This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Good day and welcome to the BioLase second quarter 2022 financial results conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Todd Curley of the EVC group. Please go ahead.
spk03: Thank you, Operator. Good afternoon, everyone, and thank you for joining us today to discuss BioLase's financial results for its second quarter-ended June 30, 2022. On the call today from Biolase are John Beaver, President and Chief Executive Officer, and Jennifer Bright, Chief Financial Officer. John will review the company's operating performance for the 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 sessions. including forward-looking statements regarding the company's strategic initiatives and anticipated financial performance. These forward-looking statements are 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. Such forward-looking statements only represent the company's view as of today, August 11, 2022. These risks are discussed in the risk factors section of the company's most recent Form 10-K filed with the Securities and Exchange Commission. A replay of this conference call will be available on the company'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 2022 second 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 Biolase.com. Biolase's financial results can also be found in the company's report on Form 10-Q, 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?
spk08: Thanks, Todd, and thank you, everyone, for joining us this afternoon. We appreciate your continued interest in BioLase. I'm pleased to report that continued execution of our growth strategy enabled us to deliver one of our best second quarters ever for laser and laser-related cells. In fact, our second best second quarter since 2013. Driven by increasing demand for our industry-leading lasers, our total revenue increased 34% year-over-year, and our consumable sales surpassed $3 million for the first time ever in a single quarter. Our strong performance reflects positive momentum on several fronts, including continued progress with the Waterlays exclusive trial program. As our success rate, the percentage of dentists who purchased after the trial improved over 55% in the second quarter and over 50% year-to-date in 2022. Additionally, our specialist academies for endodontists, periodontists, pediatric dentists, and dental hygienists continue to generate increased adoption of our laser technology in the U.S. in the second quarter with 80% of our U.S. water-laze sales coming from new customers and over 50% of U.S. water-laze sales coming from dental specialists in the quarter. And last but definitely not least, we had 16 territory managers exceed their sales quotas in the second quarter, up from 14 last quarter. We are extremely proud of our sales force and the incredible job they are doing. I'm also very pleased to report that we currently have no open territories and we've had no sales turnover during this year. The rise in demand for our industry-leading dental lasers is being driven by our intensified focus on education and training that is building increased awareness of the benefits our lasers provide to both dentists and their patients. As these efforts continue to pay off, we held 150 educational and training events in the second quarter, a 50% increase from last year's second quarter. And the combination of our best-in-class dental lasers, backed by peer-reviewed papers, is complementing our increased education and training efforts. As a result, dental practitioners are coming to Biolase as they look to upgrade their dental practices and improve their patient outcomes. We expect this positive trend to continue as we continue to successfully execute on the well-developed roadmap of strategies and investments we put in place that we believe will drive continued growth in 2022 and beyond. BioLase currently has an approximately 60% worldwide share of the all-tissue laser dental market, represented by our WaterLase brand. However, this still represents less than 10% of the overall U.S. dental market and less than 3% of the dental markets outside the U.S. As we target the remaining 90-plus percent of U.S. dentists not yet using all-tissue laser, we believe that the continued solid execution of our growth strategy will enable us to accelerate market adoption. Many of you have heard me say this before, but it bears repeating because of its significant potential impact on our revenue. We believe each 1% increase in adoption of our all-tissue laser technology in the U.S. will equal approximately $50 million in additional revenue for biolase, assuming we keep our same 60% historical market share. This doesn't include potential increased adoption outside the U.S., where historically biolase Approximately 40% of our revenue has been generated or the consumable revenue that is generated from the procedures done with our laser systems. 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 and superior outcomes for patients. 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 awareness and adoption. Now that we have launched the specialist academies, we believe it is the right time to launch our water laser academy that will give both specialists and general practitioners opportunities for continuing education and training pathways in many dental procedures. During the second quarter, we saw continued strength in sales to specialists with over 50% of our U.S. ward-laid sales coming from those specialists. Our focus on increasing education and training for these dental specialists is translating to higher demand for our products as they look for safer, more advanced alternatives to improve patient outcomes and improve their practices. One of my favorite examples of a specialist use case for our lasers is in endodontics. Endos perform over 15 million root canals per year in the U.S. The traditional way of treating root canals kills about 50% of the