BIOLASE Inc (BIOL) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2005 BIOLASE Technology earnings conference call. My name is Jackie, and I will be your coordinator for today.

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to your host for today's conference, Mr. Scott Jorgensen. You may proceed, sir.

Thank you. Good afternoon, and welcome to BIOLASE's fourth quarter 2005 earnings conference call. I'm Scott Jorgensen, Vice President of Business Development, and with me are BIOLASE's Chief Executive Officer, Robert Grant and BIOLASE's Chief Financial Officer, Richard Harrison. To begin, Rich will provide a review of our financial results. Robert will then provide an update on the business's operational performance and outlook. Management will be conducting a Q&A session on this call.

And just as a reminder, we will be making some forward-looking statements on this conference call. The words or phrases can, be, expects, may, affect, may depend, believes, estimates, projects, and similar words and phrases, are intended to identify such forward-looking statements. Forward-looking statements are subject to various known and unknown risks and uncertainties, and BIOLASE cautions you that any forward-looking information provided is not a guarantee of future performance. Actual results could differ materially from those anticipated in these forward-looking statements due to a number of factors, some of which are beyond BIOLASE's control and may be discussed in BIOLASE's filings it makes with the Securities and Exchange Commission.

All such forward-looking statements are current only as of the date on which those statements were made. BIOLASE does not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement was made or to reflect the occurrence of unanticipated events.

As a quick reminder, our earnings release and a replay of this conference call are available on our website, at www.biolase.com. The Company's 2005 results can be found on the Company's Form 10-K, which is expected to be filed next week with the Securities and Exchange Commission.

Now with that said, I'd like to turn the call over to Rich.

Thanks, Scott, and good afternoon everyone. About an hour ago, we released our earnings report for the fourth quarter and fiscal year ended December 31st, 2005. It was distributed to our mailing list, and as Scott pointed out, is also available at our website, www.biolase.com. In case you have not received it, I'll summarize the major financial numbers and add some color as I go.

First, let's turn to the operating results for the full year 2005, and then I'll review the fourth quarter results. Net revenue for the year ended December 31st, 2005, was approximately $62 million, a 2% increase over the $60.7 million reported for 2004. Considering our numerous challenges in 2005, including the financial restatement and the launch of the Waterlase MD system, we're particularly pleased to have achieved revenue growth year-over-year.

Our gross margin declined as a percentage of sales from 59% to 50%. When we launched our flagship Waterlase MD laser system in late 2004, we immediately began to experience high production costs because of vendor component and part quality issues, and the resultant increased warranty and material scrap costs. But I am happy to report that we saw a significant improvement in this area in the fourth quarter, which I'll discuss shortly. Our loss from operations for the year increased to $17 million in 2005 from $9.4 million in 2004. And 2004 included a $6.4 million charge for a legal settlement and $747,000 intangible asset impairment charge.

After the decline in gross profit, the next largest cause of the increased operating loss was a $5 million increase in G&A expense. The majority of the increase in the general and administrative expense resulted from onetime costs associated with the restatements of our 2004 financial statements and delayed 2004 and 2005 financial statement filings, as well as onetime and ongoing costs incurred to comply with Section 404 of the Sarbanes-Oxley Act. The most significant of the increases in general and administrative expense that would not be expected to continue into 2006 at the same levels were increased audit and audit-related fees of about $3.5 million, increased other professional fees of about $1.5 million and increased temporary labor expenses of approximately $800,000.

After taxes, the net loss improved to 17.5 million in 2005, which would be $0.76 per diluted share, compared with 23.2 million or $1 per diluted share in 2004. Essentially, the higher operating loss was more than offset by the comparatively lower income tax provision. The 2004 income tax provision was unusually high, because the Company recorded a valuation allowance in 2004 on nearly all its deferred tax assets.

So now let's turn to a review of the fourth quarter, which paints a significantly different picture than the full year results. Net revenue for the fourth quarter of 2005 was 19 million as compared to net revenue of 19.1 million for the same period of 2004. This was significant because it followed a quarter in which sales were down by 5%, and it represented 63% sequential growth in revenues over the third quarter.

