BIOLASE Inc (BIOL) 2008 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the BioLase Technology 2008 fourth quarter and year-end results conference call. Following the presentation, the conference will be open for questions. (Operator Instructions). I would now like to turn the conference over to Matt Clawson. Please go ahead, sir.

Thank you, Brandy. Good afternoon, everyone, and thank you for joining us for the BioLase 2008 fourth quarter and year-end results conference call. You should have all received a copy by e-mail this afternoon of the release sent out with the Company's results for the fourth quarter and year-ended December 31st, 2008. If any of you did not receive a copy, please call our office after the conference call at 949-474-4300 and we will be happy to e-mail you a copy. As a reminder, slides will not be used during the call today.

Before we get under way, I have been asked to make the following statement. The words 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 and uncertainties, and BioLase cautions 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 with the Securities and Exchange Commission. All such forward-looking statements are current only as of the date on which the statements are 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 reflect the occurrence of unanticipated events.

Also, as a quick reminder, a replay of the conference call will be available on BioLase's Website at www.BioLase.com. The Company's 2008 financial results can also be found in the Company's annual report on Form 10-K, which the Company has filed earlier this afternoon with the Securities and Exchange Commission. With me on the call today from BioLase are Chairman, George d'Arbeloff, and David Mulder, the Company's newly named Chief Executive Officer. George and Dave will each review some prepared remarks, and Dave will provide you an update on the business's operational performance and outlook. The management team will then conduct a Q&A question and end the call with a few closing remarks.

With that said, I would like to now turn the call over to George d'Arbeloff. Good afternoon, George.

Thank you, Matt, and I'd like to thank you all for joining us this afternoon on our conference call. I would like to start off today's call by reintroducing you to Dave Mulder, our new BioLase CEO. From previous announced press releases, most of you are aware that Dave took over on March 5th, and I'd like to give you a little background on that announcement.

As we all know, the economic climate has its own set of challenges, and it has been especially difficult for companies like BioLase who sell capital equipment. That being said, we have tried to rapidly reposition ourselves to deal with this economic reality by substantially, and we believe effectively, streamlining our entire operation. In the year since he came on board as the Company's CFO, Dave has shown his leadership skills by leading our cost and restructuring effort with a particular recent emphasis on making our sales and marketing programs more cost efficient. The fact is that today, our infrastructure costs are about half of what they were a year ago, certainly a needed, but nonetheless, remarkable accomplishment. Dave has worked closely with our Board of Directors to realign our strategies for the future and played a central role, together with our President, Federico Pignatelli, in the recently announced milestone agreement with Henry Schein. Our partnership with Henry Schein established a committed level of sales throughout the coming 14 months and subsequent two optional years.

Certainly today, we are facing demanding times, and the need for strong and effective leadership from management and the Board of Directors is so important. Dave with help from Federico, forms what we think is an excellent management team, ready to address this new economic and financial reality. The Board already sees the synergy of the management team and is pleased with the added strength they have already brought to the Company in such a short time. We strongly believe that our recent actions on restructuring and strategy will help to lead a turn around in operations and results, which will lead to a resumption of growing shareholder value. With that, Dave, I will turn the call over to you.

Thank you for those kind words, George, and for your role in working with us on the new agreement with Henry Schein. Thank you to everyone for listening and participating on the call today. I appreciate all of you who have called in with questions and best wishes for me in my new role as CEO at this exciting and promising Company. I'm looking forward to the task, and I can asure you I take the responsibility of shareholders' interests and returns very seriously.

First, let me summarize the financial results of the quarter and year, and then I will walk through a few of the topics that are most critical and that I think are most interesting to current and potential investors, as we go forward. Total 2008 fourth quarter sales were $11.6 million compared to $20.8 million in the same period last year, a decline of 44%. Fourth quarter 2008 sales were negatively impacted by the dramatically adverse worldwide economic environment which caused dentists to delay their decisions to purchase higher priced, high tech capital equipment.

