BIOLASE, Inc.
Q2 2018 Earnings Call Transcript

Published: 9 Aug 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 Second Quarter ending June 30, 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 August 8, 2018. I would now like to turn the conference over to Mr. Rene Caron of DresnerAllenCaron. Rene, please go ahead.

[Rene Caron:]

Thank you, Michelle and good afternoon everyone and welcome to the BIOLASE conference call to discuss the company's financial results for its 2018 second quarter and first six months. On the call today is BIOLASE's newly appointed President and Chief Executive Officer, Todd Norbe and Executive Vice President and Chief Financial Officer, John Beaver. Todd will make a brief opening statement and then John will review the operation and financial results for the quarter. 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, August 8, 2018. 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 this morning announcing the Company's results for its second quarter ended June 30, 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 second quarter ended June 30, 2018 can be found in the Company's quarterly report on Form 10-Q, which the BIOLASE plans to file with the SEC on Friday, August 10, 2018. With that, I am pleased to turn the call over to newly appointed President and Chief Executive Officer, Todd Norbe. Todd?

[Todd Norbe:]

Thanks, Rene and your interest in BIOLASE and for joining us on the call this afternoon. When I call over to John Beaver who stepped in as our Interim CEO and Chief Financial Officer during the second quarter and deserves a lot of credit for his past results as well as building momentum for this business for successfully engaging the entire BIOLASE team along the way over the past four months. I'm excited that the Board of Directors has appointed me to assume responsibility of President and CEO of BIOLASE and to have the opportunity to lead the company at this pivotal time in this turn around. I look forward to with Jack, the board, John and the entire team as we strive to achieve the full potential of BIOLASE. We believe minimally invasive laser dentistry cam become the standard of care in modern dentistry especially in growing markets like pediatric care and implant periodontitis. We also believe that there is plenty of work ahead of us and we're on track to getting there. With that said, I look forward to speaking with you all again in the coming weeks and months. And I'll turn this over to John and thank you, John.

[John Beaver:]