Sale of our principal product category, the Waterlase system, comprised approximately 85% of sales in the fourth quarter of 2005 compared with 90% in the fourth quarter of 2004. And approximately 96% of the Waterlase sales in the fourth quarter of 2005 were comprised of our flagship product, the Waterlase MD systems.

The gross margin for the fourth quarter of 2005 was 52% of net revenue as compared to 57% of net revenue in the same period in 2004. This represented a significant improvement over the 43% and 46% gross margins achieved in the second and third quarters of 2005 respectively. Primarily contributing to this improvement was a decrease in manufacturing costs per unit, because of vendor component quality improvements and design changes as well as our higher revenue performance versus those previous two quarters. With significant fixed infrastructure costs as well as performance in yield opportunity, the gross margin represents probably the greatest potential for operating leverage in our business model.

For the fourth quarter of 2005, the loss from operations was $1 million versus $9.5 million for the fourth quarter of 2004. This resulted not only from the absence of the legal settlement and the intangible asset impairment charges that we incurred in the 2004 quarter, but also because of a slightly more than $2 million reduction in general and administrative expense.

Despite the fact that we recorded about $300,000 in severance costs and $200,000 in compensation expense related to the accelerated vesting of certain stock options. Excuse me. Worthy of note, we have estimated that this accelerated vesting will reduce future year stock option compensation expense by the following amounts, about 1.6 million in '06, 1.2 million in '07 and $400,000 in 2008, following a pretax basis.

Net loss for the quarter declined to 1.2 million or $0.05 per diluted share from 23.6 million or $1.04 per diluted share for the same quarter in 2004.

Now in terms of our balance sheet, our financial position at December 31, 2005, showed cash, cash equivalents and marketable securities of 18.1 million, and we had $5 million outstanding on our line of credit. Total assets were 45.1 million. Our accounts receivable at $8.4 million was about $2.2 million lower than a year ago. And these quarters both follow the quarters that had similar sales level. This speaks to an improved quality of receivables and lower days sales outstanding.

Our total inventory at $8.6 million is slightly higher than it was a year ago, but it is $1.9 million lower than it was at September 30, 2005. This is primarily the result of process and manufacturing improvements to the Waterlase MD along with strong fourth quarter 2005 revenues.

We have really worked hard to fine tune our supply chain and generate higher yields in less rep. These achievements along with other working capital management actions and the strong fourth quarter revenues were the principal contributors to our approximately $1.1 million in cash flow from operations during the fourth quarter of 2005. This is the first time since the second quarter of 2004 that our operations generated positive cash flow.

In summary, on the financials, our short-term objectives have been positive cash flow from operations, return to profitability and acceleration of revenue growth. We made significant progress on all three of these objectives during the quarter just ended. So this concludes the financial review and now I would like to turn the call over to our CEO Robert Grant.

Thank you Rich and good afternoon everyone. Let me say from the outset we are continuing into 2006 with great confidence toward achieving our goals of cash flow generation, profitability and especially revenue growth. Despite our challenges during 2005, we concluded the year with a strong fourth quarter, generating $19 million in sales and achieving positive cash flow generation.

By finishing 2005 on a strong note, we are filling momentum in the marketplace and expect to have significant growth over the coming year. This confidence brings from all that we were able to accomplish and overcome during 2005 as well as some key initiatives that we are working towards in 2006 that I will discuss in a few moments.

To begin, I would like to provide a quick recap of the year just ended. First in January we acquired the Diodem intellectual property portfolio, which eliminated a major distraction and legal overhang for the Company, while solidifying intellectual property landscape. In February, we acquired the patent rights for ophthalmic applications from SurgiLight Incorporated. This business development effort is gaining significant traction and will provide the Company with an attractive diversification platform for the future.

In March, we had to postpone our 10-K filings due to a financial restatement related principally to state sales tax. Although, the cumulative impact was nominal, the restatement and the advances subsequently unfolded, created a significant disruption to the Company and its operations for several months.

In July we filed the delayed 10-K and later in September we successfully filed the 10-Qs for the first half of 2005. Ultimately, we decided to make an auditor change and engage BDO Seidman moving away from Price Waterhouse Coopers. In that same month we filed the 510k submission for the Oculase MD for ophthalmology applications. And finally in October our ticker symbol was restored to BLTI.

