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spk01: Good day and welcome to the Biolaids first quarter 2022 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn a call over to Todd Curley of EVC Group. Please go ahead.
spk06: Thank you, Operator. Good afternoon, everyone, and thank you for joining us today to discuss Biolase's financial results for its first quarter ended March 31, 2022. 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 for the first quarter and then turn the call over to Jennifer to review the financials in more detail before opening the call for questions. Before we begin, I'd like to remind everyone that a number 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 anticipated financial results. These forward-looking statements are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 and are based on Biola'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. Such forward-looking statements only represent the company's view as of today, May 12, 2022. These risks are discussed in the company's filings with the Securities and Exchange Commission. The 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 2022 first quarter financial results. If you do not have a copy of the news release, it is available in the investor section of the BioLase website at www.biolase.com. Violated financial results can also be found in the company's report on Form 10Q, 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 financial 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 first quarter was another outstanding quarter at BioLase. We maintained our growth momentum with our total revenue increasing 25% year over year. Our continued strong performance reflects positive momentum on several fronts. During the first quarter, we saw continued progress with our Water Lase exclusive trial program as our success rate, the percentage of dentists who purchased after the trial, surpassed 50% year-to-date. This program, along with the launch of our specialist academies for endodontists, periodontists, pediatric dentists, and dental hygienists, generated increased adoption of our laser technology in the U.S. in the first quarter, with 81% of our U.S. Water Lase sales coming from new customers and 65% of sales coming from dental specialists. Additionally, we had 14 territory managers exceed their sales quota in the first quarter, which is significant given that the first quarter is historically our softest quarter. Our 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 benefits our lasers provide to dentists and their patients. We have built best-in-class dental lasers backed by peer-reviewed papers. And now, with our focused efforts, dental practitioners are coming to BioLase as they look to upgrade the dental practices and improve patient outcomes. We 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. BioLase currently has an approximately 60% share of the all-tissue laser dental market, represented by our WaterLase brand. However, this still represents a small fraction of the overall dental market, as the penetration rate of dental lasers in the overall dental market is only between 7% to 8% in the US and less than 2% worldwide. With over 90% of US dentists still not using all-tissue lasers, the opportunity for BioLase remains vast, and we aim to increase market adoption through our well-developed growth strategy. Many of you have heard me say this before, but it bears repeating because of this significant potential impact on our revenue. We believe each 1% increase in adoption of all-tissue laser technology in the U.S. will equal approximately $50 million in additional revenue for BioLase, assuming we keep our same 60% market share. This doesn't include potential increased adoption outside the U.S., where historically approximately 40% of our revenue has been generated, or the consumable revenue generated from the procedures done with our laser systems. So how do we get dentists to use our dental lasers? We have a three-pronged strategy, which we began implementing in 2021, and has created the growth momentum we are experiencing today. The first prong of our growth strategy is to get dental specialists on board. In 2021, BioLase forms specialist academies to expand the awareness of the benefits of dental lasers in dental specialist communities. Specifically, we launched specialist academies for periodontists, endodontists, pediatric dentists, and dental hygienists to drive further adoption of our lasers. The opportunity to exist for BioLase within each of these specialist communities is very meaningful. Led by key opinion leaders, or KOLs, in each of these specialties, BioLase is increasing education and training to drive expanded adoption. During the first quarter, we saw a significant increase in sales to specialists, with 65% of our US waterway sales coming from these specialties. 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. One example of this is for perio specialists where repairing and saving implants is a very large opportunity because an estimated 20% of implants fail in the first three years. Without our laser, the only way 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. While this is only one example, it demonstrates why our lasers are being adopted by perio specialists. Securing even a small percentage of each of these dental specialists by our calculations could generate over $150 million in additional revenue for biolates from laser cells, plus higher margin revenue associated with the follow-on consumables. The second prong of our growth strategy is focused on the significant opportunity we have with approximately 150,000 U.S. general practitioner dentists. If an additional 5% of GPs adopt our laser in the U.S., it would generate $225 million in laser revenue, not including consumables. So how do we penetrate this large growth opportunity? In 2021, we expanded the Water Laser Exclusive Trial Program, which puts a biolase laser in the GP's office for 45 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 the laser or not. We held over 30 of these events in 2021 and 12 events so far this year, each of which had four to eight GPs participating. As I mentioned earlier, we saw Waterly's exclusive trial program success rate increase significantly from almost 40% during 2021 to an excess of 50% during the first four months of 2022. Our goal in 2022 is to host 35 to 40 of these programs and we're on track to do that. It's a win-win for GPs because a big part of the Water Laser Exclusive Trial Program is teaching these general practitioners the additional procedures they can do in-house with our laser. So they can keep more procedures and revenue in-house and they just do two additional procedures a week. It will generate a 200% return on their investment in our laser. That, along with the better patient experience, is motivating dentists to incorporate water laser technology into the practice. The more training and education we do through our water laser exclusive trial program, 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. 