Q1 2021 BIOLASE Inc Earnings Call

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Yes.

Good day and welcome to the BIOLASE 2020, one 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 <unk> of the a B C group. Please go ahead Sir.

Thank you operator, good afternoon, everyone and thank you for joining us today to discuss BIOLASE and its financial results for their first quarter ended March 31 2021.

On the call today from BIOLASE, as John Beaver, President and Chief Executive Officer, and Jennifer <unk>, 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 before we begin I'd like to remind everyone that a number of forward looking statements which are state.

And so there 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 as current expectations and are subject to risks and uncertainties that could cause the company's actual results to differ.

And materially from the statements contained in this presentation and.

Such forward looking statements the only represent the company's view as of today may 13th 2021 of these.

These risks are discussed and the company's filings with the Securities Exchange Commission a replay of this conference call will be available on the website. Shortly after the completion of today's call when listening to this call. Please refer to the news release issued earlier today and how some of the companies 2020. One first quarter results. If you do not have a copy of the news release.

That is available and the Investor Relations section of the BIOLASE website at Www Dot BIOLASE Dot Com BIOLASE.

And as its financial results can also be found and the company's report on form 10-Q, which will be filed with the SEC. The.

And the tables, we've provided in today's news release offer additional financial information. So we encourage you to review them. The tables include a reconciliation of unaudited GAAP net loss and net loss per share to non-GAAP adjusted EBITDA loss and adjusted EBITDA loss per share as well as the details of the company's non-GAAP.

Disclosures with that said and I'll turn the call over the BIOLASE, President and Chief Executive Officer, John deeper John.

Thanks, Todd and and thank you everyone for joining us. This afternoon, we appreciate your interest and BIOLASE.

Before we begin I'm delighted to note the joining me on the call today is Jennifer bride, our new Vice President of Finance, Jennifer joined BIOLASE early this year as and 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 and the fourth quarter, which is typically our strongest quarter of the year with another strong revenue performance and the first quarter reflect and increase 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 Dennis on the benefits of our Waterlase technology.

And as I've noted before to further accelerate our growth over the past six months, we have formed specialist academies focus on expanding awareness of the benefits of our dental lasers into dental specialists communities. We.

We have launched specialists the academies framed it honest periodontist and most recently and pediatric dentist to drive further adoption of our products are.

And our lasers provide a new improved and better standard of care for dental procedures, while ensuring a safer environment for dental practitioners and patients.

Just last week, we launched the Waterlase pediatric dental Academy for pediatric dentist. This academy will provide clinicians with an immersive training and experience to appear led learning best practice sharing and ongoing mentor ship to help ensure optimal integration of waterlase technology into clinical practices.

Pediatric dentists are actively seeking new ways to treat of young patients and a gentler and more holistic manner than traditional dental equipment offers.

And waterlase all tissue lasers allow pediatric dentist to remove tooth decay gently and precisely with less aerosols less vibrations and little to no anesthesia.

And can also performed soft tissue procedures with less blood and faster healing and then traditional scalpel and suture methods for minimally invasive tongue-tie releases for infants and toddlers to no shot and cavity preparations water lasers and excellent addition, Danny pediatric practice to help kids feel more comfortable and the chair and hopefully and still healthy pre.

This is and oral care for life.

There are approximately 7000 pediatric Dennis and the United States based on our internal calculations, we believe the additional 5% of pediatrics and Dennis adopting our lasers with the resulting an additional $20 million and laser sales for BIOLASE.

And turn those additional sales would drive follow on consumable sales.

During the first quarter, we also launched and innovative and first of its kind of program and the Parodontal community.

Program Fosters peered led learning with ongoing Mentorship from leading clinicians feature and online meetings and case reviews by experts in the field the.

The Waterlase parallel academies open to all Paradise utilized and the Waterlase technology.

Teradata and have seen a significant increase in Paraguay, and playing disease due to the substantial number of new dental implants being price each year and the existing AG and dental implants currently found of millions of patients.

