BIOLASE's (BIOL) CEO Jeffrey Nugent on Q2 2014 Results - Earnings Call Transcript

Aug. 8.14 | About: Biolase, Inc. (BIOL)

BIOLASE Inc (NASDAQ:BIOL)

Q2 2014 Earnings Conference Call

August 7, 2014 4:30 PM ET

Executives

Alexander Arrow – President and Chief Operating Officer

Jeffrey Nugent – Chief Executive Officer

Frederick D. Furry – Chief Financial Officer

Analysts

Joseph Munda – Sidoti & Co.

Kathleen McGrath – WallachBeth Capital

Keay Nakae – Ascendiant Capital Markets

Chris Sassouni – Eagle Asset Management

Paul Bornstein – Black Diamond

Joe Munda – Sidoti & Company

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the BIOLASE 2014 Second Quarter Results Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions) This call is held and recorded on August 7, 2014.

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

Alexander Arrow

Thank you. Good afternoon, everyone and welcome to BIOLASE’s 2014 second quarter results conference call.

On the call with me is our acting Chief Executive Officer, Jeff Nugent and our Chief Financial Officer, Fred Furry. Jeff will begin the call with the discussion of our corporate governance changes, recent actions taken and our new corporate strategy. Then Fred will run through our financial results for the quarter and comparison to prior periods. After Fred’s discussion, Jeff will highlight some of our key strategic initiatives and make closing remarks before we open up the call to your questions.

Please be aware that forward-looking statements will be made during this presentation, including statements regarding our strategic initiatives and financial performance. Forward-looking statements are any statements that are not historical facts and they can be identified by words or phrases including, will, may, believe, estimate, project, plan and similar words and phrases. These forward-looking statements are based on BIOLASE’s current expectations and are subject to a variety of 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. 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.

A replay of this call will be available on the BIOLASE website shortly after this call’s completion. For the benefit of those whose are listening to the replay, this call was held and record on August 7, 2014. 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, 2014. If you do not have a copy of this release, it is available on our website www.biolase.com. The company’s results for the quarter and six months ended June 30 can also be found in the company’s June 30, 2014 Form 10-Q, which the company plans to file with the SEC on this coming Monday August 11, 2014.

With that I’m pleased to introduce Jeff Nugent. Jeff, please go ahead.

Jeffrey Nugent

Thanks, Alex and good afternoon to everybody. I want to welcome you all to BIOLASE 2014 results conference call for the quarter and six months ended June 30, 2014. My name is Jeff Nugent and this is my first opportunity to speak with many of you, as the acting Chief Executive Officer of BIOLASE. For those of you who don’t know me let me just tell you a little bit about my background.

I started my career at Johnson & Johnson working in a number increasing senior leadership positions over 20 years, including responsibility for the global oral and dental care business, as well as worldwide global Vice President of Quality. Following J&J, I was the worldwide President and CEO of Neutrogena, President and CEO of Revlon and the Chairman, CEO of Ascension Orthopedics. Most recently I was the Founder, President and CEO of Precision Dermatology a multichannel skin care company that was acquired by Valeant Pharmaceuticals earlier this year.

Before I get started I would like to say a few words about the company and the recent issues involving our former Chairman and CEO Federico Pignatelli. The recent issues involving Mr. Pignatelli weren’t unfortunate and costly distraction. I believe our results for the second quarter and six months ended June 30, 2014, clearly demonstrate why BIOLASE needed new leadership. The company’s performance under Mr. Pignatelli, who resigned two weeks before the quarter ended was clearly unacceptable and does not reflect company’s true potential to deliver value for customers and stockholders.

As you may have seen yesterday, Mr. Pignatelli announced his resignation from the board. This followed his decision just last week to withdraw the litigation he commenced in July against the company and certain members of the board. We are very pleased with Mr. Pignatelli decided to take these actions, his decision to resign from the board was the right thing to do and will allow current board and management team to focus fully on delivering BIOLASE’s full potential.

BIOLASE is a great company, I’ve learned this I have been closely watching this company for well over year. We have great technologies outstanding employees and we are very confident about its future. The new senior management team and the full Board of Directors led by our new Chairman Paul Clark are in the process of implementing a comprehensive long-term strategic plan that we believe will allow BIOLASE to realize its full potential and deliver the kind of value our stockholders have long expected.

I’m very proud to be associated with such an outstanding group of directors and that bring to BIOLASE the depth and breadth of their many career accomplishments. Since taking over as acting CEO on June 16 this year and with the support of the Board I have moved aggressively to address a number of key issues.

