Q1 2024 BIOLASE Inc Earnings Call

Participants

Michael Polyviou; IR; EVC Group LLC

John Beaver; President, Chief Executive Officer, Director; BIOLASE Inc

Jennifer Bright; Chief Financial Officer; BIOLASE Inc

Bruce Jackson; Analyst; The Benchmark Company LLC

Ed Woo; Analyst; Ascendiant Capital Markets LLC

Presentation

Operator

Good day and welcome to the BIOLASE's first quarter 2024 results conference call. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Mr. Michael Polyviou. Please go ahead, sir.

Michael Polyviou

Thank you, Chuck. Good afternoon, everyone, and thank you for joining us today to discuss BIOLASE's financial results for its first quarter ended March 31, 2024. On the call today BIOLASE's John Beaver, President & 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 forward-looking statements are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 and based on BIOLASE's current expectations and assumptions are subject to a variety of risks and uncertainties that could cause the company's actual results differ materially from the statements made. Such forward-looking statements only represent the company's view as of today, May 13, 2024.
These risks are discussed in the company's filings with the Securities and Exchange Commission. A replay of this conference call will be available on BIOLASE's website shortly after the completion of today's call. When listened to this call, please refer to the news release issued earlier today announcing the company's 2024 first quarter financial results. If you do not have a copy of the news release is available in the investor section of BIOLASES' 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 just a few minutes ago. The tables we've provided in today's news release offer additional information, additional financial information, so we encourage you to review them. Tables include the reconciliation of unaudited GAAP, net loss, 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, I'll turn the call over to John Beaver, BIOLASE's President and Chief Executive Officer. John, please go ahead.

John Beaver

Thanks, Michael, and thank you, everyone, for joining us this afternoon. we appreciate your continued interest in BIOLASE. I want to start by restating our primary objective, which is to ensure our industry-leading dental lasers continue to attract heightened interest and demand. Everything we do at BIOLASE is to help accelerate the adoption curve of lasers, which we believe will become the gold standard dental care. I'm pleased to share the progress we made over the past quarter.
Increase adoption of our industry-leading laser technology with approximately 67% of our US quarterly sales during the first quarter coming from new customers is a testament to the value and efficacy of our products. Furthermore, approximately 42% of the sales were from deals specialists, indicating a growing recognition among this important contingent as we assess our ability to penetrate the market further.
As we've decided on prior calls, there remains a significant untapped opportunity in the dental market for our BIOLASE lasers. With more than 90% of dentists yet to embrace all-tissue laser technology. As many of you already are aware, the dental community is among the slowest in terms of data and new technologies compared to other healthcare related technologies. So it does take time to make an impact and I believe our efforts are working. We are already the dominant brand in this space with approximately 60% market share globally under our Waterlife brand, and we continue to actively engage the remaining 90% of the market since this represents the majority of our growth opportunity.
Our targeted sales and marketing initiatives and enhanced training programs are expanding our reach among dental specialists and general practitioners as we emphasize the benefits of laser dental solutions to practitioners and patients alike. In the first quarter, we continued to increase awareness of the benefits of laser dentistry by holding over 100 webinars study clubs, tradeshows and training events.
Our strategy to grow market adoption of our lasers includes bolstering our unique education training programs, which we continued to implement in the first quarter through our Waterlase and Epic academies. We have simplified training on our products for dental specialists and dental hygienists in a articulated the significant return on investment that they can achieve with our lasers, not to mention in this significant patient benefits.
The state of the art violates education center also provides Delco technicians with an engaging hands-on learning environment tailored around laser education. We remain committed to all of these revenue generating activities as we believe these investments of time and resources will yield revenue opportunities in the future.
As a result of these efforts, we continue to generate a strong number of marketing qualified leads during the quarter and our focus on converting these MQLs to sales. It's important to repeat and what we said in the past, each 1% increase in adoption of all-tissue laser in the US will equal approximately $50 million additional revenue for BIOLASE, assuming we maintain our estimate 60% market share. This doesn't include potential increase adoption outside the US, where historically approximately 30% to 40% of our revenue has been generated or the consumable revenue generated from the procedures performed with our laser systems.
On that note, sales of our consumables experienced remarkable growth this quarter represented the third strongest quarter for consumable sales in our company's history. Remarkable as the first quarter of the year historically has been our seasonally slowest quarter. With a 14% increase year over year, driven largely by over 600 memberships with railroads and momentum we've gained in this area.
Additionally, our purposeful and prudent actions have significantly improved our operations where the most significant achievements during the quarter was a substantial reduction in our adjusted EBITDA loss. Our relentless focus on cost reduction initiatives enabled us to lower our adjusted EBITDA loss by 21% compared to the same quarter last year. This underscores our commitment to operational efficiency and financial discipline as we drive toward profitability, which we are on track to achieve by year end. These initiatives, coupled with our revenue expansion plans, position us for success in the quarters ahead.
In summary, I believe the accomplishments in the first quarter point to a brighter future. Our performance reflects our unwavering commitment to growth and profitability, as we move forward, we remain focused on delivering value to our customers, driving growth and maximizing shareholder value.
With that, I'll turn the call over to Jennifer, to provide further details regarding our first quarter results. Jen?

