BIOLASE Reports 2018 Third Quarter and Nine-Month Results

IRVINE, Calif., Nov. 13, 2018 /PRNewswire/ -- BIOLASE, Inc. (NASDAQ: BIOL), the global leader in dental lasers, today reported a net revenue of $10.9 million for the third quarter which ended September 30, 2018. Excluding revenue from the Company's non-core imaging business, net revenue in the third quarter of 2018 increased 9% compared to the third quarter of 2017.

Recent Operating Highlights

    --  U.S. laser revenue for the third quarter increased 22% year over year
    --  Consumables and other revenue for the third quarter increased 9% year
        over year
    --  Southern California Model Market laser revenue for the third quarter
        increased 127% year over year
    --  Launched second Model Market initiative in Dallas/Ft. Worth
    --  Enhanced management leadership with addition of Todd Norbe as President
        and CEO and expanded Board expertise with the addition of Elaine Wagner,
        DDS, a renowned leader in the practice of pediatric dentistry

"Since joining BIOLASE in August, I have been impressed with the value of our technology and its ability to deliver on a new standard of care around dental procedures, which is being validated by a passionate and growing user community who have paved the way for further adoption through peer to peer referrals," said Todd Norbe, President and CEO. "For the third quarter of 2018, our U.S. laser revenue increased 22% year over year, while our Southern California Model Market laser revenue increased 127% year over year in Q3 and 175% over the last two quarters, reflecting early success as we test different go-to-market approaches. Our leadership team recently dedicated one full week to focus on lessons learned to establish the appropriate key performance indicators and process improvements required to deliver on our goal to be EBITDA positive in the fourth quarter of 2019. We believe the combination of our recently announced SWK term loan, improved operational efficiencies and anticipated improvements in sales and margins will provide sufficient liquidity for the Company to execute its long term business plan and achieve the goal of becoming EBITDA positive."

2018 Third Quarter Financial Results

Net revenue for the three months ended September 30, 2018 was $10.9 million, a slight increase compared to net revenue of $10.8 million for the three months ended September 30, 2017. U.S. laser revenue for the third quarter of 2018, which has become a higher priority for the Company, increased 22% compared to the third quarter of 2017 while the Company's non-core imaging business declined 65%. Consumables and other revenue for the third quarter of 2018, which consists of revenue from consumable products such as disposable tips, increased 9% compared to the third quarter of 2017.

Gross margin for the three months ended September 30, 2018 was 36% compared to 26% in the year-ago third quarter. The higher gross margin reflects new customer growth and a favorable change in product mix with an increase in lasers sales, which have a higher margin than our other product offerings. Total operating expenses for the third quarter of 2018 were $8.5 million compared to $7.6 million in the year-ago third quarter, mainly due to increased general and administrative expenses, and sales and marketing expenses. Operating loss for the third quarter of 2018 was $4.5 million compared to an operating loss of $4.8 million in the year-ago third quarter. Net loss for the third quarter of 2018 was $4.7 million, or $0.23 per share, compared to a net loss of $4.6 million, or $0.30 per share for the third quarter of 2017.

Cash, cash equivalents and investments totaled $2.4 million as of September 30, 2018. Subsequent to the end of the third quarter, the Company announced on November 13, 2018 that it entered into a $12.5 million senior secured term loan agreement with SWK Funding LLC. SWK Funding LLC is a subsidiary of SWK Holdings Corporation, a Dallas, Texas based healthcare focused investment firm. The Company used a portion of the proceeds to retire its Western Alliance Bank debt and plans to use the remaining proceeds to provide additional working capital to fund its growth initiatives, such as broadening its customer base and increasing the utilization of its products to drive recurring higher margin consumables revenue.

First Nine Months 2018 Financial Results

Net revenue for the nine months ended September 30, 2018 was $33.1 million compared to net revenue of $34.3 million for the nine months ended September 30, 2017. Consumables and other revenue, which consists of revenue from consumable products such as disposable tips, increased 14% compared to the year-ago nine month period.

Gross margin for both the nine months ended September 30, 2018 and September 30, 2017 was 34%. Total operating expenses for the nine months ended September 30, 2018 were $25.7 million compared to $24.8 million in the year-ago period. Operating loss for the nine months ended September 30, 2018 was $14.4 million compared to an operating loss of $13.3 million for the nine months ended September 30, 2017. Net loss was $14.6 million, or $0.71 per share, for the nine months ended September 30, 2018 compared to a net loss of $13.0 million, or $0.92 per share, for the nine months ended September 30, 2017. The number of shares outstanding increased to 20.5 million as of September 30, 2018 from 14.1 million a year ago.