Some highlights include one, we raised $12 million in a private placement of unregistered shares of BIOLASE common stock at an undiscounted market price.

Second, we retired all $2.9 million of the company’s debt with Comerica Bank and significantly strengthen the company’s balance sheet. Third, we engaged with suppliers who had stopped shipping to this company except by COD and they are now beginning to ship on more normal terms.

We have made critical strides in improving our business and budget planning instituted stronger financial disciplines and reenergize and incentivized our sales forces. We have largely rebuild our marketing team between several strong leaders with extensive marketing credentials. We established a quality improvement task force with a goal making significant improvements in all product quality metrics. And last we’ve initiated a gross profit improvement program to identify operational improvements and significant cost reductions.

At the same time, we’ve established a clear overall strategic direction and one that includes individual objectives and specific accountabilities for all members of the senior management group. So, the other strategic changes we will begin to develop and implement include the following. In fact we’ve already started on a number of these.

We are renewing our focus on customers and customer satisfaction as central to our success going forward. Along with selling lasers and related equipment, the management of customer relationships and customer service is critical to achieving that level of customer services and will be closely monitored and measured through customer feedback as part of our regular course of work.

We are also focusing on quality is a top priority and I’ve ask Dr. Arrow to lead this initiative and we are already making some significant strides. Quality metrics have not been what they should be and what our customers expect from us. The recommitting to initiatives to ensure shipments that are defect free and that when problems occur to resolve them in a timely manner.

We are also looking to drive increased innovation by making meaningful improvements to existing products and developing future products that our customers want by actively soliciting customer input and evaluating market data. Our aim in fairly short orders to have BIOLASE regarded by the majority of our customers, as the most innovative in all categories.

We will also evaluate the potential of adapting our current technologies and products with adjacent medical specialties, where there are logical market opportunities validated by the market research that gives us the confidence that they will succeed. We’re beginning to focus on creating and documenting clinical support and claims for our technology, technologically superior products rather than selling based on features of our products, which is significant difference between talking about features and talking about benefits. This will be a major responsibility of our new Professional Dental Advisory Board, which we will be announcing first part of next week.

We’ve already began replacing internal management silos, the individual organizations to which marketing, finance, sales et cetera normally gravitate to and changing this culture to one that focuses on cross functional teams that workout manufacturing products, selling products and delivering new products. These cross functional management teams will have the authority and responsibility to significantly improve operational efficiencies and improvement will be measured using several key metrics.

Obviously, the new leadership team was only in place for two weeks during second quarter, which was clearly insufficient time to make difference on our quarterly performance, but as you can tell we are moving very quickly to bend the curve on the performance of BIOLASE.

What I would like to do now is turn the call over to Fred Furry, our Chief Financial Officer for more financial detail on the quarter, Fred?

Frederick D. Furry

Thank you, Jeff. Clearly, the company is looking forward to improve stability and a focus on the initiatives that you have described. I can say first hand that the mood of the company is the best that it has been for quite a long time. Moving onto our results, net revenue for this year second quarter was $10.2 million compared to $14.2 million in the second quarter of 2013.

Net revenue for the first six months of 2014 was $21.7 million, compared to $28.8 million in the same period in 2013. The overall decrease in period-to-period net revenue reflected decline in domestic and international laser system revenue as well as the decline in imaging systems and consumables and other net revenue, partially offset by a slightly increase in services revenue.

As Jeff alluded to, we believe that our results were negatively impacted primarily by the significant distractions over the recent past. We believe that the resolution of those issues and the resulting management changes have eliminated the confusing within our management.

As Jeff said, we are all focused on the execution of our strategic plan and we believe that this renewed focus in a well defined revised strategic plan one is focuses on our core dental laser business will result in improved revenues during the reminder of 2014 and into 2015.

The increased cost of revenue as a percentage of sales is primarily the result of lower laser system sales domestically and internationally. In June, subsequent to the resolution of our corporate governance issues, we extended the warranty on our domestic WaterLase systems from one year to two years for systems purchased after January 1, 2014. This warranty change resulted in an additional expense of approximately $250,000 for the three months and six months ended June 30, 2014. This change was made as a strong signal to our customers that the company is confident in the performance of its products and will stand behind them for an additional year of warranty coverage.

As a result for the second quarter ended June 30, 2014, our gross profit decreasing 39% for the second quarter ended June 30, 2013 to 36.6% of net revenue.