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 when they do go out on their own, they become new buyers of our dental lasers and our consumables. Over the last few quarters, we've made solid inroads with some of these DSOs. These relationships are important and validate our laser technology, and we believe that the large DSOs can be a far greater revenue contributor going forward. As we look to continue our growth momentum and execute our growth strategy, we are always looking for ways to further improve our sales engine. One new approach that we implemented at the end of last year is the sales pod strategy that focuses on specific geographies that represent large growth opportunities. Our first pod in the upper Midwest area is focused on expanding our penetration in that geography. Currently, the pod is fully staffed with a five-person sales team, including a territory manager, two account specialists, a field engineer, and an inside account specialist. The results, even at this early stage, are quite encouraging, and we plan to expand the PI System to other territories that also represent large growth opportunities. So, in summary, we have a large growth opportunity and a well-developed roadmap for growth as we leverage our industry-leading product offerings. Our three-pronged growth plan is generating positive results, and we are confident in our ability to drive sustainable and profitable revenue growth in 2022 and beyond. Before I turn the call over to Jennifer, I want to thank our investors for voting to approve our reverse stock split. Over 70% of our shareholders who voted on the proposal voted for the proposal. So again, thank you for that support. The primary purpose of the reverse stock split was to raise our per share trading price to maintain our NASDAQ listing. We also believe the higher share price will allow us to attract institutional investors that will promote greater liquidity for our stockholders. With that, I'll turn the call over to Jennifer to provide further details regarding our first quarter results.
spk02: Thank you, John, and good afternoon, everyone. I'm going to provide more context around some of the numbers, as well as highlight some of the operational improvements we achieved during the first quarter. For further detail, please refer to our financial results, which you can find in the financial tables of our earnings release and 10-Q. Our strong first quarter performance demonstrates the continued business momentum we built in 2021. This increased traction reflects higher demand for our industry leading dental lasers because of our increased education and training. For the first quarter, we delivered net revenue of 10.2 million, representing 25% growth year over year. Some additional first quarter highlights include U.S. laser system sales increased 43% year over year. U.S. consumable sales increased 35% year over year, driven by increased procedures using BioLase lasers. International laser system sales increased 15% year over year. International consumable sales remained consistent with the first quarter of last year. We continued momentum with new customer adoption in the first quarter, with 81% of our U.S. Water Lase sales coming from new customers, and approximately 65% of U.S. Water Lase sales coming from dental specialists. Lastly, as John mentioned, the success rate of our Water Lays exclusive trial program increased significantly during the quarter at over 50% year-to-date, highlighting the success of this program. These are all positive indicators of the increased demand we are experiencing for our industry-leading dental lasers in the US and abroad. First quarter gross margin improved significantly to 47% versus 34% a year ago and 34% in the first quarter of 2019 prior to the impact of the COVID-19 pandemic. The higher gross margin reflects the increase in sales and higher average selling prices in the quarter, as well as favorable absorption of fixed expenses. On the expense line, total operating expenses were $8.9 million for the quarter, so only a slight increase from $8.8 million in the year-ago quarter. This increase was due to commission expenses for achieving sales targets and travel-related expenses, and they were partially offset by a decrease in general and administrative expenses from compensation and severance, as well as decreased legal and consulting expenses incurred by engineering and development in the first quarter of 2022. Gap net loss for the quarter was $4.8 million compared to a net loss of $6.9 million for the first quarter of 2021. When adjusted retrospectively for the reverse stock split, gap net loss per share for the quarter was 77 cents compared to $1.28 for the first quarter of 2021. Our adjusted EBITDA loss for the first quarter was 3.9 million compared to an adjusted EBITDA loss of 5.3 million for the first quarter of 2021. When adjusted retrospectively for the reverse stock split, adjusted EBITDA loss per share for the quarter was 64 cents compared to 97 cents for the first quarter of 2021. Now let's turn to the balance sheet. We finished the quarter with cash and cash equivalents of approximately 22 million. We believe our healthy balance sheet provides us with the resources to execute our growth strategies for several years without having to access the capital markets. Now moving on to guidance. We are continuing to experience strong demand for our dental lasers and are currently forecasting revenue for the second quarter ending June 30, 2022, to exceed $10.5 million, which would represent growth of at least 15% year-over-year and over 21% when compared to the second quarter 2019 pre-COVID results. For the full year, we continue to expect net revenue to increase at least 10% from 2021 levels. In summary, we had a strong quarter with significant revenue growth and solid margin expansion, and we're confident that our actions to strengthen BioLaser 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. And with that, I'll turn the call back to the operator to open the call for questions. Operator?