Use of Non-GAAP Measures

The "Reconciliation of GAAP Net Loss to Non-GAAP Net Loss" table at the end of this news release provides the details of the Company's non-GAAP disclosures and the reconciliation of GAAP net loss and net loss per share to the Company's non-GAAP net loss and net loss per share.

The non-GAAP net loss for the third quarter of 2018 was $3.8 million, or a loss of $0.19 per share, compared with a non-GAAP net loss of $3.8 million, or a loss of $0.25 per share, during the third quarter of 2017. The non-GAAP net loss for the first nine months of 2018 totaled $11.9 million, or a loss of $0.59 per share, compared with a non-GAAP net loss of $10.4 million, or a loss of $0.74 per share, during the first nine months of 2017.

Conference Call Information

BIOLASE will host a conference call today at 10:30 a.m. Eastern Time to discuss its operating results for the third quarter ended September 30, 2018, and to answer questions. To listen to the conference call live via telephone, dial 877-407-4019 from the U.S. or, for international callers, dial 201-689-8337, approximately 10 minutes before the start time. For all callers, refer to the Conference ID 13683990. To listen to the conference call live via the Internet, visit the Investors section of the BIOLASE website at www.biolase.com.

About BIOLASE

BIOLASE, Inc. is a medical device company that develops, manufactures, markets, and sells laser systems in dentistry and medicine and also markets, sells, and distributes dental imaging equipment, including three-dimensional CAD/CAM intra-oral scanners and digital dentistry software. BIOLASE's products advance the practice of dentistry and medicine for patients and healthcare professionals. BIOLASE's proprietary laser products incorporate approximately 327 patented and 69 patent-pending technologies designed to provide biologically clinically superior performance with less pain and faster recovery times. BIOLASE's innovative products provide cutting-edge technology at competitive prices to deliver the best results for dentists and patients. BIOLASE's principal products are revolutionary dental laser systems that perform a broad range of dental procedures, including cosmetic and complex surgical applications, and a full line of dental imaging equipment. BIOLASE has sold over 38,100 laser systems to date in over 90 countries around the world. Laser products under development address BIOLASE's core dental market and other adjacent medical and consumer markets.

For updates and information on Waterlase iPlus®, Waterlase Express(TM), and laser dentistry, find BIOLASE online at www.biolase.com, Facebook at www.facebook.com/biolase, Twitter at www.twitter.com/biolaseinc and LinkedIn at www.linkedin.com/company/biolase.

BIOLASE®, Waterlase® and Waterlase iPlus® are registered trademarks of BIOLASE, Inc.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements, as that term is defined in the Private Litigation Reform Act of 1995, that involve significant risks and uncertainties, including statements regarding the use of the proceeds of the loan from SWK Funding LLC. Forward-looking statements can be identified through the use of words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will," "should," and variations of these words or similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect BIOLASE's current expectations and speak only as of the date of this release. Actual results may differ materially from BIOLASE's current expectations depending upon a number of factors. These factors include, among others, adverse changes in general economic and market conditions, competitive factors including but not limited to pricing pressures and new product introductions, uncertainty of customer acceptance of new product offerings and market changes, risks associated with managing the growth of the business, and those other risks and uncertainties that are described, from time-to-time, in the "Risk Factors" section of BIOLASE's annual and quarterly reports filed with the Securities and Exchange Commission. Except as required by law, BIOLASE does not undertake any responsibility to revise or update any forward-looking statements.


                                                                                       
            
              BIOLASE, INC.


                                                                                 
       
             CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                           
           
         (unaudited, in thousands, except per share data)






                                           
            
       Three Months Ended                      
            
              Nine Months Ended


                                               
          
         September 30,                          
            
              September 30,


                                                 2018                        2017                            2018                         2017



      Products and services
       revenue                             
            $          10,933                     
            $                 10,774                     
       $       33,101   
       $                34,196


      License fees and royalty revenue                            3                                                    32                                      9                            96




          Net revenue                                       10,936                                                10,806                                 33,110                        34,292



     Cost of revenue                                         6,995                                                 7,951                                 21,828                        22,780




     Gross profit                                            3,941                                                 2,855                                 11,282                        11,512




     Operating expenses:



          Sales and marketing                                4,489                                                 4,000                                 13,037                        12,718


           General and administrative                         2,685                                                 2,015                                  8,691                         7,271


           Engineering and development                        1,277                                                 1,601                                  3,927                         4,840



                         Total operating expenses             8,451                                                 7,616                                 25,655                        24,829




     Loss from operations                                  (4,510)                                              (4,761)                              (14,373)                     (13,317)



      Gain (loss) on foreign currency
       transactions                                            (73)                                                  174                                   (53)                          390


