Good morning, everyone, and welcome to Milestone Scientific's Q1 2023 financial results and business update conference call. At this time, all participants are in a listen-only mode. A Q&A session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. David Waldman, Investor Relations. David, you may begin.
Thank you, Jenny. Good morning, and thank you for joining Milestone Scientific's Q1 2023 financial results conference call. On the call with us today are Arjan Haverhals, Chief Executive Officer, and Peter Milligan, Chief Financial Officer of Milestone Scientific. The company issued a press release today, May 11, containing Q1 2023 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 Q1 ended March 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 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 of the Securities and Exchange Commission, including, without limitation, Milestone's report on Form 10-K for the year ended December 31, 2022, and Milestone's report on Form 10-Q for the Q1 ended March 31, 2023. The forward-looking statements made during this call are based upon management's reasonable belief as of today's date, May 11, 2023. 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.
Thank you, David, and thanks to everyone for joining us today. I'm pleased to report we achieved revenue of more than $2.6 million, making it a solid quarter. Most notably, domestic dental sales increased 47% due in part to the early success of our new online store for selling and shipping the STA Single Tooth Anesthesia System and handpieces directly to dental offices and dental groups within the U.S. This strategy has provided us a closer and more direct relationship with our customers, which in turn resulted in improved gross margins. As a result, we recorded an increase of 12% in gross profit for the Q1 of 2023. We continue to bring on new strategic distribution and channel partners that sell through their respective networks of dental customers in the U.S.
The launch of the online sales portal has also enabled us to directly serve several dental service organizations or DSOs. Our goal is to strengthen our position with these DSOs, thus increasing the penetration of our dental offering with these customers. Our investment in direct-to-patient marketing activities has resulted in several 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. We're also expanding our efforts to enter new international markets and deepen our penetration within existing international markets. Towards this end, early in the Q1, we announced TEKMIKA Health Technologies as exclusive distributor of the STA system in Brazil. As mentioned during prior calls, the Brazilian dental market is one of the 3 largest markets in dentistry.
We also recently appointed Sweden & Martina as our exclusive distributor in Italy, France, Spain, and Portugal. We look forward to announcing additional international distribution agreements as we continue to build our global network. To summarize, we believe that through our new sales strategy in combination with our increased marketing efforts, we aim to further grow the dental business at attractive margins in the coming quarters. It's also worth noting that our dental division continues to operate profitable. In fact, the dental division generated over $600,000 of operating income on a standalone basis, which is an 81% increase over the same period last year. Turning to our medical segment, we continue to advance our commercial efforts around the CompuFlo Epidural System as we target hospitals, healthcare systems, and pain management clinics.
The fact that our technology was adopted by leading physicians and hospital systems reinforces our confidence in the market potential for our instrument, particularly within pain management and labor and delivery market segments. Importantly, we have witnessed it that the decision-making time or sales cycle is much shorter in the private pain clinics compared to the labor and delivery department at hospitals. In addition, the recent 510(k) FDA clearance of our instrument for use in the thoracic region of the spine, including the cervicothoracic junction, is also helping drive interest in our technology within a number of prominent pain management clinics, given the added complexity and risks associated with these procedures.
Specifically, the incident rates of morbidity in the thoracic and cervical region of the spine are believed to be much higher than in the lumbar spine region at 17% and 30% respectively due to the difficulties accessing the epidural space. We recently commenced sales of CompuFlo epidural disposables into the Regenerative Sports and Spine Center in Tualatin, Oregon. Adoption of the technology by this clinic follows a successful evaluation process by Dr. Jimmy Huebert, a regenerative sports and pain medicine physician, and the owner of Regenerative Sports and Spine Center, which further validates the safety and efficacy of our technology. Dr. Huebert initially conducted several cases using the CompuFlo epidural instrument, in which he reported 100% success. The evaluation included epidural steroid injection procedures in the lumbar, thoracic, and cervicothoracic junction of the spine.
The incorporation of our technology by this recognized physician illustrates his commitment to implementation of the latest technologies to improve patients' outcomes and safety by helping them recover more efficiently from sports injuries. This follows similar evaluations earlier this year by Dr. Brett DeMille and Dr. DJ Demesma, 2 other prominent thought leaders that have recently begun incorporating the CompuFlo Epidural instrument into their practices. Collectively, the procedures by these pain management physicians mark the first in a series of epidural steroid injections using the CompuFlo Epidural System for artificial intelligence assistant analgesic needle placement in patients. Providers may consult the American Medical Association AMA CPT Changes 2023 regarding AI-assisted analgesic epidural needle placement in patients. This publication addresses AMA's new technology specified level 3 CPT code set, which came into effect on January 1st, 2023.
