BIOLASE, Inc.
Q3 2020 Earnings Call Transcript

Published: 12 Nov 2020

[Operator:]

Good day, and welcome to the BIOLASE 2020 Third Quarter Financial Results Conference Call. Today's conference is being recorded. And 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 third quarter ended September 30, 2020. On the call today from BIOLASE are Todd Norbe, President and Chief Executive Officer; and John Beaver, Executive Vice President, Chief Financial Officer and Chief Operating Officer. Management will review the company's operating performance on the third quarter before opening the call for questions.

[Todd Norbe:]

Thanks Todd and thank you everyone for joining us this afternoon. We appreciate your interest and continued support of BIOLASE. Let me start with an update on our operations and the status of dental offices as it relates to COVID-19 pandemic. As we have stressed throughout this pandemic, our foremost concern continues to be the health and safety of the BIOLASE community, including our employees, customers, their patients and our partners. We continue to take every precaution to ensure their well-being during this time. Over 95% of dental offices across the country are now reopened. And dental procedure levels are currently at 70% to 80% of their pre-COVID-19 levels. So, a marked improvement compared to when we last spoke in August following our Q2 results. We want to applaud dentists throughout the country as they respond to the pandemic with a sense of urgency, implementing the recommended Center for Disease Control and American Dental Association guidelines, ensuring that they can take care of the patients in a very safe environment.

[John Beaver:]

Thanks, Todd and thank you all again for joining us this afternoon. Now, let me review the numbers. While the COVID-19 disruption continued to impact our business during the quarter as total worldwide revenue decreased 24% year-over-year to #$6.5 million, we did see a significant sequential improvement driven by the re-opening of dental offices across the United States and the return of dental procedure levels to 70% to 80% of their pre-COVID-19 levels. Sequentially, our third quarter revenue more than doubled. U.S. laser revenue for the third quarter of 2020 increased 16% year-over-year to $2.7 million, compared to $2.3 million in the third quarter a year ago. U.S. consumables and other revenue for the third quarter of 2020, which consists of revenue from consumable products such as disposable tips, increased 25% from the third quarter of 2019. Internationally revenue for the third quarter of 2020 declined 52% to $1.8 million, compared to $3.7 million in the third quarter 2019. This decline in revenue is primarily attributable to the COVID-19 economic shutdown. We believe the dental offices in the U.S. have generally been quicker to return to prior patient volume than the rest of the world resulting in better comparative revenue results in the U.S. Gross margin for the third quarter of 2020 was 35% compared to 34% in the year ago quarter. The higher gross margin reflects higher average U.S. selling prices for our lasers, and a higher percentage of overall U.S. sales compared to total company sales where gross margins are higher, partially offset by decline in revenues relative to our fixed cost.

[Operator:]

Thank you. And we will take our first question. This will come from Kyle Bauser with Colliers Securities.

[Kyle Bauser:]

Great, thanks. Hi, Todd and John. Thanks for all the updates here. So, nice sequential growth and looks like the business is back to above pre-COVID levels in the U.S. at least. So, I think you said, overall procedure volumes in the U.S. are down 20% to 30%, but your U.S. businesses is up nearly 20%. So, obviously the nice benefit as it relates to reducing aerosolization has been key, how about internationally? What are the procedure volumes out there? And how does it relate to your ? Is the reduction in aerosolization internationally maybe not as big as a concern over there? Or, how should we think about that business?

[Todd Norbe:]

Yeah, Kyle, This is Todd. So, rest of world really hard to get a good finger on, you know, what's happening across all the different geographies. But I would tell you that, you know the level of shut down that we're seeing in dental offices, you know, in rest of world does not mirror what we're seeing in the U.S. So, I think it's really around practices being back in business in the U.S. As I mentioned, you know, probably 95% plus are now operational, even though volumes to your point are down 20% year-over-year. If I had to guess, I would say rest of world if you had to lump it all together, it is probably, you know, half of that based off of the Intel that we have from you know, our international team.

[Kyle Bauser:]

Got it. That's helpful. And, John, you mentioned in the prepared remarks, we've obviously seen a nice reduction overhead here and appreciate the commitment to get into EBITDA breakeven, and it's a tough environment to kind of forecast here. I know COVID is still here, but, you know, I'll ask it anyway, any sense as to your new timeline on maybe getting there and hitting that breakeven point?

[John Beaver:]

Yeah, so Kyle, you know, we're not going to forecast, especially in this environment. As I said, a couple of quarters ago, now is not the time to start giving guidance, right. But we do see a path to get to EBITDA positive, as early as, you know, fourth quarter next year. And so when we look at our liquidity position, cash position, you know, projected revenues, we think we have sufficient liquidity to get there to that point. And so that's our target. Of course, a lot depends on, you know, how the COVID-19 situation shakes out, not only in the U.S., but the rest of the world over the next, you know, 3 months to 12 months.

