Q3 2023 BIOLASE Inc Earnings Call
Good day and welcome to the BIOLASE third quarter 2023 financial results Conference call. Please note. This call is being recorded at this time all participants have been placed in a listen only mode and we will open the floor for your questions and comments after the presentation at which time, you'll press star one on your <unk>.
Pat.
I would now like to turn the conference over to Michael to live you Sir the floor is yours.
Thank you Karen and good afternoon, everyone and thank you for joining us today to discuss BIOLASE financial results for its third quarter ended September 32023.
On the call today from BIOLASE zombie ever President and Chief Executive Officer, Jennifer Bright Chief Financial Officer.
John will review the company's operating performance for the third quarter, and then turn the call over to Jennifer to review the financials in more detail before opening the call for questions.
Before we begin I'd like to remind everyone that a number.
Which are any statements that are not historical facts will be made during this presentation.
Q&A session, including forward looking statements regarding the company's strategic initiatives.
Anticipated financial performance.
These forward looking statements are forward looking statements as defined under the private Securities Litigation Reform Act.
And our base of violations current expectations and assumptions.
Subject to a variety of risks and uncertainties that could cause actual results to differ materially from the statements made.
Such forward looking statements only represent the company's view is right now.
Number nine 2020, great. These risks are discussed in the company's filings with the securities.
James.
A replay of this conference call will be available the BIOLASE website. Shortly after completion of today's call when listening to this call. Please refer to the news release issued earlier today announcing the company's 2023 third quarter financial results.
A copy of the news release it is available in the Investor Relations section of the BIOLASE website at Www Dot BIOLASE dotcom violations financial results can also be found in the company's report on Form 10-Q, which will be filed with securities and Exchange Commission.
The tables provided in today's news release offer.
For additional financial information. So we encourage you to review that the tables included conciliation 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 more information regarding these non-GAAP disclosures with that said I'll now turn the call Robert BIOLASE.
Or is it the chief.
Executive Officer, John Beaver jumped. Please go ahead.
Good afternoon, everyone. Thank you for joining us today to discuss our third quarter earnings results.
We continued to experience rising interest in our industry, leading dental lasers through increased lead generation.
And uncertainty caused by the macroeconomic environment is extending our sales cycle and did impact our third quarter revenue performance. The same headwinds impact our business are also being experienced by many other companies in our sector as evidenced by their recent results and commentary.
We believe there are several factors contributing to the longer decision, making process, including higher interest rates and lower patient volumes. However, we believe it is critical that we maintain our revenue generating activities to drive greater awareness and interest in our award winning lasers to minimize the impact and be in a much stronger position when the economy returns to a more.
Normalized state.
Our goal is to be prepared to capitalize on the significant market opportunity in front of US having said that Dennis may also take the opportunity to CCAR laser solutions in an effort to grow their business and I believe we are well positioned to benefit from this potential growth driver as their value proposition is obvious.
Currently less than 10% of dentists in the U S and less than 2% worldwide using all tissue laser in their practice.
And we are the go to leader as we command approximately 60% of the worldwide all tissue laser dental market with our Waterlase brand.
However, we need to attract more than 90% of dentists, who are not using an all tissue laser in their practice.
Untapped market represents a significant market opportunity for BIOLASE and having to establish ourselves as a premium brand for quality reliability and after sales service and training, we're working hard to engage this other 90% we have significantly increased our efforts to engage dental specialists, such as Paradise, pediatric dentists, Endodontist and Dell.
Hi, Janice.
Waterlase and epic academies, we have simplified training on our products for these specialist and made it clear this significant return on investment they can achieve with our lasers not to mention the benefits to their patients.
We are also actively engaging the over 150000 general practitioner dentists in the U S by increasing education and training through initiatives like our Waterlase trial program that recently opened state of the art training facility. The BIOLASE Education Center, which provides dental clinicians with an engaging learning environment tailored around laser education.
The BIOLASE Education Center is adjacent to a state of the art Dunlop as lasers smiles, which provides access to live patient education. We continue to explore ways to improve this training program are excited about changes made this quarter and for next year that will move our training platform to more of a national had been helping us market, even better and making it easier.
