BIOLASE's CEO Discusses Q1 2013 Results - Earnings Call Transcript

May. 8.13 | About: Biolase, Inc. (BIOL)

BIOLASE, Inc. (NASDAQ:BIOL)

Q1 2013 Earnings Conference Call

May 7, 2013 16:30 ET

Executives

Sharon Weinstein - Investor Relations, Porter, LeVay & Rose

Federico Pignatelli - Chairman and Chief Executive Officer

Fred Furry - Chief Operating Officer and Chief Financial Officer

Analysts

Suraj Kalia – Northland Security

Joe Munda - Sidoti and Company

Greg Garner - Singular Research

Lenny Brecken - Brecken Capital

Robert Hoffman - Princeton Opportunity Partners

Chris Sassouni - Eagle Asset Management

Operator

Greetings, and welcome to the BIOLASE Inc. 2013 First Quarter Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Sharon Weinstein of Porter, LeVay & Rose, Investor Relations for BIOLASE. Thank you, Ms. Weinstein. You may now begin.

Sharon Weinstein - Investor Relations, Porter, LeVay & Rose

Thank you Shay. Good afternoon everyone and thank you for joining the BIOLASE financial results conference call for the first quarter of 2013. Today’s conference will include remarks from Federico Pignatelli, Chairman and Chief Executive Officer; and Fred Furry, Chief Operating Officer and Chief Financial Officer, followed by a question-and-answer period. When listening to this call, please refer to the press release issued earlier today announcing the company’s results for the first quarter ended March 31, 2013. If you do not have a copy of this release, it is available on the BIOLASE website at biolase.com.

Before we begin, please be aware that a number of forward-looking statements will be made during this presentation. Forward-looking statements are any facts that are not historical facts and can be identified by words and phrases including, can be, may affect, may depend, believe, estimate, project, and similar words and phrases. These forward-looking statements are based on BIOLASE’s current expectations and are subject to a variety of known and uncertain risks and uncertainties that could cause the company’s actual results to differ materially from the statements contained in this presentation. These risk factors are discussed in the company’s filings with the SEC. BIOLASE cautions you that any forward-looking information provided is not a guarantee of future performance. Any forward-looking statements represent the company’s views only as of today and should not be relied upon as representing our views as of any subsequent date.

For the benefit of those who may be listening to the replay, this call was held and recorded on May 7, 2013. A replay of the call will be available on the BIOLASE website shortly after this call’s completion. The company’s 2013 first quarter results can also be found on the company’s March 31, 2013 Form 10-Q, which the company will file with the Securities and Exchange Commission later this week.

With that, I’d like to turn the call over to Federico Pignatelli. Federico, please go ahead.

Federico Pignatelli - Chairman and Chief Executive Officer

Thank you, Sharon and good afternoon everyone. The first quarter of 2013 reflected BIOLASE’s continuing progress in building awareness of our products among practitioners and end users across multiple markets strengthening our intellectual property position and increasing our revenues.

While our revenue of $14.6 million was slightly above the midpoint of our guidance for the quarter, it is to be noted that certain domestic products revenue generated from our WCLI Super Symposium held March 21 to 24 were not recognized until after the close of the first quarter. The 2013 first quarter was also heavily geared towards international revenues as a result of the AEEDC Dubai held in February and a biannual International Dental Show held in Germany in early March.

Our international revenues have grown as a result of these efforts. And BIOLASE now has distributors in 71 countries around the world. We are confident that these efforts will continue to increase our international business throughout 2013 and beyond. The company reported a loss of $2.6 million for the 2013 first quarter compared to a loss of $1.7 million for the prior year quarter. The increased loss during the 2013 first quarter is primarily due to our heavy investments in sales, marketing, and advertising efforts in North America and international as well as additional legal cost incurred enforce to protect our valuable IP portfolio.

Although, we expect sales and marketing expenses to decrease overall as a percentage of revenues for 2013 as compared to 2012, many of the dental industries largest and most important trade shows occurred during the first quarter of the year. Attending these shows places an additional burden on BIOLASE because our first quarter is traditionally our lowest and these events do acquire a substantial investment. In addition to our standard trade show, we attended International Dental Show in Cologne, Germany, March 10-14, which is the largest dental show in the world and occurs every other year. Further, we attended the 85th Western Veterinary Conference, and we lastly we hosted the WCLI Super Symposium, which was held March 21-24.

These events were over and above the many other regional shows and one and two day WCLI events we attend during the quarter. We strongly believe the investing in these marketing activities will result in increased revenues throughout the remainder of the year. I will discuss our business in greater details in few minutes.

First, Fred Furry, our COO and CFO will review our financial results for the 2013 first quarter.

Fred Furry - Chief Operating Officer and Chief Financial Officer

Thank you, Federico and good afternoon. For the quarter ended March 31, 2013, we reported net revenue of $14.6 million versus $12.3 million for the first quarter of 2012, representing quarter-over-quarter growth of 19%. The 19% increase in net revenue was due to increased international sales of laser systems as well as strong demand for our digital imaging product.

Net revenues for our core laser systems increased by $814,000 or 9% over last year’s first quarter. Revenue from our diode lasers contributed to our core growth in the 2013 first quarter and we expect that the EPIC 10 will continue to be a strong contributor to revenue in the second quarter and beyond. Along these lines, we are very pleased that the company obtained FDA clearance for the EPIC soft-tissue diode laser platform of over 80 indications in 19 additional medical markets in April 2013. It is gratifying to have obtained this clearance so quickly.

Imaging revenues, which included both cone beam and CAD/CAM intra-oral scanners, totaled approximately $1 million, or 7% of net revenue, during the 2013 first quarter as compared to $143,000, or 1% of net revenue, for the prior year quarter.

As a reminder, BIOLASE added Cefla NewTom cone beam digital imaging to its product offerings in late 2011 and further expanded its imaging product offerings with the addition of Trios family of intra-oral scanners in late 2012. Revenues from these product lines continue to grow quarter-to-quarter and we expect this positive trend to continue throughout the year as we gain traction in the market and increase our imaging product offering.