For the six moths ended June 30, 2014, our gross profit was 35.3%, a decrease from 39.4% for the same prior year period. We expect our gross profit to improve we are successful on increasing revenue from sales of our core laser systems in the third and fourth quarters of 2014.

For the quarter and six months ended June 30, 2014 sales and marketing expenses decreased by $559,000 and $1.4 million respectively from the same prior year period.

For the second quarter ended June 30, 2014, the decrease was primarily a result of decreased convention cost of $126,000, decreased media and advertising expenses of $377,000 and decreased commission expenses of $60,000.

For the six months ended June 30, the decrease was primarily result of decreased convention costs of $640,000, decreased media and advertising expenses of $672,000, and decreased commission expenses was $275,000 offset by increased payroll and consulting related expenses of $248,000.

Operating expenses in the second quarter as first six months ended June 30, 2014 were $9.9 million and $18.5 million respectively, compared to $7.9 million and $16.5 million in the same prior year period. The primary driver of the increase during the second quarter and first six months of 2014 was increased legal fees of $2.5 million and $3.2 million for the quarter and six months ended June 30, 2014, respectively, incurred by the company at the direction of its former CEO in connection with the litigation to resolve the dispute over our corporate governance and the composition of BIOLASE’s Board.

Engineering and development expenses remain relatively unchanged for the quarter in six months, as compared to the same prior year period due to our continued efforts in new product development and sustaining projects for existing products.

The net loss for the quarter ended June 30, 2014 totaled $6.4 million or $0.17 per share, compared to a net loss of $2.6 million or $0.08 per share for the same prior year period.

After removing interest expense of $185,000, income tax provision of $29,000, non-cash depreciation and amortization expenses of $177,000 and non-cash stock-based compensation expense of $338,000. We had a second quarter non-GAAP net loss of $5.7 million or $0.15 per share compared with a non-GAAP net loss of $1.7 million or $0.05 per share for the same prior year period.

Net loss for the six months ended June 30, 2014 was $11.3 million or $0.31 per share, compared to a net loss of $5.2 million or $0.16 per share for the same prior year period. The non-GAAP net loss was $9.8 million or $0.26 per share for the six months ended June 30, 2014 compared with a non-GAAP net loss of $4 million or $0.12 per share for the same prior year period.

As of June 30, 2014, the company had a working capital deficit of approximately $1.2 million. Cash and cash equivalents totaled approximately $2.1 million at June 30, 2014 compared to $1.4 million at December 31, 2013. On July 22, 2014 the company sold 6,250,000 shares unregistered shares of common stock at an undiscounted market price of $1.92 per share with no warrants. Gross proceeds from the sale were $12 million. The company expects net proceeds of approximately $11.7 million after expected offering expenses of approximately $300,000.

In addition on July 28, 2014, the company paid in full all amounts due under its revolving lines of credit with Comerica Bank, including principal, accrued interest, and fees which totaled approximately $2.9 million, in the aggregate and the credit facilities were terminated. The company is considering alternative financing arrangements as part of management’s plan to address liquidity.

With that I’ll turn the call back to Jeff.

Jeffrey Nugent

Thanks Fred. In closing, let me say the company’s current Board of Directors is line behind the need to establish, implement and importantly execute the strategic changes I outlined earlier to get BIOLASE moving in the right direction. While these initiatives were too late for the second quarter, we believe that these changes are intergrowth to getting the company focused on real growth, increasing profitability and shareholder value. We believe that this renewed focus and a well defined strategic plan in the resources to implement it we’ll result an improved revenues during the reminder of 2014 and 2015.

With that we’ll open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) We will now open the call for questions. Our first question is from the line of Joe Munda with Sidoti & Company. Please proceed with your question.

Joseph Munda – Sidoti & Co.

Jeff, in your prepared remarks, talking about the turnaround planned. Is it taste to assume that the plan that’s being implemented could lead to growth – positive growth in the third quarter, or do you think that’s a fourth quarter events as well as do we expect any further charges related to the litigation that occurred with the former CEO.

Jeffrey Nugent

The second question first. Well, we’ve been keeping track of legal expenses, what we haven’t included are the costs associated with the proxy fight. And frankly we don’t have an accurate estimate on that as far as the outlook for the third and fourth quarter. I’d like to help you appreciate that we’re really in effect digging out of a hole. And well I’d like to show positive growth in both third and fourth quarters, what I’m committing to is growth over prior year for the back half. And right now it looks like, because of the slope of the curve I think much of that’s going to happen in the fourth quarter.

