Q2 2019 Earnings Call
Ladies and gentlemen, thank you for saying.
You are on hold for the violates Syntels second quarter financial results.
At this time are assembling today's audience and plan on.
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Good day, everyone and welcome to the by late 2019 second quarter financial results Conference call.
Today's conference is being recorded.
At this time I would like to turn the conference over to Todd.
Please go ahead Sir.
Thank you operator, good afternoon, everyone and thank you for joining us today to discuss BIOLASE its financial results for the 2019 second quarter ended June 32019.
On the call today from BIOLASE, or Todd <unk>, President and Chief Executive Officer, and John Beaver Executive Vice President and Chief Financial Officer.
Management will review the company's operating performance for the second quarter 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, including forward looking statements regarding the company's strategic initiatives and financial performance.
These forward looking statements are based on BIOLASE as current expectations and are subject to 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 August eight 2019.
These risks are discussed in the Companys filings with the Securities and Exchange Commission a replay of this conference call will be available on 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 2019 second quarter result, if you do not have a copy of the news release. It is available in the Investor section of the BIOLASE website BIOLASE Dot com.
Hi, lasers financial results can also be found on the company's quarterly report on Form 10-Q , which will be filed with the FCC.
The tables, we provided in todays news release to offer additional financial information. So we encourage you to review them. The tables included a reconciliation of unaudited GAAP net loss and net loss per share to non-GAAP net loss and net loss per share as well as the details of the company's other non-GAAP disclosures.
With that I'm pleased to turn the call over to Vitalize, as President and Chief Executive Officer, Todd RV.
Thanks, Todd and thank every every one for joining us. This afternoon I appreciate your interest and continued support of BIOLASE.
Today is my one year anniversary as CEO of BIOLASE.
We have accomplished a lot over the last year and still have much to do continuing coming from the dental industry. I was attracted to this technology and the opportunity that existed at BIOLASE to create a new standard of dental care.
Our old tissue what are the latest technology continues to amaze clinicians and patients alike with its capabilities.
As we are well on our way to building a commercial infrastructure to support the spray technology, allowing for expanded reach during this past year, we have put in place the business processes that are necessary to successfully aligned.
Finally, this innovative technology with an approach that can achieve commercial success.
We continue to get better weekend and week out.
Our journey continues as we have more work to do to reach our ultimate goal. While we continue to make significant progress. Our revenues. This quarter reflects the short term impact of the strategic decisions to build a healthier business for the future.
That's for sure that these changes are having the desired effect a positioning BIOLASE for long term sustainable growth.
At the same time.
The prudent cross reduction initiatives have been implemented and have improved our financial position and puts us on track to reaffirm our goal of achieving EBITDA positive in the fourth quarter of this year.
Now, let me talk a little bit more about the strategic decisions, we made during the quarter and how they will strengthen our company.
As we have been communicating with you for several quarters, we have been transitioning from an R&D centric company to one that is disciplined Iraq, our commercial organization in driving best practices.
To achieve this objective.
Weve evaluated our direct sales team and determined that we need to realign a significant portion of our came with this new direction.
We are in a process of rebuilding our sales team had have added new sales talent during the second and third quarter.
We continue to actively recruit and believe our assessment process is enabling us to attract and hire the right personnel.
Our recent hiring has been across our commercial organization, including sales training and coaching.
Customer engagement events, our local direct referral incentive program.
And our focus on corporate dentistry or the Dsos segment.
Although it's early to measure success I can share with you that this new talent brings high energy enthusiasm and change management to transform this culture.
As we made the strategic decision to exit our imaging business, which was unprofitable.
They lack any synergies.
And we also increased our discipline around dealing with our international distributors, reducing the discounting.
And shortening payment terms.
While these decisions resulted in some lost revenue this quarter. It has improved our pricing discipline overall, it's leading to better terms and pricing.
Again, while these strategic decisions impacted our Q2 results. We believe we worthy of they were there they were the appropriate value enhancing decisions to ensure the long term growth and profitability of our business.
Concurrent with these changes, which again strengthened our business we continue to experience strong growth in our middle market initiative as revenues increased 31% compared to last years second quarter.
This growth demonstrates increasing interest in our technology and the success, we are experiencing with our new go to market approaches.