The honest are actively seeking ways to manage both parodontal and implant and diseases as the incidence of gum disease with bone losses increase and the U S adult population.

There are approximately 5000 Paradise and the U S and 65 million Americans are suffering from Perry of disease.

Launching into Cat and me devoted to supporting the growth and needs of paradigm and is directly aligns with knowledge his mission of advancing dentistry.

In fact, several studies have already confirmed that patient reported outcomes of Waterlase assisted treatment of paradigm tightest, we're significantly better after the laser procedures. This includes the Mcguire study, which was published in the journal of paradigm analogy is one of the study and the International Journal of Ontario, and restorative dentistry with so many Americans suffering from Perry of Dizzy.

These the study's findings are significant and determined the best course of treatment for these patients.

Also the studies continue to suggest the periodontal health is essential for overall health and specifically as it relates to the susceptibility to infection, including COVID-19. We believe these studies are significant for BIOLASE, because they establish new protocols for parallel surgery and will drive further adoption of Waterlase and our target markets.

Based on our internal calculations, we believe the if an additional 20% of Paradise and the U S adopted our lasers, we would generate an additional $50 million and laser revenue for BIOLASE not including the follow on consumable revenue.

Last year, we launched the Waterlase Indo Academy and exclusive community of leading Endodontist dedicated to improving patient outcomes and profitability with new technology.

The Waterlase dental laser offers various benefits friend of donna's from faster procedures to new treatment options. In addition, Waterlase has also provided improved patient reported outcomes Waterlase. This unique approach allows for success and conservative Indo treatment, while the overall technology delivers more predictability reduced patient discomfort and and.

<unk> patient care top thought leadership has quickly established and waterlase as the new standard of care and endodontics.

During the quarter, we announced the collaboration with Einstein health care and networks residency and endodontics to train and hedonic residents and the use of Waterlase dental lasers and <unk>.

And health care networks residency and endodontics and it's one of the first hospital base and hedonic programs approved by the American Dental Association. The residency at the 24 month program that prepares graduates to practice teach and conduct the independent research.

The goal of the program is the offer residents hands on experience with dental lasers that are already and use across the industry, allowing residents to immediately implement their training and when joining of the future practice.

Our collaboration with Einstein not only are we army and these future residents with knowledge and training on the innovative technology, but we're also enabling them to offer their future patients the opportunity for a less invasive and more positive experience.

Recently, we also announced plans to develop a new laser assisted microfluidic irrigation device for Endodontist with edge Endo of global legal leader and commercializing and the Dornick products.

This new device is being developed to offer a solution the endodontist seeking more from their current cleaning and disinfecting techniques.

<unk> pro will be built upon BIOLASE as patent and improve in proven our b M. Chromium wireless <unk> 27, and 80 wavelength platform and has been shown to significantly improved debridement cleaning and disinfection.

Approximately 75% of all Endodontist routinely use agenda of Endodontics falls burst and bow ceramics make and edge endo of natural partner for providing significant reach and relationships within the donnas as we work to make Waterlase technology, the standard of care and the endodontics.

We believe our focus on each of these dental specialists will translate into higher demand for our products and they look for safer and more advanced alternatives to grow their practices.

Our laser safety benefits put us in the optimal position to advanced industry and treat patients and the safest way possible. These are this these are critical inflection points for BIOLASE because of the carrying a small percentage of each of these dental specialists could by our calculations generate nearly $100 million and additional revenue from <unk>.

As your sales plus the higher margin revenue associated with the follow on consumables.

We believe the adjustments we made to the go to market approach during the pandemic are starting to pay dividends of <unk>.

Positive momentum, we have seen over the past three quarters and the continued growth we are experiencing and our current 2021 physical second quarter gives us greater confidence here that we are nearing the resumption of our pre COVID-19 growth trajectory.

We believe the opportunities and the Indo Purgo and pediatric segments highlighted additional paths for growth for BIOLASE and the years to come.