Digital imaging is not only a tremendous market opportunity, but is an excellent complement to our core internally developed laser product. Gross profit as a percentage of net revenue was 40% as compared to 47% for the prior year quarter. This quarter-over-quarter decrease is primarily due to higher sales of WaterLase and diode systems internationally, which generally carry a lower margin than our direct sales in North America and the increase in sales of our licensed imaging equipment systems as a proportion of revenue, which also carry lower margins in our core laser product.

Domestically, we made a concerted effort to encourage our growing sales force to sell our entire product line. We operate full line of high-tech products and these efforts will help us penetrate further into high-tech dental offices. We will also continue to leverage our diode laser penetration which leads to WaterLase adoption. We have suffered in the short-term that we believe this will provide great benefits on a go forward basis. Based on a projected revenues and expenditures for the remainder of 2013, we expect our gross margin to return in a historical levels ranging between 44% to 46% for the rest of 2013.

Operating expenses totaled $8.6 million or 59% of net sales for the 2013 first quarter as compared to $7.4 million or 60% of net sales in the 2012 first quarter. The increase of $12 million I’m sorry $1.2 million was primarily driven by a substantial investment in our sales and marketing efforts during the 2013 first quarter as Federico mentioned and increased legal expenses related to enforcing and protecting our IP portfolio.

Sales and marketing expenses totaled $5.3 million for the 2013 first quarter, an increase of $1.3 million or 30% as compared to $4 million for the prior year quarter. The increase was primarily due to significantly increased convention costs as well as continued development of the company’s direct sales force and increase media an advertising costs. While we are committed to attending several more major Dental and Orthodontic Association meetings and shows scheduled during the rest of the year. We have begun shifting our expenditures with such trade shows to a one and two day WCLI seminars. We view these WCLI events as crucial investments that yield excellent returns. Sales are of course generated at these events, but these events also generate significant interest in our product offerings and result in a large number of solids leads such can be materialized as sales throughout the rest of the year.

Industry shows and these WCLI events are important to drive awareness and interest in our product offering. While we recognized that these large capital expenditures impacted our near-term cash flows from operations for the 2013 first quarter, we believe that the investment will provide accumulative overall benefit and help the company generate cash from operations for 2013 as a whole.

General and administrative expenses totaled $2.2 million during the 2013 first quarter essentially in line with prior year quarter, despite significantly increase legal expenses primarily related to the enforcement and defense of the company’s IP portfolio. Our IP portfolio is a tremendously valuable asset several of our competitors currently license our IP and own laser products and we will not hesitate to continue to enforce and protect our valuable IP portfolio.

As an example the U.S. Patent and Trademark Office recently issued an office action in a reexamination proceeding rejecting all of the claims of Utah based CAO Group’s patents that were subject to reexamination. This is the second office action in which the U.S. PTO has rejected those same claims. Finally, it’s initiated the reexamination in response to lawsuits that CAO Group filed against BIOLASE on April 24, 2012 for alleged patent and infringement on our (Easy Lase) diode soft-tissue laser. Naturally, we are very pleased with the results of this latest office action issued by the U.S. PTO which rejected all 37 claims in the CAO Group’s patent were subject to reexamination. As it clearly supports our assertion that we have had from the beginning that the allegations of patent infringement led you by CAO in this case are totally with out there.

Engineering and development totaled $1 million during the 2013 first quarter, essentially inline with the prior year quarter. As a result the net loss for the 2013 first quarter totaled $2.6 million or a loss of $0.08 per share compared to a net loss of $1.7 million or a loss of $0.05 per share for the 2012 first quarter.

After removing interest expense of 87,000 non-cash depreciation and amortization expenses of $145,000 and non-cash stock-based other equity instruments and other non-cash compensation expense of $494,000 the 2013 first quarter resulted in non-GAAP net loss of $1.9 million or $0.06 per share compared with a non-GAAP net loss of $873,000 or loss of $0.03 per share for the 2012 first quarter.

Moving on to our balance sheet as of March 31, 2013 BIOLASE had approximately $5.2 million in working capital. Cash and cash equivalents totaled approximately $1.2 million at March 31, 2013 compared to $2.5 million at December 31, 2012. Accounts receivable totaled $10.6 million at March 31, 2013 compared to $11.7 million at December 31, 2012. Stockholders’ equity was $9.7 million at March 31, 2013. At March 31, 2013 the company had two revolving credit facilities totaled $8 million with $4.7 million of available borrowing in excess of the $3.3 million outstanding. Today, we amended our credit agreements with Comerica Bank increasing our total credit facilities to $10 million. Specifically the amended credit agreements increased our domestic revolver from $4 million to $6 million for a combined aggregate commitment of borrowings up to $10 million. Further, the interest rates on the outstanding principal balance of the credit agreements will reduce to 5.25% which is the primary plus 2% for the domestic revolver, a reduction of 1% and 4.75% the primary plus 1.5% for the Ex-Im Revolver, which is a reduction of 0.5% from the prior agreement.

In addition, the amended credit agreement will provide for $1 million of additional flexible borrowings against inventory for 30 days during the middle of the quarter. We are very pleased with the terms established for the second year of our credit facility and thankful for the relationship we have developed with Comerica Bank. Management has worked diligently throughout the turnaround and the amendment to our credit agreement highlight Comerica Bank’s confidence in the changes we have made and illustrates their beliefs in BIOLASE’s future.

With that, I’ll turn the call back to Federico.

Federico Pignatelli - Chairman and Chief Executive Officer

Thank you, Fred. The 2013 first quarter was a very active period in which we focus on our strategic sales and marketing efforts to position BIOLASE domestically as a premier total technology provider in dentistry and to burden our profile internationally. Domestically, we focused on expanding our efforts as a premier total technology provider in dentistry by intensifying our efforts in selling digital imaging and CAD/CAM intra-oral scanners, which is evidenced by the 619% growth quarter-over-quarter.

