Q3 2021 LENSAR Inc Earnings Call
[music].
Yeah.
Good morning, and.
And thank you for your participation.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
As a reminder, this conference call will be recorded.
I'd now like to turn the call over to Cameron Reynolds of Burns Mcclellan Mr Run Nobec. Please go ahead.
Thank you operator.
Good morning, and welcome to the lens, our third quarter 2021 financial results conference call.
Earlier this morning, the company issued a press release, providing an overview of its financial results for the quarter ended September 30th two.
2021.
This press release is available on the Investor Relations section of the company's website at Www dot ones aren't dotcom.
Joining me on the call today is Nick Curtis Chief Executive Officer of ones are who will review the company's recent business and operational progress.
Following his comments, Tom Staab, Chief Financial Officer of ones are will provide an overview of the company's financial highlights for the third 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 on audited and forward looking financial information as well as the company's future performance and or achievements.
These statements are subject to known and unknown risks and uncertainties, which may cause the company's actual results performance or achievements to be materially different from any future results or performance expressed or implied in this presentation.
You should not place undue reliance on these forward looking statements for.
For additional information, including a detailed discussion of the company's risk factors. Please refer to the company's documents filed with the Securities and Exchange Commission, which can be accessed on the website.
In addition, this conference call contains time sensitive information that is accurate only as of the date of this live broadcast November <unk> 2021 cleanser.
<unk> undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances. After the date of this live conference call.
At this time, it's my pleasure to turn the call over to Nick Curtis.
Thank you Cameron and good morning to everyone listening.
Thank you again for taking the time today to join US on our third quarter 2021 conference call.
We're pleased by the strong results and consistent progress the company has achieved in the third quarter of this year.
We strive to navigate the uncertain times of the COVID-19 pandemic.
On the commercial front, we see the markets in which we operate continue to rebound from pandemic related shutdowns and to be more specific we've returned to our historical performance of growing our business.
This growth is in the backdrop of the lingering pandemic, which continues to weigh on the more certain predictability of our results, especially outside the U S and Europe, where the stopping and restarting of surgery has taken place.
An important indication of this consistent aggregate growth overall can be seen in our procedure volume through the first three quarters of 2021, which represented a significant 35% growth over the first nine months of 2020.
And even more importantly, an impressive 18% growth rate over the same period.
2019, evidenced that we are once again growing from our pre pandemic operations. After a pause due to all the implications and headwinds of the pandemic.
In addition to growing our procedure volumes. We've also seen an increase in lease placements, which combined to drive 16% revenue growth over the third quarter of 2020.
We firmly believe that <unk> current product, including streamline and a tele access refractive capsular axis is an evolutionary technology that addresses significant unmet needs in cataract surgery, which we expect will continue to be the most beneficial and useful technology platform in the market and remain a key driver of proceed.
<unk> and revenue growth.
As I reported last quarter, our marketing team remains laser focused and extremely active with lengths are technology featured six medical Congresses and events over the third quarter I am pleased to report that the enthusiasm for both our current lends our laser system in anticipation of our Nextgen ally adaptive cataract treatment <unk>.
<unk> continued to increase as we get closer to our ally 500 10-K filing.
Later this month <unk> will participate at the American Academy of Ophthalmology Conference.
We will have two abstracts, highlighting the superior outcomes when using our technology.
We look forward to sharing more specific information to include the data generated for the accepted posters as we get closer to the conference.
We continue to make solid progress in the development of our next generation product the alloy adaptive cataract treatment system.
And we are completing milestones necessary to complete and file the 500 10-K submission in the first quarter of 2022.
As a reminder, ally has the potential to be the first technology in the market to combine a next generation femtosecond laser with a world leading Swiss made precision fakery most vacation system.
Fully integrated adaptive cataract treatment system containing all of the core feature technologies of the current system.
The allied adaptive cataract treatment system will fit easily into any operating room or in office surgical suite and will significantly improve patient flow as the entire procedure can be performed in a single suite without having to move or re prep the patient.
In addition to a much faster laser treatment cutting procedure time by up to two thirds.
Overall, the third quarter has been one of tremendous progress, we believe that <unk> ongoing commitment to continuous improvement and providing an advancing superior technology with our surgeon centric values will enable the company to continue to grow and succeed in a market with expectations for innovation translating to higher <unk>.
<unk> better outcomes and enhancing the patient experience.
Now, let me turn the call over to Tom to cover our financial highlights for the quarter Tom.
Thank you Nick.
Our third quarter 2021 financial results are included in our press release today, but I would like to add a little color to those written remarks.
As Nick mentioned it was a strong quarter for us as you focus the lens on topline revenue procedure growth and cash management, all while making consistent strides towards our upcoming 500 10-K filing for ally in the first quarter of 2022.