Thank you, Todd and again thank you all for joining us this afternoon. I'm very pleased to report and thank for the superior effort and performance of our entire team of employees with a solid and encouraging second quarter, especially in our business the lasers, consumables and services. Total worldwide revenues were 12.2 million up 21% over the first quarter. Revenues were down slightly from the 12.6 million in last year's second quarter where we had a onetime order in non-core imaging products last year that resulted in approximately 0.6 million increase in imaging sales over a year ago quarter. We believe we're building momentum and if you take a closer look at our second quarter numbers there are lots of reasons to be optimistic. Compared to last year's second quarter, international revenue increased 13%; US Waterlase Express placements increased 10%. Worldwide Waterlase placements increased 5% and consumables and other revenue increased by 12%. We also continue to attract new customers. One of our most basic strategic goals is to build our customer base and increase the utilization of our product thereby driving recurring higher margin consumables revenue. The 12% increase in consumables and other revenue including a 6% increase in the US and a 23% increase internationally is due in large part to our success in attracting new customers. During the second quarter more than 66% of our all tissue laser systems were to new customers. Over the last four quarters that number is nearly 75%. This is a meaningful improvement for us over 2016 when less than half of the company's sales were made to new customers. We're all very excited about the success of the Southern California-focused sales, marketing and training initiative, what we call our Model Market Initiative Southern California, particularly Orange and Los Angeles counties is a huge and critically important dental market for us. This initiative provides us opportunity increase patient and dental awareness of our products and technology and to demonstrate in our own community the promise of the dental world's most advanced laser technology. It's mentally invasive, pain free, it provides the highest level of patient care and it can be the centerpiece of a much more prosperous dental practice. Thanks to the dedication and enthusiasm of all our employees and our newly created Southern California Dental Advisory Board, we're gaining traction in this initiative as shown by the nearly three X increase in lasers sales in this market during the second quarter of 2018 compared to the year ago quarter. Sales of our Waterlase family of all tissue lasers were up; utilization rates were up, consumables revenues were up, all great indicators of progress and better financial results in the future. You may have seen some of the recent activities we have implemented in our model market. We are excited the exposure we received from our partnership with LA Chargers, the LA Angels, Healthy Smiles For Kids of Orange County and our direct to consumer advertising. Our employee participation and volunteer efforts have been a big reason why we've been able to make so much progress in that area in a short period of time. I believe this success demonstrates that we have developed a blueprint to improve sales, service and overall laser dentistry awareness in our focus area. We look forward to rolling out the Model Market Initiative in another major metropolitan area in the fourth quarter of this year. Now, I will reveal the details of our financial results for the second quarter and six months ended June 30, 2018. 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 respective comparable periods of 2017. As mentioned worldwide net revenue for the 2018 second quarter was 12.2 million compared to 12.6 million for the year ago period. Although lasers [ph] second quarter included increased revenue from a large one-time study club purchase of non-core imaging products as mentioned above. Revenue from the company's core laser related products in this year's second quarter increased 1%. Worldwide revenue for this year's second quarter was up sequentially more than 21% from the first quarter this year. And as I mentioned earlier net revenues from lasers in the Southern California market initiative area or Model Market increased nearly 200%. Net revenue for the six months ended June 30, 2018 was 22.2 million compared to net revenue of 23.5 million for the six months ended June 30, 2017, which benefited from the large one-time study club purchase of non-core imaging products. Gross profit as a percentage of revenue for the second quarter of 2018 was 35% compared to 37% in the second quarter of 2017. Gross profit as a percentage of revenue for the six months ended June 30, 2018 was 33% compared to 37% for the six months ended June 30, 2017. The decline in gross profit as a percentage of revenue for the second quarter and first half of 2018 was mainly attributable to unabsorbed fixed cost due to lower revenue. Gross profit typically fluctuates with product and regional mix, selling prices, product costs and revenue levels. Total operating expenses for the second quarter of 2018 were 9 million, compared to 9.2 million for the second quarter of 2017. Sales and marketing expenses increased by 0.1 million, primarily due payroll and consulting-related expenses. General and administrative expenses increased by $100,000, primarily as a result of increased legal fees. Engineering and development expenses decreased by 0.4 million, primarily due to decreased operating supplies and a decrease in payroll and consulting-related expenses. Total operating expenses for the first half of 2018 were 17.2 million, the same as for the first half of 2017. Sales and marketing expenses decreased by 0.2 million, primarily due to decreases in convention-related expenses. General and administrative expenses increased by 0.8 million, primarily due to increases in payroll and consulting expenses and an increase in legal fees. Engineering and development expenses decreased by 0.6 million, primarily due to a decrease in operating supplies and payroll and consulting-related expenses. Net loss for the second quarter of 2018 was 4.9 million or $0.24 loss per share, compared to a net loss of 4.3 million or $0.32 loss per share. The $0.6 million increase in net loss was primarily attributable to 0.4 million negative impact on the effect of foreign currency transactions. Net loss attributable to common shareholders for the second quarter of 2017, which includes a deemed dividend on convertible preferred stock of 4.0 million was 8.3 million or $0.61 loss per share. Net loss for the first half of 2018 was 9.9 million or $0.48 loss per share, compared to a net loss of 8.4 million or a loss of 0.62 per share for the first half of 2017. The $1.6 million increase was primarily attributable to reduction in gross profit of 1.3 million and $0.2 million decrease in gains on foreign currency transactions. Net loss attributable to common shareholders for the first half of 2017, which includes a deemed dividend on convertible preferred stock of 4.0 million was 12.4 million or $0.91 loss per share. The tables we've provided in today's news release offer additional financial information, so I encourage you to revert to these tables, The tables include the reconciliation of GAAP net loss to Non-GAAP net loss table at the end of this news release, which provides the details of the Company's non-GAAP disclosures and the reconciliation of GAAP net loss and net loss per share to the Company's non-GAAP net loss and net loss per share. The non-GAAP net loss for the second quarter of 2018 totaled 4.1 million or a loss of $0.20 per share, compared with a non-GAAP net loss of 3.2 million or $0.24 per share during the second quarter of 2017. The non-GAAP net loss for the first half of 2018 totaled 8.1 million or a loss of $0.40 per share, compared with a non-GAAP net loss of 6.6 million or a loss of $0.49 per share during the first half of 2017. As of June 30, 2018, the company had approximately 14.4 million in working capital. Cash and restricted cash totaled 3.1 million on June 30, 2018, as compared to 11.9 million on December 31, 2017. Net accounts receivable totaled 10.4 million on June 30, 2018 as compared to 10.1 million at December 31, 2017. We remain focused on wisely investing our cash on products and programs to drive future growth, revenue and profitability and as always cost containment and prudent cash management continues to be and will be a top priority. Before I turn the call over to the operator for questions, let me summarize my remarks. We're all confident that our new management including Todd and I and our newly constituted Board of Directors represent a very strong and experienced leadership team then can carry on the turnaround of BIOLASE. We believe minimally invasive laser dentistry is the future of dental industry especially in growing areas like pediatric and implant periodontitis. We're all focused on expanding the adoption of our all tissue lasers throughout the dental industry. We're particularly energized about the momentum and traction we're gaining in our Southern California focused sales, marketing and training initiative or Model Market. We're seeing significant increases in both adoption and utilization of all tissue lasers, increasing the speed of getting our lasers in the hands of more dentist's is our goal. Finally, we want to thank all of our employees for their superior efforts during the quarter. We hope to carry on the momentum we have established. We believe we have positioned the company now to be able to attract high quality down the entire team and to achieve sustained growth and profitability. With that I'll turn the call over to the operator for questions. Operator?

