RxSight Q3 2023 Earnings Call Transcript

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November 9, 2023

There are 9 speakers on the call.

Operator

Good day

Speaker 1

and thank you for standing by. Welcome to the RX Sight Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Speaker 1

I would now like to hand the conference over to your first speaker today, Alex Huang. Please go ahead.

Speaker 2

Thank you, operator. Presenting today are RXSight President and Chief Executive Officer, Doctor. Ron Kurtz And Chief Financial Officer, Shelly Tunan. Earlier today, RXSight released financial results For the 3 9 months ended September 30, 2023. A copy of the press release is available on the company's website.

Speaker 2

Before we begin, I would like to inform you that comments and responses to questions during today's call reflect management's view as of today, November 9, 20 23 and will include forward looking and opinion statements, including predictions, estimates, plans, expectations and other information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued today and in our filings with the Securities and Exchange Commission or SEC. Our SEC filings can be found on our website or the SEC's web Investors are cautioned not to place undue reliance on forward looking statements, and we disclaim any obligation to update or revise these We will also discuss certain non GAAP financial measures. Disclosures regarding non GAAP financial measures, Including reconciliations with the most comparable GAAP measures can be found in the press release.

Speaker 2

Please note that this conference call will be available for audio replay on our investor website. With that, I will turn the call over to President and Chief Executive Officer, Doctor. Ron Kurtz.

Speaker 3

Good afternoon and thank you for joining us. In a few minutes, Shelly will review our Q3 financial results and guidance for the balance of the year. But I wanted to first highlight several positive developments that we believe will Further strengthen RXSight's ability to penetrate and expand the high growth premium cataract market. In the latter part of the Q3, we launched our reconfigured light delivery device or LDD and see sales of our previous LDD version. While offering identical functionality, the new LDD's reduced footprint addresses practice based constraints With an updated design that has elicited very favorable feedback, including at its first public exhibit at the RxSight booth During last week's annual meeting of the American Academy of Ophthalmology or AAO.

Speaker 3

Even with a modest price increase, The reconfigured LDD's ROI remains highly attractive, generally paying for itself in about 6 to 9 months, Assuming approximately 9 to 10 light adjustable lens implantations per month. Also at the AAO meeting, there were numerous presentations 38 bilateral LAL subjects from nearly 80 clinical sites that continues to illustrate the clear advantages of postoperative adjustability. Consistent with earlier data readouts, 97% of LAL subjects achieved uncorrected binocular distance vision of 20.25 or better And 87% achieved 2020 or better. 91% of LAL subjects achieved uncorrected binocular near vision of J2 or better, Which means they could read 5 point type without glasses, while 79% could read at J1 or better equivalent to 4 point type. Just under 80% of subjects decided to optimize vision in one eye for near and intermediate distances, often referred to as blended vision.

Speaker 3

For most of these subjects, the refractive difference between the eyes was quite small At 1.25 diopters or less. The results showed that 97% of blended vision LAL patients achieved 2020 or better uncorrected distance vision and 95% achieved J2 or better uncorrected near vision. Just under 25% of all LAL subjects in the study were post refractive patients. However, there were no differences in visual outcomes to achieve optimal results in post refract device. Also during the AAO meeting, preliminary Phase 4 But with the same ability to customize and deliver high quality vision as the LAL.

Speaker 3

We believe this combination of Quality and expanded range will be very attractive to premium eye wall surgeons and their patients, particularly to those who favor distance dominant vision in both eyes And might be considering an alternative such as multifocal lens that can be associated with reduced quality of vision. We will be expanding our ongoing Phase 4 LAL plus clinical study to generate more real world data, While continuing a controlled commercial launch for the LAL plus in the first half of twenty twenty four. Surgeons and practices already familiar with the LAL Can seamlessly add the LAL plus to their premium practice as there are no differences in the surgical procedure or post op adjustment process. The LAL will continue to offer outstanding visual results for those patients who are likely to utilize more blended vision or who have other ocular conditions such as previous corneal refractive surgery. We believe that with both the LAL and LAL plus Doctors can provide nearly any patient with precise high quality vision across a full range of distances, while avoiding increased rates of glare, halos loss of contrast sensitivity common to multifocal eye wells, thereby delivering the highest level of patient satisfaction.