In addition to those major events, we made significant changes to other key parts of our business, including the sales and marketing organization. Some of these changes included restructuring and resizing geographies, standardizing the commission plans, marginizing our sales methodology and dividing the domestic sales force in the region.

In short, we have to retool our sales and marketing efforts including our messaging. Over the past year through extensive marketing surveys, focused groups and field investigations we have work diligently to analyze the market and what we can do to optimize our business on a go forward basis. Some of these activities include -- and included the establishment of BIOLASE University for launch of our new marketing messaging collaterals, which include the messaging of transforming the general experience for you and your patients. The commissioning of several new research papers and implementing the Dental University Program with our goal of 100% US penetration over the next three years in dental schools.

We also managed through the product transition of the Waterlase MD, which has had numerous introduction challenges. These challenges severely impacted our gross margins and overall financial performance during the year. However, we rally together to dramatically improve the quality and the reliability of the Waterlase MD. And we are very pleased with our achievement on this front.

The significant improvement in our fourth quarter gross margin is reflection of these initiatives to improve the quality and reduce the production cost of our products.

Additionally, during the past quarter, we significantly reduced our inventories through both quality and process improvements in our supply chain. Most importantly, we were better able to service our customers and to respond to customers needs on a timely basis. This improvement not only enhanced our field service productivity, but also improved our selling efforts as more and more customers were willing to refer their friends and associates to Waterlase dentistry.

Moreover, much work has been completed with our component vendors to ensure high quality parts that meet our strict tolerance requirements.

Furthermore, we dealt with Sarbanes-Oxley compliance in our infrastructure and we're now working to rationalize our operating expenditures. We have made significant progress across the company from a cost containment standpoint, and we will continue to do so in order to improve our cash generation and our profitability. We firmly believe that the company is now well-positioned for significant revenue growth this year.

We are very busy at BIOLASE. Recently, we've made several important decisions including the 15% reduction of the company's global headcount. We're reducing cost in areas where we can improve our operating margin while not impacting our customer service and sales activities. Much of the cost reduction came from the plant closure of our European manufacturing function as well as the reduction of staff from every functional area in the United States.

These decisions have already yielded substantial decreases in our operating expenditures. We are very pleased with our cash management during the fourth quarter, which came not only as a result of better management of our working capital, but also through greater financial discipline.

Also, I'm pleased to announce today that we recently surpassed 1,000 unit sales of the Waterlase MD laser system. To have reached this milestone in a short period of time is a significant accomplishment for the company.

Also to note, the Japanese Ministry of Health and Welfare recently informed us that due to a change in Japanese pharmaceutical law, they require more clinical data before they can move forward on the regulatory application. Due to the uncertainty of the regulatory protocols, at this time we cannot provide an estimate as to when we expect to receive regulatory approval on the Waterlase MD system in Japan.

In addition to our work in Japan, however, the company recently launched a direct sales and service operation in both Australia and New Zealand. We believe these markets will serve as strong growth drivers for our international business during 2006.

Domestically, we had a strong quarter with a solid presence both at the ADA, American Dental Association Annual Meeting in Philadelphia and at the Greater New York conference held in New York City over Thanksgiving weekend. This strong presence and momentum has carried us into 2006, where we recently had a very strong Chicago Midwinter Meeting at which the company generated more than 30% higher order volumes over the previous year.

Additionally, this past weekend we held our annual World Clinical Laser Institute Super Symposium in Huntington Beach, California, at which the company exceeded its sales goals by slightly more than 100%, making this WCLI the most successful in our history.

Dr. John Kois, one of the premier luminary doctors in all of dentistry, served as a keynote presenter at this year's WCLI Super Symposium. At both of these events, the company generated higher order volumes on lower operating expenditures. As a result of these exciting activities, we're feeling very confident in our revenue model going forward and expect to see significant revenue growth and operating leverage during 2006.

Furthermore, we believe the company has now achieved a level of market penetration, product quality and brand awareness wherein a distribution footprint expansion would be timely.

