BIOLASE Inc (BIOL) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the BioLase Technology, Inc. 2007 fourth quarter and year-end results conference call. (OPERATOR INSTRUCTIONS) This conference is being recorded March 11, 2008. I would now like to turn the conference over to Matt Clawson of Allen and Caron. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining us for the BioLase 2007 fourth quarter and year-end results conference call. You should have all received a copy by e-mail this morning of the release announcing the company's results for the fourth quarter and year ended December 31,2007. If any of you did not receive a copy of this news release, you can call our office after the conference call at 949-474-4300 and we will be happy to e-mail you a copy.

Before we get under way, I have been asked to make the following statements. The word or phrases can, be, expects, may, affect, may depend, believes, estimates, projects, and similar words and phrases are intended to identify forward-looking statements. Forward-looking statements are subject to various known and unknown risks of uncertainties and BioLase cautions you that any forward-looking information provided is not guarantee of performance. Actual results could differ materially from those anticipated in these forward-looking statements due to unknown factors, some of which are beyond BioLase's control and may be discussed in BioLase's filing with the Securities and Exchange Commission. All such forward-looking statements are current only as of the date on which the statements were made. BioLase does not undertake any obligation to publicly update any forward-looking statements to reflect events or circumstances after the date on which any such statement was made or to reflect the occurrence of unanticipated events.

Also, as a quick reminder, a replay of this conference call will be available on BioLase's website at www.biolase.com. The company's 2007 fourth quarter and year-end results can also be found in the company's annual report on Form 10-K which will be filed by March 17 with the Securities and Exchange Commission. With me on the call today from BioLase are Jake St. Philip, CEO; Federico Pignatelli, President and Chairman Emeritus of the Board, and Fred Capallo, Interim Chief Financial Officer. Again, I will be handing the call to Federico who will say a few words of introduction. Following that, Jake will produce an update on the business operational performance and outlook. Fred will then provide a review of the financial results and the management team will then conduct Q&A session and end the call with a few closing remarks. With that said, I would like to now turn the call over to Federico. Good afternoon.

Thank you, Matt. Good afternoon, everyone. Thank you for joining us for our year-end call. It has been an exciting few months at BioLase, to say the least. It is important to recognize that the fourth quarter was a transitional period, a period in which we moved from the past into the future of a new BioLase. Results in the quarter were impacted by a number of one-time restructuring charges and, in addition, by number of commitments and expenditures put in place by former management. Q4 was also a time of several positive changes and rapid progress, beside the record revenues.

Among the many accomplishments we made since October was the identification and recruitment of a new CEO, Jake St. Philip. I strongly believe that Jake is the right man to lead the new BioLase towards future growth and the many opportunities that lie ahead. Jake has more than 26 years health care experience in various positions, including executive management, sales, marketing, and R&D leadership. Most recently, he was senior vice president with Cardinal Health, an $87 billion global company servicing the health care industry. In that role he was responsible for more than $4 billion in acute care product sales. Prior to that, he was President of Alaris Products, North America, formerly Alaris Medical Systems, before being acquired by Cardinal Health. The Alaris North America business was over $400 million in sales. In a short time, Jake is already making a real difference at the top of the organization, and I welcome him to BioLase. With that, I will hand the call over to him. Good afternoon, Jake.

Thank you, Federico. Good afternoon, everyone. And also as Matt mentioned, joining us is Fred Capallo, our interim CFO. I'd start by personally on behalf of our board of directors, like to thank Federico, who served as our interim CEO, and express a great deal of gratitude for his hard work during a difficult time at BioLase. He provided significant leadership when needed and kept our organization focused during the important Q4 finish. I'd also like to thank Fred for taking the interim CFO role during my transition and continuing to play a major role in our organization going forward.

I'd also like to acknowledge those in the investment and research communities who have taken the time to introduce themselves in the past few weeks, both at the Needham conference and since then by phone. As I've mentioned in those conversations, I've shared my assessment of BioLase through my diligence prior to joining the company, which may be very similar to your analysis as an investor. I recognize a large and growing worldwide market opportunity, clearly superior technology, first mover advantage, leading brand in the industry, and a team of people in place that with focused leadership are capable of making BioLase a world class organization. Conversely, one of the critical challenges in the company has been its poor track record of driving consistent performance, largely due to the capital equipment sales process. In my assessment, however, the company now faces more of an execution challenge rather than one of invention. That said, though, as we look at the organization and getting it to where we want it to be, it is going to take some time and some hard work throughout 2008.

