BIOLASE's CEO Discusses Q2 2013 Results - Earnings Call Transcript

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

BIOLASE Inc. (NASDAQ:BIOL)

Q2 2013 Earnings Call

August 7, 2013 4:30 PM ET

Executives

Alex Arrow – President and COO

Federico Pignatelli – Chairman and CEO

Fred Furry – CFO

Analysts

Suraj Kalia – Northland Securities

Joe Munda – Sidoti & Company

Lenny Bracken – Bracken Capital

Greg Garner – Singular Research

Paul Bornstein – Black Diamond

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the BIOLASE 2013 Second Quarter and Six Month Results Conference Call. During today’s presentation, all parties will be in a listen-only mode. (Operator Instructions) This conference is being recorded today, August 7, 2013.

I would now like to turn the conference over to Alex Arrow, President and COO of BIOLASE. Alex, please go ahead.

Alex Arrow

Thank you. Good afternoon everyone and welcome to BIOLASE’s 2013 second quarter and six months results conference call. On the call with me is our Chairman and CEO, Federico Pignatelli and our CFO, Fred Furry. Federico is dialing into the call from Italy, where he is, because he is unfortunately has to care for his severely ill father. Federico will make some opening remarks and then he will turn the call over to Fred to run through our results and comparisons to prior periods. After Fred’s discussion, I will discuss some of our business and clinical highlights and we will then open the call to answer your questions.

Before we begin, please be aware that there are number of forward-looking statements will be made during this presentation. Forward-looking statements are any statements 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 or 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 this call as a replay, it will be held and recorded. And a replay will be available on the BIOLASE website shortly after this call’s completion. When listening to this call, please refer to the press release issued earlier today announcing the company’s results for the quarter and six months ended June 30, 2013. If you do not have a copy of this release, it is available on the BIOLASE website at www.biolase.com. The company’s results for the second quarter and six months ended June 30, 2013 can also be found in the company’s June 30, 2013 Form 10-Q, which the company will file with the SEC later this week.

With that, I would like to introduce Federico Pignatelli. Federico, please go ahead.

Federico Pignatelli

Thank you, Alex, and good afternoon everyone. I want to welcome you all to our 2013 second quarter and six months results conference call. Today, we will review the progresses and various accomplishments achieved by BIOLASE during the second quarter 2013, as well as comments on our progress in key initiatives that really impact the coming periods.

First, let me briefly recap the 2013 second quarter. Net revenues in the second quarter totaled $14.2 million, an increase of $2 million compared to $12.2 million in prior year quarter. While we experienced 17% net revenue growth for the second quarter of 2013 when compared to the prior year second quarter, this result was approximately 7% to 10% lower than our internal goal for the quarter.

While we are experiencing growth in all areas of our businesses, we fell short of our own internal expectations due to an unusually slow quarter end for our domestic laser sales, Germany not performing as expected, a delay in U.S. deliveries of the latest CAD/CAM system model from our European vendor, and a pair of problems that hurt our sales in Canada. Canada has historically been a significant revenue generating region for us, but second quarter Canadian revenues were hurt by severe flooding in parts of Canada in June that impeded iPlus sales, a delay in our anticipated Canadian Health Agency approval for our EPIC diode soft tissue laser also was part of the issue. Compounding these headwinds domestically were the continued uncertainty and confusion over the recent implementation of Obamacare and a sharp rise in interest rates. We anticipate Canadian approval of the EPIC 10 in the current quarter. And we have fixes growing into a fact to address our German distributor situation. We also believe that the European manufacturer of our CAD/CAM product line will provide you in its sufficient quantities to lead our demand during the current quarter.

The company reported a loss of $2.6 million for the 2013 second quarter compared to a loss of $1.9 million for the prior year quarter. The increased loss during the 2013 second quarter was primarily due to our continued investment in sales, marketing, and advertising efforts in North America and internationally as well as little cost incurred to enforce and protect our valuable IP portfolio. We expect that both investments will yield future returns.

We have been following our new direct marketing strategy in the U.S. and Canada of becoming a Total Technology Solution provider to further the adoption of our proprietary WaterLase YSGG technology to a larger community of dentists as a must have. We therefore focused on selling our entire line of products, including our full line of hard and soft-tissue lasers and our digital imaging and CAD/CAM intra-oral scanning systems. Concentrating on selling our EPIC 10 diode soft-tissue lasers and our lines of licensed digital imaging and CAD/CAM equipments has caused a short-term negative impact on our traditional margin, but we expect that this strategy will result in opportunities to leverage these relationships and sell those new customers our flagship WaterLase iPlus. So, ultimately, the strategy should advance the penetration of our unique technology into the mainstream of dental practices.

We strongly believe that a dentist that integrates a soft-tissue diode into their practice, along with other cutting-edge technologies, and experiences the tremendous benefits of such integrations will ultimately purchase an all-tissue WaterLase, the ultimate advancement in virtually painless and clinically superior dental surgery. Each time, we place one an imaging product or one of our EPIC soft-tissue diode lasers or one of our licensed imaging products with a new customer, it creates future selling opportunities.

Just as BIOLASE has recently upgraded its Board of Directors with the addition of two highly qualified new members, so too it has continued upgrading senior management. We appointed a new President and COO when current Director Alexander Arrow accepted that role in June. Further, in July, we appointed Orlando Rodrigues as our new Vice President of Marketing. These changes are coming at a time when we are free of the selling constraints that BIOLASE operated under from 2010 to 2012 when moved away from Henry Schein and can finally concentrate on a comprehensive marketing platform. Moreover, they are joining the company as we are entering the second half of the year, a time during which BIOLASE traditionally generates 55% to 60% of its annual revenues.

Alex will discuss our business in greater detail in few minutes, but first, Fred Furry, our CFO will review our financial results for the quarter and six months ended June 30, 2013. Fred?

Fred Furry

Thank you, Federico, and good afternoon. For the quarter ended June 30, 2013, we reported net revenue of $14.2 million versus $12.2 million for the second quarter of 2012 representing quarter-over-quarter growth of $2 million. Net revenue for the six months ended June 30, 2013 totaled $28.8 million, an increase of approximately $4.3 million or 18% as compared with net revenue of $24.5 million for the six months ended June 30, 2012. The increase in net revenue for the three and six months ended June 30, 2013 were primarily attributed to increased sales of the company’s core laser systems and increased sale of our licensed imaging products.

Laser system net revenue increased by approximately $1.3 million, or 16% in the 2013 second quarter as compared to the prior year quarter and by approximately $2.1 million, or 12% in the six months ended June 30, 2013 compared to the same period of 2012. The strong response we have received from the dental industry domestically and internationally regarding our new EPIC 10 diode platform which received the FDA clearance in the fourth quarter of 2012 has already shown that it will be a significant contributor to revenue for the remainder of 2013 and beyond. This is very promising as we believe that dentists who purchased diode lasers whether our new EPIC 10 or some other brand are more likely to purchase our all-tissue WaterLase iPlus system in the future.