Together, the all tissue laser market penetration and the U S. Dental market is the only 7% we estimate the every 1% increase and the adoption of laser technology and the U S equals approximately $50 million and revenue opportunity for BIOLASE.

We also believe that with the clinically proven product portfolio that that reduces the potential risk of infectious pathogens BIOLASE has the significant growth opportunity ahead is dental professionals seek safer technologies to treat their patients with that I'll turn the call over to Jennifer to provide further details regarding our first quarter result.

<unk>.

Thank you John and good afternoon, everyone.

These are exciting times for BIOLASE and I welcome the my new role of 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 and the financial tables of our earnings release, and 10-Q, and 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.

And the jumping right and we believe our strong first quarter performance demonstrate the business momentum and traction we are gaining and our continued success and navigating these challenging the challenging business climate.

We delivered net revenue of $8 1 million, representing 70% growth year over year, while our revenue was down sequentially.

The result of.

Typical of our typical seasonality with the fourth quarter being our seasonally strongest quarter each year.

Certainly pleased with the continued momentum we are seeing and our business, which is allowing us to approach our 2019 pre COVID-19 revenue result.

The mother of year over year first quarter highlights include.

Laser system sales increased 139% consumer.

Consumables and other revenue increased 52%.

U S revenue increased 67%.

International revenue increased 75%.

These are positive indicators and the increasing demand we are experiencing for our industry, leading dental lasers as dental offices and the U S and abroad continue to reopen.

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 the gross margin of 34% of five.

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 of it the coming quarters.

On the expense line total operating expenses were $8 8 million for the quarter and increase of 31%.

SG&A was higher due to one time severance expense along with costs associated with the special shareholders meeting we had scheduled earlier this year.

Our balance sheet remains strong with cash and cash equivalents at the end of the quarter totaling $40 8 million of $17 6 million on December 31, 2020.

Due to actions we have taken over the past year today's balance sheet and one of the strongest and BIOLASE is history.

We believe that it will provide us with the resources to execute our growth strategies for several years without having to access the capital market.

The significant increase in cash and cash equivalents is due to the exercise of warrants associated with our rights offering in July of 2020.

And the completion of of $14 4 million equity offering in February of 2021.

Moving onto guidance.

We continue to experience high demand for our dental lasers and are currently forecasting revenue for the second quarter ending June 32021.

To be significantly above the year ago second quarter, which was the quarter most impacted by COVID-19.

Based on currently available information, we've already exceeded 2022nd quarter revenue and expect total revenue for the 2020, one second quarter to be between $7 5 million and $8 5 million, representing a growth of between 155% and of 190% year over year.

In summary, we had another strong quarter with solid revenue growth and margin expansion and we are confident that our actions to strengthen BIOLASE are working.

With the many positive changes made over the past year BIOLASE isn't a healthy is a healthier company. We now have the commercial and infrastructure in place and greater financial flexibility to capitalize on the growth opportunities before us.

We're confident and our business plan and our ability to achieve sustained profitability and revenue growth.

We believe our long term prospects of growth are significant as dentists and patients worldwide look for solutions that allow them to provide and received dental treatment and the safest way possible.

With that I'd like to 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 signal by pressing star one on your telephone keypad.

If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

And again press star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal.

And our first question comes from Kyle Bowser with call. Your Securities. Please go ahead.

Hi, good afternoon, and John and Jennifer and thanks for all of the updates here.

And maybe I'll just start with the sales organization and what is just for housekeeping, what's the what's the latest number of sales territories and how should we think about that.

The good for now do anticipate adding any color there would be great.

Yeah, Kyle how are you done.

Recall that the last time, we spoke of I think I mentioned that we had roughly 25 sales territories I think at the time, we had one open and we have feel bad territory, but we are now seeing really good traction on the revenue side and a lot of basically all par.

