BIOLASE Inc (BIOL) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the BIOLASE Technology, Inc. 2011 fourth-quarter and year-end results conference call. During today's presentation all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). Today's conference is being recorded March 8, 2012.

I would now like to turn the conference over to our host, Matt Clawson of Allen & Caron. Please go ahead.

Thank you, Alicia, and good afternoon, everyone. Thanks for joining us today for the BIOLASE Technology's 2011 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, 2011.

Before we get started, I've been asked to make the following statement. The words and phrases can be, may effect, 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 that any forward-looking information provided is not a guarantee of future performance. Actual results could differ materially from these anticipated in the 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 statement to reflect events or circumstances after the date on which the statement was made or reflect current unanticipated events.

Also, as a quick reminder, a replay of the call will be available on the BIOLASE website at www.BIOLASE.com. The Company's 2011 results can also be found on the Company's Annual Report on Form 10-K which the Company will file with the Securities and Exchange Commission.

With me on the call today from BIOLASE are Federico Pignatelli, Chairman and Chief Executive Officer; and Fred Furry, Chief Operating Officer and Chief Financial Officer. Federico and Fred will review the prepared remarks including an update on the business, operational performance, and outlook. 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. Good afternoon.

Good afternoon, Matt, and thank you. I want to welcome all of you to our fourth-quarter and year-end results conference. Thank you for participating. Today we will review the progress and various accomplishments achieved at BIOLASE in the 2011 fourth-quarter and year and so far in 2012.

Aside from giving highlights from the quarter and year, I'll be focusing on a couple of key points in today's call. The first was a dynamic that impacted our fourth quarter and year end results and the solution that we have executed to clear the path to steady growth going forward. Second will be the summary of our product extension activities and the steady fulfillment of our move towards becoming the total technology solution provider for dental professionals around the globe. The concept of a one-stop shop for dental technology solutions is guiding our strategy and is also resonating with our dental customers who prefer to have a single, reliable resource for their practice technology and equipment needs.

Let me briefly recap the full year of 2011. First and most importantly, we have turned the Company around commercially, operationally, and financially.

In late 2010 when I stepped in to lead the Company, sales were in severe decline. The Company was taking on debt [at very poor times]. The stock price was well below $1.00, and employee morale was extremely low. To put it simply, BIOLASE's future was a real risk.

Following a complete turnover on the Board and within executive management, as I became the CEO in late 2010, progress was immediately made to shore up the Company's finances and get direct sales ramping again. While there are too many changes to be listed on this call, progress has continued throughout 2011, resulting in sales growth in the year of more than 85%.

In addition, we have paid off entirely our bank debt and $9 million of irrevocable purchase orders from Henry Schein; overhauled our manufacturing and supply-chain systems; installed sound operational and financial systems; and become relevant as an investment opportunity again. In the fourth quarter, progress was also strong but not at the expected level as we introduced new products, signed important commercial agreements, achieved regulatory milestones, and continued to build our infrastructure and systems to support a world-class, multi platform technology company.

Net revenues in the quarter was just above $13.1 million, a growth rate of 35% over the last year fourth quarter. If you exclude the equipment sales to Henry Schein, our former exclusive distributor, totaling $2.5 million in the fourth quarter 2010, to satisfy its irrevocable purchase orders, the repayment of a liability in product, net revenue actually increased more than 80% over that same period last year. We believe that this a better measure of our growth in 2011 as a result of returning to our direct sales and selected distributor model, and Fred will expand on this further in a few minutes.

Unfortunately, we missed our guidance, and that is not tolerable. But let me give you some additional color on things that impacted our results for the quarter.

In the fourth quarter, our planned launch of the new Waterlase MDX 300 and MDX 450 laser systems at the Chicago Midwinter Dental Show would obsolete some of the market for our older MD Waterlase Turbo system. I am confident that this pending launch triggered a more determined and aggressive selling effort by our former exclusive distributor, Henry Schein to clear out its last inventory for Waterlase MD Turbo laser system, thereby causing intense competition that disrupted the marketplace during the quarter.

These competitive efforts resulted in the sale of approximately 180 Waterlase MD Turbo systems during the fourth quarter, including approximately 120 alone in the month of December.

The bad news is that this amount of inventory hitting the market created unforeseeable challenges to our sales force, which resulted in a much lower than expected level of sales. The good news is that many more dentists have joined the BIOLASE family and become laser dentists, and they will continue to be our customers in the future as they purchase consumables, upgrade their lasers to newer technologies, and expand their practices.

We thought that Henry Schein was going to restore its sales force and would resell our product at a profit, but they ultimately seemed to decide that was too arduous, apparently causing them to sell the inventory at or below their cost, which clearly impacted our revenue throughout the year and particularly during the fourth quarter.

In order to halt this negative market dynamic, we entered into a definitive agreement to purchase all of the Waterlase MD Turbo laser systems remaining in Schein's inventory -- approximately 180 machines at a fraction of the original cost paid by Schein. That purchase will be largely paid for with funds currently owed to BIOLASE by Henry Schein for the purchases of consumables and equipment primarily during the fourth quarter 2011 and first quarter of 2012 in the normal course of business, with the remainder paid in cash.

And to be clear, the products sold to Schein for the repayment of debt is not a part of the purchased equipment. I am very pleased with the outcome of this purchase as it will eliminate the substantial overhang and create the wide-open marketplace for our sales force once again.

I think that it is clear that we faced an extraordinary circumstance in the period, but we are also committed to providing investors with the most accurate and reliable guidance going forward, and Fred will discuss some of the changes in systems that we have put in place to make sure that we do better in that area.

Now I would like to walk through some of the operational and strategic highlights from the period, all of which should have a positive impact on the Company's performance in 2012 and beyond.

In the fourth quarter we received approval from the Korean Food and Drug Administration to sell Waterlase iPlus all-tissue dental laser system. South Korea has an estimated 25,000 dentists and 16,000 dental clinics, and their progressive dental practitioners have been particularly prone to adopting high-tech dental equipment, including more than 1,000 practices that currently use one or more BIOLASE dental laser.

It has been by far our most active international market. Our distribution partner in Korea has been the Company's most successful international distributor for almost a decade, placing more than 1,000 BIOLASE products of which 80% are Waterlase and Waterlase MD Turbo. We believe that the level of interest in the Waterlase iPlus is very high and that Korean dentists have been anticipating its availability for some time. We now have approximately 6% market penetration in the Korean dental market.

On the strategic front, just this past month we signed a three-year distribution and marketing agreement with Cefla Dental Group, a leading Italian dental equipment manufacturer, making BIOLASE a distributor of Cefla's NewTom Cone Beam 3-D imaging products in the US and Canada. The NewTom products are considered to be among the highest quality 3-D dental imaging products in the world. NewTom's Cone Beam computer tomography is a compact version of standard CT imaging and has clear advantage over traditional CT scanners such as less radiation, faster scan times and a more comfortable patient experience.

