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spk06: Good day and welcome to the Biolase 2021 Fourth Quarter and Full Year Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Todd Curley of EVC Group. Please go ahead, sir.
spk01: Thank you, Operator. Good afternoon, everyone, and thank you for joining us today to discuss Biolase's financial results for the fourth quarter and full year ended December 31st, 2021. On the call today from Biolase are John Beaver, President and Chief Executive Officer, and Jennifer Bright, Vice President of Finance. John will review the company's operating performance 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 of forward-looking statements, which are statements that are not historical facts, will be made during this presentation and subsequent Q&A sessions. including forward-looking statements regarding the company's strategic initiatives and financial performance. These 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 made. Thus, forward-looking statements only represent the company's view as of today, March 17, 2022. These risks are discussed in the company's filings with the Securities Exchange Commission. A replay of this conference call will be available on the 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 2021 fourth quarter and full year financial results. If you do not have a copy of the news release, it is available in the Investor Relations section of the Biolase website at www.biolase.com. Biolase's financial results can also be found in the company's report on Form 10-K, which will be 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 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. Before we begin, let me briefly address the situation in Ukraine. Our thoughts are with the people suffering and fleeing from the violence, including the Ukrainian dentists and trainers who are part of the Biolase family. BioLase is stepping up to help where we can, and we hope this situation is resolved peacefully in the very near future. Now let's move on to our results. The fourth quarter was another outstanding quarter for BioLase. We had a solid end to a very successful year, as we significantly exceeded our previously stated outlook for the quarter. Our market-leading dental lasers delivered another quarter of strong revenue growth, primarily driven by continued new customer adoption. Dentists are migrating to our lasers because they provide a better standard of care for dental procedures and ensure a safer environment for dental practitioners and patients than traditional procedures. I expect this trend to continue as we put in place a well-developed roadmap of strategies and investments that we believe will drive continued growth in 2022 and beyond. Now let's review the results. We reported fourth quarter revenue of $12.4 million, representing 46% growth year-over-year and finished 2021 with a total revenue of $39.2 million, up 72% year-over-year. Our strong performance throughout 2021 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 benefits our lasers provide to dentists and their patients. We built the best-in-class dental lasers, and now with our focused efforts, dental practitioners are coming to us as they look to upgrade their dental practices and improve patient outcomes. BioLase owns approximately 60% of the all-tissue laser dental market, represented by our WaterLase brand. However, this still represents a small fraction of overall dental market, as the penetration rate of dental lasers in the overall dental market is only about 7% in the US and less than 2% worldwide. Therefore, 93% of the US dental market still isn't using all-tissue lasers. So the opportunity remains vast, and we aim to increase this market adoption in the coming years. Many of you have heard me say this before, but it bears repeating because of its significant impact. Each 1% increase in the adoption of all-tissue laser technology in the U.S. will equal $50 million in additional revenue for BioLase, assuming we keep our same 60% historical market share. This doesn't include potential increased adoption in international markets, where historically approximately 40% of our revenue has been generated, or the follow-on consumable revenue generated from the procedures done with our laser systems. The question is, how do we get the other 93% of dentists to use dental lasers? We have a three-pronged strategy for growth that was implemented in 2021 that has created the momentum we experienced in 2021 and we believe will allow us to continue our growth trajectory in 2022 and beyond and drive further penetration into the overall dental market. The first prong of our growth strategy is to get dental specialists on board. Over the past 12 months, BioLase has formed specialist academies to expand the awareness of the benefits of dental lasers in these dental specialist communities. Specifically, we launched specialist academies for endodontists, periodontists, pediatric dentists, and 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. Led by key opinion leaders in each of these specialties, BioLase is increasing education and training to drive expanded adoption. Starting in the first quarter of 2021 and every quarter since, specialists have made up at least a third of our total U.S. Water Lays revenue. Our focus on increasing education and training for these dental specialists is translating into higher demand for our products as they look for safer, more advanced alternatives to improve patient outcomes and improve their practices. For perio specialists, repairing and saving implants is a very large opportunity. About 20% of implants fell in the first three years. Without our laser, the only way really to get an implant repaired is to replace it. However, our laser can address this issue and save the implant without having to replace it. Another example is in the treating of root canals. Traditional treatment options kill 50% or so of bacteria, whereas using our laser, the doctor can get rid of 99% of bacteria. This is a