Milestone Scientific Inc. (MLSS) Earnings Call Transcript & Summary

Greetings. Welcome to the Milestone Scientific Second Quarter 2026 Financial Results and Business Update Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, James Carbonara with Hayden IR.

Thank you, operator. Before we begin, please note that today's call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please refer to our earnings release as well as our filings with the SEC, including our 2025 Form 10-K for a discussion of these risks. A replay of this call will be available shortly after its conclusion. With that, I'll turn the call over to our CEO, Eric Hines.

Thank you, James, and good morning, everybody, and thank you for joining our call today. Our second quarter results reflect continued execution of the strategy we laid out at the start of the year, disciplined cost management and focused investment in our highest growth opportunities. Total revenue for the second quarter was $2.8 million, an increase of 22% compared to the second quarter of 2025, bringing our first half revenue to $5 million, up nearly 10% year-over-year. Our base business performed very well, contributing $2.4 million in the quarter, further supported by approximately $500,000 in upside from international orders. In the Medical business, CompuFlo continued to build momentum with Medical segment revenue growing 231% compared to the second quarter of last year. While medical is still growing from a small base, there is real validation of the technology's value proposition, and we continue to scale the CompuFlo Advisor program launched in February, adding physician advisers and expanding procedural use across additional Milestone Administrative Contractor jurisdictions and commercial payers. On the reimbursement front, our health care providers are actively submitting claims and have received favorable payment outcomes from Medicare in the Novitas and First Coast jurisdictions as well as from commercial payers, which includes personal injury protection and workers' compensation plans. We currently have established $325 payment established under Novitas and First Coast fee schedules covering 3 regions and 13 states, and we're continuing to pursue the remaining MACs. Alongside our 3 distribution partners in these areas, we plan to begin launching direct sales efforts in each region starting immediately. We also achieved an important milestone of third-party validation this quarter following the publication of the peer-reviewed University of Texas Medical Branch study in Operative Neurosurgery, which associated CompuFlo-guided epidural access during spinal cord stimulator implantation with a 91% reduction in the odds of composite complications. The compelling evidence reinforces CompuFlo's differentiated value proposition and supports growing physician acceptance and expanded utilization across critical, spinal and epidural procedures, including epidural steroid injections, spinal cord stimulator implantation, obstetric epidurals, thoracic and cervical epidurals, neuromodulation therapies and surgical epidural anesthesia. CompuFlo has now been evaluated or utilized across more than 40 universities, academic medical centers and teaching hospitals worldwide. Subsequent to quarter end, we expanded the addressable market for CompuFlo with a strategic distribution agreement with Red One Medical, an established federal health care distributor to bring CompuFlo to the U.S. Department of Veterans Affairs, Department of Defense, Defense Health Agency, Indian Health Service and other federal health care organizations, systems that collectively serve more than 18 million enrolled veterans and military beneficiaries. We believe this partnership gives us an efficient pathway into one of the largest and most strategically important health care markets in the country. On the dental side, we signed a new national distribution partner to expand our sales network and complement our e-commerce business, and we continue to build on our international footprint with a recent registration approval in Uzbekistan and additional registrations targeted in Japan, Mexico, Turkey and India in the coming quarters. We also launched the first phase of our AI strategy this quarter with a pilot debut of Milo, our AI-enabled digital engagement platform at the ASPN 2026 Conference in Miami Beach. Milo is designed to answer product questions, provide educational information, support lead qualification and connect health care professionals with our sales, clinical and customer support teams, helping us engage prospective customers on their own time, which we believe unlocks a meaningful opportunity with small commercial teams. ASPN was also a strong show and commercially, generating more than 40 qualified leads and it marked the launch of our #NoWetTaps campaign, building on the complication reduction data we're seeing with CompuFlo. In terms of governance, we strengthened our Board of Directors with Benedetta Casamento transitioning from Chair to Executive Chair and the addition of 2 new independent directors, Greg Schilling and Kelly Ann Ulto, who bring additional health care, technology, finance and governance expertise. Turning to our capital position. We continue to operate from the $2.51 million private placement we completed in April. We are not currently planning to raise additional capital and continue to evaluate incremental sources as our net operating loss carryforwards and R&D tax credits programs and remain focused on funding the business through the disciplined execution that was meaningfully narrowed our losses over the past year. We are reaffirming our 2026 guidance of $9.8 million to $10.2 million in total revenue representing double-digit growth for the year, with CompuFlo expected to grow at a faster rate than the overall business for the remainder of 2026. I do want to set expectations appropriately for the third quarter. Our second quarter benefited from 2 large international orders that we don't expect to recur in the third quarter. And the third quarter is typically a seasonally slower period for us given the summer months. Please keep that in mind as you model the quarter. That said, we expect our medical initiatives, including our expanding Medicare reimbursement footprint and the direct sales launch we are now making alongside our distribution partners to continue building and to contribute more meaningfully to the second half of the year. And we'll provide more detail on the trajectory alongside of our third quarter results in November. I'll now turn the call over to Keisha to review our financials. Keisha?

