Q4 2023 BIOLASE Inc Earnings Call
Excuse me. This is the conference operator, thank you for your patience the call will begin in just a few minutes thanks for standing by.
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Good afternoon, and welcome to the BIOLASE fourth quarter and full year 2023 results conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad after today's presentation.
There will be an opportunity to ask questions to ask you. A question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I'd now like to turn the conference over to Todd currently with E. V. C Group. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining us today to discuss BIOLASE financial results for its fourth quarter and full year ended December 31, 2023 on the call today from BIOLASE are Don <unk>, President and CEO, and Jennifer Bright Chief Financial Officer.
John will review the company's operating performance for the fourth quarter and full year and then we'll 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 of forward looking statements, which are 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.
These forward looking statements are forward looking statements as defined under the private Securities Litigation Reform Act of 1995 and are 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 made.
Such forward looking statements only represent the company's view as of today March 'twenty, one 'twenty 'twenty four.
These risks are discussed in the company's filings with the SEC a replay of this call will be available on the BIOLASE website. Shortly after the completion of the call when listening to this call. Please refer to the news release issued earlier today announcing the company's 2023 fourth quarter and full year financial results.
Not have a copy of the news release it is available in the investors section of the BIOLASE website at Www Dot BIOLASE dotcom.
BIOLASE financial results can also be found in the company's report on Form 10-K, which will be filed with yes.
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 more information regarding the company's non-GAAP disclosures.
That said I'll now turn the call over to BIOLASE, President and Chief Executive Officer, John Beaver John.
Thanks, Todd and good afternoon, everyone. We appreciate your participation today as we review our fourth quarter and full year financial results and review our strategic objectives.
Our objective despite the ongoing headwind created by the current economic climate is to ensure industry, leading dental lasers continue to attract heightened interest and demand the modest revenue gain for the year and our significantly increased lead generation demonstrate that we are on track. Additionally, our focus on internal optimization will enable us to expand our gross margin going forward.
And the cost reduction initiatives, we have taken have positioned us to achieve our financial objectives in 2024.
In 2023, we continue to create awareness of the benefits of laser dentistry as well over 500 Webinar study clubs trade shows and training events in the U S alone.
Investments of time and resources today are expected to yield revenue opportunities tomorrow.
For example, we were highly engaged with potential customers in 2023 increase in the number of marketing qualified leads or M. Ql's generate about five times over those generated in 2018, as we continued to improve our sales and marketing efforts to reach potential customers.
However, the uncertainty in the macroeconomic landscape has extend our sales cycle somewhat as various factors, including elevated interest rates and worldwide geopolitical crises are contributing to the prolonged decision, making process, having said that I want to stress. This isn't unique to BIOLASE other businesses in our sector are facing similar challenges as evidenced by <unk>.
Industry trends.
Nonetheless, we're steadfast in our commitment to this day.
<unk> revenue generating activities.
Our focus remains on converting these <unk> T cells. While also continued to raise awareness and interest in our claim lasers, ensuring we're well positioned to capitalize on the significant market opportunity in front of us.
There remains a significant untapped opportunity in the dental market with more than 90% of Dennis yet to embrace all tissue laser technology.
The predominant brand in this space with approximately 60% market share globally under our Waterlase brand. We continue to actively engage the remaining 90% of the market our targeted sales and marketing efforts to enhance training programs are expanding our reach among dental specialists and general practitioners as we emphasize the benefits the laser dental solutions to practitioners and patients.
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It's important to repeat what we said in the past each 1% increase in adoption of our all tissue laser technology in the U S alone, we will approximate $50 million in additional revenue for BIOLASE Assembly and we maintain our status estimated 60% market share.
This doesn't include potential increase adoption outside the U S, where historically approximately 30% to 40% of our revenue has been generated or the consumable revenue generated from the procedures performed with our laser systems are.
Our strategy to grow market adoption of our lasers, including bolstering education training programs through our Waterlase and Epic Academy, we have simplified training all of our products for dental specialists and Delhi Genesis. It may clear the significant return on investment they can cheat with our lasers not to mention the benefits to their patients. We are also actively seeking to engage the over 100.
<unk> thousand general practitioner dentists in the U S by increase in education and training through initiatives like our Waterlase trial program or W. T P and our recently opened state of the art training facility. The BIOLASE Education Center, which provides Dell clinicians with an engaging learning environment alert around laser education, we hosted 22 W. T P.
In 2023 with the sales conversion rate of about 45%.
Our record consumable sales, which increased 20% for the full year are an encouraging indicator and highlight the growing utilization of our laser systems within our existing customer base. During 2023. We also introduced a recurring revenue subscription model for our consumables, which has already started to gain traction and we believe that this will help accelerate.
Our consumable revenue growth in the future.
Furthermore, our strategic partnerships with corporate Dennis and academic institutions are paving the way for future adoption of laser dentistry.