That's much more cost effective these.
These initiatives drive.
Initiatives drive increased laser adoption by providing dentists with education and training they need to provide safer more advanced alternatives to their patients through laser dentistry.
On the topic of laser adoption, we are encouraged by the continued growth in our consumable sales, which increased 10% year over year in the third quarter as utilization of our laser systems by our installed base continues to increase.
As the industry leader, our new customer acquisition efforts continued to generate increased lead generation even in this difficult macro environment.
And we continue to actively pursue partnerships with corporate dentists and universities.
Several dental schools and post graduate programs have already integrated all waterlase lasers, and our epic soft tissue lasers, creating a pathway for future Dennis to adopt laser dentistry early in their careers.
Turning briefly to operations, our internal optimization efforts over the past several quarters have considerably improved our results and are beginning to bear fruit as evidenced by our expanded gross margin and the 52% reduction in operating loss year over year in the third quarter, the greater efficiencies and improved operating performance have dramatically reduced our law.
Austin and position us for greater success as the economy improves.
I expect our stronger and leaner operating posture will allow us to perform far better in the future and achieve our top and bottom line goals.
In summary, while the uncertainty caused by the macro environment impacted our results. This quarter, we are confident our ability to capture the substantial market opportunities still in front of us we.
We adapt our business during COVID-19 to operate more efficient efficiently while at the same time preparing for better days as a result of our performance coming out of the pandemic with significantly improved we're doing the same thing in this environment. We are prepared to respective of the macro economic issues drive greater adoption of our dental lasers to increase education training.
And the continued execution of our revenue growth plan, while at the same time, our prudent expense management will propel us toward achieving our profitability objective.
With that said I will turn the call over to Jennifer O'brien, our Chief financial officer to provide more in depth insights into our financial results for the quarter and discuss our guidance for the remainder of the year. Thank you again for your participation and we look forward to addressing your questions at the end of the call.
Jennifer.
Thank you John and 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 third quarter.
For further details please refer to our financial results, which you can find in the financial tables in our earnings release and our 10-Q.
As John mentioned, our third quarter performance reflects the impact of macroeconomic environment is having on our dental laser sales well our consumable revenue continued to grow as a result of our increased education and training.
For the third quarter, we reported net revenue of $10 9 million, representing a 9% decrease year over year.
Revenue decline is being driven by the difficult macro environment, which includes increased interest rates.
Despite these headwinds we were able to achieve some promising metrics, we increased Archie little sales by 10% year over year as a result of higher utilization of our laser systems.
Also expanded our gross margin by 1400 basis points, which reflects improving some changing to new suppliers, which resulted in lower inventory reserves and warranty expenses, along with the impact of a favorable mix from higher margin consumable sales compared to the year ago quarter.
Lastly, our continued efforts to drive further operating improvements and efficiencies, resulting in a significantly reduced the operating loss during the quarter down 52% compared to the year ago quarter.
While we cannot control the macro environment, we can control of certain manufacturing costs and operating expenses and these improvements in gross margin and operating loss are positive indicators and our ongoing efforts to optimize operational efficiency and drive profitability.
During the third quarter, our gross margin was 34% compared to 20% in the year ago quarter. As I mentioned this represents an improvement from changing to new suppliers, which has resulted in lower inventory reserves and warranty expenses compared to the year ago quarter.
Also at the end of 2022, we completed an acquisition of a chunk fiber supplier.
Loud us to supplement third party components with our own in house manufacturing component.
This has helped us reduce the overall cost of goods for those key components.
On the expense line total operating expenses were $7 4 million down significantly from $10 1 million in the year ago quarter.
This decrease was mainly due to the cost savings initiatives, we announced during the 2023 second quarter.
Which included a roughly 20% reduction in BIOLASE as U S workforce.
Work force reduction as part of the company's broader efforts to gain greater efficiencies throughout the organization without impacting our revenue generating strategies or the company's ability to continue delivering unparalleled quality and value to its global customer base.
