BIOLASE, Inc.
Q1 2022 Earnings Call Transcript

Published: 12 May 2022

[Operator:]

Good day, and welcome to the BIOLASE First Quarter 2022 Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the call over to Todd Kehrli of EVC Group. Please go ahead.

[Todd Kehrli:]

Thank you, operator. Good afternoon everyone and thank you for joining us today to discuss BIOLASE's financial results for its first quarter ended March 31, 2022. On the call today from BIOLASE are John Beaver, President and Chief Executive Officer; and Jennifer Bright, Vice President of Finance. John will review the company's operating performance for the first quarter and then turn the call over to Jennifer to review the financials in more detail before opening the call for questions. Before we begin, I'd like to remind everyone that a number of forward-looking statements, which are any statements that are not historical facts, will be made during this presentation and subsequent Q&A session, including forward-looking statements regarding the company's strategic initiatives and anticipated financial results. These forward-looking statements are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 and are based on BIOLASE's current expectations and assumptions and are subject to a variety of risks and uncertainties that could cause the company's actual results to differ materially from the statements made. Such forward-looking statements only represent the company's view as of today May 12, 2022. These risks are discussed in the company's filings with the Securities and Exchange Commission. A replay of this conference call will be available on the BIOLASE website shortly after the completion of today's call. When listening to this call, please refer to the news release issued earlier today announcing the company's 2022 first quarter financial results. If you do not have a copy of the news release that is available on the Investors section of the BIOLASE website at www.biolase.com. BIOLASE's financial results can also be found in the company's report on Form 10-Q, which will be filed with the SEC. The tables we provided in today's news release offer additional financial information, so we encourage you to review them. The tables included -- include the reconciliation of unaudited GAAP net loss and net loss per share to non-GAAP adjusted EBITDA loss and adjusted EBITDA loss per share, as well as more information regarding the company's non-GAAP financial disclosures. With that said, I'll now turn the call over to BIOLASE's President and Chief Executive Officer, John Beaver. John?

[John Beaver:]