Imaging revenues which included both cone beam digital imaging and CAD/CAM intraoral scanners totaled approximately $1.4 million or 10% of net revenue during the 2013 second quarter as compared to $904,000 or 8% of that revenue for the prior year quarter. For the six months ended June 30, 2013 imaging revenues increased by approximately $1.3 million or 128% as compared to the same period of 2012. The increases for the three and six month ended June 30, 2013 were driven by increased sales and marketing efforts and increased equipment offerings at various value propositions.

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

Digital imaging and CAD/CAM presents tremendous market opportunities and our excellent complements to our core internally developed laser products. Consumables and other net revenue which includes consumable product such as disposable tips increased by approximately $162,000 or 11% for the 2013 second quarter as compared to the prior year quarter. For the six month ended June 30, 2013 consumables and other net revenue increased by approximately $278,000 or 9%. We expect the growth of the consumables segment of our business to continue to accelerate as our core laser products gain more traction within the industry as well as with or current existing customer base.

Gross profit as a percentage of net revenue was 39% as compared to 55% for the prior year quarter. For the six month ended June 30, 2013 gross profit as a percentage of net revenue is 39% as compared to 46% for the prior year period. The quarter-over-quarter and year-over-year decreases were primarily due to higher sales of licensed imaging equipment which generally carry lower margins than our laser products and increased international laser sales which generally carry a lower margin than our domestic laser sales.

We have seen improvements to margins of our domestic laser sales as our volumes increased, but we have also seen our overall margin decreased as both of our international laser sales and imaging CAD/CAM sales have increased as a percentage of our total revenue. Therefore based on our projected revenue mix the expenditured for the remainder of the year we expect that our gross margin will improve to low to mid-40s for the second half of the year.

Operating expenses totaled $7.9 million or 55% of net revenue as compared to $7.2 million or 59% of net revenue in the 2012 second quarter. For the six months ended June 30, 2013 operating expenses totaled $16.5 million or 57% of net revenue as compared with $14.6 million or 60% of net revenue for the six months ended June 30, 2012, an increase of $1.8 million or 12%. The quarter-over-quarter and year-over-year increases were primarily driven by a substantial investment in our sales of marketing efforts during the 2013 first quarter and increase new expenses relate to enforcing and protecting our intellectual property portfolio.

Effective for sales beginning January 1st, 2013 the Patient Protection and Affordable Care Act imposed a 2.3% medical device excise tax on certain product sales to the customers located in the United States. As a result, we incurred excise tax expenses of $112,000 or 1% of net revenue for the 2013 second quarter and $219,000 or 1% of net revenue for the six months ended June 30, 2013. Our net loss for the 2013 second quarter totaled approximately $2.6 million or a loss of $0.08 per share compared to a net loss of $1.9 million or a loss of $0.06 per share for the 2012 second quarter. After removing interest expense of $117,000 depreciation and amortization expenses of $153,000 and stock-based other equity instruments and other non-cash compensation expenses $442,000. The 2013 second quarter resulted in a non-GAAP net loss of $1.9 million or a loss of $0.06 per share compared with the non-GAAP net loss of $1.3 million or a loss of $0.04 per share for the 2012 second quarter.

For the six months ended June 30, 2013 our net loss totaled approximately $5.2 million or a loss of $0.16 per share as compared to a net loss of $3.5 million or a loss of $0.11 per share for the six months ended June 30, 2012. After removing interest expense of $204,000 depreciation and amortization expenses of $298,000 and stock-based other equity instruments and other non-cash compensation expense of $936,000, the six months ended June 30, 2013 resulted in a non-GAAP net loss of $3.8 million or a loss of $0.12 per share compared with the non-GAAP net loss of $2.2 million or a loss of $0.07 per share for the six months ended June 30, 2012.

Moving on to our balance sheet as of June 30, 2013, BIOLASE had approximately $3.8 million in working capital. Cash and cash equivalents totaled approximately $2.1 million at June 30, 2013 compared to $2.5 million at December 31, 2012. Accounts receivable totaled $11.5 million at June 30, 2013 compared to $11.7 million at December 31, 2012. At June 30, 2013 the company had two revolving credit facilities totaling $10 million with $1.5 million of available borrowing capacity in excess of the $6 million outstanding. On July 26, 2013 the company filed the registration statement on Form S-3 with the SEC to register an indeterminate number of shares of common stock, preferred stock and warrants with the total offering price not to exceed $30 million. Once the registration statement is declared effective by the SEC the company could offer the securities described above or sale from time to time on one or multiple offerings.

With that I turn the call over to Alex.

Alex Arrow

Thank you, Fred. This is a significant moment, because it’s my first earnings call as a member of BIOLASE management. I am passionate about this company and its mission, but until now I have only been able to express my enthusiasm as a commentator, as an analyst, as a patient and since 2010 as a Director. Now I have been inside the company for two months and I’ve got a lot to say but how to execute on the operational side of Federico’s vision for this company. We have the most important assets for a company to have. We have great technology, great people, great products and a portfolio of approximately 340 patents and patent applications to back them up.

I’ve carefully reviewed the operations of BIOLASE in the last couple of months. And we’re sure we have the opportunities to improve our operational efficiency such as in planning, product development, execution of new ideas and particularly in sales and marketing. We plan to make BIOLASE live up to its potential. Our products appeal to dentists because they offer them an extremely attractive return on investment. And clinical data support their use in nearly every dental procedure and after those advantages are understood at the end of the day our products transform the patent experience and we make clinicians love what they do.

Our challenge and our opportunity is to communicate that to main stream clinician, to move beyond the 3% to 4% of the market referred to as the innovators and into the next 7% to 10% of the market referred to as the early adopters. There are many medical products that make a real difference in patients’ lives. WaterLase dentistry is one of them. It’s a transformative experience for a patient. I know that firsthand, my interest in BIOLASE came from my experience as a patient. There are many other – and there are also many products that have a stylistic or status power that leads customers to cherish themselves. In that way, the WaterLase iPlus is kind of like a sports car or an Apple music device or a designer hand bag. But how man products are they can both those things. I cannot think of there are many medical products that are both transformative for patient care and make clinicians love what they do. And of those few that do exist I can think of none that are as underappreciated and under-recognized as the WaterLase. And therein lies our opportunity.

When you look at the results for this second quarter, you don’t see the dentists to tell us if they have delayed their retirement by 10 years, because they have joined their jobs much more after buying an iPlus. You don’t see mothers that are calling our sales reps and thanking them for providing a technology that allow their pain sensitive child to obtain dental care and resolve problems that are otherwise taking a toll in their lives. You don’t see the power to transform the patient experience and make clinicians love what they do. Even BioLase employees are often not aware of how powerful and important the WaterLase iPlus is to those who buy it and those that is used on. It’s no wonder we haven’t been communicating the why of BIOLASE. Without direct testimonials, it’s almost too good to believe. Dentists who clean the notions about what lasers were capable of five years ago and don’t take time to learn about what the iPlus can do for them today or investors who have never spoken to customers of ours who have completed their laser training miss out on what our products really do for our customers.

