BIOLASE, Inc.
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

Good day, and welcome to the BIOLASE 2021 First Quarter Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Todd Kehrli of the EVC Group. Please go ahead sir.

[Todd Kehrli:]

Thank you, operator. Good afternoon everyone and thank you for joining us today to discuss BIOLASE's financial results for the first quarter ended March 31, 2021. On the call today from BIOLASE is 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 it over to Jennifer to review the financials in more detail.

[John Beaver:]

Thanks, Todd, and thank you everyone for joining us this afternoon. We appreciate your interest in BIOLASE. Before we begin, I am delighted to know that joining me on the call today is Jennifer Bright, our new Vice President of Finance. Jennifer joined BIOLASE earlier this year as an Accounting Director and was promoted to VP of Finance last month. Moving on to a review of the quarter, we followed up significant revenue growth in the fourth quarter which is typically our strongest quarter of the year with another strong revenue performance in the first quarter reflecting increased awareness and pent-up demand for our industry-leading dental lasers. In particular, we experienced continued high demand from new users reflecting the success of our ongoing efforts to educate and train dentists on the benefits of our Waterlase technology.

[Jennifer Bright:]

Thank you, John, and good afternoon everyone. These are exciting times for BIOLASE and I welcome my new role as Vice President of Finance. I look forward to working with John and the management team as we continue our growth path towards sustained profitability. Turning to the quarter, rather than read our financial results, which you can see in the financial tables are our earnings release and 10-Q, I instead would like to focus on providing more context around some of the numbers as well as highlight some of the operational improvements we achieved this past quarter. So jumping right in, we believe our strong first quarter performance demonstrates the business momentum and traction we are gaining and our continued success in navigating this challenging business climate. We delivered net revenue of $8.1 million representing 70% growth year-over-year. While our revenue was down sequentially, this had a result of a typical – of our typical seasonality with the fourth quarter being our seasonally strongest quarter each year. We are certainly pleased with the continued momentum we are seeing in our business, which is allowing us to approach our 2019 pre-COVID revenue results. Some other year-over-year first quarter highlights include, laser system sales increased 139%, consumables and other revenue increased 52%, U.S. revenue increased 67%, international revenue increased 75%. These are positive indicators of the increasing demand we are experiencing for our industry-leading dental lasers, as dental offices in the U.S. and abroad continue to be open. We also continue to expand our market share with 79% of sales coming from new users continuing a positive trend we have seen take shape over the past couple of years. During the quarter, gross margin improved despite a larger contribution on a percentage basis from international sales, which carry a lower margin since we sell through distributors. In fact, we were able to increase our gross profit by $1.4 million year-over-year. This resulted in a significantly improved gross margin of 34%, a 500 basis points increase year-over-year reflecting the impact of the increase in revenue and average selling prices for products sold in the U.S. during the first quarter. We continue to focus on margin improvement and believe we will improve this metric even more over the coming quarters. On the expense line, total operating expenses were $8.8 million for the quarter, an increase of 31%. However, SG&A was higher due to one-time severance expense, along with cost associated with the Special Shareholders Meeting we have scheduled earlier this year.

[Operator:]

And our first question comes from Kyle Bauser with Colliers Securities. Please go ahead.

[Kyle Bauser:]

Hi, good afternoon, John and Jennifer and thanks for all the updates here. Maybe of to start with the sales organization, what is – just for housekeeping, what’s the latest number of sales territories? And how should we think about that? Are we good for now? Do we anticipate adding any color there would be great.

[John Beaver:]

Yes, Kyle. How are you doing? You may recall that the last time we spoke, I think I mentioned that we had roughly 25 sales territories. I think at the time we had one open. We have filled that territory. But we are now seeing really good traction on the revenue side in lot of – basically all parts of the country in the U.S. And so, we had three open territories that really weren’t open because we weren’t actively trying to fill those, but we made the decision in the last month that we will go out and hire for those three, as well. They are three territories they have been open for a considerable period of time. And so, that will bring us to about 28 and we feel really good about where that is – well that – where that will be once we complete that hiring process.

