Q3 2019 Earnings Call
Ladies and gentlemen, you currently standing by for the BIOLASE 2019 third quarter financial results Conference call. At this time, we are still at many additional participants and claims to be anyway. Shortly we do appreciate your patience. Please remain on the line.
Good day, everyone and welcome to the by late 2019 third quarter Financial results Conference call. Today's call is being recorded at this time I would like to turn the conference over to talk Curly of easy group. Please go ahead Sir.
Thank you operator, good afternoon, everyone and thank you for joining us today to discuss by leaves his financial results for the 2019 third quarter ended September Thirtyth 2019.
The call today from BIOLASE, or Todd Norby, President and Chief Executive Officer, and John Beaver Executive Vice President and Chief Financial Officer.
Management will review the company's operating performance for the third quarter before opening the call for questions.
Once again 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.
Moving forward looking statements regarding the company's strategic initiatives and financial performance.
These forward looking statements are based on violations 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 are only representative of the companies.
Today November six 2019.
These risks are discussed in the company's violence of the Securities Exchange Commission.
Replay of this conference call will be available on the BIOLASE website. Shortly after the completion of today's call when listening to the call. Please refer to the news release issued earlier today announcing the Companys 2019 third quarter results. If you do not have a copy of the news release that is available on the Investor section on the BIOLASE website.
Ladies dotcom.
Ladies and financial results can also be found in the company's quarterly report on Form 10-Q , which will be filed with the FCC.
Tables, we provided in today's news release offer additional financial information. So we encourage you to review them tables included a reconciliation of unaudited GAAP net loss and loss per share to not non-GAAP net loss. That's for sure as was the details of the company's other non-GAAP disclosures.
With that I'm pleased to turn the call over to bylaws, President and Chief Executive Officer, Todd Darby.
Thanks, Todd Thanks, everyone for joining us. This afternoon. We appreciate your interest in continued support BIOLASE.
Before I review, our Q3 operating results I want to spend a few moments discussing our recent financing developments.
Weeks ago, we raised 8.5 million through a public offering of common stock.
Concurrent private placement of convertible preferred shares with existing shareholders.
Further validates our business plan and trajectory.
Last week, we also secured a new line of credit, giving us access to an additional 3 million should we need that it does or does it arrives.
These are significant developments for BIOLASE and this significantly improves our working capital and strengthens our balance sheet and positions us for success as we continue to execute on our plans to drive to sustainable.
Profitable revenue growth.
This past month, we hosted our advancing dentistry symposium in San Diego I'm pleased to report it was it very successful two day event.
And it by over 200 dental professionals and had a similar goal of.
Twist to learn the latest trends and innovations in dentistry, leading industry experts.
Attendees recognize that dental treatment is changing and that the dental professionals they need to know how to utilize the latest tools and integrate them into their practice seamlessly.
The keynote speaker at the symposium was Dr. Gordon Christiansen, a world renowned dental educator Influencer in founder of clinicians report isn't presentation was titled what clinical techniques and technologies do you really need and why you.
He highlighted our water laser technology and its benefits. Other presenters also included Dr. Ross Tomorrow from Portland Dental.
We discussed held that this should be integrating waterways in their practice.
To improve patient care and overall return on investment.
Additionally, dr. Don Klumb.
Pete viewed the first landmark study by the Mcguire Institute on the clinical efficacy of water lays assisted treatment appirio and tie this.
Versus traditional open slapped gum surgery.
The study also track the patient reported outcomes or pros for each procedure.
Mcguire study is an important study for BIOLASE validating minimally invasive.
Mario treatment without the need for extensive surgery or extending patient recovery time.
This will benefit both the specialist and general practitioner.
Allowing for improved patient care in treating parago disease.
We anticipate the six month interim data will be available by the end up 20 Nike.
And we expect that the full study will be published in a scientific journal during the first half of 2020.
As we've noted before we believe this study will establish new protocols.
Mario surgery and drive further adoption of our all tissue lasers in our target markets.
We are equally excited about the additional studies that treat every other disease from Columbia harbored you CLA.
And we'll be released sometime next year.
During the two day symposium, we interacted with hundreds of general practitioners and specialists, who can benefit from the use of water lease technology.
A key topics of interest was BIOLASE recent announcement of our water lays dental lasers.
<unk> regulatory clearance in the U.S. in Canada.
Fourq front of the near removal. This indication enables that just to remove crowns engineers in less than five minutes using our technology.
Has the only laser.
Study with its clear violates can provide patients ongoing crown had been near removal in a minimally invasive way that encompasses all the benefits. That's all lasers bring to the variety of procedures, including spending last time that deciles here.
