BIOLASE's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar. 6.14 | About: Biolase, Inc. (BIOL)

BIOLASE, Inc. (NASDAQ:BIOL)

Q4 2013 Earnings Conference Call

March 5, 2014 16:30 ET

Executives

Alexander Arrow - President and Chief Operating Officer

Federico Pignatelli - Chairman and Chief Executive Officer

Fred Furry - Chief Financial Officer

Analysts

Suraj Kalia - Northland Securities

Joe Munda - Sidoti & Company

Kathleen McGrath - WallachBeth Capital

Keay Nakae - Ascendiant Capital

Robert Hoffman - Princeton Opportunity Partners

Warren Kurtz - Private Investor

Paul Bornstein - Black Diamond

Chip Saye - AWH Capital

George Eckel - Private Investor

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the BIOLASE 2013 Fourth Quarter and Year End Results Conference Call. During today’s presentation, all parties will be in a listen-only mode. (Operator Instructions) This conference is being recorded today, March 5, 2014.

I would now like to turn the conference over to Dr. Alexander Arrow, President and Chief Operating Officer of BIOLASE. Alex, please go ahead.

Alexander Arrow - President and Chief Operating Officer

Thank you. Good afternoon, everyone and welcome to BIOLASE’s 2013 fourth quarter and year end results conference call.

On the call with me is our Chairman and CEO, Federico Pignatelli and our Chief Financial Officer, Fred Furry. Federico will begin the call with the discussion of our business accomplishments for the quarter and the full year. And then he will turn to Fred to run through our financial results and comparisons to prior periods. After Fred’s discussion, Federico will make some closing remarks before we open up the call to your questions.

Please be aware that 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 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 maybe listening to the replay, this call was held and recorded on March 5, 2014. A replay of the call will be available on the BIOLASE website shortly after this call’s completion. When listening to this call, please refer to press releases issued earlier today announcing the company’s results for the fourth quarter and year ended December 31, 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 fourth quarter and year ended December 31, 2013 can also be found in the company’s December 31, 2013 Form 10-K, which the company will file with the Securities & Exchange Commission.

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

Federico Pignatelli - Chairman and Chief Executive Officer

Thank you, Alex and good afternoon everyone. I want to welcome you all to our 2013 fourth quarter and year end results conference call. Today, we will review BIOLASE’s progress in 2013 and discuss several key initiatives that will impact 2014.

2013 was a year of significant investments for BIOLASE during which we significantly expanded our product offerings to be candid premier Total Technology Solution provider in dentistry. As a result of these efforts, we currently offer several variations of our flagship WaterLase system, including the revolutionary iPlus, the WaterLase MDX, and the MD Turbo; two soft-tissue diode lasers, including the industry leading EPIC and handheld iLase; a complete family of NewTom 2-D and 3-D CBCT digital imaging products; core model of Trios intra-oral scanners and related software; our jointly developed and newly introduced GALAXY BioMill chair-side milling machine; and a full line of Stratasys Design Series 3-D printers. To my knowledge, there is no other company in the dental market that offers such a comprehensive suite of high-tech products.

When I last talked with you in November 2013 during the third quarter conference call, I said we view the company’s third quarter performance as the lowest part of this cycle of radical change at BIOLASE. And we expect a recovery in fourth quarter and a strong 2014 in all segment of our business. Our changes in sales and marketing personnel and our broadening of our product line cost in the short-term – cost us in the short-term. But based on the results of our fourth quarter, we believe that we have the goal to recover and this reinforces our belief that our investments will pay off and that 2014 will be a stronger year. We also invested heavily in growing our international infrastructure and increasing our global marketing activities during 2013. In addition to attending the International Dental Show, the largest dental show in the world, we held the WCLI Symposium in Europe, Asia, and Latin America during the year. We also attended MEDICA, the world’s largest medical device show in Germany in November 2013.

As a result of these investments and other efforts, we are now pleased to say that we are selling our dental lasers in over 72 countries worldwide and with a stronger footing in old markets. In fact, for 2013, our international revenues increased by approximately $3.9 million or 23% compared to 2012. This international growth is almost entirely from the global interest in hard and soft tissue dental lasers and the strength of the BIOLASE brand.

Fred Furry, our CFO will provide you all with a detailed summary in a few minutes, but first, I want to very briefly mention a few figures. We had net revenue of $15.2 million in Q4 2013, which is our second highest revenue quarter since moving away from our previous exclusive global distributor model with Henry Schein in 2010 and a 23% increase as compared to net revenues of $12.3 million for Q3 2013. Q4 2013 was a 20% decrease as compared to net revenues of $19.1 million for Q4 2012, which should be noted that was our highest revenue quarter since moving away from our previous exclusive global distributor model. The higher revenue helped us to reduce our net loss for Q4 2013 to $2.2 million, an improvement of $1.8 million, or 45% as compared to our net loss of $4 million for Q3 2013.

We had a non-GAAP net loss for Q4 2013 of $1.4 million, an improvement of $1.8 million, or 57% as compared to our non-GAAP net loss of $3.2 million for Q3 2013. We believe that this demonstrates that things are turning around and the momentum for 2014 is building. I am confident that Brian Jaffe whom was appointed as Vice President, North American Sales and Marketing in October 2013 will deliver great top line growth and contribute to our drive towards profitability. Under Mr. Jaffe’s leadership, we have already added 15 new sales personnel since October 2013 and have begun to reallocate and rationalize certain marketing and advertising activities in early 2014.