With that, I would now like to spend just a few minutes in closing discussing our key objectives for 2006. During this past year, we worked very hard to develop a three-year strategic plan. As part of this plan, we have outlined key objectives for each functional area of the Company. These objectives cascade down to each manager and the respective employees to ensure performance tracking as well as accountability. We have formulated the following seven key objectives for 2006.

Number one, achieve the operating plan. As part of our internal budget process, we have built the Company's financial requirements through a comprehensive approach, which we believe will instill financial discipline in our expense management, as well as to cause us to diligently look for continuous improvement company-wide.

Number two, build superior quality. We are determined to improve our engineering and our manufacturing processes, remembering that quality is at the core of our product offering.

Number three, successful new enterprise resource planning software implementation and our building move to Irvine. We are working very hard to complete the implementation of an ERP business system that will provide streaming and real-time data to all of our managers so that business decisions can be made timely and appropriately, particularly for our supply chain functions. Additionally, our move to Irvine will provide us with a building and office layout, which conveys creativity, confluence and commodore, and increase this productivity among our ranks.

Number four, master the science. Our R&D team is committed to driving discovery and innovation through ongoing research in dentistry and ophthalmology and other medical applications. Our goal is to fully understand our HydroPhotonic science and to bring to provision the reality of anesthesia-free dentistry and surgery.

Number five, launch our ophthalmology business. Through our clinical trial work, discussions with strategic partners and key opinion leaders, alongside the filing of our 510k submission for the OCULASE MD, we have made great progress toward achieving a commercialized product in the field of presbyopia. Our objective is to launch an ophthalmology business by late 2006, and to establish the key clinical sites to service the basis for our future PMA submission.

Number six, leverage our patent pool. We believe the patent portfolio that we have is one of our strongest and most valuable assets. More importantly, we believe this intellectual property position may enable us to establish a per procedure model concurrent with new applications and technical innovations, as well as offer extensive patent licensing opportunities to stabilize our revenue growth and to provide business predictability.

To note, following the Diodem acquisition and settlement, the Company is now a co-plaintiff in the ongoing Diodem litigation with Hoya and Luminous. The trial date is scheduled for April 25th. We feel very confident in the strength of the Diodem patent portfolio in combination with a larger BIOLASE and American Dental Laser patent portfolios, which we acquired in order to protect both our collective intellectual property position, as well as, and more importantly, our market leadership.

Number seven, penetrate universities and engage key opinion leaders. Our recent market research underscore the importance of leveraging universities and key opinion leaders and luminary doctors for speeding the adoption of our technology. Our goal is for more top luminaries in the field of dentistry and medicine to adopt our technology for their practices and command a podium presence at major meetings. We are currently in final stage talks with 12 new universities replacements of Waterlase technology in exchange for integration in their standard university teaching curricula.

We are very excited about the opportunities we have here at BIOLASE, both this year and beyond. We emphasize opportunities because during 2005 -- excuse me-- we were more focused on internal risk mitigation than external opportunity exploring activities. With these issues now behind us, we are now able to turn our full focus, to successful operational execution and opportunity exploitation. We're confident in our business strategy. And we expect substantial revenue growth in 2006 as a result.

And looking forward, we believe we have a great brand to leverage amongst the growing interest of our technology. With that we would like to thank you for your continued interest in BIOLASE. And look forward to updating you on our progress in the next earnings call. Thank you.

And now, I would like to turn the call back over to the operator for the Q&A section.

[OPERATOR INSTRUCTIONS]

And your first question comes from Dalton Chandler from Needham & Company. You may go ahead.

Hi, guys. It's Dalton Chandler from Needham & Company.

Hi, Dalton. We know it was you.

First of all congratulation on a nice turn around this quarter. And I apologies if you're going to -- whether it has been daunting back in fourth between two call here. But did you give a break down of revenue between the Waterlase and the other lasers and then the other revenue?

We did not, but we can give that to you. Waterlase category revenue for the quarter was 86% that includes both our Waterlase MD as well as Waterlase sales.

Okay. And how were those sales -- are they continuing to break down about two to one in favor of the MD?

No. It's gone much more in favor of the Waterlase MD. Of that 86% number, 82% goes in the favor of the Waterlase MD and 4% goes in favor of the Waterlase currently.