Speaker 3

The reconfigured LDD and LAL plus are good examples of our approach to innovation, which focuses on the continuous improvement of our technology to drive progressive adoption by patients and practices. Through such product enhancements, industry leading clinical results And individualized high touch customer service, we remain fully focused on helping doctors deliver the best possible vision to premium cataract patients, Thereby also helping their practices to grow and prosper. With that, I'll turn the call over to Shelly for a recap of our quarterly financial performance and guidance outlook for the balance of 2023.

Operator

Thank you, Ron. Good afternoon, everyone. RXSight Generated Q3 2023 revenue of $22,200,000 up 76% compared to $12,600,000 in the year ago quarter and up 7% compared to $20,800,000 In the Q2 of 2023, we sold 13,657 LALs in the Q3 of 2023, Up 107% and 8% compared to 6,595 units 12,622 units in the same year ago quarter and Q2 of this year, respectively. 3rd quarter 2023 LAL unit sales Generated revenue of $13,500,000 up 107% 9% compared to $6,500,000 and $12,400,000 in the Q3 of 2022 and Q2 of 2023, respectively. This sequential performance is consistent with the typical seasonality patterns for cataract surgery volumes, which tend to be softer in the 3rd quarter due primarily to summer vacation schedules.

Operator

LAL revenue as a percentage of total revenue was 61%, up from 52% 60% in the Q3 of 2022 and Q2 of 2023, respectively. We sold 66 LDDs in the Q3 of 2023, up 35% compared to 49 units in the year ago period and relatively even with 67 Units in the prior quarter. 3rd quarter 2023 LDD sales generated revenue of $7,900,000 up 39% and 3% versus the Q3 of 2022 and Q2 of 'twenty 3, respectively. As of September 30, 2023, our LDD installed base increased to 589 units, up 72% 13% versus the Q3 of 2022 and the Q2 of 2023, respectively. As Ron indicated earlier, we launched the reconfigured LDD during the Q3 and phased out sales of the prior version.

Operator

These reconfigured units, which are more cost effective to manufacture, represented roughly 1 third of our unit sales during the period. A price increase implemented at launch lifted our total LDD ASP as compared to Q2 2023 by about $5,000 to just over $120,000 in the 3rd quarter. We expect the higher ASP for the reconfigured LDD to be maintained as we close out 2023 and enter 2024. Release of the reconfigured LDD with a higher average selling price and lower cost to manufacture, Along with the continued shift in revenue mix drove an increase in the gross margin in the 3rd quarter to approximately 62% compared to 42% in the year ago quarter and 58% in the Q2 of this year. SG and A expenses in the Q3 of 2023 were $19,100,000 up 28% versus $14,900,000 in the year ago quarter, reflecting SOX implementation and consulting costs and increased expenses in sales and clinical personnel costs and travel.

Operator

On a sequential basis, SG and A expenses were up 5%, primarily due to SOX Implementation and consulting costs. R and D expenses in the Q3 of 2023 rose 11% to $7,100,000 compared to $6,400,000 in the same year ago quarter and 7,400,000 in the Q2 of 2023. The change versus the year ago quarter was primarily due to increased headcount and associated increase in salaries and stock based compensation. We reported a GAAP net loss in the Q3 of 2023 of $12,400,000 or a loss of $0.35 per basic and diluted share using weighted average shares outstanding of 35,700,000 shares. This compares to a GAAP net loss of $16,800,000 or $0.61 per share on a basic and diluted basis using a weighted average shares outstanding of 27,700,000 shares in the same year ago quarter.

Operator

Non cash stock based compensation and loss on extinguishment of debt in the Q3 of 2023 was $4,100,000 $1,400,000 respectively, resulting in a non GAAP loss of $6,900,000 or a loss of $0.19 per basic and diluted share. Please refer to the unaudited non GAAP reconciliation and disclosure included in today's press release for more comparative information. As previously reported, we raised $11,700,000 net of fees and expenses in July under our at the market or ATM program. We use these proceeds and cash reserves to pay off our remaining $20,000,000 debt balance. We ended the Q3 of 2023 with cash, cash equivalents and short term investments of $131,900,000 compared to $147,100,000 at June 30, 2023.