With the introduction of BIOLASE DaVinci branded imaging systems in the latter part of 2010, and now this distribution agreement for the high-end NewTom CT equipment, we are moving quickly into new directions, so I will take a moment to give you color on this strategy. As the world leading dental laser company with the largest specialized sales force and distribution network in that field, it makes perfect sense to leverage that commercial channel by adding additional products, services, and selling opportunities at the same code point.

In addition, the complementary nature of good imaging and laser dentistry is very clear. The better the imaging capabilities of the dental professional, the earlier that they notice and the more indications that can be identified and treated with our Waterlase iPlus and iLase systems in a minimally invasively biologically friendly manner, and in many cases, without the use of anesthesia.

Because of these relationships, we have adopted a motto -- See More, Do More -- as a central part of our drive to become the total technology solution for minimally invasive surgery in the dental field. Our vision is to continue the introduction of a series of market-leading products which will nicely augment our fleet of highly respected, advanced imaging products and market-leading lines of all-tissue lasers and diode lasers.

Further evidence of these initiatives was the introduction in February of the Waterlase MDX line of all-tissue lasers. The new Waterlase MDX demonstrates our engineering expertise and ability to design products for all segments of the global dental market and is the logical evolution of the Waterlase MD Turbo, the best-selling all-tissue dental laser in history. The MDX allows us to offer a blend of features from the Revolutionary iClass and the MD Turbo in a modernized platform to practitioners that do not require the advanced speed and functionality of the industry-leading iPlus.

The MDX line is also uniquely suited to address specialist markets such as endodontists and periodontists who are finding many new ways to use lasers in their practices but do not need some of the power and features of the Revolutionary iPlus system. We anticipate that MDX will be very popular with these market segments; and with its differentiated price points, it offers an excellent alternative to our flagship iPlus. The MDX was very well received when we unveiled it at the Chicago Midwinter Dental Show just recently, and we expect to see a steady ramp in that product line as the marketplace is educated on its utility and value.

As I mentioned a few moments ago, this launch is [one of a series] that we have accomplished and that we plan as we set out to become a multi-product, multi-platform company. To drive that success, we also need to continually upgrade our commercial team. In the fourth quarter we continued to strengthen our international network of nonexclusive distributors and increase our presence in Europe, Asia, and Latin America.

Domestically, as of December 31, 2011, our sales force in the US totaled approximately 30, a number that will continue to trend upward as we strive to add strong new salespeople while removing lower performing individuals. We are targeting a team of 40 to 45 sales professionals in the US by the end of 2012. It is important to note that a significant percentage of our current sales force was hired during 2011 and had to be trained appropriately.

We have made a strong effort to educate and coach our sales force as they are now entering 2012 with more experience and familiarity with our technology offering, their territories, and customer base. We anticipate continuing our dedicated effort in expanding and strengthening our sales force.

In addition, we have appointed Bill Brown, our Vice President of International Sales, our Vice President of Sales and Marketing. Bill has been an integral part of our management team and has played a critical role in the restructuring and relaunch of BIOLASE. He has a strong and proven track record, great dedication to BIOLASE, and an in-depth understanding of the global dental laser market and the needs of our customers and distributors. His knowledge and expertise will be instrumental as we continue to grow and introduce new market-leading products in our drive to become the total technology solution for the dental community.

Finally, on the marketing front, I spoke last quarter about the return this year of the BIOLASE owned World Clinical Laser Institute, the WCLI, Super Symposium -- the single largest and most successful laser dentistry conference worldwide. We are looking forward to the event, scheduled from June 7th to the 10th in San Diego, California, where dentists will hear from and work side-by-side with the finest laser dentists and their staffs. They will learn new clinical laser techniques, practice management tools and guidelines for using the laser in conjunction with imaging to generate more business and wealth from their laser equipment investment.

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, and good afternoon. I hope that the weather around the country is as nice for everyone on the call as it is here in Irvine today.

On a GAAP basis, revenue for the fourth quarter of 2011 totaled approximately $13.2 million, up 36% from $9.7 million in the same quarter for 2010. Net revenue for fiscal 2011 was approximately $48.9 million, up 87% from $26.2 million in fiscal 2010. Such increases in revenue volume were primarily driven by our exit from an exclusive distribution arrangement in August 2010 with Henry Schein and a returning to a direct sales and multi-distributor business model, which was initiated during the fourth quarter of 2010.

In order to gain some insight into our increased revenues during 2011 and visibility into our projected growth for 2012, let's first look back to 2011 and removed equipment sales to Henry Schein, our former exclusive distributor, to satisfy its irrevocable purchase orders from August 2010. These 2010 irrevocable purchase orders constituted a liability -- in some characteristics, a debt -- that was repaid in product sales from September 2010 through the third quarter of 2011.

With respect to 2011, we satisfied approximately $2.9 million, $2.1 million, and $900,000 of these 2010 purchase orders with product during the first three quarters respectively. On an annual basis, excluding $5.9 million and $3.1 million of equipment sales to Henry Schein, to satisfy the irrevocable purchase orders during 2010 and 2011, respectively, our revenues totaled $43 million for 2011 and $23.1 million for 2010. This represents an increase of $19.9 million or 86% year over year as a result of the return to our direct and selected distributors sales model.

Our direct sales and selected distributor revenues were also impacted during the year and particularly in the fourth quarter by sales of Waterlases by Henry Schein. As Federico has already mentioned, we were competing against a large inventory held by Henry Schein, and have taken steps to eliminate this inventory overhang as we progress into 2012 by agreeing to repurchase approximately 180 MD Turbos at what we believe is very beneficial pricing. None of the products sold to Henry Schein to repay our debt are included in this repurchase of MD Turbo, and we expect to profit handsomely and strategically from such repurchase.

Returning to our results from 2011, approximately 69% of our revenues for the fourth quarter and 60% of our revenues for the year ended December 31, 2011, were from the sale of our all-tissue Waterlase system, the vast majority of which were the revolutionary Waterlase iPlus. Sales of our diode laser systems made up approximately 12% and 19% of total revenue during the fourth quarter and year ended December 31, 2011, respectively. The percentage of net revenues in this year's fourth quarter from the US and international markets, including unit sales and consumables, totaled approximately 69% and 31%, respectively, as compared to approximately 74% and 26% of net revenue in the prior year's comparable period.

For the year, the breakdown of US and international revenues in 2011 totaled approximately 67% and 33%, respectively, compared to approximately 64% and 36%, respectively, for 2010. Gross profit as a percentage of GAAP net revenue for the 2011 fourth quarter and year was 42% and 44%, respectively, compared to 50% and 34% for the prior year comparable period. The gross profit in the fourth quarter of 2011 increased from 41% in the third quarter of 2011 primarily due to higher volume of US sales revenues generated during the quarter.

Operating expenses in 2011 were $25.3 million compared to $20.3 million in the prior year period. Operating expenses improved as a percentage of net sales to 52% for 2011 from 77% for the prior year period. When compared to the increase in our revenues of over 85% year over year, expenses only increased by 25%. A significant portion of this increase was related to legal fees necessary to unwind lingering issues from our former exclusive distributor relationship with Schein.

