Q3 2021 BIOLASE Inc Earnings Call
Good day and welcome to the BIOLASE 2021 third 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 financial results for the third quarter ended September 32021.
On the call today from BIOLASE as John Beevers, President, John Beaver, President and Chief Executive Officer, and Jennifer Bright Vice President of Finance.
John will review the company's operating performance for the third quarter, and then turn the call over to Jennifer to review the financials before opening the call for questions.
Before we begin 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 and subsequent Q&A session, including forward looking statements regarding the company's strategic initiatives and financial performance.
Forward looking statements are forward looking statements as defined under the private Securities Litigation Reform Act of 1995.
And then based on BIOLASE as current expectations and assumptions 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 November 10 2021. 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 today announcing the company's 2021 third quarter results. If you do not have a copy of the news release. It is available on the investors section of the BIOLASE website at BIOLASE dotcom.
BIOLASE with financial results can also be found in the company's report on form 8-K, which has been filed with the SEC.
The tables, we provided in today's news release offer additional financial information. So we encourage you to review them.
Tables include the 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 some more information regarding the company's non-GAAP disclosures.
With that said I'll now turn the call over to BIOLASE, President and Chief Executive Officer, John Beaver Chops.
Thanks, Todd and thank you everyone for joining us. This afternoon. We appreciate your continued interest in Biolife.
The third quarter was another outstanding quarter for BIOLASE, our market, leading don't lasers delivered strong growth driven by continued new customer adoption as our lasers provide a better standard of care for dental procedures and ensure a safer environment for dental practitioners and patients than traditional procedures.
Before looking at the numbers I'd like to first congratulate the BIOLASE team on another stellar quarter. Each of you showed commitment and dedication to making our customers successful and keeping them and their patients safe are delivering that on elevated standard of care and improve patient outcomes through laser dentistry in the third quarter and throughout the year, we have delivered.
Strong results against the backdrop of economic uncertainty and the lingering impacts of the Covid pandemic and doing so you have each demonstrated the resiliency of our business and validated our growth strategy.
Quickly looking at the numbers for the third quarter, we reported revenue of 9.5 million, representing 46% growth year over year. There's now represents three consecutive quarters of strong year over year revenue growth as our business continues to rebound from the low points of the COVID-19 pandemic.
Given the unprecedented at unprecedented times, we went through in 2020 I believe its also informative to look at how our performance compared to pre pandemic quarters. Using this comparison, we delivered a solid 10% increase in revenue compared to the third quarter of 2019, which was the last pre pandemic comparable period. This.
<unk> performance is due to rise in demand for our industry, leading dental lasers, which is being driven by our intensified focus on education and training and increase safety, our lasers provide to dentists and their patients.
Additionally, published studies highlighting the improved patient reported outcomes are lasers provide are generating increased interest about the dental community.
With over 78% of our U S laser sales generated from new customers during the corner and approximately 35% of Waterlase sales coming from dental specialists are messaging marketing education and training efforts are working we have built the best in class dental lasers, and now with education and training dental practitioners are coming to us.
As they look to upgrade the dental practices and improve safety and patient outcomes.
Our industry, leading dental lasers provide a better standard of care for dental procedures as I mentioned, our focus on education and training is leading to increased adoption, especially dental specialists.
Over the past 12 months, we have formed specialists academies to expand awareness of the benefits of our laser dental lasers into dental specialists communities, specifically, we've launched specialists academies for Endodontist Paradise pediatric dentists, and just last week, we launched an academy specifically focused on dental hygienist to dry.
Further adoption of our laser.
The market opportunity that exists for BIOLASE within each of these specialist communities is very meaningful let me quickly run through each of these addressable market opportunities.
I'll start with pediatric Dennis there are approximately 7000 pediatric dentists in the U S and based on our internal calculations. We believe an additional 5% are pediatric Dennis adopt our lasers will result in an additional $20 million in laser cells for BIOLASE in turn those additional sales would drive follow on consumable sales.
Second there are approximately 5000 paradigms in the U S and 65 million Americans are suffering from Perry of disease.
