BIOLASE Inc (BIOL) 2021 Q1 法說會逐字稿

Good day, and welcome to the BIOLASE 2021 First Quarter Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Todd Kehrli of the EVC Group. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today to discuss BIOLASE's financial results for their first quarter ended March 31, 2021. On the call today from BIOLASE is John Beaver, President and Chief Executive Officer; and Jennifer Bright, Vice President of Finance. John will review the company's operating performance for the first quarter and then turn it over to Jennifer to review the financials in more detail. Before we begin, I'd like to remind everyone that a number of forward-looking statements, which are statements that are not historical facts, will be made during this presentation, including forward-looking statements regarding the company's strategic initiatives and financial performance.

These forward-looking statements are based on BIOLASE's current expectations and are subject to risks and uncertainties that could cause the company's actual results to differ materially from the statements contained in this presentation. Such forward-looking statements only represent the company's view as of today, May 13, 2021.

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 website shortly after the completion of today's call. When listening to this call, please refer to the news release issued earlier today announcing the company's 2021 first quarter results. If you do not have a copy of the news release it is available on the Investor Relations section of the BIOLASE website at www.biolase.com. BIOLASE's financial results can also be found in the company's report on Form 10-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 a 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 the details of 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?

Thanks, Todd, and thank you, everyone, for joining us this afternoon. We appreciate your interest in BIOLASE. Before we begin, I'm delighted to know that joining me on the call today is Jennifer Bright, our new Vice President of Finance. Jennifer joined BIOLASE earlier this year as an Accounting Director who was promoted to VP of Finance last month. Moving on to a review of the quarter. We followed up significant revenue growth in the fourth quarter, which is typically our strongest quarter of the year, with another strong revenue performance in the first quarter, reflecting increased awareness and pent-up demand for our industry-leading dental lasers.

In particular, we experienced continued high demand from new users, reflecting the success of our ongoing efforts to educate and train dentists on the benefits of our Waterlase technology. As I've noted before, to further accelerate our growth over the past 6 months, we have formed specialist academies, focused on expanding awareness of the benefits of our dental lasers into dental specialist communities.

We have launched specialist academies for endodontist, periodontist, and most recently, pediatric dentists to drive further adoption of our products. Our lasers provide a new, improved and better standard of care for dental procedures while ensuring a safer environment for dental practitioners and patients. Just last week, we launched the Waterlase Pediatric Dental Academy for a pediatric dentist. This academy will provide clinicians with an immersive training experience through peer-led learning, best practice sharing and ongoing mentorship to help ensure optimal integration of Waterlase technology into clinical practices.

Pediatric dentists are actively seeking new ways to treat their young patients in a gentler and more holistic manner than traditional dental equipment offers. Our Waterlase all tissue lasers allow pediatric dentists to remove tooth decay gently and precisely with less aerosols, less vibrations and little to no anesthesia. They can also perform soft tissue procedures with less blood and faster healing than traditional scalpel and suture methods from minimally invasive tongue-tie releases for infants and toddlers, to no-shock cavity preparations, Waterlase is an excellent addition to any pediatric practice to help kids feel more comfortable in their chair and hopefully instill healthy practices in oral care for life.

There are approximately 7,000 pediatric dentists in the United States. Based on our internal calculations, we believe that an additional 5% of pediatric dentists adopting our lasers would result in an additional $20 million in laser sales for BIOLASE.

In turn, those additional sales would drive follow-on consumable sales. During the first quarter, we also launched an innovative and first-of-its-kind program in the periodontal community. This program fosters pure-led learning with ongoing mentorship from leading clinicians, featuring online meetings and case reviews by experts in the field. The Waterlase Perio Academy has opened to all periodontitis utilized in the Waterlase technology.

