BIOLASE, Inc.
Q1 2018 Earnings Call Transcript

Published: 2 May 2018

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the BIOLASE conference call to discuss the Company’s results for its First Quarter and ending March 31, 2018. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the call will be opened for questions. [Operator Instructions] For the benefit of those who maybe listening to the conference call replay, this call was held and recorded on May 2, 2018. I would now like to turn the conference over to Mr. Rene Caron of DresnerAllenCaron. Rene, please go ahead.

[Rene Caron:]

Thank you, Rob and good afternoon, everyone and welcome to the BIOLASE conference call to discuss the company’s financial results for its first quarter ended March 31, 2018. On the call today is BIOLASE’s Interim Chief Executive Officer and Senior Vice President and Chief Financial Officer, John Beaver. After John completes his opening remarks, we will open the call for your questions. Please be aware that a number of forward-looking statements, which are any statements that are not historical facts, will be made during this presentation, including forward-looking statements regarding the Company’s strategic initiatives and financial performance. These forward-looking statements are based on BIOLASE’s current expectations and are subject to a variety of risks and uncertainties that could cause the Company’s actual results to differ materially from the statements contained in this presentation. Such forward-looking statements only represent the Company’s view as of today, May 2, 2018. These risks factors 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 results for its first quarter ended March 31, 2018. If you do not have a copy of the news release, it is available in the Investors section on the BIOLASE website at www.biolase.com. BIOLASE’s financial results for its first quarter ended March 31, 2018 can be found in the Company’s quarterly report on Form 10-Q, which the company plans to file with the SEC on Friday, May 4, 2018. With that, I am pleased to turn the call over to John Beaver. John?

[John Beaver:]