On a GAAP basis, our net loss for the fourth quarter of 2011 totaled $2 million or a loss of $0.06 per share compared to net income of $174,000 or $0.01 per share in the fourth quarter of 2010. After removing non-cash depreciation and amortization expenses of $133,000 and non-cash stock-based equity instrument and non-cash compensation expense of $638,000, this year's fourth quarter resulted in a non-GAAP net loss of $1.3 million, or a loss of $0.04 per share compared with a non-GAAP net income of $869,000 or $0.04 per share for the fourth quarter of 2010. The non-GAAP net loss in the fourth quarter of 2010 included the removal of interest expense of $145,000.

Our net loss for fiscal year 2011 totaled $4.5 million, or a loss of $0.15 per share, compared to a net loss of $12 million or a loss of $0.47 per share for the prior year. After removing interest expense of $305,000, non-cash depreciation and amortization expenses of $695,000, and non-cash stock-based equity instrument and non-cash compensation expense of $2.1 million, the non-GAAP net loss for the fiscal year 2011 was $1.4 million for a loss of $0.05 per share, compared with a non-GAAP net loss of $9.8 million or a loss of $0.38 per share for the fiscal year 2010, an improvement of 87% year over year.

Turning to the balance sheet, as of December 31, 2011, we had cash and cash equivalents of approximately $3.3 million, accounts receivables of $8.9 million, inventory of $11.3 million, and shareholders equity of $12.6 million.

Moving onto financial guidance, our revenue guidance for the first quarter of 2012 is approximately $11 million, an increase of approximately $3.3 million or 43% compared to the first quarter of 2011 after removing $2.9 million for the repayment of the liability and product to Henry Schein during the first quarter of 2011. Our full-year revenue guidance for 2012 is between $57 million to $60 million. Excluding equipment sales to Henry Schein for the repayment of approximately $5.9 million during 2011, the midpoint of our guidance of $58.5 million represents an increase of 36% for our direct sales and select distributor model in 2012 year over year.

Now, I want to make an important statement about our guidance going forward. Many of our investors and analysts have rightly expressed a concern regarding our missing guidance through 2011. There is nobody here more dissatisfied about this result than Federico or myself, and we are working diligently to rectify these circumstances.

Thank you, Fred. Before we hand the call over to the operator for questions, I have several concluding remarks. Notwithstanding our overall underperformance against our 2011 guidance, I am very proud of the Company's progress in 2011 and expect it to continue throughout 2012 as we lay a solid foundation.

While we did not meet expectations set by our own guidance, we made great strides with over 98% growth year over year, excluding sales from the irrevocable purchase order from Henry Schein and have established a solid foundation for success -- for further success in 2012. As we have discussed and announced over the year, we will continue our product extension activities in dentistry towards becoming the total technology solution for minimally invasive surgery for dental professionals around the globe.

This concept as a one-stop shop for dental technology solutions, is guiding our strategy and is also resonating with our dental customers, who prefer to have a single, reliable resource for the practice, technology, and equipment needs. We will also continue to aggressively pursue markets outside of dentistry through utilization of our promising IP portfolio.

In ophthalmology, for example, we are rapidly moving towards treatments for dry eye, glaucoma, and cataracts and in IDE for presbyopia, extending our technology into ophthalmology as well as orthopedics, aesthetics, podiatry, and other areas of medicine remains a very strong focus for BIOLASE in 2012.

This concludes our formal prepared remarks, and I would like now to open up the call to questions.

(Operator Instructions). Suraj Kalia, Rodman and Renshaw.

First and foremost, Federico and Frederick, let me commend you for acknowledging the miss. It speaks very highly of you. I do appreciate that.

Federico, let me start here. Just as a general question, given this inventory issue with Henry Schein, did BIOLASE have any visibility on the inventory levels? I'm just trying to understand, was it a timing issue? Was it that you all went direct and Henry Schein said, screw it, and they started dumping inventory? What triggered all this, and what visibility did you all have going into -- let's say going into Q4?

Well, again, we cannot speak for Henry Schein. We can only speak for BIOLASE. What we believed that has happened is that Henry Schein -- when we decided to go direct and not just deal exclusively with them, they had to basically take a business decision in investing in forming a group of salespeople and infrastructure to sell lasers. And at a certain point they found that quite difficult, and also quite an investment.

So they most likely decided just cash in their inventory and that is what we believe that has happened. Also, we had an obligation contractually to let them know of new, upcoming products, so when we did let them know about the MDX line, the easily clear evolution of the MD Turbo, they went on to clearly take a very aggressive stance in liquidating the inventory.

This inventory in the hands of our former exclusive distributor has been -- it's hard on our side for quite some time now. And we, frankly, are very happy that they sold approximately 260 MD lasers and its systems in 2011 and that we have repurchased the remaining MD systems in their inventory.

So all is clear now. What they have currently is the brand-new iLase they selling regularly, and that's it. So in essence, we cleared out a fundamental problem that was lingering and that was interfering with our direct selling effort.

Federico, would it be fair for me to say that in fiscal 2011 -- I mean, one of the things subliminally when we look back and we do the math, there was always an element of timing of revenues and whatnot, again, relative to the estimates out there. I guess my key question is, is it fair for me to say that you did not have visibility into the Henry Schein inventory and selling mechanisms, and as a result, the guidance that you all had laid out there sort of boxed you into a corner? Would that be fair in my assessment there?

Absolutely. Again, it was an unexpected realization on our part. We do not know what Schein strategy can be ahead of time, so we realized very late in the quarter, in December, there was a very aggressive marketing of the MD Turbo systems, and ultimately that affected our completion of sales of our own systems because that clearly tapped into the clients that are interested in dental laser technology. So it affected, basically, our client channel, and so we -- because they are moving aggressively 180 systems, we definitely got affected in most likely not selling 40 to 50 or 60 systems ourselves, and that is the shortfall between our guidance of Q4 and what the final number was.

Okay. Frederick, let me switch gears and just go into fiscal 2012 guidance but I want to make sure I understand the nuts and bolts correctly. If I just -- and please tell me if my math is wrong or I'm missing something, but let's say you exclude the Henry Schein purchase orders in fiscal 2011. So if I use the baseline of $43 million, the midpoint of -- in fiscal 2011 -- the midpoint of your fiscal 2012 numbers are $58.5 million. Okay. So I get the math there.

And if I look at Q1 2012, $11 million -- just choose wrong numbers for arguments sake. My math suggests that Q4 2012 you should be exiting somewhere in the $17 million plus run rate. And I guess the question I have is, help us -- walk us through the unit, the trajectory as they move throughout 2012. What different catalysts/events will precede Q4 to get to a certain ramp rate and exit with the guidance that you all have provided?

