BIOLASE Inc. Q1 2023 Earnings Call

Speaker 1: And.

Speaker 2: Good afternoon and thank you for standing by and thank you for your patience. Today's conference call will begin shortly. Please remain connected at this time. Once again, thank you for your patience. Please remain connected. Today's conference call will begin shortly. ??

Speaker 2: Good day and welcome to the Violet's first quarter, 2023 Financial Results Conference call. Please note, this call is being recorded. At this time, all participants have been placed on a listen-only mode and we will open this more for your questions and comments. Ask your presentation.

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Speaker 2: I would now like to turn the conference over to Todd Furley of EVC Group. You may begin. This is a live played of race video.

Speaker 3: Thank you operator, good afternoon everyone and thank you for joining us today to discuss Violet's financial results for its first quarter ended March 31st, 2023. On the call today from Violet's or John Bieber, President and Chief Executive Officer and just from Bright to Family Investidor.

Speaker 3: John will review the company's operating performance for the first quarter and then turn the call over to Jennifer to review the financials in more detail before opening the call for questions.

Speaker 3: 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 anticipated financial performance.

Speaker 3: These four-looking statements are four-looking statements as defined under the Private Security's litigation reform act of 1995 and are based on Violet's current expectations and assumptions and are subject to a variety of risks and uncertainties that could cause the company's actual results to different materially from the statements made.

Speaker 3: Such forward-looking statements only represent the company's view as of today, May 11, 2023. These risks are discussed in the company's filings with its GeoSync Change Commission. A replay of this conference call will be available on the KELOLA's website shortly after the completion of today's call.

Speaker 3: When listening to this call, please refer to the news release issued earlier today announcing the company's 2023 first quarter financial results. If you do not have a copy of the news release, it is available in the investor section of the BioLays website at www.bioLays.com.

Speaker 3: Biolies and financial results can also be found in the company's report on Form 10Q, which will be filed with the SEC. The tables we've provided in today's news release offer additional information.

Speaker 3: So we encourage you to review them. The tables include the reconciliation of unaudited gap net loss and net loss per share to non-gap adjusted EBITDA loss and adjusted EBITDA loss per share, as well as more information regarding the company's non-gap disclosures.

Speaker 3: With that said, I'm not sure the color of the by-laws is President and Chief Executive Officer John Deaver. John ? Thanks Todd and thank you everyone for joining us this afternoon. We appreciate your continued interest and support in by-laws.

Speaker 2: Coming off the year in which we excelled and achieved significant year-over-year growth, our in-line first quarter results demonstrate our continued business momentum, even in this tough environment.

Speaker 2: We believe the continued efforts and investments that we are making are and will continue to pay off in the coming quarters as is evidenced by the rise in demand and increasing number of dentists that are attending and benefiting from our novel training and education programs.

Speaker 3: The level of enthusiasm can be felt throughout the organization, which is a byproduct of success we are seeing from our go-to-market initiatives.

Speaker 4: The pods to response from the Dill community is leading to increased cells of our industry leading lasers.

Speaker 4: Despite the challenging economy and the capital equipment headwinds, many companies are experiencing, we continued our growth momentum with total revenue increasing 3% over year over year. This represents our ninth consecutive quarter of year over year growth. During the quarter, we experienced a return of international revenue growth with our international laser cells increasing 22% year over year. The first time this has occurred since the pandemic.

Speaker 4: We also reported record consumable cells during the quarter with US consumable cells up 19% year-over-year driven by increased procedures using our biolase laser systems. More over an addition to new dentists coming aboard, we also experienced an historic shift in increased utilization among existing dentists as they migrate more procedures to our lasers.

Speaker 4: This record quarter in consumable cells further demonstrates impact more frequent higher quality training and pre-cell training programs such as our wardlings exclusive trial program or WETP can have on our consumable business. During the quarter we continue to see success with our WETP as a percentage of Dennis purchasing

Speaker 4: After the trial, grew to over 60%, representing a 20% year-over-year increase. This program, along with the rollout of our World Lays Academy and Epic Academies, generated increased adoption of our laser technology in the U.S. in the first quarter with 58% of our sales coming from new customers, and 33% of sales coming from Dell Specialist. We are demonstrating growth across all of our key performance metrics, so our strategy of investing now.