Specifically revenue was $8 $3 million in the third quarter of 2021 compared to $7 1 million in the third quarter of 2020 and reflected a 16% increase year over year.
The increase was primarily driven by increased procedure volume and to a lesser extent lease placements.
Seed your volume, particularly in the United States exceeded pre COVID-19 levels as the company returned to its history of growth and market share expansion.
Analyzing revenue at a deeper level the United States continues to be a strong performing region for us.
We have seen a significant increase in procedure growth in the third quarter of 2021 as compared to both the 2020 and 2019 third quarters.
Thereby powering worldwide procedure growth in 2021 year over year.
Also contributing to procedure growth our system placements.
Assistant system placement activity has increased recently in the United States.
Accordingly, it appears system placements and procedure growth have rebounded to pre pandemic levels and we are in growth phase once again.
The foundation of our existing business provides a nice launching pad for ally a disruptive and novel combination system that incorporates all the technology features of our existing system.
In the third quarter of 2021, there were a total of 30765 procedures sold.
Compared with 25078 procedures sold in the third quarter of 2020.
25154 procedures sold in the third quarter of 2019.
Reflecting a 23% and 22% increase from both prior periods respectively.
Procedure levels in the third quarter of 2021 increased in each of our three reported operating regions.
United States, EU and rest of world as compared to the third quarter of 2020, but was particularly robust in the United States showing over a 26% increase from the third quarter of 2020.
Our.
<unk> revenue, which we define as all revenue other than laser system sales totaled approximately 87% of our revenue for the three months ended September 32021.
Compared to 82% for three months ended September 32020.
At the aggregate level gross margin for the quarter was $3 $9 million were 47% of total revenue and flat in terms of dollars as compared to the third quarter of 2020, which had a gross margin percentage of 55%.
The flat gross margin in dollars and decrease in our gross margin percentage as compared to the third quarter of 2020 was largely attributable to two main reasons.
Lower margins on recent system sales.
As well as transitioning our manufacturing operations from our current system to ally.
As we reposition and prepare for ally manufacturing, we have incurred charges, which have had a negative impact on cost of revenue and thus gross margin in the third quarter of 2021.
These margin hits more than offset the higher volume and higher gross margin percentage on our increased and more lucrative procedure sales.
This depression in gross margin May continue for the next few quarters as we continue to transition our manufacturing operations to build an inventory of alloy systems.
Research and development expenses were $3 2 million and $2 million for the quarters ended September 32021, and 2020, respectively.
This 59% increase was primarily due to additional costs for the continued development of ally in anticipation of our 500 10-K filing with the food and drug administration in the first quarter of 2022.
Within this increase was approximately $600000 of raw materials purchased for the eventual production of ally units.
This inventory is currently being expense to research and development rather than being capitalized on the balance sheet.
Selling general and administrative expenses for the quarter ended September 32021 were $6 5 million, an increase of 233000 or 4% compared to $6 $3 million to the third quarter of 2020.
The increase was primarily due to an increase in sales and marketing expenses as trade shows and travel resumed along with expenses associated with being a public company.
This overall increase was largely offset by $1 $8 million less stock based compensation incurred in the third quarter of 2021.
Total stock based compensation expense recorded for the quarters ended September 32021, and 2020 was $1 6 million and $3 $8 million, respectively and is charged to cost of revenue.
Research and development and selling general and administrative expenses.
With the spinoff and recapitalization of the company stock based compensation expense represents a significant expense for us in 2021.
And for the next two years.
But it is a noncash expense and thereby does not affect our cash runway, where our ability to fund the filing and launch of ally.
As of September 32021, we have $11 2 million of unrecognized stock based compensation expense.
Almost all of which will be recognized before the end of 2023.
And for which approximately $1 $5 million will be recognized in the remainder of 2021.
Looking forward, we expect to expand our commercial infrastructure to increase market share and broaden infrastructure and geographic coverage in the United States prior to the launch of ally in 2022.
We are also monitoring our supply chain, which has been impacted by the ongoing pandemic.
At this point, we have been able to adjust our operations to meet both our immediate needs and future objectives, but we are incurring higher costs due to supply chain pressures on sourcing certain materials.
Net loss for the quarter ended September 32021 was $6 2 million or 65 loss per share compared to a net loss of $4 8 million.
Or a net loss of 64 per share in the third quarter of 2020.
Adjusted EBITDA for the third quarter of 2021, which excludes the effects of stock based compensation expense was $3 $9 million adjusted loss.
And compares to $408000 adjusted loss in the third quarter of 2020.
When you deduct cash base research and development expenses from our adjusted EBITDA for the nine months ended September 32021.
<unk> approximates zero.
Thus our commercial operations are cash flow neutral when evaluating our EBITDA operations without considering normal working capital fluctuations in our balance sheet accounts.
