Q4 2020 LENSAR Inc Earnings Call
Ladies and gentlemen, this is the operator your conference is scheduled to begin momentarily until that time your lines will again be placed on music hold and thank you for your patience.
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Okay.
Good afternoon, and good morning, and welcome to the lens on our fourth quarter 2020 financial results Conference call.
And this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
And as a reminder of this conference is being recorded I.
I would now like to turn the call over to Mr. Lee Roth of <unk>.
Barnes, Nick one and Mr. Roth. Please go ahead.
Thanks for Crystal Good morning, and once again and welcome to the lens, our fourth quarter and full year of 2020 financial results Conference call.
Earlier today, we issued a press release, providing an overview of lens on financial results for the fourth quarter and full year ended December 31 2020.
This release is available and the IR section of the company's website at lens on dotcom.
Joining me today on the call on Nick Curtis Chief Executive Officer of lens, or who will review the company's recent business and operational progress.
And so on his comments, Tom Staab, our CFO will provide an overview of the company's financial highlights for the fourth quarter before turning the call back over to Nick for closing remarks.
Today's conference call will contain forward looking statements, including those statements regarding future results unaudited and forward looking financial information as well as the Companys future performance <unk> achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results performance or achievements to be.
Really different from any future results or performance expressed or implied in this presentation you.
You should not place undue reliance on these forward looking statements for additional information, including a detailed discussion of the Companys risk factors. Please refer to our documents filed with the U S Securities and Exchange Commission, which can be accessed on the website.
In addition, this call contains time sensitive information and accurate only as of the date of this live broadcast March 10 2021.
<unk> undertakes no obligation to revise or otherwise update any forward looking statements to reflect events or circumstances. After the date of this likely for this call with that said its now my pleasure to turn the call over to <unk>, Chief Executive Officer, Nick Curtis Nick.
Thank you Lee and good morning to everyone listening.
Thank you for joining us on our fourth quarter and full year 2020 conference call.
This past year presented a series of unprecedented challenges.
Not only lens are but for the entire ophthalmic industry on a macro level for the COVID-19, pandemic temporarily halted elective procedures, including cataract surgeries throughout the world.
This worldwide slowdown certainly had an impact on two areas of our business capital system sales as well as procedure revenue from new and existing laser sights and despite the challenges faced I'm pleased to say that we finished 2020, a much stronger company than we were entering the year.
First and October we completed the spinoff from our former parent PDL Biopharma and became an independent publicly traded company.
Second we leveraged our technology leadership to grow our installed base roughly 10% ending the year with approximately 225 systems installed worldwide, while maintaining our industry, leading laser system utilization.
According to recent market scope analysis, each lens, our laser system performed on average of 40 to 130 procedures and 2020 compared to an average of 232 procedures performed on computing systems.
All in we grew our market share from 13% in 2019% to 16% and 2020.
Perhaps most importantly, we continued advancing the development of our next generation system alloy, which has the potential to significantly disrupt the cataract surgery market and enable lens or to not only grow market share, but to usher in a new standard and the treatment of cataracts and ophthalmic surgery.
As I noted the headwinds faced throughout the industry as a result of COVID-19 were significant.
The most severe impact on loans or was felt in the second quarter during which worldwide procedure volume is using our equipment declined by just over 30% compared to the second quarter of 2019 and.
And Q3 practices reopened and procedure volumes rebounded declining by less than half of a percent year over year.
This trend continued in the fourth quarter with worldwide procedure volume is down less than 5% compared to Q4 of 2019.
And importantly procedures and the U S and Europe, primarily Germany, our two major markets, where 20872 and the fourth quarter up from 17732, and those regions and the fourth quarter of 2019.
For the full year 2020 worldwide procedure volume sold were 90, 771 down roughly 10% compared to 108030% and 2019, but the full year comparison does not fully demonstrate the momentum we saw on the second half of the year.
While the reopening of ophthalmic practices and resumption of procedures is highly encouraging of ophthalmologists are being pragmatic and approaching the visits and treatment of patients with a new set of protocols to minimize potential exposure to COVID-19 to both patients and staff.
And many cases patients are asked to wait outside and their cars distancing and the waiting rooms, disinfecting disinfecting exam rooms, and equipment between each patient and utilizing telemedicine visits when appropriate.