[Operator:]

Thank you. We will now open the call to questions. [Operator Instructions] Our first question comes from the line of Ed Woo with Ascendiant Capital. Please proceed with your question.

[Ed Woo:]

Yeah, I just want to say congratulations Todd and John and looking forward to working with both of you guys going forward. My question is on the so called Model Market Initiative that looked like it's a big success. Are you guys still going through the initiative right now and have you identified other markets to take this to?

[John Beaver:]

Yeah, Ed, thank you and good hearing from you. In fact we just had an important communications meeting today on that very subject, that's one of the items. And to be clear no matter what we do going forward in future Model Market Initiatives, we will never lose sight of what we're doing in LA, Orange County that will continue to be our petri dish for new ideas and our focus has 10% of dentist's from the US reside in this Model Market. We'll never waver from this market. But what we've learned in this market I think is certainly portable to other markets and as I mentioned in my prepared remarks, we are close to announcing our second Model Market Initiative in the US and we'll announce that sometime later in the third quarter. We're excited to brand the lessons learned in this market to a second market, but make no mistake about it. We will continue to focus on this market and continue to grow revenue in the Southern California market.

[Ed Woo:]

Great and just as a follow up of the next market, do you anticipate aiming markets one market at a time, so that you could focus all your resources on that particular market or do you possibly see it able to do multiple markets at the same time?

[John Beaver:]

Good question, Ed. I think if you ask me today the second Model Market will be just as a single one, potentially the third one which we would expect to roll out early in the 2019 period. However, I strongly believe that normally the lessons that we've already learned in the LA Orange County market, but as we expand this to Model Market two and three will allow us to be very efficient at rolling out additional Model Markets at a faster pace and doing it more than one at a time. So in other words I see Model Market two and Model Market three being one at a time, but after that I would fully expect to have two or three or four additional Model Markets rolled out at a time going forward.

[Ed Woo:]

Great, thank you and good luck.

[John Beaver:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Paul Bornstein with Black Diamond. Please proceed with your question.

[Paul Bornstein:]

Yes, hi. Appreciate the new management team given how poorly the previous CEO was, so I appreciate your efforts. I'm just curious how you leverage your sales which you always have and I know you're testing some markets to sell the product but you do have a worldwide sales effort and that's why you have some foreign exchange, which isn't your fault, hurting the numbers. But I'm just wondering how are you - are you focused at this on the US now and letting the other ones write out or are you going to start focusing on trying to move the results outside the country. Trying to understand the positioning and you also were going to look at bringing partners and to help out with the sales effort that was an announcement, I don't know six months ago and I wonder if that's been dropped to look at to really ramp up sales? It seems like the company has good products, but this hasn't been able to execute on the sales.

[John Beaver:]

So Paul, thank you for the question. I may address it in a couple ways. First of all the international market continues to be and will remain a high priority for us. What we've done in the Model Market is in addition to everything else that we're doing in other markets including internationally. So while we - Paul you may want to be - I mean you have a little bit wind noise there, but we have - what we've done in the Model Market is stationed everything else and so typically international sales represents close to 40% of our revenue, is that it will continue to remain important. As you know we tend to be more focused on distributor relationships internationally versus our direct to sell, direct to customer model in the US. So I don't think anything is changing there. What we're hoping and what we believe is that the things that we're doing to raise awareness not only will help in the Model Market this one, Model Market two and three, but there - for instance the social media that's worldwide and so our focus while trying to get awareness up in this market, it's certainly job one for us. And similarly benefits what we're doing is going to be felt and has been felt across the world as well, so no intention to diminish our focus on international sales. In terms of adding additional help on for our internal sales team I'm not sure exactly what press release or announcement you were talking about from about six months ago, but we continue to look at best practices for training and recruiting our sales - both sales force and sales managers and we've certainly seen over the last, I would say nine months, improved performance from our newer sales managers hitting the ground running much quicker than they did in the past, so that is reason for optimism as well. So thank you Paul.

[Operator:]

Thank you. [Operator Instructions] Ladies and gentlemen this does conclude the question answer session. I would now like to turn the conference back over to Mr. Beaver for any closing remarks.

[John Beaver:]

Thank you, operator and again thank you for joining us today and for your continued support. Todd and I look forward to sharing with you the results of - the efforts of our entire organization as we all focus on realizing the full potential BIOLASE when we speak again to discuss the third quarter of 2018. Good afternoon everyone.