Periodontitis have seen a significant increase in perio implant disease due to the substantial number of new dental implants being placed each year, and the existing aging dental implants currently found in millions of patients. Periodontists are actively seeking ways to manage both periodontal and implant diseases as the incidence of gum disease with bone loss has increased in the U.S. adult population. There are approximately 5,000 periodontists in the U.S. and 65 million Americans are suffering from perio disease. Launching an academy devoted to supporting the growth and needs of periodontitis directly aligns with BIOLASE's mission of advancing industry. In fact, several studies have already confirmed that patient-reported outcomes of Waterlase-assisted treatment of periodontitis were significantly better after laser procedures.

This includes the McGuire study, which was published in the Journal of Periodontology as well as the study in the International Journal of Perio & Restorative Dentistry. With so many Americans suffering from perio disease, these studies findings are significant and determine the best course of treatment for these patients. Also, studies continue to suggest that periodontal health is essential for overall health and specifically as it relates to susceptibility to infection, including COVID-19.

We believe these studies are significant for BIOLASE because they establish new protocols for perio surgery and will drive further adoption of Waterlase in our target markets. Based on our internal calculations, we believe that if an additional 20% of periodontists in the U.S. adopted our lasers, we would generate an additional $50 million in laser revenue for BIOLASE, not including the follow-on consumable revenue.

Last year, we launched a Waterlase Endo Academy, an exclusive community of leading endodontists dedicated to improving patient outcomes and profitability with new technology. Our Waterlase dental laser offers various benefits for endodontists from faster procedures to new treatment options. In addition, Waterlase has also provided improved patient-reported outcomes. Waterlase's unique approach allows for success in conservative endo treatment while the overall technology delivers more predictability, reduce patient discomfort and improve patient care.

Top thought leadership is quickly established in Waterlase as a new standard of care in endodontics. During the quarter, we announced a collaboration with Einstein Healthcare Network's residency in endodontics, to train endodontics residents in the use of Waterlase dental lasers. Einstein Healthcare Networks residency in endodontics is one of the first hospital-based endodontic programs approved by the American Dental Association. The residency is a 24-month program that prepares graduates to practice, teach and conduct independent research.

The goal of the program is to offer residents hands-on experience with dental lasers that are already in use across the industry, allowing residents to immediately implement their training when joining a future practice. Through our collaboration with Einstein, not only are we arming these future residents with knowledge and training on innovative technology, we're also enabling them to offer their future patients an opportunity for a less invasive and more positive experience.

Recently, we also announced plans to develop a new laser-assisted microfluidic irrigation device for endodontists with EdgeEndo, a global leader in commercializing endodontic products. This new device is being developed to offer a solution in endodontics, seeking more from their current cleaning and disinfecting techniques. The Edge Pro will be built upon BIOLASE's patented and proven erbium, chromium YSGG 2780 wavelength platform that has been shown to significantly improved debridement, cleaning and disinfection. Approximately 75% of all endodontists routinely use EdgeEndo endodontic files, burs and bio ceramics, making EdgeEndo a natural partner for providing significant reach and relationships within endodontists as we work to make Waterlase technology the standard of care in endodontics.

We believe our focus on each of these dental specialists will translate into higher demand for our products as they look for safer, more advanced alternatives to grow their practices. Our laser's safety benefits put us in an optimal position to advance dentistry and treat patients in the safest way possible. These are critical inflection points for BIOLASE because carrying a small percentage of each of these dental specialists could, by our calculations, generate nearly $100 million in additional revenue from laser sales, plus the higher-margin revenue associated with the follow-on consumables.

We believe the adjustments we made to the go-to-market approach during the pandemic are starting to pay dividends. The positive momentum we have seen over the past 3 quarters and the continued growth we are experiencing in our current 2021 fiscal second quarter gives us greater confidence that we are nearing the resumption of our pre-COVID growth trajectory.

We believe the opportunities in the endo, perio and pediatric segments highlight additional paths for growth for BIOLASE in the years to come. Together, the all tissue laser market penetration in the U.S. dental market is only 7%. We estimate that every 1% increase in the adoption of laser technology in the U.S. equals approximately $50 million in revenue opportunity for BIOLASE.