Of the country and the U S and so we had three open territories that really weren't open because we werent actively trying to fill those but we made the decision and the last month that we were to go out and and higher for those three as well, they're they're three territories had been open for a considerable period of time and so that will bring us.

As to about 28 and.

And feel really good about where that is a world that where that will be once we complete the hiring process.

Perfect I appreciate that.

And following the the warrant conversions and recent equity raise and you mentioned the balance sheet is as strong as ever so plenty of runway here.

Of that and how how shall we think about the burn rate just for modeling purposes, obviously would bring on a couple of more sales reps here, but.

And I guess any sort of directional guidance here would be helpful.

And so I think the.

The the burn rate for the full year 2021.

And we will likely be similar as we had in 2020 as you recall in 2020, we had a lot of a reduction and cost around furloughs, and so forth and so that reduced our burn rate because we weren't generating revenue and.

As revenue and starting to come up in 2020. One you know cost have come up as well.

And then and going into 2020. Two is I think we've we've talked about before are certainly.

Certainly hope that we're able to achieve our at least for the fourth quarter of 2022, our and <unk>.

11, and $12 million of revenue, which on the annualized basis gets us into that mid Forty's, which I've mentioned before it gives us the EBITDA positive and cash flow neutral.

Got it okay.

And and then as far as the Mcguire study goes I mean, obviously it's in.

Pretty incredible results there, there's no denying that patient reported outcomes are superior.

Have you seen any traction and the field and in terms of winning new business and it turned heads, particularly amongst the generalists kind of curious how.

That's been able to price.

You know act as a tailwind to to win new business. Thank you.

I think the way to characterize it call is opened a lot of doors for us and to have discussions with the Parodontal community.

Before the Mcguire study there are many times and said.

You know our sales team would be as well proven and.

You say this is a clinically as good as traditional treatment and better patient reported outcomes. The show me of paper as you know of.

Specialists are a lot more.

It used to to relying on studies than maybe the general practitioner is so what as you know with the Mcguire study is done is allowed us to say here. You go. This is it and let's start the conversation, which before those conversations never where even started because we did not.

And have that that study.

Hmm.

Got it that's great.

I appreciate all of the updates here and I'll jump back in queue.

Thank you Kyle.

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

Hi couple of questions about the the edge probe device that you're developing so what is the the regulatory pathway is going to be how.

And how long do you think it's going to be before the devices on the market and then how does the.

How does the economics work.

Between the U N and the.

Agenda.

Well, hi, Bruce I'm not sure I'm going to tell you all of 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 five 10-K clearance.

Over the summer and.

And we also expect that we'll be able to produce and sell the edge endo.

The commercial units by the end of the year and.

And so we do think that there's some revenue opportunity for us in 2020. One obviously as we head into 2022, you know even a bigger revenue opportunity.

This is as we said and the press release are really first OEM.

Opportunity for BIOLASE, So our margins are not going to be quite as high as say.

<unk> of flagship Waterlase <unk>, plus 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 you know the.

Margins that we're expecting versus where we are today they would be accretive.

Okay, Great and then shifting gears over to the sales and marketing side, you've had some success with the the different types of.

Events with providers can you give us the rough idea of.

How many of those of answers scheduled for the second quarter.

And are you still seeing the conversion rates that you saw previously.

And your model of market program.

Yeah. So I think what you're referring to is awarded lays the exclusive trial program and.

And we got off to a good start in 2019 2020, and we had some programs running in Q1.

Net debt I would say.

From a sales standpoint failed as we hit COVID-19 and nobody wanted to buy anything and we started that up and.

Again and in late third quarter fourth quarter of 2020 and ourselves.

Batting average if you will wasn't as high as I wanted it slipped below 50% at the end of.

2020.

And large part because in many parts of the country, where having the WTP, where you're getting the second wave of COVID-19. If you remember back in December January.

Time frame, so we had some debt.

Does pull out of of buy and lasers.

