Milestone Scientific Inc. (MLSS) CEO Arjan Haverhals on Q4 2021 Results - Earnings Call Transcript

Milestone Scientific Inc. (NYSE:MLSS) Q4 2021 Results Conference Call April 1, 2022 8:30 AM ET

Company Participants

Natalya Rudman - Crescendo Communications

Arjan Haverhals - Chief Executive Officer

Keisha Harcum - Controller

Conference Call Participants

Anthony Vendetti - Maxim Group

Operator

Good morning, ladies and gentlemen, and welcome to the Milestone Scientific Fiscal 2021 Year End Business Update Call. At this time, all participants have been placed in 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, Natalya Rudman of Milestone Scientific. Ma'am, the floor is yours.

Natalya Rudman

Thank you, Matt. Good morning and thank you for joining Milestone Scientific's 2021 Year End Financial Results Conference Call. On the call with us today are Arjan Haverhals, Chief Executive Officer; and Keisha Harcum, Controller of Milestone Scientific.

The Company issued a press release today, Friday, April 1, completing 2021 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 212-671-1020. The Company's management will now provide prepared remarks reviewing the financial and operational results for the year ended December 31, 2021.

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 a 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, also a report on Form 10-K for the year ended December 31, 2021.

The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, April 1, 2022. Milestone undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

With that out of the way, we'll now turn the call over to Arjan Haverhals, Chief Executive Officer. Please go ahead, Arjan.

Arjan Haverhals

Thank you, Natalya, and thanks to everyone for joining us today. We achieved a 90% year-over-year growth in revenue to $10.3 million, surpassing our prior revenue guidance and exceeding pre-pandemic levels. We achieved these results despite of the impacts of COVID-19, which indicates that we are successfully navigating the pandemic and remain on a solid growth trajectory.

At the same time, we continue to carefully manage our expenses, while investing in sales, marketing and new product development, along with analyzing new areas for our technology. The growth in the Dental division reflects the success of our three-year multi-distribution strategy to expand the worldwide global dental market. As a result, we are successfully adding domestic and global distribution partners.

As an example, we recently announced an agreement with Andau Medical to distribute the STA Single Tooth Anesthesia System in the United States and Canada. In the United States, we are looking to bring on new strategic channel partners that can help sell through their network of dental customers in specialized areas of dentistry, such as implant dentistry and aesthetics as well as large dental groups, also known as Dental Service Organizations or DSOs, and educational partners as they train the current and next generation of dentists.

In parallel, we look forward to further expanding our international sales and are working closely with our new global distributors. We believe that through this decentralized sales strategy, in combination with our increased marketing efforts, we can further grow the Dental business in the coming years. Our Dental business continues to generate positive cash flow on a standalone basis. As we continue to grow this business, we expect to benefit from economies of scale due to the recurring nature and high margins on our disposables.

At the same time, we have made progress over the past year, advancing our commercial efforts around the CompuFlo Epidural instrument and CathCheck system. In the beginning of 2021, we had some major setbacks due to organizational issues and the pandemic. However, due to the arrival of vaccines and vaccination programs, hospitals started opening up again during the second quarter of last year. That triggered our decision to invest heavily in our new sales force.

As of August, when the real medical commercialization began, management decided that 11 salespeople over the first few months would be the correct number in the United States. Irrespective of the individual changes within that group, it is still our goal to maintain 11 full-time experienced sales representatives in the field that are calling on hospitals every day. We have set high performance standards for our sales team and monitor their performance closely on a daily basis. We will continue to add sales personnel as appropriate.

During the second half of 2021, there was a strategic decision to focus additional efforts and resources in trade and consumer marketing communications. Both the medical and dental brands received a soft image refresh to better align with product messaging. Through the enhanced brand awareness and stronger digital presence, new tools and tactics were deployed to aid our sales representatives and drive qualified leads. These materials include: training and brand videos, educational literature, digital marketing materials and consumer media relations, where Milestone Scientific was recently featured on ZDNet, a media outlet with over 8 million monthly users.

From a digital marketing perspective, we've had success in our website traffic. As an example, from the first quarter in 2021 through the first quarter this year, our website visitors have increased by 187%. We are deploying an integrated marketing communication strategy that elevates our brand's awareness and target key audiences. As a result of our combined sales and marketing initiatives, we have begun to sell our disposables to key hospitals, health care systems and pain management clinics, despite a setback related to the pandemic, which I'll discuss in further detail in a moment.