In summary, we believe our growth strategies will achieve the desired long term operating results and we remain optimistic about our ability to seize a substantial market opportunities ahead.
Our goal notwithstanding the economic headwinds is to accelerate our revenue growth, while continuing to improve operational efficiencies greater adoption of our dental lasers through increased education and training and the continued execution of our revenue growth plan, coupled with the expansion of our gross margins or operating expenses would have allowed us to meet our revenue and profitability.
Jack is for 'twenty, 'twenty, four including being adjusted adjusted EBITDA positive for the full year.
Now I hand over to Jennifer Brian our CFO to delve deeper into our financial performance and provide insights into guidance for the year.
Thank you John and good afternoon, everyone I'm going to provide more context around our full year results and highlight some of the operational improvements we achieved during the year.
Other details please refer to our financial results, which are included in the financial tables in our earnings release and our 10-K.
John mentioned during his prepared remarks.
Right the challenging economic environment, we were still able to deliver modest revenue growth and increase laser dentistry awareness through our education and training initiatives.
We delivered net revenue of $49 2 million for the full year compared to $48 5 million in 2022.
Well. This is a modest increase we reported record consumable sales, which increased 20% year over year due to our increased education and training and the introduction and recurring revenue subscription for our consumable.
Additionally, the momentum with new customer adoption continued in 2023 with 71% of our you asked why are they fail coming from new customers and 40% of our U S. Waterlase sales coming from dental specialists.
Also as John mentioned.
That's right of our Waterlase trial program with 45% for the full year highlighting the continued success of this initiative.
These are all positive indicators and the increased demand we are experiencing for our industry, leading dental lasers.
And abroad setting the stage for accelerated growth as the economic environment in credit.
We reported a 34% gross margin for the year, which is a 100 basis point increase over last year's gross margin.
As lower inventory reserve charges in 2023 were offset by higher warranty expenses, mainly related to supply chain issues that we encountered in 2022 that required us to source new trunk fiber vendors.
That was an increase in material costs and unfavorable absorption of fixed expenses.
To improve our overall cost structure at the end of 'twenty 'twenty. Two we completed an acquisition of a trunk fiber supplier, which now allows us to replace third party component with our own in house manufactured component.
While we were working through the backlog of our third party components in 2023, we expect to significantly reduce our overall cost is good in 2024 and improve cash flow now that our in house production is operating at full capacity and producing higher quality trunk fiber component.
Additionally, we recently implemented certain cost reduction initiatives.
We're expected to significantly reduce fixed overhead expenses, while maintaining best in class manufacturing and operational performance.
On the expense line total operating expenses were $34 7 million for the year compared to $41 2 million a year ago.
This decrease was mainly due to the cost saving initiatives, we implemented during 2023 which included a roughly 20% reduction BIOLASE in the U S workforce in June 2023.
The workforce reduction as part of the company's broader effort to great gain greater efficiency throughout the organization.
Impacting our revenue generating strategy or the company's ability to continue delivering unparalleled quality and value to our global customer base.
We expect to generate approximately five to 6 million annualized cost savings due to these cost savings initiatives.
Our continued efforts to drive further operating improvements and efficiencies also reduced our 2023 operating loss by 29% compared to find myself.
While we cannot control the macro environment, we can control certain manufacturing costs and operating expenses.
And these improvements in gross margin and operating loss.
Positive indicators of our ongoing effort optimize operational efficiency and drive profitability.
GAAP net loss for the full year 2023 was 26 million compared to a net loss of $28 6 million or 2022.
Our adjusted EBITDA loss for the full year 2023, with $12 8 million compared to $20 1 million for 2022.
Turning to the balance sheet.
We finished the fourth quarter with cash and cash equivalents.
$6 6 million.
We bolstered with gross proceeds of $7 million kind of equity raised earlier this year in February 2024.
We believe we have sufficient liquidity to execute our near term growth strategy. It reached positive adjusted EBITDA for the full year 'twenty 'twenty four we.
We believe we can achieve this goal.
Offline growth due to projected sales volume increases and certain price increases combined with cost reduction initiatives and expected lower cost of good is it a trunk cyber acquisition I mentioned earlier.
As a result of this acquisition our in house trunk fiber now makes up a 100% of our trunk fiber we are shipping in 2024.
We expect these cost savings to drive increased gross margin getting us closer to the 50% margin needed to reach profitability.
We also expect a significantly lower W. P. P expenses for the full year 2024 are using our own centralized training facility.
<unk> Education Center, which opened at the end of July 2023.
We have two dentists aren't that the train perspective customer and we continue to work with educational facilities nationwide.
W. T P events at their location at little to no cost.
During 'twenty 'twenty four we expect to host about 50 to 100 practitioners at W. P. P event than the expense savings will be quite meaningful.