Okay. Have you thought about doing anything else with the old Waterlase or they would -- just counting in to an entry level product or I mean, otherwise, it just seems like it's, sort of, fading away?

Well, principally, and I don't want to go too much in our future R&D initiative, but we have been selling the Waterlase, principally, in the international markets now. We're starting to get some traction in some of the emerging markets where price sensitivity is a greater issue. We expect that that will continue. But we are looking at that category, and the second peer price point, and how we will address that to our R&D initiatives over this coming year. We think if there's a market there at a lower price point, and we are currently planning through our R&D projects to ensure that we have a good product offering in that category.

Okay. I heard you say you expect to launch an ophthalmology product by the end of this year. Have you heard anything from the FDA with regard to your 510k application that that gives you confidence, so that's a reasonable timeframe?

We have -- we actually have had an open dialog with FDA. And they sent us some questions. We've answered some of their questions. We're in the process of answering their questions to more, and we feel that that's going according to our plans right now. We're pretty pleased with our progress on that front. And we're excited about our clinical results that we've seen in presbyopia with the patients that have been treated outside the United States thus far.

Okay. And is there anything you can tell us at this point about how you plan to commercialize the product?

I mentioned during the earlier part of this call that we have been talking with strategic alliance partners. Again, I would emphasize that to the extent that we take a product to market through our initiatives related to presbyopia more than likely it will be through a strategic alliance with another party that already has a brand recognition as well as a footprint in the ophthalmology space.

Okay. And then just looking ahead, I don't know if you gave any guidance or not, but typically the March quarter is sequentially down. But you're also rebounding from depressed sales earlier in the year. What do you expect to see for the March quarter?

You know given everything that's happened over this past 12 months or so, actually about 15 months, we have not given any guidance. We've not decided to start giving guidance. We may revisit that again as we go through the coming months.

I will say however that we're very enthusiastic about where we are right now with this quarter, especially given the results that we had at both our Chicago Midwinter Meeting, which I mentioned had a 30% higher sales performance than we had over our prior year, as well as our WCLI Meeting, which was approximately just over double of what we had in our prior year as well.

So we're very excited from that perspective. We're starting to sense the momentum picking up in the business again, but we're not quite ready to give guidance related to specific performance metrics for revenue for the year at this point in time. We may revisit that, as I mentioned, as we go through the next few months.

Okay. Fine. And then you know the gross margin was a pleasant surprise in the quarter. I'm assuming your expectation is -- you wouldn't, I guess, take a step back from there, so it would either be steady or improving as we go forward?

I think it's very safe to say that our biggest opportunity for operating leverage improvement in this whole business model is in the gross margin right now. And that's going to be accomplished through continued improvements related to our manufacturing processes on the Waterlase MD, increases in our unit volume, and in addition to that, some increases related to average selling prices.

So we feel very good about the expansion of our gross margins. We feel that trend is going to continue. And we see no reason why we should not be able to return to greater than 60% levels of gross margin in the mid-term future of the Company.

Okay. And one last question, and I'll give somebody else a chance. You talked a bit about the cost savings from closing European manufacturing and the headcount reduction. Did we see that already showing up in the quarter you just reported or is that something you know still to come?

I think you saw the negative impact of it in the quarter just reported because we had the severance costs associated with those actions. So you haven't yet seen the positive impact of that.

However, you have seen the positive impacts related to the initiatives we went through with improving our quality and that has what -- that is what has improved dramatically our gross margin performance, notwithstanding that there were certain one-time charges that impacted gross margins for the quarter due to the plant and the functional closure of our European manufacturing site.

Okay. Thanks a lot.

Thanks, Dalton.

And your next question comes from Alex Arrow from Lazard Capital Markets. You may proceed, Alex.

Thanks. On your sales force headcount, we get the impression that the 2005 revenue versus '04 was -- had a lot to do with changing sales force headcount over the course of the year? Could you give us what it is now? What it was at the beginning of the year? And if you're willing, what the high point and low point was at the sale force headcount? And when it occurred during the year?