As an organization, we are going to be getting better at expressing the why in our business model. It’s more than just the attractive ROI that we offer to dentists who purchase iPluses. It’s more than the clinical data that supports the use of WaterLase technology at nearly every dental procedure. We don’t exist, because of the specific features of our laser although that is what has helped us sell to the innovators segment of dentists, who have largely been our customers to-date. We exist because we transform the patient experience and we make clinicians love what they do. That’s why we are going to be selling lasers to the majority of typical non-technofile dentists in the coming years. It’s not because of our specific what edge or cutting speed, it’s not even because of the physical beauty of the product, it’s because we give members of a profession with one of the highest suicide and depression rates, because they are used to inflicting pain on patients, a product that makes them love what they do again.

As a priority, we planned to take steps that we need to create a cash flow positive company that grows consistently. This goes hand in hand with our challenge to convert the business we have today with a 2-year-old transformative lead product into a profitable faster growing and more valuable enterprise. We planned to unify our marketing message in order to transition past the innovators who have largely brought the iPlus in its first two years in the market. The WaterLase iPlus is the core of our business. It is the highest margin most proprietary product that we sell.

While we benefit by selling diode lasers and imaging products for strategic reasons that we speak about elsewhere, the financial health of BIOLASE is directly linked to our success with selling WaterLase iPlus units. The fact that WaterLase revenues for the first half of 2013 have not grown is the main reason that the company is not already cash flow positive. As such, the main part of our strategy for the rest of 2013 is geared towards improving our WaterLase iPlus sales. We have several new approaches to reach beyond the innovators and appeal to the so-called early adapters and even the next segment beyond them, the early majority segments of dentistry.

For one, we have hundreds of new customers who just purchased an EPIC 10 diode laser from us in the second quarter. That’s hundreds of dentists who have taken the first step towards practicing laser dentistry, but without the advantage as the WaterLase brings, especially the ability to cut tooth enamel and spare their patients from dental anesthesia and unnecessary tooth trauma, they are candidates for us to up-sell. For another, we haven’t added high-end imaging and CAD/CAM intra-oral scanners to our line of licensed products in late 2012 to give us another entry points to explain the benefits of becoming a laser dentist.

Our goal is to become a purveyor of clinical tools that average clinicians find essential to deliver superior patient care. Once we appeal not just to the opinion leaders, but to typical clinicians as a basic necessity, then we expect BIOLASE to realize its full potential as a high growth and cash flow positive company in the years to come. In July, we entered into a strategic agreement with Valam Corporation to develop markets and sell office-based laser systems to otolaryngologists or ENT doctors. This agreement provides BIOLASE with an ENT laser patent portfolio plus the know-how in marketing support of Dr. Yosef Krespi, one of the world’s authorities on the use of lasers for surgical treatment of sinusitis, sleep apnea, and other ENT laser procedures.

BIOLASE’S EPIC 10 soft-tissue laser has already been cleared by the FDA for used in ENT surgical procedures. Our partnership with Valam includes an exclusive worldwide license to all of Valam’s ENT-related patents and pending patents, which when combined with BIOLASE’s existing ENT laser-related patents creates a formidable patent estate in this niche. We look forward to being able to offer an elegant simple to use precision laser-based biologic cutting tool to the 9000 practicing otolaryngologists in the United States. BIOLASE plans to hire a small specialized ENT sales force in advance of our ENT launch, which could occur as soon as the fourth quarter of this year. Both the strategic agreement with Valam and the affiliation agreement previously announced with Sun Dental Labs contain potentially dilutive warrants, but it should be noted that these warrants are performance-based. Hence by accepting performance-based warrants, both Valam and Sun Dental Labs demonstrate their belief as BIOLASE stakeholders.

Our IP portfolio is a valuable asset and our defense and enforcement of it has been costly. However, several companies now pay license fees to us in order to use our IPs for their own laser products. We are generating only modest revenue from these licenses, but these agreements have established precedence for others that may be required to license our technology in the future. We are committed to enforcing, protecting, and defending this valuable asset. As an example in March 2013, we entered into our royalty agreement with Lambda S.p.A., which resulted in a payment from Lambda for past royalties and established a royalty rate for Lambda on future sales. The royalties from Lambda relate to intellectual properties that BIOLASE owns in connection with Erbium YAG lasers and does not involve our more advanced YSGG WaterLase technology, nor our delivery systems, which include our proprietary hand pieces and consumables.

In May, the USPTO issued an office action that supports our assertion that the allegations of patent infringement levied by Utah-based CAO in the lawsuit filed against BIOLASE on April 24, 2012 are without merit. In our reexamination proceedings, the US PTO rejected all of the claims of the CAO Group patent that were subject to reexamination. This is the second office action in which the USPTO has rejected those claims that BIOLASE initiated in its reexamination of those claims in response to CAO’s lawsuit against us. So, we are very pleased with that result.

Also during the second quarter, our products received several new FDA clearances, including in May, clearance for the WaterLase iPlus for use as a surgical instrument in soft tissue procedures in orthopedic and podiatric surgery, that’s for cartilage, and in April, clearance for the NewTom BIOLASE VG3 digital panoramic, cephalometric, and tomographic extra-oral x-ray system, which BIOLASE markets and distributes in the U.S. BIOLASE is the exclusive distributor of NewTom digital imaging products for the dental market in the U.S. and Canada. We are also granted several new patents during the quarter, including a patent for delivering sterile water, which expands BIOLASE’S fluids conditioning system technology, a patent for an additional way of treating presbyopia, cataracts, and glaucoma, and laser and a patent for another design for a non-contact hand piece for tissue cutting which further protects our industry leading WaterLase technology.

WaterLase is also featured in the 36 new articles published in English during the second quarter. I find that what clinicians have recently been writing about our technology is telling of how much value we are creating. I will just give you three quick examples. For example, one of the most serious problems emerging in dentistry is periodontal disease around dental implants. The growing popularity of dental implants to replace these and the general poor oral hygiene of Americans have lead clinicians to predict that periodontal disease around implants is going to become one of the top issues facing patients within five years, but there is no conventional way to treat the problem, because the bone nor the implant surface can be damaged during treatment with surgical instruments, air abrasion, or diode or Nd: YAG lasers. And each of these treatment options comes with drawbacks.

You cannot treat a titanium implant the same way you treat a tooth or root surface, because implants have rough surfaces to facilitate their attachment to the bone, and this makes them very difficult to clean. But in the article, Laser Decontamination of Dental Implants published in the Journal of Implants and Advanced Clinical Dentistry in April of this year authored (inaudible) concluded that the WaterLase is efficient for the removal of bacterial bio-film without damaging the implant surface. Specifically, after lasing-infected implant surfaces with the BIOLASE radio firing tip and WaterLase energy, the implants were restored to their original condition without damage to the titanium surface. This has the potential to change the field of oral implantolgoy and it creates another new reason for periodontists to purchase iPluses from us.