We also believe that with a clinically proven product portfolio that reduces the potential risk of infectious pathogens, BIOLASE has a significant growth opportunity ahead as dental professionals seek safer technologies to treat their patients. With that, I'll turn the call over to Jennifer to provide further details regarding our first quarter results.

Thank you, John, and good afternoon, everyone. These are exciting times for BIOLASE, and I welcome my new role as Vice President of finance.

I look forward to working with John and the management team as we continue our growth path towards sustained profitability. Turning to the quarter. Rather than read our financial results, which you can see in the financial tables of our earnings release and 10-Q, I instead would like to focus on providing more context around some of the numbers as well as highlight some of the operational improvements we achieved this past quarter. So jumping right in, we believe our strong first quarter performance demonstrates the business momentum and traction we are gaining and our continued success in navigating the challenging business climate.

We delivered net revenue of $8.1 million, representing 70% growth year-over-year. While our revenue was down sequentially, this had a result of a typical -- of our typical seasonality with the fourth quarter being our seasonally strongest quarter each year. We're certainly pleased with the continued momentum we are seeing in our business, which is allowing us to approach our 2019 pre-COVID revenue results.

Some other year-over-year first quarter highlights include: laser system sales increased 139%, consumables and other revenue increased 52%. U.S. revenue increased 67%, international revenue increased 75%. These are positive indicators of the increasing demand we are experiencing for our industry-leading dental lasers as dental offices in the U.S. and abroad continue to reopen. We also continue to expand our market share with 79% of sales coming from new users, continuing a positive trend we have seen take shape over the past couple of years.

During the quarter, gross margin improved despite a larger contribution on a percentage basis from international sales, which carry a lower margin since we sell-through distributors. In fact, we were able to increase our gross profit by $1.4 million year-over-year. This resulted in a significantly improved gross margin of 34%, a 500 basis points increase year-over-year, reflecting the impact of the increase in revenue and average selling prices for products sold in the U.S. during the first quarter.

We continue to focus on margin improvement and believe we will improve this metric even more over the coming quarters. On the expense line, total operating expenses were $8.8 million for the quarter, an increase of 31%. However, SG&A was higher due to onetime severance expense along with costs associated with the Special Shareholders Meeting we had scheduled earlier this year.

Our balance sheet remains strong, with cash and cash equivalents at the end of the quarter totaling $40.8 million, up $17.6 million on December 31, 2020. Due to actions we have taken over the past year, today's balance sheet is one of the strongest in BIOLASE's history. We believe that it will provide us with the resources to execute our growth strategies for several years without having to access the capital market. The significant increase in cash and cash equivalents is due to the exercise of warrants associated with our rights offering in July 2020 and the completion of a $14.4 million equity offering in February of 2021. Moving on to guidance. We continue to experience high demand for our dental lasers and are currently forecasting revenue for the second quarter ending June 30, 2021, to be significantly above the year ago second quarter, which was the quarter most impacted by COVID-19.

Based on currently available information, we've already exceeded 2020 second quarter revenue and expect total revenue for the 2021 second quarter to be between $7.5 million and $8.5 million, representing a growth of between 155% and 190% year-over-year. In summary, we had another strong quarter with solid revenue growth and margin expansion. And we are confident that our actions to strengthen BIOLASE are working. With the many positive changes made over the past year, BIOLASE is a healthier company.

We now have the commercial infrastructure in place and greater financial flexibility to capitalize on the growth opportunities before us. We're confident in our business plan and our ability to achieve sustained profitability and revenue growth. We believe our long-term prospects for growth are significant as dentists and patients worldwide look for solutions that allow them to provide and receive dental treatment in the safest way possible.

With that, I'd like to turn the call back to the operator to open the call to questions. Operator?