Although we are not always allowed to disclose the names in 2021, we announced sales to the following hospitals. First, we signed an agreement and we're approved as vendor in a major Northeast teaching hospital, which is part of one of the leading health systems in the United States. We introduced our technology at Memorial Regional Hospital, the flagship facility of the Florida Memorial Health Care System, and one of the largest hospitals in Florida.

Additionally, we received approval to eventually supply our CompuFlo Epidural and CathCheck verification system disposables across Memorial Healthcare Systems network of hospitals. We're selling into University of Texas Medical brands in Galveston and added Health Clear Lake Campus Hospital, belonging to the same group, a major academic health science center of global influence.

We're selling into Regional Medical Center, a premier regional health care system in South Carolina. And internationally, we are selling into the University Hospital of Wurzburg, one of the leading national hospitals in Germany, in particular, for the thoracic indication approved in Europe where the incident rates of morbidity are much higher for this indication.

In addition, we have expanded our global reach by adding new international distributors in markets such as Austria, Switzerland, Canada, Slovenia and the United Arab Emirates. We're also in the process of bringing on new distributors in additional markets. Each of these distributors brings relationships within key global markets and proven track records introducing medical devices within their territories.

Turning back to our domestic sales initiatives. In December alone, immediately preceding to spike in Omicron cases, we announced the addition of three leading hospitals, all of which belong to large health care systems. However, our activities came to an abrupt hold.

It is important to note that the pandemic had a significant impact on the labor and delivery departments within hospitals, much more so than other departments. This was due to the fact that many pregnant women have opted out of the vaccine, resulting in stricter restrictions than other departments. As a result, our sales team was unable to enter the operatories, which limited our ability to demo and trial the instruments.

With the pandemic, and specifically the Omicron variant now waning, the restrictions have begun to ease, and we are resuming activities, although delayed by several months. This doesn't mean that there won't be another variant or spike that could impact our business. But assuming things remain stable, our reps are back in the field, and we are picking up where we left off. Our sales pipeline is solid and growing, and we are advancing discussions with a number of hospitals and health care institutions.

In addition to our growing regional presence, especially in Florida, we're also targeting Tier 1 university teaching hospitals. Some of these hospitals are among the top 20 in the nation. We believe that as we begin to penetrate some of these larger, well-recognized names that will add greater credibility and reduce the sales cycle with some of the smaller institutions. We also continue to expand sales of our CompuFlo Epidural System within pain clinics across the U.S.

With over 11 million reported epidural procedures each year, the pain market segment is at least twice the size of the labor and delivery market segment. The pain management market not only includes numerous hospitals, but also specialty centers, outpatient centers and sports medicine centers.

We are receiving positive feedback among clinics and physicians based on our ability to achieve better outcomes at lower cost. We recently announced that a leading pain management specialist, Dr. Harsh Govil, has begun using our technology within his practice at Piedmont Healthcare.

Similarly, Dr. Miguel de la Garza, a recognized leader in pain management and President of the Florida Society of Interventional Pain Physicians, has begun using our technology within his practice. Dr. de la Garza conducts these procedures at Surgery Partners, one of the largest and growing surgical services businesses in the country, which has also approved the CompuFlo Epidural instrument for use across their network in pain management.

As a result of the pandemic and the issues I explained earlier, we have good strong emphasis on the pain clinics in the first quarter of this year. As you can see, these efforts are paying off. Just this week, we announced we commenced sales of the CompuFlo Epidural disposables with Cypress Surgery Center in Santa Maria, California and the Galileo Surgery Center in San Luis Obispo Pain Management Specialists in California. Both of these prominent pain management practices are located in California and owned by pain management specialists.

We are now selling our disposables in the first two of pain management specialists' three clinics. The third clinic was closed as they shifted resources during the pandemic, but we aim to sell into the third clinic after it reopens.

Fortunately, pain clinics have been less impacted than labor and delivery departments following the latest spike in cases, but we believe we have weathered the worst of the storm and are well positioned in both the pain management as well as labor and delivery markets as the pandemic hopefully continues to recede.

So to summarize, we remain committed to our goal of establishing the CompuFlo Epidural instrument as the new standard of care epidural anesthesia by providing patients with effective pain relief, while reducing the risk of complications.

Our CompuFlo Epidural System offers objective detection of pressure changes to verify true loss of resistance and confirm epidural space within minutes. The clinical and safety benefits of the CompuFlo Epidural System are backed by extensive published clinical data demonstrating significant reductions in epidural punctures and complication rates as well as economic benefits for the institutions.

