Q4 2022 LENSAR Inc Earnings Call
Okay.
[music].
Morning, 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.
This conference call will be recorded.
I'd now like to turn the conference over to Lee Roth of Burns Mcclellan Mr. Haack. Please go ahead.
Thanks, Joanna good morning, and once again welcome to the lens, our fourth quarter and full year 2020 financial results Conference call.
Earlier today, we issued a press release, providing an overview of our financial results for the quarter and full year ended December 31 2022.
A copy of this press release is available on the Investor Relations section of the company's website at Www Dot lens, our dot com.
Joining me on the call today is Nick Curtis Chief Executive Officer of Lightens, Our who will review the company's recent business operational progress. Following his comments, Tom Staab, Chief Financial Officer, who will provide an overview of our financial highlights before we turn the call back over to the operator.
<unk> answering any questions you might have.
Before I turn it over to management I would like to remind you that today's conference call will contain forward looking statements, including statements regarding future results unaudited and forward looking financial information as well as information on the company's future performance and our achievements. These statements are subject to unknown and known risks and uncertainties, which may cause our actual results performance or.
Our achievements to be materially different from any future results or performance expressed or implied on this conference call you should not place any undue reliance on these forward looking statements for additional information, including a detailed discussion of the company's risk factors. Please refer to our documents filed with the Securities and Exchange Commission, which can be accessed.
On the website.
In addition, this call contains time sensitive information accurate only as of as of debate of the live broadcast March 16, 2023 legs are undertakes no obligation to revise or otherwise update any forward looking statements to reflect events or circumstances. After the date of this live call with that said its now my pleasure to turn the call over to.
<unk> Chief Executive Officer, Nick Curtis.
Thank you Lee and good morning to everyone listening I appreciate you joining us on our fourth quarter and full year 2022 conference call.
<unk> 2022 was a transformational year for lens are marked by the successful launch of our next generation system.
And our third quarter conference call. Shortly after the launch of <unk> in August I laid out our goal of having 10 alloy systems placed by year end.
Pleased to say that indeed, we placed 10 systems right in December alone, we signed contracts for an additional six allies to be installed in the first half of this year.
To date feedback from our initial surgeon customers has been incredibly positive with some referring to it as a revolution in how flax procedures are performed.
The features of ally that surgeons are most enthusiastic about our the impressive speed and precision of the laser its small footprint and unparalleled ergonomics.
Faster at laser procedures from start to finish that significantly reduce treatment time by up to two thirds are creating improved patient throughput and translating to more procedures on given surgery days.
As you may have seen in our press release today, Dr. James <unk> Chief of Department of Ophthalmology, Cedars Sinai Medical Center shared that ally has been so fast and accurate that it has shortened his surgery day by an hour to an hour and a half while of different surgeon recently shared with us that he was blown away by ally speed.
Efficiencies remarking that the procedure was so fast you have to double check to make sure. The procedure was actually completed.
Another user stated that allied takes flags to a whole new level.
It is important to note that in addition to supporting increased patient throughput and procedures per day or a shortened surgical day ally also appears to be driving increased femtosecond laser assisted cataract surgery use in some instances as one user noted that ally speed and precision have increased his confidence.
And then as a result, he is now converting more than 95% of its patients to laser cataract surgery.
This is a surgeon who had used our competitors first generation laser and prior to ally has abandoned femtosecond laser assisted cataract surgery altogether.
Another perhaps less tangible benefit to the surgery center that I'd like to briefly touch on just how ally could contribute to improve employee satisfaction and the workplace environment during.
During the administrators session of the Caribbean I conference last month.
<unk> of our recently conducted survey of top administrators, many of who manage multiple high volume ambulatory surgery centers were shared.
The study found that the biggest concern which was ranked number one by 71% of responders with staff turnover.
Looking at the speed and efficiency benefits that Dr. <unk> described surgeons could choose to treat the same number of patients per day shortening there as well as their surgical staff workday likely enhancing employee satisfaction.
Alternatively surgeons can choose to increase the number of procedures performed in a day.
Both perspectives translate into more revenue and increased profitability for the ASC and the surgeon.
Further several users have remarked about improvements to patient comfort and overall patient experience.
Perhaps even more important contribution to growth than driving better surgeon efficiency supporting surgeon's ability to deliver improved patient outcomes more consistently when utilizing our advanced technology.
It's gratifying to receive this important feedback on both practice efficiency and improved patient outcomes, which we believe will increase surgeon confidence using alloy and ultimately lead to patient conversions to femtosecond laser assisted cataract surgery and higher utilization within the practice.
Furthermore, this feedback supports our strong belief that as we grow the installed base and more surgeons learned about the technology through peer to peer interaction ally will firmly establish itself as an integral value added tool for ophthalmic surgeons, allowing lens or to not only grow share of the existing market.