[Kyle Bauser:]

Perfect. Appreciate that. And following the warrant conversions and the recent equity raise, you mentioned the balance sheet is as strong as ever. So, plenty of runway here. To that end, how should we think about the burn rates for modeling purposes? Obviously, we are bringing on a couple more sales reps here, but I guess, any sort of directional guidance here would be helpful.

[John Beaver:]

Yes, so, I think the burn rate for the full year 2021 will likely be similar as we had in 2020. If you recall, in 2020, we had a lot of reduction in cost around the furloughs and so forth. And so, that reduced our burn rate because we weren’t generating revenue. As revenues are starting to come up in 2021, costs have come up as well. And then, going into 2022, there is, then we’ve talked about before, I certainly hope that we are able to achieve our – at least for the fourth quarter of 2022, our $11 million to $12 million of revenue, which on an annualized basis gets us into that mid-40s, which I’ve mentioned before, gets us to EBITDA positive and cash flow neutral.

[Kyle Bauser:]

Got it. Okay. Great. And then, as far as the McGuire study, obviously some pretty incredible results there. There is no denying in that patient reported outcomes are superior. Have you seen traction in the field in terms of winning new business, has it turned heads, particularly amongst the generalists? Kind of curious how that’s been able to act to the tailwind to win new business. Thank you.

[John Beaver:]

I think the way to characterize it Kyle, is, it’s open a lot of doors for us and to have discussions with the periodontal community. Before the McGuire study, there are many times said, our sales team would be asked – well prove it. You say, this is clinically as good as traditional treatment and better patient reported outcomes, but show me a paper. If you know, specialists are a lot more used to relying on studies than maybe the general practitioner is. So, what the McGuire study has done is, allowed us to say, here you go, this is it and let’s start the conversation, which before those conversations never were even started because we did not have that study.

[Kyle Bauser:]

Got it. That’s great. Appreciate all the updates here and I’ll jump back in queue.

[John Beaver:]

Thank you, Kyle.

[Operator:]

Thank you. Our next question comes from Bruce Jackson with The Benchmark Company. Please go ahead.

[Bruce Jackson:]

Hi. A couple of questions about the EdgePro device that you are developing. So, what is the regulatory pathway going to be? How long do you think it’s going to be before the device is on the market? And then, how does the – how does the economics work between you and EdgeEndo?

[John Beaver:]

Well. Hi, Bruce. I am not sure I am going to tell you all the economics around that. But I will describe the deal a little bit more in-depth. In terms of the regulatory pathway, we expect to submit for a 510(k) clearance over the summer. And we also expect that we’ll be able to produce and sell to EdgeEndo commercial units by the end of the year. And so, we do think that there is some revenue opportunity for us in 2021, obviously as we head into 2022, even a bigger revenue opportunity. So this is, as we said in the press release, our really first OEM opportunity for BIOLASE. So, our margins are not going to be quite as high as, say, our flagship Waterlase iPlus. But we also are now responsible for any of the sales and marketing around that. But I do think, if we look at it now, the margins that we are expecting versus where we are today, they would be accretive.

[Bruce Jackson:]

Okay. Great. And then, shifting gears over to the sales and marketing side. You had some success with the different types of events with providers. Can you give us a rough idea of how many of those events are scheduled for the second quarter? And are you still seeing the conversion rates that you saw previously in your model market program?

[John Beaver:]

Yes. So, I think what you are referring to is our Waterlase exclusive trial program. And we got off to a good start in 2019. 2020 we had some programs running in Q1 that I would say, from a sales standpoint failed as we hit COVID. Nobody want to buy anything. We started that up in – again in late third quarter, fourth quarter of 2020 and our sales batting average if you will wasn’t as high as I wanted. It slipped to low 50% at the end of 2020 in large part because in many parts of the country, we were having the WETP where we get into the second wave of COVID if you remember back December, January timeframe. So we had some dentists pull out of buying lasers. I am very happy to say that I believe that that is past us. And as we have – during the first half of 2021, we’re hitting at about 50% success rate and we have all of the WETP events now scheduled for the balance of the year and basically they are happening every weekend, between now and into the year. And when you think about that, we usually have four to eight dentists in those trials happening every week from now to the end of the year. And I certainly expect our close rate to be 50% or above for the balance of the year.