We had great success with new go to market sales strategies that we rolled out in the pediatric market in La Orange County in Dallas.
For this program our increased training and collaboration with the customer has resulted in higher customer acquisition rates. As a result, we expect to roll. This initiative out in other select markets in the us in the fourth quarter.
The early success of this new sales program as exciting.
And it's all about putting education first.
While we continuously strive to improve were encouraged by the positive results, we are seeing around o'meara market and commercial strategies it increases our optimism and bolsters our confidence.
As we continue to transform the culture and the entire company.
Firelayers has always had best in class technology and today, we are laying the foundation for commercial engine that will drive growth as well as predictable results.
As a part of this effort we continue to focus on our key growth pillars, which are expanding our influencer base.
Validating the return on investment of our technology through corporate dentistry.
Expanding our dental partner base, and creating a new standard of care with the specialist.
One way we are experiencing are expanding our influencer base is with the advancing dentistry symposium, which is taking place later this year in San Diego. This two day event will provide dentists the opportunity to learn more about the latest cutting edge technologies and techniques and includes a keynote address by Dr. Gordon Christiansen, a world renowned dental educator, Influencer and founder of clinicians report.
We will also have a separate education track, where the high jazz to further support their needs around the epic X product line.
The Mcguire study is another important initiative for biologics as we work to create a new standard of care for the specialist.
In addition to comparing the clinical efficacy of water laser assisted treatments for paradigm Titus versus traditional open flap gum surgery. This study will also track the patients reported outcomes for each procedure.
We continue to anticipate the six month interim data to be available by the end of 2019.
And our expectation is that the full study of data will be published in a scientific journal during the first half of 2020.
In closing I remain excited about our direction and growth prospects, we made a lot of tough decisions during the quarter that will strengthen BIOLASE and our go to market strategy and we remain committed to expanding the adoption of our all tissue lasers.
The cost reductions we implemented in the first half of 2019. In addition to other operating initiatives allowed us to reduce our operating expenses by 25%.
Increase our gross margins by almost 370 basis points for the second quarter.
With our improved cost structure, new pricing discipline, we expect to achieve EBITDA positive outlook in the fourth quarter of this year.
With that said I'll turn the call over to John for review of our second quarter financial results in more detail John .
Thanks, Todd and thank you all again for joining US this afternoon, and let me review the numbers.
Total worldwide revenue for the second quarter of 2019 was $8.7 million, a 29% decrease compared to 12.2 million in the second quarter a year ago.
Revenue from the U.S. for the second quarter of 2019 decreased 18% year over year.
As Todd discussed earlier the decline in the U.S. revenue is due to the strategic decisions, we made to realign a significant portion of our US sales force during the quarter.
We are changing the culture of the company, increasing transparency and accountability throughout the organization.
This sales turnover impacted us wondered late sales by 30% as a third of our us sales territories, where bacon during the second quarter. We are actively recruiting new direct sales team members, who fit our new discipline commercial organizations culture.
During the second quarter, our consumables and other revenue in the U.S. increased 2% year over year reflect an increased utilization of our lasers.
Internationally total revenue for the second quarter of 2019 was $2 million down about 2 million compared to the prior year second quarter.
The decrease in international revenue was primarily due to our efforts to promote better terms and pricing discipline, which resulted in over $1 million in orders held back during the quarter.
Also the transition from direct sales to distribution in Canada, it's taken a little longer to implement than we originally anticipated which resulted in a zero point $3 million reduction year over year and net revenue for the second quarter.
Having said that their exclusive distribution agreement with Sinclair dental is being ramped up this quarter. So we don't expect this to be an issue heading into the second half of the year.
Gross margin for the second quarter of 2019, with 39% of 370 basis points from 35% in the second quarter of 2018, despite lower revenue the increase in gross margin reflects a favorable change in product mix, along with a decrease in manufacturing overhead expenses and better pricing discipline.
Total operating expenses for the second quarter of not a 2019 were $6.7 million compared to 9 million for the second quarter of 2018, a 25% reduction year over year.
Sales and marketing expenses declined 30% year over year in the second quarter general and administrative expenses decreased 15% year over year.
Engineering and development expenses decreased 17% year over year in the second quarter.
In addition, operating loss for the second quarter of 2019 with $3.3 million, a decrease of 29% year over year, when compared to an operating loss of $4.7 million in the second quarter of 2018.