(Operator Instructions)

And our first question comes from Kyle Bauser with Colliers Securities.

John and Jennifer, and thanks for all the updates here. Maybe I'll just start with the sales organization. What is just for housekeeping, what's the latest number of sales territories? And how should we think about that? Are we good for now? Do we anticipate adding? Any color there would be great.

Yes, Kyle. You may recall that the last time we spoke, I think I mentioned that we had roughly 25 sales territories. I think at the time we had 1 open. We have filled that territory. But we are now seeing really good traction on the revenue side and a lot of basically all parts of the country in the U.S. And so we had 3 open territories that really weren't open because we weren't actively trying to fill those. But we made the decision in the last month that we were to go out and hire for those 3 as well. There are 3 territories that have been open for a considerable period of time. And so that will bring us to about 28.

And feel really good about where that is, where that will be once we complete that hiring process.

Perfect. Appreciate that. And following the warrant conversions and recent equity raise, you mentioned the balance sheet is as strong as ever. So plenty of runway here. To that end, how should we think about the burn rate just for modeling purposes? Obviously, we bring on a couple more sales reps here, but I guess, any sort of directional guidance here would be helpful.

Yes. So I think the burn rate for the full year 2021 will likely be similar as we had in 2020. As you recall, in 2020, we had a lot of reduction in costs around furloughs and so forth. And so that reduced our burn rate because we weren't generating revenue. As revenue is starting to come up in 2021, costs have come up as well.

And then going into 2022, as I think we've talked about before. I certainly hope that we're able to achieve our -- at least for the fourth quarter 2022, our $11 million to $12 million of revenue, which on an annualized basis, gets us into that mid-40s, which I've mentioned before, gives us the EBITDA positive and cash flow neutral.

Got it. Okay. Great. And then as far as the McGuire study goes, I mean, obviously, some pretty incredible results there. There's no denying that patient-reported outcomes are superior. Have you seen any traction in the field in terms of winning new business? Has it turned heads, particularly amongst the generalists? Just kind of curious how that's been able to act as a tailwind to win new business?

I think the way to characterize it, Kyle, is it's opened a lot of doors for us and to have discussions with the periodontal community. Before the McGuire study, there are many times that our sales team would be asked, well, prove it. You say this is clinically as good as traditional treatment and better patient-reported outcomes. But show me a paper, as you know, specialists are a lot more used to relying on studies than maybe the general practitioner is. So what that -- what the McGuire study has done is allowed us to say, here you go. This is it, and let's start the conversation, which before, those conversations never were even started because we did not have that study.

Our next question comes from Bruce Jackson with The Benchmark Company.

A couple of questions about the Edge Pro device that you're developing. So what is the regulatory pathway going to be, how long do you think it's going to be before the device is on the market? And then how does the -- how do the economics work between you and EdgeEndo?

Well, Bruce, I'm not sure I'm going to tell you all the economics around that, but I will describe the deal a little bit more in depth. In terms of the regulatory pathway, we expect to submit for 510(k) clearance over the summer. And we also expect that we'll be able to produce and sell the EdgeEndo commercial units by the end of the year. And so we do think that there's some revenue opportunity for us in 2021.

Obviously, as we head into 2022, even a bigger revenue opportunity. So this is, as we said in the press release, our really first OEM opportunity for BIOLASE. So our margins are not going to be quite as high as our flagship Waterlase iPlus, but we also are not responsible for any of the sales and marketing around that. But I do think if we look at it now, the margins that we're expecting versus where we are today, they would be accretive.

Okay. Great. And then shifting gears over to the sales and marketing side, you had some success with the different types of events with providers. Can you give us a rough idea of how many of those events are scheduled for the second quarter? And are you still seeing the conversion rates that you saw previously in your model market program?