[Bruce Jackson:]

Alright. That’s terrific. Thank you very much. I’ll hop back in queue.

[John Beaver:]

Thank you, Bruce.

[Operator:]

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

[Matt Bullock:]

Hi John, this is Matt on for Anthony Vendetti. Thanks for taking my questions. I saw on your press release that 36% of sales were from specialists. I was hoping you might be able to provide a general breakdown for what percentage of those sales are from Endo, Perio and Pediatric? And maybe describe how you compare each of those opportunities in the long-term.

[John Beaver:]

Yes. Hey Matt, how are you? So, I am not going give you the exact breakdown, but I will give you a little bit further color around that. And that, that 36% of sales from dental specialists, the majority of that, say, the vast majority of that came from endo and perio and less from pediatric. But as you may recall, we just started our Pediatric Dental Academy this quarter. So, I think that, it gives some credence to my belief that the endo academy and the perio academy that we previously have launched are bearing fruit for us. When we look at total opportunity, I think the – the biggest opportunity for us is on the perio side, simply because of the ramp in perio disease and the opportunity we have to heal sick implants, peri implantitis. So, I think that that is certainly a significant opportunity. But I love the opportunity we have with endodontists to especially with collaborating with EdgeEndo. I think that’s going to give us a significant additional leads not only on the endodontist but when a GP who is doing endodontics sees that that many endodontists are going to our 2780 wavelength to perform those irrigation procedures that’s scope in their eyes as well and then they will revert to our Waterlase technology, because they not only want to do endodontics, but perio as well and so forth, super GPs. Also see though a big opportunity in pediatric dentistry, we hosted nine dentists this week, in this past weekend from Healthy Smiles for Kids of Orange County, which is a charitable organization that sees 50 to 70 kids a day in Orange County. These are children that really wouldn’t see a dentist, if not for this organization. And we’ve had lasers in their facility for the last couple of years. And how great it is to go over there and see the kids being treated in a non-invasive manner without getting subjected to shots in the face and a drill and so forth in most all cases. And so, I see a huge opportunity there. So, I know I didn’t answer your question. I am excited about all three.

[Matt Bullock:]

Thank you, John. And then, just if you could touch briefly on DSOs, could you comment on sales and DSOs during the quarter? And then, potentially provide an update on the product in the trials Heartland specifically? And then, maybe the success you had with targeting some of those micro DSOs you discussed in the past?

[John Beaver:]

Right. So, it’s interesting. Some of the DSOs who we sell to, they are in the process now of getting trained and incorporating this technology into the practice and because of that, they have asked us not to specifically, publicly disclose their names until they are fully incorporating the technology into the practice as you can probably understand. But we have had some success, certainly in the fourth quarter and first quarter and into the second quarter around that. Not only in the U.S. but in Canada, as well. So, we are now beginning to get into some of the larger DSOs in Canada. As far as Heartland goes, that – we’ve been talking Heartland now for probably 2.5 years I think. It’s been a long slow road certainly slower than what anybody at BIOLASE would have predicted or we would have liked. The good news is, we are still very involved with them. They are an organization that I would thank on this type of technology adoption moves relatively slow. And so, we continue to – I would characterize that they keep on putting milestones in front of us to achieve and we keep on achieving them. So, all good in terms of moving forward, it’s just not as at faster as certainly I would have hoped.

[Matt Bullock:]

Okay. Great. That’s very helpful. And then lastly, if you could just comment a little further on the trends you are seeing regarding patient volume and appetite for capital equipment demand, as this vaccination progress and lockdowns are eased throughout the country and maybe what do you expect in the next several months, going forward?