As you would expect, I've been quickly getting my arms around the operation here at BioLase in the first two months. Listening to employees, meeting with end users, key suppliers, strategic partners to begin to prioritize key initiatives. During this time my opinions and enthusiasm for the future have only gotten stronger. I'm convinced our technology has the ability to transform the dental experience for the patient as well as the dental practitioner. It provides a better patient experience, can re-energize a dental practice and allow more patient throughput and additional procedures which ultimately deliver an excellent return on investment for the dentist. All of these factors provide a very strong foundation for us to build on.

My focus now is execution. Making sure the organization is aligned on the top priorities and ensuring we're blocking and tackling in a way that will produce improved performance as we progress through 2008. I recognize that we haven't delivered consistently in the past but must do so in order to rebuild our credibility with our shareholders and the investment community. My plan is to lay the foundation through the year to drive to that goal.

My operational assessment has been very helpful in understanding that we have broader market opportunities here at BioLase. However, in the short term we will not stray from our core dental business and improving our go-to-market strategies and effectiveness. My goal in the months ahead is to deliver new messaging to our customers and a refined value proposition. It is also critical that we rebuild our sales process to deliver more consistently with our key strategic partner, Henry Schein. As we get these elements in a place, a thorough strategic plan will allow us to step back and make strategy choices and share our long-term vision for the future later in the year. Our leadership team, though, really recognizes that job one is executing and delivering on our core of dental business and breaking through the next level of market adoption. What I can promise to you is to communicate in a straightforward manner.

We will, over the coming months, have successes and challenges as we strive to become a great organization. We'll set our goals to build a more focused organization and strategies to achieve those goals. I'm confident that this team and this technology will prevail in the marketplace.

Now, I'd like to touch on a few highlights from the fourth quarter. The most important aspect of the fourth quarter was the strong top line results as well as improved operating performance in key areas. The top line performance was a promising rebound, 62% over Q3. What this tells me is we can deliver excellent performance when properly aligned with our strategic partner, Henry Schein.

The next most important item was the North American distribution strategy. Just the past week we announced renewed and strengthened our partnership in North America with Henry Schein based on the work that was started back in Q4. I spent a significant amount of time finalizing this agreement with Federico Pignatelli and the Schein leadership team. I firmly believe this strategic partnership is the right move for both parties.

We did just put the press release out on that, but I will reiterate a few critical points of the agreement going forward. We have concrete performance guidelines for both parties. Henry Schein has continued to commit to help leverage their scale and improve our efficiencies in our distribution channel. BioLase will promote Henry Schein Financial as its exclusive finance partner to improve customer support as well as improving sales force alignment between our organizations. My assessment is BioLase continued to operate in a direct sales and marketing mode.

Although we have lots of examples where we've been very successful with our Schein partners, we haven't done it consistently across North America as well as we should. We're quickly working to make those improvements from the ground up. I am personally reaching out and calling the Schein field leadership team as the new BioLase CEO to reinforce our commitment to this partnership and open the dialogue at all levels to our organizations. I'm also working closely with their president, Tim Sullivan, and his team at Henry Schein to build more consistency in our field level coordination.

On the next area I'd like to talk about is international. In Q4, 39% of our total sales came from international and also represented a strong rebound of 134% growth sequentially over Q3. Improvements were broad based over Europe, Australia, New Zealand, and Korea. Q4 also represented a 26% growth over 2006. I'm optimistic regarding our opportunities in our international markets. Certain new markets in Asia present significant opportunities for us in 2008. We will announce expansion plans as soon as our marketing strategies are finalized. Also, in April there will be a significant user's conference in Taiwan where we do anticipate strong attendance and interest throughout the region.

In Q4, we did a number of things to focus on fundamental operational improvements. And in that quarter, important spending initiatives were identified, including items like the reduction of nonessential trade shows, costly shipments of demonstration equipment, among a few. A reduction in force was initiated and the process to analyze all aspects of our operation to improve performance has been well under way. These spending improvements will begin to benefit BioLase beginning this year. As part of this operational focus, we will also assess where we can redeploy some of that spending and improve our market impact and finalize the decisions in the near term.

Additionally, due to the slow sales in the third quarter, inventories increased to $10.8 million at the end of the period. A management decision was made to reduce inventories in Q4. We finished the year with an inventory of $7.6 million. That had a negative affect on the Q4 margins due to the reduced manufacturing which drove lower overhead absorption, but going forward provides a stronger balance sheet into 2008. We'll continue throughout 2008 to identify ways to eliminate costs or redeploy other spending to substantially strengthen our performance.