The second article I mentioned is called Laser Application in Prevention of Demineralization in Orthodontic Laser Treatment, which just came out in the Journal of Lasers and Medical Sciences in summer of 2013, the very reason why author Dr. Hooman Sadr Haghighi who proved that laser radiation should be used in conjunction with orthodontic braces. Most children have poor dental hygiene and getting braces makes it even more difficult for them to clean their tooth properly. So, plaque collects around the braces brackets and the wires along the tooth surfaces. And the acidic nature of the plaque causes tooth surfaces to demineralized and weaker. And as a result, these areas change color. Often, you may have noticed the child that had braces removed they are left with these white spots and discoloration on their teeth where the plaque is accumulated. Dr. Haghighi study demonstrates that pre-treating with the WaterLase and fluoride prevented this demineralization, another using the WaterLase in pediatric dentistry.

And then the third and final article is called nanoleakage in primary teeth prepared by laser irradiation or bur which compares us to a high-speed drill published in the July issue of laser in medical science. In this article, author Fatih Öznurhan noted that the best method to prevent nanoleakage is by using the WaterLase. On filling this place, the dentist attempts to create the tightest possible seal between the tooth and the filling, that’s normal. Otherwise, bacteria can enter and re-infect the tooth and restart to decay, the tighter the sealing, the smaller the open space, but longer the filling will last, that’s true of any filling. This study compared using the drill and using our WaterLase and Dr. Öznurhan found that the best and tightest margins were created by using the WaterLase along with an (inaudible), which is what conventional dentists still do at this point for the most part.

Articles about the benefit of the WaterLase are being published in clinical journal every month. These articles provide growing evidence that our technologies clinically experienced conventional dental methods and the acceptance is growing. Regarding our financial guidance for the year ending December 31, 2013, the company is expecting net revenues to be in the low end of its guidance range for the year of approximately $68 million to $72 million, the low end of $68 million, which still represents in 18% increase over 2012 net revenue. The company no longer expects to generate cash from operations overall for the year ending December 31, 2013, but we do expect to do so for the fourth quarter ending December 31, 2013. This concludes our prepared remarks.

During the Q&A session of the call, each time you hold it on, we ask that you please limit yourself to one question and one follow-up question. If you have additional questions, please go back into the queue. This policy is to allow for larger number of you to ask individual questions. Thank you. We will now take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from line of Suraj Kalia with Northland Securities. Please proceed with your question.

Suraj Kalia – Northland Securities

Good afternoon everyone.

Fred Furry

Hi, Suraj.

Suraj Kalia – Northland Securities

Gents, before I go into my questions, Federico, your father is in our prayers, I know it’s been a very difficult time the past two months for you, and although not mentioned in the press release we all know that has been a huge distraction then. Again, he is in our prayers and we hope for his recovery. Let me move on. Fred, maybe I missed this, did you mentioned OUS contribution in the quarter?

Fred Furry

No, we didn’t highlight that in the call.

Suraj Kalia – Northland Securities

And I know in Q1 if I remember correct, it was 38%, I am just trying to gauge whether could you give us some color whether it was under a sequential or on a year-over-year basis, at least directionally how it looks like?

Fred Furry

Yeah, we haven’t, that wasn’t in the release, that will obviously be in the queue when we filed it on Friday but you can expect it be consistent.

Suraj Kalia – Northland Securities

Fair enough. And in terms of CAD/CAM imaging on the quarterly numbers, Federico, can you or Alex maybe all can give us some idea about the disruption from 3Shape and it is based on your internal assessments, what was the disruption when we look at a quantifiable number?

Federico Pignatelli

Suraj, it’s quite simple, 3Shape, cannot with a new product. And clearly our clients want the new in lasers product. And so clients that we have ready to purchase, we decided to wait for the new one and clearly is the right choice, it has an upgraded software. And so they were not worthy in delivering such new products in the quantities that we will need only two units. And so we will see, we expect that 3Shape will deliver in quantities these new generation of their products in Q3.

Suraj Kalia – Northland Securities

Okay. And just to maintain in terms of the number of questions, Alex, one question and I’ll let others jump in. If I heard you correctly, you said WaterLase iPlus sales haven’t grown at least in the first half of the year. As you all do an internal assessment, what are the things that will be implemented in the second half either in terms of a marketing message, in terms of incentives, in terms of bundling, whatever it maybe, what are the core things where the gaps have been identified and you say what we got to plug these holes in, and as a result we will get these many users on board?

Alex Arrow

Suraj, that’s an excellent question. We have at least eight initiatives that we think directly hit to the heart of the matter of the WaterLase iPlus sales progress and breaking out of the early innovators second to the market and into the early doctors. However, most of them were not ready to reveal before just basic competitive intelligence reasons, there are two of them that we mentioned on this call, and that’s to capitalize on those customers that have already purchased a diode laser, which as you know is a much less expensive item that we sell and does not have nearly the capabilities of the iPlus, but it’s a step in the direction of becoming a laser dentist. We had several hundred of them in the U.S. alone this quarter. New dentists purchasing our EPIC 10 diode laser that our prime candidates to be up-sold to the much more expensive WaterLase iPlus much more capability device. So, that’s one of them.

The other is be foot-in-the-door approach, where many dentists who are more in the mainstream category, who are now just taking the starting to taking interest and spending a little money upgrading their practices, not the early adopters, but the mainstream dentists, when they start to do that, generally the first thing I think of is imaging. And you can tell that when you go to the down tradeshows, they tend to go to the imaging booths, before they start looking at something as advanced as a laser. And so now that we distribute the best-in-class imaging products, we can be part of the conversation and it leads naturally to us starting to talk to them about the benefits of becoming a laser dentist and of the iPlus. So, those are the least and think about that as those are two of our eight internal initiatives and the other six you are going to hear more about later, but we are not going to disclose for competitive reasons just to give them a chance of impact and success. That’s right. We appreciate you sticking to the one question and one follow-up. And we’ll go on to the next question now.

Federico Pignatelli

Actually, I would like to jump in, Suraj. One very important thing to understand is that we have pushed by choice, the selling of values that we didn’t have last year, with the purpose of increasing the amount of laser dentist that are starting to enter the field of laser dentistry. We have sold hundreds of diodes in the first two quarters of this year. And clearly, that has closed a sort of destruction for our sales reps in selling such diodes compared to the WaterLase. And that while strategically was turning to be good marketing strategy to build the platform to laser have a larger group of interested parties in acquiring the WaterLase. On the short-term, it has created clearly a lower level of sales of WaterLase. So, it is important to understand that it’s not the WaterLase sales they have slowdown simply because the market reason. Now, is that we changed our strategy, our marketing strategy? And so our sales reps that concentrated in selling hundreds of diode lasers through interest that we do not have any laser. And that is clearly an effort on their part that distracting from selling and closing sales of WaterLase, but longer term, it is a very good strategy for the company, because now we have several hundreds of new dentists that did not have any laser, but did not have any understanding of laser dentistry as potential customers for WaterLase later on. Same thing is what Alex described foot-in-the-door with imaging and CAD/CAM systems, where then we sell these systems, we acquire a new customer. And then later we can sell to that customer a WaterLase, so that’s the strategy, marketing strategy that is new to BIOLASE because we are penetrating at different level of the marketplace that is early adopters. So, it is by design has nothing to do with the markets slowing down in its adoption of the WaterLase.