Speaker 4: to accelerate adoption, utilization, and growing our top line. And we believe the rate of recurrent revenue and higher margins will translate to the bottom line as well, which is why we continue to expect full-year revenue growth of at least 25% and to achieve profitability on an adjusted EBITDA basis. The rise and demand for industry leading mill lasers has been driven by...

Speaker 4: out familiar with their best in class dental lasers.

Speaker 4: With several peer-reviewed papers and studies and our focus go to market efforts, dental practitioners are now coming to bottle as they look to upgrade the dome practices and improve patient outcomes. I believe this represents a real inflection point and will drive our growth for many years to come.

Speaker 4: BioLays currently has approximately 60% share of the worldwide alt-issue dental laser market represented by our water lace brand. We are the go-to brand that represents quality, reliability, and after-sell service, training, education.

Speaker 4: However, with less than 10% of dentists in the U.S. and less than 2% of dentists outside the U.S. currently using dental lasers, we need to do a better job to reach the rest of the dentists, and I believe our results demonstrate that we are moving the needle. We plan to leverage our brand and grow the overall market by engaging with the other 90% of dentists.

Speaker 4: while ensuring we continue to protect our position as a market leader. To reach this large and addressable market opportunity, we are focused on building awareness of our industry leading lasers, benefits to Dennis and their patients through increased education and training.

Speaker 4: During 2022, we held over 600 educational and training events in the U.S. alone. And because of these increased efforts, dental practitioners now proactively approach them all as they looked to upgrade their dental practices and improve their patient outcomes.

Speaker 4: In the first quarter, we held over 150 educational and training events, an increase of over 25% from the first quarter of 2022.

Speaker 4: As a result of these initiatives, we are generating increased marketing qualified leads, and the sales team is hard at work to convert these to sales. Since 2018, the number of marketing qualified leads or NPULs increased by 400% over 4,000 in the US in 2022. The bulk of which has been more recent due to our increased efforts.

Speaker 4: During the first quarter of 2023, the number of MQLs continued to increase, approaching a 50% increase from the year-ago period.

Speaker 4: or historically approximately 40% of our revenue has been generated or the consumable revenue generated from the procedures done with our laser systems. We have a well-established three-pronged strategy to increase market adoption of our lasers. The first is to give more down specialist use of our lasers. In 2021, BioLays formed specialist academies to expand awareness of the benefits of dental lasers and dental specialist communities. Specifically, we launched specialist academies for parodontists, endodontists, pediatric dentists, and dental hygienists to drive further adoption of our lasers and superior patient outcomes. In 2023, we combined all of these specialist academies into two academies.

Speaker 4: one for each of our product families, the Water Lays Academy and the Epic Academy. We believe this will not only further improve and simplify training for the specialists, but also give the general practitioner whose interest in adding more specialty procedures to the practice, an avenue to pursue further training. Combine these dental specialists markets represents hundreds of millions of dollars.

Speaker 4: potential laser systems revenue each year, not including the potential for recurrent revenue from the cell of our consumables. Our focus on increase in education and training for these nail specialists is translating to higher demand for our products as they look for safer, more advanced alternatives to improve patient outcomes and their practices.

Speaker 4: The second of these is focused on the significant opportunity we have with over 150,000 general practitioners dentists in the U.S. alone. We believe that if the initial 5% of US GPs adopted our lasers, it would generate $225 million in laser revenue, not including the follow-on consumables.

Speaker 4: Our water laser has over 80 FDA-clear indications or procedures that dentists can perform using our laser. Doing just two additional procedures a week which generated 2% return on the investment in our laser.

Speaker 4: The more training, education we do through Water Laser Exclusive Trial Program, the more success we believe we'll have in driving laser adoption.

Speaker 4: As I mentioned earlier, we saw all of our late exclusive trial programs success rate increase over 20% year-over-year to over 60% so far this year.

Speaker 4: That, along with better patient experience, is motivating dense and corporate wardlings technology into the practice. The more training education we do through wardlings exclusive trial program or other events, the more success we will have in driving laser adoption. We can increase education. Last month, we opened our new training facility and plan on opening our first ever model dental office named Laser Smiles in the third quarter. These new spaces are conveniently located next to our corporate headquarters and will expand our ability to drive revenue and laser adoption by training practitioners in a hands-on dental environment.