There are two primary things that we looked at as we built our sales forecasts, and the first is the number of salespeople we have today and the number we expect to have in Q2, Q3, and Q4 based on our hiring practices and the plans we have in place. So we do expect every quarter to have a greater sales force, a more experienced and a larger sales force. So we expect to have sales impact from that.

We also expect to see some incremental increases from our introduction of the NewTom digital imaging from Cefla. We have that ramping up throughout the year. So we have a very, very low expectation early in 2012 and that ramps continually through each quarter. So those two factors would be the primary things that we looked at when we built our model.

Also, let's not forget that we introduced late in the year the DaVinci Imaging line that is a very vast imaging line. So we will have a ramp up of the imaging line, of the imaging product line as a whole -- the DaVinci, the NewTom, and more to come. And also, we will introduce a full new line of diode laser products for dental practices in the next few months. And coupled with what Fred said, we will have a stronger and larger sales force. And also with the fact that Q1 is always the -- historically the slowest quarter of the year. You can understand that the second half of the year will be stronger.

Okay. Finally, Federico, how should I look at rep productivity in the US? I think somewhere I heard there are 30 reps in the US. Please correct me if I misheard that number. Am I doing the math correctly or thinking this correctly, that -- let's say you have $13 million in revenues, 67% or so in the US, divided by 30 reps -- that's about $300,000 per quarter rep productivity; annualized it's $1.2 million. I guess I'm my question is twofold.

One, is the way I am thinking correct? And two, if a $1.2 million rep productivity currently exists, what are the marginal efficiencies that can be derived from these reps?

Again, it is really not exactly correct to do the kind of math -- I understand where you're coming from, but at a certain point, it is not just a number of sales reps. It is the support that the sales reps have, and the product -- the amount of product that they have To sell. So eventually it is not just multiplying the number of reps and the million dollars per rep that will give you an understanding of the growth of sales.

Eventually per rep, there will be an increase in sales to become more experienced and as they have greater reliancy of products. In the old days we had sales reps doing $2.5 million, $3 million a year. So again, we cannot just limit the sales rep capacity at a $1 million average. We will have always the superstars, and then we will have the ones that fall behind, but we are clearly very dedicated in coaching and directing these salespeople in becoming very successful.

Dalton Chandler, Needham & Company.

Let me just ask about what happened with Henry Schein here. In the December quarter they were dumping lasers on the market. Obviously, at some point they stopped, because now they have inventory left. Can you just talk about when and why they stopped?

Because we started talking to them, and we said, instead of dumping it in the market, we are here to buy it all in one transaction, obviously at the lower price. The fact is that they have costs associated within selling. So even though they were selling aggressively, they have to pay salaries, they have to have salespeople, they have to have a whole organization to allow that to happen. So now they are free of that. Now they can essentially not be burdened by those kind of expenses.

The iLase is essentially a $3,000 laser, and they sell it through their website, they sell it through their catalog. It doesn't really need specialized salespeople like to sell MD Turbo laser systems.

Okay. But did any of this spill over into the first quarter?

They sold a few units in the first quarter, and we are penalizing the account now, because the transaction is just about to close.

Okay. So what is -- ?

Dalton, it could be a number that can vary a little bit. It can be 175 at the end. That's why we used approximately 180.

Okay. So their role going forward will just be to sell the iLase, or will they continue to service accounts that they've previously sold Waterlases to?

I'm sorry -- continue to service in what sense?

Well, like selling the disposables.

Oh, yes. They will be treated as a selected nonexclusive dealer. It doesn't mean that we are not going to have a relationship. I am happy to have a relationship with Schein, and Mr. Bergman, the CEO, wrote me a very kind letter after the transaction was -- not consumed because it's not yet, but when we finalized it, looking forward in continue -- to a profitable and positive collaboration with BIOLASE, and I answered the same way to him.

So it doesn't mean at all that we are antagonistic. It's simply that in the past what has happened has happened, and now we're looking into the future, and clearly with Henry Schein when there is a product that they are interested in purchasing, we will be very happy to provide that product. Essentially, they were sitting on a large inventory that was aging, and that was an uncomfortable position for them. And we completely understand that. We sympathize with that.

In our hands, that inventory has value, because we can upgrade the inventory to essentially MDX, refurbishing 2012, and/or [forepass] to service this large installed base of MDs -- but mostly then, they will be converted and upgraded to MDX. Some we'll put in schools, because it's a very important thing to have schools behind our world-class technology.

So frankly, it is a great transaction for all parties because. on one side, Henry Schein gets reasonable rid of all its overhead; on the other side, we get rid of this overhang that was an unknown entity for us in conducting our direct sales efforts and we are in a professional and positive relationship with Henry Schein.

Okay. Shifting gears here for a minute, can you talk about the contribution you expect this year from the imaging products?

Again, we expect that will be well received, but I am not going to venture there in giving the numbers, because it is a new product line. We believe we will be successful, and we believe that we will over time establish ourselves in a strong manner in this field. But again, it is a new product line. We are just starting, basically. So consider that three months went by already, and we are hiring a dedicated sales force for imaging.

So definitely we'll be in the millions, but again, we are not venturing in giving a [determined] forecast. We are positive, although definitely we believe that it is a great addition. Again, let's not forget that the BIOLASE brand is known by over 90% of dentists in North America, and it's known as a high-tech dental brand, dental equipment brand. So we are leveraging in fact not only our installed base and our sales force, but also our brand.

Did you say you're hiring a dedicated imaging sales force?

Yes. We will have a small number of superstars in the imaging to help our overall sales force in closing deals. When you are closing an imaging system that is a NewTom or a D 3-D, we are talking about machines that cost over $100,000, you want to clearly have specialized people. We will have our sales force opening the doors, and then the specialized people join in and close the deal.

Okay. Thanks very much.

George Santana, Ascendiant Capital.

Thank you for the color and detail on the wind-down of the Henry Schein relationship. I recall at a recent dental show speaking with a sales rep from Benco, and he's really excited about the iPlus. Is Benco contributing revenues in a material percentage, or are they just getting started?

Again, Benco is a great company, but we have a beginning of a very good relationship with them, but it was really a concern -- a legitimate concern on behalf of Benco regarding the inventory that Schein was holding, inventory of MDs and the fact that Schein has purchased a large amount of -- in late 2010 and the early part of 2011 -- iLases.

We will also have an updated version of iLase, and we will introduce new products in the diode line. And we just launched the MDX line. So essentially, I think that 2012 we'll see Benco being more active in selling our products now that this issue of this large inventory has been cleared up.

Okay. Thanks. That makes a lot of sense. A couple of small questions, and I understand your hesitation to offer guidance on the imaging sales; but if I recall correctly, imaging contributed approximately $100,000 in revenues in Q3. Is it a similar number for Q4?

Again, when -- those were the kind of tests of marketing that we did. We did not even have a signed agreement -- a completed agreement with the full digital line back then regarding the DaVinci, we needed to even clear the name BIOLASE or DaVinci. So there were a lot of things that were holding us back in marketing actively.