Non-laser system net revenue which includes consumable products, advanced training programs and extended service contracts, and shipping revenue, decreased 14%, or about $312,000 during the quarter, to $1.9 million from $2.2 million in the fourth quarter of 2007. License fees and royalty income remain flat at about $.9 million for the fourth quarter of 2008 and as comparable to 2007. Total sales for the year ended December 31, 2008, were $64.6 million compared to $66.9 million in the prior year, a decline of 3%. License fees and royalty income for 2008 decreased to $3.6 million from $3.8 million for 2007 as a result of lower amortization of license fees in 2008 and lower royalties received from third parties.

Now, I would like to provide a break out of sales by region. For the fourth quarter of 2008, domestic revenues were $8.2 million, or 71% of net revenue, compared to $12.8 million, or 61% of net revenue, for the prior period. International revenues for the 2008 fourth quarter were $3.4 million, or 29% of net revenues, compared to $8.1 million, or 39% of net revenue, for 2007. Domestic revenues for the year ended December 31, 2008, were $48.5 million, or 75% of net revenue, compared to $41.6 million, or 62% of net revenue, for the year ended December 31, 2007.

International revenues for 2008 were $16.1 million, or 25% of net revenues, compared to $25.3 million, or 38% of net revenues for 2007. Gross profit for the fourth quarter of 2008 was $5.4 million, or 46.8% of net revenue, compared to the gross profit of $9.8 million, or 47% of net revenue for the prior year period. Gross profit for the full year of 2008 was $32.7 million, or 51% of net revenue, compared with gross profit of $34.5 million, or 52% of net revenue for the full year of 2007. Gross profit, excluding license fees and royalty revenue for 2008 fourth quarter and full year, was 42% and 48% respectively, compared to 45% and 49% for the prior year periods. A decrease in gross margins was primarily a result of some discounts and promotions, and some demonstration units that were sold over the course of the year.

Operating expenses for the fourth quarter and full-year 2008 were $10.3 million and $41.4 million respectively, compared to $12.4 million and $43.5 million in the comparable period in 2007. The decrease was driven mainly by our corrective actions taken in reducing sales and marketing expenses, particularly offset by increases in legal and legal settlement expenses. 2008 operating expenses include $1.2 million in charges for the Diadem settlement and legal fees, and approximately $500,000 of additional expenses the new sales process and CRM program, new marketing messaging and materials, and several customer service programs, including training.

Some detail on operating expenses categories for 2008. Despite new programs that were launched during the year, we reduced our historically high sales and marketing expenses by $4.6 million, or 17%. The largest decreases were in convention and seminar expenses, but there were quite a few other small reductions which helped us fund some of our new activities. General and administrative, and engineering and development expenses showed a combined increase of $1.5 million, excluding the building impairment in Germany of $355,000, and the impairment of intangible assets of $232,000, driven by several factors as legal expenses related to settlements and litigation, building our infrastructure and launching new initiatives.

For the fourth quarter of 2008, the net loss was $5.3 million, or $0.22 per share, compared to a net loss of $1.1 million, or $0.05 loss per share, for the prior year period. Net loss for the year ended December 31, 2008, was $9.1 million, or $0.38 per share, compared to a loss of $7.3 million, or $0.31 per share, the year ended December 31, 2007. We also recognize $186,000 loss on foreign currency transactions for 2008, compared to $1.4 million gain on foreign currency transactions for the prior year period. This was a result of intracompany payable balances which were restructured into equity in mid October of 2008. Cash on hand at December 31, 2008, was $11.2 million, with $5.4 million drawn from a line of credit with America Bank. The line of credit was repaid in the first quarter of this year with cash on hand, and then, terminated.

Other balance sheet highlights at December 31, 2008, include total assets of $35.7 million, and shareholders' equity of $9.4 million. Please refer to the annual report on Form 10-K that was filed earlier this afternoon for more detailed discussion and notes related to these results.