We expect to generate approximately $5 million to $6 million of annualized cost savings due to these cost savings initiatives.
GAAP net loss for the quarter was $4 6 million compared to a net loss of $8 4 million for the third quarter of 2022.
Net loss per share for the quarter was $3.89 compared to a $110.36 for the third quarter of 2022.
Our adjusted EBITDA loss for the third quarter was $3 1 million compared to an adjusted EBITDA loss of $5 6 million for the third quarter of 2022.
Adjusted EBITDA loss per share for the quarter was $2 67 compared to $73 99 for the third quarter of 2022.
These positive trends indicate our continued progress toward achieving profitability.
Turning to the balance sheet, we finished the quarter with cash and cash equivalents.
<unk> seven 8 million.
And looking ahead as we continue our drive towards profitability, we expect to continue to expand our gross margin and reduced our operating expenses further.
Our in house trunk side are made up of 100% of the fiber we shipped in the third quarter well ahead of our own internal projections. The expected cost savings will continue to drive increased gross margin and will get us closer to the 50% gross margin that we believe is needed to reach profitability.
We also expect to drive significantly lower W. T. P expenses this year by using our own centralized training facility. The BIOLASE Education Center, which opened at the end of July and we have three dentists on staff to train perspective customers.
We also continue to work with educational facilities.
The nationwide to host W. T P events at their locations at little to no cost.
Moving onto guidance.
Fight the difficult macro environment, we continue to expect year over year revenue growth we.
We are now projecting full year 2023 revenue to be one 3% higher than full year 2022 revenue.
With higher gross margin expected W. P P saving and cost savings initiatives. We've implemented we expect our net loss from operations for both the fourth quarter and full year to be significantly improved compared to the comparable periods in 2022.
With that I'll turn the call back to the operator to open the call for questions.
Operator.
Thank you ladies and gentlemen, the floor is now open for questions.
I have a question. Please press star one on your telephone keypad at this time again that star one if you do have a question or comment please hold as we poll for question.
And we'll take our first question from Bruce Jackson from Benchmark Company. Please go ahead Bruce.
Hi, good afternoon, and thank you for taking my questions I wanted to start off with the revenue guide generally speaking at the fourth quarter is your strongest quarter and Theres a lot of the sort of like last minute spending that goes on how are things currently shaping up in terms of the fourth quarter rather.
Yeah.
Yes, so so far during the fourth quarter of this year is tracking pretty much to where we were in the fourth quarter of last year I still expect that we can beat the fourth quarter number from last year and that's factored into our.
Guidance for the full year.
Okay.
The other question I wanted to ask.
Basketball was the the lift on the gross profit so.
In house fiber was certainly an important component of that do you have any other sources of gross margin expansion that you can work with.
Hi, beyond what we've already incorporated Bruce.
Yes.
Now is it a matter now of like overhead absorption or are there any other types of cost savings you can achieve through the supply chain. For example, yeah right and then you hit the nail on the head those are the two ways that we expect to continually improve our gross margin one is with the fixed cost absorption higher revenue.
And higher production volumes obviously.
But also we are looking at a number of projects that could reduce our both our our cost of goods sold from a material standpoint, and an efficiency standpoint.
So I am cautiously optimistic that we'll get some of those put in place next year.
Probably won't have an impact on our fourth quarter, though this year.
Okay.
Oh, Thank you very much.
Thank you Bruce.
Thank you and we'll take our next question from Frank <unk> from Lake Street Capital. Please go ahead Frank.
Hey, This is Nelson Cox on for Frank Thanks for taking the questions maybe continuing with that gross margin question.
Nice jump from a year ago. It sounds like it should continue improving from here. Just wondering if you can maybe provide a bit more color give us a sense of where you would expect margins to level out in 'twenty four and then maybe what we're shooting for beyond that.
Yes, so I'm all set I would expect gross margins next year in 2024 to be approaching that 50% level that Jim referenced in her remarks.
I think <unk> volume continues to go up we could get to the mid fifties and 2025 and beyond but it's certainly a target for next year will be as close to that 50% as we can get it not sure. We can get all the way to 50%, but we should certainly be in the high forties.