One of the ways we had reallocated our marketing cost is by expanding our inside sales team by three people and refocusing the team’s effort on creating opportunities for our field sales group, what we call, our outside sales reps. Since we implemented this program in December 2013, our inside lead generators have created over 300 appointments for our outside sales reps to-date. As with many significant capital equipment purchases across a wide range of industries, the sales process of our suite of high-tech lasers, digital radiography, and CAD/CAM scanners, milling machines and printers often requires multiple touches. These touches can improve sales calls, lunch-and-learns, over-the-shoulder demonstrations, and various training classes and lectures. So we’re in the early stages of evaluating the impact that these new programs will have on reducing our cost of acquisition for new customers. However we’re clearly very pleased with the increased number of initial opportunities that we have created in such a short time. We believe that increasing the number of initial opportunities will increase the number of products sold and thereby increase our revenue.

As an added benefit this program also provides our outside sales reps with better qualified leads so that they can better leverage our broader product line without being spread too thin. As I noted earlier these larger and improved in-size and outsize sales team also now have a much broader product line to offer to dentist. The better reason we have become dentistry’s only Total Technology Solution provider.

We offer the best-in-class to dentist for high-tech technologies using our NewTom Cone Beam products for high-tech virtually pain free treatment and tissue management using our line of revolutionary WaterLase products and our diode lasers. And for high-tech restoration using our TRIOS Color scan intra-oral scanning products combined with our newly introduced GALAXY BioMill chair-side milling machine jointly developer of BIOLASE and imes-icore in Germany and our recently added line of in-office 3D printers from Stratasys for surgical guides and then to models. We expect to begin selling our GALAXY BioMill chair-side milling machine and the Stratasys 3D printers by early April. And as such we will continue to showcase our wide range of high-end, high-tech products in the coming months as we did recently at the Chicago Midwinter Meeting.

Our next major event will be the World Clinical Laser Institute Super Symposium from March 20th through March 30, (2014) in Huntington Beach, California. This super symposium is open to dentist, hygienist, and then for assistants and will contain in-depth educational tracks focused on lasers, imaging, hygiene, mentoring.

There will also be a trend on Pavilion with a wide range of lasers and imaging products for dental professionals and (test products). With our strategic initiatives to become the premier Total Technology Solution provider in dentistry and the addition of these complementary high-tech products we’re now poised to begin to capitalize on our significant investments in 2013. We’re also going to continue to work to develop new markets for our revolutionary laser products as well. For example we recently entered into a letter of commitment with Auris Surgical Robotics.

The developer of a robotic microsurgical system designed specifically for ophthalmic surgery to develop a new product for ophthalmologist planned to feature BIOLASE’S, patented WaterLase, atraumatic cutting technology mounted on a unique robotic operating system. Further we have developed a robust patent pool regarding ophthalmology in recent years including a new U.S. patent we were granted in Q4, 2013 for treating eye conditions with low level line therapy which differently expand on our previously issued U.S. patents regarding methods and devices for treating presbyopia.

Our revolutionary WaterLase technology was featured in 10 new peer-reviewed journal articles published in the English language for dentistry during the 2013 fourth quarter. These articles concluded among other things that one the WaterLase achieved more consistent results are the one year assessment compared to conventional ended on to treatment method and two combining WaterLase with regenerative therapies was effective in mitigating the clinical size of peri-implantitis. We believe both the endodontic and periodontic markets offer tremendous market opportunities for BIOLASE. Because of these market opportunities we have developed a strategic initiative to capitalize in the periodontology market, the specialty of dentistry that focuses on diseases and conditions of the teeth including gingivitis, periodontitis and peri-implantitis.

Peri-implantitis is a destructive inflammatory process affecting the soft and hard tissue surrounding dental implants. In fact the wide assortment of periodontal pathogens found around failing dental implants are very similar to those found in association with various forms of periodontal disease. As more and more implants are placed, this disease is expected to become one of the most common conditions faced by general practitioners. Dr. Sam Low an accomplished dental professional who has shaped the career of thousands of dentists and a member of our Board of Directors has been designated to lead our efforts to grow in the periodontal market.

We are also enthusiastic about opportunities in the pediatric dental market. In general, children are obviously even more sensitive to pain than adults. As such our appeal to pediatric dentist is even greater than our appeal to general dentists. We believe that the ability for a dentists who treat children with our virtually pain free WaterLase gives them a significant advancement over conventional dentists.

Moving on to customer development, in December 2013, we engaged Piper Jaffrey & Company to assist our Board in potentially monetizing our intellectual property portfolio and considering a wide range of strategic alternatives before the company. Fred Furry our CFO will now discuss our financial results for the fourth quarter and year ended December 31, 2013. Fred?

Fred Furry - Chief Financial Officer

Thank you, Federico. Net revenue for the 2013 fourth quarter totaled $15.2 million, compared with $19.1 million in the 2012 fourth quarter, a decrease of approximately $3.8 million or 20%. Net revenue for the year ended December 31, 2013 totaled $56.4 million, a decrease of approximately $1 million or 2% as compared to with net revenue of $57.4 million for the year ended December 31, 2012. The decrease in period-over-period net revenue resulted from decreases in domestic laser system revenue, offset by increases in imaging systems, consumables and other services and license fees and royalty revenue. We believe that these results were primarily due to our transition from only selling WaterLase and diode dental lasers to selling a complete line of hard and soft tissue dental and medical lasers and other high-tech solutions for dentists including CBCT, digital radiography products and CAD/CAM intraoral scanners coupled with an insufficient number of external sales reps.

For example we started 2013 with approximately 30 outside sales rep, while we are targeting to grow between 42 and 45 laser sales reps and 4 to 6 imaging specialists for 2014. Obviously it will take time for all of our new outside sales reps to get up to speed, but this will include experienced regional managers in place to help facilitate this process. We believe that our overall results for the year ended December 31, 2013 cloud to some extent the positive changes we experienced in the fourth quarter of 2013 as we implemented changes in our sales and marketing effort.