bacteria in the root canal. Using our laser, an endo can get rid of 99 plus percent of bacteria. This is very important to both patients and endos as the risk of infection is substantially reduced using a laser. By our calculations, securing even a small percentage of each of these dental specialist markets we are targeting could generate over $150 million in additional revenue for biolase 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 the approximately 150,000 general practitioner dentists. If an additional 5% of GPs adopt our laser, it would generate $225 million in laser revenue, not including consumables. The Water Laser Exclusive Trial Program puts BioLase Laser in a GP's office for 45 days, supported by a mentor, and includes two days of in-person training, all at no cost to the dentist. At the end of the 45 days, a GP has the option to buy our laser or not. With increasing success, we held over 30 of these programs in 2021 and 24 of these programs so far this year, averaging five GPs participating in each program. As I mentioned earlier, we saw our Waterlays Exclusive Trial Program success rate increase from just under 50% in the first quarter to over 55% in the second quarter. Our goal for the full year 2022 is to host approximately 40 of these programs. It's a win-win for GPs because a big part of the Waterlays 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 revenues in-house and achieve superior patient outcomes. If they do just two additional procedures a week, they will generate a 200% return on their investment in our laser. That, along with a better patient experience, is motivating dentists to incorporate water laser technology into their practices. The more training and education we do through our water laser-exclusive trial program, the more success we believe we'll have in driving laser adoption. The third prong of our growth strategy is getting the corporate dentists and universities to adopt our lasers. We currently have ongoing trials with four of the five largest DSOs in the U.S. Today, most dentists are employed by the DSO right out of dental school. Our goal is for them to learn about and begin using our lasers while employed at the DSO and then make our lasers an essential part of their practices moving forward, becoming new dental laser and consumable customers when they go out on their own. Over the last few quarters, we've made solid inroads with some of these DSOs. These relationships are important, and we believe that the large DSOs can lead to far greater revenue for BioLase in the future. In addition, we continue to develop stronger relationships with key dental schools across the country. For example, last quarter, we sold five Water Lace units to postgraduate programs, and we expect this number to increase during the balance of 2022. The progress we are making in the dental schools by selling, not donating, equipment further validates my belief that our technology will be the gold standard of dentistry in the future. To further advance our growth strategy, we're always evaluating additional opportunities to strengthen our products and marketing efforts. For example, the CEO on the Go program was created to get direct feedback from dentists, including on how we can continue to innovate our market-leading dental laser technology. To date, the program has allowed me to visit over 100 dentists and their respective teams. During one of those visits, I watched a dentist use a WaterLase iPlus to remove 19 veneers in one setting in less than 30 minutes. The dentist told me that without the laser, this would have been an all-day affair, resulting in much more patient discomfort. I am always amazed at the benefits our water-laced technology provides in real-life settings and the value of these in-person visits. I plan to visit over 50 more U.S.-based dentists in the second half of the year and plan to visit many of our international customers starting next year. During the quarter, we also signed a new lease in Foothill Ranch to expand our training and education operations and establish our first ever model dental office. This new space is conveniently located next to our corporate headquarters and will expand our ability to drive revenue and laser adoption by training practitioners in a hands-on dental environment. This is a novel opportunity to educate and train, as well as produce marketing materials, create content, perform studies, and test new equipment. I'm also very happy to report that during the quarter, we strengthened our management team with a promotion of two key team members. Steve Sandor, our new chief operating officer, and Jennifer Bright, our new chief financial officer. Both Steve and Jennifer have been integral in the planning and execution of our long-term strategy for growth, and I'm excited to further leverage their robust experience as we continue to execute our growth plan. We also strengthened our board of directors during the quarter with an additional seasoned healthcare executive with the election of Dr. Kenneth Yell. Dr. Yell brings health plan and dental insurance expertise to the board. Dr. Yell, along with other currently, recently elected board members, Drs. Kathleen Laughlin, Dr. Carol Gomez-Summerhays, and Dr. Martha Summerman, continue to provide insight and support the implementation of the company's business plan, which has demonstrated significant growth over the past year and a half. So in summary, we have a very large opportunity in front of us and a well-developed roadmap for growth as we leverage our industry-leading product offerings. Our three-pronged growth plan is generating positive results, as evidenced by our sales team's great performance this quarter, which has given us continued confidence in our ability to drive sustainable and profitable revenue growth in 2022 and beyond. With that, I'll turn the call over to Jen to provide further details regarding our second quarter financial results.