Right, right. Our headcount right now, we have 34 territories. I believe we have 33 sales reps, so we are almost fully staffed. We have one territory that's open at present, and that's not unusual for us to have one at any given time.

I think, though, that sort of the larger part of your question is probably more related to the turnover that we experienced in our sales force during 2005. There we did have a significant turnover in both voluntary and involuntary attrition in our sales force. We've talked about it on prior conference calls. I think one of the things that we have noticed over this past year is the amount of time that it takes us to train up new sales reps as we hire them and we get quality people on board. And also that during this past seven months, our turnover rate has dropped dramatically.

So we are now starting to see-- and I think this is part of the genesis of why we are starting to feel a little bit more momentum in our business in general-- is that our sales force is getting a little bit more experienced and has been through the process and understands what it means to be in this business and to sell successfully in this space. So I think we are starting to see some leverage in our activities and probably also related to the tenure of our sales force as we get longer and longer into the field.

Okay. So the 32 reps you said, now that's as of March 7th '06. Can you say what it was on December 31st and January 1st of '05?

I believe it was like 31 on January 1st or 32. And I also would say though that, again, we are two months further along in having those sales reps trained up. And I think that's probably the bigger impact that we experienced. We didn't have-- we had periods during the year where our sales force dropped during 2005 down to a low of approximately 25. And now it was about at the middle point of the year for 2005.

So at the beginning of '05 it was about 31. It went down to 25 in the middle and it got back up to the 31 by the end and now it's 33?

That's correct.

Why-- I mean, we have thought that sales force productivity had gone up and that the sales being flat '05 versus '04 was actually indicative of growing popularity of the Waterlase, but simply fewer people selling it. But hearing that that's not the case, what was it -- what was the main reason that '05 is not what you characterized as a transition year and the sales were flat? If it wasn't fewer people selling it and the device remained as popular as ever, what was the main reason you would say that was flat?

Alex, I'd say, first of all, we had a lot of noise in 2005. I think I went through that whole litany of issues. We had a restatement that was also causing some trepidation on the part of many of our dental customers, because they were watching BIOLASE in the press for last year and sort of concerned about what was happening with the financials and the financial reporting of the Company during that timeframe.

Additionally, we went through many challenges related to the introduction of the Waterlase MD, which we've now since corrected. These challenges were largely related to parts and components that we have from our vendors that did not meet our tolerances, which caused us delays our manufacturing process and also time to delivery to our customers. And in addition to that, when we got products out to them, the level of reliability wasn't as high as what we had been accustomed to. And so the strain on the whole field service and field selling organization was certainly higher than normal.

I think these are the issues that impacted us during 2005. And one of the reasons why frankly in 2006 we feel very good, because we don't have these issues bombarding us on a daily basis like we did in 2005.

All right. That sounds good. On the installed base, you gave us the 1,000 unit milestone that you've had with the MD. So is that as of March 7, or is it December 31, for one thing that 1,000 units?

No, I think that's just recent. I'm not sure exactly what the date was on that and -- but that has just been recently. We were closed to that number at the end of 2005.

Okay. And can you say, roughly, how many of those 1,000 customers with the MD previously had a regular Waterlase versus how many of them were first time customers?

You know, I can't answer that question exactly, Alex and I hesitate to give an answer but I will do this. I'll give you a call later on and have that data for you and call you with it.

Okay. How about -- what the total in installed base--?

But what I would say is this, it's not a significant number in our opinion.

It's -- so most of them are new customers, is what you are saying?

Yes. That's correct. The vast majority are new customers.

Okay. How about what the total installed base of both types of Waterlase in -- all in to date worldwide with the total Waterlase installed base?

The total installed base right now, we've now sold approximately 6,000 total systems around the globe and in our Waterlase category, we are in approximately 4,500, in that range.

Okay. So 1,500 of the LaserSmile and other lasers.

That's correct.

Okay. How about disposables? I know you gave us the 86% of total revenue being from Waterlase, what percentage is the disposable tips versus the capital equipment, can you say that?

Consumables and service represented approximately 6% as a combined category of our revenue for the quarter in -- for the fourth quarter of 2005.