[John Beaver:]

Yes. So, I’ll segregate my comments between U.S. and international, because I think it’s a little bit different story. In the U.S., which, I guess, us and the UK lead G20 nations in vaccination rates. For the most part, dentist – patients back to dentist are nearing their pre-COVID level in basically all parts of the country. When I say, nearing, I am talking 85% to 90%. One thing that dentists have had to do is, because of the changeover in their operatories and the disinfection requirements needed because of COVID-19, there little bit less physician in terms of patient turn than they were before. And I think that’s causing some of the – not up to 100%, yet it could be just a capacity constrain there. We have also seen recently, a significant increase in dentists wanting to or thinking about traveling. And that’s important to us as opposed us always having to go out and train them where they are having larger group trainings or educational forums, I think that is coming. I don’t think we will get back to where we were in 2019 as far as the big dental trade shows and things like that. But I do see a pent-up need for a dentist to travel and be around other dentists. I think all that leads to capital equipment being on the rise. Our sales team here in the U.S., once again, for the most part is now like goes into every city. But for the most part they are now able to go and see the dentists, which up until two to three months ago, that was very hard to do and that’s coming back. So that’s on the U.S. side. Internationally, I was just looking at a chart that had the G20 countries. And other than UK and U.S., nobody else is over 30%. I think Canada was number three – approaching 30. You have a lot of countries below 15%. I mean, we all read in the news about the things going on in India, which obviously has negatively affected our business with their shutdown. Even Canada, in Ontario have extended some stay at home orders recently. So, that’s the battle that we are fighting internationally. Frankly, I am really pleased with the international sales given the environment and I believe that the things that we shifted to in terms of online training, online education has really helped us stabilize that revenue stream and it puts us in good position when the rest of the world starts opening up a little bit more for us to take advantage of it.

[Matt Bullock:]

Okay. Excellent. Thank you. I’ll hop back in the queue.

[John Beaver:]

Thank you, Matt.

[Operator:]

Thank you. And our next question comes from Ed Woo with Ascendiant Capital. Please go ahead.

[Ed Woo:]

Yes. Thank you for taking my question. Speaking of international, have you noticed any issues with your supply chain in terms of getting parts or components?

[John Beaver:]

Yes, Ed, we have. So, probably, not unlike every other manufacturers around the world. We were having longer lead times and some supply chain issues. Fortunately, none of that to-date had impacted revenue or ability to produce. We are staying well in front of it hopefully. And hopefully, that supply chain delays will improve over the course of time. But we are constantly monitoring and that’s a full time job for a couple of us here in making sure that we are getting the parts we need to build lasers.

[Ed Woo:]

That’s good to hear. And then, my last question is that, last year, because of the COVID and the calculations of all these trade shows, you guys were able to save a lot on travel expenses. Do you anticipate that to be the same case this year? Or will it just be a reallocation to other type of marketing spending?

[John Beaver:]

I’d say, it’s a little bit of both. So, we’ve certainly saved a lot of money last year in events and trade shows and particularly the larger trade shows, things like, Greater New York or Chicago mid-winter and some of the other trade shows, as well where we did not participate and we are not participating in the first half of this year. They are not having anything except on a virtual basis. In turn, what we have flipped some of that money to that some of that savings is marketing around the Waterlase exclusive trial program. We announced our collaboration with BMW at the end of last year and we are really trying, I think we are succeeding in getting those dentists a white glove experience in their training. And that’s coming through, not only with testimonials and referrals, but just word of mouth. So, we are really happy about that. So, some of that money was devoted to making sure they have a great experience at the training. But some of it will be saved, as well.

[Ed Woo:]

Great. Well, thanks for answering my questions and good luck.

[John Beaver:]

Thank you, Ed.

[Operator:]

Thank you. And we have no additional questions in queue. I will now like to turn t back to you Mr. Kehrli for any closing or additional remarks.

[Todd Kehrli:]

Thank you, operator. Thank you for joining us today. We look forward to updating you again on our continued progress when we report our second quarter results in August. This concludes our call and have a great day.

[Operator:]

Thank you all for your participation. This concludes today's call. You may now disconnect.