Net loss for the second quarter of 2019 with $3.9 million or an 18 cents.
Loss per share compared to a net loss of $4.9 million or 24 cents loss per share for the prior year second quarter.
As a reminder, our earnings release includes a reconciliation between unaudited GAAP and non-GAAP net income.
We believe non-GAAP net income provides a useful measure of the company's operating results by excluding depreciation and amortization expense stock comp expense and expenses related to the disposal of internally developed software in the cost of our patent litigation settlement.
The non-GAAP net loss for the second quarter of 2019, which excludes these items decreased 31% year over year to $2.8 million or a loss of 13 cents per share when compared to come when compared with a non-GAAP net loss of $4.1 million or a loss of 20 cents per share during the second quarter of 2018.
Our basic and diluted share count at the end of the second quarter of 2019 was 21.6 million shares compared to 20.5 million shares in the year ago quarter.
Now turning to the balance sheet cash cash equivalents and restricted cash totaled $4 million as of June Thirtyth 2019.
We remain focused on wisely invest aren't cash and programs to drive future growth and cost containment prudent cash management continue to be a top priority as always.
Our cost containment efforts have helped lead to a 29% decline in operating loss for the second COVID-19 as compared to 18.
Before I turn the call over to the operator for questions. Let me summarize our remarks.
Second quarter revenue reflects the impact of several strategic changes made during the quarter. We strongly believe those were the right decisions to position by highlights for greater long term success.
We continue to take steps to significantly improve our operational efficiencies.
And we are laying the foundation to achieve our goal of sustained growth and profitability.
This concludes our prepared remarks, I'll turn the call back to the operator to open the call for questions operator.
Thank you and ladies and gentlemen to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speakerphone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Once again star one at this time.
We'll pause for just a moment hello, everyone an opportunity to signal.
And we will take our first question from Kyle dollar with Dougherty and company. Please go ahead.
Hi, Good evening can John Thanks for taking the questions.
I I joined a little late here and said maybe able to start off with a couple housekeeping questions can you breakout the sales by bucket.
And you know laser imaging consumables services.
And maybe just talk about how those buckets were affected in the quarter and then just a little bit more about the realignment of the sales force and.
You know what the plan is to recover the the you know third of territories that were vacant in the quarter. Thank you.
Got it. Thank you guys I'll talk about the first question I'll turn it over to Todd to discuss the they can territories.
So when we file our Q tomorrow, we will have the complete breakdown of the various segments are not segments, but areas of revenue, but in general I will tell you that consumables were slightly up a lasers were significantly down for the reasons that we mentioned both internationally and domestically internationally, mainly due to the discipline on pricing and terms that we have.
Begun to try to instill to our distributors along with the.
Slower than expected ramp up in Canada.
From a.
Imaging standpoint, we're now I would say as of.
Middle of the second quarter completely out of imaging in terms of revenue. So you will see imaging be zero from here on out and it was immaterial in the second quarter.
So Todd if you want to address the open territories.
Hey, Kyle of the open territory. So I think we have about seven still opened that are actively being a search for.
I think the funnel that we put the hiring process through is a lot more rigorous today than its ever been here with multiple assessments to make sure that we find the right DNA that fits where were going as an organization and as you can probably gather as you start to radically change of culture and expectations around performance and disciplined.
Some folks end up opting out of that new world and we're actively searching for the right fit and the DNA that fits into that the world where were going into.
We've been successful in hiring some of those backfills.
But in a tight labor market as we're in and it depends on the geography.
It's taking some longer in certain geographies and it is and others.
Got it makes sense, okay and.
The major push of years of course has been Dsos and corporate dentistry can you speak.
Just curious on a macro level.
Kind of the opportunity here.
Potentially provide some color on how big do you think this is I mean, how in your assessment how far are you.
And where do you think you can go and maybe.
From a penetration standpoint, just kind of any color around this opportunity.
Yes, I would tell you that Kyle that DS Oh market corporate dentistry is here to stay it's the largest and fastest growing segment.
In the dental industry. There is a lot of drivers as we've spoken to pass of why that is the case.
We're working with one of the largest as we've indicated before and when you look at work with very large organizations like this we're seeing good progress.
But the it the progress is slow, but when it does happen.
