Q2 2023 RxSight Inc Earnings Call
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Okay.
Good day, and thank you for standing by and welcome to the Rx side second quarter 2023 earnings conference call.
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After the Speakers' presentation, there'll be a question and answer session.
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Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your first speaker today, Alex Weil. Please go ahead.
Thank you operator.
Presenting today are <unk>, President and Chief Executive Officer, Dr. Ron Kurtz, and Chief Financial Officer Shelley Thunen.
Earlier today, our excite released financial results for the three and six months ended June 30th 'twenty two 'twenty three.
Copy of the press release is available on the company's website.
Before we begin I would like to inform you that comments and responses to questions. During today's call reflect management's views as of today August seven 2023.
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.
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 FCC's website.
Investors are cautioned not to place undue reliance on forward looking statements and we disclaim any obligation to update or revise these forward looking statements.
We will also discuss certain non-GAAP financial measures.
Closures regarding non-GAAP financial measures, including reconciliations with the most comparable GAAP measures can be found in the press release. 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, Dr. Ron Kurtz.
Good afternoon, and thank you for joining US today, we report another strong quarterly performance for our X sight, representing our 10th consecutive period of quarter over quarter topline growth and driven by higher key operating metrics. In addition, we have taken further steps to strengthen our financial position.
I'll discuss the favorable trends underlying our business later in the call, but first Shelly will review, our second quarter 2023 financial performance and recent balance sheet transactions.
Thank you Ryan and good afternoon, everyone Art site generated second quarter, 2023 revenue of $28 million up 83% compared to $11.4 million in the year ago quarter, and up 19% compared to the $17 5 million.
In the first quarter of 2023.
So 67 like delivery devices in the second quarter of 2023 up 37% compared to 49 units in the year ago period, and up 20% compared to the 56 units in the first quarter of 'twenty or 'twenty three.
Second quarter 2023, L. D T cells generated revenue of $7 $7 million up 36% and 19% versus the second quarter of 2022, and first quarter of 2023, respectively.
As of June 30th 20, twenty-three R. L. D D installed base increased to 523 units up 78% and 15% versus the second quarter 2022, and first quarter of 2023, respectively.
We sold 12622 L. A LS in the second quarter 2023.
134% and 20 per cent compared to just 5400 units and 10523 units in the same year ago quarter and first quarter of this year respectively.
Quarter, 2023, Ll unit sales generated $12 $4 million in revenue.
Hundred and 32% and 19% compared to the $5 $3 million and $10 $4 million in the second quarter of 2022 and the first quarter of 2023, respectively.
L. L revenue represented 60% of total revenue in the second quarter of 2023 up from 47% and 59% in the second quarter of 2022, and first quarter of 2023, respectively.
Gross margin in the second quarter of 2023, with 58% compared to 42% in the same year ago quarter and 59% in the first quarter of 2023.
Recall that the first quarter 2023 gross margin was favorably impacted by L. D D material price decreases freight settings and improvements and other cost included in L. L cost of sales. So the slight sequential change is consistent with our expectations.
SG&A expenses in the second quarter of 2023 or $18 $2 million up 27%.
This $14 $4 million in the year ago quarter, reflecting increased expenses in sales and marketing personnel costs and travel and increased noncash stock based compensation and sales marketing and G&A on a sequential basis SG&A expenses were up 12% due primarily to.
Increased personnel costs from increased head count and increased marketing costs.
R&D expenses in the second quarter of 2023 rose, 20% to $7.4 million compared to $6 2 million in the year in the same year ago quarter, and $7 2 million in the first quarter of 2023.
The change versus a year ago quarter was primarily due to increased clinical study costs and increased head count.
We reported GAAP net loss in the second quarter of 2023, a $13 $8 million or a loss of 40 cents per basic and diluted share.
Using weighted average shares outstanding of $34 5 million shares. This compares to a GAAP net loss of $16.7 million or 61 cents per share on a basic and diluted basis in the same year ago quarter.
Noncash stock based compensation and loss on extinguishment of debt in the second quarter of 2023 was $4 million and $362000, respectively, resulting in a non-GAAP loss of $9 $5 million or a loss of 28 cents per basic and diluted.
Sure.
Please refer to the unaudited non-GAAP reconciliation and disclosure included in today's press release for more comparative information.
We ended the second quarter 2023, with cash cash equivalents and short term investments of $147 $1 million compared to $153 $9 million at March 31 2023.
The changes in our cash balance includes proceeds from our at the market program or ATM stock option exercises and employee stock purchase plan share issuances left the pay down of $20 million of debt plus termination fees and cash used in operations ex.
The proceeds from financing of capital activities and use of capital for principal debt repayments cash used in operating activities. During the second quarter was $9 $5 million.
