BIOLASE Inc (BIOL) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the BioLase Technology Incorporated 2010 fourth-quarter and year-end results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.

(Operator Instructions).

This conference is being recorded today, Thursday, March 10, 2011. I would now like to turn the conference over to our host, Mr. Matt Clawson of Allen & Caron. Please go ahead, sir.

Thank you, Christina, and good morning, everyone. Thanks a lot for joining us today for the BioLase Technology 2010 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 fiscal year ended December 31, 2010.

Before we get started, I've been asked to make the following statement. The words and phrases can be, may affect, may depend, believe, estimate, project, 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 you, 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 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 the statement was made, or reflect current unanticipated events. Also, as a quick reminder, the replay of the call will be available on BioLase's website at www.BioLase.com, the Company's 2010 fourth-quarter and year-end results can also be found on the Company's yearly report on Form 10-K, which the Company will file with the Securities and Exchange Commission.

With me on the call today from BioLase is Federico Pignatelli, Chairman and CEO; and Fred Furry, Chief Financial Officer. Federico and Fred will review the prepared remarks, including an update on the business, operational performance and outlook. Then there will be a question-and-answer session at the end of the call, followed by a few closing remarks. With that, I'd like to turn the call over to Federico Pignatelli. Good morning, Federico.

Good morning, Matt, and thank you. I want to welcome all of you to our fourth-quarter and year-end results conference call and thank you for participating. First, as Matt stated, I'm pleased to introduce Fred Furry, who joined us at the end of November as our new CFO. We are very fortunate to have attracted an executive of his caliber to our team, and I'm pleased that he's showing to be a great fit in our new and re-energized organization. Today, we will review the accomplishments and progresses achieved by BioLase during the quarter and in recent weeks, including the formation of the new BioLase imaging division, and the most successful launch of our new flagship laser system, the WaterLase iPlus. Fred will then summarize the financial results for the quarter and year-end, after which we will answer questions.

In the fourth quarter the progress of BioLase continued at a very fast pace, as the new management team along with the reconstituted new Board continued to focus on ways to expand the business, and, at the same time, achieve sustained growth and profitability. BioLase is all about redefining how surgery is performed in dentistry and in medicine. We develop products by using a biological approach for cutting hard and soft tissue and also to take the fear and pain away from dentistry. Our products are clearly the most progressive way to look at modern high-tech dentistry. As I said on the third-quarter call, the low point of BioLase is behind us, and we have re-established growth and profitability, substantially strengthened our balance sheet, and re-energized the entire organization.

We are now looking ahead at ways to further accelerate our success in dentistry, as well as in other medical fields, such as ophthalmology. Before we begin to analyze our future plans, a general review of fourth quarter shows great progress in all parts of the organization. In the fourth quarter, we experienced sequential growth from the third quarter of 58% in product and service revenue. Equally rewarding was our return to profitability in the fourth quarter. It was seen as a bold prediction on the last conference call, and it was a significant challenge, but our direct sales organization, our new distribution partners, and our entire operating staff rose to the challenge of matching the turnaround with internal discipline and determination.

Since I became the CEO last August, I established the framework to eliminate nonessential costs, coupled with the radical restructuring of our staff, saving a total of more than $14 million on an annual basis, with an approximate 30% decrease from 2009 to our current run rate in 2011 and a total current annual sales break-even level of approximately $32 million to $34 million on an EBITDA cash basis, or about $8 million to $8.5 million per quarter.

Looking forward, as we invest in certain opportunities to expand our commercial reach, some expenditure will be necessary, but Fred and I will continue to be vigilant in keeping the Company on track with continued profitability as we accelerate our growth. We are as lean and efficient as possible and expect to maintain EBITDA profitability even through the customary seasonality of Q1 and a major product transition to our new flagship WaterLase iPlus.

In the fourth quarter we increased our sales force to 27 people and plan to reach 40 during the second quarter of 2011. We're very pleased with the progress of the new members of the sales team and anticipate greater productivity as they gain traction with the new products and the customers in their respective territories. The very successful launch and initial commercialization of the iPlus is critically important to our growth in the current year and beyond. The feedback from earlier doctors on the improved counting speed and precision, especially the user interface that makes operating the laser self-learning and very straightforward for even beginning dentists, has been truly outstanding.

As we have mentioned in the past, we believe that Diolase has the potential to become the most popular wireless Diolaser in the world. We still are working through a substantial backlog of dealer orders. As I mentioned up front, the last six months have been very busy. If I were to characterize BioLase since our last call, it would be efficiency, dedication, and commitment to excellence. The new store has been very active because it reflects the high level of organizational changes and progress.