Speaker 4: This is a novel opportunity to educate, train, produce marketing materials, create content, perform studies, and test new equipment.

Speaker 4: Following the third prong of our Bruce Stragis, getting corporate dentists and universities to adopt our lasers.

Speaker 4: We believe there is a large appetite among dental residents to utilize state-of-the-art technology and treating patients. And the introduction and reinforcement of technology during training are key to the adoption of laser dentistry with this new generation dentist. Also today most new dentists are employed by corporate dentists or DSO right out of dental school. We have ongoing trials with four of the five largest DSOs in the US. Our goal is for these new dentists to begin using our lasers while I'm pointed to DSO and for them to make our lasers an essential part of their practices moving forward. Becoming new dental laser and consumable customers when they go out on their own. We continue to make solid-inroads with the DSOs and believe that DSOs can lead to...

Speaker 4: even a far greater revenue for biolies in the coming years. In summary, we have a very large opportunity and our world-developed plan to capture this growth is generating the desired positive results. We are the industry leader, not believe in increased education, training programs will enable us to succeed well into the future as a level of end-down interest is rising. We are the industry leader, not believe in increased education, training programs will enable us to succeed well into the future as a level of end-down interest is rising.

Speaker 4: Furthermore, the success of the Waterloo's exclusive trial program gives us continued confidence that we can achieve our revenue and profitability of chapters for 2023.

Speaker 4: With that, I'll turn the call over to Jennifer to provide further details regarding our first quarter results.

Speaker 5: Thank you, John . Good afternoon, everyone. I'm going to provide more context around some of the numbers as well as highlight some of the operational improvements we achieved during the first quarter. Thank you for your input.

Speaker 5: For further detail, please refer to our financial results, which you can find in the financial tables of our earnings release and our 10Q.

Speaker 5: Our first quarter for Foreman reflects continued demand for industry leading dental lasers and consumables because of our increased education and training.

Speaker 5: For the first quarter, we delivered net revenue of 10.5 million, representing 3% growth year over year. And as John mentioned earlier, this is our ninth consecutive quarter of year over year growth.

Speaker 5: The additional first quarter highlights include record consumable sales with US consumable sales increasing 19% year over year driven by increased procedures using biolade blazers.

Speaker 5: International laser system fails increased 22% year over year.

Speaker 5: We continued momentum with new customer adoption in the first quarter, with 58% of our U.S. water-lays sales coming from new customers, and approximately 33% of water-lays sales coming from dental specialists.

Speaker 5: Lastly, the sales conversion rate of our Water Lays exclusive trial program continued to rise this quarter with our success rate increasing more than 20 percent year over year highlighting the success of this program.

Speaker 5: These are all positive indicators of the increase in demand we are experiencing for our industry leading dental lasers and our consumables.

Speaker 5: expenses were $8.6 million for the quarter, down from $8.9 million in the year-ago quarter. This decrease was mainly due to less spending required on legal and consulting fees for our annual shareholder meeting compared to the year-ago quarter. Gap net loss for the quarter was $5.8 million compared to a net loss of $4.8 million for the first quarter of 2022.

Speaker 5: Now, according to the balance sheet, we finished the quarter with cash and cash equivalence of approximately 6.5 million. And looking ahead, as we drive toward profitability, we are projecting pricing freezes to contribute to our top line growth while we expect to have lower cost of goods due to the trunk fiber acquisition completed in 2022. We are on schedule to have our in-house trunk fiber make up approximately 50 percent of the fiber we will ship beginning in the second quarter of 2023.

Speaker 5: We now have four dentists on staff to train prospective customers, and we are also working to partner with educational facilities around the country to host WETP events at their locations at little to no cost. As John mentioned, we expect to host about 35 WETPs this year, so the expense savings will be quite meaningful. With higher growth margins, the expected WETP savings and continued revenue growth, we believe we will significantly improve our profitability and achieve positive adjusted e-pod off for the full year. Moving on to guidance. We are reiterating our guidance for strong revenue growth at at least 25% year over year for the

Speaker 2: You may press star 2 if you would like to remove your question from queue.