spk02: Thank you, John. 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 second quarter. Our strong second quarter performance demonstrates our continued business momentum. This increased traction reflects higher demand for our industry-leading dental lasers and is directly related to our increased education and training initiatives. For the second quarter, we delivered net revenue of $12.2 million, representing 34% growth year-over-year. and 20% growth sequentially. Some additional second quarter highlights include U.S. laser system sales increased 70% year-over-year. U.S. consumable sales increased 42% year-over-year, driven by increased procedures using BioLase lasers. International laser system sales increased 2% year-over-year. International consumable sales increased 3% year-over-year. We continued momentum with new customer adoption in the second quarter with 80% of our U.S. water-laid sales coming from new customers and over 50% of U.S. water-laid sales coming from dental specialists. Lastly, as John mentioned, the success rate of our water-laid exclusive trial program increased significantly to over 55% in the second quarter, highlighting the success of this program. These are all positive indicators of the increased demand we are experiencing for industry-leading dental lasers in the U.S. and abroad. Second quarter gross margin was 42% versus 44% a year ago. The slightly lower gross margin reflects some of the impact of recent supply chain issues. The addition of our lower margin Edge Pro, which is our first OEM product beginning at the start of 2022, and an employee retention credit under the CARES Act received during the three months ended June 30th 2021 that did not occur in 2022. On the expense line, total operating expenses were $10.2 million for the quarter, up $2.9 million from the year-ago quarter. This increase was due to compensation expense since all territories were filled in 2022, commissions and bonus incentives for achieving sales targets, an increase in travel-related expenses, the significant cost of this year's annual meeting and reverse split shareholder votes to allow us to maintain our NASDAQ listing status, and from an employee retention credit under the CARES Act received during 2021 that did not occur in 2022. Gap net loss for the quarter was $5.6 million, compared to a net loss of $700,000 the second quarter of 2021. In the year-ago quarter, Biola has had a $3 million gain on debt forgiveness from its PPP loan, which positively impacted net income. Gap net loss per share for the quarter was 91 cents compared to 12 cents for the second quarter of 2021 as adjusted for the reverse stock split. Our adjusted EBITDA loss for the second quarter was 4.1 million compared to an adjusted EBITDA loss of 2.7 million for the second quarter of 2021. Adjusted EBITDA loss per share for the quarter was 67 cents compared to 44 cents for the second quarter of 2021 as adjusted for the reverse stock split. Let's now turn to the balance sheet. We finished the quarter with cash and cash equivalents of approximately 20 million. On June 30th, 2022, we raised gross proceeds of 6.5 million through the sale of common stocks and pre-funded warrants in a registered direct offering priced at the market and a concurrent private placement. Following the offering, we were able to enter into a favorable amendment to our senior secured term loan with SWK funding. The amendment extends the interest-only period of our loan by two quarters to November 2023 and reduces the minimum consolidated unencumbered liquid assets requirement. We used a portion of the proceeds from the June 2022 offering and private placement to prepay $1 million of the outstanding loan balance, which was $13.3 million as of the end of the quarter. This prepayment and amendment will result in lower interest expense, which also increases the company's liquidity. We believe our strong balance sheet provides us with the resources to execute our growth strategy for several years without having to access the capital market. And moving on to guidance. The third quarter of the year is seasonally historically our second weakest quarter. However, with the continuing strong demand for our dental lasers and strong consumable sales, we are currently forecasting revenue for the third quarter ending September 30, 2022 to exceed $10.5 million, which would represent growth of over 10% year-over-year. For the full year, we expect net revenue to increase at least 15% from 2021. In summary, we had another strong quarter with significant revenue growth and solid sales execution. and we are confident that our actions to strengthen BioLase 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. With that, I'll turn the call back to the operator to open the call for questions. Operator?
spk06: Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Again, that's star one. We do have our first questioner, Kyle Bowser from Lake Street Capital Markets.
spk01: Great, thank you. And congrats on the updates here. Great quarter. Maybe... John, I think you mentioned there's no open territories right now, which is great. Can you kind of give us an update on what the latest headcount is there? And maybe I'll just ask all my questions right now, kind of jumping through calls here. So number of territories, and then secondly, Has the McGuire study made a splash out there? Maybe an update on how the Salesforce is leveraging that and if you're getting any traction with the DSOs. And then lastly, would love to hear, John, an update on how your travels, I think the CEO and the goal travels have gone and kind of what you've learned. Thank you.