Our Total Technology Solution is a key component in our strategy to push forward the adoption of lasers as high-tech dentistry and lasers become the standard of care in dentistry versus traditional conventional methods. We are the only company in North America that currently provides a full line of high-tech products, which includes our wide range of WaterLase all-tissue lasers and diode soft-tissue laser products, CBCT digital imaging products; and CAD/CAM intra-oral scanners. While this Q1 shift in revenues negatively impacted our gross profits in the short-term, we believe that the long-term benefits will be sound. We have already felt some impact from our marketing efforts and we are pleased with the level of WaterLase sales we experienced in April.

We expect the aggressive marketing efforts we undertook in the first quarter to continue to payoff as we progress in the second quarter and the rest of 2013. We also recently entered into an affiliation agreement with Sun Dental Labs, LLC to form a strategic partnership to sell 3Shape’s Trios family of intra-oral scanners. Under the agreement, BIOLASE will provide a primary inside and outside sales teams, instillation and training services, and after-sales support, Sun Dental Labs will provide access with expensive customer base of dentist in dental laboratory associates, provide marketing material schedule appointments or BIOLASE sales representatives and provide a rebate to BIOLASE Trios owners will utilize its services.

All IOS sold under the arrangement will be pre-programmed with Sun Dental Labs direct connect as a preferred laboratory provider. Sun Dental Labs currently had 1,000 of doctors utilizing their digital dental lab network in the United States alone. Their significant customer base represents nearly 5% of all dental offices in North America. These are the tremendously valuable network and Sun Dental Lab has already provided our sales force with several qualified referrals.

In consideration of this marketing alliance, BIOLASE’s Board of Directors granted Sun Dental Labs an initial warrant for 500,000 shares of common stock on April 26, 2013, at the market closing price of $5.90 per share. The warrant will be vested on performance only at a rate of 1,000 per each Trios IOS sold in conjunction with the agreement. For the process of this agreement, a sale is defined as a Trios IOS that has been installed at the customer’s place of business and it’s fully operational where the customer has been trained, and the Trios IOS has been paid in full by the customer. These are the sound opportunity for BIOLASE, not only will this generate incremental sales of Trios IOSs, but it will also create prospects for our core laser products, as well as our CBCT digital imaging equipment at 100s and potentially 1000s of high-tech dental practices. We continue to move forward with our strategy to provide high-tech dentist with our Total Technology Solution and expect these types of efforts to provide significant opportunities for our core laser products.

I want to reiterate that this warrant is purely performance based in order to earn all of the warrants. Sun Dental Labs will have to provide lead that generate gross revenues of approximately $16 million to $20 million for the BIOLASE and contribute significantly to the cash we generate from operation over the next 12 months. Any unvested warrant shares will expire on April 24, 2014.

Sun Dental Labs’ preference of the warrant over a conventional commission or discount also demonstrates their belief in BIOLASE and the value to see as a stakeholder. As a result of granting the warrant, we will preserve BIOLASE’s full margin on the Trios IOS product line while providing a substantial benefit to our bottom-line. The agreement will also give us a strong entry into the high-tech dental practices currently serviced by Sun Dental Labs.

BIOLASE has also enjoyed several important clinical achievements recently that will also serve to strengthen our position as a premier scope of technology provider and we’ll help to expand our core technologies into new medical fields. We received FDA clearance for the Diolase 10 diode soft tissue laser and subsequently and much more importantly the EPIC 10S for a broad spectrum of more than 80 procedures in 19 additional medical markets.

This clearance give us the ability to leverage our EPIC 10 modular soft tissue diode laser platform and consumables business across a wide range of multibillion dollar medical markets with appropriate strategic partners and/or in a direct mode. With a vast number of procedures now available for the EPIC, the opportunities for this new modular platform are tremendous.

The excitement around BIOLASE is continuing to build among industry leaders, academics, and clinical practitioners. As evidenced, we are pleased to know that 24 new articles regarding our WaterLase technology were published in the English language during the 2013 first quarter alone. Here three significant examples. First, the article influence of the Er,Cr:YSGG laser irradiation on enamel caries prevention published in The Open Dentistry Journal, presented the case started using WaterLase treat, (indiscernible) periodontal pocket with a periodontal bone defect resulting in a successful resolution of the pocket and significant bone field on x-ray. The alters concluded that this procedure presents the less invasive alternative to open flap periodontal dental surgery. Addressing the periodontal market is a tremendous opportunity for BIOLASE.

Second, the article Er,Cr:YSGG laser for treatment of peripheral giant-cell granuloma in novel technique published in the International Journal of Laser Dentistry show that the WaterLase is a best laser to carry out various procedures with minimal use of anesthesia in a near WaterLase field causing minimal discomfort to the patient with no operative side effects and no scarring.

And finally, the article use of laser in the management of mucous cell, two cases – two case reports also published in the International Journal of Laser Dentistry shows that procedures performed at our WaterLase and diode laser proved to be comfortable for both the patient and surgeon. The alters included that compared to conventional scalpel treatment with placement of sutures laser treatment is a welcome alternative with no need of suture and quicker and uneventful healing. To summarize these findings, the alter determined that the WaterLase was less invasive, does not require anesthesia, allows the dentist to work in a near (blood less) mode cause meaningful discomfort to patients and no operative side effects or scarring offered uneventful healing did not require sutures and was comfortable for both the patient and surgeon. These are just a few of the publications that are providing critical support for the clinical benefit of our core technology to dental practitioners.

BIOLASE was also delighted to recently be featured in the health and wellness section of the prestigious Wall Street Journal in April 30 in an article by reporter (indiscernible) discussing the benefits of lasers versus conventional drilling in treating tooth decay. In the article, Ms. Johannes referenced a study in which 94% of the patients did not require anesthesia with the oral age. Article such as this encourage consumers to demand the best technology available from their dental practitioner, which in turn helps drive demand of our products. Our plan remains the focus on growing our core laser business in the dental market, but we will also continue to expand the capabilities, applications and indications for these core technologies in other medical markets as well. For example, we have recently expanded our offerings in the veterinarian market with the launch of the EPIC V-Series, veterinary soft-tissue diode laser. We also issued broad new patents for treating eye condition including presbyopia, cataracts, and glaucoma, which provides additional support for our expansion into ophthalmic applications.