But also to potentially catalyze the next phase of market expansion.
Importantly interest from prospective ally users is extremely high and continues to grow.
Earlier. This month, we attended the <unk> meeting in Aspen, Colorado and during our panel led session titled what Am I doing differently in 2023, which featured presentations by leading cataract surgeons three of the four surgeons on the panel stated that they already use or will be using ally.
And sure why they use ally to treat their premium cataract patients.
Which demonstrates a strong peer to peer recommendation to all intended attendees.
This is another great example of the increasing groundswell of interest that we've experienced in the first quarter of this year.
In addition, I'd like to emphasize this provides further confirmation that our controlled targeted launch with early technology adopters and higher volume competitive laser key opinion leaders and lens are key opinion leaders is the right strategy.
Another significant opportunity we have with ally is to place one or more systems with each practice of private equity owned groups.
Thanks to its small footprint enhanced ergonomics significant reduction in procedure time and opportunity to guide better outcomes. These private equity groups are expressing interest in ally and they're expanding locations as well as replacing their older Femtosecond laser technology with ally.
<unk> represents a true generational change and we're continuing to expand our efforts to get the message out to a broader surgeon audience. Additionally, we have increased our hands on experiences with more demo opportunities during a fallback meetings in the U S and are creating opportunities for interested surgeons to observe femtosecond lasers.
Mr Cataract surgery, and one of our centers of excellence to experience to ally difference.
Our goal is to continue to educate the market on allies, many benefits over previous generation Femtosecond lasers, and let them experience the generational change for themselves.
While the demand for ally has remained high and our 2022 rollout was constrained by supply chain challenges.
We expect these challenges to abate in 2023, allowing us to make the system more broadly available this year.
<unk> with our surgeon centric culture, we've been completely transparent with our customers as far as installation timing.
With that said, it's somewhat gratifying to hear our potential customers say that they want to device as quickly as we can get it to them.
Looking at our business performance for the year, we achieved a slight increase in overall worldwide procedure volumes, but more importantly, we've achieved a 3% and 11% growth in U S procedure volumes in Q4 and for the full year in comparison to 2021, respectively.
The U S represents the largest premium procedure market for lens are and is fundamental for driving our strategy of market share and penetration with growth in both ally system adoption and over time utilization.
According to confirming data from market scope, we've continued to expand our footprint in the U S market and have continued to take competitive market share.
In addition, and importantly, this growth clearly demonstrates that demand for Femtosecond laser assisted cataract surgery procedures in the U S remained strong despite the ongoing economic uncertainty, which we all face.
This coupled with the opportunity to replicate the experience I described a moment ago of the customer who's converting more patients from standard to a premium laser cataract procedure. Thanks to alloy gives us confidence that we can continue our execution plan to grow our share of the procedure market as we continue.
Doug.
Further transition away from legacy technology.
Increase our overall share of the total U S installed base and continue to broaden allies presence in the market.
To recap <unk> accomplished some very significant milestones in 2022.
We always saw the successful launch of ally and initiated the transition to the new technology from our lens are laser system placed.
Place 10 alloy systems in the first four five months of a controlled launch.
We have created significant demand for ally through a strategic rollout designed to optimize uptake and build sustainable long term demand for the system, while allowing us to effectively navigate a challenging macro environment.
Now, let me turn over the call to Tom to cover our financial highlights for the quarter Tom.
Thank you Nick.
Our fourth quarter and full year 2022 financial results are included in our press release issued earlier this morning, but I'd like to take this opportunity to expand on some of that information by adding some color to remarks contained in the press release.
Revenue was $10 2 million in the fourth quarter of 2022 compared to $11 2 million in the fourth quarter of 2021.
Consistent with our third quarter results and as mentioned on our call last quarter. This decrease was primarily due to the continued softness in procedure volume as well as the transition away from LLS to align manufacturing, which reduced laser inventory availability and constrained our growth.
Much of the procedure volume softness was associated with ongoing third party payer reimbursement challenges in South Korea.
And to a more limited extent the timing of procedure purchases outside of South Korea.
This timing fluctuation was offset partially by the growth in the U S market as Nick mentioned in his remarks.
The continuing reimbursement issues in South Korea had an estimated $900000 detrimental impact on revenue for the fourth quarter.
With that said fourth quarter 2022 revenue was up 32% on a sequential basis as compared to the third quarter of 2022, driven primarily by ally system installations and procedure growth in the U S and Europe .
In the fourth quarter of 2022, we sold 31400 procedures compared to 41642 procedures sold in the fourth quarter of 2021.
Our procedure volume decreased 25% over the fourth quarter of 2021 again, primarily due to the softness in the South Korean market.
As Nick mentioned procedure volume in the United States. Our most important market was up 3% in Q4 2022 as compared to Q4 2021.
Gross margin for the quarter was $6 5 million and represented a gross margin percentage of 63%.