The syndication aligns directly it violates this mission of advancing dentistry and.
And there is no doubt that crown engineer removal offers more pleasant experience for both the dentist and the patient.
We believe we have the best technology to advance dentistry and our focus now is on building to commercial infrastructure to support and expand the reach of this great device over.
Over the past year.
We have in building the business processes that are necessary to successfully allied BIOLASE innovative technology within approach.
<unk> chief commercial success.
He learning from our Hartman pilot.
And model market initiatives.
Kluge developments about where ladies mens rea experience for W. Abbey.
This program allows that's just to have first hand experience with our technology.
And applications through the use of experience mentors in a group learning environment, where individual case sharing is encouraged.
We have started to expand this program to select cities this quarter and will continue this initiative in 2020 .
While we continued to make significant progress as we have much more work to do to reach our ultimate goal our strategic decision in Q1 to rebuild a substantial portion of a sales team continues to have a short term impact on our revenue.
We continue to actively recruiting new sales talent that is more aligned with our transition from an R&D centric company to a more disciplined customer centric commercial organization driving best practices.
Since we initiated this change we acquired seven new reps and managers, while it's too early to measure that success.
New talent is already changing the pilates culture, the energy enthusiasm throughout the company is high and we're excited to have them onboard.
We're making good progress with this initiative, we are actively hiring to reduce the number of open territories and expect it still the remaining open positions by the end.
The first quarter of 2020 .
Another key strategic initiatives, we began implementing last quarter the adherence a pricing in extended terms disciplined when dealing with our international distributors to improve dsos improved margins. While this contributed to our short term revenue disruption. It was the right thing to do for.
The business.
In closing we remain excited about the direction in growth prospects.
We made some important strategic decisions over the last two quarters, we're beginning to see some positive results from those decisions and we are confident.
These decisions, although not easy ultimately build healthier business for the future physician BIOLASE for long term.
Growth.
In the future.
At the same time prudent cost reduction initiatives, we continue to implement that put us on track to reaffirm our goal of achieving adjusted EBITDA positive in the fourth quarter of this year.
With that said I'll now turn the call over John to review, our third quarter financial results in more detail. Thank you.
Thanks, Todd and thank you all again for joining US. This afternoon now let me review the numbers.
Total revenue for the third quarter of 2019 was 8.6 million consistent with our Q2 results.
Again. This is the result of some of the strategic decisions made around our commercial organization. This represents a 2.3 million decrease compared to $10.9 million in the third quarter a year ago.
Revenue from the U.S. for the third quarter of 2019 decreased $2 million year over year.
As Todd discuss the decline in the U.S. revenues due to the strategic decisions, we made to realign a significant portion of our U.S. Salesforce, we're changing the culture of the company in increasing transparency and accountability throughout the organization.
I've been actively recruiting new direct sales team members, who fit our new customer centric disciplined commercial organization culture.
The decline in revenue was due to these open territories.
Internationally revenue for the third quarter of 2019 was 3.7 million down 300000 compared to the prior years third quarter.
The decrease their national revenues, primarily due to our efforts to promote better terms and pricing discipline, which resulted in over 400000 in orders held back during the quarter.
Gross margin for the third quarter, 2019 was 34% compared to 36% in the year ago quarter.
The decrease in gross margin reflects lower cells.
When compared to the second quarter 2019, gross margin was about 5% lower entirely due to geographic mix as we had a higher percentage international sales and product mix as we sold a higher percentage of express units during the quarter.
On a relative basis overall margins continued to expand on a year over year basis.
Furthermore, international margins saw improvement year over year in the quarter.
Total operating expenses for the third quarter 2019 were $7.9 million compared to 8.5 named <unk> third quarter 2018, a 7% reduction.
Sales and marketing expenses declined 1 million or 22% year over year in the third quarter due to reduced compensation related expenses due to the open CEREC sales territories and lower revenue along with reduced direct to patient marketing expenses that we incurred last year.
General and administrative expenses increased 500000, or 20% year over year due to an increase of $1 million and bad debt expense.
Engineering and development expenses decreased 12% year over year in the third quarter operating loss for the third quarter of 2019 was 4.8 million compared to an operating loss of 4.5 million in the third quarter 2018.
Net loss for the third quarter of 2019, with 5.5 million or 25 cents loss per share compared to net loss of 4.7 million or 23 cents loss per share for the prior years third quarter.
As a reminder earnings release includes the reconciliation between unaudited GAAP and adjusted EBITDA.
We've adjusted EBITDA provides a useful measure the company's operating results by excluding depreciation amortization expense stock comp expense and change allowance for doubtful accounts.