Further, we have recently launched a website to showcase BIOLASE’s wholly-owned subsidiary, OCCULASE, and to expand the multiple applications of our proprietary WaterLase technology in ophthalmology. We are currently working with several ophthalmic experts, interested parties, and potential investors. While we are unable to expand on these efforts in detail at this time, we remain very optimistic about the potential of our revolutionary technology in ophthalmology. BIOLASE also recently joined organization for safety, asepsis and prevention as a member of its prestigious Super Sponsor Partnership as advocates for safe and infection free dentistry. OSAP membership program unites a committed community of clinicians, educators, consultants, associations, policymakers, and companies; all who shares OSAP’s global vision for safe oral healthcare for people everywhere. OSAP’s Super Sponsor represents the highest level of commitment to OSAP’s missions and programs.

Cross-contamination in dental and medical practices is a very real threat, and a significant that remains to be solved. As an example, approximately 7,000 patients in Tulsa, Oklahoma, were recently notified that they have been exposed to hepatitis B and Couple, and the human immunodeficiency virus, which causes AIDS, after a patient who had no known risk factors other than receiving dental treatment tested positive for hepatitis C. Of 3,122 patients tested so far by the County Health Department, 57 tested positive for hepatitis Couple, 3 tested positive for hepatitis Billion, and at least one tested positive for HIV. These represent an alarming 2% incidence of contamination. These terrible results or these annoying patients are absolutely tragic and the cost of this blood testing for the government agencies has a rate of which over $700,000. Unfortunately, both are expected to increase as more people come forward. This is not an isolated incident as many other surface in the media, the Arkansas Department of Health has recently one patient who visited a dental practice during a three months period that they may have been exposed to the infectious material.

Further, few months ago, a dentist in Colorado was found to have been reusing needles on different patients. These examples illustrate the very real risk cross contamination and the possibilities of becoming infective with poorly sterilized and/or difficult to sterilize dental instruments with the effect of BIOLASE revolutionary WaterLase and diode technologies are well documented and can drastically reduced the risk of infection in cross-contamination that maybe associated with the reuse of conventional burs and root canal files.

Moving on to our financial guidance, we were clear in our year end earnings call that we did not expect to generate cash from operations during the 2013 first quarter due to significant investments we expected to make in our sales and marketing efforts. We remained confidence, however, that these efforts will create additional opportunities in 2013. For the year ending December 31, 2013, the company is also reiterating its revenue expectation of approximately $68 million to $72 million. The midpoint of $70 million represents its 22% increase of 2012 net revenues and will also represents record revenues for the company. We also reiterate that we expect to generate cash from operation for the year ending December 31, 2013.

This concludes our formal prepared remarks. During the question-and-answer session of the call, we will limit each call to one question and then a follow-up question. Thank you.

Question-and-Answer Session

Operator

Thank you. We will now be conduction a question-and-answer session. (Operator Instructions) Our first question comes from Mr. Suraj Kalia from Northland Security.

Suraj Kalia – Northland Security

Hi, Federico, Fred, congrats on a nice quarter.

Federico Pignatelli

Thank you.

Suraj Kalia – Northland Security

So, Federico, I’ve to ask the most obvious question, what was the level of bookings or again after the WCLI that or lease sale lead that could not be recognized as revenues care to give us some color on the level of expected revenues that could have been recognized, but were pushed off into Q2.

Federico Pignatelli

Well, we will not here provide an exact number, but we will have exceeded the high-end of the guidance.

Suraj Kalia - Northland Security

Okay. Federico, would you care to quantify the number of WaterLase units, you could have potentially sold more in the quarter.

Federico Pignatelli

No, we would not enter into the details of our many units. Again, we have closed business, but we also gained a substantial amount of leads. And so it’s difficult to determine exactly how many that will be closed from the WCLI. The WCLI was a major event with roughly 600 people in attendance and it is one of the major tools that we use BIOLASE to close sales and it is very efficient for us in selling WaterLase and the rest of the product line.

Suraj Kalia - Northland Security

Fair enough and Federico you all mentioned if I heard it correctly in your prepared commentary that you are pleased with WaterLase uptake in April. Can you give us some color on at least some qualitative assessment of how the uptake in April stacked up this lead uptake in April of 2012?

Federico Pignatelli

Well, there was not really a comparison of worth April 2012, we are just satisfied from the level of sales in April 2013. So, it’s not that we are doing a comparison to 2012. The first month of the quarter usually is pretty calm and we are very pleased to see the level of activity that we have now that we are experiencing now in April.

Suraj Kalia – Northland Security

Right and that level of activity you would say is – has been higher than normal, what you have all seen let’s say, I’m just find to get a sense of what it was vis-à-vis last year?

Federico Pignatelli

It is correct. It is definitely higher than the previous quarter. I cannot quantify in a percentage because we don’t do this kind of calculation on a monthly basis, but the month of April of Q2 has been far more active than it is usual in the first month of any quarter.

Suraj Kalia - Northland Security

Fair enough and forgive me if I just squeeze it one more question. Fred, you had mentioned the EPIC 10 you will expected a good uptake trajectory over the coming quarters, give us some idea or can you share some color of how should we quantify the EPIC 10 because obviously it’s a pretty big thing for BIOLASE if in the future that it is from strategic partnerships or different non-dental opportunities. I think that we see that give – help us from at least from a modeling prospective to the extent that you can on EPIC 10 and again thanks for taking my questions.

Fred Furry

Sure, Suraj. For modeling, we said it couple of times that we expect the uptake to be a strong contributor to our growth. The growth for the year we projected 22% growth to our midpoint, the majority of which is going to come from our core laser platforms. So, that’s all I would think about from a modeling prospective we currently don’t have anything in or models for anything outside of dentistry for the uptake.

Suraj Kalia – Northland Security

Thanks guys.

Operator

Thank you. Our next question comes from Joe Munda from Sidoti and Company.