Our net revenue of $15.2 million for the fourth quarter ended December 31, 2013, was actually our second strongest revenue quarter since the termination of our previous exclusive global distribution arrangement with Henry Schein in August 2010. And a 23% increase as compared to net revenues of $12.3 million for the third quarter ended September 30, 2013. Further as Federico has mentioned, we invested a significant amount of capital in 2013 in order to significantly expand our product offerings and develop our GALAXY BioMill chair-side milling machine thus becoming the only total technology solution provider in dentistry. To our knowledge no other company currently offers such a comprehensive suite of high-tech products for dentistry including a complete line of lasers for tedding both hard and soft tissue.

While we expect this long-term strategic shift to provide significant benefits in the future it was a substantial drain on our resources for the year ended December 31, 2013. We believe that these efforts were fundamental for our future long-term growth and that we are now poised to grow into an industry leading high-tech, multi-product manufacturer and distributor. Now that we have completed our transformation, our number one goal for fiscal 2014 to which we are highly committed is to resume revenue growth and bring BIOLASE to profitability.

For the year ended December 31, 2013, laser system net revenue decreased by approximately $3.6 million or 9% as compared to the year ended December 31, 2012. Imaging revenues which included both cone beam and digital imaging and CAD/CAM intoral scanners for the year ended December 31, 2013, increased by approximately $1.3 million or 38% as compared to the prior year. The increase was driven by increased offerings at various value propositions. We expect continued improvement in sales of our imaging systems during the year ending December 31, 2014 as we hire more imaging specific sales people and gain more experience marketing and supporting these products.

Consumables and other net revenue which includes consumable products such as disposable tips, increased by approximately 8% for the year ended December 31, 2013 as compared to the prior year. This increase in consumables and other net revenue was primarily a result of auxiliary sales to our growing laser customer base. Services net revenue which consists of extended warranty service contracts, advanced training programs and other services increased by approximately $836,000 or 15% for the year ended December 31, 2013. The increased revenue was due largely to increased follow-on sales related our growing laser customer base and increased sales and marketing efforts in this part of our business. Gross profit as a percentage of net revenue was 38% for the year ended December 31, 2013 as compared to 46% for the prior year. The year-over-year decrease is 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.

Operating expenses totaled $32.5 million or 58% of net revenue for the year ended December 31, 2013 as compared to $29 million or 51% of net revenue in the prior year. The year-over-year increases were primarily driven by a substantial investment in our sales and marketing efforts during 2013. Legal expenses related to enforcing and protecting our intellectual property portfolio and class action lawsuits and increases to our payroll and consulting related expenses.

Effective for sales beginning January 1, 2013, the Patient Protection and Affordable Care Act imposed a 2.3% medical device excise tax on certain products to customer – our product sales to customers located in the United States. As a result we incurred excise tax expense of approximately $438,000 or 1% of our net revenue for the year ended December 31, 2013.

Our net loss for the fourth quarter ended December 31, 2013 totaled approximately $2.2 million or a loss of $0.06 per share compared to income of $1 million or income of $0.03 per share for the same prior year quarter. After removing interest expense of $214,000, our income tax provision of $18,000 depreciation and amortization expenses of $162,000 and stock-based, other equity instruments and other non-cash compensation expense of $475,000, the fourth quarter ended December 31, 2013 resulted in a non-GAAP net loss of $1.4 million or a loss of $0.04 per share compared with a non-GAAP net income of $1.7 million or income of $0.05 per share for the same prior year quarter.

For the year ended December 31, 2013 our net loss totaled approximately $11.5 million or a loss of $0.35 per share as compared to a net loss of $3.1 million or a loss of $0.10 per share for the year ended December 31, 2012. After removing interest expense of $600,000 depreciation and amortization expenses of $601,000 and stock based other equity instruments and other non-cash compensation expense of $2 million and earning back an income tax benefit of $164,000 the year ended December 31, 2013 resulted in a non-GAAP net loss of $8.5 million or a loss of $0.26 per share compared with a non-GAAP net loss of $320,000 or a loss of $0.01 per share for the year ended December 31, 2012.

As of December 31, 2013, BIOLASE had approximately $3.9 million of working capital. Cash and cash equivalents totaled approximately $1.4 million at December 31, 2013 compared to $2.5 million at December 31, 2012. Net accounts receivable totaled $11.1 million at December 31, 2013 compared to $11.7 million at December 31, 2012. At December 31, 2013, the company had two revolving credit facilities totaling $8 million with $3.4 million of available borrowings. On January 17, 2014, we filed a registration statement to register an indeterminate number of shares of common stock, preferred stock and warrants with a total offering price not to exceed $12.5 million. The registration statement was declared effective on January 29, 2014. This effective registration statement gives us the ability to raise up to $15 million in the single registered direct offering. If we choose to raise the entire amount permitted that would provide the company with its largest cash reserves available for operations and investments since Q3 2008.

On February 10, 2014, we entered into a subscription agreement with Oracle Investments under which the company offered an aggregate of $1.9 million unregistered shares of common stock in a private placement at a price of $2.57 per share. Gross proceeds from the sale totaled $5 million and net proceeds after operating expenses of approximately $208,000 totaled approximately $4.8 million.

With that I will turn the call back to Federico.