Now moving onto guidance, while we expect first quarter 'twenty four 'twenty 'twenty four random used to be relatively flat compared to the first quarter of 2023 due to the ongoing economic climate. We are projecting full year 2020 for revenue to be 6% to 8% higher compared to the full year 2020.
Three revenue as our growth initiatives continue to progress and demonstrate success.
Additionally, with a higher gross margin expected W. P P saving.
And the cost savings initiatives I referenced earlier, we expect to achieve positive adjusted EBITDA for the full year 2024.
In summary, we believe our growth strategy combined with our focus on improved operational efficiency is positioning BIOLASE for long term sustained success.
With that I'll turn the call to the operator to open the call for a question through.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you were using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Bruce Jackson with the Benchmark Company. Please go ahead.
Oh, Hi, good afternoon, and thank you for taking my questions.
So.
If we could maybe talk about some of the other.
Sales initiatives that you've you've had especially with the dental service organizations and has the Mcguire study had any impact.
Yeah. So Brad thanks for those questions I think the Mcguire study. It has had an impact I'm not necessarily quantifiable in other words I can't tell you that we sold eight lasers because of the Mcguire study results, but it's just another piece of evidence that this technology is.
As you know very clinically effective and also as the Mcguire study showed much better for the patients right and so the more that word gets out you know the better off we'll be in terms of the Dsos. We continue to work with a number of dsos.
I think.
With Doctor because they came out with the top 10 outlook and we're working with Barbara six album, along with some of the other midsize dsos as well. So we continue to work down that.
That line as well.
The other thing that you mentioned, which was you know maybe.
Maybe another revenue.
Catalyst for us.
We actually are released a new product and February at the Chicago Midwinter show that was the I plus premier Waterlase out plus premier.
And you may recall that a couple of years ago when.
A company came to us to OEM.
A product for them edge pro that that we develop that very quickly.
What kind of a record.
And it really showed there was a market out there for this technology. This wavelength 27, or 80 or beam chromium Y S. G. G wavelength to be used in specific specialties before this the premium edition was introduced last month, if a doctor wanted to buy a lot.
Laser Waterlase you had to buy everything right I mean, all of the applications were included in it what what the OEM business showed US was there was a mark it out there for doctors that just wanted to do one or two things and so with that we develop the premier and its really a modular type concept.
Where let's say Amit that I'm a dentist.
And I wanted to do soft tissue, plus Indo only well I can buy a waterlase plus premiere and only turn on the company would only turn on those two modules. If you will pay a lower price point.
But they're getting what they they won't immediately as they get more and more comfortable with the technology, what we foresee as I'll add more and more modules and for US that's very easy to do as it's literally flipping the switch back at corporate to turn on those modules. So we think this is going to you know its a right time for this product we think is going to penetrate the market even more.
Okay, Great and then one follow up on the.
The gross margin. So if you could just kind of give us a rough idea of how you see that.
Improving over the course of the year and it's the 50% like our long term target or is that something that you would anticipate hitting.
Kidney problems this year.
Yeah. So the 50% we do anticipate will hit in the fourth quarter with the help of you know the seasonally strong fourth quarter revenue.
For the year I would expect our margins to be on average for the full year around 45%.
And we have a clear line of sight on how we get from the 34% to 45%.
And is really a couple of different buckets.
One is the full year of internal trunk fiber manufacturing and improved a quality that we're seeing there and so that could be a significant chunk of that improvement. In addition, the revenue improvement that were forecasting is going to Brian yeah, and yeah with fixed cost absorption.
They're a point or two and then we do have price increases lined up predominantly for our consumables business that we've already implemented that we think will also bring another point or two.
Okay, Alright, great. Thank you that's it for me.
Thank you Bruce.
The next question comes from Nick Sherwood with Maxim Group. Please go ahead.
Hi, Good evening. Thank you for taking my questions, what kind of trends have you been seeing quarter to quarter and the length of the sales cycle.
[noise] of qualified leads you had and the conversion of those leads.
Yeah. So the number of qualified leads we're getting has been pretty consistent up year over year and quarter over quarter. So we continue to see that growing and I would expect that to continue growing into 2024 than what we're seeing and we started seeing this kind of towards the end of last year or early part of this year.
Was it was taking longer for us to close those leads into sales.
And that's where I think listening to other medical and dental companies are capital equipment companies.
Saying the same thing people are are the doctors are taking a little bit longer to decide because of higher interest rates uncertainty around whether or not we were going to have a recession, which I think most of that talk is dead now, but also the the European Wars that are ongoing right now have an impact on our international business.
So yeah I think the Npls will continue to increase I would expect over time that the cell's cycle will shorten but yeah, we're not really planning for that in 'twenty 'twenty four the shortened sales cycle. We've we planned our business around that he has kind of been status quo on a macro stands.
