OK, here's what I got from the replay:
First, the positives: "Long-term fundamentals are very, very healthy. ... We believe the stock is undervalued." The product works. Testimonials are coming in. Monarch Dental (a chain, which has bought 100 units) is doing TV advertising in Dallas-Fort Worth and reporting new patients, and patients saying in the chair "I want that Wand thing I saw on TV." MS believes about 8,000 units are already in dentists offices, a very fast start in only five months.
Now, the problems:
1. Sales are slowing. MS thinks it has reached the "early adopters" -- roughly 10%. Selling to the rest is going to be tougher, and more expensive. MS is appointing additional dealers, adding part-time commission salesmen, offering promotions (savings bonds were mentioned) and planning advertising direct to the public, a campaign that will cost in the "mid six-figures." It has shipped 2,600 units in April and 1,100 units in May. There have been about 200 orders so far in June.
2. Initial orders were misleading. Some "early adopter" dentists placed multiple orders with several distributors, then cancelled the ones they didn't need. Schein cancelled its remaining order for 1,200 units and is now ordering as needed on a "just-in-time" basis. Orders are now gradually levelling off. But investors shouldn't panic: "Is this the end of the world? Absolutely not."
3. Even early adopters are taking longer to get the hang of using the Wand than anticipated. The added commission salesmen (two are already hired) will be mainly dental professionals who will call on end-users and teach 'em how to use the Wand properly. "The learning curve is longer than we thought. ... It takes time for the user towork the product into their practice." This means the company doesn't yet have a handle on what the eventual demand for disposables will be.
4. Stock buyback. Refused to say when it would begin or how aggressive it would be, only that the authorization will last for one year. A good question might be, buy back with what? The company has $11 million in cash and is "burning" $350,000 a month at present.
5. Future markets. Europe will be slow to adopt, no "burst" or "surge" is expected. This is because outside the U.S., the whole concept of disposables has not yet caught on. Approvals for other uses are expected from FDA by the end of the year. But only podiatry can use the current model of the Wand, other applications will require different dosages and therefore a modification to the device.
6. Bribery (my term, not theirs): While defending their past use of stock to pay evaluators, they probably won't do it again. "Using stock is expensive. We have cash. ...To the extent that this will be necessary in the future, we certainly will be doing it with cash and not with stock" (A wise decision, IMO.)
My impression: MS has encountered normal startup problems and is on top of them. The product works, but it doesn't sell itself and MS is going to have to do a lot more hand-holding with dentists to get them to use the units once they have bought them. But I still like the company and may even add at these prices. The razors may be moving a bit more slowly, but eventually they're going to sell a gazillion blades. |