Many of you asked me since I started about the ongoing program with Proctor & Gamble. First, these are P&G proprietary development programs and, because of that, we're not in a position to give you any color on the progress to date. That said, I can tell you we are active, that there are active development programs going on that could one day be meaningful to BioLase. We will not provide regular updates unless public statements are made by our partner. If the relationship changes in any way or plans for development are altered, we'll let you know.

On the regulatory front, we received FDA clearance on using the Waterlase for certain dermatological and general surgical procedures. This clearance will allow us to seek strategic partners in the form of licensing or marketing agreements in those important areas. At this time our intention is to remain focused on our core dental markets, but we are beginning to explore our market opportunities here.

One more note before I turn the call over to Fred, the permanent CFO search is progressing well and I've been pleased with the caliber of candidates I've seen so far. We cannot predict when we will hire the right candidate and continue the process until we feel we have the right person for the job. Until then, we appreciate Fred stepping up and overseeing the responsibilities during this interim period. Now I'll turn the call over to Fred.

Thanks, Jake, and good afternoon, everybody. Total net revenue for the quarter ended December 31 rose by 5% to $20.8 million versus $19.8 million reported in the fourth quarter of 2006. Net domestic revenue decreased by 5% to $12.8 million compared to $13.4 million in Q4 of '06 while net international revenues were 8.1 million and 6.4 million in the fourth quarters of 2007 and 2006 respectively. This resulted in an increase of $1.7 million or 26%.

Q4 sales of our Waterlase systems, which includes both the original Waterlase and the Waterlase MD, represented 68% of our total net revenues and sales of Diode laser systems represented 17%. In the fourth quarter of 2006, these percentages were 82% for Waterlase and 3% for Diode. The change reflects the introduction of our new ezlase Diode laser system in the first quarter of 2007.

Our gross margin as a percentage of net revenue decreased to 47% in the fourth quarter of 2007 from 58% in the 2006 fourth quarter. Gross profit in the 2007 fourth quarter was impacted by management's decision during the period to work through inventory levels that we had built up principally in the third quarter of 2007. The results of this reduction in inventory from 10.8 million at September 30 to 7.6 million at year end. Financial impacts of lowering the manufacturing throughput as well as sales incentives and demonstration units sold during the first quarter of 2007 represented a more than $2 million reduction in gross profits.

Turning now to operating expenses. We had an increase in operating expenses in the fourth quarter of 17% compared to fourth quarter of 2006. Sales and marketing expenses increased slightly in the 2007 fourth quarter compared to the fourth quarter of 2006. Our G&A expenses increased 574,000, primarily due to professional fees. Engineering and development expenses increased between the two periods by $318,000 due to increased manpower and consulting in those areas.

During the fourth quarter of 2007 we recorded a restructuring charge of $802,000 related to the previously announced workforce reduction and management changes. Operating loss for the 2007 fourth quarter was 2.6 million compared to an operating profit of $953,000 in the same 2006 quarter. During the fourth quarter of 2007, we recorded a $1.4 million gain on foreign currency transactions related to the intercompany balances with our foreign subsidiaries. These balances are treated as short-term in nature. During 2007, the weakening of the U.S. dollar compared to the currency used at our foreign subsidiaries caused this gain.

Net loss for the fourth quarter of 2007 was 1.1 million or $0.05 per diluted share compared to net income in the same period of 2006 of 1 million for $0.04 per diluted share. For the year, total net revenue 66.9 million in 2007 versus 69.7 million in the prior year. Gross margin as a percentage of net revenue, though, remained essentially unchanged at 52%. Our net loss increased from 4.7 million or $0.20 per diluted share in 2006 to 7.3 million or $0.31 per diluted share in 2007.

At December 31, 2007, we had approximately 14.6 million in cash and the availability of 6.4 million on our $10 million line of credit. The quarter-end cash balance was down only slightly from the approximate 14.7 million at the end of 2006. During the year, we used approximately 3.4 million in cash from operations stemming from our net loss partially offset by reduced accounts receivable balances. We remain in solid financial condition with the cash and the credit resources that are necessary to run and grow our business. We continue to have no current plans to raise additional capital. Now I'd like to turn the call back over to Jake for some additional comments.