That's helpful. Thank you and then you've talked about the challenging macro backdrop can you give us a sense of what you've maybe seen improving or not improving our recently and with that did you see any noteworthy seasonality during the quarter.
If so maybe help me understand how much of the slowdown was related to seasonality versus the challenging overall environment.
So in terms of seasonality traditionally and this goes back for many years, our best revenue quarters Q4, followed by Q2, followed by Q3, followed by Q1.
And that's you know it's been a pretty consistent pattern throughout the years.
So Q3, you know the one we just completed is seasonally our second lowest quarter historically.
Having said that from a macro standpoint, we started saying I would say in in kind of August September timeframe deals that we normally would have expected to be closed in a certain timeframe taking longer to close.
We knew that this could be a possibility, but we have not really seen it up until.
Recently and you know my belief is is because of the higher interest rates.
That our doctors are saying and therefore the.
Higher monthly payments for the equipment.
So what we've seen is those sales haven't gone away, they've just taken a little bit longer to close as they look for various financing alternatives and so forth. So I'm cautiously optimistic that debt.
Are those sales still will occur and many of them did in the fourth quarter that we thought would delay or is it we thought we would be able to close in the third quarter.
Yeah.
And then from the Iron National standpoint, you know there are some macroeconomic headwinds very unique I'm somewhat to our international markets, even though we had a pretty good quarter internationally, we were up by a quarter over quarter a year ago in revenue.
Having said that we still have the Ukraine War.
Going on and so our sales to Russia R. R. Neal.
And certainly ourselves and Ukraine had been diminished.
Israel is one of our top 10 to 15 countries typically and their sales went to almost zero in the third quarter because of the war going on there.
In addition, one of their really promising market said.
We've developed over the last year after taking about six years to get.
Registration is in Japan. However.
However, being a U S company and selling U S dollar the.
It really historical strength of the U S dollar against the Japanese yen have hurt ourselves today are making our product you know hot a higher cost.
He would be we continue to work with our Japanese distributors to figure out ways to do you know.
To mitigate that but that has been significant for us as well.
Got it and then maybe one more quick one realizing it's fresh data can you talk about the expected response to the 12 month clinical outcomes for BIOLASE repair any anticipated reaction you are expecting to see from a demand perspective.
Yeah. So you may recall that this is a follow up to the report that came out about two years ago on the initial findings that were a six month follow ups.
The messaging and the the results were as expected, which clinically where are the same as the traditional treatment and the patient reported outcomes, where we're much better.
We will be.
Maybe coincidentally, maybe not so the American Academy of Patio annual meeting as this weekend.
And we are you know.
Well position to publish publicize the the recent Mcguire study update that came out on the on the 12 month follow up and so I'm, hoping we'll hopefully we will see some movement on a specialist in that area.
We have somebody else show specials, and what have you to help <unk> speed up that acceleration.
Awesome, Thanks for the color and.
Congrats again.
Thank you Nelson.
Thank you and next we'll go to Ed Woo from ascending in capital. Please go ahead.
Yeah. Thanks for taking my question, you said that you know.
I'm not certain macro environment is causing the sales cycle. The length, Dan is it you're talking about maybe one or two quarters or are some of these just dropping off because people just don't have the money and they don't see you know the economic environment getting better near term.
So we haven't seen really any that I know about sells out we thought we'd go through they have said no.
And they don't want to buy.
It's more the yes, I'm still interested or I'm still working on the financing inbound we need another two to three months to figure this out.
It's more of that.
So I'm hopeful that it is a a lull here and there we will catch up you know some part in 2024 when interest rates, if and when they start declining.
But I don't see any really lost sales, it's just delayed sales head.
And as I mentioned earlier I'd just add that.
We saw some of this back in 2008 and nine with the recession you know us.
<unk> I don't believe we're in a recession today.
But we certainly were back then.
And we actually had Dennis come to us that I think you know me.
<unk> been on the fence on buying or you know not decided and they decided they needed to differentiate their practice and.