To recap what I have just covered. Sales were essentially very weak in the fourth quarter, especially in international markets. Our fine end user customers are dentist practitioners, who are by-and-large small business owners, are feeling the confusion, uncertainty and impact of well known macro economic factors we hear about everyday. While we continue to expand our base of Waterlase Dentistry dentists, everyday, as dentist look for ways to differentiate and grow their business, BioLase product sales are affected by these factors. Given the already mentioned, very challenging economic environment, we have instituted some sweeping and rapid changes to the Company's structure and its strategies that will lead, quickly, to improve financial strength and the ability to prosper, even in these challenging economic environments.

Key initiatives that have been executed in the past few weeks include restructuring of our multi-year distribution agreement with Henry Schein that calls for minimum bi-monthly purchases totaling $42.7 million over the initial 14 month term, starting in February, and escalating levels of sales in each of the two additional, optional 12 month terms in the agreement. The total agreement, if fully executed, calls for minimum purchases of $123 million over the next 38 months.

Secondly, closure of the international subsidiaries that have been consuming cash resources and producing losses of over $4 million a year, and enacting or advancing plans to replace many of those territories with Henry Schein International Organization.

And third, significant head count and cost cutting activities, which have been implemented to better align corporate cost structure with our newly agreed upon minimum sales levels with Henry Schein. We expect that the new plan and structure will put us in a better position, not only to live within our means, but to be cash flow positive in the not too distant future.

Let me give you some additional details on the distribution agreement we announced last week with Henry Schein. First and most significantly, Henry Schein is a $6.4 billion company with one of the most respected dental sales and distribution organizations in the world today, with about 22% of the world market in dental sales of consumables and equipment, and they have taken another very decisive and meaningful stance to advance the adoption and market penetration of Waterlase lasers in the world market. The new agreement will eliminate much of the uncertainty and inconsistencies that were part of the first agreements.

The new arrangement calls for bi-monthly minimum purchase commitments of Waterlase MDs, ezlase soft-tissue lasers and consumable products. The contract also specifies selling prices to Henry Schein, and payment and delivery terms. These changes allow us to better predict the amount and pattern of purchases, required production, and cash flows that result from our agreement. In addition, we have added a number of new territories, globally, that Henry Schein will now take over. In addition to US and Canada, Henry Schein will now have the exclusive selling roll in the United Kingdom, Australia, New Zealand, Belgium, Luxembourg, Netherlands, Spain, Germany and Australia.

In addition, Henry Schein will have the rights to distribute in all other countries where agreements do not currently exist from BioLase with existing distributors, through December 31, 2009. Distribution agreements with third parties are currently enforced in Korea, Japan, China, Taiwan, Singapore and Brazil, amongst others. We have also started to terminate some non-performing international distributors. While we believe this new agreement is very positive and gives us much more stable footing going into 2009, it is important to note that the impacts will not be fully realized until the end of the first quarter. The result of that will be a revenue pattern for 2009 that begins slow, and then should grow to a stable base throughout the year, with room for some upside.

In other words, we expect Q1 to be the lowest revenue quarter of the fiscal year. That being said, we also believe that our new expense levels and firm commitment and distributer purchases, should put us in a position to have positive cash flows for the second, third, and fourth quarters of 2009. BioLase and Henry Schein are currently undergoing a complete restructuring of the sales and marketing coordination plan, taking into consideration, lessons learned and several local successes in the past year. A key part of that effort is to get the job done more efficiently and cost effectively, which leads us to our other expense reductions.

As noted in our recent release, operating expenses are expected to drop for 2009 to better match the revenue we will receive from minimum purchase amounts under the Schein agreement. Management has cut overall head count, where I include consultants, part-time people and all, from 248 people to 145 people, and has enacted a salary cut, across the board, of between 5% and 10%. Furthermore, we are reached agreements with Henry Schein to take over certain marketing costs that BioLase historically shared, or fully, financially supported. The cost reductions are almost entirely implemented already. It is very important to note that despite these necessary cuts, we intend to maintain our position as the leader in top-notch customer service and laser dentistry training, as well as to continue our tradition of leading innovation and product development in the dental and medical laser field.