Suraj Kalia – Northland Securities

Thank you.

Operator

Our next question comes from the line of Joe Munda, Sidoti & Company. Please proceed with your question.

Joe Munda – Sidoti & Company

Good afternoon guys and Federico, I echo Suraj’s comments about your father and I feel terrible.

Federico Pignatelli

Thank you.

Joe Munda – Sidoti & Company

Well, Fred I was wondering I know you mentioned Suraj some of the revenues outside U.S. will be released in the Q, but I was wondering if you can give us some sense of what the revenue breakup percentage wise was on the laser system sales was it 80-20 WaterLase diode, some sense there as well as I wanted – Federico I wanted to touch on the expectations that you guys didn’t meet in the quarter specifically Canada and Germany and why you are so confident that you will be able to overcome those challenges, but at the same time lowering expecting to be at the lower end of guidance for the year as well as not being able to generate cash for the full year. I know that’s a loss but.

Federico Pignatelli

Well, let me start with Canada then, Canada has always been a very good contributor to sales. But this past quarter was attracted by very severe and large flood that actually affected large parts of the country and they recovered in June. And in the area of Canada actually in which we are stronger and so that affected clearly the sales. But again they are not loss sales, but have affected quarter due to sales. Also what has affected Q2 sales in Canada is the fact that we did not obtain yet the FDA clearance for our value and there is a long list of clients in Canada that we want to acquire the (inaudible). So, these two factors affected Canada. Regarding Germany, we had some issues regarding the distributor, he had exclusivity in Germany and we are changing that to a non-exclusivity. So, we are actually making changes in that market to optimize his performance and to a large and strong distributor viewing that is a very important market, overall, very laser-friendly. So, for the rest we will have to Alex to answer.

Alex Arrow

Yeah, we are indicating the low end of our guidance for the year based on how the first half of the year is going. There is no other underlying change in the market or change in strategy which I think is part of what your question was getting at Joe. I mean we are just indicating the lower end of the 60-72 because that’s where its looks like we are tracking towards. Was there some other point you are making to that?

Joe Munda – Sidoti & Company

No I mean I was just saying that basically in Federico’s opening comments, yeah you have the kind of small road blocks in the quarter, but the expectation is that you will be able to overcome in the second half and that’s why I was wondering why you are still if you are expecting to overcome those hurdles why not be more in the mid-range of guidance as opposed to lower end?

Federico Pignatelli

Well you can take it as a precaution, the fact is that we like to be cautious of this point because also we are seeing how a quarter can be affected by several factors I mean we got affected by several factors, I mean, we got affected by an act of that in Canada, for example, it cost us $200,000 in revenues. And we got affected by a vendor in Europe that launched new product and upgraded actually product line, so we couldn’t get that product on time. So, clearly we are affected by external things that we can’t control. So, to be cautious, we like to be guiding on the lower end of the range that’s we give a range and so to be cautious now we would like to be more towards the low end of the range, guide towards that range.

Joe Munda – Sidoti & Company

Okay, on the last part of my question directed towards Fred, the mix on the laser system sales diodes versus WaterLase, would you say was 80-20.

Fred Furry

Well, I will say this that as a percentage of total revenues laser sales were – total laser sales were 59% in Q1, and I am sorry there were 59% in Q1 and 68% in Q2, so but yeah definitely as Alex and Federico have mentioned the percentage of WaterLase in that number is a little bit lower than historical.

Joe Munda – Sidoti & Company

Okay, thank you.

Alex Arrow

Okay, you are welcome Joe. Let’s go to the next question operator.

Operator

Your next question is from the line of (inaudible) Capital. Please proceed with your question.

Unidentified Analyst

Yes, thank you. For any of you with your guidance, low end of the guidance, that always by definition means that you should be selling more WaterLase in the back half of the year. I guess my question is one given the performance of your strategy to get doctors started using laser dentistry and getting your foot in the door perhaps personally imaging, do you have any sense for what the timeframe is to convert that doctor who is first exposed to those other technologies and to buying WaterLase and then second part of that question is the cost of the WaterLase seems to be an obstacle for dentist, you are not withstanding the (inaudible) proposition, you put forward to them but any other things you can do creatively to mitigate that obstacle?

Federico Pignatelli

Let me answer to that in a quite simple way. We don’t really believe that the price of the WaterLase is the issue at all. Once the dentists understand the advantages of acquiring WaterLase they make the investment. What we have seen is enormous amount of interest around the WaterLase, but what we have seen is a lot of dentist that they are not actually closing the sale – I am sorry closing the purchase. And we believe that that has a lot to do with the great uncertainty what Obamacare has created. We have to understand that dental offices, they are small businesses. So, we are not dealing with large organizations, we are dealing with really small businesses that are slower in understanding what affect it can be of such radical changes as Obamacare can be. So, we believe that the year is going to be more heavy-loaded in the second part of the year because of dentists they are analyzing what this Obamacare means for them. And eventually, we’ll absorb and understand will Obamacare is understandable so that there is an increase in price because of that. And eventually they will turnaround, that’s what we expect and we closing their purchase finally in the second half of the year and staying good Q4 we’ll be acquiring reports into BIOLASE.

Regarding the timeframe to turn in dentist that buys a diode turning into (inaudible) dentist there is really no – a specific timeframe, sometimes it’s going to happen quite soon some other times it’s going to happen later. But it’s very important that we educate dentist hundreds of them by year end thousands of them that we’ll have acquired a soft-tissue laser our EPIC 10 into becoming dental lasers dentist. And so by having made that commitment that step into understanding laser dentist we then they will become more passionate about it and they will make a second step that is they want to have all-tissue laser that is soft-tissue and hard-tissue. Once you remember – if you remind that the EPIC 10 can only do serving in soft-tissue but they will want to upgrade to the hard-tissue as well and they will buy an all-tissue laser that use the WaterLase.

Alex Arrow

Yeah. I’ll add to that answer Kay, that you mentioned second half pattern of selling more WaterLase, is that values in the case for us all along, we always sell significantly more in the second half of the year than the first half of the year and that relates mostly to the way dentist make their own purchasing decisions with their own tax considerations. So, that pattern we expect to continue in fact I think we’ve never had – never not have that pattern every single year of the company’s history, we sell more in the second half.