I'm 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 and about 50% success rate and we have all of the W. ETP events now scheduled for the balance of the year and basically they are happening every weekend between now and the end of the year. So when you think about that we usually have you know four to eight Denny.

Just and in those trials happening every week from now until the end of the year and I, certainly expect our close rate to be 50% or above for the balance of the year.

All right that's perfect.

Thank you very much and I'll hop back in queue.

Thank you Bruce.

And as a reminder to our audience you may ask a question by pressing star one and our next.

Question comes from Anthony Vendetti with Maxim Group. Please go ahead.

Hi, John This is Matt on for Anthony Vendetti.

Thanks for taking my questions I saw in your press release, the 36% of sales were from specialists.

Was hoping you might be able to provide a general breakdown for what percentage of those sales were from Endo Perry O and pediatrics and maybe describe how you compare each of those opportunities and the long term.

Yeah, Hey, Matt how are you.

So I'm not going to give you the exact breakdown, but I will give you a little bit further color around that and that that 36% of sales from Doe and specialist.

The majority of that and I'd say, the vast majority of that came from endo and patio.

And less from pediatric.

But as you may recall, we just started our pediatric dental Academy this quarter, so I think that.

And some credence to my belief that the Indo Academy and the period of Academy that we previously of launch are bearing fruit for us.

And when you look at total opportunity.

And I think the.

Probably the biggest opportunity for us.

Is on the <unk> side.

Simply because of the ramp and.

And <unk> disease, and the opportunity we have to heal sick and plans you know paranoia and plan Titus.

So I think the that is certainly the significant opportunity, but I love the opportunity we have within the donnas, two and especially you know with the collaborating with edge and do I think that it's going to give us a significant.

Additional leads not only on the endogenous but wind of G. P who's doing endodontics sees that.

And that many of the dominance of our go into our 27 80 wavelength.

To perform those irrigation procedures the desk open their eyes, as well and then they'll revert to our Waterlase technology.

Technology, because they know and we want to do endodontics, but but <unk> as well and so forth you know the Super GPS.

Also see though a big opportunity and pediatric dentistry.

We we hosted a nine dentist. This weekend this past weekend from healthy smiles for kids of Orange County, which is a charitable organization that sees 50 to 70 kids a day and Orange County are these are children that.

Really wouldn't see of Dennis if not for this organization and we've had lasers and their facility for the last couple of years and and <unk>.

How great. It is to go over there and see the kids being treated in.

In a non invasive manner without getting subjected.

Subjected to two shots in the face and the drill and so forth.

And in most all cases, and so I see a huge opportunity there. So I know I didn't answer your question and I'm excited about all three.

[laughter].

Thank you John and then just if we could touch briefly on Dsos could you comment on sales and Dsos during the quarter and then potentially provide and update on the progress of the trials Heartland, specifically and then maybe the success you've had with targeting some of those micro DSO as you've discussed and the pass.

Right so the.

It's interesting some of the Dsos, who we've sold two they.

They are and 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're fully incorporating the technology into the practice as you can probably understand but.

But we have had some success certainly in the fourth quarter and first quarter and into the second quarter around that now and in the U S, but and Canada as well. So we're now beginning to get into some of the larger Dsos and Canada.

As far as Heartland goes you know that we've been talking of Heartland now for probably two and a half years I think.

It's been a long slow road.

Certainly slower than what anybody of BIOLASE would have predicted or we would of light. The good news is we're still very involved with them there and organization that I would think on this type of technology adoption moves.

Relatively slow and so we continue to and.

I would characterize it they keep on putting milestones in front of us to achieve and we keep them achieving them.

So all good in terms of moving forward is just not is it past the paces certainly I would've hoped.

Okay, Great. That's very helpful. And then lastly, if you could just comment a little further on the trends youre seeing regarding patient volume.

And appetite for capital equipment demand.

These vaccinations progress and Lockdowns are eased throughout the country and maybe what you expect and the next several months.

Going forward.