Speaker 2: One moment please while we pull for questions. And our first question, say, is from Bruce Shaxton with the Benchmark Company. Bruce, your line is live. Please go ahead. Good afternoon. Thanks for taking my questions. If I could just hone in on the gross margins for a moment, are you going to be gaining any kind of like an inventory improvement and get some working capital average in the second quarter? I'm assuming that you've got some inventory that you're working off before shifting over to the the in-house fiber production. That's somewhat on the fiber production, Bruce. We are

Speaker 4: continue to say run on low inventory levels for fiber. If other components that I believe will be reduced over the course of the quarter, providing from the inventory standpoint a little bit more work in capital, I think our inventory level overall.

Speaker 2: will be lower at June 30th than it was at March 31st. Okay. And then, do you have a gross Martian target for the remainder of the year?

Speaker 4: Yeah, we are working towards getting to the 50% and expect to close the year. Guys, we exit on 2023 in the fourth quarter at 50%.

Speaker 2: Okay and then shifting over to the WETP programs you said you're going to be doing 35 of those this year is that up down or about the same from last year?

Speaker 4: Yeah, so it's about the same. The projected increase is the success rate of that. We were approaching around in the 40% to 50% closure rate, depending on what period you're looking at, last year.

Speaker 4: This year so far we're well over 60% and I expect you know add a minimum to close at 60%. So while the number of events will be the same we expect the amount of revenue generated from WETP will be higher. And that's what you know gives me confidence. One of the things Bruce Hig is me confidence in reiterating.

Speaker 4: In the first half of the year, we have scheduled only a third of our total events, with the back half of the year being two-thirds. And that is even more heavily weighed in the first half of the year between second quarter versus first quarter.

Speaker 4: So that gives me a lot of optimism in the latter part of Q2, Q3, and Q4. Three other things that I find gives me confidence for the renewed guidance are the price increases that we put in effect in the first quarter will be fully in effect for Q2 for the full quarter. We're in Q1, so we only got a partial impact of that price increase for waterlays in the US in Q1. I was very happy about the continued international.

Speaker 4: momentum that we started to see at the end of fourth quarter last year. Yeah, I've talked for the last couple of years about how international revenue has been somewhat depressed and flat, if you will, because of COVID. We're seeing that, you know, much different now. I was at the IDS show in March in Germany at...

Speaker 4: over I think over 60,000 people there and I was really pleased with the performance of our international business in Q1, expect that to even grow for the balance of the year. And I can't overstate the importance of our consumable business and the fact that we achieve record.

Speaker 4: cells in Q1, that should do nothing but continue to go up as it looks like the improvements that we made in training and education are paying off in terms of the number or the amount of utilization of our systems after the cell. Okay, great. And then one last question I'd.

Speaker 4: confident but yes in 2023.

Speaker 2: but yes in 2023. Okay super thank you very much.

Speaker 6: Thanks, Bruce. Thank you. Your next question is coming from Anthony Vendetti from Maxim Group. Anthony, your line is live. Please go ahead. Hey, guys. This is actually Thomas, I've been on the line for Anthony. Thank you for taking my questions here. I'll start off by asking about some of the supply chain constraints you guys discussed. If you guys could just kind of add a little bit more color on that, like what you're seeing now, how you expect the transition to in-house fiber production to go and just...

Speaker 6: on a general high level. Are you guys looking at these headwinds as somewhat in the rear view or something that we can expect to continue to impact you throughout 2Q and possibly into 2Q or 3Q? Thank you. So I appreciate that question. When you look at our gross margin and from a...

Speaker 4: you know, impacted by supply chain. I think you really, you know, started seeing a lot of that impact reoccur from obviously it was in 2021, but it hit us again in second, third and fourth quarters of 2022 as well, had negative impact on gross margin. That's the reason we made the decision to invest in, you know, bringing...

Speaker 4: some capability, in-house capability of our trunk fiber, which is certainly the most expensive and most critical part of our water-laced system. So as we look at 2023 moving forward, as Jen mentioned, we now are on target to have over half of our

Speaker 4: trunk fiber requirements built in-house. And so that has a two-fold benefit on gross margin. One is, obviously, it's cheaper to make than to buy.

Speaker 4: And so we cut out the manufacturing margin from our supplier at least by half of our total units that we need. And the second is what we're finding is that the quality of what we're making is better than we've ever seen. And I'm going back many, many years.