Several studies have already confirmed that patient reported outcomes of Warner laser assisted treatment paradigm tightest, we're significantly better after laser procedures. This includes the Mcguire study, which was published in the journal of periodontal allergy as well as the studying the international.
Journal apparel and restorative dentistry.
With so many Americans suffering from <unk> disease. The study's findings are significant and determining the best course of treatment for these patients.
These studies are significant for BIOLASE, because they establish new protocols for <unk> surgery and will drive further adoption of Warner lives by Periodontist based on our internal calculations. We believe there is an additional 20% of Periodontist adopter of lasers, we would generate an additional $50 million a year in laser revenue not including the consumable revenue.
That would follow.
Third there are approximately 5000 and honest in the U S and top thought leadership has quickly established whom water laser is a new standard of care.
In endodontics.
As part of our continued focus on education and training for Endodontist during the quarter, we announced the clinical advisory partnership with Doctor Steven Buchanan double expand laser adoption and increased hands on training programs with one of the global leaders in Endodontics Doctor Buchanan has lectured and taught hands on in a dominick continuing education courses for over 30 years.
But the D labs is state of the art training facility in Santa Barbara, California, as well as dental schools and symposiums around the world.
We're proud to be working with Dr. Buchanan because if its reputation as an expert in the research and development of new technology instruments and techniques and endodontics with our laser Doctor Buchanan's practice will now have the most advanced laser technology in the endodontics for his practice and training programs during.
During the second quarter, we announced plans to develop a new edge pro laser assisted microfluidic irrigation device framed it on us with edge Endo.
Global leader in commercializing Indigotic products.
This new devices being developed to offer a solution to endodontist thinking seeking more from their current cleaning and disinfecting techniques. We applied for FDA approval for this device during the fourth quarter and anticipate first sales of this product before the end of the year approximately 75% of all endodontics routinely use agenda of products, making them.
A natural partner for four providing significant reach into this field as we worked to make Waterlase technology, the standard of care and endodontics.
Based on our internal calculations, we believe the additional 10% of endodontics adopt our lasers, we would generate an additional $25 million a year in laser revenue not including the consumable revenue that would follow.
Last but not least there are approximately 200000 dental hygienist and the U S.
Our new epic Hygiene Academy will empower hygienist to utilize dental lasers to provide the highest quality of preventative and therapeutic dental care to their patients if an additional 5% of high Genesis adopt our lasers. It would generate an additional $70 million in laser revenue not including the follow on consumable revenue.
Our focus on each of these dental specialists is already translating into higher demand for our products and see specialists look for safer more advance alternatives to grow their practice.
Our laser safety benefits puts us in an excellent position to advanced industry and treat patients in the safest way possible.
As we just discussed securing even a small percentage of each of these dental specialists because by our calculations generate over 150 million of additional revenue from biologic somebody's yourselves plus the higher margin revenue associated with the follow on consumables.
This doesn't take into account the significant opportunity we have with the approximately 150000 general practitioner dentists.
If an additional 5% of G p's adopt our lasers that will generate 225 million in laser revenue not including consumables.
Today, the all tissue laser market penetration in the U S. Dental market is only 7%, which is why these large market opportunities I just detailed exists today.
93% of the U S market has yet to adopt dental lasers, we estimate that every 1% increase in adoption of laser technology in the U S. We call approximately $50 million in revenue for BIOLASE and this does not include the impact of additional adoption in international markets, which historically approximate 40% of our revenue.
So with these significant addressable markets in front of us and the positive momentum we've experienced over the past four quarters. We are confident in our ability to achieve sustainable and profitable revenue growth for many years to come with that I'll turn the call over to Jennifer to provide further details regarding our third quarter results.
Thank you John and good afternoon, everyone.
Michael during my prepared remarks is to focus on providing more context around the numbers as well as highlight some of the operational improvements we achieved this past quarter.
For further detail please refer to our financial results, which you'll find in the financial tables of our earnings release and 10-Q.
Our strong third quarter performance demonstrates the business momentum we have generated since emerging from the low period during COVID-19.
It's increased traction reflects a return to a more normalized operating environment for dental practitioners as well as increased demand for our industry, leading dental lasers as a result of our increased education and training.