We increased gross margin $852000 in the quarter from $5 6 million in the fourth quarter of 2021, despite a decrease of $1 million in revenue quarter over quarter.
This increase in gross margin is a function of a higher gross margin percentage on allied sales versus LLS sales as well as charging inventory items to R&D expense prior to the approval of ally in June of 2022.
Total operating expenses for the fourth quarter of 2022 were $9 1 million compared.
Compared to $9 $5 million in the fourth quarter of 2021.
This decrease was largely due to less R&D expenditures somewhat offset by an increase in SG&A expenses.
The decrease in R&D expenses of $1 $8 million was primarily attributable to significantly lower alloy development expenses following FDA clearance.
Including new longer charging inventory costs to R&D expense.
These expenses inventory items represented $1 1 million in the fourth quarter of 2021.
SG&A costs increased due to increased tradeshow in commercial activity related to the promotion of ally.
Lastly included in operating expenses was noncash stock based compensation of one $7 million and $1 $5 million in the fourth quarters of 2022 and 2021, respectively.
Net loss for the quarter decreased quarter over quarter and was $2 5 million. We're at 24 cents loss per share compared to $3 9 million or a <unk> 41, 41 loss per share in the fourth quarter of 2021.
Adjusted EBITDA for the fourth quarter of 2022, which excludes stock based compensation expense was $65000 loss compared to a $1 $6 million loss in the fourth quarter of 2021.
Order over quarter change reflects a significant decrease in represents breakeven status in the fourth quarter of 2022 on an adjusted EBITDA measurement perspective.
As of December 31, 2022, we had cash and cash equivalents of $14 7 million as compared to $31 6 million at December 31 2021.
Cash utilized in the fourth quarter was $4 $6 million and $17 million for the full year.
Fourth quarter cash burn of approximately $4 $6 million is almost exclusively associated with increased accounts receivable and inventory balances associated with the launch of ally and making ally more broadly available in 2023.
As mentioned earlier, we were effectively operating at breakeven in the fourth quarter as cash was almost entirely dedicated to working capital usage.
As we have mentioned 2022 was a transition year as the company transitioned its manufacturing and sale of its first generation of LLS to ally and thus our gross.
Thus our growth was limited to supply chain challenges and the transition to commercialization of ally.
Due to the transition our total revenue for 2022 increased $900000 or approximately 3% compared to 2021 levels.
However, given the traction and demand we saw in the fourth quarter and continue to see despite strong competitive and macroeconomic headwinds, we expect to return to 20% plus revenue growth in fiscal 2023, as we enter the first full year of ally being commercially available in the United States.
Additionally, we expect the European launch as well as to submit additional regulatory filings for ally in the next 12 months.
Recurring revenue for the year was 86%, which represents revenue outside of system sales and provides a recurring revenue foundation of over $30 million going into 2023.
Now I'd like to turn the call back over to Joanna to open the lines for questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.
If you are using a speaker phone please lift the handset before pressing any key.
First question comes from Ryan Zimmerman at BTG. Please go ahead.
Good morning, Nick and Tom Thanks for taking the questions and congrats on all the progress with ally those anecdotes are nice there.
Thank you I just wanted to start and talk about ally for a little bit if I could.
Scott <unk> systems kind of off the ground.
Remember.
And I appreciate the guidance Tom.
Consumables.
Maybe if you could talk to us about how youre thinking about placements and I know youre not going to necessarily.
Tied to that number but you have.
Communicated some of the trading numbers.
The demo numbers it'd.
It would be helpful to kind of understand just the pipeline and kind of your thoughts around.
Alloy systems.
23.
Great.
Thank you Brian .
The questions. So as we look into 2023.
We ended the year really strong going into 2023 with six backlog agreements. If you will those are going to most of those are going to hit in the second quarter.
These were facility new facilities and requirements in terms of when they were would be ready to take delivery of the system and so we've been we've been scheduling those.
From a ramp up perspective here.
Pipeline has been growing pretty substantially given the activities in the first quarter. There is generally in the capital equipment side, because we're selling more of these systems that we are placing these systems.
Generally right after the first of the year, particularly since we ended the year with such a bang there with the with the backlog of systems in.
In the first quarter be a little bit slower from a contract perspective.
But we've got the pipeline, which has been growing significantly and the good thing about the pipeline as it with capital equipment.
Youre going to get some fall out of our systems, but the bigger the pipeline the more youre going to end up pushing through so I really like the fact that we've got.
I'm talking about into the 150 to 200.
Accounts.
<unk> right now.
That's great.
And then.
The comments about supply chain and your ability to manufacture sounds like it's getting better.
When do you feel like you move into full launch if you will where you're you're constrained by supply chain or just taking your time with kols.
I think as.
As we get towards the second half of the year Youre going to see that open up significantly.