Joseph Munda – Sidoti & Co.

Okay, that’s very helpful.

Jeffrey Nugent

Good.

Joseph Munda – Sidoti & Co.

Thank you.

Jeffrey Nugent

Sure. Thank you.

Operator

Thank you. Our next question is from the line of Kathleen McGrath with WallachBeth Capital. Please proceed with your question.

Kathleen McGrath – WallachBeth Capital

Hi, guys. Thanks for taking the question. So, this kind of around everything that’s happened internally with the company some of the sales force shake up. What should we be thinking about? How long it’s going to take to get the sales force built back, how many people we lost and but are we thinking about how long it will to get the productivity range back up amongst the sales force and should be new people coming in.

Jeffrey Nugent

Well, excellent question. And I would differentiate on our international side because I spent a great deal of time with them last week. And I’m very convinced and confident that, while they have some real hurdles to overcome they are a top tier group. On the domestic side, we have again very high quality people, who are implementing some significant sales strategy changes and frankly not all of them are going to be successful based on our new criteria.

We are doing everything on our power to make them each and everyone of them successful, but there are two things that affected. One is and I’ve mentioned this before, we have very strong regional directors. We need to move into that regional level of responsibility. And second, and I mentioned this also we have a very senior candidate with exceptional background that we’re in the process of confirming an offer and hopefully getting him in here within the next two weeks.

Critical part of the domestic sales force rejuvenation is the strongest leader that we can find who – unless the strengths that we have at the regional level and use to a wider range of sales and marketing quality and I’m not just saying this, but we’ve got some real quality people in the sales organization. They just need to be taken to a new level and adapt to the new go to market strategy that we put in place. So I’m not giving you a specific answer, but my goal is to get someone in here in the next 30 days and my suspicion is that this is going to be a quicker turnaround at the sales force level than we previously thought.

Kathleen McGrath – WallachBeth Capital

Okay, and then kind to that tune beyond the source just in accounts. The disruption that have kind of happened in the Dentist mind’s around maybe the longevity of BIOLASE, while all this battle was going on in the public eye what are the plans or is that going to be something that was kind of wait and see on how to improve the Dentist perception at this point in time. A site from the warranty that you’re offering, just to let him know that you guys are still going to be around.

Jeffrey Nugent

Well, I’ve never relied on a wait and see strategy. I’m very confident that the programs we have in place and they include our announcement of a Professional Dental Advisory Board early next week. Who is – and the group is cheered by Dr. Sam Low, who is the past President of the American Academy of Periodontology. And we have equally prestigious and influential dental professionals on that Advisory Board and this has just been put together.

So we’re announcing that on Monday, as part of the strategy to increase our credibility and to further our presence on speaker podiums and incorporate that in a defunct marketing program to raise awareness, increase our clinical publications. So and I’m on my own effort to get out and reach as many of these key Dentist as possible I’ve personally met well over a dozen and I don’t have the magic one, but I’m assuring them that this is a very different company we’re going to pay a lot more attention to them.

We’re going to pay them what is due to them on a much more predictable basis. So again longwinded answer but this is key to our success and by the way there – it is not a 100% skepticism about BIOLASE. We have an enormous number of people who are incredibly dedicated. Recognize the superiority of our products and out there sharing their recommendations with their colleagues, which at the end of the day is one of the most effective ways to expand the product usage. So I remain confident that we’re going to be able to turn this perception in the marketplace and to what it should be.

Kathleen McGrath – WallachBeth Capital

All right. That (indiscernible) I’ll jump back in queue. Thank you.

Jeffrey Nugent

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Keay Nakae with Ascendiant. Please proceed with your question.

Keay Nakae – Ascendiant Capital Markets

Yes, thank you. Question again, respect to the sales force and what the caveat that not all sales people are productive, but how much of the sales force you know on a absolute terms are on a percentage basis, walked out the door and how much back selling and hiring do you need to do in that area.

Jeffrey Nugent

The simple answer is that from a sales force standpoint I believe the number is approximately six. Sales positions that have left since the beginning of June and for several reasons with all of the litigation uncertainty and so forth, they were concerned about is this company got to be around and of those I like to look out is regretted departures and non-regretted departures.

So we had several terminations at our initiatives and frankly we had a few very aggressive sales people that I don’t consider to be capable of implementing our current customers first strategy.

