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spk03: Good day and welcome to the Biolace first quarter 2023 financial results conference call. Please note this call is being recorded. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. If you would like to enter the queue at any time, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from queue at any time. I would now like to turn the conference over to Todd Furley of EVC Group. You may begin.
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 31st, 2023. On the call today from BioLaser, John Beaver, President and Chief Executive Officer, and Jennifer Bright, Chief Financial Officer. 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 performance. These forward-looking statements are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 and are based on Biolase's current expectations and assumptions and are subject to a variety of risks and uncertainties that could cause the company's actual results to differ materially from the statements made. Such forward-looking statements only represent the company's view as of today, May 11, 2023. These risks are discussed in the company's filings with the Securities and Exchange Commission. A replay of this conference call will be available on the Biola'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 2023 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. 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 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?
spk07: Thanks, Todd, and thank you, everyone, for joining us this afternoon. We appreciate your continued interest and support in Biolase. Coming off the year in which we excelled and achieved significant year-over-year growth, our in-line first quarter results demonstrate our continued business momentum, even in this tough environment. We believe the continued efforts and investments that we are making are and will continue to pay off in the coming quarters, as is evidenced by the rising demand and increasing number of dentists that are attending and benefiting from our novel training and education programs. The level of enthusiasm can be felt throughout the organization, which is a byproduct of success we are seeing from our go-to-market initiatives. The positive response from the dental community is leading to increased sales of our industry-leading lasers. Despite the challenging economy and the capital equipment headwinds many companies are experiencing, we continued our growth momentum with total revenue increase in 3% year-over-year. This represents our ninth consecutive quarter of year-over-year growth. During the quarter, we experienced a return of international revenue growth, with our international laser sales increasing 22% year-over-year, the first time this has occurred since the pandemic. We also reported record consumable sales during the quarter, with U.S. consumable sales up 19% year-over-year, driven by increased procedures using our BioLase laser systems. Moreover, in addition to new dentists coming on board, we also experienced a historic shift in increased utilization among existing dentists as they migrate more procedures to our lasers. This record quarter in consumable sales further demonstrates the impact more frequent, higher quality training and pre-sale training programs, such as our wire laser exclusive trial program, or WTP, can have on our consumable business. During the quarter, we continue to see success with our WTP as a percentage of dentists purchasing after the trial grew to over 60%, representing a 20% year-over-year increase. This program, along with the rollout of our Water Laser Academy and Epic Academies, generated increased adoption of our laser technology in the U.S. in the first quarter, with 58% of our sales coming from new customers and 33% of sales coming from dental specialists. We are demonstrating growth across all of our key performance metrics, so our strategy of investing now to accelerate adoption and utilization is growing our top line, and we believe the rate of recurring revenue and higher margins will translate to the bottom line as well, which is why we continue to expect full-year revenue growth of at least 25% and to achieve profitability on an adjusted EBITDA basis. Rise in demand for industry-leading dental lasers is being driven by our intensified focus on education and training and the benefits our lasers provide to dentists and their patients. Over the past few years, our goal has been to raise awareness of our dental lasers to the overwhelmingly large part of the market not currently using lasers. Not because they said no, but because they're just not familiar with our best-in-class dental lasers. With several peer-reviewed papers and studies and our focused go-to-market efforts, dental practitioners are now coming to BioLase as they look to upgrade the dental practices and improve patient outcomes. I believe this represents a real inflection point and will drive our growth for many years to come. BioLase currently has approximately 60% share of the worldwide all-tissue dental laser market, represented by our WaterLase brand. We are the go-to brand that represents quality, reliability, and after-sales service, training, and education. However, with less than 10% of dentists in the U.S. and less than 2% of dentists outside the U.S. currently using dental lasers, we need to do a better job to reach the rest of the dentists, and I believe our results demonstrate that we are moving the needle. We plan to leverage our brand and grow the overall market by engaging with the other 90% of