So, again, what -- the total sales of imaging is a nominal amount in 2011. So it's not really to be taken in consideration. It's 2011 from now on that we have everything laid out to start doing what we need to do.

Okay. And we should presume that first quarter should be slow, but second quarter will begin to ramp? Is that fair?

For the imaging, or overall?

Imaging.

Yes, obviously in Q2 we will see a ramp up in imaging. But anyway, there is a seasonality in capital equipment in dentistry. Q1 is usually the weakest, then you have Q2 is stronger, then you have some slowdown in Q3, and then usually you have a very strong Q4 because of the tax advantages that dentists have in buying repurchasing capital equipment before year end. So that is more or less how the quarterly sales will play out during the fiscal year.

I see. Is -- (multiple speakers)? Is Mike signed up as a leasing partner for this -- for the imaging line and NewTom products?

Michael felt with his company is always a good partner, but again, is not an exclusive partner, and that is a very valuable partner of BIOLASE -- in our leasing is always present at any tradeshow. We have a very productive collaboration, positive collaboration with him and his company. So yes, he would be behind any leasing of equipment.

But again, he is not the only one. I mean, he can have his own leasing company, his own preferred leasing company, and then if he's a distributor, it could be Schein or it could be a Benco. It could be somebody else. They have their own leasing arm.

Again, Mike [we felt] is an important element in the overall leasing aspect of selling products, but he is not the only one.

Okay. That's fair. And as far as atypical ASP for imaging equipment, we are seeing, what, [55 and 3 to 5], I guess, or the iLase and 55 for the iPlus? What can we expect for imaging?

Imaging -- we have such a full line of products. We go from $3,000 all the way to $170,000. It's almost impossible to give you an average price, because we are selling and multitudes between the DaVinci and the NewTom. We are selling a multitude of products and more to come.

Okay, and now with your taking over the NewTom distribution, or at least from one of the key partners there, are there issues on the integration into the dental management software -- do the images already load up into Dentrix, current dental, any of these other attractive management software solutions?

Yes, that is all taken care of.

Okay. So there's no additional negotiations with Henry Schein to get the images into Dentrix, right? That's been done.

Yes. It is taken care of from the manufacturer, yes.

Greg Garner, Singular Research.

One last question on the Henry Schein issue. With this agreement, when it's finally completed here, does this mean that Henry Schein -- the only inventory they have of the BIOLASE equipment is the disposable equipment?

No. They still have units of iLase that is the handheld battery operated laser. It is a 5 watts. It is a wonderful laser. We introduced it in 2010, so basically it is a brand-new laser. They are selling it; it is a laser that sells for around $3,000, so it is the kind of laser that is sold through catalogs or the Internet.

Okay. I guess I was really driving at they don't have any more Waterlase models at all? Any MD Turbo? (multiple speakers).

No. MD -- no. They have a handful of iClasses, that is the new laser that we introduced, the very brand-new one.

Okay. But just a handful. So there's no potential inventory issue with the iPlus -- you're not concerned about that because of the --

Not at all.

Okay. And as I remember last quarter, it was mentioned that the movement of product on the international market was one of the reasons why the gross margin was at the low 40s, and here we were back up to a higher contribution in the US, and I would think as a result that gross margin might be a little bit higher. Is there anything else going on there? Is there any supply issue or anything else happening there?

Overseas?

I'm just wondering why the gross margin might not have been higher since there was a larger contribution from US revenues in the fourth quarter relative to the third quarter.

Well, that may be -- Fred, do you want to answer to that?

Sure. We have certain costs that might not be as visible to the outside, including warranty, service, and certain other costs associated with that, and those are starting to trend downward. But they are still involved in our computation of cost of sales. It's not just a straight cost to build a unit. We are also, as we've said several times before, we are not -- we have a large facility here, and we have some room for growth, which we are anticipating over the next couple of years. So we are not fully absorbed in our inventory or overhead right now. But we do expect to see improvements in that over the year as well.

And in the past it's been mentioned about a 50% gross margin. So it sounds like that next year, is it fair to say that it's from current levels it would be more movement in that direction?

Yes. We're moving towards that on the laser side of things, by the end of 2012. Now, with the introduction of some of these -- with the distributor relationship, we may not have the same level of margin. We may end up breaking that out as it grows as a component of our business so we can give you some visibility into what the different margins are.

But we do expect significant manufacturing efficiencies in 2012 compared to 2011. We also expect improvements in our service and warranties, but then we still have the lack of absorption of our overhead. And as we grow, that will improve as well, obviously.

In the imaging, we do have healthy margins don't get us wrong, particularly in the smaller products. As you go to the high-end products, the margin becomes a little more challenging, but it's still a healthy margin. Clearly, it's not at 50% as we can have for lasers. It will be somewhat lower.

Okay. Could you walk me through the thought process on taking on another imaging product? Is it designed -- just to really have more products for the salesforce, or might there have been a slow ramp-up in the DaVinci? I'm thinking that we need to have more product to even make any progress at all in the imaging? I just want to make sure I'm clear on that.

We are making progress in the imaging, but again, we are starting to build out the infrastructure. We just closed the NewTom, we just recently closed the entire line of DaVinci Imaging. We cleared the name because we were very attached to the entire BIOLASE DaVinci Imaging name.

So we are putting together a specialized sales force. So basically, you are going to see a ramp-up of our efforts in this particular field that we believe it is strategical. Also to penetrate more and more the general dentist -- the general practitioner -- because clearly opens up the doors to the GP, because imaging today really is become -- digital imaging has become standard of care.

And if you go to any of these dental shows, you will see activity where people go and people are interested in going -- it's not around dental chairs and dental drills, but is around digital imaging and lasers.

Also, we have the price point differentiation now that we -- the Company never had in the past in all product lines, from the lasers to the digital imaging, and that is very nice to have. Because the old BIOLASE basically was a one product company and was the top of the line. And instead, now we have a multitude of products in both lasers and imaging and at different entry price points.

It appears to me that the MDX line would also expand your marketability into more of the GP dentistry. Is that right, or is that -- do they typically go for the iLase? Or iPlus, I mean?

Again, not everybody can afford the iPlus. So you are correct. The MDX 300 and the MDX 450 -- they are priced differently. The MDX 300 is less expensive than we have used units of MD that are going to be certified, recertified by the Company for sale. So that will be a lower point, again, a lower price point. So basically we are going to be able to offer GPs four different levels of price points in entering laser dentistry, something that BIOLASE really never had and no other company never had.

So, we are not reinventing the world. If you look at a Mercedes or a BMW, they have different -- four or five different models or price points. So we are not reinventing the world. We are just doing what commercially make sense.

Okay. Well, thank you, and I just wanted to indicate I appreciate the effort in being clear about a number of these issues that are occurring. Thank you.

Lenny Brecken, Brecken Capital.

I've got four questions. I'll be very specific. Regarding the first quarter, what visibility do you have? I mean, it's March. You should have decent visibility. But historically the quarters are back half weighted. We as shareholders don't want another surprise. Second question, related to cash --

Lenny, I'm sorry. Let me answer a question by question. Otherwise I will start taking notes. Yes, we have a decent -- you say decent, I'm going to use the same term. Decent.