So and I don’t want to get too specific on you, but I’m not sure what the total number of sales people needs to be to really achieve our goals. So that’s one of the things that we are working with the current management team is just understanding what the potential is on a individual basis for hiring new people, we just trained another eight people, we people are less.

So, we are refilling the vacancies, but again and as positive as I am on our regional managers having someone of the seniority and experience that we are currently looking at. I expect very fast changes.

Keay Nakae – Ascendiant Capital Markets

Okay, great. And then just in terms of their focus beyond focusing on customer satisfaction and terms of actual product focus are they going to be incentivized to be more focused on selling WaterLase and the soft dialed lasers like EPAC as a opposed to imaging products, how would characterize where you really want them focused on a product basis beyond just focusing on customer satisfaction?

Jeffrey Nugent

Yes, and the predominate incentive is based on our current products and even more specifically even that are primary incentive program is on reestablishing WaterLase into fastest growing and most desirable laser equipment on the market. So current products the others are have potential, but I haven’t completed my review of those and we will making a decision on those shortly, but right now our focus is on the original laser products themselves.

Keay Nakae – Ascendiant Capital Markets

Okay, great. Thanks for that.

Jeffrey Nugent

Sure.

Operator

Thank you. Our next question is from the line of Chris Sassouni with Eagle Asset Management. Please proceed with your question.

Chris Sassouni – Eagle Asset Management

Yes, good afternoon. Could you just talk – you have a lot of different initiatives going on simultaneously. So, would you say that they’re all of equal importance as you try to implement the various strategic initiatives and/or the strategic plan, I am counting quality issues, customer relations revamping the sales force bringing in new senior management talent and then a decision that you’ve got to make with product partnerships and whether you keep those or whether some of those get adjacent, I mean, in your opinion those all of equal importance or there is some that you are going to tackle first and then turn your attention to others later?

Jeffrey Nugent

Yes, thanks for the question Chris. It’s clear that one of my objectives is to focus this company, because we were doing way, way of too many things there was no focus here. So, even the items that you just articulated there are higher priorities than others and I am a firm believer of that if you spread your resources too far you know you are not going to get anything done. So, several of these fit together for example, creating a much more important customer satisfaction relationship is really expanding the responsibilities of the sales force. Because they are responsible not only for sales, but for account management and taking advantage of our CRM customer relationship management program, which has been assuredly missing here is a phenomenal source of information.

But like with anything you got, an organizations capable of handling three to five key priorities each led by different parts of the organization. If I had flip chart here, which I do, but you can see the organization here has been clearly limited to silos of marketing and R&D et cetera and they live within those silos, they speak the same language and they don’t necessarily talk to the other groups in the company.

So one of the things I’ve done and I initiated with 250, J&J operating companies around the world was reverse the focus, so that is not the best marketing department in the world. But we are the best at selling our products, making high quality products and developing new products and that is a cross functional discipline based on the core processes within our company.

So I don’t think I am answering your full question, but may be will have a opportunity to do that in the next few days.

Chris Sassouni – Eagle Asset Management

Okay. And then the second question is obviously you have had an opportunity to see the evaluation of dental practices from your days at J&J to where things are today. So, as you spoken to Dentist and as they are evaluating some of them evaluating the steps to do I want to be a digital Dentist or don’t meaning walk into the 21st century and then make decisions about what kinds of digital or new technologies they want to adapt, what are they telling you about the relative importance of lasers in their practice versus CEREC, Cone Beam, digital X rays and so forth?

Jeffrey Nugent

Well, obviously it varies, but it’s like the crossing the – Kasem and you got early adapters and later adapters and clearly we’ve been able to penetrate the early adapters, but what we are focusing are now is the bulk of that bell shape curve and adapting our products to meet their needs. So if we are talking 5% to 10% penetration right now there is no reason why we can bring that up to at least 50% coming from that hump in the bell shape curve.

And we’ve learned a lot and I’m not going to say it all happened on June 14, but the company here is learn quite a bit, they haven’t been able to execute a lot of it, but what I’m doing now is saying it requires a very specific plan which we haven’t had. And the new plan is focused on expanding our attractiveness of our products to meet multiple demands that’s probably the best way to put it.

Chris Sassouni – Eagle Asset Management

Okay, thank you.

Jeffrey Nugent

Sure, thanks Chris.

Operator

Thank you. Our next question comes from the line of Paul Bornstein with Black Diamond. Please with your question.