The issue you raised about the ROI and the obstacles to selling, the ROI argument is very strong one because as most dentist finance their purchases when they buy a WaterLase so they’re paying a monthly payment. And the amount that they make in additional billing greatly exceed in that by a several in fact by a multiple. So, it’s a very easy answer whether the laser pays for itself but that by itself is almost never sufficient to sell a laser, that’s just what gets us to the table. And I think our complete understanding of the selling process is maturing in that way that we don’t just pitch on the ROI, we don’t just pitch on the large amount of clinical evidence that the WaterLase should be used in almost every dental procedure for best patient care.

Those things are important and they’re necessary but they are not the thing that gets the dentist over the edge and makes the purchasing decision. And it’s a lot like when any of us make a purchasing decision when you think about when you’re going to buy a car, you don’t just look at all the statistics and make an old calculated decision, you actually you look at the statistics, you look at the performance but then when you actually make the purchase it’s because you sits out in the car you drive that you’ve decided emotionally this is what’s for you. And it’s the same thing for a dentist it’s an emotional decision at the end. So, the ROI argument is part of it, the clinical data is part of it but at the end of the day it’s what it can do for them, is to why – it’s what it can do for patients and we’re getting – that’s part of what our new VP of Marketing is going to be focusing on and what you’re going to see our marketing would change and mature in the mid second half of 2013 that we’re going to be focusing more on that why and that emotional pushing them over the edge. And I would add to Federico’s answer about the timeframe of making a purchase after a first buy in imaging devices that we’re brand new into that we’ve just – this is just the second quarter we’ve had imaging sales. And so that the timeframe that, that takes before someone buys a VGi or a CAD/CAM system from us is until they’re smart enough, enough to also buy a WaterLase that’s going to be something we’re going to discover as we go forward but it’s an exciting additional way that we have to get our foot in the door and to leverage our existing conference presence and our WCI presence.

Federico Pignatelli

Okay. So, let’s – operator, move on to next caller, please.

Operator

Thank you. Next caller – question is from the line of Lenny Bracken, Bracken Capital. Please go ahead with your question.

Lenny Bracken – Bracken Capital

Alex, this is the question for you. You are a Director and you went through the – your stepping again into the organization actually fitted it and run it. And then as the guy who used to running it day to day. Just give me an idea what makes you want to step in that role given the fact that the balance sheet is been very low on cash, home WaterLase sales are not doing what was expected to be done domestically. And how confident you think given your role in the company that you’re going to be able to make almost an immediate change I mean you have to see sales growth in the second half and start generating CapEx. I mean what makes you think you can do it I mean why you step into a role given those facts, that’s what I’m just trying to understand why would you I mean you were a Director and now you got your I guess kind of say liability to actually become part of management team at a time when it’s difficult let’s put it that way. So, I just want to understand what your conviction level is and why you think you can turnaround because the need is almost immediate. Thanks.

Alex Arrow

Thank you, Lenny. Thank you for that question. You noticed that when I started my prepared remarks, I said that BIOLASE has great technology, great products, great people a great path portfolio but I did not mention a great balance sheet. Our balance sheet is admittedly not the strongest part of our source, okay. And it’s a mix overall picture now that the strength of this company are really exciting what our product can do is really exciting. So, when I look at this whole picture and you’re right, I have bet my career on this because I think that what we have and the opportunity in front of us and the products we have and the technology we have we can overcome our challenges, our challenges are strengthening our balance sheet and creating a new infrastructure to deliver on the promise of this great technology.

So the reason I want to step in if this were already a company that had everything going for it if we already had a for just like balance sheet with lots of – with a word just of cash and we have this great product. Then our valuation would be far higher and there wouldn’t be this incredible opportunities made it come in and be part of this, I’m excited by the challenges we have and by the game pieces that are in place I mean this is like the put into a strategic game where you have terrific cards to play and challenges to overcome but you look at the cards in your hand and you know the cards in your hand are so powerful that you’re going to be able to overcome the challenges.

So, I look at this as a tremendous opportunity as a tremendous and lot of fun and to do real – make a real difference in the world because what we does do really makes a difference in patients’ lives and in the careers of our target market I mean I’m totally serious when I say I’m talking to customers dentist who have told me that they have delayed their retirement by ten years because the WaterLase has been such a difference in their practice and that those that they couldn’t have the WaterLase if they would retire tomorrow, I hear that again and again when I’m talking to our customers.

Federico Pignatelli

We believe that the – you haven’t hit a brick wall as a company in the WaterLase product line in penetrating the innovators I mean you must think that because then you wouldn’t have taken them with.

Alex Arrow

You’re correct. I think we haven’t – there is not a brick wall between the innovators and the early adopters and the early majorities. I think what we have is a situation where most of us sales to-date have been to the innovators and a few of the early adopters. And it’s inevitable in my opinion that this is going to have to have to happen it’s the question of when not if. And so that’s the situation where everything is lining up I mean we’re getting – we’re finally getting some incoming calls from dental schools that they want to be involved in updating their curriculum so that they expose their students to laser dentistry and laser removal of carries.

And that’s something that I felt that should have happen 10 or 15 years ago this is what I – the technology is going to available and demo schools are supposed to be teaching best into their patients that they tell their students but that this hasn’t really taken off and now we’re starting to see that. I see enough reasons that we are going to be able to transition from the innovators to the early adopters in the early majority as your question implies or else I would not admit this personal career decision. I embedded on this and I think I’m going to win.

Lenny Bracken – Bracken Capital

Okay, thank you.

Operator

Our next question is from the line of Greg Garner, Singular Research. Please proceed with your question.

Greg Garner – Singular Research

Thank you, for taking the call. I mean my question first of all I appreciate all the talk about the marketing plans and such because I believe I think in most people on the call believe that there is some great products here, there is been some marketing hurdles however and so with that being said my understanding why the second quarter did not meet the internal goals was because the sales person has these expensive WaterLase it’s an expensive diode and there is these CAD/CAM products and Mr. dentist you haven’t seen me before, what’s looks most interesting is they like the idea it makes sense if that they would go into a lower cost product initially. So, first of all I want to clarify that that’s appropriate way of looking at it and then how does that change though in your approach is it just more a salesman incentive is there, what else might be involved in having that alter so that the WaterLase benefits are really moved into the early adaptor arena?

Federico Pignatelli

Ian we have to understand the, really when we are today in the dental laser market, buyers have been around for quite some time officially this has been approved we have our approved almost 16 years ago October of this year will be our 15th anniversary. But in reality through competitive hard tissue laser has been only delivered two and a half year ago when we launched the iPlus and what I mean for competitive is a dental laser there is an all-tissue laser that can soft and hard and is as fast as the dental drill.

So, for the very first time two and a half years ago we were able to break the speed barrier and launch a product to the dental community that could severely compete with the dental drill. So, in reality it is an infant market it’s a very, very young market and there is what is interesting about BIOLASE in what we are doing. There is where the opportunities are the fact is that we can expand dramatically this market in years to come. But clearly we need to now deal with a larger number of dentists with our ready to adopting technologies that we have to understand the value of it. So, here we are to explain them the value of laser dentists in particular the value of WaterLase it is a process.