It describes technologies that integrate artificial intelligence to place an epidural needle. It's typically utilized during analgesic epidural needle placement in patients. It is real-time software to assist the physician by transmitting key data points, and we believe medical necessary and compliantly documented use of this data may be eligible for reimbursement for the CompuFlo Epidural System. The clinicians mentioned before have been or are in the process of submitting their claims to healthcare insurance providers. The expectation is that they will receive the first responses by the providers within 30 days after submission. Depending on the response, either more information could be requested by the insurance providers to the clinicians or an acceptance or denial could be obtained. In the case of an acceptance, this would potentially lead to payment to clinicians of a reimbursement fee for epidural steroid injections using our technology.
We are not allowed to reach out to clinicians or insurance providers directly on pricing, and we are following the strict rules and regulations and policies by the American Medical Association, thus doing our utmost to service the clinicians with all the documentations for their submissions in a high-quality, professional way. We are not aware of any systems other than the CompuFlo Epidural System that would meet these artificial intelligence criteria, as mentioned before. As I'm sure most of you are aware, our technology is backed by a broad portfolio of domestic and international patents, which we believe will both preserve and further enhance our leadership in the market. We remain encouraged by the interest in our epidural instruments by anesthesiologists and pain management providers, especially for patients with complex anatomy and difficult cases that involve the thoracic and cervicothoracic junction.
We believe that the efforts we are taking to seed the market with our technology among leading pain specialists will ultimately translate into increased adoption as we continue to execute on our goal of establishing the CompuFlo Epidural System as standard of care in epidural analgesia. We also believe there is a market opportunity for our CompuFlo Epidural instrument within federal and other government agency, as our system can contribute to both improved patient outcomes as well as increased efficiencies. We were recently granted registration with the U.S. government System for Award Management, which is a key step in the overall governmental decision-making and payment process.
In addition, we are actively pursuing U.S. Federal Supply Service approval for the CompuFlo Epidural instrument, which if granted, would provide uniform pricing across government agencies. In addition to our direct sales channel, we are also expanding our network of distribution partners to assist in further adoption of the CompuFlo Epidural System. Specifically, we are targeting independent distributors with existing relationships within key global markets and proven track records, introducing medical devices within their territories. We look forward to announcing additional international distributors as we advance our commercial rollout. At the same time, we continue to carefully manage our expenses while investing in sales, direct-to-patient marketing, and product development. At this point, I'd like to turn the call over to Peter Milligan, Chief Financial Officer, to go over the financials in detail. Please go ahead, Peter.
Thank you, Arjan. Total revenue for the quarter, Q1 of 2023 was $2.6 million versus $2.7 million for the same period last year. The decrease was driven by lower revenue from China of $360,000, decrease in other international sales of $180,000, offset by increase in domestic dental revenue of $443,000. The increase in domestic dental revenue was primarily driven by the launch of our new online store for U.S. dentists to order the STA Single Tooth system, instruments, and handpieces, as well as the reversal of an allowance for returns of $179,000, which was related to the distribution agreement that we terminated with Henry Schein at the end of 2022.
Gross margins improved significantly from 62% last year to 73% this quarter. This increase was largely driven by the company's change in its U.S. distribution, which Arjan referenced earlier, is going extremely well. The operating loss for the 3 months ended March 31, 2023, decreased by $600,000 versus a $1.9 million loss for the Q1 of last year. This was driven by higher gross margin and lower operating costs, trends that we expect to see continue throughout the year. The net loss was $0.02 per share versus $0.03 per share for the comparable period in 2022. The company did use $2 million in cash in the Q1, it's important to highlight that the accounts receivable and prepaid expenses increased by $550,000.
We saw a significant reduction in current liabilities of over $650,000. We expect our cash use to decline each of the remaining quarters throughout 2023. At the end of the quarter, March 31st, 2023, the company had cash and cash equivalents of $6.7 million, total current assets of $11.6 million, and working capital of $8.9 million, and has no long-term debt. At this point, I'd like to turn the call over, back over to Arjan.
Thank you, Peter. Through our new sales strategy and our enhanced marketing efforts around the STA Single Tooth Anesthesia instrument, we believe we can accelerate the growth of our dental business at higher margins in the months ahead. We believe we have developed an efficient and scalable platform to help drive our dental instruments and handpiece sales in the coming years. Our dental business continues to generate positive cash flow on a standalone basis, and 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. 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.