dentists while ensuring we continue to protect our position as a market leader. To reach this large and addressable market opportunity, we are focused on building awareness of our industry-leading laser's benefits to dentists and their patients through increased education and training. During 2022, we held over 600 educational and training events in the U.S. alone. And because of these increased efforts, dental practitioners are now proactively approaching biolase as they look to upgrade their dental practices and improve their patient outcomes. In the first quarter, we held over 150 educational and training events, an increase of over 25% from the first quarter of 2022. As a result of these initiatives, we are generating increased marketing qualified leads, and the sales team is hard at work to convert these to sales. Since 2018, the number of marketing qualified leads, or NPULs, increased by 400% to over 4,000 in the US in 2022, the bulk of which has been more recent due to our increased efforts. During the first quarter of 2023, the number of MQLs continued to increase, approaching a 50% increase from the year-ago period. 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 the 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% historical 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. We have a well-established three-pronged strategy to increase market adoption of our lasers. The first is to get more dental specialists to use our lasers. In 2021, BioLase formed specialist academies to expand 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 patient outcomes. In 2023, we combined all of these specialist academies into two academies, one for each of our product families, the Water Lase Academy and the Epic Academy. We believe this will not only further improve and simplify training for the specialist, but also give the general practitioner who's interested in adding more specialty procedures to the practice an avenue to pursue further training. Combined, these dental specialist markets represents hundreds of millions of dollars of potential laser systems revenue each year, not including the potential for recurring revenue from the sale of our consumables. 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 their practices. The second of these is focused on the significant opportunity we have with over 150,000 general practitioner dentists in the U.S. alone. We believe that if an additional 5% of USGPs adopt our lasers, it would generate $225 million in laser revenue, not including the follow-on consumables. Our Water Laser has over 80 FDA cleared indications or procedures that dentists can perform using our laser. Doing just two additional procedures a week would generate a 200% return on the investment in our laser. The more training and education we do through Water Laser's exclusive trial program, the more success we believe we'll have in driving laser adoption. As I mentioned earlier, we saw our Ward Laser Exclusive Trial Program success rate increase over 20% year-over-year to over 60% so far this year. Our goal in 2023 is to host approximately 35 of these programs. It's a win-win for GPs because a big part of the Ward 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. That along with better patient experience is motivating dentists to incorporate water laser technology into the practice. The more training and education we do through water laser exclusive trial program or other events, the more success we will have in driving laser adoption. Speaking of increased education, last month we opened our new training facility and plan on opening our first ever model dental office named Laser Smiles in the third quarter. These new spaces are 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, train, produce marketing materials, create content, perform studies, and test new equipment. Finally, the third prong of our growth strategy is getting corporate dentists and universities to adopt our lasers. We continue to develop stronger relationships with key dental schools across the country We have lasers in about a third of the dental schools right now. We've integrated our water laser lasers into several postgraduate programs and plan to expand into more programs over the next few years. We believe there is a large appetite among dental residents to utilize state-of-the-art technology in treating patients, and the introduction and reinforcement of technology during training are key to the adoption of laser dentistry with this new generation of dentists. Also today, most new dentists are employed by a corporate dentist or DSO right out of dental school. We have ongoing trials with four of the five largest DSOs in the U.S. Our goal is for these new dentists to begin using our lasers while employed at the DSO and for them to 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. We continue to make solid inroads with the DSOs and believe that DSOs can lead to even a far greater revenue for biolays in the coming years. In summary, we have a very large opportunity and our well-developed plan to capture this growth is generating the desired positive results. We are the industry leader, and I believe the increased education training programs will enable us to succeed well into the future as the level of inbound interest is rising. Furthermore, the success of the waterways exclusive trial program gives us continued confidence that we can achieve our revenue and profitability objectives for 2023. With that, I'll turn the call over to Jennifer to provide further details regarding our first quarter results.