The opportunity is large in nature, but doing it right is also important.
And making sure that we have all the pieces in place so that education is first.
In foremost most important part to get the technology embedded and the Dsos are no different than that and they want to make sure that they have the right train the trainer programs in place to be able to absorb that new technology and more importantly to get the return on investment of that technology. I think we've mentioned in the past we've already validated the return on investment there at the Dsos side.
Now it's about scaling it and were still in very active conversations around how do we do that collectively.
Between both parties.
Okay.
And some really nice progress on the leverage in the quarter.
Both gross margin and reducing operating expenses.
John as we look at the various capex buckets on the income statement.
Where do you see kind of the greatest opportunity for margin expansion.
In other words, which levers do you think will be the most important for achieving the EBITDA positive Q4 that were on track for.
Right I would say, it's probably in predominantly in two buckets.
One is on the manufacturing cost side and this is twofold, we still continue to.
Pursue manufacturing cost reductions we have implemented some steps early in Q3 that you will see the results in Q3, and Q4 with that and we still have a couple of more initiatives that we've already identified that we will implement before year end you will see the benefit of that fully in Q4. In addition in Q4, we that is our seasonally our best quarter from a revenue standpoint, So we do expect.
Certainly increased revenue over.
Our our Q2 number for sure.
And that just the volume of that.
With the.
Fixed cost dilution that occurs with that you should see a significant increase in gross margin.
On the Opex side, we actually would would expect to see sales and marketing go up.
In Q4 from Q2 levels, but that is.
The majority of that in fact, all of that is driven by higher sales as our variable comp sales commissions would go up accordingly with increased revenue.
Okay.
Got it thanks, so much for taking the questions.
Thank you Kyle thank you.
Well take our next question from Bruce Jackson with Benchmark Company. Please go ahead.
Hi, Thank you for taking the questions.
Congratulations on via working capital management, the cash balance ticked up nicely.
I'm curious to know what are some of the other working capital initiatives you might have underway. So for example.
In terms of the Dsos I'm, assuming you've got something in mind for collections and then also for the inventory.
Churn spin if you could just slow.
Give us a.
An idea of where you think yeah working capital metrics might go.
Yes so.
Thank you Bruce for the question.
And your ride we continue to focus a lot around working capital I will say from a.
Day sales outstanding AR balance our biggest challenge is on the international side and last quarter. We spoke about some of the issues that we had with our Chinese distributor we change.
Distribution partners late in Q2.
However, we still have the issue with an unpaid balance.
From the old distributor.
So we are hoping and expecting that some of the pricing and term discipline that we spoke to that we started implementing in Q2.
Will improve overall pricing terms as we go forward in the second half of the year.
Excuse me.
Payment terms and so we should see a reduction in international deal. So.
Going forward.
We really don't have that issue in the US we get paid quite quite quickly from.
The majority of our sales in the U.S. So it's more of an international receivables issue.
In terms of inventory.
We are looking at ways to reduce inventory. However, some of the initiatives that we will be rolling out in fourth quarter.
Such as the one we referenced that we did in the model markets in second quarter were actually require a little bit additional inventory.
For the structure of those deals and so inventory there'll be some pluses and minuses. Our goal is to reduce it slightly but it won't be as big as being a decrease in inventory as we are expecting if we do the international.
Receivables initiative correctly.
And that kind of leads maybe to your next question, which would be even though we had $4 million in cash at the end of the quarter.
Does that give us enough liquidity runway what runway to do everything we need to do.
And I will tell you that that is tight so we'll continue to pursue and evaluate various additional capital raise alternatives, which could include anything from debt to equity to a combination of the two.
Okay.
That's helpful. Then.
If we could talk a little bit more about some of the sales force initiatives that Youve got underway as seen spoke about coming up coming up with the right hiring profile, where and you've got the the the war and of course to.
With the metrics and the better monitoring of the sales process.
Hi, John anything else in terms of training or.
Salesforce management that you're.
Seeing some progress with.
Yes, so Bruce this is Todd and I think when you were out here you saw a lot of the visual management that keeps.
A lot of these metrics front and center and has it as an ongoing weekly conversation.
But I think first is around assessment.
Understanding what you need in the organization from a talent standpoint is I think the first.
