Q2 2023 BIOLASE Inc Earnings Call
Participants
Jennifer Bright; CFO; BIOLASE, Inc.
John R. Beaver; President, CEO & Director; BIOLASE, Inc.
Bruce David Jackson; Senior Equity Analyst; The Benchmark Company, LLC, Research Division
Edward Moon Woo; Director of Research and Senior Research Analyst of Internet & Digital Media; Ascendiant Capital Markets LLC, Research Division
Todd Kehrli; IR Specialist; EVC Group Inc.
Presentation
Operator
Good day, and welcome to the BIOLASE Second Quarter 2023 Financial Results Conference Call. Please note, this call is being recorded.
(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 its second quarter ended June 30, 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 second 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 statements that are not historical facts, will be made during the 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 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 are only representative of the company's view as of today, August 10, 2023. 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 the company's 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 2nd quarter financial results. If you do not have a copy of the news release, it is available in the Investors 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 provided in today's news release offer additional financial information, so we encourage you to review them. The tables include the 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 R. Beaver
Good afternoon, everyone. Thank you for joining us today to discuss our second quarter earnings results. We reported another strong quarter, and we are excited to share the significant highlights, so let's get right into it. Our revenue for the quarter was $14.3 million. This represents the highest quarterly revenue we've achieved since the fourth quarter of 2015. It's also worth mentioning that the quarter's laser revenue was the highest we reported since 2012, taking into account the imaging products that we no longer sell. These are important achievements because I believe they clearly demonstrate that tipping point is here for dental lasers to become the gold standard of care in dentistry.
Furthermore, we are proud to report another consumable revenue record with $4.1 million generated during the quarter. This figure is 36% better than our previous record of $3 million in the last quarter and is up year-over-year, demonstrating the growing demand for our consumable products. Our Waterlase Trial Program, or WTP, is also contributing to experience success, with our year-to-date conversion success rate reaching 56%. This is a 10% improvement compared to our success rate for all of 2022, which we believe showcases the effectiveness of our trial program and its positive impact on customer adoption. We hosted 7 WTPs during the second quarter, and we are on track to host about 24 for the full year 2023 due to the high level of interest.
Another key driver of our increased success is our focus on education and training. We are witnessing rising interest from dentists in our novel training education programs, which is translating into higher WTP attendance and engagement rates. The positive response from the dental community has led to increased sales of our state-of-the-art lasers. As we continue to penetrate the market, new customers accounted for about 69% of U.S. Waterlase sales in the second quarter. Additionally, almost 1/3 of Waterlase sales in the U.S. were to dental specialists, highlighting the appeal of our products to this product segment. Our efforts to educate and train the dental community have been instrumental in raising awareness of our dental lasers within the market. Through peer-reviewed studies and targeted go-to-market efforts, more dental practitioners are recognizing the benefits of upgrading their practices with our best-in-class dental lasers.
Currently, we command approximately 60% of the worldwide all tissue dental laser market with our Waterlase brand. While we have established ourselves as a go-to brand for quality and reliability after self-service and training, we estimate over 90% of dentists are still not using an all-tissue laser in the practice, representing a significant market opportunity for BIOLASE. We are actively pursuing a 3-pronged strategy to engage dentists who have not yet incorporated dental lasers into the practice.
First, we have significantly increased our efforts to engage dental specialists such as periodontists, pediatric dentists, endodontists and dental hygienist by launching academies for each of our product families, Waterlase and EPIC, we have simplified training for these specialists. Second, we are actually engaging the over 150,000 general practitioner dentists in the U.S. by increasing education training through initiatives like the Waterlase Trial Program and our recently opened state-of-the-art training facility, the BIOLASE Education Center, which provides dental clinicians with a comfortable, engaging learning environment tailored around laser education. The BIOLASE Education Center is also designed to host a variety of events and courses, including our WTPs. The BIOLASE Education Center is also located adjacent to our state-of-the-art dental office, LaserSmile, which provides access to live patient education.
Through these initiatives, we are driving laser adoption and providing dentists with safer and more advanced alternatives to improve patient outcomes. As we look into the future, our focus remains on fostering strong partnerships with corporate dentists and universities. The adoption of our Waterlase and EPIC lasers have gained substantial momentum in various dental schools and postgraduate programs across the country, allowing the aspiring dentists to embrace laser dentistry early in the careers and equip them with the central skills from residency to retirement. Additionally, the interest and enthusiasm for laser adoption within dental service organizations, or DSOs, have seen remarkable growth. In the past quarter alone, we conducted over 30 dedicated training events for our DSO partners aid in the adoption of purchased Waterlase and EPIC laser brands.