This compares to $16 $5 million in cash used in operating activities in the first quarter of 2023, which included annual bonus payouts and higher increases in accounts receivable and inventory relative to the second quarter of 2023.
On our last conference call, we indicated that we.
Expect sequential quarterly reductions in cash used from operations in 2023. However, we may see a tick up in the third quarter, because our second quarter cash used from operations was lower than expected due primarily to improvements in accounts receivable turns and higher accounts payable.
And accrued expenses.
During the second quarter of 2023, we continue to implement our ATM program designed to further strengthen our balance sheet raising $19 $4 million net of fees through the sale of common shares. We used these proceeds to reduce our term loan debt by half to $20 million and us.
You noted in today's press release, we raised an additional $11 $9 million net of fees in July under the ATM and paid off our remaining $20 million debt balance.
Turning now to guidance based on our second quarter 2023 performance, we are increasing our 2023 guidance range to <unk> $81 million to $86 million up from fire prior guidance of $79 million to $84 million.
Our new guidance implies a year over year growth rate of 65% to 75% and assumes a typical cataract seasonality pattern with the third quarter lighter due to summer vacation schedules.
We are also revising our 2023 guidance range for gross margin to 58% to 60% versus prior guidance of 56% to 58%. The increase reflects continuing favorable revenue mix of L. L cells, along with improved gross margin from a reconfigured L. D D.
Which we expect to begin shipping this year with a gross margin benefit largely in the fourth quarter.
We are increasing our 2023 operating expense guidance to 106 $209 million, an increase of $1 million at the top and bottom of the range. The increase reflects consulting fees and additional headcount and expanded audit fees relating to the implementation of Sarbanes.
Oxley.
With the increase in our market cap in the second quarter, we became subject to section four four b.
The Sarbanes Oxley Act effective with our December 31, 2023 fiscal year end and 10-K to be filed in February 2020 for the 20th twenty-three Opex guidance represents a 25% to 29% rise over 2022 and primarily reflects.
Our continued investments to build a large terrible postoperative light treatment infrastructure to support sustained long term L. A L procedure growth.
It also includes noncash stock based compensation expense of $15 million to $16 million.
Since late 2022, we have raised $102.5 million net of fees through our confidentially marketed public offering an ATM program paid off $40 million in term loan debt and reduced our annual interest expense by approximately $5 $6 million.
We believe our cash and short term investment balances combined with no outstanding debt strengthens our balance sheet and leaves us well positioned to achieve profitability from operations with a healthy balance sheet.
With that I'll turn the call back to Brian .
Thank you Shelly last week, we marked the second anniversary of our IPO and I'd like to use my time today to highlight the progress we've made to position <unk> for long term success.
First we substantially increased the size and scope of our commercial organization, which has done a remarkable job as evidenced by the two year growth trends in our business.
Impaired to the second quarter of 2021 revenue was up 325% and quarterly L. D. D unit sales are up by more than 160%.
Our installed base is roughly three times the size. It was two years ago and now extends into Canada.
Over this same period L. L unit sales are up almost 600% and currently accounts for the majority of our total revenue.
As Shelly just summarized we have also continued to strengthen our balance sheet and Investor base, which we believe provides a strong foundation for continued execution of our growth strategy and sets us on a path for future operating profit.
At the same time, we've added a new instance, we've added do institutional shareholders to our ownership base and experienced a fivefold increase in the average daily trading volume of our stock, which along with the rise in market capitalization has substantially increased the university of institutions. They consider that can.
Consider a meaningful Rx site position.
Driving our success since the IPO has been the outstanding performance of our light adjustable lens across a wide range of patient types and preferences.
We focused our efforts these past two years on continually refining the <unk> technology and the critical knowledge base to enable doctors to deliver the best possible experience and results for patients.
The L. A L stands apart from every other premium firewall on the market today, because post operative adjustability allows patients to achieve precise high quality vision that they can test drive and customized to arrive at their unique desired visual outcome.
The growing body of real world clinical data collected over the past two years underscores the la <unk> ability to deliver superior uncorrected buying ocular visual acuity with the vast majority of patients achieving excellent vision over a range of distances without increases in visual side effects, such as glare and halos.
Or reductions in contrast vision a combination of outcomes that are increasingly being prioritized by doctors and patients that are difficult to achieve consistently with competing fixed power lenses.
By appealing to a wide variety of standard and premium <unk> patients.
I L enables practices to achieve a rapid return on investment for the L. D D.
<unk> established an important ongoing premium revenue stream that can be further leveraged as additional practitioners tap into an existing light treatment infrastructure.
We believe this will continue to be an important factor in growing L. L utilization, which has been rising steadily over the past two years.