spk01: 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 details, please refer to our financial results, which you can find in the financial tables of our earnings release and our 10-Q. Our first quarter performance reflects continued demand for industry leading dental lasers and consumables because of our increased education and training. For the first quarter, we delivered net revenue of 10.5 million, representing 3% growth year over year. And as John mentioned earlier, this is our ninth consecutive quarter of year over year growth. Some additional first quarter highlights include record consumable sales with U.S. consumable sales increasing 19% year over year driven by increased procedures using BioLase lasers. International laser system sales increased 22% year over year. We continued momentum with new customer adoption in the first quarter with 58% of our U.S. Water Lase sales coming from new customers and approximately 33% of Water Lase sales coming from dental specialists. Lastly, the sales conversion rate of our Water Lase exclusive trial program continue to rise this quarter with our success rate increasing more than 20% year-over-year, highlighting the success of this program. These are all positive indicators of the increased demand we are experiencing for our industry-leading dental lasers and our consumables. First quarter gross margin was 32% compared to 49% a year ago. The decrease in growth margin is primarily due to the impact of supply chain issues we encountered requiring us to change to new suppliers and the effect of a higher percentage of revenue generated outside the U.S. where we sell through distributors, resulting in margins that are lower than our U.S. business. At the end of 2022, we completed an acquisition of a trunk fiber supplier that will allow us to supplement third-party key components with our own in-house manufactured components. We expect this will reduce our backlog for these materials as well as reduce our overall cost of goods and improve cash flows when production is operating at full capacity, which we believe will occur this quarter. On the expense line, total operating expenses were $8.6 million for the quarter, down from $8.9 million in the year-ago quarter. This decrease was mainly due to less spending required on legal and consulting fees for our annual shareholder meeting compared to the year-ago quarter. Gap net loss for the quarter was $5.8 million compared to a net loss of $4.8 million for the first quarter of 2022. Our adjusted EBITDA loss for the first quarter was $4.4 million compared to an adjusted EBITDA loss of $3.9 million for the first quarter of 2022. Now turning to the balance sheet, we finished the quarter with cash and cash equivalents of approximately $6.5 million. And looking ahead, as we drive toward profitability, We are projecting price increases to contribute to our top line growth while we expect to have lower cost of goods due to the trunk fiber acquisition completed in 2022. We are on schedule to have our in-house trunk fiber make up approximately 50% of the fiber we will ship beginning in the second quarter of 2023. We expect these cost savings will drive increased gross margins, getting us close to the 50% needed to reach profitability. We will also be able to drive lower WETP expenses this year with the opening of our own centralized training facility. We now have four dentists on staff to train prospective customers, and we are also working to partner with educational facilities around the country to host WETP events at their locations at little to no cost. As John mentioned, we expect to host about 35 WETPs this year, so the expense savings will be quite meaningful. With higher growth margins, the expected WETP savings, and continued revenue growth, we believe we will significantly improve our profitability and achieve positive adjusted EBITDA for the full year. Now moving on to guidance. We are reiterating our guidance for strong revenue growth at at least 25% year over year for the full year 2023. And as I just mentioned, we also expect to achieve positive adjusted EBITDA for the full year. For the second quarter ending June 30, 2023, we also expect revenue to grow at least 25% year over year. With that, I'll turn the call back to the operators to open the call for questions. Operator?
spk03: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And our first question today is from Bruce Jackson with The Benchmark Company. Bruce, your line is live. Please go ahead.
spk04: Good afternoon. Thanks for taking my questions. If I could just hone in on the gross margins for a moment. Are you going to be gaining any kind of like an inventory improvement and get some working capital leverage in the second quarter? I'm assuming that you've got some inventory that you're working off before shifting over to the in-house fiber production.
spk07: Not so much on the fiber production, Bruce. We are you know, continue to, I would say, run on low inventory levels for fiber. It's other components that I believe that will be reduced over the course of the quarter, providing from the inventory standpoint a little bit more working capital. I think our inventory level overall will be lower at June 30th than it was at March 31st. Okay.
spk04: And then do you have a gross margin target for the remainder of the year?
spk07: Yeah, we are working towards getting to the 50% and expect to close the year as we exit 2023 in the fourth quarter at 50%.
spk04: Okay. And then shifting over to the WETP programs, You said you're going to be doing 35 of those this year. Is that up, down, or about the same from last year?