We envision the integration to continue expanding within their networks in the near future, further elevating the standard of care and propelling the advancement of laser dentistry in the industry. In summary, we are pleased with our strong second quarter performance and are confident in our ability to capture the substantial growth opportunities ahead. We are successfully executing our growth plan as evidenced by our 10 consecutive quarters of revenue growth. But the vast majority of our substantial market opportunity is still in front of us. Increased education and training the continued success of the Waterlase Trial Program will propel us toward achieving our revenue and profitability objectives.
At this point, I will turn the call over to Jennifer Bright, our Chief Financial Officer, to provide more in-depth insights into our financial results for the quarter and talk about our guidance for the remainder of the year. Thank you again for your participation. We look forward to addressing your questions. Jennifer?
Jennifer Bright
Thank you, John. 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 second quarter. For further details, please refer to our financial results, which you can find in the financial tables of our earnings release and our 10-Q.
Our second quarter performance reflects continued demand for our industry-leading dental lasers and consumables because of our increased education and training. For the second quarter, we delivered net revenue of $14.3 million, representing 17% growth year-over-year. This is our 10th consecutive quarter of year-over-year growth. Some additional second quarter highlights include: record consumable sales increasing 36% year-over-year, driven by increased procedures using BIOLASE lasers. We continued momentum with new customer adoption in the second quarter with 69% of our U.S. Waterlase sales coming from new customers and approximately 1/3 of Waterlase sales coming from dental specialists. Lastly, the sales conversion rate of our Waterlase Trial Program continued to rise this quarter with our year-to-date success rate increasing more than 10% compared to the full year 2022 to approximately 56%, highlighting the success of the program. These are all positive indicators of the increased demand we are experiencing for our industry-leading dental lasers and consumables.
During the second quarter, our gross margin was 43% compared to 42% in the year ago quarter. This represents improvement from changing to new suppliers, which has resulted in lower warranty expenses. At the end of 2022, we completed an acquisition of a trunk fiber supplier that has allowed us to supplement third-party key components with our own in-house manufactured components. This has helped us reduce overall cost of goods for those key components. On the expense line, total operating expenses were $10 million for the quarter, down from $10.2 million in the year ago quarter. This decrease was mainly due to less spending on legal and consulting services for our recent annual shareholder meeting and a decrease in stock-based compensation expense for missing this year's financial performance targets. These decreases were partially offset by higher depreciation expense on equipment used in sales and marketing for demonstrations, training and educational purposes, of which $800,000 was nonrecurring in the current year. GAAP net loss for the quarter was $4.9 million compared to a net loss of $5.6 million for the second quarter of 2022. GAAP net loss per share for the quarter was $8.93 compared to $91.98 for the second quarter of 2022, as adjusted for the reverse stock split. Our adjusted EBITDA loss for the second quarter was $2.3 million compared to an adjusted EBITDA loss of $4.1 million for the second quarter of 2022. Adjusted EBITDA loss per share for the quarter was $4.24 compared to $66.87 for the second quarter of 2022, as adjusted for the reverse stock split.
These positive trends indicate our continued progress toward achieving profitability. Now turning to the balance sheet. We finished the quarter with cash and cash equivalents of approximately $6.9 million. And looking ahead, as we drive toward profitability, we are projecting price increases to contribute to our top-line growth, while we expect to have lower cost of goods sold due to the trunk fiber acquisition completed in 2022 and lower WTP expenses. Our in-house trunk fiber made up approximately 45% of the fiber we shipped in the first half of 2023, well ahead of our own internal projections. This cost savings is driving increased gross margins, and we expect we will get as close to this 50% needed to reach profitability.
We expect to drive lower WTP expenses this year by using our own centralized training facility, the BIOLASE Education Center, which celebrated its grand opening at the end of July. We now have 4 dentists on staff to train prospective customers. We also continue to work with educational facilities around the country to host WTP events at their locations at little to no cost. As John mentioned, we expect to host about 24 WTPs this year, so the expense savings will be quite meaningful. Additionally, during the second quarter, we implemented cost-saving initiatives that we expect to generate approximately $5 million to $6 million of annualized cost savings, starting in the third quarter. The cost saving initiatives included a roughly 20% reduction in BIOLASE's U.S. workforce. The workforce reduction is part of the company's broader efforts to gain greater efficiencies throughout the organization without impacting our revenue-generating strategies or the company's ability to continue delivering unparalleled quality and value to our global customer base.
We now expect revenue for the second half of the year to be 15% to 20% higher than the comparable period a year ago, with higher gross margin, expected WTP savings, the cost savings initiatives I just mentioned, and the continued revenue growth we expect. We believe we will significantly improve our profitability and achieve positive adjusted EBITDA for the second half of the year. With that, I'll turn the call back to the operator to open the call for questions. Operator?