Thanks, Fred. Let's take a step back and look at the Q4 performance and what's inside the numbers. If you take the one-time benefit of currency adjustment out of the discussion, operating loss for Q4 was 2.6 million. Inside of that, the key drivers were the $2 million reduction in margins driven by overhead absorption impact and reductions to ASPs due to demo units and promotional activities coming off a difficult Q3, 802,000 in restructuring charges due to the reduction in force and the leadership terminations and $174,000 of new, professional fees for recruiting.

All of this adds up to over 2.9 million in significant costs, all of which were driven by management decisions to begin to restart and reshape the company after a difficult third quarter. Overall, I'm very optimistic about the performance opportunities in 2008. But, as I said, the progress of evolving from a good company to a great company will take time and a good deal of work on our part.

Job one is to create an effective, sustainable distribution model with our largest strategic partner, Henry Schein. We need to build for the long term while we hit our interim goals. While we strengthen our sales process together to deliver a more predictable operating model, we may continue to show quarterly variability going forward. With strong management and sales process discipline with Henry Schein, we'll work towards minimizing that variability in the future.

Job two, identify and execute a new overall sales and marketing strategy. Every aspect of our historical approach to the market is under review. That analysis has already driven fundamental changes in certain areas, such as our sales force alignment and improvement to sales compensation. We're not finished with that work. Over the coming months new go-to-market strategies will be refined and put to work. I'm happy to be getting the work here at BioLase and taking on challenges as well as the significant opportunities we have. Now I'd like to turn the call over to the operator and begin the Q&A period.

Thank you, sir -- Q&A period. Thank you, sir. We'll begin the Q&A session. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Assaf Guterman. Please state your company followed by your question.

Hi, Assaf from Lazard Capital Markets

Good afternoon.

Hey, how are you. Good afternoon.

Good.

All right. Let's start - I just want to start with the gross margins. Could you comment as to how much of -- how much of it is the result of inventory reduction plan and the manufacturing scale down? How much is it actually has to do with the reduced pricing or sales promotion that you had during the quarter?

Yes. The reduction in the manufacturing process that led to lower overhead absorption was approximately $1 million out of the two.

Okay. So, basically, it is half of it?

Yes.

Half of it? So half of it has to do with pricing and half of it has to do with inventory reduction. I assume that even the reduction part is one-time in nature. Hopefully -- I mean, are you comfortable with the inventory level you had at the end of the quarter? Do you intend to keep going in that initiative?

I think we're in the right spot, Assaf.

Okay. What about the promotion? The sales promotion that took place during the quarter? Is that something we should expect future quarters as well?

Clearly, there were some significant promotional activities that were put in place in Q4 after a very difficult Q3. We'll always have some promotional activity each quarter to revitalize and keep offers fresh to our sales people and our customers, but certainly not at the level that we saw in Q4.

Okay. Can you comment on your ASPs during the quarter?

The ASPs, some of the ASPs, we had some slight reductions in our ASPs. We had some demo units that were acquired by our partner, Henry Schein, and that put downward pressure on our ASPs. But that was the bulk of it, Assaf.

Okay. Now, I'm just trying to, if you could refresh my memory, the transfer price which you use in order to sell the product to Henry Schein versus the original selling price which you use to sell your products directly to the end user prior to the agreements with Henry Schein -- what's the delta there?

Well, the actual transfer price and what we sell to Henry Schein is really a confidential part of our agreement. We really don't want to disclose that publicly.

Okay. Is it safe to assume is it significantly, it's materially below the sell -- the previous selling price which you used in the past?

The previous selling price, could you clarify?

Yes. I mean, prior to the agreement with Henry Schein, the selling price --

Market --

-- exactly.

It was approximately the same.

Approximately the same. Okay. Could you -- just to make sure I understand, in the press release you issued last week you talked about some kind of sales and marketing commitments in the revised agreement with Henry Schein. Could you give some color on those commitments? What exactly are we talking about?

Sure. We have spent a significant amount of time with the Henry Schein leadership team really from the strategic side really evaluating our relationship and what we can do going forward.

Yes.

There are a number of areas that we have specific improvements, concrete improvements in place, to drive performance. And I think we have terrific, solid alignment at the top level. It's our job now to drive all of those commitments down throughout the organization, down into the field level. Beyond that, Assaf, I really don't want to get into specific contract terms. I will say, as part of that Henry Schein has made some significant investments in this partnership in terms of buying demo units to improve our sales process and help provide efficiencies in our system and have done a number of things to really demonstrate their commitment and belief that this technology can create a new standard of care in the industry.