Paul Bornstein – Black Diamond

Yes, thank you. I guess with this company I have been involved for a number of years and has been a lot management and unfortunately it’s the focus always has to go onto sales because the R&D and the products seem like (indiscernible). So I’m still trying to understand how you are leveraging the technology especially some of the new products that are out there dental lasers are the key, but you have that lasers you have the 3D implant that this was launched in the first quarter. Again, I let all those type go by the way side why you focus all your attention on dental lasers which has been the problem along to get sales. And I’m kind of curious, because I met with Dr. Arrow I don’t know if he is on the call in New York.

Alexander K. Arrow

Yes, hi, Paul.

Paul Bornstein – Black Diamond

Yes, I met you number of months at the Millennium Hotel and you said you are in charge of ramping up the sales. And I’m wondering what hurt the sales in the last two quarters or three quarters since we met. Is that was kind of what you’d have focused on and you said that’s why I am here.

And so we haven’t seen that. So I am still very leery of the situation. And I guess with the new CEO you have allotted a very background. And I’m still trying to figure out what leverage you bring to the equation. Because the increased sales is not acceptable at this stage of the game, you got a really increased sales that are noticeable. Given where this company has been. And I guess my question is Oracle is kind of running the show here and what are they looking for what direction you’re getting from them since they control everything at this stage of the game. I guess I have a couple of questions in there, but it still focused on sales which have been horrible given the products are so good?

Jeffrey Nugent

Paul, let me start in response to your point, I understand exactly where you coming from, there has been a lot of disappointment today. But one thing I want to mention about Oracle is the influence of Oracle is greatly overstated. Paul, Clark, myself, [Brad Maul], (ph) Jim Palowitch and even Jack Lloyd have no agreement or whatever you have want to call it expect direction from Oracle. This is greatly exaggerated and part because my nature is, I just don’t like to be told what to do. And I think the board has adequate experience and myself included to be able to do the right thing. So, I really need to deemphasize the Oracle dominance of BIOLASE just not true. Alex, do you want to respond to other points?

Alexander K. Arrow

Sure, thank you, Paul for that question. I appreciate it the chance to meet me and well again in the future. The sales question you asked is just part of the equation, BIOLASE has a number of challenges before and improving our quality of our products, our reliability, our customer service are part of what enables the sales force to do their job better. And fully fill the open territories, if we get the right sales expenses in place and we get the right leadership in sales those parts all have to be functioning in order to achieve the sales results that we want you with our shareholders to have.

So, you’re absolutely right that were focused on that results, but there are pieces in place, but now that we have Jeff is our CEO were able to address that we would not able to address under the previous CEO. We’ve got a lot of exciting things happening here that are all going to result in those fundamental changes that are going to result in better performance down the road. But, you’re right that we’re focused on that it’s just to do those things in the timeframe, which means than we last meet now, there is a lot of pieces in place. I believe you’re talking about just two months ago, it really comes down to putting all those pieces to place and executing. Jeff, is an execution guy and I’m here to be part of his solution and the whole team is focused on exactly what you’re talking about.

Paul Bornstein – Black Diamond

Okay. The last portion you have any answers, what are you doing with all the technologies out there within the company, because if you don’t anything with them, the R&D dollar would be wasted and you have a lot of products out there. So, are you just going to let those drop by the way side or are you going to utilize your connections to get those moving off the tables since the money was spent. And with technology as you know, if it sits there it gets outdated. And so I would like to see some sales for the most products or some money coming in.

Jeffrey Nugent

Let me respond to that Paul. I’ve review the pipeline internally here and absent any acquisitions or additional partnerships on the outside, I think we have a very positive flow of new technology and new products and innovation is really measured by incremental significant and transformational.

We have some incremental, I think we have some significant and frankly, I think we’re working on some transformational technology. I don’t plan I’m sitting on that any longer than necessary. However, we’re not going to launch our product before its time. And to make sure that when it goes out it is going to be – its going to meet high standards and that we don’t run into any quality or service problems.

Paul Bornstein – Black Diamond

Okay. Because I know the R&D department was your goal standard there, I mean they have a lot of good products out there. What I’ve seen and I think in November there was one mentioned, I’m not sure where it stands that DRAGON technology that seem to be huge. And I’m not just nothing mentioned I don’t think that’s ready to be launch, but I mean I would hate to see how those R&D technologies does not get out there. And so you got a big job, but it should be an easy one, if the technologies is good as it cares to us normal people?