This result, and doctors, either working longer hours or to see and treat fewer patients per day than prior to the pandemic, while the length of the cataract surgical procedure itself Hasnt changed the measures taken between patients who have increased making the efficiency of the procedure itself and patient interaction and the process more important than ever.
This is really where the <unk> technology has the potential to become the clear choice for ophthalmic surgeons moving forward.
We believe our current generation system with streamlined for and of Tele axis remains the most advanced and beneficial system available to a form of surgeons today.
During a time when maximizing patient safety and must be balanced with optimizing patient throughput and operational efficiencies of the practice level. We believe we are enabling physicians to best achieve this balance.
Seamless communication integration with most major preop diagnostic platforms to include Iris registration and surgeon tables, guiding astigmatism management cataract enter the imaging and tissue specific custom treatments Linzess technology brings unrivalled precision and reproducibility to the surgical suite at a time when such valley.
<unk> of the characteristics are more important than ever.
As I mentioned earlier, our distinct value proposition for physicians and unique ability to optimize patient outcomes helped propel lens or to 16% global Femtosecond laser assisted cataract surgeries for market share and 2020 based on recent market scope data up from 13% and 2019.
The fact that we're able to grow our business and our market share and such a challenging environment is a testament to not only the strength of our offering but the quality of our commercial team.
While our commercial footprint is relatively small compared with most of our much larger competitors, we're investing strategically units growth leveraging near term market opportunities and to optimize the launch of alloy.
With the anticipated launch of Allied next year, we expect our technology leadership service support and the level of value. We offer physicians will continue to increase.
As a reminder.
Ally as a fully integrated system comprising of next generation Femtosecond laser with a high performance takeaway modification device and a unique compact workstation.
This integration of Femto and FICO into a single complete cataract treatment system will enable surgeons to offer the benefits of the lengths are laser to a much broader base of conventional cataract patients as well as those patients selecting premium procedures, including management of astigmatism and cataract removal and a single procedure.
And the same operating room or in office surgical suites, using a single device.
By eliminating the need to move of patient from one room to another and prep that patient twice, we're addressing one of the major workflow related challenges faced by surgeons today.
The logistical and financial efficiencies that we believe ally will create are expected to enable the rapid scale up while potentially opening up flax and its many benefits to a larger group of ophthalmic cataract surgeons.
I am pleased to say that interest among physicians and this technology not just those considered early adopters is significant.
Further strengthening our belief that alloy could represent a paradigm shift and the way the cataract surgeries are performed in the post COVID-19 environment.
I'm pleased to report with confidence that as of today, our development timeline for ally has not changed we remain on track to file of the 500 10-K application and the first quarter of 2022 with watching ally later that year.
Before I hand, the call over to Tom to discuss the financial results I would just like to thank the entire lens our team.
We have been able to accomplish through the pandemic because of true Testament to their dedication and hard work and addition, I want to take a moment to thank all of the facilities practices and our surgeon partners for their commitment to patient quality of care and for placing their trust and loans are.
While we expect to continue navigating the challenging effects of COVID-19, and the coming quarters I believe that we're well positioned to maintain our reputation as an innovator and technology leader.
And to grow and to capture further market share in the premium cataract space as well as prepare for the filing and launch of alloy and 2022.
Now, let me turn the call over to Tom who will discuss our financial position Tom.
Thank you Nick.
Our fourth quarter and full year 2020 financial results are included in our press release. This morning, but I'd like to take this opportunity to add a little color to those written remarks.
Revenue was $8 $3 million in the fourth quarter of 2020 compared to $8 5 million and the fourth quarter of 2019.
This two 1% quarter over quarter decrease was primarily attributable to a decline and elective surgical procedures associated with the continued impact of the pandemic per.
Particularly the lack of a complete rebound and global procedure volume and our operating regions outside the United States and Europe.
And the fourth quarter of 2020, there were 30000 and 503 for.
<unk> performed using lens, our systems compared to 32007 procedures in the fourth quarter of 2019.
Importantly, as Nick pointed out procedure volume and the United States and Europe in the fourth quarter of 2020 exceeded fourth quarter 2019 procedure volume.
But these increases were offset by a larger decrease and procedure volume and our remaining operating regions.
Although it appears the aggregate procedure volume had returned to near 2019 levels at the end of 2020 the.