Yes. So I think what you're referring to is our Waterlase exclusive trial program. and we got off to a good start in 2019, 2020, we had some programs running in Q1 that I would say from a sales standpoint, failed as we hit COVID, nobody wanted to buy anything. We started that up in, again, in late third quarter, fourth quarter of 2020. And our sales batting average, if you will, wasn't as high as I wanted. It slipped below 50% at the end of 2020. In large part because in many parts of the country where we're having the WETP, where we're getting a second wave of COVID, if you remember back December, January time frame.

So we had some dentists pull out on buying lasers. I'm very happy to say that I believe that, that is past us. And as we have -- during the first half of 2021, we're hitting at about 50% success rate. And we have all of the WETP events now scheduled for the balance of the year. And basically, they're happening every weekend between now and the end of the year. So when you think about that, we usually have 4 to 8 dentist in those trials happening every week from now to the end of the year. And I certainly expect our close rate to be 50% or above for the balance of the year.

(Operator Instructions)

And our next question comes from Anthony Vendetti with the Maxim Group.

John, this is Matt on for Anthony Vendetti. I saw in your press release that 36% of sales were from specialists. I was hoping you might be able to provide a general breakdown for what percentage of those sales were from endo, perio and pediatrics and maybe describe how you compare each of those opportunities in the long term?

Yes. Matt. So I'm not going to give you the exact breakdown, but I will give you a little bit further color around that. And that, that 36% of sales from dental specialists the majority of that, say, the vast majority of that came from endo and perio and less from pediatric. But as you may recall, we just started our pediatric dental academy this quarter.

So I think that it gives some credence to my belief that the Endo Academy and the Perio Academy that we previously have launched are bearing fruit for us. So when we look at total opportunity, I think the probably the biggest opportunity for us is on the perio side simply because of the rampant perio disease and the opportunity we have to heal sick implants, peri-implantitis. So I think that, that is certainly a significant opportunity. But I love the opportunity we have within endodontic too, especially with collaborating with EdgeEndo.

I think that's going to give us a significant additional leads, not only on the endodontists, but when a GP who's doing endodontics, sees that many endodontists are going to our 2780 wavelength to perform those irrigation procedures that that's going to open their eyes as well, and then they'll revert to our Waterlase technology because they not only want to do endodontics, but perio as well and so for super GPs. Also see, though, a big opportunity in pediatric dentistry. We hosted 9 dentists this weekend, this past weekend, from Healthy Smiles for Kids of Orange County, which is a charitable organization that sees 50 to 70 kids a day in Orange County.

These are children that really wouldn't see a dentist, if not for this organization. And we've had lasers in their facility for the last couple of years. And how great it is to go over there and see the kids being treated in a noninvasive manner without getting subjected to shots in the face and a drill and so forth in most all cases. And so I see a huge opportunity there. So I know I didn't answer your question. I'm excited about all three.

And then just if we could touch briefly on DSOs. Could you comment on sales from DSOs during the quarter and then potentially provide an update on the progress of the trials, Heartland specifically and then maybe the success you've had with targeting some of those micro DSOs you've discussed in the past?

Right. So it's interesting. Some of the DSOs who we've sold to, they are in the process now of getting trained and incorporating this technology into the practice. And because of that, they have asked us not to specifically publicly disclose their names until they're fully incorporating the technology into the practice, as you can probably understand but we have had some success, certainly, in the fourth quarter and first quarter and into the second quarter around that, not only in the U.S. but in Canada as well.

So we're now beginning to get into some of the larger DSOs in Canada. As far as Heartland goes, that we've been talking to Heartland now for probably 2.5 years, I think. It's been a long, slow road, certainly slower than what anybody at BIOLASE would have predicted or we would have liked. The good news is we're still very involved with them. They're an organization that I would think on this type of technology adoption moves relatively slow. And so we continue to -- I would characterize that they keep on putting milestones in front of us to achieve, and we keep on achieving them.

So all good in terms of moving forward, it's just not as a fast a pace as certainly I would have hoped.