spk08: Yeah, thank you, Kyle. So we have 27... territory manager positions in the U.S. As I said before, they were all filled. I went back as far as I could look, Kyle, and this is the first time certainly since I've been here, which is almost five years, that we've had no open territories. And for this, nobody else could recall when we ever were in this position. So that's a real testament, I think, that the sales team is engaged. They are seeing business coming to them in a lot of respects. They're working hard to get the message out. It's also, I think, a testament to some of the changes and improvements we've made in our education and training in that, as I've said before in other calls, that process was broken a few years ago. We really have that, I think, as a best-in-class, making their job, while not easy, a little bit easier. You talked about the McGuire study. We are planning to have the second part of the McGuire study issued in the fourth quarter. That should be published probably in the first quarter of 2023. And it will come out pretty much as we expected it to, which will be just a continuation of the first part of the McGuire study. This is just a follow-up for those cases. And what I will tell you is that for periodontists and what we call super GPs who are doing periodontal work, that study has been important to them that rely on case studies, peer review papers, and things of that like. So it certainly has created an opportunity for us to have more meaningful conversations with that community, so it certainly has been a plus for us. And the last question you had was the CEO on the go. The marketing team did a great job in branding that. To me, it was just me getting out and doing ride-alongs with the territory managers and spending time with customers, and it is absolutely the favorite part of my job. Of the 27 territory managers, I believe I have now visited and spent a day with 17, so I still have 10 left. And they're all scheduled for the balance of the year. And, you know, I would say it's a combination of things that really are benefits from that initiative. One is I get to spend a full day with those territory managers and hear, you know, hear a lot of ideas that probably I wouldn't hear if it wasn't directed, you know, direct to me and spend a day in the car with them. And a lot of those ideas we put into play because I will tell you that they know certainly more about the customers and how to sell than I ever will. And so getting those ideas communicated is important. Second thing is I've learned from what customers are doing or what they're not doing and have brought that back and have tailored our marketing message a little bit, tailored our WETP, the Waterlays Exclusive Trial Program, uh, curriculum a little bit. And so that's helped as well. Uh, the other thing that has really, I think, um, uh, been, uh, kind of a, an added benefit of the CEO on the go program is. Surprisingly, I think has had been able to get many doctor testimonials, you know, happy customers that, uh, want everybody to know why they're using the laser and that they are using the laser. And that's been really great for our marketing campaign on social media.
spk05: That's great. Hey, thanks for all the updates and the color there. Congrats. Thank you, Kyle.
spk06: Our next question comes from Anthony Vendetta from Maxim.
spk07: Thanks. John, I was just wondering, you know, with all the inflationary pressures and supply chain headwinds, have you thought about or are you pushing through any pricing increases or plans to do that And if you have been considering that, do you think there'll be pushback, or is that expected in this environment?
spk08: Yeah, so great question, Anthony, and one that we discuss, I would say, almost daily. We have had and have implemented price increases in our consumables business, and that has gone well. No complaints from customers, really no pushback. And so that was implemented earlier this year. Internationally, we were ready to implement a price increase on our lasers. And we held back because of the general macroeconomic trend or status kind of in the international markets. We sell in U.S. dollar. And so as you know, the U.S. dollar has strengthened considerably since the start of the year. making our products even more expensive to many countries that are still fighting COVID, hurting with, you know, recessionary pressures. So we've actually delayed that price increase until likely, you know, no earlier than the fourth quarter and probably likely in the first quarter of next year. So that leaves the U.S. lasers. And our prices have gone up on an ASP, average sales price basis. as we've been bundling more features, education, training, and really I would say in large part just a increased discipline by our territory managers in pricing. One of the advantages that we have in not having any sales territory manager turnover this year is we have a much more experienced sales force than we've ever had. And so they're able to hold pricing and have those conversations better with customers and be more disciplined in that. Having said all that, we do see inflationary pressures on both our incoming raw materials, travel, be it for training or sales events, and also our own employee base. We've had to keep up with the market as well. So I do see increased U.S. laser prices coming up. It's always a matter of timing. I don't want to do anything that's going to slow down this adoption that we're seeing, but there's a happy median there, so I think we'll be able to thread that needle.
spk07: Yeah, no, that's a lot of great color, and yeah, I'm sure you're balancing that on a daily basis. So would you attribute, and maybe Jen can comment on this, so would you attribute the entire slightly lower gross margin to the OEM product, the endo product, or are Is it a combination of some of the increased supply chain costs that you haven't been able to completely offset with price? Just trying to understand that dynamic.
spk02: Yeah, really all of the above that we mentioned, those three components were all pretty flat contributors to the slight decrease.
