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spk06: Good day, and welcome to the BioLase 2021 Third Quarter Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Todd Curley of the EVC Group. Please go ahead, sir.
spk08: Thank you, operator. Good afternoon, everyone, and thank you for joining us today to discuss BioLase's financial results for the third quarter ended September 30, 2021. On the call today from Biolase is John Beaver, President and Chief Executive Officer, and Jennifer Bright, Vice President of Finance. John will review the company's operating performance for the third quarter and then turn the call over to Jennifer to review the financials before opening the call for questions. Before we begin, I'd like to remind everyone that a number of forward-looking statements, which are any statements that are not historical facts, will be made during this presentation and subsequent Q&A session. including forward-looking statements regarding the company's strategic initiatives and financial performance. These forward-looking statements are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 and are based on Biolase's current expectations and assumptions and are subject to a variety of risks and uncertainties that could cause the company's actual results to differ materially from the statements contained in this presentation. Such forward-looking statements only represent the company's view as of today, November 10th, 2021. These risks are discussed in the company's filing with the Securities and Exchange Commission. A replay of this conference call will be available on the Biolay's website shortly after the completion of today's call. When listening to this call, please refer to the news release issued earlier today announcing the company's 2021 third quarter results. If you do not have a copy of the news release, it is available in the investor section at of the Biolase website at Biolase.com. Biolase's financial results can also be found in the company's report on Form 8K, which has been filed with the SEC. The tables we've provided in today's news release offer additional financial information, so we encourage you to review them. The tables include the reconciliation of unaudited GAAP net loss and net loss per share to non-GAAP adjusted EBITDA loss and adjusted EBITDA loss per share. as well as some more information regarding the company's non-GAAP disclosures. With that said, I'll now turn the call over to BioLase's President and Chief Executive Officer, John Beaver. John?
spk03: Thanks, Todd, and thank you, everyone, for joining us this afternoon. We appreciate your continued interest in BioLase. The third quarter was another outstanding quarter for BioLase. Our market-leading dental lasers delivered strong growth, driven by continued new customer adoption as our lasers provide a better standard of care for dental procedures and ensure a safer environment for dental practitioners and patients than traditional procedures. Before looking at the numbers, I would like to first congratulate the BioLase team on another stellar quarter. Each of you showed commitment and dedication to making our customers successful and keeping them and their patients safe while delivering an elevated standard of care and improved patient outcomes through laser dentistry. In the third quarter and throughout the year, we have delivered strong results against the backdrop of economic uncertainty and the lingering impacts of the COVID pandemic. In doing so, you have each demonstrated the resiliency of our business and validated our growth strategy. Quickly, looking at the numbers for the third quarter, we reported revenue of $9.5 million, representing 46% growth year-over-year. This now represents three consecutive quarters of strong year-over-year revenue growth as our business continues to rebound for the low points of the COVID-19 pandemic. Given the unprecedented times we went through in 2020, I believe it's also informative to look at how our performance compared to pre-pandemic quarters. Using this comparison, we delivered a solid 10% increase in revenue compared to the third quarter of 2019, which was the last pre-pandemic comparable period. This strong performance is due to rising demand for our industry-leading dental lasers, which is being driven by our intensified focus on education and training and the increased safety our lasers provide to dentists and their patients. Additionally, published studies highlighting the improved patient-reported outcomes our lasers provide are generating increased interest by the dental community. With over 78% of our US laser sales generated from new customers during the quarter and approximately 35% of water-laid sales coming from dental specialists, our messaging, marketing, education and training efforts are working. We have built the best-in-class dental lasers, and now with education and training, dental practitioners are coming to us as they look to upgrade the dental practices and improve safety and patient outcomes. Our industry-leading dental lasers provide a better standard of care for dental procedures. As I mentioned, our focus on education and training is leading to increased adoption, especially with dental specialists. Over the past 12 months, we have formed specialist academies to expand the awareness of the benefits of our laser dental lasers into dental specialist communities. Specifically, we have launched specialist academies for endodontists, periodontists, pediatric dentists, and just last week we launched an academy specifically focused on dental hygienists to drive further adoption of our