Simply said, our adjusted EBITDA or cash used in the first three quarters of 2021 corresponds directly to cash spent on the development of ally.
As of September 32021, we had cash and cash equivalents of $32 3 million compared to $40 6 million at December 31, 2020.
Cash utilized in the third quarter of 2021 was $2 2 million and $8 3 million for the nine months of 2021.
Based on our cash position and our operational forecast. We continue to believe that we have sufficient cash to fund our operations through the filing of our five 10-K application and the expected launch of ally in 2021.
Now I'd like to turn the call back over to Nick for some closing remarks.
Thank you Tom.
We ended the third quarter marks <unk> first full year as a public company.
While no one could have predicted the challenging environment with a weight as we became a public company.
Can proudly say that our team is squarely faced each challenge head on.
Having found a way to not only persevere, but thrive in doing so.
Our team has made tremendous progress by continuing to grow our revenue quarter over quarter and one of the most uncertain times in our industry, while maintaining our commitment to continuous improvement with technology in support of creating superior outcomes for surgeons and patients and are nearing the doorstep to deliver alloy creating <unk>.
Anticipation within the company as well as the ophthalmic community.
With this team we believe we have the right plan and are well positioned for growth in both market expansion and disruption with the current <unk> laser platform.
In the near future, our ally adaptive cataract treatment system.
I have no doubt that ally has the potential to establish <unk> as a leader in the premium as well as conventional cataract surgery market.
Ally will optimize the entire cataract treatment process for both patients and surgeons.
Having the ability to customize each treatment in a way that improves both procedure and patient flow, while providing a superior outcome creates an overall experience that other technologies will be hard pressed to match.
We look forward to further updates as we get closer to our filing.
I'll now turn the call back over to the operator, and we look forward to your questions.
Thank you Sir if you would like to ask a question simply press Star then the number one on your telephone keypad.
Your first question comes from the line of Danielle and Toffee of SBB Leerink.
Good morning, guys. Thanks, so much for taking the question congrats on a strong quarter.
Hi, Danielle.
So just a few questions from me first on that dynamic of returning to pre COVID-19 levels. I'm. Just curious obviously this has been an earning season, where we've heard a lot of companies talk about hospital staffing shortages and not just within the hospital across the health care industry.
Health care worker shortages. So just curious what youre seeing there it seems like you've been able to gradually return to pre COVID-19 levels. Despite that wed love to hear some commentary around that and what youre seeing as we head into <unk>. We're already a month into Q4, and then I have a few outlet.
So Daniel I think the good news is is that.
<unk> for us is that cataract patients in cataract surgery. It doesn't it doesn't go away so during the pandemic.
There's slowdowns and people can't have surgery. The fact is it just creates a backlog of cataract patients that are trying to get into the system.
And when you exacerbate.
Other things like since there they don't go away to help get better either.
Continue the patient's vision continues to generate and so what we have seen is that.
Patients are motivated to try to get back there are some capacity issues specific to doctors being able to get enough surgery times, particularly in like the open access facilities. Most of our procedures are performed in an outpatient ambulatory surgery centers.
Other than inpatient hospital, although there are surgeries that are done there as well, but most of the surgeries are done in an outpatient ambulatory surgery center and so while there are capacity issues and open access and hospital based.
The surgeon <unk> facilities have a little more control over.
That debt.
That patient inflow, but theres no doubt that that there are capacity issues and issues, we've seen as well with practices.
Having enough personnel to support and to be able to continue the throughput Fortunately for us all.
Our systems are well utilized and with the systems being well utilized and with the benefits of surgeons have been receiving.
I think patients are anxious to go ahead and have these types of procedures that we're able to help with.
Yeah. That's helpful. Okay. Good to hear and then just on system utilization just curious about the trends you are seeing there it sounds pretty positive I don't know if theres any color you can get beyond what you've said in the prepared remarks.
Now.
So two things one is is it because we're a smaller overall commercial.
Group.
We spend a fair portion of our time not trying to convince people that they should be doing femtosecond laser assisted surgery, but because we have a more nuanced technology in our core feature technologies can be used.
To really address a big unmet need with higher efficiencies than the competitive systems out there we spend most of our time with people who are who have found value in femtosecond laser assisted surgery and so therefore, when we do get into trials and subsequent conversions.
Our ramp up times, there are faster from a learning curve perspective, and so we're able to.
To get that utilization I think that as people get more comfortable with.
Managing astigmatism as routine to cataract surgery, and as we continue to talk about that.
And demonstrate results that that physicians are getting with the system that sort of feeds into that that growth as well and we see that.
It becomes.
An invaluable tool to the practices and they wanted they wanted to do more procedures with us.