Our R&D budget for 2009 is expected to be well over $3 million, and includes exciting projects and enhancements designed to widen our product family of innovative lasers, contributing to our penetration and expansion in the world marketplace, which leads us to a few words on marketing and our most recent invasions.

Our industry leading technology has now moved forward with the introduction of our new flagship, High Speed Waterlase MD Turbo, recently launched domestically at the Chicago Dental Society's mid winter meeting. It offers a cutting speed that rivals the old technology of the conventional high speed drill, but with the key advantage of an entirely new experience for dentists, working with patients in an atmosphere free of fear and anxiety, treating them with the innovative Waterlase Dentistry laser technology. We expect to launch the High Speed Waterlase MD Turbo in Europe at the IDF, the world's largest dental meeting, on March 24th.

Again, the feature that is creating a great excitement among dentists is our new revolutionary High Speed Turbo handpiece, that allows for cutting speed comparable to an old high speed drill, for many applications. One dentist has reported that he completed a cavity preparation for a child in about five seconds, without a shot. We believe this represents a major breakthrough in clinical efficiency. The new High Speed Turbo handpiece and software recently received 510(k) clearance from the FDA. Benefits of the Turbo handpiece include greater system reliability, especially for the laser delivery system, and an improved user interface that simplifies selection of tips and settings, compared to the current Waterlase MD. The Waterlase MD Turbo is being sold now and will be shipped to new customers over the coming weeks. We are also make upgrade tips available for our existing customers, which are already selling very, very rapidly on the market today and are in back order status.

On training, in our efforts to improve clinical training, and optimizing learning, we have recently launched a new clinical training online portal for our customer. This Website provides comprehensive education for new owners, as well as advanced specialty training for existing owners that wish to increase the revenue in their practices by performing new procedures with the laser, that they otherwise would have referred out to specialists. This is a highly cost efficient way for dentists to train on their own schedules, and refresh the training they have already received from us. This is another example on how we are trying to do more with fewer resources.

To summarize, we are looking to 2009 from a position of significant strength, despite the challenges that exist today. As you look at the opportunity we have in the overall market to convert dentists over to Waterlase Dentistry, we are making steady and solid progress. We have been focused on fundamentals, accelerating product development and advancing our technology. We are also working very hard to continue pursuing a compelling vision for the future by broadening the market appeal and demonstrating strong partnerships with our customers, going forward by leveraging the solid partnership with Henry Schein, the largest organization in the world, in the dental field.

Beyond the changes we have made to secure base revenues and align costs during these difficult times we continue to pursue growth plans for the future. I am pleased with our process improvements over last year, and our R&D efforts will continue, but our greatest successes have been driven by the passion of individuals who understand what Waterlase Dentistry can do for a practice, a doctor, and a patient. Our global market penetration into dentist is still just under 1%, but we have pushed up that level well past 5% in many key geographies, and we have found that one trait these areas have in common is a development of real champions that truly understand these innovative products and have a desire for a higher standard of patient care.

In the current year, we will continue to concentrate on process, but we will also focus on expanding that base of champions and spreading the passion of using a technology that is changing, forever, the way dentistry and oral surgery is performed. To provide one specific, we are identifying key members of the Henry Schein 1100 strong sales force, to get more intensive BioLase exposure to build more champions and more passion. Passion shared by the parents of children who do not know the experience of a shot and a drill, and the doctors who are tracking more patients and doing more procedures, with improved patient relations. A passion shared by our luminaries and our distributors, most notably, our visionary partner, Henry Schein, and a passion share by myself.

With that, operator, we will open it up for any questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Dalton Chandler with Needham & Company. Please go ahead.

Good afternoon.

Hi, Dalton.

I was wondering if you can tell us a little bit more about how the Schein minimums work? I think you said the deal actually started in February, but you are not expecting to see the full impact until the second quarter, which suggests you sort of ramp into that $42.7 million number. Is that correct?

That is correct. Most of the minimum purchases are very stable throughout the year. It is two times a month. We will be getting an order from Henry Schein and we will be fulfilling those orders, and there's an up front starting order that they have already placed, along with some cash that went along with it, to secure delivery of the Turbos, which are coming to them very soon. So there's some up front payment, and then most of it over the 14 months, is spread very evenly, basically almost every other week, twice a month.

