BIOLASE, Inc. (NASDAQ:BIOL) Q1 2023 Earnings Call Transcript May 11, 2023

BIOLASE, Inc. beats earnings expectations. Reported EPS is $-0.18, expectations were $-0.2.

Operator: Good day, and welcome to the BIOLASE First quarter 2023 Financial Results Conference Call. Please note this call is being recorded. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. [Operator Instructions] I would now like to turn the conference over to Todd Kehrli of EVC Group. You may begin.

Todd Kehrli: Thank you, operator. Good afternoon, everyone, and thank you for joining us today to discuss BIOLASE’s financial results for it’s first quarter ended March 31, 2023. On the call today from BIOLASE are John Beaver, President and Chief Executive Officer; and Jennifer Bright, Chief Financial Officer. John will review the company’s operating performance for the first quarter, and then turn the call over to Jennifer to review the financials in more detail before opening the call for questions. Before we begin, I’d like to remind everyone that a number of forward-looking statements, which are any statements that are not historical facts will be made during this presentation and subsequent Q&A session, including forward-looking statements regarding the company’s strategic initiatives and anticipated financial performance.

These statements are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 and are based on BIOLASE’s current expectations and assumptions and are subject to a variety of risks and uncertainties that could cause the company’s actual results to differ materially from the statements made. Such forward-looking statements only represent the company’s view as of today, May 11, 2023. These risks are discussed in the company’s files with the Securities and Exchange Commission. A replay of this conference call will be available on the BIOLASE website shortly after the completion of today’s call. When listening to this call, please refer to the news release issued earlier today announcing the company’s 2023 first quarter financial results.

If you do not have a copy of the news release that is available in the Investor section of the BIOLASE website at www.biolase.com. BIOLASE’s financial results can also be found in the company’s report on Form 10-Q, which will be filed with the SEC. The tables we’ve provided in today’s news release offer additional financial information, so we encourage you to review them. The tables include a reconciliation of unaudited GAAP net loss and net loss per share to non-GAAP adjusted EBITDA loss and adjusted EBITDA loss per share as well as more information regarding the company’s non-GAAP disclosures. With that said, I’ll now turn the call over to BIOLASE’s President and Chief Executive Officer, John Beaver. John?

John Beaver: Thanks, Todd, and thank you, everyone, for joining us this afternoon. We appreciate your continued interest and support in BIOLASE. Coming off the year in, which we excelled and achieved significant year-over-year growth, our in-line first quarter results demonstrate our continued business momentum even in this tough environment. We believe the continued efforts and investments that we are making are and will continue to pay off in the coming quarters as is evidenced by the rise in demand and increasing number of dentists that are attending and benefiting from our novel training and education programs. The level of enthusiasm can be felt throughout the organization, which is a byproduct of success we are seeing from our go-to-market initiatives.

The positive response from the dental community is leading to increased sales of our industry-leading lasers. Despite the challenging economy and the capital equipment headwinds many companies are experiencing, we continued our growth momentum with total revenue increasing 3% year-over-year. This represents our ninth consecutive quarter of year-over-year growth. During the quarter, we experienced a return of international revenue growth with our international laser sales increasing 22% year-over-year. The first time this has occurred since pandemic. We also reported record consumable sales during the quarter, with US consumable sales up 19% year-over-year, driven by increased procedures using our BIOLASE laser systems. Moreover, in addition to new dentists coming on board, we also experienced a historic shift in increased utilization among our existing dentists as they migrate more procedures to our lasers.

This record quarter in consumable sales further demonstrates the impact more frequent higher quality training and presale training programs, such as our Waterlase Exclusive Trial Program or WTP, can have on our consumable business. During the quarter, we continue to see success with our WTP as a percentage of dentists purchasing after the trial grew to over 60%, representing a 20% year-over-year increase. This program, along with the rollout of our Waterlase Academy and Epic Academies, generated increased adoption of our laser technology in the US in the first quarter with 58% of our sales coming from new customers and 33% of sales coming from Dental specialists. We are demonstrating growth across all of our key performance metrics. So our strategy of investing now to accelerate adoption and utilization is growing our top line.

And we believe the rate of recurring revenue and higher margins will translate to the bottom line as well which is why we continue to expect full year revenue growth of at least 25% and to achieve profitability on an adjusted EBITDA basis. Rising demand for our industry-leading dental lasers is being driven by our intensified focus on education and training and the benefits our lasers provide to dentists and their patients. Over the past few years, our goal has been to raise awareness of our dental lasers to the overwhelmingly large part of the market not currently using lasers, not because they said no, but because they’re just not familiar with their best-in-class dental lasers. With several peer-reviewed papers and studies and our focused go-to-market efforts, dental practitioners are now coming to buy lasers they look to upgrade the dental practices and improve patient outcomes.