Before I list milestones, I would like to single out two keys to the future growth and development of the Company. The first is the formation of a new division, BioLase Imaging. In the past decade, BioLase has established itself as a premier brand for innovation, quality, and service. We currently have an installed base of approximately 16,000 lasers in over 10,000 practices around the world, and so it makes perfect strategic sense to leverage the valuable channel with additional high-tech products and opportunities.

We have decided to work with a major OEM manufacturer to design and distribute state-of-the-art extraoral and intraoral dental imaging devices that complement the minimally invasive dental treatment solutions offered by the BioLase laser division. Digital imaging and lasers are at the top of the wish list for dental practices. By combining the two, we can provide more of a one-stop shop for dentists to acquire the most desired high-tech capital equipment. We expect BioLase imaging division to be somewhat accretive to overall equipment sales in the second half of 2011 and to contribute $20 million to $25 million in additional equipment sales in calendar and fiscal 2012.

The second key item is the very successful launch of the WaterLase iPlus. This device is our new flagship all-tissue laser and is a significant step forward from the already valuable WaterLase MD Turbo. The new iPlus is not only the fastest laser counting tool on the market, as fast or faster than a high-speed drill, but it also makes the operating of the system very easy and intuitive for the dentist. I believe it will become the most successful all-tissue laser product in the history of the Company and a driver of much deeper laser adoption into the domestic and international dental communities.

In addition to those key items, some of the other important actions and accomplishments made during the fourth quarter and in the weeks following the period include the receipt of CE Mark approval for the WaterLase iPlus for commercial sales to be soon initiated in Europe; the hiring of a senior sales and marketing executive; and the opening of a sales and support office, BioLase Asia-Pacific, to expand penetration in the fast-growing Asian dental and medical market; and to provide service, education, and technical support to the Company's existing 50 distributors and rapidly-growing in the Asia-Pacific region. Increased focus on the private practice sector in China resulted in the first significant sales volume in all-tissue lasers.

Sales growth in Russia, Eastern Europe, Latin America and the Middle East, partially offset by inventory reduction from the Henry Schein International (inaudible). Formal international launch of the WaterLase iPlus at the 34th International Dental Congress, the world's largest dental meeting with 120,000 F&Ds, are expected to match the excitement and success seen in the United States. Such meeting will start March 23.

The launch of the BioLase store, at www.BioLaseStore.com for dentists using BioLase Laser Technology products, the web site has surpassed internal revenue goals and is expected to become a significant revenue contributor in 2011; the adoption of a stock dividend policy, with a declared stock dividend of 1% on a quarterly basis, the first one payable March 31, 2011, to shareholders of record on March 15th, 2011; the receipt of approximately $5.9 million in cash, which was raised through the sales of approximately 1.8 million shares of BioLase common stock and 520,000 through the exercise of options. A portion of these proceeds were used to pay off the remaining balance of a $3 million debt facility in Q1 2011, making BioLase free of bank debt.

The award of three new patents for use of laser technologies for eye surgery, including the treatment for presbyopia, the patents further demonstrate our growth in applications, for our laser technologies, as within opthalmology, with an emphasis on presbyopia, in essence, eliminating the need for reading glasses, a condition suffered by 2.5 billion people worldwide. Our patented YSGG technology has already received an FDA approval as a general eye cutting device.

Before I turn it over to Fred, I would like to reiterate my personal commitment to the BioLase turnaround. We have come a long way but still have way more to accomplish. My commitment remains strong, and I will continually look for ways to align management's interests with all of the shareholders and employees of the Company as evidenced by my commitment to continuing to work for an annual salary of $1. The only way I will make money is the way shareholders will make money, and I intend to make millions.

With that, I want to thank a few people of Henry Schein -- Stanley Bergman, Chairman and CEO; Jim Sullivan, President; and Mark Mlotek, Executive Vice President Business Development, for their cooperation and support during our challenging transition this past summer. I will now hand the call over to Fred Furry to go through the highlights of our financial results for the quarter and year.

Thank you, Federico. Total revenue for the fourth quarter of 2010 was $9.7 million compared to $6.2 million in the third quarter. Revenue, excluding license fees and royalties for the fourth quarter of 2010, was $9.5 million, up 58% sequentially from $6 million for the 2010 third quarter, primarily due to us selling direct during the entire quarter.