laser. The market opportunity that exists for BioLase within each of these specialist communities is very meaningful. Let me quickly run through each of these addressable market opportunities. Let's start with pediatric dentists. There are approximately 7,000 pediatric dentists in the U.S., and based on our internal calculations, we believe that an additional 5% of pediatric dentists adopting our lasers will result in an additional $20 million in laser cells for bilays. In turn, those additional cells would drive follow-on consumable cells. Second, there are approximately 5,000 periodontists in the U.S., and 65 million Americans are suffering from perio-disease. Several studies have already confirmed that patient-reported outcomes of water laser-assisted treatment of periodontitis were significantly better after laser procedures. This includes the McGuire study, which was published in the Journal of Periodontology, as well as a study in the International Journal of Perio and Restorative Dentistry. With so many Americans suffering from perio disease, these studies' findings are significant in determining the best course of treatment for these patients. We believe these studies are significant for biolase because they establish new protocols for periosurgery and will drive further adoption of waterlase by periodontists. Based on our internal calculations, we believe that if an additional 20% of periodontists adopted our lasers, we would generate an additional $50 million a year in laser revenue, not including the consumable revenue that would follow. Third, there are approximately 5,000 endodontists in the U.S., and top thought leadership is quickly establishing water lasers, a new standard of care in endodontics. As part of our continued focus on education and training for endodontists, during the quarter, we announced a clinical advisory partnership with Dr. Stephen Buchanan that will expand laser adoption and increase hands-on training programs with one of the global leaders in endodontics. Dr. Buchanan has lectured and taught hands-on endodontic continuing education courses for over 30 years, both at DE Labs, his state-of-the-art training facility in Santa Barbara, California, as well as dental schools and symposiums around the world. We are proud to be working with Dr. Buchanan because of his reputation as an expert in the research and development of new technology, instruments, and techniques in endodontics. With our laser, Dr. Buchanan's practice will now have the most advanced laser technology in endodontics for his practice and training programs. During the second quarter, we announced plans to develop a new Edge Pro laser-assisted microfluidic irrigation device for endodontists with Edge Endo, a global leader in commercializing endodontic products. This new device is being developed to offer a solution to endodontists seeking more from their current cleaning and disinfecting techniques. We applied for FDA approval for this device during the fourth quarter and anticipate first sales of this product before the end of the year. Approximately 75% of all endodontics routinely use Edge Endo products, making them a natural partner for providing significant reach into this field as we work to make water laser technology the standard of care in endodontics. Based on internal calculations, we believe that if an additional 10% of endodontics adopted our lasers, we would generate an additional $25 million a year in laser revenue, not including the consumable revenue that would follow. Last but not least, there are approximately 200,000 dental hygienists in the U.S. Our new Epic Hygiene Academy will empower hygienists to utilize dental lasers to provide the highest quality of preventative and therapeutic dental care to their patients. If an additional 5% of hygienists adopt our lasers, it would generate an additional $70 million in laser revenue, not including the follow-on consumable revenue. Our focus on each of these dental specialists is already translating to higher demand for our products as these specialists look for safer, more advanced alternatives to grow their practice. Our lasers safety benefits puts us in an excellent position to advance dentistry and treat patients in the safest way possible. As we just discussed, securing even a small percentage of each of these dental specialists could, by our calculations, generate over $150 million in additional revenue from violates from laser cells plus the higher margin revenue associated with the follow-on consumables. This doesn't take into account the significant opportunity we have with approximately 150,000 general practitioner dentists. If an additional 5% of GPs adopt our lasers, it would generate $225 million in laser revenue, not including consumables. Today, the all-tissue laser market penetration in the U.S. dental market is only 7%, which is why these large market opportunities I just detailed exist today. 93% of the U.S. market has yet to adopt dental lasers. We estimate that every 1% increase in adoption of laser technology in the U.S. will equal approximately $50 million in revenue for BioLase. And this does not include the impact of additional adoption in international markets, which historically approximate 40% of our revenue. So with these significant addressable markets in front of us and the positive momentum we have experienced over the past four quarters, we are confident in our ability to achieve sustainable, and profitable revenue growth for many years to come. With that, I'll turn the call over to Jennifer to provide further details regarding our third quarter results. Jennifer?
