Market Overview

BIOLASE Reports 2017 First Quarter Results

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BIOLASE, Inc. (NASDAQ:BIOL), the global leader in dental lasers, today
reported its financial results for its first quarter ended March 31,
2017.

2017 First Quarter highlights with comparisons to
2016 First Quarter include:

  • Worldwide revenue of $10.9 million, a decline of 1%, driven by a
    13% decline in international sales, substantially offset by a 7%
    increase in U.S. revenue
    • 25% increase in U.S. Waterlase revenue and a 43% increase in
      U.S. Waterlase placements as propelled by the launch of Waterlase
      Express™
    • Quarterly average selling price of flagship Waterlase® iPlus
      continued to increase
    • Worldwide services revenue increased 9%
  • Operating loss decreased by 6%
  • Gross margin of 36%, increased more than 325 basis points, due
    to improved pricing and geographic sales mix
  • Appointed financial executive Mark Nelson as Senior Vice
    President and Chief Financial Officer
  • Recruited veteran of medical device sales James Surek as Vice
    President of Sales for the Americas
  • Successfully completed $10.5 million private placement in April
    2017

President and CEO Harold Flynn, Jr. said, "Our revenues for the first
quarter were essentially flat year over year, but we continued to see
signs of progress. In the U.S., Waterlase placements were up 43%, which
helped drive a 25% increase in Waterlase revenue in our largest single
market. While still in the initial stages of ramping our launch,
clinician reaction to our new fifth generation Waterlase Express
technology, especially its elegantly simple user interface, educational
support animations and its ease of use overall, has been very positive
and encouraging. Operationally, our gross margins improved year over
year, and we cut our operating loss by 6%. We also strengthened our
senior management team with two key hires during the quarter, and in
early April completed a $10.5 million private placement that provides
funds to push forward on our strategic path toward our vision of
fundamentally changing dentistry with laser technology.

"Looking forward, we are still in the early stages of transformation as
a company, operating in a global dental industry also undergoing
significant change, structurally, operationally, and technologically.
While we may continue to experience uneven revenue growth quarter to
quarter, I am confident we are developing the right solutions to address
the challenges in this new emerging world of dentistry. Our technologies
bring the frontier of treatment into the general practice as clinicians
offer more comprehensive treatment plans, providing them minimally
invasive treatments that will make them better dentists and produce
better outcomes for patients. Even though we now have laser systems for
every clinic and dentist around the world, our long-term challenge
continues to be to educate and execute, to break the long-standing
status quo and enable laser dentistry to become the new global standard
of care that helps build sustainable and thriving practices. I believe
in and am committed to a future with market penetration of all-tissue
lasers over five times, and utilization well over 10 times where they
are today. Although this is an ongoing process, we are encouraged by the
progress we have made thus far."

2017 First Quarter Financial Results

Net Revenue. Net revenue for the first quarter of 2017 was $10.9
million, as compared to net revenue of $11.0 million for the first
quarter of 2016. The quarter-over-quarter decrease of 1% was driven by
decreases in international Waterlase sales, worldwide Epic sales,
worldwide imaging sales and domestic consumables and other revenue,
substantially offset by increased domestic Waterlase sales and domestic
services revenue. License fees and royalty revenue remained flat
quarter-over-quarter.

Gross Profit. Gross profit typically fluctuates with product and
regional mix, selling prices, product costs and revenue levels. Gross
profit for the first quarter of 2017 was 36%, as compared to 33% in the
first quarter of 2016, an increase of over 325 basis points.
Improvements reflect an increase in net revenue and a larger
concentration of domestic laser sales, specifically the Waterlase iPlus,
which typically have higher product margins than our international sales
due to higher pricing.

