8-MAY-18 – Biolase Technology (BIOL:BUY Long Term) Q1:18 sales decline 8% YOY due primarily to lower domestic laser sales. BIOL is exploring strategic alternatives such as technology licensing, a JV or buyout. We rate these shares Buy Long-term and set a buyout-based price target of $0.80.

Q1:18 Performance

  • Q1:18 sales drop 8% YOY to $10 million. Growth of 15% in US Waterlase Express placements and 20% in consumables is more than offset by a 12% decline in worldwide Waterlase placements. . .
  • More than 60% of all-tissue laser sales made during Q1:18 were to new customers. This brings the average of new customers sold during the last three quarters to nearly 75%, boding well for future sales of consumables. .
  • BIOL has a highly targeted marketing campaign underway in southern California, which represents roughly 10% of the US dental market. It’s too early to judge the success of this effort, which may serve as the blueprint for a highly focused
    region-by-region sales rollout.
  • BIOL ended the quarter with cash of $8.7 million and working capital of approximately $20.5 million.
  • Harold Flynn is out as CEO. His replacement as interim CEO is CFO John Beavers and BIOL Chairman Jonathan Lord is exploring options that may include licensing its technologies, joint ventures or selling the business. .
  • We think products like Waterlase Express make BIOL potentially attractive as a JV partner or takeover candidate. Medical device companies typically sell for 4X revenues. A buyout of BIOL at 2X revenues would suggest an 80 cent share price, roughly 2.5X the current price. We thus rate shares BUY Long-term and set a buyout-based price target of $0.80.

RISKS

  • BIOL has recorded consecutive years of net losses. We anticipates quarterly net losses in FY:18 and FY:19.

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