Thanks Todd, and thank you everyone for joining us this afternoon. We appreciate your continued interest in BIOLASE. The first quarter was another outstanding quarter at BIOLASE. We maintained our growth momentum with our total revenue increasing 25% year-over-year. Our continued strong performance reflects positive momentum on several fronts. During the first quarter, we saw continued progress with our Waterlase Exclusive Trial Program, as our success rate, the percentage of dentists who purchased after the trial surpassed 50% year-to-date. This program along with the launch of our specialist academies for endodontists, periodontists, pediatric dentists and dental hygienists generated increased adoption of our laser technology in the U.S. in the first quarter with 81% of our U.S. Waterlase sales coming from new customers and 65% of sales coming from dental specialists. Additionally, we had 14 territory managers exceed their sales quota in the first quarter, which is significant given that the first quarter is historically our softest quarter. Our strong performance is due to rising demand for our industry-leading dental lasers, which is being driven by our intensified focus on education and training, and the benefits our lasers provide to dentists and their patients. We have built best-in-class dental lasers backed by peer-reviewed papers. And now, with our focused efforts, dental practitioners are coming to BIOLASE as they look to upgrade their dental practices and improve patient outcomes. We expect this trend to continue as we put in place a well-developed road map of strategies and investments that we believe will drive continued growth in 2022 and beyond. BIOLASE currently has an approximately 60% share of the all-tissue laser dental market represented by our Waterlase brand. However, this still represents a small fraction of the overall dental market as the penetration rate of dental lasers in the overall dental market is only between 7% to 8% in the US and less than 2% worldwide. With over 90% of US dentists still not using all-tissue lasers, the opportunity for BIOLASE remains vast and we aim to increase market adoption through our well-developed growth strategy. Many of you have heard me say this before but it bears repeating because of this significant potential impact on our revenue. We believe each 1% increase in adoption of all-tissue laser technology in the US, we equal approximately $50 million in additional revenue for BIOLASE assuming we keep our same 60% market share. This doesn't include potential increased adoption outside the US where historically approximately 40% of our revenue has been generated or the consumable revenue generated from the procedures done with our laser systems. Now how do we get dentists use our dental lasers? We have a three-pronged strategy, which we began implementing in 2021, and has created the growth momentum we are experiencing today. The first prong of our growth strategy is to get down specialists on board. In 2021, BIOLASE formed specialist academies to expand the awareness of the benefits of dental lasers in dental specialist communities. Specifically we launched specialist academies for periodontists, endodontists, pediatric dentists and dental hygienists to drive further adoption of our lasers. The opportunity that exists for BIOLASE within each of these specialist communities is very meaningful led by key opinion leaders or KOLs in each of these specialties, BIOLASE's increased education and training to drive expanded adoption. During the first quarter, we saw a significant increase in sales to specialists with 65% of our US Waterlase sales coming from these specialties. Our focus on increasing education and training for these dental specialists is translating into higher demand for our products as they look for safer, more advanced alternatives to improve patient outcomes and improve their practices. One example of this is for perio specialists where repairing and saving implants is a very large opportunity, because an estimated 20% of implants fell in the first three years. Without our laser, the only way to get an implant repaired is to replace it. However, our laser can address this issue and save them without having to replace it. While this is only one example, it demonstrates why our lasers are being adopted by perio specialists. Securing even a small percentage of each of these dental specialists, by our calculations, could generate over $150 million in additional revenue for BIOLASE from laser sales plus higher margin revenue associated with the follow-on consumables. The second prong of our growth strategy is focused on the significant opportunity we have with approximately 150,000 US general practitioner dentists. If an additional 5% of GPs adopted our laser in the US, it would generate $225 million in laser revenue, not including consumables. So how do we penetrate this large growth opportunity? In 2021, we expanded the Waterlase Exclusive Trial Program, which puts a BIOLASE laser in the GP's office for 45 days, supported by mentor and includes two days of in-person training all at no cost. At the end of the 45 days, the GPs has option to buy the laser or not. We held over 30 of these events in 2021 and 12 events so far this year each of which had four to eight GPs participating. As I mentioned earlier, we saw Waterlase's Exclusive Trial Program success rate increase significantly from almost 40% during 2021 to an excess of 50% during the first four months of 2022. Our goal in 2022 is to host 35 to 40 of these programs and we're on track to do that. It's a win-win for GPs because a big part of the Waterlase Exclusive Trial Program is teaching these goal practitioners the additional procedures they can do in-house with our laser so they can keep more procedures and revenue in-house. And they just do two additional procedures a week that will generate a 200% return on their investment in our laser. That along with the better patient experience is motivating dentists to incorporate Waterlase technology into their practice. The more training and education we do through our Waterlase Exclusive Trial Program, the more success we are going to have in driving laser adoption. The third prong of our growth strategy is getting the corporate dentists to adopt our lasers. We currently have ongoing trials with four of the five largest DSOs in the United States. Today most new dentists are employed by the DSOs right out of dental school. Our goal is to have them learn to use our lasers while they're at the DSO and make lasers an essential part of their practice moving forward, so that when they do go out on their own, they become new buyers of our dental lasers and our consumables. Over the last few quarters we made solid inroads with some of these DSOs. These relationships are important and validate our laser technology. And we believe that the large DSOs can be a far greater revenue contributor going forward. As we look to continue our growth momentum and execute on our growth strategy, we are always looking for ways to further improve our sales engine. One new approach that we implemented at the end of last year is the sales pod strategy to focus on specific geographies that represent large growth opportunities. Our first pod in the Upper Midwest area is focused on expanding our penetration in that geography. Currently the pod is fully staffed with a five-person sales team including a territory manager, two account specialists, a field engineer and an inside account specialist. The results, even in this early stage are quite encouraging and we plan to expand the pod system to other territories that also represent large growth opportunities. So in summary, we have a large growth opportunity and a well-developed road map for growth, as we leverage our industry-leading product offerings. Our three-pronged growth plan is generating positive results and we are confident in our ability to drive sustainable and profitable revenue growth in 2022 and beyond. Before I turn the call over to Jennifer, I want to thank our investors for voting to approve our reverse stock split. Over 70% of our shareholders who voted on the proposal voted for the proposal. So again, thank you for that support. The primary purpose of the reverse stock split was to raise our per share trading price to maintain our NASDAQ listing. We also believe the higher share price will allow us to attract institutional investors that will promote greater liquidity for our stockholders. With that I'll turn the call over to Jennifer to provide further details regarding our first quarter results.

[Jennifer Bright:]

Thank you, John and good afternoon, everyone. I'm going to provide more context around some of the numbers as well as highlight some of the operational improvements we achieved during the first quarter. For further detail, please refer to our financial results which you can find in the financial tables of our earnings release and 10-Q. Our strong first quarter performance demonstrates the continued business momentum we've built in 2021. This increased traction reflects higher demand for our industry-leading dental lasers because of our increased education and training. For the first quarter, we delivered net revenue of $10.2 million representing 25% growth year-over-year. Some additional first quarter highlights include

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Bruce Jackson with The Benchmark Company. Please go ahead.

[Bruce Jackson:]

Hi, good afternoon. Thanks for taking my questions. Just wondering if we could first just get a little bit of color on the partnership with EdgeEndo and if that contributed during the quarter?

