Q4 2023 BIOLASE Inc Earnings Call
Participants
Todd Kehrli; IR; EVC Group
John Beaver; President & CEO; BIOLASE, Inc.
Jennifer Bright; Chief Financial Officer; BIOLASE Inc
Bruce Jackson; Analyst; The Benchmark Company, LLC
Nick Sherwood; Analyst; Maxim Group LLC
Ed Woo; Analyst; Ascendiant Capital Markets LLC
Presentation
Operator
Good afternoon and welcome to the BIOLASE Fourth Quarter and Full Year 2023 Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions to ask your questions. You may press star, then one on your telephone keypad. To withdraw your question, please press staar then two. Please note this event is being recorded. I would now like to turn the conference over to Todd Kehrli with EVC Group.
Please go ahead.
Todd Kehrli
Thank you, operator.
Good afternoon, everyone, and thank you for joining us today to discuss Biolase's financial results for its fourth quarter and full year ended December 31, 2023. On the call today from BIOLASE, John Beaver, President and CEO, and Jennifer Bright, Chief Financial Officer. John will review the Company's operating performance for the fourth quarter and full year and then we'll 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. We'll 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 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, March 21, 2024, and these risks are discussed in the Company's filings with the SEC. A replay of this call will be available on BioLase's website shortly after the completion of the call. When listening to this call, please refer to the news release issued earlier today announcing the company's 2023 fourth quarter and full year 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-K, 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 or 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 good afternoon, everyone. We appreciate your participation today as we review our fourth quarter and full year financial results and review our strategic objectives and our objective. Despite the ongoing headwind created by the current economic climate is to ensure our industry-leading dental lasers continue to attract heightened interest and demand modest revenue gain for the year and our significantly increased lead generation demonstrate that we are on track. Additionally, our focus on internal optimization will enable us to expand our gross margin going forward. And the cost reduction initiatives we have taken have positioned us to achieve our financial objectives in 2024. In 2023, we continued to create awareness of the benefits of laser dentistry as well as over 500 webinars study clubs, tradeshows and training events in the U.S. alone. These investments of time and resources today are expected to yield revenue opportunities tomorrow, for example, we were highly engaged with potential customers in 2023, increasing the number of marketing qualified leads or MQL.s generated by five times over those generated in 2018 as we continued to improve our sales and marketing efforts to reach potential customers. However, the uncertainty in the macroeconomic landscape has extended our sales cycle somewhat. Various factors, including elevated interest rates and worldwide geopolitical crises are contributing to the prolonged decision-making process.
Having said that, I want to stress this isn't unique to BioLife. Other businesses in our sector are facing similar challenges as evidenced by recent industry trends. Nonetheless, we're steadfast in our commitment to sustaining revenue generating activities. Our focus remains on converting these MQL.s to cells while also continuing to raise awareness and interest in our claim lasers, ensuring we're well positioned to capitalize on the significant market opportunity in front of us. There remains significant untapped opportunity in the dental market with more than 90% of dentists yet to embrace all-tissue laser technology as a predominant brand in this space with approximately 60% market share globally under our world-leading brand, we continue to actively engage remaining 90% of the market. Our targeted sales and marketing efforts and enhanced training programs are expanding our reach among dental specialists and general practitioners as mid size. The benefit for Lasertel solutions to practitioners and patients alike. It's important to repeat what we said in the past, each 1% increase in adoption of our all-tissue laser technology. In U.S. alone, we have approximately $50 million in additional revenue for BIOLASE, assuming we maintain our says, estimated 60% market share. This doesn't include potential increased 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. Our strategy to grow market adoption of our lasers includes bolstering education training programs through our waterways and Epic academies. We have simplified training on our products for dental specialists and dental hygienists and make clear the significant return on investment. They can see with our lasers not to mention the benefits to their patients. We are also actively seeking to engage the over 150,000 general practitioner dentists in the US by increase in education and training through initiatives like our waterways trial program, our WTP. and our recently opened state of the art training facility, the Bally's education center, which provides dental clinicians with an engaging learning environment tailored around laser education. We hosted 22 WTT. events in 2023 with the sales conversion rate of about 45%. Our record consumable sales, which increased 20% for the full year are an encouraging indicator and highlight the growing utilization of our laser systems within our existing customer base. During 2023. We also introduced a recurring revenue subscription model for our consumables, which has already started to gain traction. And we believe we will that this will help accelerate our consumable revenue growth in the future. Furthermore, our strategic partnerships with corporate dentists and academic institutions are paving the way for future adoption of laser dentistry.
In summary, we believe our growth strategies will achieve the desired long-term operating results, and we remain optimistic about our ability to seize the substantial market opportunities ahead.