Yes, so all of all segregate my comments between U S and international because I think it's a little bit different story and.

And the U S.

Which you know I guess, the us and the UK lead G 20 nations and vaccination rates.

For the most part.

And dentist Ah patients back to dentist are nearing their pre COVID-19 level and in basically all parts of the country.

When I say nearing and I'm talking 85 and 90%.

And.

The one thing that Dennis have had to do is.

Because of the changeover and their operatory and the disinfection requirements needed because of the COVID-19.

They are a little bit less efficient in terms of patient turned and they were before and.

And I think thats, causing some of the not up to a 100% yet it could be just capacity.

The constraint there.

We have also seen recently.

A significant increase and Dennis wanting to or.

Thinking about traveling and.

And that's important to us as opposed to us always having to go out and train them where they are.

Having a larger group training or educational and.

The 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.

But I do see of Pinto.

Our need for Dennis to to travel and be round of their Dennis I think all of that leads to.

The capital equipment been on the rise.

Our our sales team here and the U S.

Once again for the most part it's not like this in every city, but for the most part they're now able to go in and see the Dennis which.

Up until two to three months ago that was very hard to do and and that's coming back. So that's on the U S side.

Internationally.

Just looking at a chart that has the the G 20 countries.

And other than U K and U as nobody else is over 30% and I think Canada was the number three approach and 30 and you have of <unk>.

Lot of countries below 15% I mean, we all read and the news about the things going on and India, which obviously has negatively affected our business with they're shut down.

Even Canada and.

And in Ontario, and have extended some stay at home orders recently.

So that's the battle that we're fighting internationally.

Frankly.

I'm really pleased with their national sales, given the environment and I believe that the things and we shifted to in terms of online.

And training online education.

It 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.

Okay excellent. Thank you I'll hop back in the queue.

Thank you Matt.

Thank you and our next question comes from Ed Woo with Sandy and capital. Please go ahead.

Yes. Thank you for taking my question speaking of the international have been noticed any issues with your supply chain in terms of getting parts of components.

Yes, Ed we have so.

Probably not unlike every other manufacturer you know around the world we were having.

Longer lead times, and some supply chain issues.

And Fortunately none of that to date has impacted revenue our ability to produce.

We're staying well and in front of it hopefully and.

Hopefully the that supply chain.

Delays will improve over the course of time.

But we are constantly monitoring and and as a full time job for a couple of of us here.

And making sure that we're getting the parts we need to build lasers.

That's good to hear and then my last question is it last year because of the COVID-19 and the calculations of all of these Tradeshows and you guys were able to save a lot of and travel expenses do you anticipate that could.

And be the same case this year or will it just be of reallocation to other type of marketing spending.

I'd say, it's a little bit above so we've certainly saved a lot of money last year and events and trade shows and particularly the larger trade shows things like.

Greater New York, or Chicago, Midwinter, and some of the the other trade shows as well, where we did not participate.

And we're not participating in the first half of this year, they're not have anything except for one of the virtual basis.

And in turn what we have flip some of that money to that some of the savings.

Is marketing around the Waterlase exclusive trial program, we announced our collaboration with BMW and at the end of last year.

And we're really trying and I think we're succeeding and giving those Dennis a white glove experience and their training and that's coming through not only with testimonials and referrals, but just word of mouth.

And so we're really happy about that so some of that money was diverted to making sure. They have a great experience and the training.

But you know.

Some of them will be saved as well.

Great well, thanks, Congrats and my question and good luck.

And yet.

Thank you and as a reminder of our audience you may ask your question by pressing star one now.

Yeah.

And we have no additional questions in queue I'll now turn it back to you Mr. Carley for any closing or additional remarks.

Thank you operator.

Thank you for joining us today, we look forward to updating you again on our continued progress and when we reported our second quarter results in August.

This concludes our call and have a great day.

Thank you all for your participation patient and this concludes today's call you may now disconnect.

And then.

And.

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And.

Yeah.

Okay.

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