Joe Munda - Sidoti and Company

Good afternoon, guys. Thanks for taking the question. Real quick, Fed, I was wondering if you could breakout the legal expenses and conventional in the quarter.

Fred Furry

That’s something that we might show little bit more in the queue, but we I mean sort of asking Federico right now if he is comfortable with me saying what those numbers are.

Federico Pignatelli

But we don’t want to breakdown exactly how much we spend in protecting our IP portfolio that we definitely have a very strong activity in doing so. And the case that we announced today is demonstration of that. We also have a buy of several infringers of our patents that the need to pay up royalties past and future and in a couple of cases we have been successful in doing so. So, there is activity towards upholding our patent portfolio and interact our royalty income was up, but we expect more to come.

Joe Munda - Sidoti and Company

Okay. So, Federico on that comment, are we expecting further legal expenses going forward or was first quarter kind of a one-time issue?

Federico Pignatelli

Well, legal expenses, they are always there and it’s very difficult to forecast them, but obviously we do a pretty good job in keeping them under control, but if we have an infringer, we will protect our IP portfolio, because it’s a very important asset of the company, but there is an effort undergoing in the – in growing in advising infringers internationally, not only domestically to respect our IP portfolio.

Joe Munda - Sidoti and Company

Okay. And then Fred, I was wondering if you could breakout international revenues versus domestic?

Fred Furry

Yeah, that will obviously be out in the Q in a couple of days, but I don’t mind talking about that one here. International for the quarter was about 38% compared to the normal trends of low 30s that was pretty up for the quarter.

Joe Munda - Sidoti and Company

Okay. And what was the growth year-over-year just wondering?

Fred Furry

Yeah, that will come out in the Q. You will be able to see that, I don’t want to talk about that too much here, because we are still wrapping a few things up in the Q, Joe.

Joe Munda – Sidoti and Company

Okay.

Federico Pignatelli

And the important to understand that, because of the IDS that is the largest dental show in the world with an attendance of over 100,000 people, the activity on the international side in Q1 has been rather strong compared to the domestic.

Joe Munda – Sidoti and Company

Okay. And then Fred, I was just looking actually see if you had a number for consumable sales in the quarter?

Federico Pignatelli

Well, the consumables typically track about a $1 million a month give or take 100,000 bucks and we haven’t seen much change to that. That more detail will come out with the Q on Friday with that as well Joe.

Joe Munda – Sidoti and Company

Got it. And there is any chance you breakout I know somebody else, I think commented any chance to breakout diode or how much of that increase in laser sales was weighted towards WaterLase compared to diode lasers?

Federico Pignatelli

I think we typically just talked about our overall growth in lasers, and we are pretty happy with that, but we have said a few times that with the diode has been a strong contributor to that and we expect that, that will continue.

Fred Furry

Again, it’s very important to understand that diode sales they will serve as a platform for future sales of WaterLase as the dentist gets the diode lasers, less expensive is switches to laser dentistry and eventually will be laser upgraded to a WaterLase that is the all tissue laser. We believe that 25% of market share today belongs to the diode laser. So, it has become a technology widely used by medical offices and leveraging the diode laser technology in educating the practitioners in the more sophisticated all tissue WaterLase. It is an effort that will pay down very well for us in making sure that the same rate of adoption occurs for the WaterLase technology.

Joe Munda - Sidoti and Company

Okay, thank you.

Operator

Thank you. Our next question comes from Greg Garner from Singular Research.

Greg Garner - Singular Research

Thank you for taking my question. I want to look at the Sun Dental agreement that you are outlining, Federico, my understanding of what you had to say is that you will have access now to all of their instillations, 5% of the dental market in the U.S. and with that, that means you will be servicing them, and so there will be that cross-selling opportunity, and there is the obligation or let’s say the goal that the leads must lead to $16 million to $20 million in revenues of additional products within the next 12 months from now. And I wonder if that’s since the guidance also hasn’t changed since the quarter ago for the fiscal year ‘13 would that be upside to the guidance?

Federico Pignatelli

Yes, that would be upside, because when we gave that guidance we didn’t have a deal formulated with Sun Labs and Dental Lab. So, in essence, we cannot exactly quantify how successful is going to be, if we are going to sell 50, 100 or 500 machines or even more than that. So, we consider that as an upside, but definitely it is a very, very interesting sort of a partnership and we are very pleased the fact that instead of then requesting an overall discount or special price for on quantities, they decided to actually get warrant purchase shares of $5.90. So, that means that clearly they have a strong belief in what BIOLASE is doing overall with – in building our business they strongly believe in the WaterLase technology and they strongly believe in leveraging imaging with the WaterLase technology and the diode technology that is BIOLASE’s. So, we believe that is a great transaction for us, because it opens the doors to thousands of dental offices by definition high-tech because they use high-tech equipment and so that is sort of a marketing alliance that in our opinion will give very positive results in 2013 and beyond.

Greg Garner - Singular Research

Okay thanks I appreciate that. And I’d like to follow-up with a question about the marketing force which relates the Sun Dental but also in the EPIC 10 as – what the new markets that it’s been approved for and there has been a development of the direct sales force. First of all I guess are you comfortable with the level of productivity with the current sales force and any quantification there could be 25% more productive because there are 25% newer feet on the street. And what’s the thought process looking forward with this Sun Dental the other markets that EPIC 10 can address, how best to address all these opportunities from the marketing standpoint and how that might affect obviously our modeling going forward?

Federico Pignatelli

Well, by definition we are never happy with the performance of the sales people, we always want to more and we are there to help them. They want more too because the great deal of the compensation is commission based. So, we both want more, we want more, they want more, so we had with our sales reps in a very strong alliance to make things happen better and smoother and obviously for introduce transaction with some dental will help them because some dental will provide qualified leads to dental offices, so that is a way how to them because they don’t have to actually go and look for the qualified lead at that point, but will be provided by them is having thousand of dental offices their disposal in which they can just go and essentially educate them to the WaterLase technology, our diode technology and our imaging products and grow the sale.