spk01: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To enjoy your question, please press star then two. Today's first question comes from Bruce Jackson with the Benchmark Company. Please go ahead.
spk07: Hi, good afternoon, and thanks for taking my questions. I was wondering if we could first just get a little bit of color on the partnership with Edge Endo and if that contributed during the quarter.
spk03: Yeah, how you doing, Bruce? It did. So you may recall that we made the first, I would say, handful of shipments of the Edge Pro device in late December. So first quarter was really the first full quarter of us having the device available for sale after FDA approval in December. So it did have, I would say, meaningful, maybe not material, but meaningful impact on our revenue. We continue to sell to endodontists both through that channel with our OEM and also with our own waterlays, so it's a combination of the two.
spk07: Okay, great. And then my second question is around the DSOs and the corporate dentistry groups. So you've had a number of trials going with these groups for some time. I understand they take a while to work through their processes. Do you have any line of sight on whether or not you might get some contracts sometime this year?
spk03: Well, we certainly are selling to DSOs today, and that is a pretty nice part of our business. We do have line of sight on one particular DSO that I'm not at liberty to disclose at this point due to confidentiality arrangements. But I will tell you that that particular DSO is implementing a number of, I would say, a couple of other technologies this year. And we'll look to implement our technology next year, starting maybe in the fourth quarter, as they want to roll this out in a very methodical manner. So more to come on that.
spk07: Okay, great. And then last question for me is just around gross margins. As you continue to scale up the revenue, should we be expecting to see some scale efficiencies? And would you care to hazard a guess as to where you might exit the year in terms of gross margins?
spk03: Yeah, so I think what we've said in the past is for us to get the EBITDA positive, which we expect to be for the full year in 2023 and in the fourth quarter of this year, we need to have gross margins a little bit above 50%, call it 50 to 52%. So I would expect us to have fourth quarter margins in that general area this year in the fourth quarter.
spk07: All right, excellent. Congratulations on all the progress.
spk03: Thank you, Bruce.
spk01: Thank you. And our next question today comes from Anthony Vendetti with Maxim Group. Please go ahead.
spk04: Hi, this is Matt on for Anthony. Thanks for taking my question. It seems like you guys are making a ton of progress with specialists with 65% of your water late sales coming for specialists this quarter. I'm curious, do you see a difference in terms of utilization trends between the GPs and the specialists?
spk03: From utilization trends, Not necessarily. I would say every dentist is different, right? There are GPs that use our water laser on every single patient, and there are certainly specialists that do the same as well. What we have found, though, is specialists, especially coming out of COVID, seem to have not dipped as much in patient volume during 2020 and 2021 as maybe GPs did. And so there might be a better overall financial situation to invest in new technology. So I think some of that may be playing a part in our success in the specialist area.
spk04: Got it. Understood. And then a quick follow-up on the DSOs. It's great to hear that you've got ongoing trials with four out of five of the largest in the U.S. Do you get a sense that if you were able to land maybe the largest or second largest DSO, that that would impact the decision-making of the other DSOs? In other words, could there be a kind of avalanche impact if the DSOs start to adopt your technology?
spk03: Yeah, it's a very good question. I think that there would be a domino impact. And that's not just in the DSOs, though. It's also, you know, for the non-DSOs. As this technology gets adopted by more and more, we will hit a tipping point where you know, every dentist will be forced to adopt similar to what they, you know, happened in Lasix many years ago, right? And they just won't be, you know, drawing the patients, won't be as competitive without this technology. So I see that both in the DSO space and frankly in the non-DSO space as well.
spk04: Got it. That's helpful. Then lastly for me, you talked a little bit about this new sales pod strategy you're implementing or trialing at least in one area. Yeah. I was hoping you could provide a little bit of additional context into how that specific geography is performing versus, let's say, last year when you weren't implementing that sales pod strategy, just in terms of the potential for this transition in the sales organization.
spk03: Thank you. Thank you for your question. The Midwest pod really began in the fourth quarter, and it had – I would say significant improvement year over year, quarter over quarter from first quarter, excuse me, fourth quarter of 2020. However, we were still in the midst of COVID there, so that comparison is difficult to make. First quarter results in that pod were better than they were a year ago, so that was encouraging. And to the point where just this quarter we're launching the pod in New York City. And so that will be our second pod. I think we will monitor both the revenue generation, the consumable demand increase, and also just the profitability, looking at it as like a mini P&L of both those pods over probably the next two to three quarters to finally determine is this something that we want to just leaving those two pods or those two geographical areas? Is it something that we want to expand even further as we look into 2023? So, once again, too early to, I think, draw any conclusions, firm conclusions on the pod idea success, but so far, so good.