Operating Expenses. Total operating expenses in the first quarter
of 2017 and 2016 were consistent at $8.0 million. Within operating
expenses, sales and marketing expenses increased by $380,000, primarily
due to higher convention related and advertising expenses, and general
and administrative expenses increased by $149,000, primarily due to
increased patent fees. These increases were more than offset by a
$457,000 decrease in engineering and development expenses, primarily due
to a decrease in operating supplies and payroll and consulting related
expenses.

Net Loss. Net loss for the first quarter of 2017 was $4.1
million, or a $0.06 loss per share, compared to a net loss of $4.3
million, or a $0.07 loss per share, for the first quarter of 2016. The
decrease in net loss was primarily attributed to a $445,000 reduction in
cost of revenue resulting in a $309,000 increase in gross profit.

After adding back the first quarter's net interest income of $9,000,
removing the income tax provision of $40,000, removing the non-cash
depreciation and amortization expenses of $290,000 and removing the
non-cash stock-based compensation of $379,000, the non-GAAP net loss for
the first quarter of 2017 totaled $3.4 million, or a loss of $0.05 per
share, compared with a non-GAAP net loss of $3.2 million, or a loss of
$0.06 per share, during the first quarter of 2016.

Liquidity and Capital Resources

As of March 31, 2017, BIOLASE had approximately $12.2 million in working
capital. Cash and restricted cash equivalents at the end of the first
quarter of 2017 were $3.8 million, as compared to $9.2 million on
December 31, 2016. Net accounts receivable totaled $9.2 million at March
31, 2017, as compared to $9.8 million at December 31, 2016.

Senior Vice President and CFO Mark Nelson said, "We are pleased to have
executed our private placement earlier in the month of April, and
appreciate the additional runway this financing will provide for the
successful expansion of our new Waterlase Express offering." Mr. Nelson
continued, "We are also encouraged that the early traction we saw in
first quarter gross and operating margins will continue to benefit from
anticipated growth in sales of our new Express product, ongoing
improvements in pricing, and the continued expansion of our service and
consumables revenue streams."

Conference Call

As previously announced, BIOLASE will host a conference call today at
4:30 p.m. Eastern Time to discuss its operating results for the first
quarter of 2017, and to answer questions. To listen to the conference
call live via telephone, dial 1-877-407-4019 from the U.S. or, for
international callers, dial 1-201-689-8337, approximately 10 minutes
before the start time. To listen to the conference call live via the
Internet, visit the Investors section of the BIOLASE website at www.biolase.com.

About BIOLASE, Inc.

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 cone
beam digital x-rays and CAD/CAM intra-oral scanners. BIOLASE's products
advance the practice of dentistry and medicine for patients and
healthcare professionals. BIOLASE's proprietary laser products
incorporate approximately 210 patented and 90 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 approximately 34,200 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™ and laser dentistry,
find BIOLASE online at www.biolase.com,
Facebook at www.facebook.com/biolase,
Twitter at www.twitter.com/biolaseinc,
LinkedIn at www.linkedin.com/company/biolase,
Instagram at www.instagram.com/biolaseinc,
and YouTube at www.youtube.com/biolasevideos.

BIOLASE® and Waterlase® 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
expected effects of the April 2017 financing and anticipated growth.
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 affecting BIOLASE's business. 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
(in thousands, except per share data)
       
Three Months Ended
March 31,
(unaudited)
2017 2016
Products and services revenue $ 10,842 $ 10,979
License fees and royalty revenue     32     31
Net revenue 10,874 11,010
Cost of revenue     6,921     7,366
Gross profit     3,953     3,644
Operating expenses:
Sales and marketing 4,184 3,804
General and administrative 2,416 2,267
Engineering and development     1,429     1,886
Total operating expenses     8,029     7,957
Loss from operations     (4,076 )     (4,313 )
(Loss) gain on foreign currency transactions (1 ) 71
Interest income, net     9     17
Non-operating income, net     8     88
Loss before income tax provision (4,068 ) (4,225 )
Income tax provision     40     40
Net loss $   (4,108 ) $   (4,265 )
 