Point.
And yeah. That's the reason we're excited that even with that we believe we can achieve EBITDA positive in 'twenty four.
Awesome. Thank you for that detail and then my next question is what percentage of dentists to adopt your lasers.
Can you to user lasers as opposed to reverting back to traditional tools like where does that retention rates that you're seeing.
Yeah. So the most recent surveys we have have our new doctors, who have incorporated this technology in the last six to 12 months and use our lasers about.
It was about 90% of the doctors use it at least weekly with a large percentage of that using it daily and that's what I see anecdotally and in my travels or are you talking to doctors and so forth I think that's further supported by the consumables that we had we had a blowout year in consumables last year.
And what that means as you know Dennis are not only buying the laser but they're using it all the time and dad with 20% increase in consumables.
Given all the other conditions that we were facing was pretty remarkable so I feel really good about doctors using the language of after they buy it you know that they've not been always the case with.
The laser industry in years passed you know going back 510 years ago, but I think the investments that we've made into education and training are really paying off to you know to ensure that the doctors are using the laser after the purchase.
Understood and then my final question is what sort of major education programs and events do you have planned for this upcoming or this year.
So as Jim mentioned, we have over 500 plan we have.
10 regional slashed National Waterlase trial programs that we have planned this year. We're at the large events every year be at Chicago Midwinter, We just completed.
We have a big one for US is the California Dental Association coming up in May. We also have greater New York L. A number of regional events as well for one E beds. We have a couple of events internationally that we're excited about one coming up and Prague.
In may and the other one in Dubai in October and those are great training events really drives international revenue for US and then we have our third annual Frenectomy E bed and Miami are coming up in about a month as well, where we bring in pediatric dentist and it really emerge.
And learning how to diagnose how to perform for that Canadians and also.
How do you treat the patient how do you know what does he post operative care and that has been successful. The last couple of years and I am looking forward to this year as well.
Well it sounds like you all will be busy but thank you for answering all my questions and I'll return to the queue.
Thank you.
Again, if you have a question. Please press Star then one.
The next question comes from Ed Woo with ascent against capital.
Please go ahead.
Yeah. Thanks for taking my question can you talk about the competitive environment has it changed at all in the past three months.
Not really add you've heard me say before that our chief competition and share of wallet by the dentist.
We're very comfortable when we get head to head against another laser company given that yeah. We are the premium that laser the laser company in the world, We don't lose a lot of head to head matchups.
Match ups with the other companies, so I'm less concerned about that and more concerned about as convincing a dentist that their best investment. This year is in our laser and not in new office furniture, our internal scanner or something of that nature.
Great and you mentioned the macro headwinds does that Oh, you know how much of an impact would that have in your ability to raise prices.
I don't think it will have any or pricing has tend to be pretty I always get this backwards, but elastic I think it is.
In other words are the price increases we've had really hasn't been met with much pushback.
When somebody is convinced they want to and need to incorporate this technology into their practice.
To go in other words.
1000, or $2000, usually not gonna make a difference no. A go no go decision. So we don't expect to see much of that and then when we talk about the macro conditions I think another thing that will help us in 'twenty 'twenty. Four is you look at 2020 three with rising interest rates right nobody knew where the top.
Was I think now most people believe that interest rates have one they may not come down significantly in the short term that they no longer are going up or certainly not going up to the extent. They have the last 12 to 18 months. So I think that's giving some clear visibility on the macro situation to doctors.
Hopefully it will help the buying cycle as well.
Great and one last question what percentage of your sales are financed versus paid in cash.
I'll answer that with it depends but let me explain that so all of our international sales that we make are paid in cash in other words, we don't carry finance on any of that in the U S side, we don't carry financing either most of the.
Water lyse cells are financed.
By a doctor's credit Union Bank or third party medical equipment financing company typically over a seven to eight years I mean, so it's a long time.
Because these lasers are robust at all as that long. So it's perfectly finance companies are perfectly comfortable financing over that period of time. Our diodes are that big brand are tend to be more credit card purchases and a yeah. Those are obviously come in immediately and our consumables are mainly a credit cards as well.
L.
Great well, thank you and I wish you guys. Good luck. Thank you.
Thank you Ed.
This concludes our question and answer session I would like to turn the conference back over to John Beaver for any closing remarks.
Yeah. Thank you and I did get one other question that was submitted a personal wasn't able to attend the call. But the question was do we have additional capacity when the demand picks up even greater than it has already and we we do have additional manufacturing capacity at our plant and Corona, California right.
Now, we wont run one shift.
So yeah, we can always add additional shifts and we have excess capacity also with our important trunk Barbara production.
So I look forward to that time that we're able to add a second ship, possibly.
So 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 this elevated standard of care and safety through laser dentistry.
Operator, Thank you everyone for your interest in BIOLASE. This concludes our call have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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