Operator

The change reflects the net impact Of the ATM proceeds, ESPP, contributions and stock option exercises, net of the $20,000,000 debt reduction. Excluding the proceeds from financing and capital activities and use of capital for principal debt repayments, Cash used in operating activities during the Q3 was $7,000,000 compared to $9,500,000 in the Q2 of 2023. The change was due primarily to a lower net loss driven by higher gross profit and a reduction in interest Turning now to guidance. Based on our Q3 2023 performance, We are increasing our 2023 revenue guidance range to $85,000,000 to $87,000,000 up from prior guidance of $81,000,000 to $86,000,000 Our new guidance implies a year over year growth rate of 73 to 78%. We are also increasing our 2023 guidance range for gross margin to 61 to 61% versus prior guidance of 58% to 60%.

Operator

The increase reflects The 4th quarter full benefit of improved gross margin from the reconfigured LDD with a higher ASP and lower cost to manufacture. Our 2023 operating expense guidance range narrows to $106,000,000 to $107,000,000 which includes non cash stock based compensation of $15,000,000 to $16,000,000 This annual guidance translates to Q4 2023 revenue guidance of $25,000,000 to $27,000,000 Gross margin of 61% to 62% and operating expense of $31,000,000 to $32,000,000 Since late 2022, we have raised $101,100,000 net of fees and expenses through our confidentially marketed public offering or CMPO and ATM program, paid off our $40,000,000 termed out loan and Our annualized interest expense by approximately $5,600,000 As previously indicated, we believe our cash And short term investment balances combined with no outstanding debt will leave us well positioned to achieve profitability from operations with a healthy balance sheet. With that, I'll turn the call back to Ron.

Speaker 3

Thank you, Shelly. To summarize, LAL volumes in the 3rd quarter continued their positive advance, while favorable LDD unit trends provide an encouraging indicator for rising LAL usage in future periods. We are pleased with the early embrace of our newly released Our expanding Phase 4 clinical data paints an increasingly clear and convincing picture of the superior visual results Postoperative adjustability can deliver to patients, while creating sustained profitable revenue streams that help practices thrive. With surgeon adoption on the rise, we remain very optimistic about the future potential of our unique technology to reshape and expand the premium cataract Market and create long term value for RxCyte patients, doctors and shareholders. In these challenging times, we greatly appreciate that Rx is not dependent on government reimbursement decisions and caters to a highly desirable patient demographic With a strong U.

Speaker 3

S. Initial focus and a large global opportunity. In contrast to other clinical areas, we also do not see And now I'll ask the operator to open the call for questions.

Speaker 1

Thank you. At this time, we will conduct the question and answer session. First question comes from Craig Bijou with BofA Securities. Go ahead. Your line is open.

Speaker 4

Great. Thank you. Good afternoon and congrats on another strong quarter. So I wanted to start with, appreciate some of your comments on the Q3 seasonality. And obviously, the Q4 Or the guidance assumes a Q4 step up.

Speaker 4

So based on what you're seeing thus far in the quarter, Just wanted to see is Q4 kind of tracking towards normal seasonality that we've that you would have seen in past years? And specifically, how should we think about the seasonality impact on both utilization and LDD placements?

Operator

Yes. While we don't comment on intra quarter results, we will say that we That Q4 to be seasonally the strongest quarter of our year, typically is and you certainly see that in the revenue guidance.

Speaker 4

Got it. Thanks, Shelly. And then maybe for Ron, just on LAL plus I appreciate those comments. And maybe just what's different about LAL plus So Obviously, it sounds like it's going to be improved upon LAL and some better clinical outcomes. But Is the process, the fitting process or anything different?

Speaker 4

Is pricing going to be different? Is the cost for you guys to manufacture different?

Speaker 3

So in terms of the clinical process, it's identical both from the surgery as well as the LDD treatment. And from a financial aspect, it's also identical from our perspective in terms of pricing. The and we really just want the doctor to choose the best LAL for that particular patient. We think that the LAL obviously has served as a great choice, Particularly for those patients, as we see in our study who choose blended vision and or who might be Have other conditions such as being post refractive. And we feel that the LAO plus is going to be Particularly strong for those patients who might be more inclined to choose distance dominant vision in both eyes And might be considering a multifocal lens, but would like to avoid some of the drawbacks of that technology.

Speaker 4

Great. Thanks for taking the question. Yes.

Operator

Sure. Sure. Cost, That's exactly the same as CLAL.

Speaker 5

Thank you both.

Speaker 1

We'll take our next question. The next question comes from Robbie Marcus with JPMorgan. Go ahead. Your line is open.

Speaker 6

Hi, everyone. This is actually Rohan on for Robbie. Just want to say congrats on another nice quarter here. Just two from me. The first is just how are you thinking about penetration today across your LDD base?

