10-AUG-18 – Biolase Technology (BIOL:BUY Long-term) Regionally-focused marketing initiative drives nearly 200% YOY growth in Q2:18 laser sales in southern CA market. Excluding a large one-time sale last year, overall Q2:18 revenues improve 1% YOY and 21% sequentially. Our buyout-based price target for BIOL is $4.00.

Q2:18 Performance

  • Q2:18 sales drop 3% YOY to $12.6 million. Excluding a large, one-time imaging product purchase last year, core laser sales rise 1% YOY and 21% sequentially. US Waterlase Express placements increase 10% YOY worldwide placements rise 5% and consumable and other revenues improve 12%. YOY.
  • More than 66% of all-tissue laser sales made during Q1:18 were to new customers and the trailing four-quarter average is 75%, boding well for future sales of consumables. .
  • Promising results from the Southern CA market initiative, where all-tissue later sales increased nearly 200% YOY. Success is measured by sequential and YOY sales growth, increasing customer awareness and new customer captures. .
  • BIOL plans to roll out its Model Market initiative in another large regional market in Q4:18.
  • Todd Norbe is hired as CEO. He previously served as President, North America for KaVo Kerr, the dental products subsidiary of Danaher Corp. He earlier served as VP and General Manager of Metrex Medical- Sybron Dental Specialties.
  • BIOL completed a 1-for-5 reverse stock split in May.
  • While we think BIOL is several quarters away from profitable growth, 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 a $4.00 share price, roughly 3X the current price. We thus rate these shares BUY Long-term and set a buyout-based price target of $4.00.

RISKS

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

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