Thank you, Eric, and good morning, everyone. For the 3 months ending June 30, 2026, total revenue was $2.8 million compared to approximately $2.3 million for the same period in 2025, representing an increase of approximately $518,000 or 22%. The increase in total net sales was driven by the growth in the dental product sales and continued early stage of adoption of commercialization of the company's medical products. Gross profit for the 3 months ended June 30, 2026, was $1.9 million compared to $1.6 million in the prior year period. Gross margin was 67.2% for the 3 months ending June 30, 2026, compared to 69.6% for the same period. The decrease in gross margin was primarily due to the product and customer mix and increased product costs, including tariffs and tolls and certain import products and components. These cost pressures were partially offset by higher levels of sales during the current period. Operating expenses decreased by approximately $0.5 million or 4.2% to approximately $3 million for the 3 months ending June 30, 2026, compared with approximately $3.1 million for the 3 months ending June 30, 2025. The decrease was primarily attributable to the lowered quality and regulatory expenses, consulting, professional fees, research and development, rent, occupational costs and other segments. Net loss was $1.1 million or negative [indiscernible] per share compared to the net loss of $1.5 million. For the 6 months ending June 30, 2026 and '25, the total revenue was $5 million and $4.6 million, respectively, an increase of $447,000 or 9.8%. Gross profit for the 6 months ending June 30, 2026, was $3.5 million or 69.4% of revenue compared to $3.3 million or 71% of revenue. Operating expenses decreased by approximately $1.4 million or 20% to approximately $5.4 million for the 6 months ended June 30, 2026, compared to approximately $6.7 million for the 6 months ending June 30, 2025. Net loss...

Did we lose you, Keisha?

Yes. No, I'm sorry, the phone clicked. As of June 30, 2026, the company had cash and cash equivalents of $2.1 million and working capital of $3.7 million and $466,000 in convertible outstanding debt. At this time, I'll turn it back over to Eric.

All right. Thanks, Keisha. So I want to first and foremost, thank everyone who wished me my 1-year anniversary date, which was August 1, 2026. So thank you to those who have reached out to me. What I can say about the company is we are 180 degrees different than when I joined the company. And I say that since we've added a lot of great employees and doing a lot of great things and a lot of great programs that are in place. And I'll leave the group here with, first of all, thank you for being shareholders, and thank you for being interested in Milestone, and thank you for your support. But most of all, I think our best chapters are ahead of us. So thank you, and we'll turn the call over to questions at this point.

[Operator Instructions] Your first question for today is from Bruce Jackson with StoneX.

Congrats on the quarter. So I just wanted to clarify from the press release, how many MACs do you currently have that are -- have the reimbursement in place? And then do you anticipate adding any more and when?

So we have 2 MACs, which cover 3 jurisdictions and 13 states. So those are Novitas and First Coast, and we will be adding more MACs along the way. We're currently working very closely with Palmetto, and then we'll move to an extent Westward and start to collect CGS and WPS and Noridian. So we've got 2 currently with 3 jurisdictions in 13 states, representing about 30% to 35% of the population.