Speaker 6

And how should we think about the growth in LDDs relative to LALs next year and beyond? Obviously, you've seen a pretty nice sequential step up as a percentage of total sales. So just if you could provide some color on where that should settle out, that would be helpful.

Operator

So let me just clarify. I think you're asking about Penetration of LDDs in the U. S. Marketplace, is that what you're asking?

Speaker 6

Yes. Just kind of trying to get at like how much growth is left In LDD placements, obviously, over time, LALs will make up the majority of your revenues. I think that's kind of how people model it out. But Just wanted to get a sense for like where that should plateau on the LDD side?

Operator

Yes. We've always said There's about 30,000 ophthalmologists in the U. S. And about 10,000 of those perform cataract surgery. We've recently gotten updated data that about 4,000 perform about 70% or 80% Of the premium procedures, so that's getting a bit more distributed than the 3,000 that we have mentioned earlier.

Operator

But we think that the LDD is an ideal way for every doctor, even those that are not doing premium procedures To enter the premium market with a low capital cost and great results for their patients. Ron, maybe you want to add something else about that?

Speaker 3

Yes, I would agree. I think that the obviously, we're focused on doctors who are doing the most Premium procedures initially, but as we continue to expand, we want to be able to offer this To other doctors who may not be that have not been traditionally focused on the premium market, but increasingly see this As their primary way to build the revenue in their practice and to thrive. And really, I don't think we know what the upper limit of LDD placements is going to be over time as Practices develop as they open new offices, etcetera.

Speaker 6

Thanks. That's really helpful. Just one more from me. I guess utilization was also strong again in the quarter. So just wanted to dive into where Kind of a lot of this growth is coming from is it more from kind of your top users or did you see it as being broad based in the quarter?

Speaker 6

And then just to follow-up, how do you expect utilization to kind of trend in 2024, if you can provide just some preliminary color there?

Operator

So I think that the utilization and the increase in procedures Comes from 2 areas like it always does, new surgeons who have gotten installed typically in the previous quarter and the beginning of this quarter to Q3 and that's always a growth driver, but also we look for increased utilization as well. And while the absolute number of LAL procedures went up 8% in the quarter as compared to the second Quarter, typically you do kind of see a little less sequential growth in the Q3 just because of seasonality. And so the utilization per doctor, per LDD, however you want to look at it, overall was a little bit lower, but that's just a function seasonality, but we have the benefit of continuing to grow our overall installed base and that grows the number of procedures even in A quarter that might be considered a little weaker, but we see growth among all types of our customers.

Speaker 6

Great. Thank you.

Speaker 1

And I for our next question, please. The next question comes from Larry Biegelsen with Wells Fargo. Go ahead. Your line is open.

Speaker 7

Hey guys, thanks for taking the question. Maybe switching gears to the new LDD. Shelley, a couple How will that play out in terms of the gross margin impact? I think we've assumed that the current, LDD has a gross margin of about 25%. How should we think about the gross margin, the new LDD?

Speaker 7

And you gave some helpful color here on the ASPs. It looks like the new LDD, has an ASP of about $130,000 Is that a good number Going forward and do you expect the vast majority of new systems to be with the new LDD going forward?

Operator

Yes, you certainly did the math. From my commentary as well, it was about a 10% maybe a little bit more increase in terms of the ASP compared to our previous product overall. And if you think back To some of the commentary that we made previously, we had said that our goal for capital equipment is between 20% 25% gross margin And we were below that number and that was really a function of the fact that the material costs had increased so much with Chip and other component shortages as well. While we don't break out the margin between both products, There are two things that are driving the margin up. 1 is ASP, which is really nice, as well as the fact that it's less expensive to manufacture, Primarily because the material is less expensive.

Speaker 7

And you expect going forward The new LDD to basically replace the old one in terms of system sales?

Operator

Yes. We have already made that transition

Speaker 7

I got it.

Operator

The pre LDD to the reconfigured LDD and that will represent our full Q4 revenue from the LDD.

Speaker 7

You got it. Hey, just curious on international, anything noteworthy in the Q3 For international sales and how are you thinking about new international markets in 2024? Thanks for taking the questions guys.