      Interest expense (income), net                           (33)                                                   10                                   (80)                           29



      Non-operating income (loss), net                        (106)                                                  184                                  (133)                          419



      Loss before income tax provision                      (4,616)                                              (4,577)                              (14,506)                     (12,898)



     Income tax provision                                       49                                                    35                                     91                           111




     Net loss                             
            $         (4,665)                    
            $                (4,612)                    
       $     (14,597)   
       $             (13,009)



      Deemed dividend on convertible
       preferred stock                                                                                                                                                     (3,978)



      Net loss attributable
       to common stockholders              
            $         (4,665)                    
            $                (4,612)                    
       $     (14,597)   
       $             (16,987)






     Net loss per share:



          Basic                           
            $          (0.23)                    
            $                 (0.30)                    
       $       (0.71)   
       $               (1.20)




          Diluted                         
            $          (0.23)                    
            $                 (0.30)                    
       $       (0.71)   
       $               (1.20)



      Shares used in the calculation of
       net loss per share:



          Basic                                             20,610                                                15,197                                 20,539                        14,098




          Diluted                                           20,610                                                15,197                                 20,539                        14,098


                                                                    
              
                BIOLASE, INC.


                                                                  
         
                CONSOLIDATED BALANCE SHEETS


                                                    
              
          (unaudited, in thousands except share and per share data)




                                                                                     September 30,                                         December 31,
                                                                                              2018                                    2017



               
              
                ASSETS



       
                Current assets:



       Cash and cash equivalents                                                     
              $                            2,238            
            $       11,645



       Restricted cash equivalent                                                                                            202                                251


        Accounts receivable, less allowance of $1,090 in 2018 and
         $802 in 2017                                                                                                      11,399                             10,124



       Inventory, net                                                                                                     13,423                             12,298



       Prepaid expenses and other current assets                                                                             771                              1,732




       
                Total current assets                                                                                  28,033                             36,050



       Property, plant and equipment, net                                                                                  2,927                              3,674



       Goodwill                                                                                                            2,926                              2,926



       Other assets                                                                                                          369                                334




       
                Total assets                                                     
              $                           34,255            
            $       42,984





      
        
                LIABILITIES AND STOCKHOLDERS' EQUITY



       
                Current liabilities:



       Short-term loan payable                                                                      $
              1,500              
          $



       Accounts payable                                                                                                    7,570                              5,109



       Accrued liabilities                                                                                                 5,866                              5,609



       Customer deposits                                                                                                      53                                 27



       Deferred revenue, current portion                                                                                   2,263                              2,625




       
                Total current liabilities                                                                             17,252                             13,370




       Deferred income taxes, net                                                                                            105                                104



       Deferred revenue, long-term                                                                                             3                                 11



       Loan payable, long-term                                                                                                50



       Warranty accrual, long-term                                                                                           375                                 70



       Other liabilities, long-term                                                                                          134                                169




       
                Total liabilities                                                                                     17,919                             13,724




       
                Stockholders' equity:



       Preferred stock, par value $0.001 per share



       Common stock, par value $0.001 per share                                                                               20                                 20



       Additional paid-in capital                                                                                        226,696                            224,992



       Accumulated other comprehensive loss                                                                                (607)                             (576)



       Accumulated deficit                                                                                             (209,773)                         (195,176)




       
                Total stockholders' equity                                                                            16,336                             29,260



                     Total liabilities and stockholders' equity                       
              $                           34,255            
            $       42,984


                                                   
            
                BIOLASE, INC.


                                       
              
              CONSOLIDATED STATEMENTS OF CASH FLOWS


                                             
              
              (unaudited, in thousands)




                                                                                  Nine Months Ended September,



                                                                            2018                                  2017



                   Cash Flows from Operating Activities:



     Net loss                                            
              $                (14,597)                 
          $           (13,009)


      Adjustments to reconcile net loss to
       net cash and

      cash equivalents used in operating
       activities:


      Depreciation and amortization                                                      712                                          887


      Gain on disposal of assets, net                                                   (12)


      Provision for bad debts, net                                                       316                                           54


      Provision for inventory excess and
       obsolescence                                                                       59                                          348


      Amortization of discounts on lines of
       credit                                                                             31


      Amortization of debt issuance costs                                                 43



     Stock-based compensation                                                         1,862                                        1,604



     Deferred income taxes                                                                1                                           45


      Earned interest income, net                                                                                          (29)


      Changes in operating assets and
       liabilities:



     Accounts receivable                                                            (1,591)                                          52



     Inventory                                                                      (1,184)                                       (914)


      Prepaid expenses and other current
       assets                                                                            940                                          495