big deal. During the fourth quarter, we received FDA clearance for the new Edge Pro laser, which we co-developed with Edge Endo, a global leader in commercializing products for the endodontics market. This device offers endodontics a new solution that provides a more effective cleaning and disinfection alternative for root canal procedures. The Edge Pro laser-assisted microfluidic irrigation device is built on BioLase's patented and proven laser technology that has been shown to provide outstanding debridement, cleaning, and disinfection. I won't go through every type of procedure, but these two examples demonstrate how and why our lasers are being adopted by dental specialists. Securing even a small percentage of each of these dental specialties by our calculations could generate over $150 million in additional revenue for biolays from laser sales, plus higher margin revenue associated with the follow-on consumables. The first prong of our growth strategy can generate meaningful results. However, it doesn't take into account the significant opportunity we have with approximately 150,000 general practitioner dentists in the U.S. This segment is the focus of the second prong of our growth strategy. If an additional 5% of GPs adopt our lasers, it would generate $225 million in laser revenue, not including the consumables. So how do we penetrate this large growth opportunity? In 2021, we launched the Water Lase Exclusive Trial Program, or WETP. which puts a BioLase laser in the GP's offices for 25 days, supported by a mentor, and includes two days of in-person training, all at no cost. At the end of the 45 days, the GP has the option to buy our laser or not. We held over 30 of these events in 2021, each of which had four to eight GPs participating. I'm excited to say that we had a 40% success rate and sold over $2 million in lasers as a result of these events last year. Our goal in 2022 is to host 40 of these events, and I believe we can increase our win rate to over 50% as we gain valuable feedback with each event that can help facilitate our success. While the cost of a water laser is around $70,000, GPs can finance this purchase for about $1,100 a month. It's a win-win for GPs because a big part of the Water Laser Exclusive Trial Program is teaching these GPs the additional procedures they can do in-house with our laser so they can keep more procedures and revenue in-house. One example is GPs getting into perio, where they can charge $1,200 to $1,500 per quadrant to treat perio disease. Another example of an additional procedure GPs can keep in-house are frenectomies, which they can charge $500 to $1,000 to do with our laser. These two examples of less invasive procedures are exactly what GPs want and need to grow their business and they do just two additional procedures a week, they will generate a 200% return on their investment in our laser. The more training and education we do through the WTP, the more success we are going to have in driving laser adoption. The third prong of our growth strategy is getting the corporate dentists to adopt our lasers. We currently have ongoing trials with four of the five largest DSOs in the United States, including Heartland, which is the largest. Heartland has over 2,500 dentists and over 2,000 offices. Today, most new dentists are employed by the DSOs right out of dental school. Our goal is to have them learn to use our lasers while they're at the DSO and make lasers an essential part of their practice moving forward so that if and when they do go out on their own, they become a new buyer of our dental laser and our consumables. Last year, we made solid inroads with some of the smaller DSOs, like one on the East Coast that bought four WaterLase lasers and 50 Epics. These relationships are important and validate our laser technology, and we believe that the large DSOs can be a far greater revenue contributor in the future. So in summary, we have a large market opportunity ahead and a well-developed roadmap for growth, leveraging our industry-leading product offerings. Our three-pronged growth plan is generating positive results, and I'm confident in our ability to drive sustainable and profitable revenue growth in 2022 and beyond. With that, I'll turn the call over to Jennifer to provide further details regarding our fourth quarter results and four-year results.
spk02: Thank you, John. Good afternoon, everyone. The goal during my prepared remarks is to provide more context around some of the numbers, as well as highlight some of the operational improvements we achieved during the fourth quarter and full year. For further details, please refer to our financial results, which you can find in the financial tables of our earnings release and 10-K. Our strong fourth quarter performance demonstrates the business momentum we have generated this year. We fully rebounded from the lows of COVID as our full year 2021 revenue of $39.2 million was up 4% over 2019's pre-pandemic level. 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 because of our increased education and training. For the fourth quarter, we delivered net revenue of $12.4 million, representing 46% growth year-over-year. Compared to the fourth quarter of 2019, which for the purposes of today's call is more of an apples-to-apples comparison since it was the last full quarter prior to the impact of the COVID-19 pandemic, our Q4 revenue increased 22% year-over-year. Now let me share some additional year-over-year fourth quarter highlights, which include... U.S. laser system sales increased 39% compared to 2020 and 61% compared to 2019, which was our last full quarter prior to COVID. U.S. consumable sales increased 40% compared to 2020 and 75% compared to 2019, driven by significantly increased volume of procedures. International laser system sales increased 87% compared to 2020, but were down 11% compared to 2019. International consumable sales increased 29% compared to 2020 and 61% compared to 2019. And we continued momentum with new customer adoption in 2021 with 82% of