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. Total revenue for the year ended December 31, 2001, was $10.3 million versus $5.4 million for the same period last year. Digital revenue for the year ended December 31, 2001 was $10.1 million versus $5.4 million for the same period last year. Dental revenue increased approximately $4.7 million for the year ended December 31 as compared to 2020 due to the reopening of dental offices throughout the country and the rest of the world.

Medical revenue for the 12 months ended December 31, 2020, was approximately $152,000 versus $16,000 for the year ended December 31, 2020. And we've begun to -- we began opening new customers through direct sales force and medical device distributors.

Gross profit for the year ended December 31, 2001, was $6.3 million or 61% of revenue versus $3.6 million or 67% of revenue for the year ended December 31, 2020. Operating loss for the year ended December 31, 2021, was approximately $7.4 million versus approximately $7.5 million for the year ended December 31, 2020.

Net loss attributed to common shareholders was approximately $6.8 million or $0.10 per share for the year ended December 31, 2021, versus a net loss of $7.3 million or $0.12 per share for the comparable period in 2020.

Now, I would like to turn your attention to the liquidity and capital resources. At December 31, 2021, the Company had cash and equivalents of $14.8 million. Total current assets was approximately $18.9 million and working capital of $15.8 million.

At this point, I'd like to turn the call back over to Arjan Haverhals.

Arjan Haverhals

Thank you, Keisha. As Keisha mentioned, we continue to maintain a strong balance sheet with approximately $14.8 million of cash and cash equivalents as of December 31, 2021, which provides us substantial resources and the ability to accelerate our sales and marketing activities around both our dental and medical instruments. Given our strong cash position, we are also planning to launch new instruments and are pursuing new indications.

Within dental, we are encouraged by the growing interest in our instrument and expect our momentum to continue in 2022. Through our new decentralized sales strategy and our enhanced marketing efforts around the SDA, Single Tooth Anesthesia instrument, we believe this will increase our market penetration as we focus on the significant value drivers of our instrument, including safety, efficiency and importantly, supporting the growth of dental practices.

We believe we have developed an efficient and scalable platform to help drive our dental instrument and hand-piece sales in the coming years. In addition, we remain confident in the market potential of the CompuFlo Epidural System, which we believe will transform the industry and ultimately become the standard of care.

Importantly, we have begun selling our CompuFlo Epidural disposables to a number of hospitals, medical centers and pain management clinics in the United States and Europe. But we have barely stretched the surface.

In order to capitalize on this opportunity, we are expanding our sales and marketing initiatives, which has resulted in a solid sales pipeline, including trials underway that we believe will convert to new purchase orders. We remain committed to driving shareholder value and 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

Certainly, ladies and gentlemen, the floor is now open for questions [Operator Instructions] Your first question is coming from Anthony Vendetti from Maxim Group. Your line is live.

Anthony Vendetti

Arjan, I wanted to focus on the pain market because you mentioned it's twice the labor and delivery market. And you have 11 salespeople. You've signed up some good accounts, some of which you -- some well-known accounts you mentioned on the call.

And I was wondering if you could talk about a little bit about how you're increasing the marketing spend? I know you have 11 salespeople, what exactly are you targeting to continue to grow the pain market? And then as you sign up these hospitals, how do you get the hospitals to increase their utilization so that the contracts start resulting in material revenues?

Arjan Haverhals

Thank you, Anthony. Thank you for asking these excellent questions. So let me start with the pain segment.

Like we -- like I mentioned in the introduction this morning, we emphasized on the pain market segment. And what is important, I would assume that people know how the private pain market would work as well, the importance of the reimbursement code. And so, that's part of our strategy as well, because prior management over the years looked at the submission of a CPT code. That's the reimbursement code.

But the rules at that time prohibited a submission, as for example, data of about 25,000 patient procedures performed are needed to be provided. However, we learned and we have evaluated whether these rules still apply and very unfortunately learned that the game changed. We engaged to a consultant, specialized in the submission of such code. And we have submitted and filed for a technology-specific code in February this year.

And of course, this is not a guarantee, but I'm guardedly optimistic to obtain a reimbursement -- a temporary reimbursement code in a year time, and that would potentially have a great impact on the commercialization within the pain, both the private and the chronic pain market segment. Anthony, the same accounts for the thoracic indication. I mentioned that the thoracic indication is used and approved in Europe.