I believe this represents a real inflection point and will drive our growth for many years to come. BIOLASE currently has approximately 60% share of the worldwide all-tissue dental laser market represented by our Waterlase brand. We are the go-to brand that represents quality, reliability and after sales service, training and education. However, with less than 10% of dentists in the US and less than 2% of dentists outside the US currently using dental lasers, we need to do a better job to reach the rest of the dentist, and I believe our results demonstrate that we are moving the needle. We plan to leverage our brand and grow the overall market by engaging with the other 90% of dentists while ensuring we continue to protect our position as a market leader.

To reach this large and addressable market opportunity, we are focused on building awareness of our industry-leading lasers benefits to dentists and their patients through increased education and training. During 2022, we held over 600 educational and training events in the US alone. And because of these increased efforts, dental practitioners are now proactively approaching BIOLASE as they look to upgrade their dental practices and improve their patient outcomes. In the first quarter, we held over 150 educational and training events, an increase of over 25% from the first quarter of 2022. As a result of these initiatives, we are generating increased marketing qualified leads and the sales team is hard at work to convert these to sales. Since 2018, the number of Marketing Qualified Leads or MQLs increased by 400% to over 4,000 in the US in 2022 and the bulk of which has been more recent due to our increased efforts.

During the first quarter of 2023, the number of MQLs continued to increase, approaching a 50% increase from the year ago period. Many of you have heard me say this before, but it bears repeating because of this significant potential impact on our revenue. We believe each 1% increase in adoption of all tissue laser technology in the US, we call approximately $50 million in additional revenue for BIOLASE, assuming we keep our same 60% historical market share. This doesn’t include potential increased adoption outside the US, where historically, approximately 40% of our revenue has been generated or the consumable revenue generated from the procedures done with our laser systems. We have a well-established three-pronged strategy to increase market adoption of our lasers.

The first is to get more down specialists to use our lasers. In 2021, BIOLASE formed specialist academies to expand awareness of the benefits of dental lasers in dental specialist communities. Specifically, we launched specialist academies for periodontist, endodontists, pediatric dentists and dental hygienists to drive further adoption of our lasers and superior patient outcomes. In 2023, we combined all of these specialist academies into two academies, one for each of our product families, the Waterlase Academy and the Epic Academy. We believe this will not only further improve and simplify training for the specialists, but also give the general practitioner, who’s interested in adding more specialty procedures to the practice, an avenue to pursue further training.

Combined, these dental specialist markets represents hundreds of millions of dollars of potential laser systems revenue each year, not including the potential for recurring revenue from the sale of our consumables. Our focus on increasing education and training for these dental specialists is translated into higher demand for our products. They look for safer, more advanced alternatives to improve patient outcomes in their practices. The second of these is focused on the significant opportunity we have with over 150,000 general practitioner dentists in the US alone. We believe that initial 5% of US GPs adapter lasers that would generate $225 million in laser revenue not included in the follow-on consumables. Our Waterlase laser has over 80 FDA-cleared indications or procedures that dentists can perform using our laser.

Doing just two additional procedures a week, which generate a 200% return on investment in our laser. The more training and education we do through Waterlase exclusive trial program, the more success we believe we’ll have in driving laser adoption. As I mentioned earlier, we saw our Waterlase exclusive trial program success rate increased over 20% year-over-year to over 60%, so far this year. Our goal in 2023 is to host approximately 35 of these programs. It’s a win-win for GPs, because a big part of the Waterlase exclusive trial program is teaching these GPs, additional procedures they can do in-house with our laser so they can keep more procedures and revenue in-house. That, along with better patient experiences, motivating dentists incorporate Waterlase laser technology into the practice.

The more training and education we do through Waterlase exclusive trial program or other events, the more success we will have in driving laser adoption. Speaking of increased education, last month, we opened our new training facility and plan to open our first ever model dental office named Laser Smiles in the third quarter. These new spaces are conveniently located in next to our corporate headquarters and will expand our ability to drive revenue and laser adoption by training practitioners in a hands-on dental environment. This is a novel opportunity to educate, train, produce marketing materials, create content, perform studies and test new equipment. Finally, the third prong of our growth strategy is getting corporate dentists universities to adopt our lasers.

We continue to develop stronger relationships with key dental schools across the country, and we have lasers in about one-third of the dental schools right now. We’ve integrated our Waterlase lasers into several postgraduate programs and plan to expand into more programs over the next few years. We believe there is a large appetite among dental residents to utilize state-of-the-art technology in treating patients and the introduction and reinforcement of technology during training are key to the adoption of laser dentistry with this new generation of dentists. Also today, most new dentists are employed by corporate dentists or DSO right out of dental school. We have ongoing trials with four of the five largest DSOs in the US. Our goal is for these new dentists to begin using our lasers while employed to the DSO and for them to make our lasers a central part of their practices moving forward, becoming new dental laser and consumable customers when they go out on their own.

We continue to make solid inroads with the DSOs and believe that DSOs can lead to even a far greater revenue for BIOLASE in the coming years. In summary, we have a very large opportunity and our well-developed plan to capture this growth is generating the desired positive results. We are the industry leader. I believe the increased education training programs will enable us to succeed well into the future as the level of inbound interest is rising. Furthermore, the success of the Waterlase exclusive trial program gives us continued confidence that we can achieve our revenue and profitability objectives for 2023. With that, I’ll turn the call over to Jennifer to provide further details regarding our first quarter results.