Total revenue in last year's fourth quarter was $10.4 million. Total revenue for 2010 was $26.2 million, a 39% decrease compared to $43.3 million in the prior year. The year-over-year change in revenue in the fourth quarter and fiscal year was driven by minimized domestic laser purchases by Henry Schein. Sales to Henry Schein Worldwide decreased as a percentage of product revenue from 39% in the third quarter of 2010 to approximately 30% in the fourth quarter. We expect purchases by Henry Schein to stabilize at approximately 20% of total revenue for 2011.

For the 2010 fourth quarter and year, gross profit as a percentage of net revenue was 50% and 34% respectively compared to 42% and 46% for the same period in the prior year. Gross profit as a percentage of revenue, excluding license fees and royalties, improved from 26% in the third quarter to 49% for the fourth quarter of 2010. Operating expenses for the fourth quarter of 2010 were $4.5 million, compared to $5.8 million in the prior year's comparable period. For the year, operating expenses were $20.3 million in 2010, compared to $23 million in 2009. The year-over-year reduction in expenses was primarily due to our recent cost-cutting measures.

Net income for the fourth quarter of 2010 was $174,000, or 1% per share, compared to net loss of $1.5 million or a loss of $0.06 per share in the fourth quarter of 2009. Non-GAAP net income was $787,000 or $0.03 per share for the fourth quarter compared with a non-GAAP net loss of $888,000 or a loss of $0.04 per share for the fourth quarter of 2009. The net loss for 2010 was $12 million, or a loss of $0.49 per share, compared to a net loss of $3 million in 2009 or a loss of $0.12 per share. Our non-GAAP net loss for 2010 was $9.9 million or a loss of $0.41 per share, compared with a non-GAAP net loss of $97,000 in 2009, or $0.00 per share.

Turning to the balance sheet, we had cash and cash equivalents of $1.7 million, and total assets of $18.1 million at December 31, 2010. As mentioned by Federico, in the first quarter of this year, we received approximately $6.4 million in cash through the sale of our common stock and the exercise of options. We used a portion of these proceeds to pay off the remaining balance of our $3 million term debt facility, leaving a remaining funds as working capital and to invest in our growth initiatives.

We also increased our annual revenue guidance for fiscal year 2011 in this morning's press release to $60 million to $65 million, a growth of approximately 129% to 148% over 2010. This increase is primarily based on the planned launch of our new imaging division. Net revenue guidance for the first quarter ended March 31, 2011, traditionally the lowest quarter of the year, has been increased to between $9.25 million to $9.75 million, up from $4.4 million in the first quarter of 2010, with positive net income. That concludes our formal prepared remarks. We would now like to open up the call to questions.

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session.

(Operator Instructions)

And our first question comes from the line of Dalton Chandler with Needham & Company. Please go ahead.

Good morning. Let me first ask about your bump in first-quarter revenue guidance. Was that due just to the pushback of the iLase revenue, or are you really just seeing stronger business there?

Hi, Dalton. No. We do see a very good reception for the iPlus and, actually, we are struggling with manufacturing enough product to satisfy demand.

Okay. And where do you stand right now in terms of working through the iLase backlog?

We're dealing with our key suppliers. So, as of this quarter, we are in good shape, and we're going to be even in better shape next quarter.

Okay, but you still have a lot of units in backlog?

Yes.

Okay. Could you talk a bit more about the new imaging products; where you stand in the process. You mentioned you're going to be designing new products. Is there product ready to go, or is there still work to be done there, and when you would expect to train the sales force and actually start to ship product?

Well, the product is already there. We are just designing the product to make it a BioLase product. Like we say, it is an OEM product, and from a leading European manufacturer, and we are waiting for EMEA clearance, and we expect to be able to start delivering product in June or very early Q3. And yes, we are already training our sales force.

Okay. You also mentioned in your opening remarks, redefining surgery in dentistry and medicine. Can you talk about the approach you would take to sales and marketing outside of the dental area?

Dalton, this is a very interesting question, but it would require a long time to answer to this question, but we will concentrate -- we are concentrating very actively in ophthalmology. We are also concentrating in dermatology, cosmetic, and we are looking for a partner for orthopedics. Clearly, our technology works overall in human tissue, not only in dentistry, and let's not forget that the cap enamel that is the hardest surface in the human body we can tap in a very biological form, using the water that is in the human tissue that is energized by our [proprietary] laser, the patented proprietary laser. We can perform all kinds of surgeries in a very biological manner, and this is really, truly a revolutionary approach to surgery on the human body with wide applications.

Okay, so dentistry and ophthalmology you plan to do yourselves, but you will look for a partner for orthopedics?