Thank you, Rene and thank you all for joining us on the call this afternoon. The results for the first quarter of 2018 in terms of revenue were disappointing. Total worldwide revenue for the quarter was $10 million, a decrease of $0.9 million or 8% from last year’s first quarter. Dental industry revenues can be seasonal and our first and third quarters are typically our slowest quarters each year. And while we expect better results throughout the remainder of 2018, our revenues may continue to be uneven. At this stage in our transition, our potential in the world’s rapidly evolving dental market is still much greater than our financial results would indicate. That said, we have many reasons to be optimistic. We believe our revenue outlook is promising and we are encouraged by our continued success in attracting new customers to our products, which is an important part of our strategy. New customers in direct markets purchased more than 60% of all-tissue laser systems sold during the 2018 first quarter. This brings the average of new customers over the last three quarters to nearly 75%, which is a meaningful improvement compared to what it was for all of 2016, when less than half of the Company's sales went to new customers. Due in large part of our success in attracting new customers consumables and other revenue increased by 201% driven by 22% increase in the U.S. and a 18% internationally. We believe these are good indicators of progress and better financial results in the future. We are focused on a significantly larger segment of the dental market than in the past. We are also seeing signs of improvement in the performance of our sales force and our international sales and distribution team. We are the most modern, most effective, most minimally invasive, and conservative solutions across all specialties in the dental marketplace today. In fast-growing areas of modern dentistry like pediatric care and implant periodontist for example, our tools are unsurpassed. In February, we bolstered the efforts in Southern California to significantly enhance the region’s oral health and dental care by increasing awareness in education related to dentistry. We added local specialist to our staff to offer dentists more support in maximizing the use of their lasers. We believe this focused educational and marketing campaign currently underway will be successful in increasing patient and dental awareness of our products and technology. This in turn will drive future sales of our entire dental laser product lines including Waterlase iPlus Waterlase Express and EPIC. We’ve also established a Southern California dental advisory board to help lead these efforts and guiding counsel us and developing and enhancing our products and designing effective and focused marketing program. Our overarching goal is to significantly increase the pace of getting our dental lasers into the hands of dental professionals throughout the world. This initiative provides us opportunity to demonstrate in our own community the promise to the dental world with advanced laser technology. It’s minimally invasive and pain free. It provides the highest level of patient care and it can be the sitter piece of a much more prosperous dental practice. We believe that today, we have the dental laser solution for virtually every dental practice. Worldwide Waterlase placements declined 12% in the 2018 first quarter when compared to last year’s first quarter. However, international Waterlase placements increased 12% and U.S. Waterlase Express placements increased 15%. As we continue to transform our Southern California customers’ experiences with our products and educational programs, we will expand these kinds of targeted efforts to additional markets which we believe have a very positive impacts on the number of lasers we sell and ship each quarter. In short, we believe our strategy is sound. What we need to do now is execute and accelerate our growth trajectory to get improved financial results much more quickly. Looking forward along with aggressively pursuing our current business plan, our Chairman, Dr. Jonathan Lord is leading our efforts to explore the right variety of tools and strategic options and alternatives focused on enhancing shareholder value. These may include commercial agreements such as licensing, joint venture partnership with another company, a merger or some other business combination with another party. When something finalized and appropriate to disclose, we will do so. In the mean time to grow our business organically, our entire team will be focused on educating patients, customers and prospects to drive a rapidly increasing rate of sales of our dental lasers consumables and other related products for the dental industry. Next I will review the details of our financial results for the 2018 first quarter. As we’ve done previously, this afternoon I’ll focus on revenues, gross margin, operating expenses and liquidity. Unless I indicate otherwise, the comparisons I make will be to the first quarter of 2017. Net revenue for this year’s first quarter was $10 million, compared to net revenue of $10.9 million. The quarter-over-quarter decrease of 8% was primarily driven by decrease in domestic laser systems revenue. Gross profit as a percentage of revenue for the first quarter of 2018 was 30% compared to 36%. The decline in gross profit as a percentage of revenue for this year’s first quarter was mainly due to unabsorbed fixed cost due to lower revenue. Total operating expenses for the first quarter of 2018 were $8.2 million, compared to $8 million for the first quarter of 2017. Sales and marketing expenses decreased $0.3 million primarily due to decreased convention-related expenses during the quarter. General and administrative expenses increased by $0.6 million primarily as a result of a credit of $0.4 million of stock-based compensation expense in the first quarter of 2017 resulting from the reassessment of certain performance-based equity awards. Net loss for the first quarter of 2018 was $5 million or a $0.05 loss per share, compared to a net loss of $4.1 million or $0.06 loss per share. The $0.9 million increase in net loss in the first quarter of 2018 was primarily due to a $0.9 million reduction in gross profit. The tables we provided in today’s news release offer additional financial information. So I encourage you to refer to those tables. The tables include the reconciliation of GAAP net loss to non-GAAP net loss. The non-GAAP net loss for the first quarter of 2018 totaled $4 million or a loss of $0.04 per share compared with a non-GAAP net loss of $3.4 million or a loss of $0.05 per share during the first quarter of 2017. As of March 31, 2018 BIOLASE had approximately $20.5 in working capital. Cash and restricted cash equivalents at the end of first quarter were $8.7 million as compared to $11.9 million on December 31, 2017. Net accounts receivable totaled $9.7 million at March 31, 20178 as compared to $10.1 million at December 31, 2017. We continue to remain focused on wisely investing our cash on products and programs to drive future growth in revenue and profitability and as always, cost containment, prudent cash management continues to remain and will be top priority. To conclude, before I turn the call over for questions, we had a soft quarter, but we do see signs of progress. We believe our overall strategy is sound and the early results from our local Southern California market initiatives are very promising. I said earlier that our potential is still better than our financial results. By that I mean in today’s modern dental market, clinicians want to identify and treat active disease earlier than the traditional norm. Dentists are realizing the treatments need to begin way before there is pain and loss of teeth and oral systemic issues. Our products are designed to meet that higher standard of care. With that, I’ll turn the call over to the operator for questions. Operator?

[Operator:]

[Operator Instructions] First question comes from Robert Maltbie with Singular Research.

[Robert Maltbie:]

Hi, John.

[John Beaver:]

Hi Robert.

[Robert Maltbie:]

Questions. BIOLASE is doing a targeted rollout of the BIOLASE Express products in California market. How are you measuring the success of this effort?

[John Beaver:]

So, it’s all-in revenue. I would say, we have other metrics that are important to us. But it’s really how many more units we are getting into the market compared to prior year. And so we are measuring that on a daily, weekly basis. We also have some other – other initiatives that have separate performance metrics on the things we are doing in social media in terms of Clix and so forth. So really what I look at day-to-day is are we moving the needle in terms of increasing revenues and increasing moving units into the market.

[Robert Maltbie:]

Great. And finally, you have a clinical study underway on your products in the periodontal disease segment. Could we get an update on that?

[John Beaver:]

Yes, that’s – I think you are referring to the McGuire study based out of Houston and they have unfortunately, it’s been a little bit slower than what we had anticipated, maybe six months ago. Right now, our best guess is that the clinical study will be complete toward the end of 2018 with the results published in the first half of 2019.

[Robert Maltbie:]

Terrific. Thank you. I’ll get back in the queue, John.