And that's what we're planning on.
Okay very helpful and then.
Tom.
And I'm going to keep going on questions here.
Okay, a couple more for me.
Margins were fantastic Tom.
I appreciate you calling out the impact on the <unk>.
R&D component, but even if I back that out I mean, you guys jumped almost 600 basis points it looks like.
Quarter over quarter, so help us understand kind of how you think about margins.
In 2003 with with all of these kind of.
Dynamics.
Yes so.
I think that.
The first statement I would make to you Ryan is it is absolutely Fabulous Fabulous that one Nick and our commercial team have been able to sell versus place systems and so we actually realized the gross margin on that sale to the.
<unk>.
Our gross margin on each allied sale is much better than it is with LLS.
Wow.
So I would expect our profit margins to continue to increase however to nick's comment with supply chain.
We still are not.
Manufacturing the quantities that we would like to get the efficiencies on overhead absorption.
And we also get purchase discount quantities once supply chain becomes a law.
Little less of an impact so our first <unk> systems are a lot more expensive than the next 50.
And considerably so.
That is kind of up skewered by the fact that supply chain caused us to purchase a great deal of our expensive raw materials laser heads and cameras that we needed for alloy that we have to have because they're generally single source suppliers and without that we can't meet.
Manufacturer.
And so a decent chunk of those were expense to R&D. So it's very very difficult for me to guide you with exact precision on margin.
But I think that we're probably return to low <unk> for the year depending on the.
How quickly we can get past some of the supply chain issues and actually put systems in place in the latter half of the year.
Okay.
Last one for me I'll hop back in queue.
Yes.
If you look at the pricing.
<unk> consumables.
The asps on your consumables. Thank you.
Kind of alluded to this when we spoken before that youre picking up a little bit of price on the consumable portion.
It looks like it was up about 10% or so just.
And how you expect that to continue I mean, it's nice to see in <unk> and should we.
<unk>.
Higher pickups in price just because.
It was somewhat of a limited impact this fourth quarter or is that a fair.
Level in terms of step up in price on the consumable side.
Yes, great question, Thanks for that by the way because that was one of the things I was thinking about is Tom was was speaking is that.
As more of our marketing initiative.
As we begin to quantify.
With more site by site type study that show the time efficiency and the speed and the ability to add more cases, it obviously helps us build the value proposition for <unk>.
Increased.
Procedure fee.
Across the board from what people are paying today, and so we've been driving that value proposition pretty strong.
With the current installs I would expect to see that to continue.
<unk>.
In some cases.
As high as 35% and in some cases, if it's a really high volume account.
Might be a much smaller 5% to 10%.
But youre going to see an increase in the ASP.
Per procedure on a per procedure basis and the other thing is is that job.
Part of it is unencumbered.
Now youre sort of having to extract the equipment portion and the service portion out of the overall procedure fee, which is where the traditional placements had been with first generation.
And now you're seeing more of a of a separate capital component where people are paying for the systems.
Then looking to drive more efficiencies through increased.
Efficiencies in their pricing of the procedure through increased.
Procedure volumes and.
And.
Taking the equipment portion out of that.
And so depending on the mix as we get into more of these private equity deals some of the private equity groups.
<unk> have no issue with making a capital purchase and <unk>.
Have a way of accounting for that and accelerating their depreciation and they just wanted to get the lowest per procedure fee and other groups don't mind.
Let's say paying a higher per procedure fee and financing that component and not wanting to write a check per se. So overall I think youre going to see a trend up continue to trend up I think it will as the mix changes between the LLS.
Ed.
Ally Youll see that creep up at a higher percentage, but we're trying to manage the let's.
Let's see.
The business, so that we're bringing onboard new business.
And manage the transition because.
We just don't want to go out and cannibalize the business, we want to continue to show growth.
Hey, Brian This is Tom one other thing I think you already know this but I want to make sure that we say it on the call for everybody's benefit which is when I guided to the lower <unk>. If we're in the lower <unk> you would think that Thats a very good thing because obviously we realize.
Great margin on ally, but it is much lower than what we the margin we receive on procedures. So the higher the mix in sales is the better the lower our margin is but what youre going to see is our exponential growth in our revenue and really three to six months after we place a system.
That margin really kicks in for the procedure placement. So I just want to make sure I think you knew that already but I wanted to make sure that that was clear.
Alright, Thank you Tom.
Appreciate it appreciate you taking all the questions.
Sure.
Thank you Rob.
Thank you there are no further questions I will turn the call back over for closing comments.
So I really appreciate everybody taking the time this morning to join our call.
Even more so your continued interest in lens, our and our <unk>.
Expansion of the launch with ally.
We're really excited about the potential of ally.
We look at this as a marathon not a sprint.
I really look forward to our next update and keeping you apprised of the progress we're making.
Thanks again.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.