Milestone Scientific, Inc.

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.

Good morning, and thank you for joining Milestone Scientific's 2023 Year-End Financial Results Conference Call. On the call with us today are Ariane Haverhals, Chief Executive Officer, and Keisha Harcum, Vice President of Finance at Milestone Scientific. The company issued a press release today, April 1, 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 212-671-1020. Companies Management will now provide prepared remarks reviewing the financial and operational results for the year-end of December 31, 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 economics. competitive and market conditions in future business decisions, all of which are difficult or impossible to predict accurately, and many of which are beyond milestones 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 end of December 31st, 2023. The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, April 1st, 2024. Milestone objects no obligation to revise or update publicly any forward-looking statements for any reason. With that, we'll now turn the call over to Arien Hoverhals, Chief Executive Officer. Please go ahead, Arien.

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 our streamlined operations and the success of our new portal for selling and shipping the SDA single-toothed anesthesia system and handpieces directly to dental clinics and dental service organizations, or DSOs, within the US. We achieved solid growth despite 2023 being a transitional year, having terminated the agreement with our prior distributor, Henry Schein, at the end of 2022. We also terminated all non-exclusive 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've 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 US. 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 dentists 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 rooster 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, periodontics, and implant dentistry practice with three offices in Wisconsin. This includes the deployment of the SDA in each of the operatory rooms and across all the endodontists 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 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 leads from dentists contacting us directly to order our instruments because patients requested them to do so. We will continue to increase our marketing efforts with dedicated campaigns directly targeted at patients. While our international sales pulled back slightly, This was largely due to the timing of orders, certain distributors working through inventory, and a 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. Turning to our medical division, we are also advancing the rollout of our CompreFlow epidural system, specifically we have made significant progress in penetrating key hospitals, healthcare systems, and pain management clinics. We are also witnessing existing customers expand their use of CompreFlow. An important example is UTMB Health Clear Lake Campus Hospital, which has commenced use of the CompreFlow beyond labor and delivery to now include neurostimulation spinal cord stimulator implantation procedures. illustrating the versatility and broad potential of our instrument. A spinal cord stimulator is an implanted device that sends 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 implantation followed a successful evaluation process by Dr. Patrick Karras, a full-time faculty neurosurgeon at UTMB who operates at both the Galveston and Clear Lake campuses. Dr. Karras completed 10 cases using CompuFlow in which he reported 100% clinical success and no complications. I'm pleased to report that further expansion of our technology at UTMB is on the way. CompuFlow has proven to be of tremendous assistance in performing spinal cord stimulator cases. Specifically, CompuFlow helps to minimize the risk of intraoperative 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 radiculitis requiring extended post-operative admission and post-operative steroid injections. CompriFlow 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 CompriFlow 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 Stottle, its founder and medical director. Dr. Stottle completed 10 cases using CompreFlow and Omaha Pain Physicians, in which he reported 100% clinical success. The evaluation included epidural steroid injection procedures within the lumbar, thoracic, and cervical thoracic junction of the spine. As more and more physicians and 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 CompiFlow 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 CompreFlow 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 CompuFlow and submitting claims to payers across the country. Rather than spreading ourselves thin by bringing on too many hospitals and pain 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 CompreFlow 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 dual 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 claims we submitted in all of 2023. All claims submitted to date using the CPT-777-T code 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 CompuFlow technology and helping build support for the appropriate level of reimbursement from insurance providers. A review and analysis of 100 claims data indicated that roughly one-third of claims have already received payment. 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 CompreFlow. 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 CompreFlow. In November, we announced a distribution agreement with BioLine Supply to distribute the CompreFlow 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 footprint. We also believe there is a market opportunity for CompreFlow within federal and other and other government agencies as our system can contribute to both improved patient outcomes as well as increased efficiency. As we have discussed in the past, we are advancing initiatives following SEM 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 our goal of establishing the CompuFlow 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 Kisha Harkam, Vice President Finance to go over the financials in detail. Please go ahead, Keisha.