spk05: Okay.
spk07: And maybe more of a go forward on that then. Is that new gross margin or gross margin this quarter? Is that more reflective of what we should be thinking about the rest of this year or go forward? Or should we start to see, as you're able to implement a little bit more on the price increases, should we see that slowly start to tick back up?
spk08: Yeah, it will tick back up. And let me call out a few things that we're doing that are coming on the horizon. So we're getting better at – filling up some of the WTPs in terms of just more dentists. So our training cost, which actually goes into cost of goods sold, will be going down on a per headcount basis. So we're getting smarter there. In addition, I mentioned the Model Dental Office that we're opening. We're also opening up a training center here. That investment will allow us to hold trainings at a cheaper cost per person than we had. Also, going back, and this probably sounds like a broken record for many manufacturers, pre-COVID, every manufacturer was just in time from a supply chain standpoint. And as we all found out during a COVID crisis, that doesn't always work. And so what we are doing is investing CapEx, into bringing some manufacturing in-house and supplementing some supply chains that we are getting with our own. And I think that will have positive benefits over the next few quarters as we bring some of that capacity up.
spk05: Okay, great. No, that's helpful.
spk07: And then just lastly, two other quick questions. One is, any talks with other universities to adopt lasers as part of the curriculum. Obviously, getting your dentist in early helps with the process, makes the selling process, I'm sure, a lot easier. And then just any update that you can on if there is an update on the DSOs. Sure.
spk08: So on the university side, I don't know if you caught what I poignantly said during the prepared remarks. we are selling to universities now not giving away lasers. And there's a big distinction there because when you're selling a laser to a university, that means you have buy-in and they're actually serious about incorporating that laser into what they're teaching. And so the team here has done a great job in seeking out those universities that are interested. And I think it's also a testament that, you know, dental lasers are becoming the gold standard of care and as more people realize that more universities want to compete to give that educational experience to their students and residences. I will say that for the balance of the year, we have a handful of universities that we're working on. But once again, we want to be strategic with it. We don't want to just go out and give everybody a laser because we've proven in the past that doesn't work. From a DSO standpoint, we continue to work with the large DSOs, small DSOs. We have a number of trials in place. I wish I could say more about that. Many of the DSOs, as part of us working with them, they don't want us to disclose a lot of the trials and so forth. But I am cautiously optimistic that we'll have some news over the next six months that will be very interesting.
spk07: Okay, great. Thanks for answering all those questions. Very helpful. I'll hop back in the queue. Thank you, Anthony.
spk06: A reminder that as we move through the question and answer period, that if you do have a question, to please press star 1 on your phone.
spk05: Our next question comes from Ed Wu with Ascendian Capital.
spk04: Yeah, congratulations on the quarter. Obviously, your U.S. business is doing very well. Are there things you can learn or adopt and implement in international to be able to get it to perform just as well?
spk08: Yeah, so Ed, I think what we are learning is that some of the things that we are doing in the U.S. may not be applicable directly to the international markets. And I think our view here is evolving. But being that we sell in 80 countries, every country is different and the things that work here may not work in Japan and may not work in Germany, for instance. So we're not where we need to be internationally. That is going to be certainly a point of emphasis going into 2023. If you think about kind of what our results have been. We felt like we had a great opportunity in the U.S. where COVID was less of an issue than international. So really a lot of our attention and investment have been on the U.S. in 2022. I think, you know, as we turn toward 2023, I'm hopeful that, you know, some things we've learned over the last year or two in the U.S. will be applicable but we'll get more and more attention to international. I just felt like we had to fix U.S. first, and I felt like we're a long ways down that road.
spk04: Well, congratulations. You've obviously done a great job, so congratulations on all of you guys. Thank you for answering my questions, and I wish you guys good luck.
spk05: Thank you, Ed. Sir, there appears to be no further questions in the queue.
spk06: Do you have any closing comments you'd like to finish with?
spk08: I do. Thank you, operator. I want to thank everyone for being on today's call. Also, I want to thank the Biolase team, the whole team, for their continued commitment and dedication. 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 third quarter results with you in November, and in the meantime, we will be participating in several investor events, including the the Lake Street Big Six Investor Conference coming up on September 14th in New York. If you are participating in this event, please contact Todd Curley at tcurley at ebcgroup.com to help facilitate a meeting with us. Thank you, operator, and thank you, everyone, for your interest and bylaws. This concludes our call. Have a great day.
spk06: Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
Disclaimer