our U.S. laser sales coming from new customers and over 47% of water laser sales coming from dental specialists. These are all positive indicators of the increased demand we are experiencing for industry-leading dental lasers as dental offices in the U.S. and abroad reopen. Fourth quarter gross margin improved significantly, despite a higher contribution from international sales, which carry a lower margin since we sell through distributors. The gross margin of 40% is a 2100 basis points expansion year over year, reflecting an increase in sales, favorable absorption of fixed expenses, higher average selling prices, and fewer inventory write-offs and reserve adjustments in 2021. On the expense line, Total operating expenses were $9.3 million for the quarter, an increase from $7.1 million in the year-ago quarter. This increase was due to commission expenses for achieving sales targets, advertising expenses and related consulting costs, and travel and trade show-related expenses driven by a normalization in such expenses as compared to 2020. We also incurred higher costs for engineering projects as we continue to invest in R&D to ensure our industry-leading products remain as such. Gap net loss for the quarter was $5.3 million, or $0.03 per share, compared to a net loss of $6.1 million, or $0.07 per share, for the fourth quarter of 2020. Our adjusted EBITDA loss for the fourth quarter was $4.3 million, or $0.03 per share, compared to an adjusted EBITDA loss of $4.5 million, or $0.05 per share, for the fourth quarter of 2020. Now let's turn to the balance sheet. We finished the quarter with cash and cash equivalents $30 million. Due to 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 market. Now moving on to guidance. We are continuing to experience strong demand for our dental lasers and are currently forecasting revenue for the first quarter ending March 31, 2022, to exceed $9 million, which would represent growth of at least 11% year over year. For full year, we anticipate net revenue to increase a minimum of 10% from 2021 levels. In summary, we had another strong quarter with significant revenue growth and solid margin expansion, and we're confident that our actions to strengthen bilays are working. Furthermore, the combination of our performance and the capital resources we have in place give us flexibility to execute the multi-year growth strategies that John outlined. Before I open the call to questions from our covering analysts, we'd like to take this opportunity to address a few questions from our retail shareholders submitted through the Say Technologies platform. John, the first and one of the most asked questions is whether the company is still considering a reverse stock split to reach the minimum stock price required by NASDAQ.
spk04: Thanks, Jennifer.
spk03: Yes, we are planning on again asking our shareholders for approval of a reverse stock split so we can achieve the minimum stock price required by NASDAQ. Just a couple of weeks ago, we announced a declaration of Series G preferred stock dividend to our common stockholders. Outstanding shares of Series G preferred stock will boat together with outstanding shares of the company's common stock as a single class exclusively with respect to a reverse stock split and will not be entitled to vote on any other matter except to the extent required under the Delaware General Corporation law. We believe this will allow us to obtain shareholder approval for the reverse stock split and allow us to remain listed on NASDAQ, as well as increase our share price appreciably, which we feel is imperative as we look to attract more institutional shareholders. Given our expectations of continued revenue growth and our march toward profitability, we believe we'll be able to support the reverse split and attract more institutional investors.
spk02: Thank you, John. The second most asked question is a two-parter. First, what's the company's plans for five years, the next five years? And second, what is your strategy to increase revenue?
spk03: Well, I think I covered that one in significant detail in my prepared remarks, but to sum it up, we believe we have a large market opportunity ahead of us given the low penetration of all tissue lasers in the overall dental market. and that we have a well-developed roadmap for growth, leveraging our industry-leading product offerings. We believe the three-pronged growth plan, which I lined out, which we began to implement in 2021 and is already generating positive results, will drive sustainable and profitable revenue growth in 2022 and beyond.
spk02: That sounds great. We have one more question from the State Technology Platform. What's the plan to increase shareholder returns?
spk03: Our plan to increase shareholder value is to continue to execute our growth plan and increase the penetration of our all-tissue lasers into the large dental market opportunity. As I mentioned before, every 1% increase in adoption rate just in the U.S. alone equates to about $50 million of revenue for us, which is significant. We expect to do this in a profitable manner and achieve profitability by the end of 2023. In addition to executing our established sales strategy and accelerating the adoption curve for all-tissue lasers, We'll continue to be proactive in telling our story to investors and communicating the significant opportunity we have ahead of us.
spk02: Thanks, John. With that, I'll turn the call back to the operator to open the call for questions. Operator?
spk06: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. And 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 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions.
spk07: And we will go to our first question from Bruce Jackson of the Benchmark Company.
spk05: Hi, good afternoon, and thank you for taking my questions. So, any questions about... Hi, a few questions about the Salesforce. So we have the Omicron wave late in the fourth quarter. How have you been finding access to the dental offices for your Salesforce?