Okay. Great. And then, could you talk a little bit about during the quarter, the difference in sales of the C100 versus the MD?

Yes. The C100, as we launched that, we launched that to hit a price point to bring people into laser, to Waterlase Dentistry, that might not want to put up the full sales price of an MD, and as an attraction point to get people into the market. That has served its purpose very, very well. However, most purchases, the large majority of hard tissue lasers are still going to the MD, and people still have a strong excitement about the MD. So the C100 is, this is the 80/20 rule, the C100 is relatively small still, and the MD is strong, and with the introduction of the Turbo, we anticipate the MD will be even stronger.

Okay. The Turbo handpiece only works on the MD; is that correct?

That is correct, yes.

Okay. And then, you gave us the quarter ending cash and debt balances, but about where are you now on your cash balance?

Our cash balance is actually fallen below that amount, and however, we are in a much better position right now. Under our old scenario, at the end of every quarter we generally got very large stocking orders. Going forward, we will get much more normalized order stream like a lot of other companies do, so we no longer need those large cash balances to be in good shape on cash flows.

Okay. And then, I think you said this in the press release, but just to confirm it. You do expect to be profitable if Schein just meets its minimum. They don't need to exceed that minimum for you to be profitable?

In the first quarter, we expect that we will still be working through. The full minimums won't have kicked in yet, and we also have not completed the full cost reductions which are now almost done, but we won't see a lot of the benefit in the first quarter. Going forward, we have tried to line up our cost base with that minimum purchase amount so we will be close to maybe, perhaps slightly above or beyond, those minimum amounts on an operating profit break even. But, we should be generating cash flows. We have done significant amounts on our reduction of expenses.

Okay. Great. Thanks a lot.

Yes, sir. Good talking to you,Dalton.

Thank you. Your next question comes from the line of Robert Hoffman with Princeton Capital Management. Please go ahead.

Yes. Could you dig in a little bit on the changing terms with Schein? It's pretty clear what the minimums are, but does it change as the product becomes more successful? Will they be taking a different price or different profitability as it ramps?

We have been working with Schein on a significant number of factors right now. Will it enhance their profitability? I think as volumes grow, it will. In the short term, we are looking at ways, without putting more costs on them or us, of more efficiently managing what we have in our combined cost structures. Historically, when we picked up a distributor, we also kept much of our current internal costs. We have been working very closely with them to find ways of making those costs much more efficient on a combined level. On the pricing level, that is something we are working on with Schein right now. We recognize what is going on in the environment; however, we also have the Turbo handpiece which is creating an awful lot of excitement now. So these will all be factors we consider as we move forward. Did I answer your question, or could I?

I guess so. I will try to think of it in better terms and maybe get back in the queue. Back to the line of credit. Are you assuming that you don't need a line of credit now?

At this point in time, I do not need a line of credit. We paid it off. It is something that we will look at, going forward, picking up a new line of credit. This is probably something we will look at. It is not, right now, critical to us.

Effectively, I guess Schein is your line of credit by having guaranteed orders and regular payments for those orders?

Well, Schein is not a bank, but they are a very good partner of ours and we both want to take lasers off into the future. And, I wouldn't classify them as a bank. What they have done with us, as I have already described, we used to wait until the end of a quarter and get very large stocking orders, and right now, what we are doing is rather than doing that, we are spreading those orders throughout the month for a more stable flow of cash. So you won't see as much cash up front, all at once, at the end of a quarter like you used to see. I would say Schein has probably moved away from more of a financing of us, to more of a stable flow of orders and cash, because part of those large cash balances the Company used to hold has been from large stocking orders at the end of a period, and now, we will be on a much more stable cash flow basis. It is something we can predict much more easily as well, and adjust our production to.

One different question. Are we going to be seeing any charges for Jake's departure?