Federico Pignatelli - Chairman and Chief Executive Officer

Thank you, Fred. Before we move on to the questions, there are just a couple of things that have happened since the quarter and year end that I would like to mention. First, we sold our 25th laser into the dental market this past February. We are naturally very proud of this substantial milestone. One that it appears no other medical laser company has achieved in dentistry or any other medical field over the past 15 years. We believe that this is a clear proxy of how we are advancing the penetration of lasers into the dental market with our best in class laser technology. Since receiving clearance for our revolutionary WaterLase technology from the U.S. Food and Drug Administration in October 1998, we have sold approximately 10,000 WaterLase and 15,000 diode lasers.

Second, we became industry leader of Stratasys' Objet30 OrthoDesk and several of their design series high end 3-D printers which allowed dentists to fabricate stone models, orthodontic appliances, delivery and positioning trays models for clear aligners, retainers and surgical guides in their office. We believe that in-office, chair-side 3-D printing will be revolutionary factor in dental restoration in the new digital era of dentistry. By combing high end digital imaging first in class laser tissue management intra-oral scanning CAD/CAM design, chair-side milling and 3-D printing dental offices can actually – accurately and rapidly produce a wide range of restoration in appliances. We believe that Stratasys will be the perfect long-term partner as more and more dental offices recognize the excellent return on investment a digital office provides as well as the increased convenience and benefits high-tech products provide their patients. As such we believe that a potential year is enormous.

Third, we agreed to collaborate with St. Barnabas Medical Center in New York City to conduct specified research with our recently developed and patent pending revolutionary new surgical laser, code name the DRAGON. The DRAGON is a unique new laser that combines our proprietary WaterLase energy with our diode laser energy. This is a very unique approach to deliver simultaneous and intertwined argon and diode laser energy from the same delivery system. The DRAGON will be targeted at several medical markets including wound healing for burns and trauma, wound healing for chronic wounds, operative oncology, ENT surgery and ophthalmology. We expect that the DRAGON should prove invaluable to our sales and marketing efforts in the long-term.

Next, we continued our efforts to expand our current products with other medical markets. For example, we recently showcased our WaterLase high class and EPIC V-Series lasers at the 86th Annual Western Veterinarian Conference. There are approximately 70,000 veterinarians and nearly 34,000 veterinary clinics in America. There are also more than 100,000 veterinarians and 30,000 veterinarian clinics in Europe. We also recently attended the biological society from bank section meetings in January 2014 to exhibit both our WaterLase and EPIC S for ENT. We are also actively expanding and training our sales force to sell our best in class high-tech products.

We are planning to grow to 42 and 45 outside laser rep – laser sales reps for 2014, a significant increase beginning 2013 with approximately 30 outside sales reps. We have also planned to maintain between four to six imaging specialists to help close opportunities specifically related to our lines of CBCT digital imaging products and intraoral scanners. Finally, we completed the first phase of our planned cost saving measures by streamlining operations during the first quarter of 2014 and reducing payroll and payroll related expenses by approximately $1.3 million net on an unrealized basis. For the second phase we have begun to reallocate and rationalize of certain marketing and advertising activities. While we will continue to drive our top line growth, we also want to improve our bottom line as well.

This concludes our prepared remarks. Each time you are called upon during the Q&A section of the call, we ask you to limit yourself to one question and one follow-up question. If you have additional questions, please go back into queue and allow for a larger number of people to ask questions. At this point we will take questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from Suraj Kalia of Northland Securities. Please go ahead.

Suraj Kalia - Northland Securities

Good afternoon gentlemen. So Federico, first question for you, you obviously are putting in a lot of things in place. And I am curious if you can just look at it as an ecosystem and kind of explain how the different components are coming together, obviously doing a lot of sales force revamp, Brian has also come in. So when I look at the DRAGON I look at BioMill, I look at Trios, I look at Stratasys. Can you tie all of this together and help us look out six months or nine months or 12 months and how will the sales process be and how should we look upon the different components that you’re putting together?

Federico Pignatelli

Well Suraj the fact is that all these components they all tied together in building a relationship with a dental office with a dentist. As we know the dental community is a highly fragmented community. There are over 140,000 active dental offices and they function as small businesses. And the dentist in essence is the CEO of the dental practice so he is the one who is taking the decisions on what to buy and he has his own priority. So it is very important for us to position ourselves in front of a dentist that runs his small business, his dental practice as a service provider of all high-tech products that he might need.

Once we have established that relationship with the dentist and we’re in front of him. We can educate him better about WaterLase technology than just knock at the door of a dental practice with one product only. They have dentists, they have their priorities. So if the priority with dentist is to buy a digital imaging system why should we miss that opportunity to capture also that sale and establish that relationship with a doctor that then can translate in future – other product sales including and foremost the WaterLase.

Suraj Kalia - Northland Securities

Fair enough. And just one follow-up question for Fred. Fred, what was the distribution international versus domestic revenues and I’m just curious again you haven’t guidance for fiscal 2014. Any color you can provide - there are a lot of changes going on for the better. Just in terms of cadence and whatever color you can share for fiscal 2014 would be greatly appreciated?

Fred Furry

Well, the breakdown between U.S. and international Suraj is about $35.6 million for U.S. and about $20.8 million for international. So we’re a little bit – we grew a little bit in international at about 38% of our revenues there. We’re not – we haven’t given guidance yet for 2014.

Federico Pignatelli

Suraj, if you go back to your initial question on how they all tie together these products that we’re offering. Laser surgery is all about precision. So before the dentist, before he wants to move on to surgery he wants to diagnose the patient. And we believe that even though that is an investment with essentially no ROI compared to the WaterLase has a very high ROI. We believe that, that is a good choice for a dentist to make. Good diagnosis leads to better surgery. So that is why we are there to offer a product – product line to the dentist of digital imaging diagnostic products. Then we offer laser systems to allow him precise surgery. Then all other products there related to reconstructive and that is how they tie altogether. It is in essence a full circle of products that a dental practice that is high-tech will need.