With orthopedics, definitely. We believe that dermatology and cosmetic, we might have either chance -- either to go direct and/or partner commercially with a company that is already strong in the field, but we've not exclude to go direct in that field.

Okay. And just to shift gears a bit, the iPlus, is that shipping already or, if not, what do you expect to ship your first units?

We are shipping and, clearly, the end of the month will be very active in shipping of iPluses. We are, like I say, working very hard to satisfy demand, so we will end up a quarter most likely with a backlog that is a substantial one.

Okay. And I believe you're still selling the MD. Is that correct? And if so, how are orders balanced between the iPlus and the MD?

Well, the iPlus is selling clearly better than the MD Turbo, but the MD Turbo is still selling very well, and the price point of the iPlus is $57,900, and the Turbo will be the lower-level, as an entry-level to the hard tissue, all tissue, dental laser market. So, we have now two steps for customers to choose from, that I think is the right approach. We will come out later with a lower-cost hard tissue laser to be able to have pre-level entry point into the hard tissue, all tissue laser dental market.

Okay, and just a final question. You raised some additional money since the quarter closed. Roughly, what's your current cash balance?

We are not disclosing cash balances of any specific point during the quarter, but we will end the quarter with a comfortable cash balance.

Okay, thank you.

Thank you.

Thank you. And our next question comes from the line of Paul Bornstein with Black Diamond. Please go ahead.

Thank you. It's great that you guys have done a good job creating the base, and now you're focused on growth. Had a question on the sales force. I guess you've hired a lot of new people. I'm just kind of curious how quickly they are up-to-speed to getting the sales, and are they contributing yet to the sales that you mentioned, or is there kind of a six- to nine-month learning curve before they start generating some of revenue?

Good question, thank you. Well, frankly, we're attracting very well-experienced sales reps now because of the turnaround of the Company and because of the great product line that we have, and let's not forget that BioLase in the past, in 2006, reached a level of sales around $70 million, and that was based essentially on one product. And we had some superstar sales reps then, that then lapsed when we got into an exclusivity with Henry Schein, and we are re-attracting these superstar salespeople, and just recently, we hired four of them, and eventually more to come. So, these are people that sell millions each, and we're very proud to be able to attract such people, and we're very happy that they're back to the BioLase family.

Okay. And then, that sounds good. I'm just wondering on the Henry Schein. Obviously, it's not exclusive any longer, and since the market seems to be opening up for people to purchase your machines, are you getting the feel that they might even be stepping-up further to implement your products in the field?

I'm sorry, I don't really understand the question.

I'm just curious, Henry Schein sales efforts with your machines, now even though it's not exclusive to them, I'm just wondering if they are -- if you're seeing some increase in sales and step-ups, given the new machines that you have out there, and new technology, and also the market seems to be opening up for people to purchase these machines now.

So you're asking me about Henry Schein efforts, is that what --

Yes, that's the bottom line, yes.

Yes. Well, Henry Schein, as we all know, is the number one dental distributor in the world. It's a great company. They have a long-standing relationship with BioLase, and I believe that it's going to be a relationship that is going to last a long time. We value them a lot as a customer, and I know that they are gearing-up now to start selling the iPlus. They are very interested in the product. We haven't yet received an order from them on the iPlus, but I expect that that will follow-up very quickly and, clearly, they are very interested in the dental laser space, the field that is a space that has a great future, and so they want to be one of the leaders in the field.

Okay, thank you. And it's good to have a management team that's working for shareholders along with themselves.

Thank you.

That's very rare in this business.

Thank you.

Thank you. And our next question come from the line of Austin Hopper with AWH Capital. Please go ahead.

Hi. Thanks for taking my questions. I was hoping you could give us a breakdown international, or is it domestic for the quarter, as well as WaterLase versus Diode.

We don't really specifically get into these kind of details, but international sales picked-up nicely in Q4. We expect international sales to grow very rapidly in 2011, and even further in 2012. We at BioLase think globally, and it is demonstrated by opening the office in China in Shanghai, and more to come in critical parts of the world. We already have BioLase Europe.

The dental business -- and this is very important to appreciate and understand -- is a different business than 10 years ago. Ten years ago, essentially, the dental business was comprised of the North American market, the European -- or Western Europe, and Japan. Only in these three parts of the world you could really sell high-end high-tech dental equipment. Now, with emerging economies in Asia and in Western Europe and Latin America, the market, the oral care market, has increased dramatically. So, if before we were addressing a market of less than a billion people between North America, Europe and Japan, now we're addressing a market that is more than double that. So, the great opportunities in the emerging economies and the dental business, as we see it in the years to come, will be a high-growth business.