Would you think that it's reasonable for us to model that number climbing in '06 because, you know, as the installed base grows and more people using consumables or there is still lot of consumable reused and free consumable being given with new sales --

No, I definitely think it will climb. We did see a moderate increase during 2005 notwithstanding the challenges that we faced, but I definitely believe it will be climbing in 2006 and beyond.

If we were to predict that it would go up as high as 10% by the end of '06, do you think that will be too aggressive?

I think that's probably conservative.

Okay, great. Okay. You mentioned the -- exceeding your sales goals at the World Clinical Laser Institute Super Symposium, can you tell us what those goals were?

Sorry, say that again.

You at the World Clinical Laser Institute, or the Symposium that you had in San Diego, where you exceeded the sales goals --

Yes. Last year -- and you know I want preamp this by saying that you know sometime it can be so much misleading to have a really strong show and then people think if that's going to exactly equate to the same type of performance for the entire quarter. So I have sort of a disclaimer related to that.

Having said that, however, we set a goal of approximately $1 million in sales at our recent WCLI conference held in Huntington Beach, California and we exceeded $2 million in sales. Last year our sales performance from that meeting was under $1 million, it was approximately 7000 to $8000 for the WCLI Super Symposium last year.

Okay, great. That's helpful. And you said that one is in what -- in January so that's part of the first quarter?

That was in January of 2005 and we held the Super Symposium this year in March.

It just happened.

It just happened this last weekend.

Okay, great. Okay, almost done. The G&A, is it a higher percentage of sales that has been in the past, can you give us any -- I mean I know typically in the fourth quarter you have a lot of advertising and trade show expense, but just looking at your historical pattern, if there aren't onetime items, you're usually at a lower G&A margin. Can you give us anything more on what's with the 3.6 G&A?

First of all, I'll comment and then I'll turn it over to Rich, and he can comment some more on it. I mean our trend has been reducing pretty dramatically over the year. If you look at the first part of 2005, I think we started out at about the high 20%-30% range. It climbed up to 38% in the second quarter, and then it dropped down to 26% in the third. And in the fourth quarter, it was at 19%.

I think also as you'll see in the press release approximately $300,000 of the total 3.7 million of cost attributable to G&A were associated with the headcount reduction that we did that was a one-time charge in nature. So if you take off those one-time charges, that percentage then drops a little further as well.

I would say that probably longer term, G&A is going to be more in the range of the mid-teens rather then the high-teens or 20% range, if you're looking for your modeling purposes.

Okay. That's all.

But I think it's going to be something that is going to continue over time as we work through some of these Sarbanes Oxley things. We saw the expenses related to G&A is sort of following those categories. Rich, do you want to add anything there?

No. I think those points are good. I mean, Alex, at 90%, that was our lowest percent of sales for G&A since -- gosh, going back to I think the second quarter of 2004. And as Robert pointed out, we did have included in there some -- a number of one-time costs that we would not expect to see going forward.

Okay. You know I appreciate the recent trend. It's been improving. In the fourth quarter of '04, there was a bunch of one-time charges. If you go back to the fourth quarter of '03, you were at 10.1%, but you were a much small company at that point, so I get your point that...

Right. I think for your modeling purposes, it should be somewhere in the mid-teens.

Okay.

And -- but it's not going to be something that, you know, this quarter is immediately going to be at that range.

Okay. My last question is just on the ophthalmology milestone. I mean that late '06 launch, what milestones will there be between now and then as far as submissions, approvals, things that we might look forward to hear about the progress of that product?

I think one of the milestones that we've been working on is forming our medical advisory board of the top ophthalmologists in the field. We're not going to start off -- we want to make sure we start off in the ophthalmology market with our best foot forward. And we start with the very top luminaries and opinion leaders. What we learned from the demo side is that we didn't do that as well upfront as we probably should have. And now, we're basically going back and doing that and filling in the gaps.

We are starting with the very top luminaries in the field of ophthalmology from the very beginning and forming a medical advisory board. We expect to have that formed and to have our first meeting in the coming month. I think that's going to be something you're going to see and maybe even some comments from some of these people that are involved in that process with us.