Greg Garner - Singular Research

But does that mean you have to expand the sales force to address that I mean larger market domestically?

Federico Pignatelli

Well, we are and we say that several times that we are expanding our sales force, we are in the process of doing that is a continuous process and we want to get to a level of 45 maybe even more. So, it is definitely an undergoing effort that we have. And along with that we will have a certain number of specialized reps that will take care of the imaging division, the imaging products sort of experts in the field.

Greg Garner - Singular Research

Okay. Thank you.

Operator

Thank you. Our next question comes from Lenny Brecken from Brecken Capital

Lenny Brecken - Brecken Capital

Thanks guys for the call. I just want to clarify that the domestic if you just look at domestic laser system, and specifically WaterLase, was there any change in gross margin or pricing in the quarter, and what I know you are not going to break it out, but I am going to ask anyway is those systems just because the WaterLase actually grow domestically?

Federico Pignatelli

Lenny, our overall laser sales grew, there were no lower gross margins. The issue is that we launched a year ago our digital imaging division and was a difficult transition for our sales reps to go from selling only WaterLase and mainly WaterLase and diodes to also selling imaging. So, we decided that we needed to train them and push them as of the beginning of the year in concentrating their energies in selling the full product line of the company. So, in essence in Q1 to really concentrate our selling imaging, because we want imaging to become a substantial division of the business of BIOLASE, because will help us to become even stronger in all the high-tech dental practices. And so further our penetration of the WaterLase and our rare technologies, so was a strategic move to have them to concentrate domestically, because we are selling domestically. And I mean in U.S. and Canada we are selling imaging, not overseas. So, to make a concerted effort in Q1 to really push strong in realizing sales in imaging, so they would get used to also sell imaging, something that last year was not occurring. So, that push was successful and we will clearly fill the payoff in the rest of the year.

Lenny Brecken - Brecken Capital

I mean, I guess maybe a misunderstanding why and maybe you have a long-term significance of that and that I am not really understanding I know the longest synergies between the long-term are very significant, but I guess by doing so in the short-term….

Federico Pignatelli

Lenny, you are on a speaker phone and there is an echo.

Lenny Brecken - Brecken Capital

I am sorry so, but you do understand even though there maybe some long-term benefit, the short-term you caused the gross margin year-over-year to stagnate, it didn’t grow if you look at the dollars. And I think that’s everyone is trying to ask questions regarding should I be concerned about it or not going forward. And I guess the way to clear it up is everyone is trying to get at whether you think revenues are going to grow sequentially, and then it will put it – put the issue to rest, and I don’t know if you want to comment on that or not but….

Federico Pignatelli

Absolutely, Lenny, revenues they will grow and they will grow not only with WaterLase and diodes, but also now with imaging, because now we have trained our sales reps in pushing imaging as well as in understanding it, we put them under substantial training that was necessary, they have been traditionally selling only lasers and so it was a shift to selling in fact product line. So, what we have taken a hit in Q1 was a clear strategic move and as of Q2 everything gets normalized and we will see the benefit going into the rest of the year and beyond.

Lenny Brecken - Brecken Capital

Okay. So, just to reiterate you are comfortable with sequential revenue growth whatever it maybe?

Federico Pignatelli

That’s first quarter.

Lenny Brecken - Brecken Capital

Okay. Alright, so that’s fine, and that’s why I wanted to clarify the point, let me just get into another question, conceptually speaking you are expected to do $70 million or so in 2011 going forward into the 2011 year, and you were at this run rate before in your history as a company. What is different this time around? Can you summarize it in one or two minutes exactly why you think that this is a true secular growth -- early stage of a true secular growth time for the company versus before you had stops and starts? Thanks.

Federico Pignatelli

Well, Lenny, this is a pretty lengthy and deep question to answer, but I will try to do my best. First of all, we reached $70 million, actually it was $69.7 million in 2006 and that was because we entered into an agreement with Shine. And Shine purchased a lot of lasers as inventory and as training units. So, the $69.7 million in sales in reality that were out officially increased by us entering into a transaction – I am sorry into a distribution agreement with Shine. So, that is the first difference. So, this number is record number this year will be way more solid than what used to be back then, because there was a specific factor that inflated sales back then. What also is different is that back then we didn’t have a level of adoption of lasers as we have now.

Laser dentistry in the past few years has acquired a lot of recognition in the dental and academic field. So, we have way more clinical papers. We have a clear mode of acceptance and interest in laser dentistry that we didn’t have back then. Let’s look at the adoption rate of diode lasers in 2006, and seven years later, we grew essentially from 5% or around there to around 25%. So, we have a base today from which to grow that it is way more solid, because dentistry has finally adopted laser technology into their practices. Clearly, we have a long way to go in becoming standard of care with WaterLase, but not so much as few years ago. What we see is that dentist now they understand the value of laser technology and they have started clearly directing their interest towards diodes at a much lower cost than a WaterLase, but now they are laser dentists, they think in a different way that used to think 10, 15 years ago. They understand the laser technology in dentistry is there to stay and to grow. And so we have a base of customers now that is very significant to upgrade them, not only to sell them more diodes, but also to upgrade them to the WaterLase technology.

Lenny Brecken - Brecken Capital

Okay, thanks.

Operator

Thank you. Our next question comes from Chris Sassouni from Eagle Asset Management.

Chris Sassouni - Eagle Asset Management

Good afternoon and congratulations on a good quarter. I just had a couple of extra questions just to make sure I understand, first of all, at this point you say that your goal is to have 45 reps so, may be we can break discount into what your goals are in terms of having the number of outside reps you plan to have, inside reps you plan to have and then what the status of the overseas distributors are roughly how many of them are there and what are the opportunities to increase the number of distributors and I’ll stop there and then I want to talk about some of your marketing and advertising initiatives to increase both brand awareness and just awareness of the technology with consumers?