But then we’ll be successful there is absolutely no doubt in my mind it is clearly a effort, the education in marketing we have established a new marketing approach by using diodes the past diode that is in the markets to actually penetrate into the more traditional kind of dentist out there innovators the jump on the new technologies as they like to match themselves their way the more traditional once they really have to understand the value of it and so that is our effort now and that effort we play off there is no doubt.

So again it is a more complicated approach to the marketing because that requires sometime for the market education of this dentist but again we are very optimistic and that overlays is right on the cast of adoption. But we are definitely affected like many medical companies by this confusing of Obamacare what does really mean for this dentist. They have to absorb that their small businesses they don’t take decisions as small businesses and spending that kind of money likely is clearly they have to understand and absorb all that is happening it is a very substantial change Obamacare in the whole medical system so that is what we hear from dentists from our customers.

Alex Arrow

And to reinforce Federico said about the iPlus being only a two year old product this is, it’s not just a minor model upgrade in 2011 when we switch from the WaterLase MD to the WaterLase iPlus it really is a very different product and it’s the first time its comparable in speed to the drill and it’s the first time that it’s user friendly enough that it can really be considered a standard of care for mainstream dentists who are not – that they thought leader is not protecting the files. And I’ll point follow that up with a very specific example.

Just this last week end at BIOLASE headquarters we had one of our regular training courses for advanced techniques using the WaterLase and we have a bunch of iPlus units a few MD units that are in the training room for the dentists who pay to come and learn advance techniques from other dentists right in our training facility. And they – they prefer to double up and double up on the iPlus rather than any of them use the WaterLase MD because there is such a difference in how the laser cuts and performs. So it is when you think about our 15 year history you really should think about this product as only really been available for the last two years in change since we launched the iPlus and that’s another reason why we haven’t made already more of a dent into the mainstream adaptors but that we have optimism that we are going to.

Greg Garner – Singular Research

Right and thanks I appreciate that. Look at the early adaptor as a group is it easy from a marketing stand point to quantify how many there are and which dentists groups are in that category or is that really more you just need to market everyone in those first who step up they meet that qualification or is there some parameters that, to help target the marketing efforts and also wondered how believe Sun Dental are helping?

Alex Arrow

Yeah these are artificial designations of course I mean dentists don’t call themselves innovators or early adaptors….

Greg Garner – Singular Research

Sure, sure.

Alex Arrow

Vernacular for us to characterize. But you can tell who they are you can tell the real the gadget loving technology loving dentist and the once that are not as much like that. But for – the other part of your question was about Sun Dental, we’re not commenting on this specifically on how many CAD/CAM units that has resulted in here other than that its working and we’re getting leads from that and it’s a one year agreement so it runs its course through next April.

Greg Garner – Singular Research

Okay.

Alex Arrow

Okay we’ll go to the next caller.

Operator

Next question is from the line of Paul Bornstein of Black Diamond. Please proceed with your question.

Paul Bornstein – Black Diamond

Yes thank you again a little bit late so hopefully I am not repeating the question. But given all of the talk about the marketing aspects I am wondering and obviously your focus will roll on the patient trying to recruit the dentist to get the product for their use given that it’s a better process. Wonder, if you could describe how you’re making in-roads into that. Secondarily, what are the incentives for the sales people do they know the urgency, are they getting small base with a huge upside as they produce because there has been a lot of sales people in your organization over the years but now it’s a critical time and it seems like it should explode at some point when the sales happen it will happen very quickly but you need get all your fingers in the pie at the same time. And lastly you have a general financing improve that works for you to make it a lot easier for the dentist as evaluates the product?

Alex Arrow

Alright we’ll tell you, answer those questions in a reverse order even though you technically asked there more than one question one follow up – gracias on that rule in the his case because they’re fairly straight forward questions. So, we do have couple of financing groups that we refer dentist to but they’re external to the company and there are some of them that we’ve had more history with another but I guess you’re just asking if we refer them directly to the finance groups and the answer is yes we do, we do everything we can to facilitate that. On the compensation of our reps we’re obviously not going to comment on the specific compensation other than to say that our compensation scheme is set up so that if you work very hard and sell a lot of lasers you can do extremely well at BIOLASE and if you don’t you’re not going to be very happy here and you’re going to end up probably leaving your organization. So we believe in at least – every quarter goes by – we – more and more and the maximum that we should “Feed the Eagles and Starve the Turkeys” that it gives the greatest incentive to the people that do the best for us and that are delivering the best result. So this is an organization that it is as even more going to become an organization of any players who want to work hard and make a lot of money in the process of selling an important product. And then your first question I think was about the marketing strategy and could you repeat your first question again it was, it had to deal with…

Paul Bornstein – Black Diamond

Yeah, it was the marketing strategy of getting the patients they want dentist as to get the machine and showing dentist get more patients if they have the machine, those are the qualities here?

Alex Arrow

Oh yes, so the issue of patient awareness, so we believe that if a dentist start receiving incoming calls from patients asking them are they a laser dentist, do they practice state-of-the-art laser dentistry, are they a WaterLase dentist, are they going to avoid using Novocaine. If dentist get those calls then they become a whole lot more receptive to interphasing with our sales people. And that has started to happen, we’ve gotten anecdotal reports from our sales team where we have dentists that say well I’ve just gotten my third call from a patient who is asking about the WaterLase so I guess it’s time sure talking with you guys, that, that is starting to happen, it’s a process, but dentistry is not the top subject on most people’s healthcare mindset.

Generally people who are thinking about their family and their health will think first of all things like heart disease and cancer and then diet fat and then cosmetic procedures and dentistry comes a little bit after that, that’s why you don’t see a whole lot of articles in New York Times and Wall Street journal about dentistry technologies. But it is becoming more of an item for people to be aware of and anyone who becomes aware of it understands how much of a difference there is so we’re making progress there.

Paul Bornstein – Black Diamond

Okay. Thank you.

Alex Arrow

Thanks for the question. Well we’re getting close to the end of the call, but I think we have time for two more, couple of more questions, two more questions.

Operator

Thank you. The next question is from the line of (inaudible), a Shareholder. Please proceed with your question.

Operator

We’ll move on to Robert Hoffman with Princeton OPportunity. Please go ahead with your question.

Robert Hoffman - Princeton OPportunity

Yes, just a quick question following up on the last question in terms of the sales force. Can you give us some color of where you stand with the number I know the last time your plans for increasing the number is kind of give us a color on sales force compensation right now?

Alex Arrow

Sure, that the latest numbers on our sales force at the beginning of Q2 we had 41 total sales people including the sales managers and we added seven and lost six. So overall – so we are now at 42. And when I say we lost six that some of them that we left out and some that left on their own, but in total we’re plus one at head count. So for this year actually we’ve been pretty constant because we began the year in Q1 at 42 added three, lost four during Q1, ended 41 and now in Q2 we’ve added seven and lost six in that 42. So we do plan to grow that further, we’ve got several open territories there we got some opportunities for some hungry people that we’re looking at now but that’s where we stand as of today.