Adjusted EBITDA loss, the third quarter of 2019, which excludes these items decreased 27% year over year to 2.7 million or 12 cents per share when compared with an adjusted EBITDA loss of 3.7 million Righties Centsper share during third quarter of 2018, our basic and diluted share count. It ended the third quarter to date.
The 19 was 21.9 million shares compared to 20.6 million shares in the year ago quarter.
Now turning to the balance sheet cash cash equivalents unrestricted cash totaled 2.4 million as of September 30 to 2019, we remain focused on wisely invest in our cash and programs to drive future growth as Todd mentioned after the quarter end, we successfully raised 4.1 million to net proceeds through an equity offering at approximately 4 million from a concur.
From private placement, resulting in total net proceeds of 8.1 million. This week the underwriters exercised their overallotment option in Poland Ballets received another 600000 before transaction costs.
In addition, last week, we announced a new revolving line of credit with Pacific Mercantile Bank, which gives the company access to another $3 million should the need arises.
Recent equity raise and line of credit provide ballets with sufficient working capital and a significant improved significantly improved balance sheet from which to drive growth and deliver profitability.
We want to thank our investors lenders for their confidence in support.
This concludes our prepared remarks, I'll turn the call back to the operator to open the call for questions operator.
Thank you if you would like to ask a question. Please press star followed by the number one on your telephone keypad, if you're calling kinda speakerphone. Please make sure your mute function is off to share your significantly chocolate.
Again star one to ask a question.
And first we will go to how Boucher with Dougherty Your line is open.
Hi, Todd and John Thanks for taking the questions.
Maybe I'll start off with a progress on filling open territories, he talk a little bit more about how you're finding potential candidates and kind of what you're looking for that's different than before.
Yeah, Kyle so I'll I'll take that John maybe can give you more specifics on the number of open territories that we currently have in place.
Yes, we did a lot of work to understand Kyle what we look that as that's the best in what works with Ah DNA in some of our sales team that generate over a billion dollars per territory and look for that through.
An organization called the Brooks group.
And build a profile interviewing a guide around that so that we can definitely provide better opportunity on the front end to make sure. We're getting the right folks you know in front of US to interview and then also the other process. We put in place is our training program to make sure.
That clinically they can meet the needs of the organization as well in the field. So there's a two step process. Obviously the assessment side in the front end, making sure. It meets the needs of the organization and then once a you know we do hire them, they're still this evaluation process during training and make sure that there can.
Get the speed clinically to be beneficial for customers.
Yeah, and kind of let me go into some specifics about open territories.
We had.
10 open territories in Q2, and 10 open territories in Q3, not the same open territories right, but the same number.
Since the end of Q3, we have hired and have onboarded to sales reps. So we now have open eight open territories.
We hope to.
At another three hire another three to fill those open territories by the ended the year and so that would cut the gap from 10 at the start of the quarter to five open territories that into the year and then would hope to build the remaining open territories in Q1 next year.
Got it and throughout 2020, probably keep it at 33 territories is if you kind of settled on on that number.
Yeah. That's good that's kind of where we are right now we'll go through a budget process in the next couple of months and present that to the board.
But right now I'd say, that's that's a pretty good.
Forecast there and then.
No I mean that no matter, what we do we'll always have some open territories.
I was seriously doubt will have 33 fully feel territories for 365 days next year, I mean that will be our goal, but you always have some a transition there as well sure.
Okay.
Thanks, and can you guys mentioned last month at a nice update regarding the crown engineer removal indication on a high level can you, perhaps kind of quantify this opportunity for us and.
And do you think that many counts, we're using water lease on their own kind off label for this crown and been hearing rule.
Yeah, I would tell you filed that you know the dental population is fairly creative when they have technology, especially early adopters. So I would say probably fair to say that a portion of them may have been using this to remove crown have been years prior to our approval.
But we want to make sure that de settings, where appropriate.
Based off of our testing.
Through F.D.A., so that all.
Potential new users as well as current users would feel we're very comfortable in doing this into right clinical way and not a impact the patient in anyway.
When they are using this technology. So that's your question I think probably the answer is yes.
The great part is the opens up for the rest of the industry to do this in a very minimally invasive way and just creates a great experience a for not only the patient.
But can save the practitioner almost 30 minutes removal of a crowd.
Okay understood and just lastly on can you remind me I know you've been exploring a plan move in 2020 to somewhere that's more cost effective any updates on this front. Thank you.
Yes, so Cal we continue to explore options our lease expires in April 2020, we have about a 56000 square feet I'm here in the building that we're in today.