[Kyle Bauser:]

Sure. Got it. And just a couple more here, any open territories or, you know, goals for adding new reps.

[Todd Norbe:]

So, as I think we mentioned last time, we had one open territory. We're close to filling that one open territory. Right now we're going to look to stay with the current footprint of sales that we have, as things you know, open up and we have probably more confidence on what's happening, you know, in 2021, around COVID, and we'll evaluate adding additional headcount, if we can get the return on investment we're looking for.

[John Beaver:]

Okay, Kyle, I think the one thing – the one thing I would add there also is, at least in my three years with the company, this is the first time that we've had a earnings call that we haven't had any rep changeover from the prior earnings call. In other words, all 22 reps that we have where here, you know when we talked a quarter ago, which is a good sign. I think. And what we talked about in the past that we're hiring the right people. Now realize that, you know, some of that has to do with the overall your market condition in the dental space, but we're really happy with the team we have now.

[Kyle Bauser:]

No, excellent. It's good to hear. And maybe just lastly, regarding the BIOLASE Partnership Program, which is, you know pretty nice, I think for new users, because they don't have to make any payments until next year, how is this program going? Are most of the new placements taking advantage of it?

[Todd Norbe:]

Yes. Almost all of the Waterlase purchases are coming through and utilize in the U.S., right, where it's available, the BPP program. And just as a reminder, Kyle, you know, even though dentists don't make payments until next year, through our relationship with a financing company that is doing this for us, we get paid immediately. So, it's not a working capital issue for us.

[Kyle Bauser:]

No, . Okay. Appreciate it. That's all from me. I'll jump back in queue.

[Todd Norbe:]

Thanks, Kyle.

[John Beaver:]

Thank you, Kyle.

[Operator:]

And we can take our next question. This will come from Bruce Jackson with The Benchmark Group.

[Bruce Jackson:]

Hi, thank you for taking my question. So, we had the McGuire study data come out with the six month follow up earlier this year, we could get an update, when we might expect the 12 months data to come out? And then if you could help us with the potential significance of the 12 month data and the radiographic there?

[Todd Norbe:]

Yes. So, Bruce, you know, that's being worked on right now. To start gathering that information, you know, whenever I give a date on clinical stuff it tends to always get pushed out, but I would imagine by, you know, probably latter part Q1 into Q2, we should have something there on that. And why is that significant? Because seeing is really believing, you know, we know that the study was powerful, and showing how it's minimally invasive, positive pros, and, you know really impactful information. But at 12 months, I think that will be the further confirmation around how, you know, effective the technology is. Now, I’ll just give you a comparison. So, you know, we're doing a lot in the endodontic space right now. And when an endodontist cleans out a root canal in all the ancillary canals that are part of that he visualizes it in that , they take a radiograph, and immediately they can see the impact of the technology. When you're obviously trying to grow backbone and so forth. That's a little bit of a delayed reaction, but you know, we expect obviously, to see really positive results as I mentioned, end of Q1 sometime Q2.

[Bruce Jackson:]

Okay, great. And then my other question is about the DSOs. Just tell us a little bit about is there anything that they need to see in order to become bigger customers of yours, and when might, how do you anticipate that business developing over the course of 2021?

[John Beaver:]

Yeah, as I mentioned, you know, we have multiple trials and Phase 2 trials in place. And part of our strategy from day one has been, in our belief based off of what we've seen parallel in other areas where, when organized dentistry specifically, you know, DSOs, corporate dentistry, get involved with a technology that, you know, obviously accelerates the adoption curve, but to your point and what they want to see, they want to see that they can generate incremental dollars in revenue and the return on investment is there. We validated that in many cases. What also helps them and you think about the DSO, many of them want to expand the ability for their GPs become more of super GPs and do multiple procedures. Our technology allows them to do that, and it somewhat de-skills it in a way that allows a general practitioner to get unbelievable results. And having the specialty community, you know, support and endorse the technology at the endodontic community side, specialty side, as well as the perio community side adds additional, you know, horsepower behind this adoption curve. So, we expect that to really pay some really nice dividends for us as we roll into 2021.

[Bruce Jackson:]

All right, that's super. Thank you very much.

[Todd Norbe:]

Thanks Bruce.

[John Beaver:]

Thank you, Bruce.

[Operator:]

We will take our next question. This will come from Anthony Vendetti with the Maxim Group.

[Anthony Vendetti:]

Thanks, John. Thanks, Todd. I just wanted to talk a little bit, I may *have missed some of it because I have a bunch of calls going on at the same time, but did you give an update on Heartland and ClearChoice?