Jeffrey Nugent

Yes, a more or less comment on that these are great and I had plenty of experience of having real breakthrough products, but we have to think about the degree to which they cannibalized the existing product lines. And that can be come up throughout victory, because you can make a DRAGON extremely successful, but if it cannibalizes a significant amount of the other products you’ve taken two steps forward and one step back.

Paul Bornstein – Black Diamond

Right. But your main job is to drive sales, which we haven’t seen, I can’t remember when we had a great quarter?

Jeffrey Nugent

Yes, it will, we hope to change that pretty quickly.

Paul Bornstein – Black Diamond

Okay, well that’s I’m looking forward to seeing. So hopefully you’re working 24/7 to get that done because that will give you a lot of creditability in the marketplace.

Jeffrey Nugent

That’s what we’re doing.

Paul Bornstein – Black Diamond

Okay, thank you.

Jeffrey Nugent

Thank you, Paul.

Operator

Thank you. Our next question is a follow-up question from the line of Joe Munda with Sidoti & Company. Please proceed with your question.

Joe Munda – Sidoti & Company

Yes, just a follow-up on some housekeeping items for Fred here, I was wondering if you guys could break out sales in the quarter by product category?

Frederick D. Furry

Yes, Joe. That’s obviously we’re going to come out in the queue we filed on Monday, but I can give you a little quick little to it but let me flip to it. so I don’t say anything that’s not accurate. So, for the three months ended – we’ll go on three months ended June 30, laser systems were 63% and around, emerging systems were 7%, consumables and other were 14%, services were around 15% and then license fees and other were 0.5%.

Joe Munda – Sidoti & Company

I’m sorry what results again?

Frederick D. Furry

15%.

Joe Munda – Sidoti & Company

15% and other was 0.5%?

Frederick D. Furry

Yes.

Joe Munda – Sidoti & Company

Okay. And then my question, Jeff. Fred, thank you. Jeff, as far as [Marrow] (ph) is concerned, Fred made wide of it in his times since being there that Marrow is getting better, I’m just wondering how that translates into the sales going forward. How you keep them marrow going, I know you talked about round about these different initiatives, but from our past conversations with a number of people there was a fear almost internally at BIOLASE due to past management and something went wrong. Are you giving people, I guess a little bit more free range to do what they think needs to be done and because it seems like you’re going to be monitoring and measuring all these different metrics. Just trying to get a sense of how that is going to translate into continued growth?

Jeffrey Nugent

Well, the culture of a company is something that I have learn to respect tremendously, and it was a stated philosophy previously that fear within and among the employees was a desired effect in an important way of running the company. I personally find that I’ve said, I’ve never seen a high performance company operate under a theory right up here. So, there are two things here. One is I’m giving people more flexibility and freedom, but they still have to meet their what we call key performance indicators.

And the other thing that I find really moves a company is by recognizing them. Recognition is excuse the analogy here, but it’s the gas pedal of improvement, when you start recognizing people for the good things they are doing. Imagine how you feel, somebody comes by and says “you know, you’re really doing a great job and I really appreciate this specific thing.” That goes so far in motivating them to continue to do it. And the last thing is being a part of a winning team as probably the most important thing that we can do. And that is let them taste success and they automatically become a member of a winning team. And to date BIOLASE hasn’t been a winning team. So one of my primary culture objectives is make these people feel good about what they are doing. It’s not that hard and frankly that doesn’t cost anything. I hope that answers your question.

Joe Munda – Sidoti & Company

Yes, now that’s – it’s so simple, but it does make a kind of thing and I guess, it should ring true and hopefully if we do further growth.

Jeffrey Nugent

Okay, I think we have time for one more; let’s make it two more questions. Next please.

Operator

Thank you. Our next question is another follow-up question from the line of Kathleen McGrath with WallachBeth Capital. Please proceed with your question.

Kathleen McGrath – WallachBeth Capital

Thanks. Specifically around product launches that we are gauging for 2014, is there any sort of color you could give us on what the plans are and what kind has occurred around the ENT launch that we’re kind of expecting around 1Q that’s really printers GALAXY coming up in the current quarter, where are we with all that?