Suraj Kalia - Northland Securities

Fair enough. Gentlemen, thank you for taking my questions.

Federico Pignatelli

Thank you.

Operator

Thank you. The next question is from Joe Munda of Sidoti & Company. Please go ahead.

Joe Munda - Sidoti & Company

Good afternoon guys.

Federico Pignatelli

Hi Joe.

Joe Munda - Sidoti & Company

Federico, I would like to start off with the comments in the prepared remarks for the $1.3 million in annualized savings, I am just curious how that’s going to work with you guys saying you are going to add 15 reps. And also I just have another quick question, I guess you guys said that 15 new sales people came on since October when Brian started, can you walk us through there, it’s a little fuzzy?

Federico Pignatelli

Sure, very good question Joe. The fact is that we are looking at any possible way to save every dollar. And so we rationalized our personnel here in – at the headquarters. And we have created an amount of savings that will allow us to reinvest in activities that will grow our business, our revenues.

Joe Munda - Sidoti & Company

Okay. And that pertains to the hiring of sales reps, correct?

Federico Pignatelli

Well, we really have hired 15 and we will hire more. But we will also have activity in Europe where we will go direct in Germany, actually in the German speaking countries that is a total of 90 million people in Europe. And also in the French speaking parts of Europe that is essentially 70 million people. So 160 million people of high level of income and in Italy too we have some activity that are all paying off, Europe represents definitely a great opportunity in 2014 for BIOLASE.

Joe Munda - Sidoti & Company

Okay. And then I guess one follow up for Fred, as far as gross margin is concerned and the focus on the sales of the lasers, we do assume that gross margin improved from this fourth quarter number on, any help there would be great?

Federico Pignatelli

For overall 2014, we expected to improve for a couple of reasons. And one is as you mentioned as our laser sales increased because they are manufactured here by BIOLASE. We obviously have a little bit better margins on those. So as we sell more lasers our margins will improve. And as – it can be a little bit misleading Joe is as our international revenues increase those typically have a little bit lower margin because you are selling through distributors at least right now we are. But we are also saving on commissions then and some of the service that those distributors put in for us. So even though our margins might be a little bit lower there, the net effect after sales commissions and what not should be fairly consistent.

Joe Munda - Sidoti & Company

Okay, thank you.

Federico Pignatelli

Thank you, Joe.

Operator

Thank you. The next question is from Kathleen McGrath of WallachBeth Capital. Please go ahead.

Kathleen McGrath - WallachBeth Capital

Hi guys. Thanks for taking the question. So kind of the piggyback on these questions about the cost savings also still not really clear to me, should we be thinking of this as more $1.3 million savings and then all of the investments this year is incremental to your prior cost structure because I am just – I am not understanding how we get the cost to go away when we are building the sales team, we are building out imaging team, we have got ENT till there on, so I guess I am just really not grasping where the cost cutting continues?

Federico Pignatelli

Well, first of all what we have done by rationalizing the cost structure is to free off resources to be investing in growth. As I said we will continue increasing our sales force. We will also invest in Europe. So we are freeing up resources to be reallocated. Regarding marketing, we are there to reviewing how we are investing our dollars, there have been changes in the marketplace in the past two years and for instance tradeshows are not as effective as they used to be. So we are redirecting marketing dollars to activities that are more productive directly to sale.

Kathleen McGrath - WallachBeth Capital

Okay. Alright to get off the costs side, if we can talk a little bit about GALAXY, has that been rolled out at all as far as actually shipping the product or we still just taking preorders for this system and how that’s tracking and kind of how should we think of the cadence of that heading 2014 revenue?

Federico Pignatelli

We are expecting to start shipping of the GALAXY in April. We are on schedule for that. And again the GALAXY is a very interesting product, very high end demand. We can sell worldwide. It’s a co-developed product, so in essence it’s a BIOLASE product. And this is one of the reasons why we are not offering guidance because there are several moving parts in 2014 and they are all positive. We have the Galaxy for instance a new product. We just started distributing the Stratasys. And also we are initiating activities in Europe in going direct in essentially half of Europe. So it is very important to understand that what we are doing the all activities in which we see a very good strong upside, but it is difficult to determine the outcome of it.

Regarding specifically the GALAXY again is an established market that is in the United States alone, up $500 million and growing 20% annually. And so we feel that we will be successful with the GALAXY in capturing a portion of that marketplace. The GALAXY sells for $80,000 with a gross margin of over 40%. And we believe that that could be a very nice contributor to our growth in us reaching profitability. Clearly if you would be selling 100 systems, that’s $8 million, it would be 200 systems would be $16 million. So the potential is there, but we don’t know how it will play out and we believe that again we feel strongly that is a very promising market. As we feel very strongly I believe that we will resume growth in our core business that is the laser business, the iPlus and the diode business. The diode business has been growing very nicely. In 2013 that growth we expect to see it continued, but we will see a resumption of growth of sales and we expect to in iPlus. And also we expect to continue a nice – to see a nice growth in international sales.

Kathleen McGrath - WallachBeth Capital

Alright, thank you. I will get back in queue.

Federico Pignatelli

Thank you.

Operator

Thank you. The next question is from Keay Nakae from Ascendiant Capital. Please go ahead.

Keay Nakae - Ascendiant Capital

Thank you. For Alex and Federico obviously you are adding more products into the mix, but the risk is always that a less managed appropriately you can distract your sales reps from selling the laser. So can you walk us through how many reps you have today and of those what percent are exclusively allocated to selling lasers versus imaging and other products. And then as you add additional reps this year, can you tell us how they are going to be allocated in the same way either exclusively laser or imaging or other products?