Robert Hoffman - Princeton OPportunity

And are you having success in terms of the people that are successful or staying I mean have you lost any that you wish you didn’t and if you did where would you lose them too?

Alex Arrow

That’s a little bit more detail than we want to go into, but I’ll add that we were also looking at a specialist because now that we’re branching out into more products and we recognize that it’s an awful lot to ask one person to be hitching all-tissue WaterLase laser at the same time hitching the benefits of an intraoffice six-figure VGi imaging device, one person doing all that. So we’re looking at starting to specialize and then also related to our sales force as we mentioned we’re probably going to have a small number of dedicated sales reps as they are going into (inaudible), into ENT as we start to sell office-based ENT lasers as soon as the fourth quarter of this year.

Robert Hoffman - Princeton OPportunity

Great, okay. Thanks.

Federico Pignatelli

What is important to understand is that clearly we are making an effort also in restructuring our sales force because it is a factor that we’re selling only one product in the past now we’re selling multi-products, they were not selling diodes for you since now they are selling diodes. So there are some sales reps that are more receptive through this kind of changes, there are others who are less receptive. So we clearly want our sales reps to be having that kind of flexibility and push old broad appliance and as said we’re going to have specialist to actually close the sale, so our reps they will open the door to the specialist then close the sale on high end product line and special imaging (indiscernible), they are very specialized. That yes we are restructuring internally our sales force to make sure that our reps as we push the entire product line and they are still in the race as they use to be.

Alex Arrow

Okay. So I think we’ll take one last question.

Operator

Our last question is a follow-up from the line of Lenny Bracken, Bracken Capital. Please go ahead with your question.

Lenny Bracken – Bracken Capital

They are left with multiple clients with you and now I’m going to ask you in the public form, what are you doing to make the product WaterLase more affordable for dentist and I want my effort in terms of asking this question over the last 12 months, but also in light of the fact that when I look two year sell-side analysts they used the word expenses in conjunction with WaterLase in the same sense. Please explain how you are making the product more affordable for dentist or increase the value proposition if you want to approach it that way?

Federico Pignatelli

Lenny, we had several discussions you and I, you as an important shareholder with the company, obviously this specialty issue price is not as much as a concern as you think. And we’re very strong in this and as an example the iPlus cost much more money than a WaterLase MDX 450or 300 and we don’t sell many units of MDX or 300 we sell a lot of iPlus. So if price to be really concerned you would see WaterLase 450 and 300 outnumber the iPlus that is not the case was exactly the opposite. So price…

Alex Arrow

That doesn’t mean the market MDX…

Federico Pignatelli

I’m sorry.

Lenny Bracken – Bracken Capital

The MDX not meet the functional requirements, the minimum requirement dentist look for in actively committing to buy the products, the iPlus does, so the question is with that level of functionality is the iPlus appropriately priced and how much is it effective demand, you have any – yes I mean just we can debate whether we can (indiscernible). Federico. And I respect your opinion; I just want to know like what is the company’s efforts to move either make it more affordable so that adoption can increase that’s all I’m asking.

Federico Pignatelli

Let me – our exports in R&D through (indiscernible) is that less costly is a constant effort. So these narrow giving up in any possible way and to lower the cost of a iPlus but clearly you have to understand that as we will increase quantities will you also be able to lower the certain degree because of the quantities that manufacturing cost with the iPlus. So we will definitely have an improvement in all land in that respect you will be able to over time lower somewhat the price of a WaterLase as quantities rise. But the fact is that the WaterLase is the very complex technology and the cost of manufacturing one it is what it is and so products that have 50 plus percent in gross margin on the WaterLase we have to put the prices for that.

Lenny Bracken – Bracken Capital

Okay but I think this is the public commissioner of former study actually get to the bottom what I meant is an issue or not an issue? That’s suppose I guess that – I think that needs to be done by marketing department?

Alex Arrow

Let – without disagreeing with the idea of former study because I think it could be a lot gained by studying that issue over and over again which we have done but we think we will continue to do, but the history of products that are game-changers if you can use that word I think in multiple sectors especially in the high-end medical devices that I can think of it is not one where prices dropped over time. There is several companies that they come to mind that had game-changing market leading products that were – that are more expensive than ours that rolls over time because the value proposition was there and because it was much to have. And we think that once people understand what we do we think we’re in that category and so that’s we have more confidence in increasing the value proposition and if that getting into position to understand the value of what the WaterLase does for them then in dropping price. We are as Federico mentioned we are looking at every single component of the building materials and there are some engineering pixels that can drive down individual par cost over time.

Lenny Bracken – Bracken Capital

I should say I didn’t mean to employ you need this has dropped the cost but I’ve wrote and then said that it’s the value proposition. By adding more functionality I wanted to understand what you’re doing with the overall value proposition of the products to make it more attractive or a sale that – a sale of current and sales cycle that actually contract for the product. And so I didn’t mean to believe me you got the best deals so that I know that cost alone is not the only problem towards getting in the next facet growth. I understand that and I complement you all for explaining that to me as well as other shareholders. So but I didn’t mean to employ that you just need to drop the cost I wanted a better understand the entire value proposition because that the value proposition was that strong than sales to be a lot higher right we all know that. So I’m just trying to get at what it is, is that you need to do on that respect and I mentioned some of that but I wanted to reiterate the question.

Federico Pignatelli

So we let me – we have efforts – ongoing efforts in that respect we always want to make our products better reliable and user-friendly and with added features and some. So, again we are not going to disclose what we have disclosed or not we are simply saying that we have clearly an ongoing effort in improving the WaterLase flagship product that is iPlus it is the fact. And clearly making it user-friendly it is a very important aspect of it.

Lenny Bracken – Bracken Capital

Okay.

Alex Arrow

Lenny, what you were asking in terms of the to the heart of our entire marketing strategy and sales and marketing challenge I mean, what you’re asking is kind of the summary of the I think we talked about in the call today.

Lenny Bracken – Bracken Capital

Yeah I know, that’s why I wanted to reiterate the point because I think that’s critical for our investors to gain confidence that in the next 18 months you’re going to go turn around and reaccelerate everything on. I think you will, I think the addition of the marketing executives is well balanced our key additions to the management team that I think investors in general don’t appreciate is significant to us.

Alex Arrow

Thank you, Lenny. Thank you very much. That’s the great note to end our call today. We’ve exceeded our time and we appreciate everybody’s attention and interest.

Operator

And this concludes today’s teleconference. You may now disconnect your lines at this time. And we thank you for your participation.

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Biolase (BIOL): Q2 EPS of -$0.06 misses by $0.02. Revenue of $14.2M (+17% Y/Y) misses by $1.49M. (PR)