spk02: Thank you, John, and good afternoon, everyone. My goal during my prepared remarks is to focus on providing more context around some of the numbers as well as highlight some of the operational improvements we achieved this past quarter. For further detail, please refer to our financial results, which you'll find in the financial tables of our earnings release and PENQ. Our strong third quarter performance demonstrates the business momentum we have generated since emerging from the low periods during COVID-19. This increased traction reflects a return to a more normalized operating environment for dental practitioners, as well as increased demand for our industry-leading dental lasers as a result of our increased education and training. We delivered net revenue of $9.5 million, representing 46% growth year over year. we are quite pleased with this continued momentum and for a more reflective Q3 comparable. Since we believe last year's Q3 was an anomaly, we are also very happy to report that we delivered 10% revenue growth year over year when compared to Q3 2019 pre-COVID revenue results. And let me share some additional year-over-year third quarter highlights, which include labor system sales increased 64%, consumables and other revenue increased 21%, U.S. revenue increased 25%, and international revenue increased 101%. These are all positive indicators of the increasing demand we are experiencing from our industry-leading dental lasers as dental offices in the U.S. and abroad continue to reopen, and more importantly, as they implement increased safety measures due to the pandemic. During the quarter, gross margin improved significantly despite a higher contribution from international sales which carry a lower margin since we sell through distributors. In fact, we were able to increase our gross profit by 2.6 million year-over-year. This resulted in a significantly improved gross margin of 51%, a 1,600 basis points expansion year-over-year, reflecting the impact of the increase in revenue and average selling prices for products sold during the third quarter and the effect of an employee retention credit under the CARES Act during Q3 2021. On the expense line, total operating expenses were $7.5 million for the quarter, an increase from $5.9 million in the year-ago quarter. This increase was primarily due to commission expenses for achieving sales targets, advertising expenses and related consulting costs, travel and trade show related expenses, fees incurred in connection with the special stockholders meeting to be held in the fourth quarter of 2021, and more engineering projects for 2021 as we continue to improve our industry-leading products. DAP net loss for the quarter was $3.3 million, or two cents per share, compared to net income of $12,000, or less than one cent per share, for the third quarter of 2020. Our adjusted EBITDA loss for the third quarter was $2.5 million, or two cents per share, which is relatively flat when compared to an adjusted EBITDA loss of $2.5 million or $0.03 per share for the third quarter of 2020. Now let's turn to the balance sheet. We finished the quarter with cash and cash equivalents of $33.4 million. During the proactive and strategic decisions we took over the past year, today's balance sheet remains historically strong, and we believe it will provide us with the resources to execute our growth strategies for several years without having to access the capital markets. And moving on to guidance. We're continuing to experience high demand for our dental lasers and are currently forecasting revenue for the fourth quarter ending December 31st, 2021 to be above the fourth quarter 2019 revenue level of 10.2 million. In summary, we have another strong quarter with significant revenue growth and margin expansion, and we're confident that our actions to strengthen BioLase are working. With that, I'll turn the call back to the operator and open the call for questions. Operator?
spk06: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.
spk04: We'll take our first question from Kyle Bowser of Colliers.
spk01: Hi, John and Jennifer. Congratulations on the updates. It feels like we've kind of recaptured that momentum you were experiencing right before COVID hit. So also glad to see the favorable Q4 guide here. Maybe I'll start on territories, housekeeping item. How many active territories are there currently? How many are you potentially trying to fill? Has there been labor shortages? Has it been difficult to bring on new reps? Just kind of curious on that.
spk03: Yeah, Kyle, how are you doing? Going back to 2019, you may recall that that was a big issue with our revenue drop during the year as we had roughly a third of our territories open during the year for more than half the year. Right. And so it had a significant impact on us. Today, I'm happy to report that not only are we have almost all of our territories filled, I believe we have two that are open. And I think for us, having 27, 28 territories, having two open is going to be pretty consistent and normal, just normal course of business. But we have two open. In addition, we have opened up three territories that were previously closed. that we closed prior to the and during the pandemic that we were waiting to market conditions to come back and demand we felt to come back to add those people and they've recently been hired on as well. So not only do we have the territories that we had say earlier in this year all filled except for two, which we're hiring for now, but we've added three new territories as well. Now you mentioned the labor shortage. I think that affects everybody. We've gone into what they call the great resignation today. But having said that, we've been able to keep our people this year. I think our employee population has really bought into our strategy and what we're trying to do in the dental industry. So I'm very humbled that the team for the vast majority, have stayed together.
spk01: No, that's great. I appreciate that. And it sounds like the corporate culture has really improved and led to some really good traction with keeping those territories filled. I guess the gross margin side of things, sorry if I missed this, but it was largely a function of favorable revenue mix and higher ASP. Can you just talk a little bit more about how the gross margin was so high, obviously, on higher sales, but just kind of curious how we should be modeling that going forward?