Our goal, notwithstanding the economic headwinds is to accelerate our revenue growth by continuing to improve operational efficiencies, greater adoption of our dental lasers through increased education and training and the continued execution of our revenue growth plan, coupled with the expansion of our gross margins and operating expenses would allow us to meet our revenue and profitability objectives for 2024, including being adjusted adjusted EBITDA positive for the full year now I hand over to Jennifer Bright, our CFO, to delve deeper into our financial performance and provide insights into guidance for the year.
Jennifer Bright
Thank you, John, and good afternoon, everyone. I'm going to provide more context around our full year results and highlight some of the operational improvements we achieved during the year. For further details, please refer to our financial results, which are included in the financial tables of our earnings release and our 10 K. As John mentioned during his prepared remarks, despite the challenging economic environment, we were still able to deliver modest revenue growth and increased laser dentistry awareness through our education and training initiatives. We delivered net revenue of $49.2 million for the full year compared to $48.5 million in 2022. While this is a modest increase, we reported record consumable sales, which increased 20% year over year due to our increased education and training and the introduction of recurring revenue subscriptions for our consumables. Additionally, the momentum with new customer adoption continued in 2023 with 71% of our U.S. Water late sales coming from new customers and 40% of our U.S. Water late sales coming from dental specialists. Also, as John mentioned, the success rate of our Waterlife trial program was 45% for the full year filing the continued success of this initiative. These are all 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 improves.
We reported a 34% gross margin for the year, which is a 100 basis point improvement over last year's gross margin as lower inventory reserve charges in 2023 were offset by higher warranty expenses, mainly related to supply chain issues that we encountered in 2022 that required us to source new truck fiber vendors as well as an increase in material costs and unfavorable absorption of fixed expenses, improved our overall cost structure at the end of 2022, we completed an acquisition of a trunk fiber supplier, which now allows us to replace third party key components with our own in-house manufactured components while we were working through the backlog of our third party components in 2023, we expect to significantly reduce our overall cost of goods in 2024 and improve cash flow now that our in-house production is operating at full capacity and producing higher quality from fiber components. Additionally, we recently implemented certain cost reduction initiatives that are expected to significantly reduce fixed overhead expenses while maintaining best-in-class manufacturing and operational performance.
On the expense line, total operating expenses were $34.7 million for the year compared to $41.2 million a year ago. This decrease was mainly due to the cost saving initiatives we implemented during 2023, which included a roughly 20% reduction in BioLase's U.S. 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 strategies where the company's ability to continue delivering unparalleled quality and value to our global customer base. We expect to generate approximately $5 million to $6 million of annualized cost savings due to these cost saving initiatives. Our continued efforts to drive further operating improvements and efficiencies also reduced our 2023 operating loss by 29% compared to 2022. While we cannot control the macro environment, we can control certain manufacturing costs and operating expenses. And these improvements in gross margin and operating loss are positive indicators of our ongoing efforts to optimize operational efficiency and drive profitability. Gaap net loss for the full year 2023 was $20.6 million compared to a net loss of $28.6 million for 2022. Our adjusted EBITDA loss for the full year 2023 was $12.8 million compared to $20.1 million for 2022.
Turning to the balance sheet, we finished the fourth quarter with cash and cash equivalents of $6.6 million, which we bolstered with gross proceeds of $7 million from an equity raise earlier this year. In February 2024. 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 top-line growth due to projected sales volume increases and certain price increases, combined with cost reduction initiatives and expected lower cost of goods due to the strong fiber acquisition I mentioned earlier as a result of this acquisition, our in-house drug fiber now makes up 100% of our trunk fiber. We are shipping in 2024 we expect these cost savings to drive increased gross margin, getting us closer to the 50% margin needed to reach profitability. We also expect to significantly lower WTP. expenses for the full year 2024 by using our own centralized training facility, the Bailey's Education Center, which opened at the end of July 2023, we have two tenants 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 2024, we expect to host about 50 to 100 practitioners at WTP events. So the expense savings will be quite meaningful.
And moving on to guidance, while we expect first quarter '24 in 2024 revenue to be relatively flat compared to the first quarter of 2023. Due to the ongoing economic climate, we are projecting full year 2024 revenue to be 6% to 8% higher compared to the full year 2023 revenue as our growth initiatives continue to progress and demonstrate success. Additionally, with a higher gross margin, expected WTP. savings and the cost savings initiatives I referenced earlier. We expect to achieve positive adjusted EBITDA for the full year 2024 in summary, we believe our growth strategy, combined with our focus on improved operational efficiency, is positioning Vyleesi for long-term sustained success.
And with that, I'll turn the call to the operator to open the call for question drills.