spk04: Awesome. Thank you very much. I'll hop back in the queue.
spk01: Thank you. Our next question today comes from Kyle Bowser with Link Street. Please go ahead.
spk05: Great. Thanks so much for taking my questions and thanks for all the updates here. Apologies if I missed this. I'm jumping between calls here. So maybe I'll just ask both my questions up front. John, can you talk a little bit about headcount, the sales reps, how you envision that changing or staying the same? What does a top rep do annually? And then the next question is, just kind of curious, are you bumping into any particular company more than others in the field? Who are you competing with the most? Or is it kind of just a mix of everyone? Thanks so much.
spk03: Yeah, good questions, Kyle. So from a territory manager standpoint in the U.S., remember we sell through distributors in the 80 international countries we sell to. But in the U.S. today, we only have one open territory. And that is certainly in almost the five years I've been here, that is the only time I could have said that. And the turnover has been pretty much nonexistent. since the fourth quarter of last year. So that all points to great signs, right? Very few open territories, only one, and we hope to fill that in the second quarter, and no turnover. So I think that means a couple of things. One is I think we have our comp structure very competitive in place, but I also think we're creating an environment and have created an environment where the territory managers feel like they are a little bit closer to the overall corporate culture and organization. They're not on an island alone, and we've done a tremendous job in improving the support that they get from corporate in events and education programs. I've talked before that that was probably the one area that was broken the most a few years ago, and it's probably the one that we've made the greatest strides in improving. So I think all of that has led to improved rep tenure. In terms of how much a rep can sell, we had one rep that I've stated publicly before that made over $2 million, that generated over $2 million in revenue last year, and that includes laser sales and consumables as well. So that is certainly an outlier, but our better performing reps certainly achieve over a million dollars. And that's the reason when we talked about the number of reps that we had go over 200,000 in first quarter, which is historically our weakest seasonal quarter in sales, that was really encouraging for me. The second question in terms of competition, yeah, I go back to the survey that we did last year, and we'll be doing a new survey this summer and updating it, but when we asked dentists who are non-laser users, when they thought of a laser company, dental laser company, who do they think of? And 80% said biolase. So do we see competition in various markets or segments? Sure, but that's really not our competition. Our competition is share of wallet. And can we convince the dentists that they have $50,000 to $100,000 to spend this year in capital equipment can we convince them that the best choice is investing in laser technology? I think, you know, so far we've been doing a good job in doing that and, you know, hopefully we'll continue to do that. But that's really the competition, not necessarily another laser company.
spk05: No, that's great. I appreciate it. I'll jump back in queue.
spk01: Thank you. And once again, ladies and gentlemen, it's stars and one if you have a question. Our next question comes from Rafay Khalid with Ascendian Capital Markets. Please go ahead.
spk08: Hi, this is Rafay for Edward Wu of Ascendian Capital. Thanks for taking my call. I want to ask, are there any changes in the competitive landscape?
spk03: No, there haven't been. It's been pretty constant with the other laser companies out there. They're selling to the dental space. really no new market entries, entrance. So it's been fairly consistent.
spk08: Okay, great. And are you seeing any macroeconomic slowdowns in the business?
spk03: No macroeconomic slowdowns. Internationally, we still continue to fight various lockdowns, quarantines from a COVID standpoint. That's becoming less and less, but it's still an issue in some countries. I'll give you an example. We just added a couple of years ago, finally, after six years of going through regulatory process, we became the first non-Japanese company to get approval to sell lasers in Japan. And of course, we got that approval in the first quarter of 2020, right when COVID hit. And so all of the training that normally would go into that distributor, we couldn't do because we couldn't travel there. We're just now beginning to, say, see an opening in the door there to be able to really get over there and train the distributor, get some events there that I think will drive those sales as we move forward into 2022. Great. Thank you very much.
spk01: And once again, ladies and gentlemen, if you have a question, please press star then 1 at this time. We'll pause momentarily to assemble our roster. And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to John Beaver for any closing remarks.
spk03: Thank you, Rocco. 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. I've said this before, but it bears repeating, this is the best team I've ever worked for. Each of them has worked tirelessly to make our customers successful in delivering an elevated standard of care and safety through laser dentistry. Jennifer and I look forward to reviewing our second quarter results with you in August. And in the meantime, we are participating in several investor events, including the LD Micro Conference on June 7th and 8th. If you're participating in this event, please contact Todd Curley, That's T-K-E-H-R-L-I at evcgroup.com to help facilitate a meeting with us. Thank you, operator, and thank you, everyone, for your interest in Biles. This concludes our call. Have a great day.
spk01: Thank you, sir. This concludes today's conference. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
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