Question and Answer Session
Operator
(Operator Instructions) We do have our first question that comes from Bruce Jackson with Benchmark Company.
Bruce David Jackson
I wanted to start off with a macro question about just the general credit conditions among your customers. Has that had any impact on sales or on the types of products that they're looking at?
John R. Beaver
Yes, Bruce, thank you for your question. We believe it has. While we experienced tremendous revenue growth in the second quarter, and I mentioned some of the benchmarks against prior quarters and the fact that this is our best quarter from a revenue standpoint in many years, it could have been even better without the macroeconomic conditions that we're facing. I think it did hurt sales with the higher interest rates. I will tell you that as I look back to where we were a year ago or 6 months ago, I probably underestimated the impact it had on the -- not necessarily on the sales versus -- yes or no, whether or not I want to buy laser, but the time it takes to complete a sale. So I think our -- the timing and the pipeline has become longer. I don't think we've lost any of those sales. I think doctors are just taking a little bit more time than they normally would have under a different interest rate scenario.
Bruce David Jackson
Okay. And then offsetting that, we've heard about increases in physician office traffic. Is that also true in dentist offices? Or are they still having any kind of staffing issues that might mitigate that?
John R. Beaver
I believe they still have, from what I hear, staffing issues, but it's -- I think it's been tempered somewhat. I think it's better than it was certainly a year ago in terms of the staffing issues. From all the numbers I've seen in a -- from an industry standpoint, the patient foot traffic is about the same as it was last year. So I don't think that's changed that much.
Bruce David Jackson
Okay. And then one last question on the revenue guide in terms of how that plays out quarter by quarter. Sometimes, you can have very strong fourth quarter results, depending upon the purchase patterns. Would you -- is that the pattern that you might see this year? Or will the third and fourth quarters be fairly evenly matched?
John R. Beaver
We believe the third and fourth quarter will continue the same seasonality patterns that they have historically. And so the fourth quarter should be our strongest quarter for the year and higher than the third quarter.
Operator
We'll now hear from Ed Woo with Ascendiant Capital.
Edward Moon Woo
Congratulations on opening your educational center. My question is your pricing strategy, how receptive has it been to raise prices? And do you see yourself being able to do that heading into the holidays your strongest quarter?
John R. Beaver
Yes. So Ed, thanks for the comment on the education center. Our pricing has increased for the first half of this year compared to the first half of last year. You may recall, a couple of quarters ago, we announced that we were implementing price increases and that would help our gross margins. I think you saw the impact of that in the second quarter. First quarter, we had a lot of, I would say, existing discussions going on with dentists carryover from the prior year. And so we held the pricing that we had previously quoted to those dentists. So it took about a quarter to actually get the price increases in.
As we look at the second half of the year, I don't see us having necessarily price increases for the second half of the year. It's more around pricing discipline for us and creating more value for our customers, thereby getting more revenue from each sale. For instance, we talked about the consumable record quarter that we had in Q2. A lot of that was driven by some higher -- some price increases on the consumables. There was also kind of the value we placed on education training, talking to those customers on an ongoing basis. And I think that led to a higher consumable sale as well. So to make a long story short, I don't believe that we're going to have any stated price increases in the second half of the year, though we're always looking at that. But I do believe we'll get more from each customer from a revenue standpoint as we balance -- as we finish the year.
Edward Moon Woo
Is that pricing strategy across all your products, consumables as well as your Waterlase device? Or do you guys have different strategies for pricing on those?
John R. Beaver
It is pretty consistent strategy. The only difference I would say is that we have not raised prices in the international market as high -- as quickly as we did in the U.S. market. And that was largely driven by some of the headwinds we have internationally that we're still seeing with the strong U.S. dollar. Obviously, that increases the local currency price of our products in those markets. And so because we sell in U.S. dollar, it just makes the equipment that much higher price to our distributors. So we've taken a more, I'd say, measured approach to price increases internationally than we have in the U.S.
Operator
(Operator Instructions)
John R. Beaver
Okay. Operator, there are no more questions?
Operator
That is correct. So now I'd like to turn it back over to the host for closing remarks.
John R. Beaver
I want to thank everyone for being on today's call. Also, I want to thank the great 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 through laser dentistry. If you'd like to learn more about BIOLASE, our technology, directly from patient and physician testimonials, please go to biolase.com to view our investor presentation updated to include an informative video and additional company details. Thank you, operator, and thank you, everyone, for their interest in BIOLASE. This concludes our call. Have a great day.
Operator
This does conclude today's conference, and you may disconnect your lines at this time. Thank you for your participation.