We believe that we can get that down by about half.
Offsetting that is you know rate increases from when we signed this lease but net net I do expect that absent any onetime moving cost we will save money.
And lease expense next year.
Okay got it okay. Thanks, so much further updates.
Thank you go.
Next well go to Bruce Jackson from the Benchmark Company. Your line is open.
Hi, Thank you for taking my question I wanted to know if you could just kind of I'm talking about the Maguire study for couples minutes and talk about it and a practical terms.
For for Dental service organization and tell us what kind of data is it couldn't provide them in order to have them adopted waterless technology.
Yeah, So Bruce <unk>, there's not a lot that.
We're really probably did disclose right now just because we want to make sure that just gets in a peer reviewed journal same reason why at the American Academy of Terrio. This past weekend, we just shared the study without sharing their results, but in a nutshell, what's your really comparing here is trending.
You know periodontal surgery meeting that you'd have a scalpel slapped back to gum tissue to bride clean that area out and these are severe cases. These are not you know cases that can be treated otherwise I mean that was one of the keys with this study.
And you're comparing you know that procedure, which is a traditional procedure without a laser to a procedure where you take the laser in a very minimally invasive way with laser energy with our aerial repair protocol to go in.
Subjectively without you know that much abuse to the surrounding tissue, because our laser and our laser tip.
Small enough that literally go in between if you can visualize the to structure in the gone to go in there and treat that I'm in a minimally invasive way to clean that entire area out and what was really compared and this was a double blind study around you know what were the results of you know.
One.
Procedure versus the other and then ultimately what was the patient reaction to that as we've talked about patient reported outcomes and I think what you're going to find here and based off the conversations we had.
A pea.
Home, we're going to find you know that we're on track on what we believe.
Positive results that we expect it because when you look at laser therapy, and lasers around soft tissue and specifically around water, ladies and our wave length really provides a really unique ability not only to the broad and clean that area.
And also disinfect, yet, but it really supports and helps rejuvenate the surrounding tissue.
So I know, that's probably is not full detail as we'd like but that's probably as much as we can share at this point.
Okay. I mean, that's helpful. Then one other question on the model market program, you've had some success there and have you thought about perhaps extending that to some other markets.
Yeah, Bruce you're right. We have had success there and in one of the key things that we found.
In second quarter was the introduction of we'll watch it lays mentoring experience.
We did two of those in the model marketing Q2 very successful this is where.
From based on some of the learnings that we have from what we do with Heartland, a we gave the Dennis a very.
I think strategically.
Okay as Dennis in terms of who we wanted to go after.
We gave the Dennis.
Laser for 45 days provided them training.
Also provided them a local mentor.
Up here or there is to help them out and also biweekly webinars and we were successful in and turning that a program into a cell and a little bit over 60% of the cases.
So we spent a Q3.
Turning to roll that out to the rest of the country and in Q4, we started that rollout.
We're our goal is ultimately is to have up to 10 of these events or wandered ladies mentoring experience in different cities every quarter and so when we're not quite 10 in the into fourth quarter, but we hope that 10 in the first quarter and so that's an example of something we've learned in the model.
Market.
Experienced if you will that we're now we're focusing those efforts that we had in the model market really rolled this out throughout the country, we're really excited about it.
We think that maybe up to.
Half of our laser sales in the U.S. could come from these type of.
Programs going forward.
All right. That's it for me. Thank you for taking my questions.
Thank you Bruce.
Next we'll go to Ed Woo from Ascendiant capital Your line is open.
Thank you for taking my question. My question is on International I know not couple quarters.
You're going to China, and also with our international pricing promotion when do you think that's kinda stabilized.
And so and I think from the on the pricing and promotion you're right. We've continued to hold the line there and I think as we mentioned in the last call. We did not think a one quarter or you know putting our are drawn the line in the same was going to necessarily saw.
All that problem overnight, we continued to add to be very I would say aggressive and turning away bad terms, both in payment terms and pricing and so hence you know I think if we had kind of done business as usual.
As we have historically, our international revenue would have been about the same as it was a year ago.
The 400000 back orders that that I mentioned was really all due to us walking away at least at September thirtyth from that business, you know knowing that and leaving they'll come back in Q4.
So I think that will smooth itself out over the next quarter or so and so I would not see that has been really had a big issue going into 2020, China is a is a separate issue and we changed distributors in China.
In Q2 of this year, we're working through that that transition. It has not been smooth I'll tell you that but.
We were confident that we'll be able to transition to the new distributor I'm completely in 2020, and so if I was to guess I would say, we probably have another six months of Oh, the China situation. If you will before we get that fully salt.