Federico Pignatelli

All the sales reps that we have added, they are exclusively related to the laser business and we have added specialists for imaging and these specialists for imaging will also take care of the GALAXY. So we believe that we are not going to have the destruction that has been happening in 2013 of our sales reps again handling too much. We have then concentrated on selling lasers, but then if they see that the dentist is interested – is resistant in buying a laser at that point because in his plans he has a CAD/CAM system and/or a GALAXY system and/or an imaging system or a 3-D printing, we want to be there to provide to the dentist all of it. And so we will – the sales reps that counts exactly in fact that’s how they called will refer to the so called past four specialist that then will close the sale. And they will be sharing commission between the two that’s how…

Keay Nakae - Ascendiant Capital

Thanks for that and then as you add the rep this year obviously you are going to be adding direct reps in Europe, but are they going to be of a similar split most of them focused on laser or how do you envision that?

Federico Pignatelli

Yes, so in Europe they are going to be focused on lasers and the GALAXY.

Keay Nakae - Ascendiant Capital

Okay.

Federico Pignatelli

For imaging we don’t feel it is in Europe marketing which we should concentrate our efforts, so we will be exclusively to laser and GALAXY.

Keay Nakae - Ascendiant Capital

Okay, thanks for that. And as a follow-up Federico you made comments earlier in the call that you thought that the trends thus far early in 2014 made you feel like you are turning a corner, typically as a seller of capital equipment your sales are back end loaded in the quarter, so are there other metrics that you measure other than lead that you feel are helpful in trying to predict sales that will actually close in any particular quarter?

Federico Pignatelli

Well, it is the trend that we see in the interest and all the changes that we have made in the sales force and how strategic we are in managing such sales force that all will payout in 2014. We believe that it will. That is our expectation. So we have to go back to 2013 and we have to understand that there was only one man Will Brown handling worldwide sales that is all North America and 70 countries around the world. We have been on the look out for a North American sales manager. All 2013 we have no success until when we finally met the right guy what we know is the right guy that it’s Brian Jaffe. And so we hired him and Brian has worked very closely with me and the rest of the team really revamped the entire organization in sales and marketing. And we believe that we are definitely in the right place and moving in the right direction.

Keay Nakae - Ascendiant Capital

Alright thanks for that.

Federico Pignatelli

Thank you.

Operator

Thank you. The next question is from Robert Hoffman of Princeton Opportunity Partners. Please go ahead.

Robert Hoffman - Princeton Opportunity Partners

Hi.

Federico Pignatelli

Hi.

Robert Hoffman - Princeton Opportunity Partners

Can you just walk us through the changes in the Board construction, Erin Enright joined the board and then left the board, Alex has now left the Board can you just kind of walk us through the reasons for the board changes, please?

Federico Pignatelli

Very simple. Board members as you know they have their own businesses, their own life, their own reasons to eventually leave the Board. There is not a specific reason to leave the Board. It can be simply because of their own busy schedule, their own busy life. Regarding Dr. Alex Arrow and Dr. Sam Low, I want to be clear that these tendered the resignation because two new board members that were coming on board, but I reviewed tendering the resignation and I decided to not accept them and ask them to continue to serve on the board, because they are valuable board members both of them. And so they gratuitously agreed to continue. So I want to be very clear and we will be filing an 8-K by this day. In fact, that Dr. Alex Arrow and Dr. Sam Low are on the board and have continued to serve on the board. So their resignation that was tendered was not accepted by me.

Robert Hoffman - Princeton Opportunity Partners

Just I am not clear, why they would tender it, especially Alex, why would he tender it if it wasn’t going to be accepted, I mean, I am assuming that talk?

Federico Pignatelli

Because there was – initially we told that a board of eight people maybe was too large for this company size and then instead was reconsidered. So basically, I asked them to continue serving on the board and that is what it is.

Robert Hoffman - Princeton Opportunity Partners

And Erin Enright, I mean she was only on the board for like three months, I mean, I just can’t imagine that somebody’s schedule changes that much. So there was no disagreement with direction or anything like that?

Federico Pignatelli

No. Erin was a very valuable board member, but she felt this is a company that is moving rapidly and Erin, she is a kind of person that she likes to dedicate the necessary time. And she felt that because this company was moving very rapidly that was a little difficult for her own schedule given that she is a very busy person to continue. So she asked me if I could substitute her with another board member and so Jim Talevich substituted her.

Robert Hoffman - Princeton Opportunity Partners

Thank you.

Operator

Thank you. The next question is from Warren Kurtz, a Private Investor. Please go ahead.

Warren Kurtz - Private Investor

I am sorry. You already answered my question. Thank you.

Federico Pignatelli

Thank you.

Operator

And the next question is from George Eckel, a Private Investor. Please go ahead. Mr. Eckel, your line is live.

Federico Pignatelli

Okay, next one. Thank you.

Operator

The next question is from Paul Bornstein of Black Diamond. Please go ahead.

Paul Bornstein - Black Diamond

Yes, hi guys.

Federico Pignatelli

Hi, Paul.

Paul Bornstein - Black Diamond

I am just curious it seems like this is the first time you are having a lot of leverage to get sales moving and you are still uncertain in terms of how quickly the sales will kick in as you had a year or two to plan this and you have some new board members. Do you have a kind of a timeframe when we are going to start see some of this really move forward, because it should come pretty quickly with all the resources you have in the pipeline? And as you have had a very slow growth profile in the past and it looks like you have a lot of figures in the pie now. And can they – with the people you have on board now, can they make this thing happen very quickly, because you have been out there in the marketplace for quite a while?