And to give you a little bit of flavor, the thoracic indication, it's about -- accounts for over 30% of all epidural procedures in the United States alone. A study in this indication with our technology was completed at the University of Iowa, and the results were presented at a major anesthesia meeting in the first half of 2021. And we are planning to submit in the 510(k) FDA submission for obtaining the approval of this indication.

And again, I'm guardedly optimistic to receive a positive outcome by the FDA just approval in the second half of this year, potentially, which also might have an impact on increasing adoption and penetration in hospitals and pain clinics because the thoracic indication is an important indication also for pain management.

Now to go to the second part of your question. If I understood correctly, you were interested how would we increase the utility once we are in a hospital? And I thank you for asking this question because I didn't address that in my presentation. So, we call it -- we have applied a land and expand strategy. So we have, in our team, territory managers that are particularly very well skilled in enhancing activities and closing activities.

But then also when we are inside the hospitals to further increase the volume and the utility at the hospitals, we have recruited to clinical specialists that are going to stay at the hospital on a daily basis, helping with the nursing staff and the anesthesia staff to push and to increase the penetration and the adoption and the utility at these hospitals.

So instead of a sales rep being in there every day, we have a dedicated specialist -- clinical specialist, which the background in the two people that we have recruited, are nurses in anesthesia that know the operatory room environment and then in this way, can further increase the utility and the usage of our disposables.

So does that answer your question, Anthony?

Anthony Vendetti

Yes. No, that's very helpful. Yes, I think that's -- I think you've correctly identified. It's critical. We see this across many medical device companies over the years. If you don't have -- if they're not well trained and you don't have someone on site to help increase that utilization, sometimes that utilization doesn't pick up. And -- so having anesthesia nurses that know exactly how to use this and train is, I think, critical for increasing utilization.

So, very helpful, Arjan.

Arjan Haverhals

You're welcome, Anthony. Thank you.

Operator

[Operator Instructions] Your next question is coming from [James Westat]. Your line is live.

Unidentified Analyst

I would go back to the revenues of 2016, which were $10,482,000; 2017, $11,282,000. And after that, the revenues continued to decline. So, we've got -- the Company has got a long way to go to get back to even where they were or somewhat.

It appears that the majority or almost all of the sales come from the Dental. The question would be -- one of the questions would be direct sales reps of 11 people. Are those full-time people that just tried to introduce/sell the CompuFlo facilities? Or do they have a package of things that they're trying to sell to facilities?

Arjan Haverhals

Yes. So thank you for your question. I would like to comment on your observation, which is absolutely correct. That going back to 2016, we sales -- the revenues were $10 million, $11 million. And then there was a decline.

I would like to explain why that was, because during those years, all the money that we earned in the Dental business was invested in the Medical business. And also the focus of the Company was, like I said, investing in the research and the development of the CompuFlo Epidural System and disposables. And that then also resulted that it was almost a one-man show for the Dental business.

So in other words, there was not enough human working capital available to really focus on the Dental business, also including investing in the right marketing and sales activities. And that was the reason why the Board of Directors, in 2020, decided to recruit people with a background in the dental industry and to revamp the Dental business.

And more importantly, the Board, at that time, decided to raise capital, and that resulted, at the end of 2020, to have about $14.5 million in cash and cash equivalents by the end of the year. So that made it possible for current management to put the shoulders under it and to invest in marketing and sales activities to revamp the Dental business. And the mandate the Board has given me and us and management team is to grow the Dental business exponentially in the coming years. I just wanted to make that clear.

The second part of your question, yes, absolutely. The 11 territory managers that we are having, they are full-time equivalents. So they only focus on our portfolio and they only focus on the CompuFlo Epidural System, including the disposables, the CathCheck disposables, and they call on hospitals and the private pain clinics.

So they are not 99. They do not have a diversified product portfolio. They are laser-focused on our company, on our product portfolio and our customer targets with encompasses the anesthesiologists, the CRNAs, the pain physicians, the C-suites, the admin suite, the financial, the risk management procurement and material supply.

Operator

That concludes our Q&A session. I will now hand the conference back to Arjan Haverhals, CEO of Milestone Scientific, for closing remarks. Please go ahead.

Arjan Haverhals

Yes. Again, thank you for your time and interest and trust in our company. I would like to highlight that I'm pleased with the results that we were able to obtain in the past years.

Management is also pleased and convinced about the positive outlook that we see for a company in this year. If you need -- and if you have any further questions, then please reach out to me or visit our website at milestonescientific.com. And please do stay safe.

So thank you for your time, and have a good day.

Operator

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