We delivered net revenue of $9 5 million, representing 46% relative year over year. We are quite pleased with this continued momentum and for more reflected keithley comparable.
And so we believe last year's Q3 wasn't anomaly. We are also very happy to report that we delivered 10% revenue growth year over here when compared to Q3 2019 pre Covid revenue result.
Now, let me share some additional year over year third quarter highlights which include laser system sales increased 64%.
Consumables and other revenue increased 21%.
U S revenue increased 25%.
And international revenue increased 101%.
These are all positive indicators of the increasing demand we are experiencing from our industry, leading dental laser dental offices in the U S and abroad continue to reopen and more importantly, as they implement increased safety measures due to the pandemic.
During the quarter gross margin increased significantly despite higher contribution from international sales, which carry a lower margin since we sell through distributors.
In fact, we were able to increase our gross profit by $2 6 million year over year.
This resulted in a significantly increased gross margin at 51%.
Ah 6800 basis points expansion year over year, reflecting the impact of the increase in revenue and average selling prices for products.
During the third quarter and the effect of an employee retention credit under the cares Act during Q3 2021.
On the expense line total operating expenses were $7 5 million for the quarter, an increase from $5 9 million in the year ago quarter.
This increase was primarily due to commission expenses are achieving sales targets.
Advertising expenses and related consulting costs.
Travel and trade show related expenses.
In connection with the special stockholders meeting to be held in the fourth quarter of 2021 and more engineering projects for 2020, one as we continue to improve our industry leading products.
GAAP net loss for the quarter with $3 3 million <unk> per share compared to net income of $12000 or less than one cent per share for the third quarter at 2020.
Our adjusted EBITDA loss for the third quarter with $2 5 million or two cents per share, which is a relatively flat when compared to an adjusted EBITDA loss of $2 5 million or three cents per share for the third quarter of 2020.
Now, let's turn to the balance sheet.
We finished the quarter with cash and cash equivalents of $33 4 million.
The proactive and strategic decisions, we took over the past year today's balance sheet remains historically strong and we believe it will provide us with the resources to execute our growth strategy for several years without having to access the capital market.
And moving on to guidance.
We're continuing to experience high demand for our dental laser and are currently forecasting revenues for the fourth quarter ending December 31st 2021 to be above the fourth quarter 2019 revenue level of $10 2 million.
In summary, we had another strong quarter with significant revenue growth and margin expansion and we're confident that our actions to strengthen BIOLASE are working.
With that I'll turn the call back to the operator and open the call for questions.
Operator.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question.
We'll pause for just a moment to allow everyone an opportunity to signal for questions.
Okay.
We'll take our first question from Kyle Bowser of Colliers.
Hi, John and Jennifer Congratulations on the updates it feels like we've kind of recapture.
Recaptured that momentum you're experiencing right before COVID-19 hit so I'm also glad to see the favorable Q4 guide here.
Maybe I'll start on territories housekeeping item, how many active territories are there currently.
How many are you potentially trying to fill has there been labor shortages that have been difficult to bring on new reps just kind of curious on that.
Yeah Kyle.
How are you doing.
Going back to 2019 you.
You may recall that that was a big issue with our revenue drop during the year as we had roughly.
A third of our territories opened during the year for more than half of the year right and so I had a significant impact on us today I'm happy to report that not only are we have almost all of our territories filled I believe we have two that are open now.
For us having 27 28 territories, having two open is going to be pretty consistent and normal just normal course of business, but we have to open.
In addition, we have opened up three territories that were previously closed.
That we closed prior to the end and during the pandemic that we were waiting to market conditions to come back and demand we felt to come back to add those people and they recently been hired on as well so not only do we have the territories that we had to say earlier in this year.
All field, except for two which were iron for now, but we've added three new territories as well.
Now you've mentioned the labor shortage.
I think that affects everybody yes.
We've gone into what they call it the great resignation right.
Today.
But having said that we've been able to keep our people this year.
I think our employee population has really bought into our strategy and what we're trying to do in the dental industry. So I'm very humbled that the team.
For the vast majority have have stayed together.
No that's great I appreciate that and.
And it sounds like the corporate culture has.