Thank you, Arjun. For the years ended December 31st, 2023 and 2022, revenues 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 STA single-tooth anesthesia system and hand pieces directly to end users, including dental office and dental groups within the U.S. E-commerce revenue for the year ended December 31st, 2023, with approximately $4.8 million. The company ended the agreement with its major U.S. distributor, Henry Schein, as of December 31st, 2022. The company recorded no revenue for Henry Shawn for the year ended December 31st, 2023 compared to approximately 2.6 million recorded for the year ended December 31st, 2022. Revenue from other U.S. distributors 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-exclusive agreements with other distributors in the U.S. in September of 2023. For the year ended December 31, 2023, international revenue was approximately $4.1 million, a decrease of $724,000 compared to December 31, 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 portal. 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, which offset by higher selling general and administrative expenses during the period. Net loss was approximately 6.9 million, or 10 cents per share, for the year ended December 31st, 2023, versus net loss of 8.7 million, or 12 cents per share, for the comparable period in 2022. Now I'd like to turn your attention to the 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-out closures and marketable security 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 Hammerholz.

Thank you, Keisha. As Keisha 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 payment 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 standalone 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 CompiFlow 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 CompreFlow system. Within our medical segment, we continue to add prominent hospitals and pain management clinics, as well as expand our international business partners. Most importantly, we are making progress advancing our reimbursement strategy around the CompuFlow system. We are also advancing initiatives following the SAM approval and leading up to potential federal supply system approval, which would open up the sizable government market. So to wrap up, we are witnessing growing interest in both our dental and medical instruments, and we believe we are well positioned to take advantage of the opportunities available in the market. 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 the 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?

Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Your first question is coming from Anthony Vendetti from Maxim Group. Your line is live.

Hi, thank you. This is actually Jeremy on the line for Anthony. Good morning. So just two questions, first 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 in maybe some more detail around the strategy going forward to reenter a bigger push into these international markets. Thank you.

Okay. Thank you, Jeremy, and good morning. 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 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, divide them into groups. So you have an A, B, 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 distributors. A middle group, we have developed programs to develop those distributors and grow those distributors from smaller revenues 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 in China for instruments and hand pieces, 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?

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

Okay. 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 any of these insurance providers. 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 know, you have to take it over time. We were very encouraged about that, the feedback when we did the data analysis. And we see an increase of the number of cases of these 100 claims 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, sending in duplicates of the invoice that they 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 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 a smaller entity because there are numerous companies that have not been following the pathway that we are doing and have not had the initial success that we are facing today. So I remain very confident about this whole process and getting payment at a certain price level by the providers.

And then just last question, is the plan for 2024 to start approaching commercial payer coverage and try and use the data that you're getting from these claims submissions

and uh the data that you have already about the saving you know the money that yeah no absolutely i think absolutely so so twofold uh i think what people need to uh understand is is the acceptance for spinal cord stimulators at utmb following the entire process that is tremendous because it is not related to any reimbursement in the hospital or for these procedures because the neurosurgeons see a direct clinical, financial, and efficiency benefit of using our technology. So as we speak, you know, I know that we have applied in other hospitals as well for these procedures. But based on previous calls, like I always said, there is a value assessment committee. But having said that, that it has been accepted by UTMP UTMB, it will have a triggering effect on other hospitals as well. The second part is the commercial approach. 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 the CompuFlow Epiduo 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 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 in the future with everybody on the phone and with all the shareholders of the company and investors as well.

Great. Thank you so much for all that information. I'll hop back in the queue. Have a great day. You're welcome.

Thank you. Once again, everyone, if you have any questions or comments, please press star then 1 on your phone. Please hold while you poll for questions. Thank you. That concludes our Q&A session. I'll now hand the conference back to David Waldman for closing remarks. Please go ahead.

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

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

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