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 our activities following the issuance of a tracking CPT code, should ultimately lead to increased sales and reimbursement of the CompuFlo system. We remain encouraged by the outlook for the business, given our sales pipeline, the addition of new hospitals and pain management clinics, as well as expansion of our distribution partners and streamlined operating structure. We are excited about the recent 510(k) FDA clearance for the use of CompuFlo Epidural System in the thoracic region of the spine, including the cervicothoracic junction.
In addition, we are advancing a number of key initiatives following SAM approval, and we are actively pursuing U.S. Federal Supply Service approval for the CompuFlo epidural instrument, which potentially opens us up to the sizable government market opportunities. 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?
Thank you, Arjan. I will now open the floor for questions. If you have any questions, please press star one on your phone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For participants using any speaker equipment, it might be necessary to pick up the handset before you press the keys. Just hold a moment while we assemble our rota. One second. Thank you. Your first question is coming from Anthony Vendetti of the Maxim Group. Anthony, your line is live.
Thank you. Arjan, I wanted to talk a little bit about the e-commerce site. How are you determining the effectiveness of the digital marketing? Wanted to follow up with, on the medical side, I know you signed up some pain clinics, which is a large market opportunity. How are you driving utilization for those accounts that you're signing up? I'll have one other follow-up. Thank you.
Okay. Good morning, Anthony. Thank you for your question.
Sure.
Your first question, the combination of digital marketing and the success of the portal, couple of comments from my side. First of all, you know, we have, in the Q1 of this year, on purpose, invested heavily in not only digital marketing, but also, partnering with leading dental journals and organizations, to make the people and the dentists aware about the launch of our portal. You know, I was perhaps, you know, conservative in my target setting for the Q1 because we were not sure what could happen in the aftermath of the launch of the portal. The distributor, of which the agreement was ended by the end of last year, had the opportunity and the right to return goods to us. That's one thing.
They also had the right to continue their commercial activities for a 90-day period, so that would be until the end of March. As we mentioned during our earnings call for the annual results about a month ago, we saw, of course, a negative effect in the Q4 last year, as Henry Schein ordered less products than normally. We were very pleased that, you know, it was offset by an enhanced penetration in the current existing Henry Schein customer base or distributor base during the Q1. That has resulted in, you know, significantly success and growth of our revenues within the domestic domestic market.
More importantly, you know, the effect and the contribution of an increase of our gross margin, as Peter alluded on, and as you can see in the financials that we reported today, it is now from 62%, it is 73% gross margin. We definitely expect that that trend is going to continue, because that's important also for our balance sheet, and also for our account receivables, because the majority of these transactions are paid by credit card. That's the comment on the dental side.
Turning to the medical side, what we are doing to enhance the utility and usage of our consumables and of the CompuFlo Epidural System, it is important that we identify those clinicians that are evaluating, as we have reported now, 3 clinics, I think, in the recent media releases, that assist us and are also interested in sending in, you know, the billing and coding materials to the healthcare insurance providers. That is very important. As I said earlier, we are not entitled to have direct contact with the clinicians on pricing or the quality or what they are submitting to the healthcare insurance providers. We can only help them by giving them the right documentation on our products so that they have everything available to submit that.
That is important, and also based on their enthusiastic reactions and 100% success rates, I know a couple of them automatically are extending their number of procedures based on the initial results that they have obtained. They are very enthusiastic about our technology. When healthcare insurance providers, you know, will pay a price or will pay a reimbursement fee for the technology, I think it's going to be an automatic process, sort of like a domino effect, where definitely these clinicians will use our technology moving forward. Does that answer your question, Anthony?
Yes. I think just on the medical side, though, Arie, maybe just a little more color. You know, I think Milestone has a history of managing cash very well...
Yeah.
keeping expenses down. You know, as you roll this out into these pain clinics.
Yes.
What resources are you putting behind the rollout to ensure... I mean, you can't obviously, you know, tell a physician exactly what to do, but how do you help drive that utilization? Are there any clinical specialists that you have that are working, at least initially hand in glove with the, with the physicians to...
Absolutely.
you know, get them comfortable using it?
Yeah.
Uh.
No, absolutely. And thank you for asking that question because it's a good one. Because, you know, based in the environment that we are living in and the focus on giving the support to these clinicians. We all know, as I have repeated several times, is that we are living in an environment that safety and efficiency of a new technology is not sufficient, as you know, you have to show to the clinicians that there is also, you know, a business aspect and an opportunity to make money for them. You know, that's where all the large companies active in this field, you know, are working in, right? To your point, we have our 3 salespeople that we still have and that are sales/clinical specialists.