Question and Answer Session
Operator
We will now begin the question and answer session. To ask a question. You may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two. At this time, we will pause momentarily to assemble our roster. First question comes from Bruce Jackson with The Benchmark Company.
Please go ahead.
Bruce Jackson
Hi. Good afternoon and thank you for taking my questions. So if we could maybe talk about CRM. Some of the other sales initiatives that you've you've had, especially with the on the dental service organizations and on Testim, the McGuire study had any impact?
John Beaver
Yes. So very Thanks for those questions. I think the McGuire study has had an impact on not necessarily quantifiable in other words, I can tell you that we sold eight lasers because of the McGuire study results, but it's just a another piece of evidence that this technology is is very clinically effective and also as the McGuire study showed much better for the patients, right? And so the more that gets out the better off we'll be in terms of the DSOs, we continue to work with a number of DSOs at the income doctor because they came out with the top 10 outlook and we're working with five or six of them are lower some of the other midsized DSOs as well. So we continue to work down that, that line as well.
The other thing that you mentioned, which was the EO, maybe another revenue catalyst for us. We actually released a new product in February at the Chicago Midwinter Show that was the R plus premier Waterlase iPlus Premier. And you may recall that a couple of years ago with them a company came to us to oh eight and have a product for them at Pro that, um, that we developed that very quickly kind of a record for us.
And it really showed there was a market out there for this technology.
This wavelength, the 27 to 80 erbium chromium YSGG. wavelength to be used in specific specialties before this, the premium edition was introduced last month. If a doctor wanted to buy a laser or a waterline is yet to buy everything, right? I mean all the applications were included in it. What what the OEM business showed us was?
There was a mark out there for doctors that just wanted to do one or two things.
And so with that, we develop the Premier and it's really a modular type of concept where, let's say I made that I'm a dentist and I want to do soft tissue plus Indo only can and by water Laser plus per meter and only turn on the company with only turn on those two modules, if you will, pay a lower price point. But they're getting what they want immediately as they get more and more comfortable with the technology, what we foresee as they add more and more modules or for us as very easy to do is literally flipping the switch back at corporate to turn on those modules. So we think this is going to be a right time for this product and we think it's going to penetrate the market even more.
Bruce Jackson
Okay, great. And then one follow-up on the gross margins. If you could just kind of give us a rough idea of how you see that improving over the course of the year and it's the 50% like a long-term target? Or is it something that you would anticipate hitting by the end of this year?
John Beaver
Yes. So the 50% we do anticipate will hit in the fourth quarter with the help of the out of the seasonally strong fourth quarter revenue for the year.
I would expect our margins to be on average for the full year, around 45%. And we have a clear line of sight on how we get from the 34% to 45%, and it is really a couple of different buckets. One is the full year of some internal trunk fiber manufacturing improved and quality that we're seeing there. And so that'll be a significant chunk of that improvement. In addition, the revenue improvement that we're forecasting is going to bring in with fixed cost absorption of another point or two and then we do have price increases lined up on per ton for our consumables business that we've already implemented that we think will also bring another point or two.
Bruce Jackson
Okay, great. Thank you. That's it for me.
John Beaver
Thank you, Bruce.
Operator
The next question comes from Nick Sherwood with Maxim Group.
Please go ahead.
Nick Sherwood
Good evening. Thank you for taking my questions. What kind of trends have you been seeing quarter to quarter and the length of the sales cycle, the number of qualified leads you have and the conversion of those leads?
John Beaver
Yes. So the number of qualified leads we're getting has been pretty consistent up year over year and quarter over quarter. So we continue to see that growing. And I would expect that to continue growing into 2024. And then what we're seeing and we started seeing this kind of towards the end of last year, early part of this year, was it just taken longer for us to close those leads into sales. And that's where I think listening to other medical and dental companies of capital equipment companies, they're saying the same thing. People are the doctors are taking a little bit longer to decide because of higher interest rates, uncertainty around whether or not we were going to have a recession, which I think most of that talk is dead now, but also the from the European wars that are ongoing right now have an impact on our international business. So yes, I think the MQL.s will continue to increase. I would expect over time that the sales cycle will shorten, but deal, we're not really planning for that in 2024 the shortened sales cycle. We've we planned our business around things kind of being status quo on a macro standpoint. And that's the reason we're excited that even with that, we believe we can achieve EBITDA positive in '24.
Nick Sherwood
Awesome. Thank you for that detail. And then my next question is what percentage of dentists to adopt your lasers continue to use our lasers as opposed to reverting back to traditional tools? Like what does that retention rate that you're seeing?