The pandemic continues to depress our laser system sales or what we referred to as nonrecurring revenue and a razor razorblade business model.
Thus the pandemic continues to have a negative influence on our total revenues and cash flows, but we have and will continue to navigate this unprecedented operating environment carefully and focus our financial resources on achieving our alloy development timelines and building a strong commercial foundation for and it.
Ally launch in 2022.
Recurring revenue for all revenue outside of laser system sales for the fourth quarter of 2020, and 2019 was 80% and 81% respectively.
For the full year 2020, and 2019 recurring revenue was 85% and 79% respectively.
Gross margin for the quarter was $4 $7 million, representing 56% compared to $4 $7 million, representing 55% of revenue and the fourth quarter of 2019.
Total operating expenses for the fourth quarter of 2020 were $11 5 million compared to $6 6 million and the fourth quarter of 2019.
As you evaluate the increase between the quarters you should note that the $4 $9 million increase and 2020 was largely attributable to noncash stock compensation expense associated with our spin off and recapitalization for which there was a four $4 million increase accordingly.
89% of this total increase in operating expenses was directly due to an increase and stock compensation expense.
This phenomenon was true for the full year as well.
And with the 2020 increase and operating expenses of $6 $6 million actually less than the increase and stock compensation expense of $7 7 million.
As mentioned in the press release total stock based compensation and the fourth quarter of 2020, and 2019 was $5 $1 million and of half a million dollars respectively.
Total stock based compensation in the full year, 2020, and 2019 was $9 million and.
$9 million respectively.
The stock compensation totals are allocated between cost of revenue SG&A expense and R&D expense in our statement of operations with SG&A expense being allocated approximately 85% of the total stock based compensation expense.
Specifically selling general and administrative expenses totaled $8 7 million. During the three months ended December 31, 2020, compared to $4 9 million and the fourth quarter of 2019.
The increase was primarily attributable to increased personnel costs, which were largely because of stock based compensation expense I just described.
This increase in personnel expense was partially offset by a decrease and trade show and travel expenses as a result of travel restrictions and live meeting cancellations related to the COVID-19 pandemic.
Recent R&D expense was $2 5 million during the three months ended December 31, 2020, compared to $1 $4 million and the fourth quarter of 2019, the increase in R&D expense for the quarter was related to additional costs for the continued development of ally.
And anticipation of our 500 10-K filing with the FDA by March 31 2022.
Net loss for the quarter was $6 8 million compared to $2 5 million in the fourth quarter of 2019.
The increase and net loss was primarily attributable to the aforementioned increases on R&D and SG&A expenses, particularly noncash stock based compensation expense.
Adjusted EBITDA for the fourth quarter of 2020.
<unk>, which excludes the effects of stock based compensation expense was $1, one $1 $1 million loss compared to a half a million dollar loss in the fourth quarter of 2019.
The quarter over quarter increase and adjusted EBITDA loss was attributable to an increase in R&D expenses.
Interestingly, if you deduct cash base R&D expenses from our adjusted EBITDA. The result is approximately zero for the fourth quarter of 2020.
Thus our commercial operations were cash flow neutral simply said our cash used for the fourth quarter 2020 corresponds directly to cash used in the development of ally.
As of December 31, 2020, we had cash and cash equivalents of $40 6 million as compared to $42 7 million at September 32020, when we were spun off from PDL.
Based on our current cash position and operational forecasts. We believe we have sufficient capital to fund our operations through the filing of our five 10-K application and the launch of ally next year.
As mentioned previously and my adjusted EBITDA remarks, cash use and the fourth quarter of $2 $1 million was equal to cash spend in the quarter in R&D for ally.
Now I'd like to turn the call back over to Nick for some closing remarks.
Thank you Tom although our industry has experienced an unprecedented challenge, we're committed and our mission to bring of bringing the highest standard of care the.
Best technology, including advanced applications to our surgeons and their patients using our system and.
And with even greater resolve continuing the.
The progress to launch ally and 2022.
Ally has the potential to significantly disrupt the current cataract market with the opportunity to become the new standard of care for cataract removal procedures.
With the projected increase in cataract surgery over the next five years, our strong balance sheet and a resilient operations. We believe the company is well positioned for the future we remain confident and our growth strategy, our team's ability to execute that strategy and are well prepared for continued growth and success as we lead.
The transformation of cataract surgery.