Does the fact that from now on, and to some extent Henry Schein is going to be more involved in the whole promotion and sales and marketing of the product, is that going to take some of the load off of BioLase's shoulders? Is it going to help your SG&A margin in any way?

It certainly has the potential to do that. Assaf, as you -- if you work strategically with the partner like Henry Schein, they certainly have leverage and reach and ability to touch the market in ways that would be much more costly to us. Those are the kinds of things that we'll be evaluating all year as we go forward working with them.

Okay. And under the current assumption, is there any break - is there any sales figure, sales amount figure that you see as a breakeven target? I mean, the revenue that you have to reach in order to break even?

Well, we are -- we absolutely are working toward driving our breakeven point down. It's absolutely the right thing to do. We have some aggressive goals internally. We're focused on looking at every aspect of our operation right now. So, I am not at a point right now to give you a specific number, can do so later in the year. But we're also, as part of that process, going to be looking at how we may be redeploying spending to bolster our position in the marketplace and strengthen our performance. So, we'll be making those trade-offs and making those final decisions in the weeks ahead.

I see. Okay. Thank you very much.

Thank you.

Thank you. Our next question is from the line of Dalton Chandler. Please state your company followed by your question.

Hi, Needham & Company. Let me start by just asking, Jake, you mentioned that you really think right now it is a matter of execution, not a matter of invention. Beyond the obvious one of getting the Schein relationship right, what other areas do you feel like you need to improve execution?

Well, Dalton, the Schein relationship, as you said, is job one. I absolutely, my next area of focus is really looking at our marketing message, the value proposition we deliver to our customers, and the effectiveness of our story going to the market. I've been very impressed with the end users that I have talked to about the impact of our technology on their practice, both personally and professionally. And we're going to step back and really look at our messaging, return on investment, and how we get that message out to the broader market. As part of that effort, that's a critical element.

Beyond that, and I just mentioned that we talked about really focused on cost reductions, spending properly, making sure we're eliminating non-value spending in our area and making sure the fundamentals of our operation are improved over 2007. And the last item I'd probably mention, we feel optimistic about international sales. We think the fourth quarter was a nice rebound for international. We think we have some market opportunity expansion there. We're looking forward to that off in the future, too.

Okay. With regard to the messaging and the value proposition, you also mentioned that sales and marketing is, every aspect is under review. You've already made some changes. Can you talk about what you have changed already and why?

We've added a -- we've added a new vice president of customer service operations for global operations to really focus on our post sales support. We're in the process of changing internal processes around new product development and working with our marketing organization. As part of the assessment, when I say redeploy spending, we'll be looking at adding critical positions in the company to strengthen our performance in those areas.

Okay. And, then, also, you mentioned in the press release and in your prepared remarks. The demonstration unit sales to Schein, can you quantify what that was for the quarter?

It was about 8% of the revenue in Q4, Dalton, in terms of those demo units. We will have some additional units that will go out and complete the process here in Q1. The significance of that I think is twofold. One, it demonstrates a very strong commitment by Schein to this partnership and our process. It will also significantly help our local selling efforts. Demo units will be right at the centers, much easier to get for our sales people and Schein reps to have access to and provide demos. Ultimately what that means to us, it takes a significant amount of cost out of the system shipping units back and forth across the country and doing what we did last year, which was acting like a direct company. Here's a place, here's a perfect example, simple as it, that we can really leverage the relationship with Schein and improve the process while we take costs out of the system.

Okay. So you think this quarter, first quarter, is the last that you'll see any meaningful demo unit sales?

Yes. As -- based on where we stand right now, in terms of the current arrangements, yes.

Okay. When you talked in the press release about the substantial reduction in operating costs associated with that, was that what you were referring to in terms of shipping costs and that sort of thing or was there more to it than that?

That's one of the primary drivers, yes.

Okay. And then if I could just get a couple of housekeeping things. I want to make sure I got numbers right. Did you say international was 36% of total revenue for the quarter?

39.

39. Okay. And, then, I didn't quite -- I think you went through the Waterlase and the Diode percentages of total. I didn't quite get that.

Fred?

For the quarter?

Yes.

Waterlase for the quarter was -- hang with me one second here.

Thank you, next question is from the line of Carlton [Savoya] with Princeton Capital Management, please go ahead.