spk03: Yeah, so that's really a two-part question. And in the U.S., we're getting very good access today and did in the first quarter. We had some, I think... You know, push back from going into offices in January and February. We're really not seeing that now. You know, as I mentioned, the second prong of our strategy is around the Water Lays Exclusive Trial Program. And Bruce, we were a little disappointed in January and February in that we had to cancel a handful of events simply because I believe the Omicron variant, you know, rightfully so scared people away from attending in-person events. But I believe we're back on track now. The second part of that is around the international, and that continues to be on a country-by-country, case-by-case basis. We did see our international business and do expect it to be picking back up in the first quarter, though we still have pockets of areas that we just can't hold events at because of the current pandemic situation.
spk05: Okay, okay. And then the other question, if I can ask about the guidance for 2022. So in 2021, you were able to generate 11% growth without the contribution from Edge Pro or the additional events. So it seems like if you could continue at that same growth rate that there's upside to the base business. Maybe you could just comment on how you put together the guidance for 2022 and what the contribution of EdgePro is expected to be.
spk03: Yeah, so certainly EdgePro will provide additional revenue to us in 2022 versus 2021. In 2021, we only sold a handful of units late in the fourth quarter, and we expect a more robust rollout in 2022. In particular, after the annual AAE show in April. Having said that, I did hedge somewhat, Bruce, on our guidance. Given where we are in the world today with the Russia-Ukrainian conflict going on right now, the situation we have with our supply chain, I want to be what I believe somewhat conservative in looking forward I'll just give you one example, real-life example that we came up with yesterday. We had a dentist in the middle part of the country, central region, that was ready to buy a water laze, and they had family in Ukraine, and they ended up sending money over to the Ukrainian family and decided to take a hold on buying a water laze. You know, just one example, but there are other examples like that out there. In addition, you have the overall economy with the inflation rate going up, which I think has given some pause to some dentists to make capital purchases. So I wanted to be cognizant of that in giving our guidance, which I said hopefully is conservative.
spk08: All right. That's it for me. Thank you very much. Thank you, Bruce.
spk07: And we'll go next to Matt Bullock of Maxim Group.
spk09: Hi, yeah, thanks for taking my question. Just a few for me. Seems like BioLite is doing a pretty great job driving procedure volumes at existing customer sites. I think you mentioned it was a 40% increase year-over-year in U.S. consumable sales. What do you attribute this to, and what's the company focusing on in terms of driving utilization for 2022?
spk03: Yeah, you're right. And when I look at consumable revenue for the company, it's good to look at year over year, that's fine. But I'm actually looking at sequential quarterly revenue. And as you put your Qs and Ks together, you can see that we've had sequential growth regardless of the seasonality in the business, which I'm very happy with. Why that is, I believe, is because we are leading with education and training. We've talked in the past that BioLase sold to the innovators in the market, the first 5% to 7% of dentists who really want to be the first dentist on their block with the latest technology, may not even use it, but they like having it. That is not where we are today. We're into the early adopter segment of the population. And that early adopters segment needs to have a laser that works all the time, that is intuitive to use. It doesn't take a physics degree. I think we've achieved that. They also need continuous education and training around procedures, new procedures. And as I mentioned in the past, I think that's the area that we've done the best job of improving over the last year or two is in events and around the education. And I think that's driving consumables.
spk09: Understood. Thank you. And then if you could just provide a little bit more color on, you know, the reception of the Edge Pro so far in the market and maybe whether or not that's kind of opening doors at some endodontists that are maybe more interested in buying some of your other lasers as well.
spk03: Yeah, good question. So in the first quarter, you know, once again, we're not really involved in the marketing or the sales, you know, of the Edge Pro unit. But I believe that Agendo took a soft launch strategy with this. So in the first quarter, they wanted to be sure they walked before they ran. And so it was a number of units that went out to the key opinion leaders, some of their better customers and so forth, which I think they're planning a more significant launch at the AE meeting in San Diego in April. But you're right. I think that noise in the market is helping both Edge Pro selling or Edge Endo selling Edge Pro units, but also allowing BioLase to have some conversations that we normally wouldn't have had before with potential endodontists, but even more importantly, the GPs who are doing endodontics and looking at WaterLase as a new technology for them.
spk08: Excellent. I appreciate that, Collier. I'm going to pass it on. Thank you. Okay. Thanks, Matt.
spk07: And as a reminder, you may press star 1 on your telephone keypad if you have a question at this time.
spk06: We'll go next to Ed Wu of Ascendant Capital.
spk10: Yeah, congratulations on the quarter. You touched a little bit about Omicron affecting January, February office visits. What about on the supply chain and also any impact on inflation or rising raw material costs?