[John Beaver:]

Yes, how are you doing Bruce? It did. So, you may recall that we made the first -- I would say a handful of shipments of the EdgePRO device in late December. So first quarter was really the first full quarter of us having the device available for sale after our FDA approval in December. So, it did have I would say meaningful -- maybe not material but meaningful impact on our revenue. We continue to sell to endodontists both through that channel with our OEM and also with our own Waterlase. So, it's a combination of the two.

[Bruce Jackson:]

Okay, great. And then my second question is around the DSOs and the corporate dentistry groups. So, you've had a number of trials going with these groups for some time. I understand it takes a while to work through their processes. But do you have any line of sight on whether or not you might get some contracts sometime this year?

[John Beaver:]

Well, we certainly are selling to DSOs today and that is a pretty nice part of our business. We do have line of sight on one particular DSO that I'm not at liberty to disclose at this point due to confidentiality arrangements. But I will tell you that that particular DSO is implementing a number of I would say a couple of other technologies this year and we'll look to implement our technology next year starting maybe in the fourth quarter as they want to roll this out in a very methodical manner. So more to come on that.

[Bruce Jackson:]

Okay, great. And then last question for me is just around gross margins. As you continue to scale up the revenue should we be expecting to see some scale efficiencies in -- would you care to hazard a guess as to where you might exit the year in terms of gross margins?

[John Beaver:]

Yes. So, I think what we've said in the past is for us to get to EBITDA positive which we expect to be for the full year in 2023 and in the fourth quarter of this year. We need to have gross margins a little bit above 50% call it 50% to 52%. So, I would expect us to have fourth quarter margins in that general area this year in the fourth quarter.

[Bruce Jackson:]

All right. Excellent. Congratulations on all the progress.

[John Beaver:]

Thank you Bruce.

[Operator:]

Thank you. And our next question today comes from Anthony Vendetti with Maxim Group. Please go ahead.

[Matt Bullock:]

Hi, this is Matt on for Anthony. Thanks for taking my question. It seems like you guys are making a ton of progress with specialists with the 65% of your Waterlase sales coming from specialists this quarter. I'm curious do you see a difference in terms of utilization trends between the GPs and the specialists?

[John Beaver:]

From utilization trends, not necessarily, I would say every dentist is different, right? There are GPs that use our Waterlase on every single patient. And there are certainly specialists that do the same as well. What we have found though is specialists, especially coming out of COVID seem to have not dipped as much in patient volume during 2020 and 2021 as maybe GPs did. And so there might be a better overall financial situation to invest in new technology. So I think some of that may be playing a part in our success in the specialist area.

[Matt Bullock:]

Got it. Understood. And then a quick follow-up on the DSOs. It's great to hear that you've got ongoing trials with four out of five of the largest in the US. Do you get a sense that if you were able to land maybe the largest or second largest DSO that would impact the decision-making of the other DSOs? In other words, could there be a kind of avalanche impact if the DSOs start to adopt your technology?

[John Beaver:]

Yes, it's a very good question. I think that there would be a domino impact. And that's not just in the DSO though, it's also for the non-DSOs. As this technology gets adopted by more and more, we will hit a tipping point where every dentist will be forced to adopt similar to what happened in LASIX many years ago, right? And they just won't be -- drawing the patients won't be as competitive without this technology. So I see that both in the DSO space and frankly, in the non-DSO space as well.

[Matt Bullock:]

Got it. That's helpful. And then lastly for me, you talked a little bit about this new sales cost strategy you're implementing or trialing at least in one area. I was hoping you could provide a little bit of additional context into how that specific geography is performing versus, let's say, last year when you weren't implementing that sales cost strategy, just in terms of the potential for this transition and sales organization. Thank you.

[John Beaver:]

Thank you for your question. The Midwest pod really began in the fourth quarter and it had I would say significant improvement year-over-year, quarter-over-quarter from first quarter -- excuse me, fourth quarter of 2020. However, we are still in the midst of COVID there. So that comparison is difficult to make. First quarter results in that pod were better than they were a year ago. So that was encouraging. And to the point where just this quarter, we are launching the pod in New York City. And so that will be our second pod. I think we will monitor both the revenue generation, the consumable, demand increase and also just the profitability looking at it as like a mini P&L. Both those pods, over probably the next two, three quarters to finally determine is this something that we want to just leave in those two pods or those two geographical areas. Is it something that we want to expand even further as we look into 2023? So once again, too early to, I think draw any conclusions firm conclusions on the pod idea success. But so far, so good.

[Matt Bullock:]

Awesome. Thank you very much. I’ll hop back in the queue.