spk07: Yeah, so it's about the same. The projected increase is the success rate of that. We were approaching, you know, around in the 40% to 50% closure rate, depending on what period you're looking at, last year. This year, so far, we're well over 60%, and I expect at a minimum to close at 60%. So while the number of events will be the same, we expect the amount of revenue generated from WETP will be higher. And that's what gives me confidence. One of the things, Bruce, that gives me confidence in reiterating the revenue guidance that we had Obviously, we did not get 25% revenue increase in Q1 versus last year. But the reason I believe that we'll be achieved for the full year, one of those things is from a WTP standpoint, in the first half of the year, we have scheduled only a third of our total events, with the back half of the year being two thirds. And that is even more heavily weighed in first half of the year. between second quarter versus first quarter. The other thing that gets me really excited about the balance of the year is our MQLs, as I mentioned, have increased over 50% versus a year ago, right? And so when you look at how long it takes an MQL to translate into a cell, it's usually a three to six month process. So that gives me a lot of optimism in kind of latter part of Q2, Q3, and Q4. Three other things that I find gives me confidence for the renewed guidance are the price increases that we put in effect in the first quarter will be fully in effect for Q2 for the full quarter. They weren't in Q1, so we only got a partial impact of that price increase for waterways in the U.S. in Q1. I was very happy about the continued international demand momentum that we started to see at the end of fourth quarter last year. I've talked for the last couple of years about how international revenue has been somewhat depressed and flat, if you will, because of COVID. We're seeing that much different now. I was at the IDS show in March in Germany. I think over 60,000 people there, and I was really pleased with the performance of our international business in Q1. I expect that to even grow for the balance of the year. And I can't overstate the importance of our consumable business and the fact that we achieved record sales in Q1. That should do nothing but continue to go up as it looks like the improvements that we made in training and education are paying off in terms of the number or the amount of utilization of our systems after the sales.
spk04: Okay, great. And then one last question. I would be remiss if I didn't ask about the McGuire study and if it was going to be published sometime this year.
spk07: I'm going to cautiously say absolutely yes. Now, don't pin me down between Q2 and Q3 because I'm not as confident, but yes in 2023.
spk04: Okay, super. Thank you very much. Thanks, Bruce.
spk03: Thank you. Your next question is coming from Anthony Vendetti from Maxim Group. Anthony, your line is live. Please go ahead.
spk02: Hey, guys. This is actually Thomas McGovern on the line for Anthony. Thank you for taking my questions here. I'll start off by asking about some of the supply chain constraints you guys discussed. If you guys could just kind of add a little bit more color on that, like what you're seeing now, how you expect the transition to in-house fiber production to go, and just on a general kind of high level, are you guys looking at these headwinds as somewhat in the rear view, or are they something that we can expect to continue to impact you throughout 2Q and possibly into 3Q? Thank you.
spk07: Yeah, so I appreciate that question. When you look at our gross margin and from an impacted by supply chain, I think you really started seeing a lot of that impact reoccur from Obviously it was in 2021, but it hit us again in second, third and fourth quarters of 2022 as well, had negative impact on gross margin. That's the reason we made the decision to invest in, you know, bringing some capability, in-house capability of our trunk fiber, which is certainly the most expensive and most critical part of our, of our Waterlace system. So as we look at 2023, moving forward, as Jen mentioned, we now are on target to have over half of our trunk fiber requirements built in-house. And so that has a two-fold benefit on gross margin. One is, obviously, it's cheaper to make than to buy. And so we cut out the manufacturing margin from our supplier, at least by half of our total units that we need. And the second is what we're finding is that the quality of what we're making is better than we've ever seen. And I'm going back many, many years. And so that gives me a high degree of confidence that what we'll see in the second quarter and the back half of the year will greatly benefit our gross margin number. So I think it's, yeah, We have to stay diligent in supply chain management. It's always an issue for any manufacturer, but I feel really happy with the place that we're in now, and I think each quarter's just gonna get better in terms of gross margin.
spk02: Gotcha, that's great to hear. And so then just turning towards the recently opened training facility, Could you just, you know, speak a little bit more on that? I know you guys mentioned it quite a bit on the call, but just trying to understand, you know, is it fully operational as of now? And then maybe if you can talk about how many, you know, you guys discussed not only holding training events there, but also, you know, traveling and doing training events across the country. Can you speak to how many of the 35 total WETP events will be in-house versus on the road?