Really improved and led to some.
But there's some really good.
Traction with keeping those territories filled I guess.
On the gross margin side of things.
Sorry, if I missed this but as.
Largely a function of favorable revenue mix and higher asps.
Can you just talk a little bit more about how the gross margin was so I, obviously on higher sales, but just kind of curious how we should be modeling that going forward.
Yes, so the other part of that was in <unk>.
I would say one time, but we've had two quarters consecutive of the ERC credit the employee retention credit.
And a large percentage of that hits.
Cost of manufacturing cost of goods sold and so we had that.
In total it was about eight to 900000 in Q2 and in Q3 is a favorable reduction in expenses and we will not have in Q4.
So when you think about numbers you know maybe about half of that amount.
Hit Q3, and as I quote unquote, one timer that won't be reoccurring.
Other than that though we expect.
Margins continued strong in fourth quarter obviously.
We expect revenue as we as Jennifer guided to be higher than certainly third quarter and higher than the fourth quarter of 'twenty.
2019, so with that we get a bump up in.
And gross margin due to the fixed cost dilution right with higher revenue.
And we're continuing to look for ways to do things smarter.
Or faster I think that's played.
Certainly apart and what we've been able to do in gross margin.
<unk>.
Got it no that's helpful.
And then maybe just lastly, if I may on profitability, how should we be thinking about this.
Could this be a late 'twenty two event.
Or is trying to topline and adoption of Waterlase, maybe more important than just kind of trying to get a sense of how we should think about that too.
Yes, so in the past I think Ive said that.
As you know fourth quarter is typically our strongest quarter and so for next year I.
I would expect EBITDA.
Positive in Q4, that's my expectation.
And when you talk about profitability.
Internally, we focus on EBITDA, because we don't get into the.
The.
The home equity.
Accounting the interest all that stuff so from an EBITDA standpoint, I expect to be a fourth quarter of next year EBITDA positive and then we put in place a earlier this year a fairly significant deep.
Employee retention plan.
That.
That only has one vesting.
Variable included and that's to be EBITDA positive for the full year of 2023.
So when you think about that you can imagine that our focus in all of our employees focus is around that and being EBITDA positive for the full year 2023.
So I expect.
2022, as I said fourth quarter, EBITDA positive and for the full year of fourth quarter being somewhere in between.
We will finish in 2021 and the EBITDA positive in 2023.
That's great I appreciate the color here and congrats on the updates.
Thanks Scott.
Our next question comes from Bruce Jackson of the benchmark company.
Hi, Thank you for taking my questions.
Just to go back to the COVID-19 impact on labor.
I'm, assuming that you I have no trouble on the manufacturing side with some finding enough people and then also have you experienced any difficulty in obtaining components or parts.
So the machines.
Yes, so our manufacturing team has been around for a while.
Fairly long tenured and we have not seen.
Very much disruption with the manufacturing team.
In terms of you know people are trading.
However, on the parts side and the supply chain side. Once again I think we're in the same boat with you.
Just about every other manufacturing company, we have seen some delays.
I'm happy to report that as we look into 2022, we feel fairly confident that we've addressed all of the supply chain issues and that we're in good shape to address what we expect.
You know our revenue to be in 2022, and we're already starting to work on 2023. So while we're good for now is a.
We're constantly diligent.
Looking at.
Uh huh.
Different supply options.
Any more he may have seen that when you see the balance sheet, our inventory slightly higher as we've kept safety stock more than we have in the past. So we're doing some things like that to ensure that when the when the sales come we can we can manufacture.
What's needed.
Okay.
A nice segue into my next question last quarter.
There is we have the delta agreement and some companies experience.
Some.
Some difficult sales.
Environment in some markets.
Maybe you could just tell us and you.
You appear to have powered through it pretty effectively so I was just wondering if you could give us a little color around the geographic Hum.
Spread of the sales and have you noticed any impact from COVID-19, and then how you how things are coming out of the third quarter.
The fourth quarter.
So overall, we're feeling pretty good about where we are in terms of getting access to doctors.
And I'll talk to the U S first because international is still a little bit different story. So.
So in the U S.
It's been.
You know.
