other areas of drug delivery involving the epidurals.As far as the rollout goes, we are very close to closing our first hospitals in the United States, by very close, so it’s in other people's hands, not ours. We’re not speaking of months, we're speaking of weeks. More importantly than that is, we have become aware as have at least one major TPL, one major company that owns a significant amount in the thousands of hospitals in the United States, the cost associated with the morbidity associated with drug delivery to the epidural, the number is shockingly high to them. And we have the evidence that we could significantly change that. Brent is now working on that with this organization as well as beginning to work with others.In addition, we have had contact with a number of insurance companies that share these costs with the hospitals. So, we now have statistical analysis and these statistics of the cost of the morbidity in the United States about a very large hospital system. We believe that this will telescope the growth throughout that system first and then to others in the United States. So, that's how we plan to commercialize, going to the insurance companies, which bear the brunt of the tens of millions of dollars and more that they are putting out because of these inadvertent needle sticks, and the actual hospital systems who are suffering with this as well. Does that answer your question, Anthony?

[Anthony Vendetti:]

Yes. Okay. So, it’s two-pronged approach, the hospital systems and the insurance companies, and trying to get them to be a proponent of the CompuFlo system. Have you had discussions with the insurance companies around reimbursement or how is that going to manifest itself?

[Len Osser:]

Yes. We have had those discussions. We would fit under the present codes of an epidural obviously. We will work with one of the hospital systems to get our own code as well that will take approximately a year, but meanwhile, we’ll fit under the code of the present epidurals. However, what they are looking at is the enormity of the savings which are our instrument can provide to them. It's far more substantial than we had thought it was in the past. And as I say, the number was quite shocking to them. They've done an analysis already at a small percentage of their hospitals. I believe it was approximately 300. And that number was very significant. I don't want to get out that number now, but it's certainly a very compelling number to get their attention. They had never looked at it before because it was never a solution to that problem. Now that there is a solution to it, which has been proven by our clinical studies, we are now in discussions with them and will be in discussions with others as well, along with the insurance companies.

[Anthony Vendetti:]

Okay, very helpful. Thanks, Len.

[Len Osser:]

You’re welcome, Anthony. Thank you.

[Operator:]

Thank you. [Operator Instructions] We’ll now take our next question from John Corve [ph]. Please go ahead.

[Unidentified Analyst:]

Hi, Leonard. How are you?

[Len Osser:]

I'm very well. Thank you. How are you?

[Unidentified Analyst:]

I'm well. Thank you. And I'm encouraged by what you just said and answering Anthony's question. I had the exact same question and you answered it very well. And I continue to be encouraged and so does the marketplace by registering the way Milestone is trading rightly. So, I presume we are on the cusp of this long awaited rollout of the epidural. And I commend you for all your efforts and your tenacity. And I continue to be with you as a shareholder.

[Len Osser:]

Thank you very much, John. That’s very encouraging, very good to hear. It's been a long road.

[Unidentified Analyst:]

That’s a long road. But, thanks again.

[Len Osser:]

Pleasure.

[Operator:]

Thank you. There are no further questions at this time. I would like to turn the conference back over to Mr. Leonard Osser for any additional or closing remarks. Thank you.

[Len Osser:]

Once again, I thank you very much for joining us. I'm hoping that in the next few weeks, we will have releases showing our progress in a number of varied areas of the business. We will continue to keep everyone informed. Everyone of course is free to get updates from David Waldman’s organization, Crescendo. Once again, thank you very much. And we'll be in touch with you soon. Good day.

[Operator:]

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.