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 details please refer to our financial results, which are included in the financial table of our earnings release in our 10-Q.
The challenging economic environment, including elevated interest rates, continued to impact our sales in the first quarter, although we were able to increase laser dentistry awareness through our education and training initiatives. We continued our momentum with new customer adoption with 67% of our US quarterly sales coming from new customers and 42% of US Waterlase sales coming from dental specialists.
Additionally, as John mentioned, we reported the third highest consumable sales quarter in company history with consumable sales increasing 14% year over year, driven by the increased utilization of our laser system from our education and training pathways and the benefit of over 600 consumable memberships during the quarter. Either positive indicators of the increased demand we are experiencing for our industry-leading dental lasers in the US and abroad, setting the stage for accelerated growth as the economic environment can improve.
Our gross margin, although relatively flat compared to the year-ago quarter, improved by 1% of net revenue from lower warranty expenses, reflecting the benefit of in-house manufacturing for our trans fiber components, which was partially offset by severance expenses incurred in the first quarter of 2024, as cost reduction initiatives were implemented this year.
As a result of the trunk fiber acquisition at the end of 2022, our in-house trunk fiber now makes up 100% of the trunk fiber we will be shipping in 2024. We expect these cost savings to increase gross margin, improve cash flow and get us closer to the 50% margin needed to reach profitability. On the expense line, total operating expenses were $7.9 million for the quarter, down from $8.6 million in the year ago quarter.
This 9% decrease was mainly due to the cost savings initiatives we implemented during 2023, which included a roughly 20% reduction in BIOLASE's US workforce in June 2023. Workforce reduction is part of the company's broader efforts to gain greater efficiencies throughout the organization without impacting our revenue-generating strategy or the company's ability to continue delivering unparalleled quality and value to its global customer base.
We expect to generate approximately $5 million to $6 million of annualized cost savings due to these initiatives. We also expect to significantly lower WTP expenses for the full year 2024, by utilizing our centralized training and education facilities. We have two dentists on staff to train prospective customers, and we continue to work with educational facilities nationwide to host WTP events at their location, at little to no cost.
During the remainder of 2024, we expect to host about 50 to 100 practitioners at WTP events so the expense savings will be quite meaningful. While we cannot control the macro environment, we can control certain manufacturing costs and operating expenses. And these improvements in gross margin and operating expenses are positive indicators of our ongoing efforts to optimize operational efficiency and drive profitability. Our continued efforts to drive further operating improvements and efficiencies also reduced our first quarter adjusted EBITDA loss, by 21% to $3.5 million compared to $4.4 million in the prior year first quarter.
Now let's turn to the balance sheet. We finished the first quarter with cash and cash equivalents of $6.4 million, and we believe we have sufficient liquidity to execute our near-term growth strategy and reach positive adjusted EBITDA for the full year 2024. We believe we can achieve this goal through the combination of top-line growth due to protected sales volume increases and certain price increases. Expected lower cost of goods due to the trans fiber acquisition and the positive impact of our cost reduction initiatives.
Now moving on to guidance. We are reiterating our full year 2024 guidance, which includes expected revenue growth of between 6% and 8% year over year to between $52 million and $53 million in full year revenue. This reflects the continued adoption of lasers and consumable by the dental community, including general dentists, dental specialists, dental hygienists and group practice entities, DSOs, offset by challenging business environment.
Additionally, as I mentioned earlier, with a higher gross margin, expected WTP savings and the cost savings initiatives by referenced, we continue to expect to achieve positive adjusted EBITDA for the full year 2024. So in summary, we believe our growth strategy, combined with our focus on improved operational efficiency, has positioned BIOLASE for long-term sustained success.
With that, I'd like to turn the call to the operator, to open the call with questions.