Net loss per share:
Basic $   (0.06 ) $   (0.07 )
Diluted $   (0.06 ) $   (0.07 )
Shares used in the calculation of net loss per share:
Basic     67,583     58,228
Diluted     67,583     58,228
 
 
BIOLASE, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands except per share data)
       
March 31, 2017 December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents $ 3,576 $ 8,924
Restricted cash equivalent 251 251
Accounts receivable, less allowance of $1,219 in 2017 and $1,209 in
2016
9,220 9,784
Inventory, net 14,693 13,523
Prepaid expenses and other current assets     1,576     1,505
Total current assets 29,316 33,987
Property, plant and equipment, net 4,465 4,478
Goodwill 2,926 2,926
Other assets     333     550
Total assets $   37,040 $   41,941
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,183 $ 9,125
Accrued liabilities 5,163 5,778
Customer deposits 94 101
Deferred revenue, current portion     2,666     3,010
Total current liabilities     17,106     18,014
Deferred income taxes, net 813 798
Deferred revenue, long-term 20 23
Warranty accrual, long-term 487 773
Other liabilities, long-term     248     268
Total liabilities     18,674     19,876
Stockholders' equity:
Preferred stock, par value $0.001
Common stock, par value $0.001 68 68
Additional paid-in capital 201,577 201,198
Accumulated other comprehensive loss (846 ) (876 )
Accumulated deficit     (182,433 )     (178,325 )
Total stockholders' equity     18,366     22,065
Total liabilities and stockholders' equity $   37,040 $   41,941
 
 
BIOLASE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
       
Three Months Ended March 31,
2017 2016
Cash Flows from Operating Activities:
Net loss $ (4,108 ) $ (4,265 )
Adjustments to reconcile net loss to net cash and

cash equivalents used in operating activities:

Depreciation and amortization 290 212
Provision (recovery) for bad debts, net 10 (15 )
Provision for inventory excess and obsolescence 225
Stock-based compensation 379 834
Deferred income taxes 15 15
Earned interest income, net (9 ) (16 )
Changes in operating assets and liabilities:
Accounts receivable 564 (1,126 )
Inventory (1,395 ) (1 )
Prepaid expenses and other current assets 146 (31 )
Customer deposits (7 ) 46
Accounts payable and accrued liabilities (885 ) (155 )
Deferred revenue   (347 )   (270 )
Net cash and cash equivalents used in operating activities   (5,122 )   (4,772 )
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment   (208 )   (343 )
Net cash and cash equivalents used in investing activities   (208 )   (343 )
Cash Flows from Financing Activities:
Principal payments under capital lease obligation   (43 )   (43 )
Net cash and cash equivalents used in financing activities   (43 )   (43 )
Effect of exchange rate changes   25   86
Decrease in cash and cash equivalents (5,348 ) (5,072 )
Cash and cash equivalents, beginning of period   8,924   11,699
Cash and cash equivalents, end of period $   3,576 $   6,627
Supplemental cash flow disclosure - Cash Paid:
Interest paid $ 1 $ 1
Income taxes paid $ 7 $ 33
Supplemental cash flow disclosure - Non-cash:
Accrued capital expenditures and tenant improvement allowance $ 174 $ 70
 
 

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
March 31,
2017 2016
GAAP net loss $ (4,108 ) $ (4,265 )
Adjustments:
Interest income, net (9 ) (17 )
Income tax provision 40 40
Depreciation and amortization expense 290 212
Stock-based compensation     379     834
Non-GAAP net loss $   (3,408 ) $   (3,196 )
           
GAAP net loss per share, basic and diluted $ (0.06 ) $ (0.07 )
Adjustments:
Interest income, net
Income tax provision
Depreciation and amortization expense
Stock-based compensation     0.01     0.01
Non-GAAP net loss per share, basic and diluted $   (0.05 ) $   (0.06 )

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