Okay. Great. And then I just want to be clear on the sales guide for the third quarter. So it's going to be down sequentially, but I'm just trying to kind of gauge how much it's going to be down from the second quarter.

Right now, we're projecting, again, I would say, in the range of $2.3 million to $2.5 million would be the range that I would provide.

Okay. And then the last question I want to ask was in the press release, you mentioned a study where use of CompuFlo reduced composite complications, which I thought was pretty interesting. Can you kind of discuss a little bit why that is?

Just because of the number of, I guess, sometimes posts that they have to do. So for instance, with the accuracy that we command with the CompuFlo, they can get much more precise as far as where they're doing the implant. And so a lot of times, they'll have multiple sticks, if you will, that they have to go through with a traditional LOR syringe. And using CompuFlo within that study, they were able to reduce the missteps or the misplacement by significant amounts.

Your next question for today is from Tom McGovern with Maxim Group.

Yes. First question is on the adviser program. So as of the last update in 1Q, you guys reported 8 active physician partners and you had 6 pending. I'm just curious if you could give an update. I'm sorry if I missed it earlier in the prepared remarks, but just curious where that's at currently.

Yes. We've added a few more. I think we're up to maybe 10 or 11. We're not really actively adding more advisers at this point as we're looking to get -- focusing on the claim submission. The claim submission is really what drives the reimbursement. And now that we've completed that exercise to an extent with Novitas and First Coast, we're turning our jets to other MACs. So the adviser program was really put in place to get people using the product to start submitting claims to get feedback and to get the Medicare reimbursement back in place. Now we're moving into Palmetto and out West with a few of the other MACs that we'll start adding advisers out in those areas. So we're limited by -- a little bit by the scale. We've only got a couple of people working on the medical front right now. That's going to be changing here quite dramatically here in the next several weeks, but we're limited by the capacity of the staff.

Understood. I appreciate that color. Next question, again, back in 1Q, you guys gave us some encouraging news with the digital marketing campaign. It has contributed to 20 to 30 leads per week. I was wondering if that run rate or that rate had sustained into 2Q and what your conversion rate on those leads from Q1 was?

Yes. So the campaign has continued to do extremely well, getting anywhere between 150 to 200 leads per month. Again, we're sort of at a capacity situation where -- and that's why we launched Milo, which is going to be the AI bot that helps sort of prosecute some of those leads while they're on the phone and because we just don't have enough people to frankly follow up. And so the leads continue to grow to a point that we need to add people to handle them. In fact, we're getting ready to bring on 2 additional people that all they will do is follow up on the leads because the campaigns have generated such demand that we need to find a better way to keep up with them. Milo is one of them and then resources are another. So as compared to the Q1, the leads continue to be just as high, if not higher, and especially now that we've sort of added medical to that cadence. And so it's not just the dental leads, it's hundreds of medical leads, including the great showing that we had at ASPN, where I would argue that we were the most attended booth in the entire event. So we're not short of leads.

Got it. Got it. And then final question for me is just on the Red One Medical distribution agreement. I'm just trying to understand a little bit about the structure. Are there any minimum purchase or stocking commitments through this agreement? And then if you're still working on sending out the first order, how does that contracting work between the VA and DoD, is that all preapproved? Or are you guys going to have to maybe negotiate separate contracts with each channel or each subchannel rather?

No, it will be on the price schedule. It will be on the FSS schedule, and we're still working through that. So we've got the agreement in place with Red One. There's no minimum commitments. I mean I think you probably know that they're a very recognized national brand in the veteran space. So we've already -- we're already targeting business just out of the gate. But again, we're still waiting for some of the details to be added to the FSS schedule. And then once that's in place, everyone will buy off that schedule versus us having to go through negotiations with each of the individual agencies.

Sure. And just for our understanding, I understand that could be a little bit of a drawn out process as anything with the government. But just curious, internally, what are you guys looking at in terms of a time line to kind of work through that initial, I guess, like logistical or contracting push and transition to orders?

Yes. We -- our goal is to be taking orders in Q4.