Milestone Scientific Inc. (MLSS) Earnings Call Transcript

Thanks, operator. Prior to starting, I want to flag that forward-looking statements will be included in what we discuss today, as defined under the Private Securities Litigation Reform Act of 1995. Such statements carry risks and uncertainties, and because of them actual outcomes might differ materially from what is projected. For a discussion of those risks, please see our earnings press release and our SEC filings, which include our 2025 Form 10-K. A replay of this call will be made available shortly after it concludes. With that said, I'll hand things over to Eric Hines, our CEO.

Thanks, James, and good morning, everyone, and thanks for being with us on today's call. The results for our third quarter show we kept executing our commercial strategy and managing costs with discipline. Total revenue came in at $2.2 million, in line with expectations, a modest decline sequentially after the 2 large international orders that had benefited our second quarter. Revenue in the Medical segment rose 136% year-over-year. Gross margin was up 280 basis points to 72.3%, and operating expenses fell 15.3%. Net loss shrank to $748,000, compared with $1.2 million a year ago. And equally important, our team found roughly $400,000 in additional annual savings, which we believe underpins our expectation to approach or achieve profitability in the fourth quarter of 2026. So let me repeat that once more, our expectation to approach or achieve profitability in the fourth quarter of 2026. In our Medical business, our focus is on turning growing interest in CompuFlo into sustained clinical adoption and recurring disposable revenue. We are building momentum with major health care organizations, highlighted by the start of clinical use at Rothman Orthopaedics, a nationally recognized orthopedic institution with 34 locations. During the quarter, we also added Pain and Spine Specialists, which spans 22 locations across 4 states, and its Medical Director, Dr. Sudhir Rao, to our CompuFlo Advisor program. To support that adoption, we are growing our commercial infrastructure. We now have more than 500 U.S. commercial leads, backed by 5 dedicated medical sales professionals, approximately 15 sales consultants and 3 distribution partners and Red One Medical, which provides access to federal health care customers, including the VA and the Department of Defense. The opportunity in the medical business is significant. Worldwide, epidural procedures are estimated at 30 million-plus each year, including more than 11 million in the United States. To illustrate, penetration of just 2% of the U.S. market at an assumed selling price of $150 per procedure would represent approximately $33 million in potential annual disposable revenue. That is not a revenue projection, but it does show how large the market is. Beyond epidurals, we recently filed a provisional patent application for a new use of CompuFlo in intrathecal pump refills. And internationally, we are pursuing go-to-market and licensing initiatives with a few large medical technology organizations. Our dental business remains an important foundation for growth. Online product demonstrations more than doubled compared with the same period last year, reflecting stronger customer engagement; we are also accelerating our market expansion strategy through discussions with 4 major dental distribution channels that collectively serve thousands, if not 10,000, of dental offices, positioning us to reach previously untapped markets and drive broader adoption. We also strengthened our balance sheet by converting our outstanding director loans to equity, leaving us debt-free as of September 30. Beyond that, we reviewed and refined the commitments we hold under a contract that was already in place, and that brought the associated cost down to roughly $91,000 across the first 9 months of 2026, compared with $350,000 during the same period a year earlier, and it provides extra yearly savings of the kind I referenced near the beginning of this call. Turning to what lies ahead, we are restating our 2026 guidance of $9.8 million to $10.2 million, which amounts to double-digit growth, and we still anticipate substantial expansion in CompuFlo sales. Our view is that we are nearing a significant inflection point. Given the visibility we have today, we anticipate nearing profitability or achieving profitability during the fourth quarter of 2026. As for 2027, we anticipate materially reduced costs relative to this year, and we expect to produce further profitable quarters, though results could fluctuate quarter-to-quarter depending on revenue levels; given our reduced cost structure, we believe quarterly revenue of about $2.6 million to $2.7 million brings us close to the point at which added revenue starts contributing meaningfully to the bottom line. That operating leverage, together with expanding medical adoption and recurring disposable revenue, forms what we see as a route to sustained profitability and long-term value for our shareholders; with that, I will hand the call to Keisha for a review of our third quarter financial results. Keisha?

Thanks, Eric, and good morning to everybody. For the third quarter, total revenue came in at $2.2 million, versus $2.4 million during the same period a year ago, which is a decline of $140,000, or 5.9%. That year-over-year drop was mainly the result of weaker dental product sales, partly offset by growth in medical sales as well as higher dental repair income. Gross profit stood at $1.6 million, in line with the prior year period. Gross margin came in better at 72.3%, up from 69.5% last year, largely reflecting lower product costs. Operating expense fell by 15.3% to $2.4 million, compared with $2.8 million in the third quarter of 2025; that reduction was mainly the result of lower salaries, compensation, stock-based compensation, professional fees and contract-related expenses, partly offset by higher marketing, regulatory, warehousing and travel expense. We posted an operating loss of $746,000, an improvement over the operating losses of $1.1 million in the prior year. That improvement came from a robust gross margin along with our ongoing efforts to manage operating expense. Net loss for the quarter was $748,000, or minus $0.01 per share, versus the net loss of $1.2 million. Now to our balance sheet. As of September 30, we had $1.3 million in cash and cash equivalents, working capital of $3.5 million and no outstanding debt; with that, I'll hand it back to the operator for questions.