Question and Answer Session

Operator

(Operator Instructions)
Bruce Jackson, The Benchmark Company.

Bruce Jackson

Hi. Good afternoon and thanks for taking my questions. So with regard to the seasonality in business, How you expecting revenue to be up sequentially in the second quarter.

John Beaver

Yes, we are Bruce historically, if you rank our quarters by best revenue to lowest revenue, the Q4, Q2, Q3 and Q1, and I don't see any reason that this year would not follow that same seasonality.

Bruce Jackson

Okay. And then we had the positive radiographic data come out from the McGuire study has that helped you at all with any of the dental service organizations.

John Beaver

You would think it would, Bruce. I think it has allowed us to continue conversations with those DSOs. But I think what we're finding is that just the presence of the study. It's not going to make any [buy] laser. The study, as you know, in -- you've seen the study show that the clinical efficacy was equivalent, if you will, to our traditional minimally invasive surgery surgical technique periodontal surgery.
But the benefits were really on the patient reported outcomes, less pain and so forth. I think as more and more dentists, including the DSOs, see patients' acceptance of the periodontal surgery with a laser, more and more will get onboard here because that's really from a financial standpoint, I think where the benefit is that patient case acceptance, nobody wants to have traditional perio surgery.
And certainly nobody will have it twice if they've gone through it once. I think as more patients become aware of is not bad and the is certainly a ton better from a pain standpoint than traditional surgery. I think the DSOs will get onboard, but it's been -- it's taken longer than what I thought, frankly.

Operator

Ed Woo, Ascendiant Capital.

Ed Woo

Congratulations on the quarter. My question is, have you noticed any significant change in the economic outlook from your dental customers, are they more concerned about the economy less concern or about the same as it was last quarter?

John Beaver

Yeah, I would put that needle somewhere between the same or less concerned. I don't hear is my many dentists talking about fear of losing patients, patient traffic going down. So I think it is in general, most centers are not think it's going to stay worse to stay the same or get better. value add. (multiple speakers) That's anecdotal just based upon our conversations with dentists.

Ed Woo

Have you noticed any significant changes in how long it takes for them to think about it and decide whether to move forward to a buyer in a Waterlase system or not.

John Beaver

I think if we go back maybe 4 to 5 quarters, that's where we started seeing the delay in decision making time, if you will, on purchasing a all-tissue laser less so on doubts because area much they sell for much less. But for the Waterlase, we saw a ramp up in that decision making time that's stayed pretty consistent over the course of 2023 hasn't really did not go out through the course of the year from kind of the tick-up they had in the first half of '23, and so far this year, I think, is remained pretty constant.

Ed Woo

Great. Well, thank you, for answering my questions, and I wish you guys good luck.
Thank you.

John Beaver

Thank you, Ed.

Operator

Bruce Jackson, The Benchmark Company.

Bruce Jackson

Great. Thank you. Just one more from me. Congratulations on the strong fiber being brought in-house, that's been on a big project. I know you've got the on the price increases coming up, you should be getting some scale on the business. Where do you think that the gross margins could end up for the year?

John Beaver

Yes. So Bruce, I believe that in the middle part of the year, say, second and third quarters, we'll be approaching kind of that mid 40s type of gross margin. And I think we can close here in the fourth quarter right at or very near 50%, which is really our long-term targets.

Bruce Jackson

Okay, great. That's it for me. Thank you.

John Beaver

Thank you, Bruce.

Operator

We have reached our allotted time for today. And this will end our question and answer session. I would like to turn the conference back over to Mr. John Beaver, for any closing remarks. Please go ahead, sir.

John Beaver

Thank you, operator. I want to thank everyone for being on today's call and the BIOLASE's team for their continued commitment and dedication. Each of them have worked tirelessly to help our customers deliver an elevated standard of care and safety through later demonstrate. Thank you, operator, and thank you, everyone, for your interest in BIOLASE. This concludes our call and have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.