We issued an 8-K on Jake's departure today. You know, Jake has done what he can. He's a personal friend. I like Jake a lot, and he has done what he can for the business. We have obligations to him and that is outlined in the 8-K we issued today. I would say for the total first quarter, along with what you can see in the 8-K, we will also have some severances for international, and some severances for domestic. Right now, I would anticipate that is right around $1 million or a little less, all in, everybody's severance all together.

Including Jake's.

Including Jake's, and you can see his in the 8-K we published today.

I will look for that. Thank you.

Yes, sir. Glad to help, Robert.

Thank you. Our next question is from Paul Bernstein with Black Diamond Advisors. Please go ahead.

Yes. I just had one question regarding marketing with Schein. Given the economic environment, where a lot of the dentists don't want to spend $100,000 for a laser. I'm just curious. Has your marketing changed, besides going down in the spectrum to lower cost machines, just in the last three to six months? How have you changed your sales process with Schein, given the current economic environment? I'm not sure it's improved recently.

All right. Right now, I would say probably over the last six months, we have done a lot to improve our relationship with Schein. Over the last year, we paid close attention to what they felt was needed and to what their reps felt was needed. We worked very closely with them. We've done programs like having our guys drive along with their guys out on field visits. So, we have done a lot of that sort of thing.

We just recently got together as we negotiated the contract and what we did was, we recently compared of all the things we've been trying, what has worked extremely well, what has not worked so well, where are we on process. And what we found is, while the process that we put in place and while a lot of the other things we were doing are helping the relations and are helping to build the confidence of the Schein reps and get us more introductions, one of the key areas that I think we are going to move forward on in the near future, is to get more champions within their organization who truly know the products.

As we are putting in process, one of the quotes that I said to some of our people several times is, "I would trade all that process for one more Samsung, who's the guy who sold over 600 units in Korea, I would trade all that process for two or three more Matt Hunts, our VP of Sales, who, when he was in his territory, he really drove it, because he understood it". He had a passion for the product.

What we have now is, we have a group of sales people out there who understand the sales process and who know it well, and we are going to try to expand that passion, because what we have seen is that in certain key markets that suddenly take off, it has been largely because the sales rep, with Henry Schein, in that territory, suddenly gets it. He suddenly has a dentist who has come to him and told had him the same success stories that I have heard and that got me excited, and suddenly, he is involved.

So, that I think, is one of the key things that we are going to do, going forward. We are going to make sure that certain key individuals and their organization, get that kind of exposure. I think that is one of the biggest things that we'll be doing in the future that will really drive us.

Okay. So you are focusing in on the right prospects versus lowering the price point to get a broader base of dentists in?

That is exactly correct. Our price point is that, and just to help share with you, we have been selling lasers, the MDs, for a little under, about the mid 70s. So, we are not selling them for 100.

Okay. The reason I throw that out is I just was talking to my dentist, general dentist, and she told me what she saw was $100,000, and that was a little too much for her to spend. She wasn't sure and she really hasn't done the numbers to see how many procedures she could get through to make it worthwhile. That was only one example.

That's good, because we are going to work on strengthening our ROI story and strengthening our marketing pitch to make sure people really understand how they can build their practice out there, because right now, in today's environment, this is the perfect time for a dentist to really build his business and try to differentiate himself. We are going to make sure we focus very hard on that.

Yes. That sounds like a plan because my dentist was lost.

Yes. Appreciate it, Paul.

Okay, and if you want, I will give you her name. I will call you back later.

Yes, please do. Appreciate it.

Okay. Thank you.

Yes.

Thank you. Our next question comes from the line of John Putnam with Next Wave Research. Please go ahead.

Good afternoon. I wonder if you might comment or give us a little more color on competition, and if that had any effect on the quarter? If you saw anything at the Chicago show, or you expect to see anything over at the European show?