spk07: Sure, so the first part of your question is the training center was up and running. First training I actually attended, it's May, so it was at the end of March it was open. And in fact, we had 13 pediatric dentists here Sunday being trained at this facility. It really shows nice. It's a great training facility. It's one of the best I've actually ever been in. From a WTP standpoint, and I want to be clear, the training facility, the WTPs are just one thing we do there, right? We have other trainings besides WTPs. But for the training facility here, it will host another four or five WTPs for the balance of the year. But I think what Jen mentioned and what is going to reduce the cost of holding these trainings is we are now able to partner And I've identified and partnered with a number of other, I would say, organizations slash sites to hold training in a much more cost-conscious way than what we did in prior years. In prior years, if we had a WTP, almost always we went to a hotel. And they had the cost of not only the hotel room, the audiovisual stuff that, you know, they charge an arm and leg for, the catering food, which is, you know, you're at their mercy for that, along with the kind of unseen cost of getting lasers in and out of that facility and the wear and tear of those lasers. think four now identified across the country. What we're doing is we're storing the lasers there so you don't have the shipment back and forth. Very minimal cost from an event standpoint. We can bring in our own food. So we're significantly reducing the cost of these WTPs now in 2023.
spk02: Understood. That's great to hear. It sounds like that'll really help. keep costs down moving through the years as well as drive some adoption. And then finally, and then I'll hop out and get back in queue, but I know you guys mentioned backlog, and I'm not sure how comfortable you are discussing total backlog, but if you could shed some light on the size of that backlog and how long you think it'll take you to work through, that'd be appreciated.
spk07: Yeah, so I'm not sure I mentioned backlog in my comments. We basically don't have much of a backlog. We're current on shipping a product out. There's, I would say, a minimal wait on the time when you purchase a laser or even more so consumables to the time we're able to ship it out. So there's really not a backlog today.
spk01: Yeah, I think he was referring to the comments on the trunk fiber backlog that has been coming down with the production of the in-house trunk fiber.
spk07: Yeah, and that's just one component, right? And that backlog has been reduced by about 50% from the start of the year to today. And for that, we would expect that to greatly diminish to near zero by the end of this quarter. But to be clear, that's not impacting any of our laser cells today.
spk02: Understood. Well, thank you for taking my questions. I'll hop out. Thanks.
spk07: Okay, thank you.
spk03: Thank you. And as a reminder, the floor remains open for questions. And if you would like to join the queue, you may press star 1 on your telephone keypad. Once again, that is star 1 to join the queue if you would like to ask a question at this time. And the next question today is coming from Ed Wu from Ascendian Capital. Ed, your line is live. Please go ahead.
spk05: Yeah, congratulations on the quarter. With, you know, the uncertain economic environment and the high interest rates, have you noticed any change in the, you know, sales cycle as you reach out to these dentists?
spk07: So, Ed, I would answer that question. It depends on which dentist we're talking with. It has not had that significant of impact on us. There have been deals that I would say probably have been the closing cycle has been longer. than maybe what it would have been a year ago. But the conversations that we have with dentists, and once again I'll concentrate on Waterlace here, they're seeing practice revenue and practice foot traffic back to pre-pandemic levels today. Certainly I would love to have interest rates go down. That would mean that their monthly payments would go down. But when we either do a WTP and we track for them before they purchase their return on investment or we show their return on investment during a straight sale, the fact that they're now paying $1,300 or $1,400 a month for waterlays versus $1,000 at a lower interest rate, while I'm not going to say it's not meaningful, when compared to the $3,000 to $4,000 they earn on additional procedures, You know, this really doesn't change our mind that much.
spk05: Great. Thanks for answering my questions, and I wish you guys good luck. Thank you, Ed.
spk03: Thank you. We have reached the end of the question and answer session, and I will now turn the call over to John Beaver for closing remarks.
spk07: Thank you. I want to thank everyone for being on today's call. I also want to thank the Biolays 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 second quarter results with you in August, and in the meantime, we will be participating in the Benchmark Virtual Healthcare Conference on May 23rd. If you are 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 in BioLase. This concludes our call. Have a great day.
spk03: Thank you. This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.
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