[Todd Norbe:]

Didn't provide anything specifically Anthony. You know, we're in Phase 2 with Heartland. And if you recall, you know, the first phase was four of their top clinicians, and all four of those units were purchased based off of the return on investment that we needed to show. The Phase 2 is really what I would call more of another test of, you know, the average dentist within Heartland, can they also replicate that type of return on investment. So, that's going on currently. And with ClearChoice we have, you know, what I would call a probably first of its kind trial with them, that allows them to hopefully market this technology in patient reported outcomes, if you're familiar with, you know, their model, literally providing full restorative techniques on a full day basis with a whole team around that. And the early read from the four practitioners that are involved here is very positive. So, we're very optimistic that this could be a very good win for the BIOLASE company here, and also, if you probably see their ads on TV, the goal would be to incorporate hopefully our message in those ads as well.

[Anthony Vendetti:]

No, that would be great. Just in terms of, you know, I know, Waterlase is your primary workhorse product, can do 80 different things, with the epic system, we're – is that going to be just, you think an ancillary product or could that be a growth driver due to this significantly lower or no aerosol situation with that, versus the current standard of care? I mean, how do you – how is that playing out now, and do you expect that to be a driver in 2021?

[Todd Norbe:]

We're seeing that as a driver in 2020, and we expect it to be a driver in 2021. We're seeing adoption here, the DSO side, small midsize DSOs, adopting it, and incorporating it within their protocols for the reason you mentioned. You know, it literally eliminates aerosolization when you compare it to, you know, an ultrasonic scaler. So, hygienists are typically, you know, the most concerned around COVID-19. And this also provides an opportunity to really get after what I would call the first swim lane, where periodontal disease starts. And if it's not addressed early on, then it gets more severe, and that requires, obviously, you know, more surgery that most patients would prefer not to be involved with. So, the preventative side of it, at the hygiene appointment, is really powerful. But we're also, Anthony, not only selling the Epic Hygiene diode unit, but we're also selling the Epic X, a combination of both. And that's including the* hygienists , as well as the general practitioner and that sales bundle.

[Anthony Vendetti:]

Okay, great. All right, thank you very much. I'll hop back in the queue.

[Todd Norbe:]

Thank you.

[John Beaver:]

Thank you, Anthony.

[Operator:]

And our next question will come from Ed Woo with the Ascendiant Capital.

[Ed Woo:]

Yeah, congratulations on the quarter. My question is more on the fourth quarter. You know, typically the fourth quarter has been seasonal for you guys in terms of you know, everybody trying to use up their budgets, do you think we should see that again this year, and also is there any differences in the domestic market versus international in Europe, particularly as we're, you know, seeing some lockdowns, currently going on in Europe?

[John Beaver:]

Yeah. So, Ed, I'll answer that. We do expect to see some uptick in the fourth quarter, as you said, as dentists want to purchase capital and take the depreciation write-off made at year. iWhat we don't know and was, you know, unclear to us is, how is that impacted by COVID? You know, I think, depending on how dentists feel about the wintertime, you know, that may temper some of that. We just don't know, and so it's hard for us to predict. So, we’ve never been through this before. In terms of international versus U.S., you know, we are seeing, you know, more international offices close than certainly U.S.

[Ed Woo:]

Great. Well, thanks for answering my question. And good luck.

[John Beaver:]

Thank you, Ed.

[Todd Norbe:]

Thank you, Ed.

[Operator:]

And we will take our next question. This will come from , Private Investor.

[Unidentified Analyst:]

Hey, guys, how are you guys doing? Can you hear me?

[Todd Norbe:]

Doing well, thank you.

[Unidentified Analyst:]

Excellent, excellent. Hey, quick question for you guys. As a private investor, who happens to have a lot of shares in the company, is there a path that you guys are looking at? There's a lot of concern over the reverse split? Is that any concern for you guys right now? I know, you guys said, you wanted to get there organically to the NASDAQ requirement, but as investors, you know, it's a concern for us.

[Todd Norbe:]

Well, yeah. There are many ways right to get , organically is one, reverse split is another, we're evaluating all options. As you know, a reverse split doesn't change the market cap of the company and the value of the company is still the same. It’s just a little bit different math to get there.

[Unidentified Analyst:]

Okay. And also, you know, there's concerns about, you know, the actual price being manipulated by shorts and all that, is there something that you guys are looking to up private investors all with this, if this is indeed happening?

[Todd Norbe:]

Well it's interesting, one of the advantages of a reverse split would be to reduce the amount of short that is going on because the price would be higher. And so that would be, you know, an advantage in one way to maybe tamp down that a little bit. Plus, another advantage of a reverse split in getting the price higher is, you know, having a price over $1 or over $5 would certainly open up our stock to more institutional investors as well. So, there's some of those benefits.

[Operator:]

And at this time, I would like to turn the call back over to Todd Kehrli.

[Todd Kehrli:]

Thank you, operator. On the investor relations front, BIOLASE management will be attending The Benchmark Company Discovery One on One Virtual Investor Conference next week on November 18. If you're participating in this conference, please schedule a visit with us. We would enjoy the opportunity to talk with you more. In the meantime, we look forward to updating you again on our continued progress when we report our fourth quarter results. Thanks again everyone for joining our call today. This concludes our call. Have a great day.

[Operator:]

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