Every case that is performed in the beginning for these clinicians that we have reported is with the assistance in the OR room of our clinical specialist. That is also a service that we have to provide to clinicians. If you look, for example, companies that are doing spinal cord stimulators, it is seldom that the clinician is alone with his nurse or with his staff in the operatory room. He always has a clinical specialist from companies that are active and that have these products in their portfolio. They always have these clinical specialists in the operatory room. We continue to maintain the champions that we are having that have been with us for a longer period of time.
What they are doing day in, day out, they are traveling across the country and give on-site, active support, clinical support, during these procedures.
Excellent. Last question, Arie, then I'll hop back in the queue, is what conferences, what medical conferences is Milestone attending, you know, where the KOLs are there? Are there any KOLs that you feel you need to maybe, I don't know, sign up, get on a medical advisory board to help spread the word? Maybe just give us a little color on that. Thank you.
Absolutely. I always say, you know, KOLs for me, the typical KOL is the person that has done or primarily is interested in scientific clinical research and publications. I do strongly believe that we have done our homework on the clinical side, but I always call the KOL, the key opinion leader more/the ambassador. To your point, you know, physicians that we have been working with and are still working with, I mentioned, for example, De La Garza, who is the President of the physician pain physicians in Florida. He is on our advisory board.
As we speak, you know, the latest developments with the other clinicians, what we have done as well, is we have called for a special advisory board for a number of clinicians that are, you know, when they are interested in working with us, that are doing a number of cases, of which we then later can do a white paper publication out of that in the process of the adoption of our technology and the use of our system. So, you know, I never call that out because it's sort of, you know, common practice within the medical field. But absolutely, we are signing up clinicians on an advisory board as in particular in these early stages and early days, in particular on the cervical and the cervicothoracic junction.
You know, all these clinicians that recently has joined us, they have showed a very high interest because of the thoracic and the cervical indication, because it is almost a no-brainer to use it in that area, due to the high morbidity rates.
Thanks very much. I'll hop back in the queue.
Thank you, Anthony. Have a good day.
Just as a reminder, ladies and gentlemen, if you still have any questions, please press star one on your phone keypad now. Okay, we have a question from Richard Gerando. He's a private investor. Richard, your line is live.
Good morning, Arjan.
Good morning, Richard.
How are you?
I'm doing well. You?
Good. I'm on the West Coast, and I got into the call late, so I missed most of your preamble.
Okay.
I guess the question is, how close is the company to really starting to sell product? I mean, I'm a dentist. I've been using your device for 20 years, just a fantastic device.
Mm-hmm.
I just saw the intuition to use it right away. Then in the medical side, obviously, it's a little bit more complicated. Is there some clarity or you can, with some sense of confidence, say that this thing is going to be adopted commercially?
Yeah.
by the vast majority of physicians?
That's a very good question. Well, first of all, you know, seriously, you know, we are selling products every day, right? That's the reason why we have the revenues that we are reporting this quarter. That's, as you say, it's of course, primarily in the dental business.
What I have to say, of course, is that, we should not forget that the dental business is still a rather under-penetrated market, and I strongly believe there's a huge potential, and I do foresee the trend moving forward, that we can continue to grow the dental business. Now, on the medical sales side, you know, yes, I do believe, you know, depending on all the activities that we have undertaken, FDA, you know, helping the clinicians, the tracking code, a lot of direct to patient marketing, a lot of digital marketing, the people that we have in our team, we are very well set up to enjoy commercial success.
The question that you are having, and that was my comment before, it is not enough just to have your clinical data and to have your safety and efficiency data. I do believe that the 2 major events or major issues that could definitely further drive growth, one is, you know, whether there is over time acceptance of a reimbursement code in terms of insurance providers willing to include our technology in their payment, in addition to already the primary code for epidural spinal injections. Secondly, I do believe that it is important to also include our technology in spinal cord stimulators procedure.
Thirdly, you know, that's the reason why through our business partners also why we look, not only look at, but why we are actively pursuing the governmental and the and the military business, so to say. One of those 2 elements, if they are running pretty well and there's positive feedback, that will definitely drive growth. To your question, is that happening today or tomorrow? We have to continue doing what we know we are doing well, and that is executing on the strategy that we have identified. Once we do that, it is dependent on, for example, the government, how much time the process has taken. It has taken much more time than I anticipated.
The reimbursement project as such, where we have to follow all the strict guidelines and rules associated with those, is completely dependent on the clinicians sending in the billing and the coding material and documentation. My goal is what. Of course, you know, there's nothing like a rule of thumb. If you do 100 patients or 200 or 500 patients, there's no guaranteed success or whatsoever for obtaining reimbursement, right? We are making very good headwinds in getting more and more patients enrolled in this program. As a matter of fact, today and tomorrow, we do an additional 10. Over the next coming weeks, we have a 10-fold of additional patients. We are continuously fueling those activities.