Jeffrey Nugent

Well, there – I mean it’s a mix, we’ve certainly launched GALAXY we’re out with number of the tangential products. They are making a contribution, we are looking at them very closely in terms of their long-term place in our portfolio, the 2015 launches. We’ve made some adjustments to we’ve arranged sequencing and so forth, but we still plan and having at least one new product in the first half of the year followed by another one in the back half of the year. But again I want to emphasize that is not all the new products of one of the metrics that I’ve instituted is beginning in 2015 minimum of 30% of our revenue should come from products that didn’t exist two years ago. So that’s one way to continue new and improved products and communicate to import so that’s through the organization.

Kathleen McGrath – WallachBeth Capital

Okay. And then just one more kind of housekeeping question – that’s something that maybe some people on the street have been wanting to have some more disclosure on is that something there was discussion around it at the end of last year. Is that something that we could be expecting six months from now, want a little bit more color on where things are going with the actual unit placements per quarter.

Jeffrey Nugent

Yes, I think that’s something that, we – is part of our increased transparency strategy and I don’t think that frankly it’s that hard to find out the resources that can give you that information and I’m used to being much more transparent and as long as the units correspond with the revenue that we’re reporting it’s just further validation of what we’re doing. And right now, there is an important distinction between our WaterLase products and EPAC. And that’s something that we are to be able to share with you. And I’m not sure when we will be able to start that I’d say by first quarter next year, we also have the ability to do that.

Kathleen McGrath – WallachBeth Capital

Great. Thank you very much for the comment.

Jeffrey Nugent

Good.

Operator

Thank you. Our next question comes from the line, it’s a follow-up question from the line of Keay Nakae with Ascendiant. Please proceed with your question.

Keay Nakae – Ascendiant Capital Markets

Yes, thank you. In terms of all the initiatives, that we have ongoing. If you were to tell us some of the key performance metrics beyond ultimately stay out. Now you are trying to measure over the next 30 or 90 days to indicate further on a right track. Could you tell us what some of those are?

Jeffrey Nugent

Well, I think I heard you say excluding sales…

Keay Nakae – Ascendiant Capital Markets

Ultimately….

Jeffrey Nugent

But I think there are other things that are frankly just as critical. I think for example, the timelines and milestones on our R&D pipeline subject. We have timelines we’re getting more granular on that we have a decent, but unacceptable level of project planning. So we are bringing in very clear gain charge.

I think the second one is giving everyone a specific budget which didn’t exits before and they are held to maintaining their spending through the balance of the year as a opposed to not, I find that rather observed I think there is some other KPI’s that are very important to me. And I think that’s quality improvement we’re measuring this to reach the goal of no less than 95% defect free products that don’t experience any quality problems once they’re shift. That’s a very important metric. And I can go on and on but these are some of the most important ones and also the customer satisfaction piece. You can measure customer satisfaction and we are starting. So these are all fundamental things that are happening as we speak.

Keay Nakae – Ascendiant Capital Markets

Great. And then just one last question, Jeff I know your title as interim CEO, but what are the plans for either yourself to be permanent or you know how aggressively are you looking to bring in a new permanent CEO at this time.

Jeffrey Nugent

We have a search an executive search out right now. And you know honestly, I enjoy tremendously what I’m doing. This is what I like to do. To work with companies that have growing pains and need to instill the fundamentals to be able to succeed. So I’m very committed to this company, I also happen to be a director. I’m involved with that search and there are two outcomes, one is we’re going to find someone who is significantly better than I am.

And I will make the right decision along with rest of the board, but at the same time I’m not looking to change what I’m doing because I’m seeing the result of what we started to put in place. So I can't – I’m not answering you and saying well as soon as we get a competent candidate I will turn over the range. I think my criteria is, this person has to be significantly better than I’m for me to feel comfortable about turning this over. And at the same time this is a board decision of which I’m a member, but I’ll repeat it, I’m really enjoying what I’m doing and seeing the benefits and the changes of just including some of the commonsense things that you do with the company.

Keay Nakae – Ascendiant Capital Markets

Okay, well, great. Thank you for that.

Jeffrey Nugent

Sure. I think that’s the last question we had. And with that I’d like to thank you all again for your interest in BIOLASE. I hope you can tell that we’re very excited about the opportunities here and committed delivering improved value for all customers and shareholders. We have a much higher level of energy than we did several months ago.

And we have a huge distraction taken away from us. I sincerely believe that we’re putting the pieces in place for a dramatic turnaround and I want to thank you all for the loyalty and patience you’ve shown through the difficult times and ask that you join us as we build the future for this company. I look forward to meeting and speaking with you again on the coming weeks and months. And I’m always acceptable I have a very open door policy. And I wish you all a good day and thank you again for your support.

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