Box you need to check off and once you understand that then how do you create an assessment process that allows you to hire the right talent because probably the most important thing that we do here organizationally and specifically around the selling organization and where were going as an organization. So we've used the Brooks group.
Extensively to do that it helps our regional sales directors really get to finalize candidate and either get to yes or no.
And I think Thats really benefit the organization from that standpoint, we've also increased our discipline and structure around that training program and bring in.
Talent is world class around building, a training program and making sure that we had the right program in place to do that and we'll be looking at the learning management system. Shortly here. So that we can test and assess the competency and how that new rep coming and they are on boarding process is progressing and where the gaps are so that we can help them get back better faster, we never had anything like that in place here at Barclays.
That's what we're building now and we've been after that probably over the last.
Eight to 10 weeks as a key initiatives now that we have the talent onboard that could lead it.
Okay.
And then my last question is about the Dsos. So I mean, you mentioned that you're in active conversations with them.
When do you think the.
You might start to see some of those conversations turn into expanded relationships and are there any things that you need to do in terms of for example, generating data.
Either.
Cost effectiveness data or clinical data in order to get the dsos to the next level.
Yeah. Good question.
When you when you look at our technology and look at the ability not only what the technology does but the feedback that it gives.
Not only the customer and BIOLASE in reference to our software and why file and enable them in it allows specially for dsos tracking metrics, just like a business to say here's the procedures my dentist did and here's the number of procedures and also look at it versus the peer group in reference to what best in class looks like so that is really advantageous for not only the customer but for us to help coach and teach around that and making sure that the utilization rate is where it needs to be and more importantly for the DS So to drive their return on investment.
We did that extensively in our trial.
With.
One of the largest dsos heartland and that that was a huge advantage for them to be able to really look at the data and understand where that return on investment was coming from and specifically in what procedures and many of those procedures were focused around soft tissue management, which is an area that many GPS don't spend a lot of time on.
But it is an opportunity for additional revenue within those GP offices and that was the main driver for that was a DSL.
All right well that's it for me congratulations on all the progress during the quarter and thank you for taking my questions.
Thanks Bruce.
And ladies and gentlemen, once again that is star one if you would like to ask the question.
We'll take our next caller Lisa Springer with singular research. Please go ahead.
Thank you.
Hi, John Hi, Todd.
I wanted to ask you about the 31% increase in the <unk>.
Market revenues, what was kind of the breakdown of that between Los Angeles and between Dallas.
Yes, so Lisa we don't break down those between the two markets.
I will say directionally the percentage was the hiring in Dallas fan in La Orange County, you May recall that we started this.
Process initiative in the second quarter of last year and allies. So is it was a pretty.
Pretty high comp year over year, and La Orange County, but they were both they both showed increases.
Okay, and you mentioned in your remarks that the slower than expected ramp up in Canada with Sinclair how important component is Canada. The overall international revenue picture.
I can't as our see an important component.
It's one obviously that's.
Close to us here in the United States to be able to leverage some of the things that we're doing stateside here and re purpose up there.
We believe with the opportunity in reach that Sinclair brings that we haven't had before just because of the geography within Canada. It provides a couple opportunities for US one is around our diode and reach around that with high Janice.
And dentists, but also Sinclair has had prior experience in selling our lasers.
And there's a huge opportunity for us to upgrade installed base, there and we're seeing some really early progress around that this quarter are ready.
Okay.
And then you mentioned in the press release about rolling out the level market initiative, an additional geographic area.
Would we expect to see one more market this year with a possible you may enter more than one market.
So Lisa this program that we will be rolling out we're looking at multiple cities.
In the.
Kind of seven to 10 range and so it will be significant and this is we are not to be clear, we're not rolling out.
Additional model markets, we think.
The testing grounds that we havent la Orange County, and Dallas are sufficient to try different things call. It our petri dish.
But this is an example of one thing that we tried in the model markets that was.
Significantly successful that we're now rolling out to other areas and if we're successful there I think it will be part of our standard.
Go to market strategy.
Okay. Thank you.
You're welcome thank you.
And there are no further questions at this time I would like to turn the conference back over to our company for any additional or closing remarks.
Thank you everyone for your interest in BIOLASE. This concludes our call have a great day.
Once again this does conclude today's conference. Thank you for your participation you may now disconnect.