Speaker 3

Maybe I'll comment first. We had previously mentioned that we had We've begun commercialization in Canada that continues to go well. We're very excited about our new customers in Canada, had an opportunity And We're also excited about the global opportunity for this product. We haven't provided a specific timeline for that, but we believe that This that the LAL is going to be attractive to doctors across The world, Europe, Asia, etcetera.

Speaker 7

So no timeline, Ron?

Speaker 3

Not at this time.

Speaker 7

All right. Thanks.

Speaker 1

One moment for our next question. Next question comes from David Saxon with Needham and Co. Go ahead. Your line is open.

Speaker 8

Hi, everyone. This is Joseph on for David. Maybe just staying with geography, Are there, I guess, any areas in the U. S. That you still need to get into?

Speaker 8

Or, I guess, is your guys feeling that You're well represented in all those major areas in the U. S?

Speaker 3

I would say that we're equally represented geographically. We have a good Footprint across all the major regions, but we're still there's still room for growth in all of them. And so we have efforts across the country.

Speaker 8

Okay, great. And then I guess expectations for 4th quarter and Moving into 2024, I guess around hiring, any color there would be great. Do you Need to expand hiring just given the new LDD and the new LAL on the way. Yes, just any color around there would be great.

Operator

Okay. I'm going to actually let Ron comment first because the new LDD is Very easy to install. And in fact, it's a little easier than our other one, which was just a 4 hour installation. And the new LDD can also be moved around within a clinic, providing just a little bit more Where they want to do the light treatments, the LAL and I think Ron, the process is exactly the same. So it doesn't require additional training for a doctor who already is doing LAL treatments as well as

Speaker 4

Okay.

Operator

Implying the LAL.

Speaker 3

Yes. So I think the impact on our field force is just going to be the continued growth Of the installed base and utilization as we train more doctors and continue to do installations, That does as the installed base and the number of implanting surgeons goes up, we do increase Our clinical training and account manager core a little bit to account for that.

Speaker 8

Okay. That's perfect. Thanks very much. If I can just squeeze one quick one in there. Appreciate the info on the balance sheet That you guys gave, but do you think you could give any specific timing around operating breakeven?

Operator

No, we haven't done that yet. We're balancing the course top line growth along with leverage.

Speaker 8

Okay, great. Well, congrats on the terrific quarter.

Operator

Thank you.

Speaker 4

Thank you.

Speaker 1

One moment for our next question. Next question comes from Steven Lichtman with Oppenheimer and Co. Go ahead. Your line is open.

Speaker 5

Thank you. Good evening and congratulations. Ron and Shelly, with the growing installed base, to what extent do you think we're at a point where Surgeons not offering LAL might be losing out prospective patients to other offices in their area And that might be another incremental driver of demand here. And if you're not hearing that yet, anecdotally, do you see that as a Potential based on what you're seeing from current customers in terms of marketing programs, etcetera.

Speaker 3

Well, we hope that's the case. But I would say that the I think the bigger Factor is that doctors want to be able to offer this technology to their patients. They're Trying to give their patients the best visual acuity, the best clinical results that they can. And as they become more aware Of the LAL and its performance either through people in their area or through their attendance at meetings like the AAO, They're looking for ways to drive their own businesses and focusing on premium IOLs It's the best way to do that. It's the one area of their business that they can control and It's a win win for the practice and their patients.

Speaker 5

Got it. Okay, great. And then Secondly, R and D is still at a healthy percent of sales even on the higher base. We saw the LAL plus of course. How should we think about how you're looking at sort of the investment here?

Speaker 5

Should we look for continued incremental advancements? Are you focusing more on clinical Dave, can you talk a little bit about where your R and D focus is overall?

Speaker 3

Well, I would look back to what We've done over the past several years, where we've continued to drive innovation of the technology. We've mentioned before that we've had over 30 PMA supplements approved by the FDA Since our initial FDA approval and those have driven They can be considered incremental advances, but cumulatively, they have a significant impact on both Outcomes as well as the usability of the technology. And so, this is the way that we penetrate the market, both on the practice side as well as on the Patient side, continuing to raise the bar of our technology and we'll continue to do that for many years to come.

Speaker 5

Great. Thanks, Ron.

Speaker 3

Thank you.

Speaker 1

I'm showing no further questions at this time. I would now like to turn it back to Ron for closing remarks.

Speaker 3

Well, thank you all for your time and attention today. As always, we appreciate your interest And we look forward to updating you on our progress in future quarters. Goodbye.

Speaker 1

This does conclude the program.

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