Jennifer Bright: Thank you, John, and good afternoon, everyone. I’m going to provide more context around some of the numbers as well as highlight some of the operational improvements we achieved during the first quarter. For further detail, please refer to our financial results, which you can find in the financial tables of our earnings release and our 10-Q. Our first quarter performance reflects continued demand for industry-leading dental lasers and consumables because of our increased education and training. For the first quarter, we delivered net revenue of $10.5 million, representing 3% growth year-over-year. And as John mentioned earlier, this is our ninth consecutive quarter of year-over-year growth. Some additional first quarter highlights include record consumable sales with US consumable sales increasing 19% year-over-year, driven by increased procedures using BIOLASE laser.

International laser system sales increased 22% year-over-year. We continued momentum with new customer adoption in the first quarter with 58% of our US.Waterlase sales coming from new customers and approximately 33% of Waterlase sales coming from dental specialists. Lastly, the sales conversion rate of our Waterlase exclusive trial program continued to rise this quarter with our success rate increasing more than 20% year-over-year, highlighting the success of this program. These are all positive indicators of the increased demand we are experiencing for our industry-leading dental lasers and our consumables. First quarter gross margin was 32% compared to 49% a year ago. The decrease in gross margin is primarily due to the impact of supply chain issues we encountered, requiring us to change to new suppliers and the effect of a higher percentage of revenue generated outside the US, where we sell through distributors, resulting in margins that are lower than our US business.

At the end we completed an acquisition of a TRUNK FIBER supplier that will allow us to supplement third-party key components with our own in-house manufactured components. We expect this will reduce our backlog for these materials as well as reduce our overall cost of goods and improve cash flows when production is operating at full capacity, which we believe will be — will occur this quarter. On the expense line, total operating expenses were $8.6 million for the quarter, down from $8.9 million in the year ago quarter. This decrease was mainly due to less spending required on legal and consulting fees for our annual shareholder meeting compared to the year ago quarter. GAAP net loss for the quarter was $5.8 million compared to a net loss of $4.8 million for the first quarter of 2022.

Our adjusted EBITDA loss for the first quarter was $4.4 million compared to an adjusted EBITDA loss of $3.9 million for the first quarter of 2022. Now, turning to the balance sheet. We finished the quarter with cash and cash equivalents of approximately $6.5 million. And looking ahead, as we drive towards profitability, we are projecting price increases to contribute to our topline growth, while we expect to have lower cost of goods due to the trunk fiber acquisition completed in 2022. We are on schedule to have our in-house trunk fiber make up approximately 50% of the fiber we will ship beginning in the second quarter of 2023. We expect these cost savings will drive increased gross margins, getting us close to the 50% needed to reach profitability.

We will also be able to drive lower WETP expenses this year with the opening of our own centralized training facility. We now have four dentists on staff to train prospective customers, and we are also working to partner with educational facilities around the country to host WETP events at their location at little to no cost. As John mentioned, we expect to host about 35 WETPs this year, so the expense savings will be quite meaningful. With higher gross margins, the expected WETP savings and continued revenue growth, we believe we will significantly improve our profitability and achieve positive adjusted EBITDA for the full year. Now, moving on to guidance. We are reiterating our guidance for strong revenue growth of at least 25% year-over-year for the full year 2023.

And as I just mentioned, we also expect to achieve positive adjusted EBITDA for the full year. For the second quarter ending June 30, 2023, we also expect revenue to grow at least 25% year-over-year. With that, I’ll turn the call back to the operator to open the call for questions. Operator?

Q&A Session

Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question today is from Bruce Jackson with The Benchmark Company. Bruce, your line is live, please go ahead.

Operator: Thank you. Your next question is coming from Anthony Vendetti from Maxim Group. Anthony your line is live. Please go ahead.

Operator: Thank you. And as a reminder, the floor remains open for questions. [Operator Instructions] And the next question today is coming from Ed Woo from Ascendiant Capital. Ed, your line is live. Please go ahead.

Operator: Thank you. We have reached the end of the question-and-answer session. And I will now turn the call over to John Beaver for closing remarks.

John Beaver: Thank you. I want to thank everyone for being on today’s call. I also want to thank the BIOLASE team for their continued commitment and dedication. Each of them has worked tirelessly to make our customers successful in delivering an elevated standard of care and safety through laser dentistry. Jennifer and I look forward to reviewing our second quarter results with you in August. And in the meantime, we will be participating in the Benchmark Virtual Healthcare Conference on May 23. If you are participating in this event, please contact Todd Curley at tcurley@evcgroup.com to help facilitate a meeting with us. Thank you, operator, and thank you, everyone, for your interest in BIOLASE. This concludes our call. Have a great day.

Operator: Thank you. This does conclude today’s conference, and you may disconnect your lines at this time. Thank you for your participation.