Decent?

Decent to good.

All right, well --.

What interpretation do you give to the term decent?

All right. Okay. Does that mean you're confident in hitting the number?

I would not give guidance if I would not be confident.

Okay. That's what I wanted to clarify. In terms of the cash position, can you clarify that you're going to add another 10 salespeople and your efforts in R&D seem to be expanding, can you just reassure us that a $3 million, $4 million cash balance will be sufficient to continue to grow the business through the year?

The fact is that it would be nice to sit on $30 million in cash, but we don't have that advantage. There is a lot of cash in inventory. Inventory grew because it was a surprise to us, for instance, that Schein was so aggressive in selling MDs, but we have iClass iPlus finished product, obviously, at the end of the year, that we built, expecting to sell it. So that increased inventory.

We also increased inventory -- we put money in critical parts, because we don't want to have last-minute surprises, not having critical components to complete the manufacturing of the laser, something that has happened in the past. So, the laser is a substantial amount of money there. And then there is a substantial amount of money in accounts receivable as well.

So, overall, there is money. But in the bank, we don't have a lot of amount, but we are going to manage.

So does that mean that you're comfortable with the cash position? There's no immediate need -- and I mean immediate, I mean two quarters out, to go raise any more money?

Frankly, we expect that Q1 is a challenging one, and we are basically almost past that. And then, Q3 we should be starting hopefully to be in a cash generation mode, and so frankly, I think that the difficult moment is Q1, and it's almost over.

Okay. All right, well, that's the priority number one issue among investors, I think, is reassuring there's not going to be a dilution event in the upcoming quarter like we did last year.

Well, I can tell you that we have not been selling shares at these prices. We believe that the stock does not reflect the potential, and the reality of the Company, and that's our belief. So we are very concerned about any further dilution. Let's put it that way.

All right. Well, that wasn't the commitment to my question, but that does clarify at least some of it.

The third question was relating to the non-dental markets. Can you give us some milestones that we, as investors, can look forward to in terms of achieving commercial viability for either the eye market or for the orthopedics market? What I mean by milestones is when are you going to file a 510(k), things of that sort, if you have plans to? Clinical trials, anything we could look forward to to give us confidence these products will be in the market in a timely manner?

Well, some products, they can be in the market in the second half of the year. We cannot be too specific, but in 2011, no 510(k) was filed. In 2012, we will file 18 of them. So we're going to be very active in that field, and we have been carrying on some clinicals in ophthalmology, some clinicals in podiatry, and with very good results. So I think ophthalmology is probably the closest to give us some benefits, together with podiatry.

We are doing more work in dermatology, and we will see something in 2012 there, we expect. In orthopedics, clearly, as you can see, the hardest surface in the human body you can cut very efficiently, bone. But the orthopedic market is dominated by two players, so we will definitely, once we have a 510(k) approved, we will be talking to them. We have in the team, actually, an expert in the orthopedic market, [Dehav Ishmael]. He will be very beneficial for BIOLASE to enter that market with the Waterlase technology. It is a very interesting market -- the orthopedic market.

So you don't have any timetables on when you're going to actually submit 510(k)s for either of those -- for the 18 -- as you said, 18 separate 510(k)s?

13 separate.

Wow. That's just for those two markets, or is it including podiatry?

Including podiatry, and different medical applications. Frankly, I don't want to tip the competition on whatever we are doing.

All those 18 are going to be submitted by year-end? At least that's the hope? Is that correct?

Yes. There is a very strong, concerted effort in applying for these 18 510(k)s in the months to come.

Okay. And just the last question -- we as the shareholders -- I'm a little frustrated as I see the competition going by the wayside, and I mean either going out of business or having regulatory problems, the latest of which is Syneron. I understand they bought their CE Mark and I think -- the rumor was today that one of the distributors actually had a forced recall from the government in Germany.

Can you just address when the implosion of HOYA, [Sotona], and now Syneron are actually going to help your international efforts?

Well, HOYA has ceased operation, and they had some 1,200 lasers worldwide. So that definitely clears up the field. We are sorry that they are out of business, but we are happy, clearly, for us.

Syneron -- yes. We have heard about the possibility that they had lost their CE Mark for their LiteTouch that is their dental product. We are quite surprised that we haven't seen any public announcement from Syneron yet, but that is what apparently has happened from information that we have. So they have sold so far 400 of those units, so $60,000, and it was a product introduced in 2010, more than 16 months ago.

[Sotona] is another competitor -- by the way, Syneron doesn't sell in the United States. They would have to pay royalties to us. As HOYA was paying royalties to us because we also have the patents underlying the erbium YAG. We do not license anyone for the (inaudible) but we also own the erbium YAG underlying patent. So who wants to sell an erbium YAG to pay us royalties?

So we are auditing -- actually, we're in the process of auditing HOYA for the royalties. And Syneron is not in the United States selling. But apparently they have their own issues overseas. And [Plutona] -- they are selling and, obviously, essentially are supposed to pay us royalties, and they have made us some offer that we at the moment have not accepted. And we have our own issues with Plutona in Europe. So we are looking at that because we have very are very strong in protecting our IP portfolio. And from what we know, Plutona is for sale from the Slovenian government, as it's been offering the company to us from a representative of the government.

So that is the situation, and we don't know what is going to happen to Plutona. If it's going to be sold or not. But be assured, we will assert our IP portfolio with them, and they already have been put on notice of that.

When do you think -- look at all these old -- you have virtually no competition to speak of. Why haven't we seen an acceleration of sales ex-the Schein which I know, we're realizing that. But it's more a question about international sales. Why haven't -- do you anticipate that? I mean, it's just a recall on Syneron product 400 systems. What are the dentists going to do if there's a recall? He's got to buy a system; he's got to buy it from someone, and it seems like you're the only guy left.

Well, you said it, I didn't say it. But sent in for HOYA -- if you are a HOYA user, what are you going to do? (multiple speakers).

But we haven't seen a huge uptick in your sales? That's why I'm asking. Not yet, anyway.

Well, again, we are looking at these opportunities, and we are doing everything we can, but these are very recent events. I am talking about very, very recent events.

Okay. Maybe that's the answer to the question. (multiple speakers). Thanks.

Part of the opportunities that BIOLASE has, clearly, the field has never been cleared up as it is now ever in the history of BIOLASE selling lasers -- dental lasers. So we are very pleased that there's been sort of a clearing up of the field, and frankly, the clearing up of the field, that doesn't count in our opinion from the fact that laser dentistry is not well accepted is that nobody could really compete with the Waterlase technology, because the erbium YAG is not enough. Waterlase technology is -- that is our technology -- is more efficient than any other technology.

Okay. Well said. Thank you.

Chris Sassouni, Eagle Asset Management.