I think also we may, before we launch it at the end of the year, we may announce a partnership with a significant company that already has a footprint in the ophthalmology market. And I think that's an area that we're spending a substantial amount of time on right now. We've been in talks to the number of parties and a number of very interested parties. And as those discussions continue and progress, we will likely be updating the market on those initiatives as we have tangible things that we can basically announce to the market as a result of it.

I was speaking more just along the lines of your 510(k) or PMA, just -- I mean that kind of stuff just to give us --?

Sure. You'll also see in addition to what I've already said that we will get our 510(k) application and that will be completed and it will likely be approved. And then once we've gotten that, the next step would be through our medical advisory board to start putting together the clinical trials for the United States -- for the United States in the future.

So you say this is the submission of the 510k is relatively in near future, I mean, -- that means you've already done your clinical studies on, on the ophthalmology?

Now, the 510k, as you're probably aware Alex, the 510k is related to general ocular tissue ablation. So that means that we can sell the Oculase MD in the United States for those applications, general ocular tissue ablation.

Our treatment in the field of presbyopia is something that is an expansion of general ocular tissue ablation. But at the same time, it is one that we plan to follow PMA submission on in the future, either directly ourselves or through a strategic alliance with another party. And the reason for that is that, we will likely need to do a PMA submission in order to make the indication for sales purposes under presbyopia.

So if we want to expand outside of the room of just general ocular tissue ablation, which is very generic, very basic, we want to expand outside of that that categorization that we will mean to do a PMA, in order to expand the indication for FDA purposes to include presbyopia.

Okay. So the late '06 launch you're referring to is not, thus the obvious general ocular tissue ablation?

That's correct.

And then -- and so that 510k is the one that we can look forward to herein relatively soon, so would -- does that mean you've done clinical data -- clinical studies on general ocular tissue ablations that --?

Yes. We have and we've also done clinical studies outside United States on presbyopia.

Okay. With -- and would you also give us a timeframe for your presbyopia US launch? Is that for '07?

Well, again, I think that is, is something that is dependent on how quickly we determine, who will be our partner in this space, how we're going to position this business vis-à-vis our dental business? We're extremely excited about it. Our results have been very, very strong. And we really can't say a whole lot more about it at this point in time other than what we've already said.

Okay. So for general ocular tissue ablation what -- would somebody be using that off label then would you expect or what would it -- is there a market -- a material market that we should put some revenue in our model corporate general ocular tissue ablation?

Well, when we give 510k approval, we can sell it outside the United States for any indication, right, because then you get a certificate of free sale. So we'll start selling it at the end of the year outside the United States to include presbyopia. And you got United States in order to make the indication of presbyopia, we'll need to do and complete our PMA process.

Okay. So for modeling purposes late '06, the only revenue we should be putting in is whole US revenue for ophthalmology.

Yes.

Okay. Thanks a lot. I'll now get back in the queue.

And your next question comes from John [Peano]. He is a Private Investor. You may proceed, John.

Yes. I thought that my question was answered. A last question, you must be very tolerating. I was going to ask about your sales being so flat, you know, year-to-year. I expected that that's our growth but it was explained to me, and very thoroughly. I thank you very much. I am excited about your Company and will continue to invest. Thank you very much.

Thank you, John.

Thanks.

And you have a follow up question with Alex Arrow from Lazard Capital. You may proceed, Alex.

Thanks. Could you give us the domestic versus international breakup?

For the fourth quarter international sales comprised 26% of the total revenue and the balance was for domestic. And domestic by our calculation includes Canada and United States.

Okay, great. Okay. Thanks a lot.

Thanks, Alex.

And at this time, sir, you have no further questions. And now, I'd like to turn the call over to management for closing comments.

2005 was certainly a challenging year and a year of transition for the Company that we've now put behind us. We're very excited about what we've been able to accomplish. Through all the challenges that we faced in '05 and coming into 2006, again, our key focus areas are cash generation, profitability and most importantly our return to revenue growth.

We feel very strongly that we're well-positioned in order to achieve all three of those objectives during 2006. We thank you for your patience as our loyal investors looking at the company on a long-term basis. We're enthusiastic about our future opportunity and we're very happy and engaged in changing the way dentistry's practiced and perceived. Thank you very much.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a wonderful day.