Federico Pignatelli

Well I’m going to take a little bit 40,000 feet view to answer your question. When in Q3, 2010 the new management took over BIOLASE was a company essentially out of business. No money in the bank. $9 million order to Schein, $6 million order to Silicon Valley Bank and very difficult situation. So I believe that in 2011 and 2012 not only we managed to repay all the $15 million back by raising $19 million of average of $4.5 per share but $19 million less expenses so let’s say $18 million.

And we managed with that capital raise of $18 million to payback $15 million of debt. And to operate the company for two years growing sales from a meager $4 million on a quarterly basis to essentially a run rate of $14 million, $15 million essentially a $16 million company. So I think that with this day well given the circumstances. Now 2013 was a year of post of this growth and the year in which we decided to strategically place the company as a multi-product company, as a Total Technology Solution provider with center piece of ways the WaterLase technology, let’s not forget that and also now the Galaxy that is a BIOLASE product.

Now we have organized in 2013 the company to be leveraging all that in 2014 and beyond. So we have the people in place like I said we hired Brian Jaffe for – to manage North American sales. We will be hiring as of April 1 a manager for European sales that we also manage Asia and Latin American that will be managed from United States. So we have planned everything to leverage all that we’ve build into growth of revenues and clearly with a strong commitment to reach profitability.

Paul Bornstein - Black Diamond

Okay. Well I mean it seems like everything is in place now. It’s just execution and I really have a line incentive to get this thing going. So I’m not talking about $15 million a quarter because are doing a lot more?

Federico Pignatelli

That is why we pose to build the foundation of a company that can grow to a much higher level of revenues. Post to my knowledge and your (plan) into analyzing this sector and the market in general I don’t know of any one product company in the dental market that has succeeded to become a company of any size. As a company that is successful in the dental market is a multi-product marketing company. So we have taken this approach for very good reasons. We cannot reinvent the market. The dental market is a dental market. It is structured in a certain way and we needed to adapt to it. So that’s what we did. We listen to the customer. We want the customer on our side. And once we have the customer as our customers we intend to keep it for a long time, for a long term. And that allows us to sell to that one customer many problems and generate the substantial amount of revenues. And that customer will have in BIOLASE a one-stop shop. And also we will have to quote only one service guy or one (indiscernible) to service all the products that he has in his central practice. So it’s a very convenient solution. It is really the best marketing approach that we can find.

Paul Bornstein - Black Diamond

Yes. And also like you leveraged the fantastic R&D department that you have had that hasn’t got all the credit, because you haven’t got the sales, so hopefully they will all start working, because you have a lot of products and yes, they should be able to get there in the marketplace?

Federico Pignatelli

Paul, you can just say that, I am sorry to interrupt you just said you haven’t got from the sales. I just reminded you that the company when we took over the company was running at $16 million on an annual basis. We took the company to become essentially a $60 million company in a very short amount of time. So I think that we did terrific.

Paul Bornstein - Black Diamond

Yes, I think you did….

Federico Pignatelli

Also capitalized and that we have to fight in our growth, Henry Schein exempting all their inventory against us. So it’s not been an easy time, but it’s past now. Henry Schein has completed all – depleted all their inventory in Q4 2013. So we will not have to deal with that problem anymore, but I think the achievements of this management, they have been significant. And so while I agree that now we have to resume growth, we also have to acknowledge the fact that the company just three years ago was in a very bad spot and now it’s a completely different company with a very bright future.

Paul Bornstein - Black Diamond

Yes. Well, I think you have stabilized the company and I am talking about the sales that I expect given the product levels that you have, so $60 million doesn’t even cut it, but you have stabilized the company. So now the growth should be significant at this level with the product inventory that you have?

Federico Pignatelli

We agree, Paul.

Paul Bornstein - Black Diamond

Okay, that’s what I was getting. Okay, thank you. I expect this to be a good year.

Federico Pignatelli

Thank you.

Operator

Thank you. And the next question is from Chip Saye of AWH Capital. Please go ahead.

Chip Saye - AWH Capital

Hey, guys. Thanks for taking my question. It looks like based on your numbers that obviously for Q4, international was up about 20% and domestic was down about 32% just on the revenue side on a year-over-year basis. Is that right? And can you just talk about how you are producing such different results internationally versus domestically?

Federico Pignatelli

Well, like I say, Bill Brown was given the task to build up the international infrastructure. And now we are present with strong footing in so many two countries. So you have spent a considerable amount of time in 2013 in managing international sales while we were looking for U.S. and Canada even though Canada is international, but we are direct to advance really in buying in other states, sales manager. And we didn’t find the right guy until when we found, Brian, but that was late in the year. And so clearly, the sales force in North America was not managed unfortunately with the same attention, with the attention that was needed, because we only had one man for the whole world sales. So that was a big burden for one person. That problem is not going to be there for 2014 and beyond. So we have taken care of that, yes, we are not happy about the drop in sales domestically, but we are also – we have to acknowledge that we grew 23% internationally. And so we have essentially flat year in revenues. We are not happy with that. Absolutely, we are not, but at the same time, we have taken the correct measures to make sure that United States will resume growth as we are through.

Chip Saye - AWH Capital

Thank you.

Federico Pignatelli

Thank you.

Operator

Thank you. The next question is from Kathleen McGrath of WallachBeth Capital. Please go ahead.

Kathleen McGrath - WallachBeth Capital

Hi, guys. Thanks for taking the follow up. Just quickly can we go over the ENT launch, just specifically kind of what we are looking at for a cash burn rate in 2014 to get that business going and kind of when we should be seeing those sales additions hitting in the P&L?