Just a couple of quick things. One company that you didn't mention in terms of the competitive landscape is AMD. And I was just wondering if they are of any consequence at all given where those units are manufactured and what the quality of the units are? Because I think that once we talk about AMD, then we effectively would have talked about virtually every competitor. I am not aware of any competitor that's really left.

You are correct, Chris. Well, AMD really only manufactures low end diodes. They do not manufacture a all-tissue or hard tissue laser. Their lasers sell for around $3,000. They are manufactured in China from what we know. They haven't introduced any new product for quite some time. It was interesting to see their booth being very, very marginal from the large booth that they had previously at the Chicago Midwinter Dental Show.

So I, frankly, cannot see us comparing ourselves in any shape or form to AMD. I think that they really are targeting the very, very low end of the market and for the diodes only. And again, if they would like to enter the erbium YAG market, they would have to pay us royalties and they would have to have essentially our permission to do so.

So the fact is that I don't really consider them as a strong competitor. It is essentially a marketing machine, the [previewed] technology there. So, I think the field is quite clear, frankly.

That's great. The second thing I want to talk about is whether Gordon Christiansen has had a chance to review the iPlus, whether that will be coming out in any journal articles that he writes?

Well, that's frankly kind of a confidential -- I can't really comment on that one, Chris.

Okay, that's fine. Next thing is -- let me just ask just a general question. Is Gordon predisposed to be positive towards lasers in general? Because he tends to talk about themes. I mean, he does review individual products, but he also is instrumental in pushing themes. So do you know whether he's pro-laser or non pro-laser, or does he typically just stick to product by product (multiple speakers)?

Our understanding is that he's opening up very much towards lasers.

Okay, that's great. The next thing is the P&G relationship. Can you give us any kind of update on that, whether it's continuing to move forward?

It's moving forward in a very positive manner. It's a productive collaboration and I'll just leave it at that.

Okay. Next thing for you, Fred, is just wondering if you could give us an update on Richard Whipp had come in and really made some significant changes in terms of the manufacturing processes and procedures down on the manufacturing floor. And I remember when you first came on board, I think it was taking literally weeks from the time that you got an order to the time that that order could be shipped.

So what is the manufacturing conversion cycle now, and how much more improvements can be made on the manufacturing? In other words, there comes a point where you leaned out the processes as lean as it can get, and now the only thing left to boost up the margins is really higher volumes. So where are we in that?

I think we are --. You know, when you get to lean manufacturing, you have a bit of a ramp-up in your costs, and then you sort of level off, and then you start the lean process. So we are on the downward slope of that graph.

So we reached the peak in -- at some point in late 2011, and now we are starting to lean things out. We've reconstituted the production floor; we have a whole new layout and a flow, and work construction -- there's all kinds of wonderful things to help the production levels down there.

I would expect probably by mid-2012, we'll be leaned out, so to speak. And we are also positioning for the future, so we have -- you know, we can duplicate lines now, and in order to ramp up production in certain areas, that's sort of the next agenda there. We are very, very happy with the progress we've made in our manufacturing process and our supply chain.

Okay. So on the supply side, at this point you have the redundant suppliers that you need. Have you renegotiated where necessary all the supply agreements with the suppliers so that you can get some advantageous prices?

That's a very, very broad-based question. Obviously, we are making efforts to rebuild relationships with our suppliers. In many cases, we have and we are very, very happy with that. In other cases, we haven't. So we've looked for additional or alternative suppliers. And one thing Rick has brought along with our engineering group -- Rick has a tremendous amount of resources out there, and he's been able to find us some really nice alternatives to what we've been using in the past.

And I do want to circle back, Chris, you did mention about time to ship or getting product out the door. We can pretty much ship, we have an inventory in stock of certain products and colors, and we can ship pretty much anything within 48 hours now. So we're very proud about that.

Also, again, part of building the foundation in 2011 for the new BIOLASE, has been establishing a very strong collaboration between the R&D department and the manufacturing department. Because, before, things that were engineered in a way that pleased the R&D department, and then -- okay, go ahead and build it. And that doesn't happen any more.

There is that very strong collaboration that brings, clearly, the advantage of -- over time -- of increased gross margin and reliability in all senses, from reliability of the machine and also how clearly the supply chain.

Okay. So it sounds to me at this point, that you are really in a blocking and tackling mode. This is really now all about execution. You've cleared -- the competitors have cleared themselves out; the issues with Schein are now behind you.

You have a very large number of products that you are going to be putting through the FDA process, and we will see when those get released.

You have a flagship product that broke the barrier that dentists were constantly complaining about, which is that the laser wasn't as fast as the high-speed handpiece. So you conquered that; that's out of the way.

At this point, it really sounds to me like it's a story of leveraging your brand, increasing awareness amongst the dentists of the benefits of lasers; hiring enough salespeople, getting the word out, and then just sell it. I mean, it sounds -- because you're manufacturing isn't an issue any more, your supply chain isn't an issue any more. The distributors aren't an issue any more.

I mean, it's sort of like you can go down the block and say, okay, what are the issues that this Company was facing? It just sounds like this is now just -- that 2012 is really just about pure execution. Against not a lot of headwinds, other than just market dynamics in general -- just, you know, how fast will dentists adopt a revolutionary technology? Although it's been around for quite some time.

Is that an accurate depiction of where the Company is?

All you said is is what I would have said. But I can summarize it, that we have cleared the path -- the path in 2011, and that we feel that now the real BIOLASE will be seen in 2012 and moving forward.

Okay.

So, yes -- all that you say is correct, and it's all about execution.

Clearly, like any other company we're worried about the general economic environment. We have to face it. I mean, Q4 was affected also in part by what was happening in Europe, has affected European sales, has affected Asian sales.

We all know that Asia depends a lot in exports to the European market. So, while the United States is showing some sign of -- North America in general, some sign of recovery, we had essentially a 2008 crisis happening in Europe in Q4. So, we -- clearly we monitor, we -- that is my biggest worry of all, is the general economic environment.

But other than that, I'm extremely confident that laser dentistry and Waterlase dentistry is going to be recognized, over time, as the standard care in dentistry, and that laser dentistry is the only way to grow.

Okay. Last question, real quick, and that is -- what is the next set of shows? I mean, June we have the big World Laser Institute that you will be running. The ADA is way later in the year; I think it's at September or October.

What's left now that you get past the Chicago Midwinter? What are the other shows that are still to come? Or, how does the calendar lay out from here forward? Because I presume that there's a lot of activity that happens at these shows.

Yes, but the fact is that, Chris, the Internet has changed many aspects of the world and the business and has affected also the tradeshows. And so the attendance has come down at tradeshows, and for instance, Chicago used to be a four-day trade show, and now it's limited to three. And attendance is down across all tradeshows.

So we are reviewing that, because we used to go to many, many of those in the past and I've reduced them to more or less 10. And we are reviewing that, just as we speak, to maybe reduce it to just four or five major and that's it, because it is more productive to us to go to the smaller, regional ones. They cost far less, they are much easier to organize, and they are very effective. And instead of these major shows that represent a large investment -- and yes, there is a return; we sell, there is no doubt. But it is also a nice ticket, a nice bill to pay for these large dental shows. And I'm trying to rationalize where basically I have the highest return.

