Milestone Scientific Inc.

Good day, ladies and gentlemen, and welcome to the Milestone Scientific Third Quarter 2022 Business Update Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, David Waldman, Investor Relations. Sir, the floor is yours.

Good morning and thank you for joining Milestone Scientific's third quarter 2022 financial results conference call. The company issued a press release this morning containing third quarter 2022 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. On the call with us today is Ariane Haberhals, Chief Executive Officer who will provide an overview of the financial results and recent developments for the third quarter ended September 30th, 2022. Due to personal conflict, Keisha Harcum, controller of Milestone Scientific, is unable to join the call today. So Mr. Hauerhals will also be covering the detailed financial discussion. Before we get started, we would like to remind everyone that during this conference call, we may make forward-looking statements regarding the 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 milestones control. Some of the important factors that could cause actual results 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, 2021, and Milestone's report on Form 10-Q for the third quarter ended September 30, 2022. The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, November 15, 2022. Milestone undertakes no obligation to revise or publicly update any forward-looking statements for any reason. With that, we'll now turn the call over to Aryan Haverhals, Chief Executive Officer. Please go ahead, Aryan.

Thank you, David, and thanks to everyone for joining us today. I'm pleased to report we are back on a solid growth trajectory in the third quarter with sequential sales growth of 34.4% over the second quarter of 2022. In addition, our revenue for the third quarter of 2022 increased 28.6% over the same period last year, without the benefit of sales to China. As we discussed last quarter, our dental segment faced temporary challenges in the second quarter of this year, due in part to the challenging situation in China and the Russia-Ukraine war. We believe we have in large part overcome these challenges as illustrated by the fact we achieved both sequential and year-over-year revenue growth for third quarter of 2022. The growth in revenue on both the domestic and international fronts reflects our successful decentralized multi-channel sales strategy. Importantly, we continue to add third-party dental distributors in international markets, which we believe will help further accelerate our growth. We look forward to announcing additional international distribution agreements as we continue to build our network across Asia, Africa, South America, and Europe. In the United States, we are working to bring on new strategic distribution and channel partners that sell through their respective networks of dental customers, especially in specialized areas of dentistry, such as implant dentistry and aesthetics, as well as large dental service organizations, or DSOs. DSOs play an increasingly important role within the domestic dental market. The current DSO market penetration of approximately 30 to 32% is expected to grow to 75 to 80% over the next 10 years. So to summarize, within our dental business, we continue to generate solid cash flow on a standalone basis. As we continue to grow our revenues, we expect to benefit from economies of scale due to the recurring nature and high margins on our disposables. Overall, our dental business remains strong We are encouraged by the increased interest in our dental instruments and expect our momentum to continue. Turning to our medical segment, we continued to advance our commercial efforts around the CompuFlow Epidural Instrument and the cath check verification system. As a result of our focused sales and marketing activities, we have trialed our CompuFlow Epidural System in key hospitals, healthcare systems, and pain management clinics. As an example, in August, we announced the adoption of the CompuFlow epidural system and its cath check capability at the University of Health, a leading academy health system based in Louisville, Kentucky. We are introducing CompuFlow across three distinct departments, labor and delivery, acute pain, and in the operating room. UofL Health owns and operates six hospitals and four medical centers, providing patient care to more than 1.5 million patients each year in the state of Kentucky. This is another important validation by a leading medical institution as we execute our strategy to become the new standard of care. With each health system we sign, we benefit not only from the sales, but also growing validation within the market. As part of our sales strategy, we are targeting several tier one 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, more recognized names, it will add greater credibility and reduce the sales cycle with smaller institutions. Our sales pipeline is solid and we are advancing discussions with a number of hospitals and healthcare institutions. We will provide further updates as soon as we commence formal commercial sales with these respective institutions. We also continue to introduce our CompuFlow epidural system targeting the pain management market, which not only includes hospitals, but also specialty centers, outpatient centers, and sports medicine centers. With over 11 million reported epidural procedures each year, the pain market segment is more than twice the size of the labor and delivery market segment. Importantly, we recently announced the issuance of a CPT code from the American Medical Association. This code goes into effect on January 1st, 2023. The code will allow billing and payment pathways for healthcare personnel who choose to use our technology for coverage and discretionary payment by payers such as Medicare and Medicaid, as well as commercial health plans. Specifically, we believe that reimbursement will accelerate our commercial rollout by aiding in the financial decision process, within particular private pain clinics. we are actively preparing our reimbursement plan to take advantage of this new AMA cleared CPT code that will be implemented in the first quarter of 2023. In addition to our direct sales channels, we are also expanding our network of distribution partners. On the heels of receiving the CPT code, in August we announced our partnership with CTI a leading specialty distributor of medical products in the Midwest and East Coast regions of the United States. We believe CTI is an ideal partner, bringing a sizable Midwest and East Coast sales force, extensive relationships with physicians, pain clinics, and hospitals, as well as a proven track record of introducing new medical devices. In Greece, our new partner, FNM Feed, is a leading provider of medical equipment, devices, and consumables. They bring over 40 years of experience in the field of