It depends on when the healthcare insurance providers come back. As I have explained in this call, it's in a way out of our control. The only thing that we can doing is providing clinicians with high quality and professional services. I'm very positive about that. Like you said, it's a matter of time, but it can happen any day.
Just a little follow-up. This approval by the FDA was titled contingent, correct? Am I correct in saying that?
Yeah. Yeah. The approval allows to use the products in the thoracic and the cervical spine.
Right. I think the wording was contingent at one point in time, and that the reality is, they really wanted to have, at some point in time, I remember a number, of 25,000 injections given. Can you give us a number of how many injections have been utilized to provide the CompuFlo Epidural-?
No, I think that's not correct. I think what you are alluding on, that was 5, 6 ye ars ago when people said that-
Correct
... if you want to obtain a code, or a reimbursement code, you have to perform 25,000 injections. That is not true. That's not correct.
But in-
That's 5, 6 years ago, and the rules-
Right
and regulations have changed. That has also made it possible for us as a company to establish that tracking code during a meeting with the panel of the AMA in May last year. That's the reason why the tracking code became effective in January this year. What I always say, you still have to work on it. You know, the American Medical Association is publishing technologies that are eligible for a code, but they don't decide on pricing. That is what clinicians have to mobilize themselves. The tracking means that you are allowed to use the code for tracking purposes and include that in the claims. That's what clinicians can do. That's not what the company can do. The clinicians are responsible for that.
Okay.
That's my point, that we have to support those clinicians and identify a pool of clinicians as part of an advisory board that are willing to help and support us in making that work. That's, that's the environment out there.
can you give me a number or give us a number of how many successful procedures have been done?
Yeah, I can give you a number. At the same time, if I give a number-
You know.
The next question is.
Right.
what's the probability that we're getting. It's just it is a little bit guessing to that extent, and it is creating, let's say, assumptions and hypothesis. I'm a person that when we have the facts available and when we have initial feedback that we are on the right track, then I will then I will share that with the outside world, right? It's the same, for example, with an FDA submission. It doesn't make sense to make a lot of hype on submitting an FDA submission if you don't know whether it's going to be approved. That's the same approach that we are taking here. We are allowed to share with the outside world and with the investor that the AMA has granted a tracking code in the beginning of the year, and that's it.
People would be very surprised the rules and the regulations and the strict policies that the American Medical Association has. Every information I share, and that is a little bit more than what's, quote-unquote, "Is normally allowed," including the number of procedures that we have submitted, that can result in a penalty from the AMA or for future work that we would submit to them, that way they would neglect it. I'm not willing to take that risk.
No, I'm not asking you to do anything illicit. I just wanted to know if we have this concept of, you know, in finance, visibility. That you have visibility that you, at some point in time, and I know you're dying to say this, but you can't, as you stated.
Mm-hmm.
Visibility that, you know, in 6 months, the way that Kinetic Energy is working, that all these hospitals that over the last 2 to 3 years you've announced that they are trialing the system, at some point in time, they're gonna go to their people and say, "We want you to push the envelope and get something going because we wanna use this thing on everybody. We don't wanna take a risk of having a puncture, epidural puncture.
Mm-hmm.
That would be something that I'm not asking you to tell me that today or tell anybody in the call.
Mm-hmm.
The rest of the world, but you know you're dying.
No, no. I take it too. Of course, you know, we have our plans and our budget, we have our financial models and financial visibility, absolutely. What is important is, of course, also, with the activities that we are undertaking, is we are focusing in first instance primarily to the pain clinics and the ambulatory surgical centers. As you know, in labor and delivery, the costs of the consumables, they are absorbed by the overall cost for a labor and delivery procedure at the hospital. You know, I do believe that we are on a good track. We have undertaken the right activities, and we will share, you know, with you and other shareholders and investors at the time that we are obliged and allowed to do so.
Thank you very much, sir. Appreciate it.
Thank you very much.
Thank you. That does appear to be the last question. I'm now gonna hand back over to Arjan for any closing remarks.
Yes. Well, thank you for your time, and thank you for joining us on this call. As you, in summary, you know, we are pleased, happy with the strong Q1. We do believe that, you know, we are well-equipped and well-positioned to continue our journey and to make and to tap on the potential in the medical market segment. We will continue to hopefully share additional information when available based on the activities undertaken. Thank you again for your time. Stay safe and have a good day.
Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.