Really state by state City by city and a lot of instances and this is just not in the last quarter with the Delta there in and has been for the last 12 15 months, where we might have any band than the state decides.
We're going to we're going to shut down indoor events or the.
The the.
The numbers in that state infection rate goes up and people get scared to come out and certainly in the way they were doing during normal times and we've had to cancel a couple of events a couple of.
WTP events.
We didn't have enough people and I I think I believe that that was because of some of the.
Delta variant Covid break.
Breaking out in those areas. So as we go into the fourth quarter, we haven't seen much of that.
I was just at the American Academy of <unk> meeting in Miami Beach, and is one of the first larger events that.
Community has had and it was fairly well attended.
In Miami, So that gave me.
Hope that these other dental trade shows and so forth arguably walton as well we've got the greater New York show coming up right. After Thanksgiving and why I think the traffic will be less than it has been in the past is still will be probably better than we would've expected six months ago. When we were thinking about it.
International is still I think more.
More of an issue than the U S. A COVID-19.
As I said on the call last quarter.
It is very much of a country by country.
Really issue for us some countries are opening up.
Some countries have opened up and then shut down and open up back again as I'm sure you've read and so we're just being very I'd stay nimble in terms of where we have shows where we have events, where we have training and.
Third quarter National came back nicely. So I think the team is doing well in and in addressing those issues.
Okay great.
Last question.
Edged her device.
Submitted the 500 10-K this quarter.
Typically in 90 day clock, you've heard the FDA is a little bit.
Lower than usual so should we be thinking about this like around the end of the quarter or maybe early Q1 next year.
Well this would submitted as a S or special 500, 10-K, and so it's typically a 30 day not a 90 day.
We would expect some delays from that 30 days, but still get it done in the fourth quarter of course, a lot of this hit it out of our hands in terms of the FDA, but.
Local margin is.
But at the same time, we won't have all of the sales and marketing expense associated with that so it's really just where those costs.
Come out of geography in the income statement.
Excellent helpful. And then is there anything you want to highlight in terms of progress with dental service organizations, maybe sales pipeline of agreements whatever it may be.
We continue to make progress in the DSO space. It is.
It's a slow progress.
Most of those organizations don't move quickly, but I'm happy with where we are in our progress. This year, yeah, I would say more to come hopefully pretty soon more information to come but nothing to report out as of today.
Okay understood. Thank you very much I'll hop back in with you.
Thank you.
Once again, if you would like to ask a question. Please press star one.
We'll take our next question from an <unk> of a Cindy a capital.
Yeah can you talk about inflation any impact on your long term margins. Thank you.
Yeah. Thanks, Ed So we are saying inflation, both from personnel consultants third parties and supply chain.
We've done in our sales team have done a tremendous job and holding prices and as Jim mentioned in her comments part of the reason for the gross margin is we've had have increased average selling price is really across the board for a laser will continue to do that and we're doing that by.
Continuing to sell value and packaging deals that we think are valuable for the Dennis. So we think that at least we can stay even with what were say new inflation.
With what we're doing on average selling prices.
Alright, Thank you and I wish you guys. Good luck.
Thank you.
<unk> concludes today's question and answer session Mister John Beaver at this time I will turn the conference back to you for closing remarks.
Thank you and I want to thank everyone for being on today's call with the many positive changes made over the past year <unk> has a healthier company today and we believe we are positioned for longterm revenue growth.
Now I have the commercial infrastructure in place and greater financial flexibility to capitalize on the growth opportunities before us.
We're confident in our business plan, our ability to achieve sustained profitability and revenue growth over time.
We believe a long term prospects for growth or significant as Dennis in patients worldwide look for solutions that allow them to provide and receive dental treatment in the safest way possible.
Jennifer and I look forward to reviewing our fourth quarter results in March and in the meantime, we would be participating in several investor events, including the benchmark Investor Conference on December 2nd we're also be hosting meetings at the J P. Morgan Health care Conference in San Francisco January 10th and 11th if you're participating in any of these events. Please schedule a meeting with US we look for.
Two it thank.
Thank you operator, and thank you everyone for your interest in Ballets. This concludes our call have a great day. Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
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