Okay, Great and last question for me on ally. It sounds like you guys are on track, which is great and would love to hear if you're.
I know this is.
Anecdotal, but what youre hearing from current ones are users and what's the level of interest you are hearing from surgeons for ally. Thanks, So much.
So.
The I would say that debt.
I couldnt be more pleased or more excited with anticipation as we get towards ally launch I think that.
What we've seen is that people that here to four are not that interested maybe in femtosecond laser assisted cataract surgery CD utility with ally is being.
So efficient in getting right into the operating room, and certainly physicians that debt.
Are really into laser cataract surgery, femtosecond laser cataract surgery.
We've just seen tremendous enthusiasm and people.
Want to talk about it in and I am having the opportunity to really meet with a lot of different surgeons, who did a lot of different forums.
And presenting that people are very interested so we're really excited about about where we're going here.
Thank you so much.
Your next question comes from the line of Ryan Zimmerman of BT I E.
Hey, good morning, Thanks for taking the questions. Congrats on the quarter I just wanted to ask a few for me.
Our pricing trends on the procedure asps.
It seemed to have held up pretty nicely this quarter and Nick.
Tom just wanted to get your perspective on kind of where you think those pricing trends can go over time.
Whether it's with the existing system today or as you think about ally in the market.
You mean, right Hey, Ryan first of all thanks for getting on the call and your questions today.
Are you do you mean.
Trends in procedure pricing based on.
Volume.
Yes, yes.
I'm, referring to Nick to the consumable component.
So.
Kind of how you think about that pricing.
Think about your recurring revenue and the <unk>.
Procedure numbers now as we track kind of that blended ASP.
Just wanted to get your thoughts about where that could go potentially over time or if you expect it to hold steady.
So.
Given the environment.
And in.
And given the value that we believe we are delivering here from an efficiency and an outcome perspective.
I don't really feel like there is there is pressure to bring prices down as it relates to two procedures. I mean, the reality is is that we provide real value there and our system given how we communicate with the preoperative devices and were able to increase.
The throughput for the surgeon and the present system.
In the practice.
I think people feel that they're getting a getting a fair value for for what's being delivered.
Think going forward with ally.
I'll take that and bring it into like a whole another level.
Procedure times alone as I mentioned.
Being able to cut procedure times up to two thirds and addressing it right in the operating room and not having to re prep the patient and whatnot I feel like.
The value delivery there the value proposition increases even more so I don't I don't feel like we're going to see.
Pressure in that regard from from a pricing perspective were priced fairly and we're delivering.
A good value.
The other thing I would say Ryan is with the return back to system placements and this is not pricing, but actually volume it takes a little while for the systems to for the surgeons to be trained on systems, but as we had a hiatus.
With the pandemic and we werent, placing as many systems are selling as many systems now that we're getting back to current levels. We would expect the procedure volume to start to increase as we get past these learning curves.
Right.
Just to that point I mean, given the value that ally will bring do you think you could take some price potentially.
Whether it be through systems or a consumable just given how efficient the system is expected to be.
That we could.
Oh racing.
Yes.
I do believe that over time, particularly when people see.
The value that it delivers number one and number two like how.
It's kind of tag along on something Daniela Brian how the.
The efficiency relates to the use of personnel I think that the.
That will also play a role in this because.
People will be able to in essence, better utilize the personnel that they have and because we're right in the operating room and you're switching from one procedure to the next without having to transport the patient or or prep that way. So I do believe that it strengthens the overall value proposition.
And potentially.
How and what they would be willing to pay for that.
Okay got it and then just one last for me Tom on the margin I. Appreciate you calling out some of the dynamics around ally.
Impacting the margins this quarter, how do you think about that recovery and how long that could or could not last potentially into 2022.
On the margin side.
Well I think that as we transition our manufacturing operations and start building ally units you are probably going to see that because there is a learning curve associated with well, there's just changing the infrastructure for our manufacturing for the new system and then there is a learning curve with building the.
Ally unit, we've been manufacturing the current system for quite some time and so our.
The manufacturing folks.
It's an art for them at a science and they do it very quickly they should get up to speed on ally, but we.
We would expect much better margins on ally.
As we increase the volumes and hopefully we get past some of the pandemic cost concerns, but I would say that you are probably looking at.
Certainly the fourth quarter and first quarter of 2022, and maybe into the second quarter of 2022 that will have a little bit of pressure on margins.
Okay I appreciate you taking the questions.
Thank you, yes, thanks, Brian Thank you Ed.
I am showing no other questions at this time Sir.
Thank you.
Okay. So I guess, thank you for joining our call today and I really appreciate everyone's continued interest in lens are we look forward to updating you as we make further progress and as we get closer to the filing and launch of ally.
Thank you. This concludes today's conference call you may now disconnect.