spk04: Yeah, so the other part of that is the ERC credit.
spk03: The percentage of that hits cost of manufacturing, cost of goods sold, And so we had that in total, it was about $800,000 to $900,000 in Q2, and in Q3 is favorable reduction in expenses that we will not have in Q4. So when you think about numbers, you know, maybe about half of that amount hit Q3 as a quote-unquote one-timer that won't be reoccurring. Other than that, though, we expect margins to continue strong in fourth quarter. Obviously, we expect revenue, as Jennifer guided, to be higher than certainly third quarter and higher than the fourth quarter of 2019. So with that, we get a bump up in gross margin due to the fixed cost dilution with higher revenue. And we're, you know, continuing to look for ways to do things smarter, better, faster. And I think that's played certainly a part in what we've been able to do in gross margin attainment.
spk01: Got it. That's helpful. And then maybe just lastly, if I may, on profitability, how should we be thinking about this? You know, could this be a late 22 event or is growing the top line in adoption of Waterlace? maybe more important, just kind of trying to get a sense of how we should think about that too.
spk03: Yeah, so in the past, I think I've said that, as you know, fourth quarter is typically our strongest quarter. And so for next year, I would expect EBITDA positive in Q4. That's my expectation. And when you talk about profitability, it's always internally we focus on EBITDA because we don't get into the the whole equity accounting, the interest, all that stuff. So from an EBITDA standpoint, I expect to be fourth quarter of next year EBITDA positive. And then we put in place earlier this year a fairly significant deep employee retention plan that only has one vesting you know, variable included, and that's to be EBITDA positive for the full year of 2023. So, when you think about that, you can imagine that our focus and all of our employees' focus is around that and being EBITDA positive for the full year of 2023. So, I expect, you know, 2022, as I said, fourth quarter EBITDA positive, and for the full
spk04: will finish in 2021 and EBITDA positive in 2023. That's great. I appreciate the caller here and congrats on the update. Our next question comes from Bruce Jackson of the Benchmark Company. Hi. Thank you for taking my questions. Just to go back to the COVID-19 impact on labor.
spk07: I'm assuming that with finding those people, and then also, have you experienced any difficulty in obtaining components or parts for the machines?
spk03: Yeah, so our manufacturing team has been around for a while, fairly long-tenured, and we have not seen very much disruption with the manufacturing team. in terms of people attriting. However, on the parts side and supply chain side, once again, I think we're in the same boat with just about every other manufacturing company. We have seen some delays. I'm happy to report that as we look into 2022, we feel fairly confident that we've addressed all the supply chain in good shape to address what we expect. our revenue to be in 2022, and we're already starting to work on 2023. So while we're good for now, we're constantly looking at different supply options, ordering more. You may have seen that when you see the balance sheet, our inventory is slightly higher as we've kept safety stock more than we have in the past. So we're doing some things like that to ensure that when the sales come, we can manufacture what's needed.
spk07: Okay. Here, that's a nice segue into my next question. Last quarter, we had the Delta variant, and some companies experienced some difficult sales environment in some markets. Maybe you could just tell us, and you appear to have powered through pretty effectively. So I was just wondering if you could give us a little color on the geographic spread of the sales and if you noticed any impact from COVID-19 and then how things are coming out of the third quarter into the fourth quarter.
spk03: So overall, we're feeling pretty good about where we are in terms of getting access to doctors. And I'll talk the U.S. first because the international is still a little bit different story. So in the U.S., it's been, you know, really state by state, city by city in a lot of instances. And this is just not in the last, you know, quarter with the Delta variant. And it's been for the last 12, 15 months where we might have an event that a state decides we're going to shut down indoor events. or the numbers in that state, you know, infection rate goes up and people get scared to come out, you know, certainly in the way they would do it during normal times. And we've had to cancel a couple of events, a couple of WTP events. We didn't have enough people, and I think, I believe that that was because of some of the the Delta variant, COVID, you know, breaking out in those areas. So as we go into fourth quarter, we haven't seen much of that. I was just at the American Academy of Perio meeting in Miami Beach. It was one of the first larger events that the dental community has had, and it was fairly well attended in Miami. So that gave me hope that these other dental trade shows and so forth are going to be well attended as well. We've got the Greater New York show coming up right after Thanksgiving. And while I think the traffic will be less than it has been in the past, it still will be probably better than we would have expected six months ago when we were thinking about it. However, international is still, I think, more of an issue than the US, COVID. As I said on the call last quarter, it is very much of a country by country really issue for us. Some countries are opening up. Some countries have opened up and then shut down and then open up back again, as I'm sure you've read. And so we're just being very, I'd say nimble in terms of where we have shows, where we have events, where we have training. And, you know, third quarter international came back nicely. So I think the team's doing well and, in addressing those issues.