Bring in additional revenue streams that and those are things that certainly our laser can do for their practice and so we had you know some of that going on which I would expect you know this.
<unk> continues at more dentists will be.
Even more desk will be reaching out to us to differentiate their practice with this technology.
Great and just.
Dissecting a little bit was it pretty much across all general dentists as well as specialists or is it some of the weakness is limited to one group versus another.
It was pretty much across the board there wasn't one spin.
Specific specialists or the G. P sector that was impacted more or less in the others.
Great well. Thank you for answering my questions and I wish you guys. Good luck. Thank you.
Thank you Ed.
Once again star one if you do have a question or comment.
And we will take another question from Bruce Jackson from Benchmark. Please go ahead.
Hi, Thanks for the follow up on why don't you.
Asked briefly about the impact of the Mcguire trial, the guidelines and do you think this is going to help you in some way and was the you were able to achieve equivalence on the radiographic data.
And it approached statistical significance, depending upon what cutoff used but.
Maybe just tell us a little bit about how the guidelines process works and will that help you in the long run.
So Bruce I don't think that the Mcguire study is going to create a.
A seismic shift in changing guidelines for parallel surgery or changed in the way.
The parallel surgeries taught and in a post grad programs. However, I think it did open a lot of.
Paradise and G. P size and this is important because.
But probably more gp's doing parodontal surgery than there are teradata is doing it because you have 150000 G. P's many of them doing parallel surgery in the U S and in five or 6000 a periodontist.
The key here is the improvement in the patient reported outcomes. We were happy that it was clinically you know.
Statistically equivalent to traditional surgery, we knew that we would and believed that we would.
Kind of blow this study away in the patient reported outcomes and I think that's key is as more people patients in particular to become familiar with our technology you know theres still a long way to go on that but one of the challenges for for dentists performing <unk> surgery to a patient is case acceptance.
If anybody that.
Has heard about somebody having traditional perry of surgery or somebody in their family has had or they've had in the past they don't want that to ever happen to do them. It is one of the most invasive surgeries there are and the helium period as long for that so you know by showing that there's a better way of doing this on a more.
Yeah, I, just had a less invasive way of doing it where quicker healing time and less pain.
That's where the real benefit of the Mcguire study is.
And the yeah, the patient outcomes that difference was statistically significant correct.
It didn't it statistically significant.
My reaction to that is of course it is right.
Cause if you seen both surgeries you almost would have to be.
And is it is is this one of the first times that you.
Professional in general has had a randomized controlled trial was something like this.
Yes, so Bruce I'm glad you brought that up it is the first trial.
Of this type that any dental laser company has ever done.
And so we.
We wanted to do it the right way not just have you know.
10 of our dental perform any kind of track progress and everything this was really a best in class first of its type study and no dental laser company has ever done anything like this before you know it took us a long time to do it. Thank we started this about.
Four five years ago.
But here, we are and we certainly glad that that the results were that were what they were and that is completed.
Alright, that's it for me. Thank you. Thank.
Thank you Bruce.
Once again Thats Star one if you do have a question or comment.
And there appear to be no further questions at this time I'll turn the call back to John Beaver for closing remarks.
Thank you Karen I want to thank everyone for being on today's call also I want to thank the BIOLASE team for their continued commitment and dedication each of them has worked tirelessly to make our customers successful and delivering to elevate the standard of care and safety through laser dentistry.
This is not in my prepared remarks, but I will tell everyone that we had some patients down at our laser small office. This morning, and I went down there and there was a seven day old baby that was having a frenectomy done because they could not latch properly and we're having feeding issues I talked to the parents.
Young parents never had this was their first child they were scared and it was just amazing what our technology can do.
Frenectomy with our laser took [laughter] about two minutes and the baby's sleep in when they came out of the room you know that's what.
Yeah, I'll talk about our employees that made it was just a story like that makes all of us want to get up and excited to come to the office and come in and support our patients are our customers and their patients. So thank you everyone. This concludes our call have a great day.
Thank you ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.
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Uh huh.
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Okay.