Great and then going back to our model marketing initiatives are you guys have done so well in younger girls.
Mentorship programs do you see you guys, a significantly increasing or bresnan, Suriname or you're kind of war.
Hi, Matt how are you know given dot markets that you already have gone in Dallas person and ally.
Let's see aside I'm pulling back from direct investments in the model market. That's what we did in really in Q3 in Q2.
Our investment in the model market was all around the Waterlife mentoring experience and then we use Q3 to plan to roll that out so I see yeah, I don't have any specific initiatives in the model markets in Q4 per se.
We do have a one relates mentoring experienced here and now they Orange County, but it's just another large city that were.
Plan on having.
Having these these initiatives around so long winded way of saying that I think from a model market standpoint, we're pulling back on on investment there and really investing in the Debbie me.
Throughout the country.
And so I would hope to head pretty much every big city major metropolitan area at least once in 2020 with this program.
Great. My last question as you know you mentioned that you know you hope to have all your open territories by not first quarter of next year. How quickly will you know seasonal sales people reach maturity will not be a couple of quarters or will be four quarters.
Yeah, and I think historically into dental space you know it depends on what you defined as you know productivity.
But it's typically six to nine months as you recall, we also hired.
Someone to be focused around training, because we really never had someone focused purely on sales training.
I would tell you would be a more of a perpetual training process.
On a weekly basis so.
With that question I'd say, you know with the right hires and what we're doing on the front end they get the right people in the door, which are pre screen based off of certain DNA and attributes were looking for a we would expect productivity probably at the six month Mark and it is also a what I call toll gates along.
The way in reference to.
Their ability to.
Conduct certain parts of the sales process as well.
We didn't mention it but you know the other thing that we put in place under this new leader as well who also runs our inside sales department, we've put in place a bold fan of individuals who we look at that have the ability to also moved outside in self worse as well and they learn inside first and then.
And we can deploy them at a later point in time, so that process started about two and half months ago.
Right well thanks for answering my question good luck.
Thank you. Thank you had.
And again, if you had a question. Please press star followed by the number one on your telephone Keypad next we'll go to Lisa Springer from singular research. Your line is open.
Thank you Hi, Todd engine.
Oh long lead times of the model model markets I was curious if the sales mistretta screen affected the performed the sales performance in the middle markets in the third quarter or Ed did you actually see revenue growth in those markets during the third quarter.
Yeah, So lease Oh, we do not see revenue growth in the model markets <unk> third quarter, they were down slightly.
The sales change over.
Fortunately in La Orange County, and.
And southern California, San Diego and Dallas was.
Really not affected.
Not affected we still have the same group that we've had for a while there. So we're very fortunate with that.
I also think that you know that group was a large part of the reason that the W. me was successful in Q2, but we did not have you know program like that in Q3 as we were looking at planning for Q4 nationwide.
Okay.
Yeah, and the crown and for near removal of clearance I'm curious.
With a dentist how many of those procedures are part of the practice is that something they do one up.
No mini day or how important is that to the practice.
Yeah at least it really depends on the practice and every practice is a little different. So I would tell you that you know highly cosmetic veneer case offices that are doing Yale a full remake you know it's a big portion of their revenue. So we have you know some cost.
Summers in L.A. in New York, and so forth a that literally by the technology now just for that procedure alone and then are starting to do obviously soft tissue management as well you know what goes hand in hand, there on the other side I mean, when you start to look at your average GP.
Okay, and you look at an older population potentially in crowns have to be replaced.
A lot of these crowns two or a lot.
Harder material today than they were in the past, so very difficult to remove and really difficult to cut off with a diamond or so that you speak to any you know dentist that has gone through that procedure they'll tell you. It's one of the worst procedures that they potentially could do because the assistant can't do.
They have to produce seat and do it themselves under very difficult to cut those off and then you can imagine that patient sitting in the chair along that process. So.
It depends I guess is the answer at a certain level.
The technologies is highly regarded and a really makes their life into patients easier.
Another situation as an adjunct to other procedures that that use our technology for.
HM Okay. Thank you.
And with no further questions at this time I'd like to turn it back to the company for any closing remarks.
Thank you operator on the Investor Relations front bile is will be participating and two upcoming investor conferences before the end of the year, we will be participating in benchmarks and you'll discovery one on one conference in New York City on December four and the LD Micro main event in Los Angeles on December .
11th and Twelveth, we hope to see some of you there. Thank you everyone for your interest in BIOLASE. This concludes our call have a great that.
And that does conclude our call for today. Thank you for your participation you may now disconnect.