     Customer deposits                                                                   26                                         (32)


      Accounts payable and accrued
       liabilities                                                                     3,174                                      (3,202)



     Deferred revenue                                                                 (370)                                       (455)



      Net cash and cash equivalents used in
       operating activities                                                         (10,590)                                    (14,156)



                   Cash Flows from Investing Activities:


      Purchases of property, plant, and
       equipment                                                                       (110)                                       (825)


      Proceeds from disposal of property,
       plant, and equipment                                                               36



      Net cash and cash equivalents used in
       investing activities                                                             (74)                                       (825)



                   Cash Flows from Financing Activities:


      Principal payments under capital
       lease obligation                                                                 (46)                                       (128)


      Borrowings under lines of credit                                                 3,323


      Payments under lines of credit                                                 (1,823)


      Payments of debt issue costs                                                      (87)


      Proceeds from equity offering costs                                                                                10,395


      Payments of equity offering costs                                                (138)


      Proceeds from exercise of stock
       options                                                                             2                                            3



      Net cash and cash equivalents
       provided by (used in) financing
       activities                                                                      1,231                                       10,270



      Effect of exchange rate changes                                                   (23)                                         241



                   Increase (decrease) in cash, cash
                    equivalents and restricted cash                                  (9,456)                                     (4,470)


                   Cash, cash equivalents and restricted
                    cash, beginning of period                                         11,896                                        9,175



                   Cash, cash equivalents and
                    restricted, end of period             
              $                   2,440                  
          $              4,705



                   Supplemental cash flow disclosure -
                    Cash Paid:



     Interest paid                                       
              $                                         
          $                  1



     Income taxes paid                                                                   31                                          166


                   Supplemental cash flow disclosure -
                    Non-cash:


      Accrued capital
       expenditures                                       
              $                       3                  
          $                 60

Non-GAAP Disclosure

In addition to the financial information prepared in conformity with generally accepted accounting principles in the United States ("GAAP"), this press release includes certain historical non-GAAP financial information. Management believes that these non-GAAP financial measures assist investors in making comparisons of period-to-period operating results and that, in some respects, these non-GAAP financial measures are more indicative of the Company's ongoing core operating performance than their GAAP equivalents.

Non-GAAP net loss is defined as net loss before interest, taxes, depreciation and amortization, and stock-based compensation. Management uses non-GAAP net loss in its evaluation of the Company's core results of operations and trends between fiscal periods and believes that these measures are important components of its internal performance measurement process. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures presented by the Company may be different from similarly named non-GAAP financial measures used by other companies.


                                                                            
            
                BIOLASE, INC.


                                                              
             
         Reconciliation of GAAP Net Loss to Non-GAAP Net Loss


                                                                
             
         (unaudited, in thousands, except per share data)






                                                 Three Months Ended                      
              
                Nine Months Ended


                                        
          
       September 30,                        
              
                September 30,



                                          2018                      2017                             2018                          2017



      GAAP net loss
       attributable to common
       stockholders                   
          $       (4,665)                   
              $                (4,612)                     
     $ (14,597) 
     $       (16,987)


      Deemed dividend on convertible
       preferred stock                                                                                                                                  3,978



      GAAP net loss                   
          $       (4,665)                   
              $                (4,612)                     
     $ (14,597) 
     $       (13,009)



     Adjustments:


      Interest expense (income), net                    33                                                   (10)                               80                (29)



     Income tax provision                              49                                                     35                                91                 111


      Depreciation and amortization
       expense                                         202                                                    310                               712                 887


      Stock-based compensation                         604                                                    464                             1,862               1,604



      Non-GAAP net loss               
          $       (3,777)                   
              $                (3,813)                     
     $ (11,852) 
     $       (10,436)





      GAAP net loss
       attributable to common
       stockholders                   
          $        (0.23)                   
              $                 (0.30)                     
     $   (0.71) 
     $         (1.20)

         per share, basic and diluted


      Deemed dividend on convertible
       preferred stock                                                                                                                                   0.28



      GAAP net loss per
       share, basic and
       diluted                        
          $        (0.23)                   
              $                 (0.30)                     
     $   (0.71) 
     $         (0.92)



     Adjustments:



     Interest income, net


      Income tax (benefit) provision


      Depreciation and amortization
       expense                                        0.01                                                   0.02                              0.03                0.06


      Stock-based compensation                        0.03                                                   0.03                              0.09                0.11



      Non-GAAP net loss per
       share, basic and
       diluted                        
          $        (0.19)                   
              $                 (0.25)                     
     $   (0.59) 
     $         (0.74)

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SOURCE BIOLASE, Inc.