[John Beaver:]

Okay, thank you.

[Operator:]

[Operator Instructions] Thank you. Our next question is coming from the line of Ed Woo with Ascendiant Capital. Please proceed with your question.

[Ed Woo:]

Yes, hi. Thank you for taking question. In terms of what you are seeing so far in the South Cal, market focus that you guys are doing, have you thought about rolling this out to other markets. Do you have any plans here yet?

[John Beaver:]

Well I’d appreciate the question. I think it’s too early right now to fully determine what is working and what isn’t working in terms of getting the message out and increase in revenue. We have had some early wins. However, we want to be sure that we know what actually moves the needle in terms of change in the market. With that, I wouldn’t expect to rollout a lot of these activities that we choose to rollout until the second half of 2018. And right now, we are determining where that second model market will be and we haven’t determined that yet, though I do have some ideas.

[Ed Woo:]

Great. And then, going back to what your comment earlier about how 75% of your – I guess, recent sales have been to new customers, what are you seeing in terms of your existing customer base, consumables had a good quarter , this quarter. Is that becoming a bigger piece of their business going forward?

[John Beaver:]

We do, so, Ed, you and I have had discussions before about historically we sold to the early adopter segment of the market and when we introduced new lasers, we went back and sold it the upgrades to them and that did not do anything really for increasing our consumable business in terms of our laser tips and so forth. And so, that’s a reason we see a linkage in one of our big metrics is its new customer attainment. And we believe that as new customers – that we attract new customers to our product line, the consumables will go up as well. However, as a percentage of total sales, because we are expecting to have increased overall laser system sales as well, I think while the consumable business will grow in terms of absolute numbers significantly, as a percentage of sales it will take a while to catch up.

[Ed Woo:]

Great. Well, thank you and good luck.

[John Beaver:]

Thank you, Ed.

[Operator:]

The next question is from David [Indiscernible], private investor. Please go ahead with your question.

[Unidentified Analyst:]

Yes, thank you for allowing me to ask a question. I’ve been involved in the company for a number of years, even though my broker told me I should get out, but I have a question. Since sales has been a big issue with you guys and you are looking at strategic alternatives, are you looking for a strategic partner to help you out with sales? Because, you’ve raised a lot of money, so you had money to hire sales people and what have you in management? You three raises the stock is way below what the prices were where you’ve raised the money and so, you haven’t put the money to good use, because the sales are still going down in general. So I am just wondering if you are looking for outside help, because right now, it seems like management, the only one is making money in the stock. So, I am just wondering if there might be alternative way to generate sales since other things be happening internally.

[John Beaver:]

So, David, our major goal is to increase the velocity of pace of getting our lasers into the hands of dentists. And whether or not that is organically through some of the initiatives we are doing with the Southern California market and I believe we are making some strides there, or is it potentially partnering with a joint venture partner, a distributor, M&A activity. All the above, anything that assists in achieving the goal of increasing the pace of getting lasers into dentists’ hands is one that we would consider. I do believe that the work that we’ve done over the last four months in the Southern California initiative is beginning to bear fruit and we are doing things differently. And I’d certainly expect that to show up into the revenue numbers in the second half of this year. If we are able to prove that, then we can port our learnings from this market to not only the rest of the U.S., but parts of the world, as well. And I think we are at a real tipping point in terms of getting increased revenues.

[Unidentified Analyst:]

Okay. Thank you. The only concern is you are going to run out of cash since your cash keeps going down and if you don’t get the sales moving, you need to get a partner that’s financially viable to help you on in the sales end of it. So that would be within – both of you could still losing money.

[John Beaver:]

Understand.

[Unidentified Analyst:]

Losing money for years. So, if you had a partner with a lot of capital, well, I think you need a lot of capital to get the sales moving. But, maybe your – this is going to be a positive in Southern California as shown in the results in the second quarter. So, there hasn’t been any positive – very much positive results with yours. So, I hope that’s the case. Thank you.

[John Beaver:]

Thank you.

[Operator:]

[Operator Instructions] Thank you. Ladies and gentlemen, this concludes the question and answer session. I will now turn the conference back over to Mr. Beaver for closing remarks.

[John Beaver:]

Thank you, operator and again, thank you all for joining us today and for your continued support. We believe we have a sound strategy and we have not yet reflecting our financial results, we are making progress. We look forward to sharing the results of our efforts with you when we speak again on the results of the second quarter of 2018. Good afternoon everyone and thanks.

[Operator:]

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.