Good afternoon. I have two questions. The first one would be in your cosmetics applications. I haven't been much interested in that because there are already several well-established companies. What applications will you have and how would you differ from the established companies in terms of excellence?

I'm sorry talking about -- I missed that part of your question.

Dermatology, yes.

We received clearance for the use of the laser on dermatological procedures and certain surgical procedures. We're not commercializing that effort right now. We're going to be looking and considering potential for partners. The unique applications of our technology do provide some benefits.

Will it be Waterlase or LEDs?

It's Waterlase.

Okay. And, so, then, you do have a distinction. So, you would be in the upper end of, you wouldn't be so much competing for pure cosmetic reasons, more surgical than cosmetic; is that right?

That's potentially. I mean, we don't have a commercial application that we're really talking about. So there would have to be a lot of work done to determine where we would segment and position that kind of capability.

All right. The second question. As you adjusted your relationship with Schein, how did you shift the relative compensation between Schein salesmen and your salesmen?

Well, Schein significantly increased their compensation to their reps associated to the sale of our products. They've also put special bonus criteria in for their management team. So they've put some significant strategic steps in place to reinforce the importance of our product to their team. We, as part of a totally separate effort in the fourth quarter, reconfigured our comp plan to make sure we have a very aggressive comp plan in place to support our capital equipment sales force. So, I feel, after analyzing it from the Schein standpoint and our standpoint, that we have a very good compensation structure in place for both parties.

That's very good to hear. I think that's very good to hear. Now, the other thing, I called your company once over a year ago and I judge you've got a lot of opportunity with, as volume goes up, to be flexible and adaptive in adjusting the price of your Waterlase unit. It can't possibly -- I mean, you've got a very good mark up on it now, to say the least, I would guess. Is that correct?

Yes. Our margins are very strong on the Waterlase.

So, it makes you adaptive to this Schein compensation scheme, too, doesn't it?

Yes, yes, it gives us the flexibility to work with a strategic partner like that.

All right. If I stop talking, you can start executing.

Thank you for the questions.

Thank you.

Yes, you know we missed -- could we go back to Dalton's question about the product mix?

Dalton, for Q4 2007, Waterlase including both the MD and original Waterlase made up, approximately, 68% of our total net revenues, while the Diode made up 17.4%. And for 2006, if you need those quarters as well, it was 82% for the Waterlase and about 3.4% for the Diode. Kathy, we're ready for the next question.

Thank you. (OPERATOR INSTRUCTIONS) Our next question from Carlton [Savoya] with Princeton Capital Management. Please go ahead.

Yes. Just to follow on, on LED lasers. Do you really need that line for a profit center or do you need it for relationship basis?

The ezlase is a growing part of our product line. We think it has a number of positive impacts on us as we go forward, number one. It is certainly introduces the dentist into the laser technology. And our sales team has been effectively using that entree to use that to talk to dentists about moving up to hard tissue lasers. We think it is very complementary as well as takes advantage of a good, strong market opportunity.

Thanks.

Thank you. Our next question is from the line of Dalton Chandler. Please go ahead.

Yes. Hi, again. And thanks for those product breakouts by the way. Last year I know there were a couple of new products launched, the MD Gold Handpiece and the ZipTips. I was just wondering if you could comment on how those have been progressing?

The -- our consumables, Dalton, ZipTips have caught on well. Our overall consumables are about 6% of our total. We are working right now on ways that we can accelerate the growth of our consumables from a number of different angles and get that moving. In terms of the gold handpiece, it's been very successful. Every unit that now goes out the door has the two gold handpieces included. Cutting speed, performance, all of those things, and the advantages that that technology has brought has definitely helped. In terms of the specifics on the gold handpieces and the actual sales -- do we have that with us, Fred?

We don't have the exact numbers for the gold handpieces or the tips. T's just overall consumables, as Jake has mentioned, is about 6% of the sales. That's consistent with our 2006 for the entire year.

Okay.

We can provide that to you on a follow-up.

Okay. Just to clarify the revenue from the handpieces, is that in the Waterlase line? And the other consumables or the consumables would be in the other revenue line?

The handpieces, if they are included with the WaterlaseMD, it's part of WaterlaseMD price. If they're sold separately to existing Waterlase customers, then that would be shown under the consumable line.

Okay. Thanks a lot.

Okay. At this time, there are no further questions. Ladies and gentlemen, this concludes the BioLase Technology, Inc. 2007 fourth quarter and year-end results conference call. Thank you for your participation. You may now disconnect.