John Beaver
Yes. So the most recent surveys we have have our new doctors who have yet to incorporate this technology in the last 6 months to 12 months on the use of lasers about it was about 90% of the doctors use it at least weekly with a large percentage of that using it daily. And that's what I see anecdotally and my travels are talking to doctors and so forth. I think that's further supported by the consumables, the that we have. We had a blowout year in consumables last year. And what that means is Dennis are not only buying the laser, but they're using it all the time and they have a 20% increase in consumables, given all the other conditions that we were facing was pretty remarkable. So I feel really good about doctors using the laser after that, but that's not been always the case with the laser industry in years past going back five, 10 years ago. But I think the investments that we made into education and training are really paying off too you have to ensure that the doctors are using the laser after the purchase.
Nick Sherwood
Understood. And then my final question is what sort of some major education programs and events do you have planned for this upcoming or this year?
John Beaver
So as Jenn mentioned, we have I think, over 500 plan, we have 10 regional slash national waterways trial programs that we have planned this year where at the large events every year be at Chicago Midwinter, which is completed. We have a big one for us is the California Dental Association coming up in May. We also have greater New York, a number of regional events as well for our own events. We have a couple of events internationally that we're excited about what's coming up in Prague in May and the other will be by October.
And those are great training events really drives international revenue for us.
And then we have our third annual connect to me event in Miami coming up in about a month as well, where we bring in pediatric dentists and others and really immerse them in learning how to diagnose how to perform for anatomies and also on how you treat the patient, how you would see post-operative care. And that has been successful the last couple of years. And I'm looking forward to this year as well.
Nick Sherwood
Well, sounds like you'll be busy with that. I thank you for answering all my questions, but I'll return to the queue.
John Beaver
Thank you.
Operator
Again, if you have a question, please press star then one.
The next question comes from Ed Woo with Ascendiant Capital.
Please go ahead.
Ed Woo
Yes, can you thanks for taking my question. Can you talk about the competitive environment? Has it changed at all in the past three months?
John Beaver
Not really Ed. Yes, you've heard me say before that our chief competition show wall about the Dennis. We're very comfortable when we get head to head against another laser company. Given that we are the preeminent laser diode laser company in the world, we don't lose a lot of head-to-head matchups with other companies. So I'm less concerned about that and more concerned about as convincing again is that their best investment this year is in a laser and not in new office furniture, an oral scanner or something of that nature.
Ed Woo
Great. And you mentioned the macro headwinds. Does that you know, how much of a impact would that have in your ability to raise prices?
John Beaver
I don't think it will have any. Our pricing has tend to be pretty I'm always get this backwards, but elastic, I think it is in other words, the price increases we've had really haven't been met with much pushback was somebody is commence a wall to a need to incorporate this technology into their practice that ready to go in other words, some $1,000 or $2,000 usually not going make a difference. No go no-go buying decision. So we don't expect to see much of that. And when we talk about the macro conditions. I think another thing that will help us in 2024 is you look at 2023 with rising interest rates, right? Nobody knew where the top for us. I think now most people believe that interest rates have once they may not come down significantly in the short term that they no longer are going up or certainly not going up to the extent they have the last 12 months to 18 months. So I think that's giving some clear visibility on the macro situation to doctors and hopefully will help the buying cycle as well.
Ed Woo
Great. And one last question. What percentage of your sales are financed versus paid in cash?
John Beaver
I'll answer that with it depends, and let me explain that. So all of our international sales that we make are paid in cash. In other words, we don't carry finance on any of that in the US side, we don't do refinancing either most of the Waterlase sales are financed by a doctor's Credit Union Bank or third-party medical equipment financing company, typically over seven, eight years. I mean, is this a long time for these lasers are robust at all as that long. So Berkeley finance companies are perfectly comfortable financing over that period of time.
On our diodes, the Epic brand tend to be more credit card purchases and they those obviously come in immediately and our consumables are mainly credit cards as well.
Ed Woo
Great. Well, thank you. And I wish you guys good luck.
Thank you.
John Beaver
Thank you, Ed.
Operator
This concludes our question and answer session. I would like to turn the conference back over to John Beaver for any closing remarks.
John Beaver
Thank you, and I did get one other question that was submitted that person was unable to attend the call. But the question was do we have additional capacity when the demand picks up even greater than it has already. And we do have additional manufacturing capacity at our plant in Corona, California. Right now, we want to run one shift. And so we can always add additional shifts, and we have excess capacity also with our important trunk fiber production. So yes, I look forward to that time that we're able to add a second ship post-split so I want to thank everyone for being on today's call.
I also want to thank the Barclays team for their continued commitment and dedication. Each of them has worked tirelessly to make our customers successful and delivering this elevated standard of care and safety through laser dentistry.
Thank you, operator, and thank you, everyone, for your interest in BioLife. 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.