I'd like to begin by asking about gross margins, which rose quite well on a sequential basis. Can that be maintained as we move ahead? And what's the right way for us to think about that specific line item?

Bruce, I appreciate the question. Actually, Keisha and I discussed this very thing earlier today. So my expectation is that we'll settle back into the 70% range. Naturally, it's a blended figure, combining equipment and disposables. During certain quarters we see bigger equipment sales, particularly when we're making large shipments into China. So going forward, I'd expect the gross margin to be properly represented somewhere between 69% and 70%, though from time to time there could be some positive fluctuations.

All right, and after that, do seasonal patterns show up in your business? I mean, you have quite a few potential contracts in the pipeline here, and generally the fourth quarter tends to be solid for capital equipment sales. Is that what you're seeing at the moment this year?

Yeah. There is a small amount of seasonality coming just from the dental business. Plenty of people are — particularly across Europe and so on — away on vacations during the summer time frame; so generally speaking, the fourth quarter is a solid quarter. As you said, Q1 is typically strong. Q2 may ease off somewhat in Q3. But mostly, Q4 is a solid quarter.

I’ve got a question about the dental side. About 2 quarters ago, I remember hearing that 3 or 4 fairly large countries were mentioned, including India and Japan. I think Mexico is another one, but we were roughly 80% of the way toward approval and I hadn’t really heard any updates on it. So could you give us an update on that? And do we expect it within the next year? Or where do things stand?

No, that’s a great question, Steve, and absolutely. As of last week, we received approval in Turkey, right? I mean, Turkey is a very substantial large country; we’re expecting orders if we haven’t already received one. So I think we — I believe I actually have already received an order from Turkey. So Turkey is now official, and we’ll probably press release that at some point, I guess. Mexico is expected. It’s a process. These things, unfortunately, are a bit of a process. Mexico, we’re expecting at the tail end of Q1. We’ve been in touch with our partner down there. I spoke with them, believe it or not, last week; and so we’re making our way through that; and India also expected in Q1. So those are the 3 that I think I mentioned. Japan, I think we’re holding off for just a little bit. We’ve got approvals in 41 countries and a handful of countries where we’re not selling as much as I’d like us to sell. So we have more than enough real estate to go after; and right now, we’re just — we’re holding off on Japan until further notice, but Vietnam is also on the horizon; so I would say Vietnam, India and Mexico in Q1 and Turkey is complete.

It's good to join the call with you again today. There are a couple of general points I'd like to make. First off, I want you to know that whenever a press release goes out, I read it every time with anticipation, and quite often I go back and read it again. You're using terms that I have never come across before in a Milestone press release, such as profitability and scalable. To me, that is the heart of this entire matter. And when I go through one of your press releases and come away feeling good about it, that is simply very rewarding for me as someone who has held the stock a long time. Let me quote something you wrote in the September 29 release that really struck me. You said that you believe the opportunity ahead is not simply to place more devices, but to establish CompuFlo as a repeat use technology embedded in everyday clinical practice. That's exactly it. In my view, that has been the stumbling block for Milestone for years, since at least in the dental business, the devices were placed but not used, or used in a very limited way. So when I read that, I said to myself, well, we have a guy at Milestone who is really focused and knows how to approach growth for Milestone Scientific; and I'm really grateful for your focus and for everything you're doing so far.

No, I appreciate that; and you're absolutely right, aren't you? So if you look at — we have this discussion internally, and we're examining it very closely, because there's a balance between bringing on new clinics and a balance with getting them to keep using the product. And so we're looking at resources and customer success; we've obviously got the billing team that helps these doctors chase the Medicare folks. But eventually, every CompuFlo unit, if it's used properly, generates about $90,000 to $100,000 per year if it's being used at 50 cases per month, which is not a ton for some of these facilities; so we're trying to strike a balance between bringing on new customers. And I'm talking a little bit about 2027, right? Because we'll approach 25 to 50 CompuFlo purchasers by the end of the year, more than likely. And then we need to decide, is it more about educating and training and continue to reach out and touch our existing customers as much as it is to go after additional new sites, right? I mean, so we're thinking about that very carefully because at the end of the day, having 25 units that are being used out in the field translates to about $2.5 million in revenue, right? And so we will have that many users out there. We need to make sure that they continue to use our successfully the product. So you're spot on.