Okay. When is your 10-K coming out, so I'll actually know the answer as to how much your international revenue was in the quarter?

In a few days.

Okay then, thank you. You guiding to $60 million to $65 million for 2011, so midpoint $62.5 million, guiding to $9.5 million for Q1 approximately. So, that implies quarterly revenues of $17.7 million for the three quarters after that. For modeling purposes, can you give a sense of trajectory, and some of the business has been sort of back-end loaded towards Q4. Is it $17.7 a quarter, or how is that going to shake out?

Well, seasonality plays a role in the dental business, so yes, you always consider second quarter and the fourth quarter to be the strongest, but in Q3, we will also start selling imaging. So, I think that we will have a good Q2 and also good Q3, but a very strong Q4, obviously. This business is usually very oriented towards capital equipment in general, is very oriented towards Q4 in the dental market.

Right. And so, you feel confident in March of this year predicting Q4 sales? Is that right?

Well, we're not predicting Q4 sales. We feel very comfortable with the guidance that we gave, but we do not predict quarter by quarter, particularly when we're talking about nine months from now.

Okay, great. On the OEM agreement, the European manufacturer, do you actually have a signed deal in place, and can you identify the manufacturer, please?

I'm sorry, the manufacturer for?

For your cone beam opportunity for bioimaging.

We are not going to disclose the name. This is not an item that we will disclose.

Okay, but when did you actually enter into the agreement? When you signed a contract or something.

When we announced it. We announced it right after we concluded the agreement.

Okay, great.

We have been talking with this leading manufacturer for months. It has been a long process, and we finalized it, and then we announced it.

Okay. Can you give us a sense for the competitive landscape of that cone beam, and the kind of stuff you're talking about in this space, and who are the biggest players, and how can you penetrate that market?

Well, again in lasers, we have -- in hard tissue, all-tissue lasers, we have 80% market share in North America. So, we're by large, the dominant Company, but the field of digital imaging is way more competitive, so we will compete with other companies but, again, we will be technology, and we will be price-competitive, and we will be able to leverage our existing client base. Like I said, we have over 10,000 practices that already have purchased our products and, clearly, there is a tendency worldwide to have dentists buy from one source as much as possible.

Okay. And two final questions. Status of your deal with Proctor and Gamble, or relationship with them, and then if you could just give us a fully-diluted share count currently, that would be great. Thank you.

Regarding Proctor and Gamble, I will not comment at the moment. And regarding the outstanding shares, I believe we are a little bit over 26 million shares. I don't have an exact count, probably 26.2 million, around that level.

Thank you.

Thank you.

Thank you. (Operator Instructions)

And our next question comes from the line of [Chris Bosco] with RBC. Please go ahead.

Hi, Federico. Congratulations on the quarter. Most of the questions were answered. I just had -- could you clarify the comment around China? Did you say you had your first sale there this quarter and, if so, could you follow-up with was it an MD or an iPlus?

We sold recently an iPlus, but in the quarter -- the past quarter, we sold hard tissues and the MD. Now, China is a very promising market, but it is a market that is highly-regulated. Unfortunately, the country is a little bit the model of the Japanese model that is highly-regulated, so there is an equivalent to the [SHO] in Japan, or the FDA here in this country, so you have to have your equipment approved for sale in China. We are approved with the MD. We are not approved yet with the iLase, and we're not approved yet with the iPlus, but we might -- we are looking at the possibility of accelerating the iPlus because in reality it is very similar. It is an enhanced version I would say, from the technical point of view of the MD.

So, we are looking at what ways we can have an accelerated approval for the iPlus. We believe that we'll be a great market for the iPlus in China, so we are making all efforts we can. Other countries like India, for instance, which is a great market, does not have these kind of limitations, so we can go and sell any product that we want, and in many other parts of the world that have emerging economies, we don't have all these restrictions like in Japan and in China. So, we will be free to sell any product we want.

Okay, thanks.

Thank you.

And I'm showing no further questions at this time. I'll now turn the call back over to Management for any closing remarks you may have.

Well, I want to thank all the shareholders for having believed in the Company during the difficult times that the Company has gone through. I want to thank them for believing in the new Management team and the new Board and, by the way, I would like to thank, profusely, the efforts of the new Board members. And I would like to thank all employees of BioLase because what we have achieved in the past six months at BioLase could not have been achieved without the dedication, the efforts, the hard work and the competency of all our people. I'm very proud to say that BioLase has a very, very strong team of people, and very knowledgeable, very dedicated, so I'm very proud of all employees of BioLase. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.