Okay. Great. That's very helpful. And then lastly, if you could just comment a little further on the trends you're seeing regarding patient volume and appetite for capital equipment demand as these vaccinations progress and lockdowns are eased throughout the country and maybe what you expect in the next several months going forward?

Yes. So I'll segregate my comments between U.S. and international because I think it's a little bit different story. In the U.S., which, I guess, us and the U.K. lead G20 nations in vaccination rates. For the most part, dentists, patients back to dentists, are nearing their pre-COVID level in basically all parts of the country. When I say nearing, I'm talking 85% to 90%.

The one thing that dentists have had to do is because of the changeover in their operatories and the disinfection requirements needed because of COVID, they're a little bit less efficient in terms of patient turn than they were before. And I think that's causing some of the -- not up to 100% yet, it could be just a capacity constraint there. We have also seen recently a significant increase in dentists wanting to or thinking about traveling.

And that's important to us as opposed to us always having to go out and train them where they are, having larger group trainings or educational forums, I think that is coming. I don't think we'll get back to where we were in 2019 as far as the big dental trade shows and things like that. But I do see a pent-up need for dentists to travel and be around other dentists. I think all that leads to capital equipment being on the rise. Our sales team here in the U.S. Once again, for the most part, it's not like this in every city, but for the most part, they're now able to go in and see the dentists, which up until 2 or 3 months ago, that was very hard to do, and that's coming back.

So that's on the U.S. side. Internationally, I was just looking at a chart that had the G20 countries. And other than U.K. and U.S., nobody else is over 30%. I think Canada was #3 approaching 30%. You have a lot of countries below 15%. I mean, we all read in the news about the things going on in India, which obviously has negatively affected our business with their shutdown.

Even Canada in Ontario have extended some stay-at-home orders recently. So that's the battle that we're finding internationally. Frankly, I'm really pleased with the international sales given the environment. And I believe that the things that we shifted to in terms of online training, online education, has really helped us stabilize that revenue stream. And it puts us in a good position when the rest of the world starts opening up a little bit more for us to take advantage of it.

And our next question comes from Ed Woo with Ascendiant Capital.

Speaking of international, have you noticed any issues with your supply chain in terms of getting parts or components?

Yes, Ed, we have. So probably not unlike every other manufacturer around the world. We were having longer lead times and some supply chain issues. Fortunately, none of that to date has impacted revenue or ability to produce. We're staying well in front of it, hopefully. And hopefully, that supply chain delays will improve over the course of time. But we are constantly monitoring, and that's a full-time job for a couple of us here and making sure that we're getting the parts we need to build lasers.

That's good to hear. And then my last question is, last year, because of the COVID and the cancellations of all these trade shows, you guys were able to save a lot on travel expenses.

Do you anticipate that to be the same case this year? Or will it just be a reallocation to other type of marketing spending?

I'd say it's a little bit of both. So we've certainly saved a lot of money last year in events and trade shows, and particularly at the larger trade shows, things like Greater New York or Chicago Mid Winter and some of the other trade shows as well, where we did not participate and we're not participating in the first half of this year. They're not having anything except on a virtual basis. In turn, what we have flipped some of that money to, that some of that savings is marketing around the Waterlase exclusive trial program. We announced our collaboration with BMW at the end of last year. And we're really trying, and I think we're succeeding in giving those dentists a white glove experience in their training, and that's coming through not only with testimonials and referrals, but just word of mouth.

So we're really happy about that. So some of that money was diverted to making sure they have a great experience at the training. But some of it will be saved as well.

(Operator Instructions)

And we have no additional questions in queue. I'll now turn it back to you, Mr. Kehrli for any closing or additional remarks.

Thank you, operator. Thank you for joining us today. We look forward to updating you again on our continued progress when we report our second quarter results in August. This concludes our call. Have a great day.

Thank you all for your participation. This concludes today's call. You may now disconnect.