We haven't really seen a lot coming from competition. Our products, of course this is our opinion, but it is also the opinion of most of the dentists out there that we work with, and our primary distributer, is that we have a product that kind of stands head and shoulders above everyone else. We haven't seen a strong competitive effort. What we have seen is just a bit of delay in the decision process. I think, while people look at all of these things going on in the environment, they saw us making certain moves recently, and they saw our pre-announcement of sales. I think that may have caused a little hesitation. It is my belief that when they see the new strength of the Company, what we have going forward, that I think a lot of those guys will come back and put off delaying that decision.

Great. Thanks very much.

Yes sir, John.

Thank you, ladies and gentlemen. (Operator Instructions). We do have a follow-up question from the line of Robert Hoffman with Princeton Capital Management. Please go ahead.

Just wanted to clarify what you said in your announcement about the minimum purchases. If all that you sell within the next 14 months is the 42, or whatever the figure is, I don't have it in front of me, to Schein, that you will be, effectively, cash flow neutral at those levels?

No, at those levels, while the first quarter is a bit of an anomaly, in the second, third and fourth quarter, we believe at those levels, we will be fairly, strongly cash flow positive. Compared to our history, we will be cash flow positive. We are targeting to try to get close to an operating break even at those levels. But cash flow, is something that we expect to come in at those levels.

Even though these are, effectively, annual revenue numbers in the low 40s, versus historically, you were in the high 60s. So that is, the cost structure is dramatically different enough that it will be an operating profit, getting close to profitability on a cash flow basis?

Our cost reductions have been very significant. If you look at last year, particularly in our sales and marketing expense, while we made some minor adjustments in it, it was still $22 million, or 34% of sales. That's far too much for us to spend in sales and marketing. That is one particular area where we will have some significant reductions going forward, and in some cases, it will be working a lot smarter and a lot closer with our distributor partner. So, we have taken our cost structure and almost, I can't say fully, but almost knocked it in half.

Has there been for example, swapping of, or maybe not a swapping, maybe a one way where you may have had an expert in BioLase and now that person is a Henry Schein employee?

We have studied that with Schein. We are not making any moves like that, at this time. Examples of where we are working more closely together is we used to do 100 trade shows last year, and if you take a look at it, that is almost one every three days. That's a tremendous cost for us. We have looked at where we are getting the most bang for our buck, where we are generating leads, and how else we can generate leads, and we've cut those trade shows down to the two, just a little under 20 of the key trade shows, and we've worked with Schein on trying to get some additional space within their booths at some others, so we still have a strong presence going forward. So that is one example of how we have cut down the cost significantly.

Great. Thank you.

Yes, sir.

Thank you. At this time, there are no further audio questions. I would like to turn the call back over to Matt Clawson.

Thank you very much, Brandy. Actually, we did have a number of e-mail questions that came in before the call. Fortunately, most of the questioners hit these. There was really only one that wasn't hit, and Dave, I'll pass that along to you before I hand it back over to you for closing. That is, can you give us an update on the lawsuits that have been announced over the last couple of years, if there's an update?

Yes. Over the past year, I have been working on cleaning those things up with the rest of the management team and the Board. Most of those are done. The two remaining left open are NLT and NTL, and NTL is with a relatively small suit that regarded our past financing partner. That has been totally resolved. I wrote them a check for $20,000, pardon me, I wrote them a check for $10,000,.and then a check for another $10,000, and tha is totally resolved at this point.

On NLT, which is the bigger suit, that's a Government suit. I went and I met with them last week, with our lawyers, and it was a very productive meeting. I think that we pretty much are close to the resolution of that suit completely, but we still need to put pen to paper on the resolution of that suit and I don't think I should probably say anymore about it at that time, other than the fact that all parties seem to be satisfied with where we are.

Okay, Dave. As I said, most of the other, or all of the other e-mail questions that came in really were touched upon by you and the questioners. So with that, I'd like to hand the call back over to you for closing comments.

Thanks, Matt. And thanks to all of you who joined us on the call today, and thanks to our employees, customers, partners and investors for your continued interest and support of BioLase Technology, and we look forward to talking to you again, in the next quarter.

Thank you, ladies and gentlemen. This concludes the Biolase Technology 2008 fourth quarter and year-end results conference call. Thank you for your participation. You may now disconnect.