So, instead of going to 10, 12, I mean, we might go just to the four or five major ones and go more to -- and redirect that money to the regional ones.

Okay, thank you and congratulations on some great progress.

Thank you, Chris.

Robert Hoffman with Princeton Opportunities.

Yes, a couple calls ago I was criticized for asking way too many questions, so I just --. I'm only going to ask one and I appreciate you guys giving us all the time. And maybe I shouldn't ask any, because the last caller outlined some -- a nice progress report there.

I just wanted to circle back to -- last second, second quarter of '11, there was an issue that Henry Schein kind of pulled a switch right at the end of the quarter in ordering more Waterlases rather than the iLases -- which then caused a miss of that quarter.

So, do I have it correct that they ordered -- so they weren't ordering Water MDs, were they? They were ordering the iLase -- the --?

The iPlus.

The iPluses?

Yes.

Okay. But they were -- they were ordering iPluses even though they had what turns out to be well over 300 MDs in inventory?

Yes. Yes -- because there was the new product, and obviously, like any distributor of standing like they are, they want to have the latest and the best.

Yes, I understand that, but then, they -- I mean, they ended up ordering an awful lot. They ordered more than you were expecting, that's for sure. And so I just want to circle back on the question that someone did ask before -- do you have visibility in their iPlus inventory, and we can be pretty convinced that a repeat is not going to happen?

I don't see, frankly, any repeats of anything any more on the situation. With Schein what was worrying Schein and was worrying us was really the MD, but it's nothing else that worries us with Schein.

They have a very, very physiological inventory of iPluses that are selling, and so -- there is --. Basically, any distributor always will have a certain amount of inventory. They don't just buy one unit at a time. So they replace a quarterly order and then they filter those orders through the quarter and then they reorder.

Also, interesting enough with Schein, we have seven international territories that are doing very well, and so we will continue with Schein also internationally. Again, we have cleared the air. Schein has a worldwide distribution agreement now. Instead, we can pick and choose, we can do whatever we want, when to be with them and how. We can give them minimum quantities. We can do whatever we deem appropriate to do for our business, and there are certain international markets very well organized and performing well. So we are very pleased to deal with them in other markets, as we deal with other dealers or we are direct.

So, again, I want to make clear that there is no bad blood with Schein in any shape or form. And the fact is that there was a problem caused by past management, and also in part caused by the financial crisis and economic crisis 2008. And so the new management and Schein had to find some way to resolve this past issue, and I think that was resolved in an optimal way, I would say, for both parties. Because, like I say, now everything is normalized.

That's great. Okay, thank you very much.

Thank you.

Austin Hopper with AWH Capital.

I just had one question; it's in 72 parts. That's a joke. Going forward, if you could limit people to maybe five minutes worth of questions, this is -- we are an hour and half in the call now.

It sounds like you are no longer providing guidance for BIOLASE imaging for 2012. Last year you talked about it being anywhere from $10 million up to $25 million in revenue.

One, is it fair to say that the guidance is now below $10 million? And, why is it that you could give us $25 million worth of diamonds and now you can't give us any guidance? What happened there?

I frankly don't recall $25 million, but I'm a human being so I might have a lack of memory; I don't know. But I don't recall $25 million.

What I'm saying is that I like to be cautious in guidance, given the fact that unfortunately there has been a clear underperformance on our part in predicting the future. And so, there is an economic recession; there is difficulties in getting credits. And those two elements are elements that play a role.

You know, we are essentially a capital-equipment company, and capital-equipment softwares when the economic environment is tough and when credit is tough to get. Only 10% of the sales, for instance in the laser field, are done by cash. Usually they give us a credit card, and 90% is done through leases.

So, for the low end in digital imaging for the low-priced items, I believe is going to happen the same thing, mostly credit cards or leases over a certain level of purchases. But for the large systems, they are most likely going to be close to 100% leases.

So, I just want to be cautious, and that's it.

Wyatt Carr with Kroll Reagan.

Thank you, and Fred and Federico, thank you very much for taking my question; I will make it very quick.

Number one -- and I have two -- number one, you said that the name was cleared for BIOLASE's DaVinci. Does that mean that it has passed FDA approval, or is there still something to on as far as approval process layer?

No, it's simply the trademark. (multiple speakers). The FDA has nothing to do with that. It's a trademark issue.

Okay. Is there any approval process that has to be done on the DaVinci?

No, that is taken care from the manufacturer. And then it has to be cleared under our name, but it is more a formality than anything else.

Okay, so you will be in full position to sell.

And then secondly, Fred, can you give me some guidance? In the receivables, you had about close to $8.9 million. Was it some portion of that from Schein, that will be used to pay for the repurchase of the Waterlase?

Yes, there is a portion of that -- well, a portion -- okay, I'm going to break it -- step back a bit. They are going to pay a portion of -- or we are going to pay a portion by then canceling that or forgiving that, that AR to us.

A portion of that AR relates to, perhaps, purchases in Q4, and then a portion relates to some purchases in Q1.

Okay. And, can you give me an approximate -- you know, if you act this out, what the DSOs would be?

No, we haven't -- we are not specifying on what that balance is. It's not something we are permitted to do, through the terms of the agreement.

Okay. And that's it; thank you very much.

George Santana.

Thanks for spending so much time with us, guys. Just really quick -- on the sales side, are we expecting any new sales initiatives now that Bill is in place and in charge? And also, your sales and marketing looks like it ticked up rather considerably in the fourth quarter. Should we use the fourth quarter as a base going forward, or were there special items in that number?

Well, first, George, you are thanking us; we are thanking you, all of you, for the interest that you have towards BIOLASE.

I'm going to have Fred answer that question. It is more of a technical question.

Well, in general you are on the right track, George, but there are some things in Q4 that probably won't be repeated in the near term. There were some additional expenses related to the compensation package for the sales people, and as we go through 2012 and reconstitute the commission plan, we will see that more on a -- smoothed out into a quarterly basis, and not so much towards the end of the year.

Oh, and we also -- we also had a few severance payments made in Q4 that would have gone through sales and marketing.

That was part of the reshuffling of the sales and marketing department.

Thank you. I'm showing no further questions in the queue at this time. I'd like to turn the conference back to management for closing remarks.

Well, thank you, and -- (multiple speakers) -- hello? I want to thank very much all of you for attending our Q4 and year-end conference call. Again, thank you for the interest in BIOLASE and thank you for the interest in laser dental technology that is really the future of dentistry. Dentistry affects the life of every person, and the goal of BIOLASE is to make dentistry and medicine become high-tech, and to improve the quality of how surgery is performed on the human body.

So it's a great goal that we have, and thank you for your interest in this endeavor of ours, with your help and interest.

With that, we will talk again for the Q1 call. Thank you very much.

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