spk07: Okay, great. Then last question on the Edge Pro device. You submitted the 510K this quarter, typically a 90-day clock. We've heard the FDA is a little bit slower than usual. So should we be thinking about this like around the end of the quarter or maybe early Q1 next year?
spk03: Well, this would submit it as a S or special 510K. And so it is typically a 30-day, not a 90-day. And we would expect some delays from that 30 days, but still get it done in the fourth quarter. Of course, a lot of this is out of our hands in terms of the FDA. But from what we know and hear, we still believe it will get approval this quarter and have some sales, commercial sales, in the fourth quarter.
spk04: All right, great. Thank you for taking my questions. Thanks, Bruce. We'll take our next question from Matt Bullock of Maxim Group.
spk05: Hi. Thanks for taking my questions. Just a quick follow-up on the Edge Pro. Congrats on submitting that special 510K. Could you give us any kind of sense for what we should expect in terms of list price or gross margin or If you can't provide that level of detail, maybe whether or not it would be accretive to corporate gross margin.
spk03: Yeah, so we, I can't give any of that information. We will not be, you know, the marketer or the retail seller of that. Obviously, that will be Agendo. So, because we are manufacturing basically private label for them, the margin will be lower. than what our typical margin is. But at the same time, we won't have all of the sales and marketing expense associated with that. So it's really just, you know, where those costs come out in geography and the income statement.
spk05: Excellent. Helpful. And then is there anything you want to highlight in terms of progress with dental service organizations, maybe sales, pipeline of agreements, whatever it may be?
spk03: We continue to make progress in the DSO space. It is, I'd say, slow progress. Most of those organizations don't move quickly, but I'm happy with where we are in our progress this year. Yeah, I would say more to come, hopefully pretty soon, more information to come, but nothing to report out as of today.
spk05: Okay, understood. Thank you very much.
spk04: I'll hop back in the queue. Thank you. Once again, if you would like to ask a question, please press star 1. We'll take our next question from Ed Wu of Ascendia Capital. Yeah, can you talk about inflation and any impact on your long-term margins?
spk07: Thank you.
spk03: Yeah, thanks, Ed. So we are seeing inflation both from personnel, consultants, third parties, and supply chain. We've done, and our sales team has done a tremendous job in holding prices. And as Jen mentioned in her comments, part of the reason for the gross margin is we have increased average selling prices really across the board for our lasers. We'll continue to do that, and we're doing that by continuing to sell value in packaging deals that we think are valuable for the dentists. So we think that at least we can stay even with what we're seeing in inflation with what we're doing on average selling prices.
spk04: Great. Thank you, Adam. I wish you guys good luck. Thank you, Ed. That concludes today's question and answer session.
spk06: Mr. John Beaver, at this time, I will turn the conference back to you for closing remarks.
spk03: Thank you, and I want to thank everyone for being on today's call. With the many positive changes made over the past year, Biolase is a healthier company today, and we believe we are positioned for long-term revenue growth. We now have the commercial infrastructure in place and greater financial flexibility to capitalize on the growth opportunities before us. We're confident in our business plan, our ability to achieve sustained profitability and revenue growth over time. We believe our long-term prospects for growth are significant as dentists and patients worldwide look for solutions that allow them to provide and receive dental treatment in the safest way possible. Jennifer and I look forward to reviewing our fourth quarter results in March, and in the meantime, we will be participating in several investor events, including the Benchmark Investor Conference on December 2nd. We will also be hosting meetings at the J.P. Morgan Healthcare Conference in San Francisco January 10th and 11th. If you're participating in any of these events, please schedule a meeting with us. We look forward to it. Thank you, operator, and thank you, everyone, for your interest and vales. This concludes our call. Have a great day. Thank you.
spk06: This concludes today's call. Thank you for your participation. You may now disconnect.
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