healthcare, having a successful track record, launching new medical devices and equipment. We look forward to announcing additional international distributors as we advance our commercial rollout. We also have invested heavily in our marketing initiatives to build brand awareness for the Compuflow Epidural and CatCheck system and provide our sales representatives with the tools to be much more effective, including training videos, corporate brand videos, education literature, digital marketing materials, and more. We continue to believe the medical segment represents a large addressable market not only driven by cost and convenience for the provider, but driven by the safety considerations and cost savings. These factors, coupled with the recent issuance of a CPT code, will ultimately lead to the CompyFlow becoming the standard of care. Let me now take a moment to discuss some important financial initiatives we have undertaken. As announced last quarter, we continue to reallocate additional resources towards our medical segment, which we believe represents the future of the company, while increasing our focus on DSO and third-party avenues of distribution in the dental segment. At the same time, we have reduced a number of operating expenses and certain corporate overhead in the third quarter, which is evident in the reduction in our burn rate. We expect to see the continued benefits of these cost reductions in the coming quarters, which should help drive us towards improved performance as we continue to grow revenue. Combined with our disposables, which provide high margin recurring revenue, we believe we are well positioned to drive significant shareholder value for years to come. We ended the quarter with approximately $9.8 million of cash on hand and no long-term debt, which provides us sufficient capital to continue executing our business strategy, including accelerating market 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. So to summarize, we have positioned our company for positive growth in the coming quarters. We remain confident in the market potential of the Comfiflow Epidural System, which we believe will transform the industry and ultimately become the standard of care for epidural procedures in labor and delivery as well as pain management by providing patients with effective pain relief while reducing the significant risk of complications with the associated costs. Importantly, we have begun seeding the market with our CompuFlow epidural instrument within a number of key hospitals, medical centers, and pain management clinics in the United States and Europe, and believe the issuance of CPT, along with other steps we are undertaking, will contribute to our long-term success. At this point, I'd like to provide a quick financial recap of our financial results for the three months. For a more detailed discussion, including our nine month results, please refer to our form 10Q, which has been filed with the Securities and Exchange Commission. Total consolidated revenue for the three months ended September 30th, 2022 was approximately 2.2 million versus 2.1 million for the same period last year. Dental revenue increased approximately $130,000 as we expanded the partnership with new domestic and global distributors. Dental domestic revenue increased approximately $88,000 and dental international revenue, excluding the Chinese market, increased approximately $403,000 compared to September 30th, 2021. The company recorded no revenue from China in the third quarter 2022 as compared to approximately $360,000 for the third quarter of 2021. Medical revenue decreased approximately $23,000. Consolidated gross profit for the three months ended September 30th, 2022 increased to approximately $1.5 million versus $1.4 million for the third quarter of 2021. Consolidated selling General and administrative expenses for the three months ended September 30th, 2022 and 2021 were approximately $3.3 million and $3 million respectively. The increase of approximately $315,000 was a result of the increase in warehousing, quality control, and professional fees for regulatory and other services. At the same time, we reduced employee salaries and related expenses, as well as certain marketing and other expenses, which also decreased during the period. As I mentioned earlier, we have increased our focus in dental on third-party distributors and reallocated additional resources towards our medical segment. Consolidated research and development expenses for the three months ended September 30th, 2022, and 2021 were approximately $166,000 and $356,000, respectively. The decrease of approximately $190,000 is related to the delay of certain enhancement to the SDA single-tooth anesthesia system. The loss from operations was approximately $2 million for the three months ending September 30, 2022 and 2021, respectively. The net loss was approximately 2 million or 3 cents per share for the three months ending September 30th, 2022 and 2021 respectively. On September the 30th, 2022, Milestone Scientific had cash and cash equivalents of approximately $9.8 million and working capital of approximately $10.8 million versus working capital of $15.8 million on December 31st, 2021. For the nine months ended September 30th, 2022 and 2021, we have cash flows used in operating activities of approximately $4.9 million and $3.6 million respectively. So to wrap up, we believe we have developed a cost-effective and highly scalable platform to drive growth within both our dental and medical divisions. We are witnessing growing interest in both our instrument and our disposables, and we believe we are well positioned to take advantage of the opportunities available in the market. Within our dental segment, we are back on the solid growth trajectory with sequential sales growth of 34.4% in the third quarter compared to the second quarter of 2022. Year over year, revenue for the third quarter of 2022 increased 28.6% over the same period last year, excluding sales to China. As you can see, we continue to grow our dental segment and believe this business will not only contribute to our revenue growth, but also provide a steady stream of cash flow that will continue to help fund our initiatives within the medical segment until that becomes self-sustaining on a standalone basis. Within our medical segment, we have built a solid sales pipeline, added hospitals, expanded orders on our distribution partners, and look forward to formal implementation of the new CPT code, which will support planned initiatives on the reimbursement front. At the same time, we continue to streamline our operating structure, and remain committed to driving shareholder value. We are encouraged by the outlook of the business and look forward to providing further updates as developments unfold. I'd like to thank you for joining the call today. At this point, we would like to open the call up to questions. Operator?