I will now turn the call back over to the operator, and we look forward to your questions.
At this time, if you would like to ask and answer your question. Please press star one on your Touchtone phone. Once again that is star one to ask and audio question. We will now pause for a moment to compile the Q&A roster.
Our first question comes from the line of Richard.
With.
The the Leerink.
Hi, good morning, Thanks for taking the questions.
Good morning, Rich Hi, rich.
Hi, how are you.
And I was hoping to maybe just start with.
And that's on the.
And the bit of a rebound here further and the fourth quarter and.
And I was hoping you could comment a little bit on price.
And on how Youre thinking about the outlook for 2021.
Yes.
We're thinking about.
Gross.
For 2019 levels and 2019, you delivered about $30 million of little over $30 million of sales or is it reasonable to think and.
2021 will be.
And that or likely above that level.
And then also if you could help us think of the.
And the cadence.
And pacing of revenue through the year.
So rich.
We think it's going to be.
We will see an increase in our total revenue.
From that we'll see a rebound and an increase and our total revenue from the 2019 levels and we will see growth. This year, we think it's going to be a little bit choppy here the.
The next quarter or two as the vaccines get distributed and as Covid begins to kind of look at that and the rearview mirror, but but we have.
A pretty optimistic outlook for lens are as we as we move through 2021 and and get to the end of the year. So we do expect some growth.
Certainly from 2019 levels.
Okay, and then just because we don't have a ton of.
History to go and look back operating from seasonality.
The last year of your 4% of <unk> drop off was probably more pronounced in general just because of the the COVID-19 situation.
How should we think of the $40 of <unk> trend.
Time around.
And I presume, it's kind of be meaningfully less of the step down in the last year.
But can you calibrate for us at all for the.
And maybe at least the quarter.
And when and what to expect there.
Yes.
Yes.
Sorry, I should have addressed the at the beginning there is some seasonality associated with this we've seen.
Harsh harsh winter and some cases and given some of the protocols in place with the doctors trying to distance patients and have patients waiting and cars and calling them in and whatnot.
There is some seasonality involved here of the seasonality involved and cataract surgery anyways generally speaking of the.
The second and third quarters are not the same as the first and the fourth quarters in terms of cataract surgery volumes now obviously with the Covid we're seeing.
Some some different things here and there are I mean cataract cataract.
Cataract patients aren't going away. So the fact is is that as these practices return and as Covid starts to move into the rear mirror.
And maybe some of the seasonality starts to smoothed out and you see more patients coming in and there is certainly our backlog of patients that debt.
That haven't been able to get surgery here in the winter and with the pandemic, so but typically you would see.
And some seasonality there were first second quarters would be.
A little less of what you'd see and the third and certainly the fourth quarters are of fourth quarter would be the strongest.
Okay helpful color. Thank you maybe just a few more here one on.
One on just the flex market and your current system and then a couple on ally.
And your system is operating I think you said and.
On average of 430 cases.
About double what your competitor of Funko.
The competitive systems.
Our operating at significant I guess.
Can you maybe explain a little bit of why you guys are seeing such a and above market the utilization trends.
And how sustainable is this and where can this utilization number of bell.
So.
I'll answer the second part of it first I believe it's very sustainable and primarily it's because of some of the differentiating features that debt our system really affords the practices, we're driven towards efficiency and we are driven toward up towards outcomes and those two things are like inherent and.
Our DNA and.
And so when you look at things such as the Irish registration and the communication with the pre op diagnostic devices, where we can feed the information into the lens are.
Through the cloud electronically and.
And have the system automatically adjust doctors feel confident that aid or getting good data into the system. The.
And the system is helping them to achieve higher efficiency and better outcomes and thus it leads to.
More confidence in terms of presenting to patients and.
And throughput as as they finished the as they do the procedure. So we expect it is sustainable and and that as the volumes continue to rebound we will see those volumes come back to the $2 19 levels 2019 levels and beyond and as a result of debt.
That's that's one of the reasons why we've been able to continue to grow our footprint and take market share from the other companies because.
And grow at a higher rate and it's because we're we're our system has more utility.
Got it maybe switching gears to ally you reiterated your confidence and kind of the.
The approval timelines and the are on track.
Yes.
For your previously stated.
And our launch timeline.
I guess, one just can you give us anything more about what gives you that visibility or confidence there and.