Federico Pignatelli

So, our goal is to have, Chris, thank you for the question, it’s a good one. Our goal is to get 45 outside sales reps to have 12 to 15 to grow to 12 to 15 inside sales and support people and to have six imaging experts to help closing sales also for the reps that sort of specialized in the laser field. So, that is the plan for United States and Canada. Regarding other international markets, the rest of the world we are in 71 countries now, and we are planning to add several few countries this year, and we plan to start leveraging this growth reach out to the international markets. And so we believe that international markets will grow very nicely in out of 2013 and ‘14.

Chris Sassouni - Eagle Asset Management

Okay. So, is it fair to say that usually for each that one distributor equals one country or are there certain distributors that are more than one country?

Federico Pignatelli

In certain countries, we can add multiple distributors.

Chris Sassouni – Eagle Asset Management

Okay, got it. Alright. And so the next thing I just wanted to turn to then was so my sense in based on things that I have read, is that the awareness of lasers with dentist has increased dramatically over the years, but the awareness of the patients with lasers is still relatively low, a) I want to ask you is that accurate and then b) the second question is what can you do obviously Wall Street Journal article help, but what can you do to drive better awareness with the consumers, so that they start to ask their dentist if they can have treatment with a dental laser?

Federico Pignatelli

Chris, this is my favorite question. BIOLASE has done a terrific job in promoting WaterLase technology and laser technology at the level of practitioners. The BIOLASE brand and WaterLase technology is known by 90% of U.S. and Canadian dentist, but what BIOLASE has not done and is doing now is to educate the public about WaterLase technology. Less than 1% of the public knows about WaterLase technology and the advantages of WaterLase and also diode technology. So, we need to educate the public to demand their own dentist to have such technologies, laser technologies used on them. And we are doing that with social media, we are doing that I mean just as an example Facebook group 3000 viewers or members as you want to call it to I am sorry visitors to over 65,000 since December.

We believe that we can grow to 250,000 and more by year end. So, the work is getting out, but we are doing more, we are not ready to discus exactly what, but clearly reaching out to print media to specific journal if they have an interest in new medical technologies, for instance, this article on the Wall Street Journal is very significant. Hopefully, there is going to be more to follow and we are there to, in essence, the interest of the national media that can be print, that can be internet-based, website specialized, in medicine, in health and so on. So, there is a concerted effort there. And I think that it is very, very important I mean if we see what a great company one of the greatest success in medicine and also as a performance in the stock market that is into the surgicals that I take very much as an example. They have done exactly that, but they had a great technology, a robotic technology to perform surgery remotely. And then when Iraq war ended and their markets started shrinking because the government was their primary purchaser of their equipment, they initiated a strong consumer campaign to have consumer demand robotic surgery and particularly for prostate cancer, because it provided better results and so we want the same to happen with WaterLase. And we know that in total surgical flourish dramatically by having by building their consumer awareness and having them requesting robotic surgery and that was reflected in the stock growing from $6 to $600, so – in few years.

So, tremendous performance and I believe that today is that now essentially is the right time for BIOLASE to do so or to build on this consumer awareness because we have thousands of WaterLase doctors out there in the marketplace. So, when consumers get aware of the WaterLase technology you can just go on our website or on the nopaindentestary.com website within their Zip Code and different WaterLase dentists they will appear nearby to where they live or they work and some. So, we believe that this is the right moment to initiate that campaign.

Chris Sassouni – Eagle Asset Management

Okay last question real quick just what’s happening to the sales cycle right now just whether qualitatively or quantitatively let’s say a year ago was taking X amount of time to close the sales today its taking how much time roughly?

Federico Pignatelli

Well, it’s difficult to say Chris, clearly we are getting better year-after-year the more dentist they know about the WaterLase technology or heard it about years ago and they haven’t moved yet. So, they’ll stop getting warm about it and so – before we needed to talk much larger number of dentists across the sales now that number has reduced dramatically, but is still a not an easy sale. So, we need to make more efforts there and that is why we like to become more and more the technology company for a dental practice. A dental practice doesn’t want to deal with three or four different vendors buying high-tech equipment from this vendor or that vendor.

So, if we can offer to a dental practice all the high-tech products that they need then it’s easier for us to become the preferred vendor and just deal with us and so we can have a faithful customer to develop over the time and further the WaterLase technology. I feel that frankly we’re quite close to the point, to the tipping point in which the curve of adoption of WaterLase is starting to accelerate and we accelerate further in 2014 and 2015 has happened for the diode laser technology again we went from 5% in few years in seven, eight years to 25% that is a tremendous in adoption 25% adoption in dental offices in United States that is a tremendous result. And so now the next movement will be for all tissue lasers meaning the WaterLase technology we have essentially no competition or well competition in that field, I would say, worldwide particularly in North America.

Chris Sassouni – Eagle Asset Management

Okay, thank you.

Federico Pignatelli

Thank you.

Operator

(Operator Instructions) Our next question comes from Robert Hoffman from Princeton Opportunity Partners.

Robert Hoffman - Princeton Opportunity Partners

Yeah, a quick question on the Lambda IP agreement that you announced in April, I am assuming that, that is not heading the royalty 108,000 that you’ve got in the first quarter, correct?

Federico Pignatelli

No, I think that some was accounted in the first quarter, but is a question from Fred that.

Robert Hoffman - Princeton Opportunity Partners

The real essence of the question is, is it possible to quantify significance of that obviously you are spending money to send your IP and now have an agreement, is there anyway of us helping us model how important that is, obviously it should be a 100% margin business when it does come in?

Federico Pignatelli

It is 100% margin business. I can assure that with Lambda it was extremely easy that a very professional company. We didn’t have a use a lawyer in any share performance other than to review the contract, they absolutely agree that they were infringing. And so they pay that for past royalties, it was a number that was to close past sales, and they agree the impact for future sales, but Lambda really doesn’t sell too many of this all tissue lasers in the dental arena. They are more towards dermatology. And but what is significant is the fact that they agreed to pay a royalty so that creates a President and so is much easier when you have the President to go to other infringers and say well, now given the President of the company recognizing our patents, we ask you to pay up as well and that facilitates the whole process.