[Operator:]

Thank you. Our next question today comes from Kyle Bauser with Lake Street. Please go ahead.

[Kyle Bauser:]

Great. Thanks so much for taking my questions and thanks for all the updates here. Apologies if I missed this, I'm jumping between calls here. So maybe I'll just ask both my questions upfront. John, can you talk a little bit about headcount, the sales reps? How you envision that changing or staying the same? What does the top rep do annually? And then the next question is just kind of curious, are you bumping into any particular company more than others in the field? Who are you competing with the most? Or is it kind of just a mix of everyone? Thanks so much.

[John Beaver:]

Yes. Good question, Kyle. So from a territory manager standpoint in the US remember we sell through distributors in the 80 international countries we sell to. But in the US, today we only have one open territory. And that is certainly in almost the five years I've been here, that is the only time I could have said that. And the turnover has been pretty much non-existent since the fourth quarter of last year. So that all points to great signs, right? Very few open territories, only one and we hope to fill that in the second quarter. and no turnover. So I think that means a couple of things. One is I think we have our comp structure very competitive in place. But I also think we're creating an environment and have created an environment where the territory managers feel like they are a little bit closer to the overall corporate culture and organization. They're not on an island alone. And we've done a tremendous job in improving the support that they get from corporate in events and education programs. I've talked before that that was probably the one area that was broken the most a few years ago. And it's probably the one that we've made the greatest strides in improving. So I think all of that has led to improved rep tenure. In terms of how much a rep can sell, we had one rep that I've stated publicly before that made over $2 million – that generated over $2 million of revenue last year. And that includes laser sales and consumables as well. So that is certainly an outlier but our better performing reps, certainly achieve over $1 million. And that's the reason when we talked about the number of reps that we had go over $200,000 in first quarter, which is historically our weakest seasonal quarter in sales that was really encouraging for me. The second question in terms of competition. Yes, I go back to the survey that we did last year and we'll be doing a new survey this summer and updating it. But when we ask dentists who are non-laser users when they thought of a laser company tell a laser company who they think of and 80% said BIOLASE. So do we see competition in various markets or segments? Sure but that's really not our competition. Our competition is share of wallet. And can we convince the dentist that they had $50,000 to $100,000 to spend this year in capital equipment. Can we convince them that the best choice is investing in laser technology. I think so far we've been doing a good job in doing that. And hopefully, we'll continue to do that. But that's really the competition not necessarily another laser company.

[Kyle Bauser:]

No, that’s great. Appreciate it. I’ll turn back in queue.

[Operator:]

[Operator Instructions] Our next question comes from Rafe [ph] Ascendiant Capital Markets. Please go ahead.

[Unidentified Analyst:]

Hi. This is Rafe for Edward Woo of Ascendiant Capital. Thanks for taking my call. I want to ask are there any changes in the competitive landscape?

[John Beaver:]

No, there haven't been. It's been pretty constant with the other laser companies out there. That are selling to the dental space, really no new market entries entrants. So it's been fairly consistent.

[Unidentified Analyst:]

Okay. Great. And are you seeing any macroeconomic slowdowns in the business?

[John Beaver:]

No macroeconomic slowdowns. Internationally, we still continue to fight various lockdowns, quarantines from a COVID standpoint. That's becoming less and less, but it's still an issue in some countries. I'll give you an example. We just added a couple of years ago, finally after six years of going through regulatory process, we became the first non-Japanese company to get approval to sell lasers in Japan. And of course, we got that approval in the first quarter of 2020 right when COVID hit. And so all of the training that normally would go into that distributor, we couldn't do because we couldn't travel there. We're just now beginning to I would say see an opening in the door over there to be able to really get over there and train the distributor, get some events there that I think will drive those sales as we move forward into 2022.

[Unidentified Analyst:]

Great. Thank you very much.

[Operator:]

[Operator Instructions] And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to John Beaver for any closing remarks.

[John Beaver:]

Thank you, Rocco. I want to thank everyone for being on today's call. Also, I want to thank the BIOLASE team for their continued commitment and dedication. I've said this before, but it bears repeating, this is the best team I've ever worked for. Each of them has worked tirelessly to make our customers successful in delivering an elevated standard of care and safety through laser dentistry. Jennifer and I look forward to reviewing our second quarter results with you in August. And in the meantime, we are participating in several investor events including the LD Micro Conference on June 7 and 8. If you're participating in this event, please contact Todd Kehrli at [e-mail] to help facilitate a meeting with us. Thank you operator and thank you everyone for your interest in BIOLASE. This concludes our call. Have a great day.

[Operator:]

Thank you, sir. This concludes today's conference. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.