Speaker 4: And so that gives me a high degree of confidence that what we'll see in the second quarter in the back half of the year will greatly benefit our gross margin number.

Speaker 4: So, I think we have to stay diligent in supply chain management. It's always an issue for any manufacturer, but I feel really happy with the place that we're in now. And I think each quarter is just going to get better in terms of gross margin. Let's talk about service.

Speaker 6: Gotcha, that's great to hear. And so then just turning towards the recently opened training facility, could you just speak a little bit more on that? I know you guys mentioned it quite a bit on the call, but just trying to understand, is it fully operational as of now? And then maybe if you can talk about how many...

Speaker 4: on the road? Sure. So the first part of your question is the training center was up and running. First training actually attended, well it's May, so it was at the end of March. It was open. And in the fact we had...

Speaker 4: 13 pediatric dentists here Sunday being trained at this facility. It really shows nice. It's a great training facility. It's one of the best I've actually ever been in. From a WTP standpoint, and I want to be clear, you know, the training facility, the WTPs are just one thing we do there, right? We have other trainings besides.

Speaker 4: able to partner and have identified and partnered with a number of other organizations slash sites to hold training in a much more cost-conscious way than what we did in prior years. In prior years, if we...

Speaker 4: You know, you're at their mercy for that, along with the kind of unseen cost of getting lasers in and out of that facility and the wear and tear of those lasers. When you have a static facility, be it either here at our BioLase Education Center at our corporate office or elsewhere in the country to the...

Speaker 4: I think four now identified across the country. What we're doing is we're storing the lasers there so you don't have the shipment back and forth. Very minimal cost from an event standpoint. We can bring in our own food. We're significantly reducing the cost of these WTPs now in 2023.

Speaker 6: I think that's great to hear. It sounds like that'll really help keep costs down, moving through the year as well as drive some adoption. And then finally, then I'll hop out and get back in queue. I know you guys mentioned backlog, and I'm not sure how comfortable you are discussing total backlog. But if you can figure out what that means, you think you're out in the future, maybe next year. I know, ooh. I understand.

Speaker 4: don't have much of a backlog. We're current on shipping a product out. There's, I would say, a minimal wait on the time when you purchase a laser or even more so consumables to the time we're able to ship it out. So there's really not a backlog today. Yeah, I think he was referring to the comments on the Trunk Fiber.

Speaker 4: greatly diminished to near zero by the end of this quarter.

Speaker 4: But, you know, to be clear, that's not impacting any of our laser cells today.

Speaker 6: Understood. I will thank you for taking my questions. I'll hop out. Thanks. Okay, thank you.

Speaker 2: Thank you. And as a reminder, the floor remains open for questions. And if you would like to join the queue, you may press star one on your telephone keypad. Once again, that is star one to join the queue if you would like to ask a question at this time.

And the next question today is coming from Ed Wu from Ascendian Capital. Ed, your line is live. Please go ahead. Yeah, congratulations on the quarter. With, you know, the uncertain economic environment and the high interest rates, have you noticed any change in the, you know, sales cycle as you reach out to these dentists? So, Ed, I would answer that question. It depends on which dentist we're talking with.

Once again, I'll concentrate on waterlays here. They're seeing practice revenue and practice foot traffic back to pre-pandemic levels today. Certainly, I would love to have interest rates go down.

that they're now paying 13 or $1400 a month for water lays versus a thousand at a lower interest rate. Well I'm not going to say it's not meaningful when compared to the $3 to $4,000 they earn on additional procedures.

It really doesn't change your mind that much.

Great. Thanks for answering my questions, and I wish you guys good luck. Thank you.

Thank you. We have reached the end of the question and answer session, and I will now turn the call over to John Beaver for closing remarks. Thank you. I want to thank everyone for being on today's call. Also want to thank the Biolay's team for their continued commitment and dedication. Each of them has worked tirelessly to make our customers successful in delivering an elevated standard of care and safety through laser dentistry. Jennifer and I look forward to reviewing our second quarter results with you in August . And in the meantime, we will be participating in the Benchmark Virtual Healthcare Conference on May 23rd. If you're participating in this event, please contact Todd Curley at T Curley at EVC Group.com to help facilitate a meeting with us.