Alexander Arrow

Hi Kath, this is Alex. The important thing about the ENT launch is that it’s not going to be taking away from the sales reps who are selling WaterLase to dentists. So we are going to have to have separate sales efforts and different pool of resources. Now, we are going to start small, because we want to make sure that the model works before we really gear up. We are very excited about the line, but we are not going to break the bank on ENT right away. We are going to start with a targeted, just a small group of ENT specialists. And the approach is going to be a little different for the hospital-based ENT procedures versus the office-based ENT procedures and those two parts of the market behave very differently. The office-based ENT clinicians make decisions on their own. They often own their own business and practice in clinic. And then hospital-based physicians in ENT are making decisions through hospital purchase committees and are not personally responsible for their own P&Ls. So, it’s an entirely different sales call point. And on your question about the cost and when that’s going to hit the P&L and so forth, we are just not ready to give specific quantitative guidance on it yet. We can give you the qualitative story, but we are not at the point yet, where we are ready to give 2014 guidance. So did that get at least part of your question?

Kathleen McGrath - WallachBeth Capital

Yes. So, it sounds like generally, it’s an exciting part of the business and the growth opportunity, but I should – we shouldn’t really be expecting any kind of huge cash burn and this is going to be an extremely calculated launch, where you are cognizant of the rollout and maintaining the cost to be able to keep the capital focused on the dental side of the business?

Alexander Arrow

Correct. We are going to be very prudent in the spend and it may involve a partner, but it’s going to be a targeted focused approach and a small number of direct reps for the office-based market.

Kathleen McGrath - WallachBeth Capital

Alright, great, thank you. That’s really helpful. So, thank you very much Alex.

Alexander Arrow

You are welcome, Kath.

Operator

Thank you. The next question is from George Eckel, a Private Investor. Please go ahead. Mr. Eckel, your line is live.

George Eckel - Private Investor

I am sorry, I had it on mute. I am probably been around as long as you guys have and I am sorry we miss about the return on your efforts. I know you guys are spending a great deal of time reaching a goal, but it all seems for not, I am very frustrated I don’t know what the rest of the community?

Federico Pignatelli

Well, I understand your frustration, but Rome was not built in a day and…

George Eckel - Private Investor

You guys were through the same scenario a year ago. And it’s been dead since then, right, not even dead, it went dormant. And even I am looking at stuff tonight and it’s just retreating, I mean, it’s not me no one else has any confidence in you guys?

Federico Pignatelli

Well, I don’t know what – I am sorry, if you had no confidence. I don’t think that no other people they have confidence. We have plenty of people that are actually they have confidence in what we are doing and how we are doing it and how we position the company in 2013 for future growth. Like I say, we grow the company from $16 million run rate in 2010 to essentially $60 million in 2012. We had one year of leveling off of sales. And we did that with very little money, being undercapitalized and we are looking very positively 2014 and beyond. We believe that we have built it based on foundation to grow the company substantially and in a way that will be lasting. So I’m sorry for your short term frustration. But the fact is that like I say a company, a business is not built in a year or two. Anything that is solid is built with a lot of work and a strong foundation. So if you’re a long-term shareholder you’ll be pleased at a certain point. We’re working hard to make this company the success it deserves fee. You have to see from where this company comes from. In the summer of 2010 this company was essentially out of business, we redirected the business. So you have to look at the past three years, you cannot look at BIOLASE when was managed by other people.

Operator

Thank you. We have time for one final question comes from the line of Joe Munda of Sidoti & Company. Please go ahead.

Joe Munda - Sidoti & Company

Yes, just one quick follow-up. Fred what was CapEx for the year as well as the cash burn from operation?

Fred Furry

Joe, the CapEx I don’t have that number handy in front of me. That will come out in the 10-K. I’ll flip for a while I’m talking though. But the number that we’re reporting right now is in the last table with respect to our non-GAAP we have reconciliation at the tail-end of the earnings release that will walk you through from our GAAP net loss to our non-GAAP net loss. That’s not necessarily the cash burn but again that will get out in just a couple of days where we release the full 10-K.

Joe Munda - Sidoti & Company

Okay. And then any sense of what CapEx could be going forward with all these initiatives?

Fred Furry

Well one of the interesting things I know you’ve been out to visit the facility Federico will explain it. Everything here is purchased, you walk around the building everything in engineering, everything done in manufacturing we own. If you look at our depreciation we have a lot of our fixed assets are almost nearly depreciated. So we’re pretty good to go in that respect. In the K we’ll have the numbers. It’s generally going to be anywhere between $0.5 million and $700,000 though.

Federico Pignatelli

Joe, we have some capital expenditures in developing the Galaxy was a major development, but now that is essentially behind us. We don’t really see any substantial capital investment in 2014.

Joe Munda - Sidoti & Company

Okay. Thank you.

Federico Pignatelli

Thank you.

Operator

Thank you. Ladies and gentlemen, I would now like to turn the conference back over to Mr. Pignatelli for closing remarks.

Federico Pignatelli - Chairman and Chief Executive Officer

I want to thank you all the people on the call today and all the stockholders of BIOLASE for their trust and their patience while we’re building a much stronger company to be a company that will become – we expect and we’re working to become a very substantial company in the years to come. And we want to be a very clear management, all of us we’re very, very positive about what is happening here at BIOLASE, we like what is happening, we like technological advancements that we’re achieving, the DRAGON will be a major one of them. And we’re strongly believers of laser technology penetrating – continue penetrating the dental field and the medical market. And we believe that BIOLASE will be a premier player in this field not only in dentistry where we’re the dominant player, but very much also in the medical field. With that, we will – I thank you and we will get together in the next conference call for Q1.

Operator

Thank you. Ladies and gentlemen, this does conclude tonight’s teleconference. You may disconnect your lines at this time and thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!