spk04: Yeah, so good questions, Ed.
spk03: From a supply chain standpoint, it is a day-to-day activity, making sure we have all of the necessary raw materials for the balance of the year. I feel like we're in good shape now for the balance of 2022. And we already began securing raw materials for 2023 based upon our growth projections. So feel pretty good about that, but you never can feel overly confident given today's environment. From an inflation standpoint, you know, that's an interesting topic. We certainly have seen inflation hit us, impacting not only our cost of goods sold in both part, you know, raw materials, but also in labor. The labor market, as we all know, is much hotter now than certainly I think ever seen in my career. And so we've had inflationary pressures there. That goes to other services that are below the cost of goods sold line as well. We've had a lot of talks internally about pricing and does it make sense to pass this on to our customers now? We have taken a stance to hold pricing firm in 2022. I believe that our most important thing we can do today is to accelerate that adoption of laser use in dentistry, and I don't want to do anything that's going to jeopardize or slow down that adoption acceleration. So at this point, you know, we're fighting those inflationary pressures, may take in a little bit less margin, but I believe in the long run it will benefit us.
spk08: Great. Thank you, and I wish you guys good luck this year. Thank you, Ed.
spk07: And we'll go to a follow-up question from Bruce Jackson of the Benchmark Company.
spk05: Hi, thank you. Just a follow-up question on the dental service organization. So I know you've been talking to them for a while now. Maybe you could just remind us about the process that you're going through with these DSOs, and what are the remaining hurdles that you need to get over in order to get – onto some of their contracts?
spk03: Well, Bruce, that sounds like an easy question, but it would probably take me three hours to fully answer it because each one is different. But let me try to generalize. So a few things. One is I would love to be able to highlight every cell that we make to a DSO publicly, obviously, for selfish reasons. But sometimes we're precluded from doing that because the DSO themselves don't necessarily want that publicity. So there's a two-way street in terms of communication. In terms of where we are, we continue to work with Heartland as we publicly stated before. Right now we're in the process. They have bought practices that had, I would say, a legacy laser. at that practice and that doctor may not even bought the laser himself. It may come with the practice. So we're in the process now identifying a handful of cases like that and retraining them and getting them back up and running. That's kind of the next step with Heartland. We have another DSO that's very large. I can't share their name at this point, but we just signed a pricing agreement with them. probably will not be significant revenue until next year, but it took us two years to get on the pricing formulary as an example. We're there now. It doesn't mean necessarily they're buying from us today, but we had to get that step done to take the next step, which is actually the purchase.
spk08: Okay, great.
spk05: That's very helpful. And then Last question for me is just on the sales force generally. You mentioned the employment situation. Tell us about if your sales force has been stable and if there have been any changes in the headcount.
spk03: So it's been very stable. Probably the most stable during the four and a half years I've been with the company that I can remember. We have, I believe, as of today, one opening, uh, which is, you know, given our history, not very much. And so we're really happy with that. Um, we had a, um, our first since COVID, um, in-person commercial team meeting in February. And I was just, um, it was a two day event. I was, you know, I left there just invigorated with the team that we have. Um, you know, it was a typical, um, commercial team meeting where you had awards given out, but it was also a lot of training. and sharing of success stories. So I can't tell you how excited I was when I left there. I think overall from the feedback I had, the whole sales team was also excited. It's really a cohesive group now, and I think more so than we've ever had.
spk08: All right. That's it for me. Congratulations on all the progress. Thanks, Bruce.
spk07: And with no other questions in queue, I would now like to turn the call back over to John Beaver for closing comments.
spk03: Thank you. And I want to thank everyone for being on today's call. I also want to thank the BioLase team for their continued commitment and dedication throughout the last couple of years. Each of them has worked tirelessly to make our customers successful in delivering an elevated gold standard of care and safety through laser dentistry. So to wrap it up, With the many positive changes we made over the past year, BioLase is a much healthier company today. We have the commercial infrastructure in place and financial flexibility to capitalize on the multiple growth opportunities ahead of us. We are confident in our well-developed strategy and our ability to achieve sustained profitability and revenue growth. Jennifer and I look forward to reviewing our first quarter results with you in May, and in the meantime, we will be participating in several investor events, including the Maximum Investor Conference on March 28th. If you're participating in this event, please contact Todd Curley at tcurley at evcgroup.com to help facilitate a meeting with us. Thank you, operator, and thank you, everyone, for your interest and bylaws. This concludes our call.
spk04: Have a great St. Patrick's Day. Thank you.
spk06: And again, this concludes today's call. Thank you for your participation. You may now disconnect.
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