Robert Hoffman - Princeton Opportunity Partners

Lambda is going to pay you a royalty on lasers sold into the dermatology arena, correct?

Federico Pignatelli

No, only in dental, and again it’s not to be expected a high level of royalties from Lambda, because they don’t really sell too many, probably it would sell I don’t know 20, 30 a year to dentistry. And let’s not forget that BIOLASE is the world leader with essentially a 90% market share. So, don’t expect royalties to become a huge streamer of income given the fact that we are so strong. The reason why we want to have them pay royalties is because we want to make sure to protect our IP, but we are doing it very smartly without spending a substantial amount of money. When we get attacked directly from companies like (indiscernible) there are factors for violating their patents, well there unfortunately we have to spend money and we are pleased to have announced that the U.S. BPO rejected all their clients.

Robert Hoffman - Princeton Opportunity Partners

Thank you.

Federico Pignatelli

Thank you.

Operator

Thank you. Our next question comes from (indiscernible).

Unidentified Analyst

Thank you. Getting back to the Sun Dental agreement, you talked about having access to 5% of the dentist practice in the countries, can you give us a sense for how large a market share that is for any one lab, how fragmented is the services they provide?

Federico Pignatelli

I am sorry, how fragmented is…

Unidentified Analyst

Is that the dental lab business in the U.S. in other words is that a large market share for an individual dental lab company?

Federico Pignatelli

I’m going to have Bill Brown answer to this question because he is more in tuning to what the dental lab market is?

Bill Brown

Yes, okay thanks Sun Dental is in the top 1% of dental laboratories.

Unidentified Analyst

Okay. So, given that they are a larger player are there other it leads to the question are there other larger dental labs that you now feel you can go after who may also be following on the curve as far as their adoption of CAD/CAM technologies that your internal scanner can be the front end?

Bill Brown

Yes, the – we are in discussions with other labs but not in an arrangement like we have with Sun Dental.

Unidentified Analyst

Okay that’s all I have.

Bill Brown

Yeah, I guess I can just clarify a little bit the doctors in general have a lab partner that is very familiar with their particular stall of dentistry how they meet their clients and how they like to do shapes and things like that. So, the – what we’re looking for is a partnership between those labs that work closely with the doctor as well as Sun Labs that can work with their lab to provide the digital products that they are comfortable with (ph) scanner or actually we can support the local lab if they have all the appropriate software.

Operator

Thank you. Our last question will come from is a follow up from Lenny Brecken from Brecken Capital.

Lenny Brecken - Brecken Capital

Just two follow ups, Bill I didn’t really know let me ask you this relating to other question what exchange this time around versus last in terms of getting to historical revenues of over $70 million. Bill I mean if you look at the math right if you – if the sales person sells 1.5 units per months domestically. And you make some assumption reasonable assumption about international sales. I mean you should be doing well over 20 million a quarter as the Head of Sales are you starting to see that realization of productivity and that’s what giving the company comfort that you’re well on your way to a record quarter – a record year excuse me?

Bill Brown

No it’s – you are making a very good point. The sales force productivity is really top priority right now. And we had a national sales meeting in April and provided additional training technical training for the whole product line and getting the new employees the younger employees getting them up to stay faster will be a key to the next level.

Lenny Brecken - Brecken Capital

Okay, but I mean can you just provide if Federico and Frederick comfortable some data points that give us some comfort that productivity is starting to have like it’s starting to kick in?

Federico Pignatelli

Lenny I’m sorry if you would get off the speaker phone would be helpful because we have a - I’m sorry for asking you for that. Yes we do see clearly increases in productivity from our sales reps like Bill already said we unified training for all of our reps and something that was never done before. And so in sense we are very keen in increasing productivity of all reps clearly that is always a super stars, they are the super stars. And we ask actually them to also train the newer ones. And so with that process we try to elevate all sales people to produce enough. And clearly as we are increasing the sales force, we are getting to the interesting concept of yours, if you want that is a consequence of increased productivity and larger member of sales reps increasing productivity in a large number will bring you to higher numbers and but again our confidence in higher numbers, it comes from a number of factors, not only higher productivity from our sales reps.

But also from the fact that there is a real drive towards adoption of lasers in dentistry and the amount of interest that we see from dentist towards our technology and our expansion in becoming a total technology solution company, where we can provide all high-tech equipment, where dental which were dental office. So, we will grow definitely quite fast, the imaging side of the business, the BIOLASE business, because of all of that. And Q1 was clearly at the beginning of this movement, we want to have the digital imaging division as an important division of BIOLASE, because we would allow to make our laser division even stronger. There are lot of synergies between the two, and also the end client is the same, is essentially the high-tech dentist is the dent cares about investing in new technologies.

Lenny Brecken - Brecken Capital

Right, so that’s very clear point. I think it makes my question I had before even more clear? I said are you comfortable with giving us some inside in the non-core market areas of further commercialization like in veterinary? Are there any areas where you are close to let’s say 2013, do you expect to commercialize other areas with the EPIC 10?

Federico Pignatelli

Well, we have started with veterinary and we are seeing some results there. And I would say the good results, but we haven’t really, include any forecast for 2013 outside dental. So, in our forecast, what you see is lasers imaging outside of the Sun Dental deal obviously, because that came after and we cannot really quantify the success of that transaction, but we believe that we will be successful and it’s a very interesting one. So, that will be an upside. As also anything outside dentistry in the medical field will be an upside. And yes, we are planning to introduce product to more medical application in 2013 and 2014 and beyond, yeah.

Lenny Brecken - Brecken Capital

Very exciting. Thank you.

Operator

Thank you. I will now turn the floor back over to Mr. Pignatelli for closing comments.

Federico Pignatelli - Chairman and Chief Executive Officer

Well, thank you for following BIOLASE, thank you for believing in BIOLASE, and thank you very much for believing in what BIOLASE is doing that is about changing conventional dentistry into becoming high-tech dentistry and supporting us in this very, very interesting evolution, not only on dentistry, but also a medicine by adopting laser – advanced laser technologies. With that, we will talk again in Q2. Thank you.

Operator

Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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