And then too.
The.
And what should we be thinking about in these quarters, leading up to the.
The launch thanks for the color on R&D there it sounds like.
And that stepped up a little bit and the fourth quarter all related to ally is that something that will continue to increase as we move through 'twenty, one until launch or is that the <unk> run rate on R&D kind of.
The way to think about it.
We will see some increase in our and our SG&A expense.
As we as we move towards launch.
We're starting to make some selective investments in.
And adding to our commercial presence and and.
And if you will sales force and support functions.
Around that and preparation for launch.
R&D will be will be stepping up we will be building systems starting to build some systems. This year as we get manufacturing and place and as we we we get more comfortable with the with with ally.
And so youll see some select investment.
And these areas as we move as we move towards the launch in terms of.
And how we why we feel confident about timelines.
We're working very well with the development partner.
Early in terms of <unk> and the other.
The R&D side and the integration of the of the device into the the the lengths of our device the <unk>.
R&D team is super focused and we're starting to integrate manufacturing and other departments into that and we've got some very specific goals in terms of what we need to have done by the end of this year in order to be ready for ready for filing.
And the first quarter next year and so we're just like everybody is just very focused on debt and where this differs from from where lens are.
If you go back and look at all of the companies and Femtosecond lasers is that we have we've developed of certain core competency and the team that's been in place here for quite a while and so with that core competency and the team that's been in place.
Not like for like.
And we werent starting at <unk>.
Ground zero here in terms of.
And with a product like alloy and so.
And we're moving into.
Focus and step direction, there and staying on target and rich got it and a little more and more color on R&D.
We said we were going to file by the first quarter of 2022, so it's reasonable to expect R&D expenses to go up 20% and 30% from two.
'twenty 'twenty levels, just because we're at the we're getting to the tail end of what we need to do and from an SG&A perspective.
We guided and the remarks and Thats going to go up debt, we're broadening our commercial foundation to kind of price.
Pair for what we think is going to be hugely successful ally launch in 2022, but we have to be careful because we're still seeing impact.
Of the pandemic and I know, Nick we're still seeing.
The conferences cancel we're seeing a lot more virtual stuff and so we have to be very careful as to adding the right.
Increases to our infrastructure at the right time.
Got it on that.
Thanks for that and then maybe just one last one here and then I'll come.
And back then.
Q, so as we think of.
And allied launching out into the future of their any.
Revenue mix considerations, right and I agree the 80% recurring revenue I guess, just when ally comes in because the selling model, where the change should we think of cash.
Capital versus recurring.
Recurring to the kind of.
The transition of a little bit more in favor of capital for a period of time and any color you can give as we kind of refine our models.
And so the future after the ally losses that would be helpful. Thank you.
Yes.
That's a good question.
With any of these if you look historically when when these types of when new technologies are introduced into a market that is hungry for new technology, which certainly ophthalmology is.
You tend to see capital purchases.
More and the beginning of the launch I would expect there'll be more capital purchases and the first.
The two years post launch.
And just because that's the way these things trend.
That said.
We're broadening the appeal of the technology into.
All of the cataract procedures I also think that Youll see.
Even higher utilization once the systems get installed and people get used to them and their operating rooms and.
Sort of the the efficiencies and and flows there, particularly as we start working through some backlog of patients here in the coming years.
But you'll definitely see.
A higher a higher mix of capital sales, especially in the first couple of years post launch.
Great and from a bit from a business model perspective.
We're still highly focused on a razor razorblade model and what Youll see are more.
Will we will start to utilize some third party financing. So that we can have a better use of cash we've internally financed.
<unk> up until this time, but since we see as we move into the Safeway modification side of things, where and we start to broaden into into the broader cataract market.
It's a better use of cash for us rather than to self finance too to prudently use of third party financing.
As sort of a white label.
If you will so what's the.
It looks at the lens our program to the two of the customers, So it's seamless and and.
And we finance these three to five years on the three to five year basis.
Great. Thank you very much for taking the questions.
Thank you rich.
We have no further questions I will now turn the call day to management for closing remarks.
And I'd really like to thank everyone for joining our call today and.
And for your continued interest and loans are and.
And we really look forward to updating you as we make further progress and approach the filing and launch of ally.
Thank you.
This concludes today's conference call you may now disconnect presenters. Please hold the line.
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