In closing we are pleased with the strides that Rx that the Rx eight team has made in collaborating with our customers and investors as a public company. While we are still in the early stages of adoption. The L. A I was beginning to change the premium I O L landscape and fuel expansion of this high growth market.
Through our continued focus on customer needs and the thoughtful execution of our growth strategy. We believe the layout can ultimately occupy a leading position in the premium cataract market delivering sustained long term value to all stakeholders.
With that I'll ask the operator open the call for questions.
Thank you we will now conduct the question and answer session. As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
Please standby, while we compile the Q&A roster.
Yeah.
Thank you. Our first question is from Craig Bijou of Bofa Securities. Please proceed with your question.
Yeah.
One moment for our next question.
Yeah.
Thank you. Our next question comes from Robbie Marcus of Jpmorgan. Please proceed with your question.
Oh, great. Thanks for taking the question congrats on a nice quarter.
Thank you Rod.
Maybe to start.
This is the third quarter in a row by my math, where we're seeing a really nice tick up in utilization.
And lens per LTC in the quarter.
Yeah.
Starting in fourth quarter now first and second it's just it's a pretty significant step up so maybe just speak to some of the trends you're seeing how broad based is this across the <unk>.
Portfolio is it driven by.
Top percentage or is it more wholesome from top to bottom across users and then I'll turn my second question as well you've had another quarter of really nice Ltte placement. The installed base is now over 500 how.
How are you thinking about where you stand in terms of penetration of Ltte's versus the.
The broader.
Potential base and its future growth is going to be coming more from L. A L uptake or LTV placements. Thanks a lot.
Hi, Thank you Robby.
I'll start and shall we can add in anything so with respect to utilization generally we think the increasing utilization has been broad based.
And.
Some of that is attributable to high.
Existing customers, who have continued to increase their utilization is as you know.
They've seen the benefits of the technology as more doctors in the practice have access to the infrastructure that is already been established in those practices.
And then also with new customers.
Both because the characteristics of the white adjustable lens are more broadly known and so doctors are more confident in starting.
With <unk>.
I'm more of a commitment to the technology, starting with larger volumes and then of course, our team which consists of <unk>.
Both of our.
Sales team as well as our clinical trainers.
As we have.
<unk> learned over the last several years how to.
Give practices the information for them to start more efficiently and to expand more efficiently. So I think all of those have been factors in the in the growth of L. L utilization and we would anticipate that that those factors would continue.
Yeah.
Anything to add there's really no.
With respect to L. D D penetration as you noted we're above 500 now.
We still think that's a fraction of the overall.
Possibility.
In the in the U S.
There are.
Several thousand practices that do cataract surgery and.
We're still in a minority of those.
So we still see.
Room for growth on the OTT side as well.
Yeah, I would just add to clarify a little bit.
One of the things that's been nice about our LTE sales as well is that we've had good discipline in terms of pricing that the pricing and the ASP for the L. D. D has remained changes are very narrow.
And then just to clarify on what Ron said in terms of penetration there are about 10000 surgeons in the U S. Today, who do cataract surgery. We believe you know a few thousand two to 3000 due the majority maybe 70% of the total number.
But we don't believe our total market is limited to those high volume practices. Because in fact, you know as we get more mature obviously today, where you know fishing, where the fish are but it also offers an opportunity for others certain to provide you know premium.
I O L. A specifically the L L to their patients with superior results and allowed them to get in the market.
Anything else Ryan.
No any follow up probably.
Now you are you answered it all I appreciate taking the questions. Thanks a lot.
Thank you.
One moment for our next question.
Yeah.
Thank you.
Our next question comes from Steve Lichtman of Oppenheimer <unk> Co incorporated. Please proceed with your question.
Thank you.
Everyone.
Beyond <unk>.
Topline either Dan.
Beyond the gross margin side. So couple of questions. There one whats driving the underlying gross margin benefit or is it just mix or is there something else afoot and then secondly.
Kelly can you level set us on where you think we should be exiting the fourth quarter with the lower cost <unk> system and in place.
Okay. Thank you Steve.
Yes, the gross margin and it's really been driven by a few things. One is of course next right with the L. A L substantially more profitable.
At the margin level than the L. D D and that is something we see as a continuing trend costs have also gone down as we have them.
As we increase the amount of production, we have and the L. L as well.
We do expect to see some nice margin expansion in the fourth quarter, but not much in the third relative to what we achieved in the first and second quarter due to the fact that our reconfigured L. D. D will bear a higher gross margin and we think that will have benefit. So we should see some differential.
I mean that there isn't a fourth quarters based upon.
Not only mix, but as well as the introduction of our reconfigured L. D D.
Great. Thanks, and then just my follow up I guess on the.
L D D number real nice sequential increase here.
And above our expectations can you talk to.
Crs and how coming out of that.
The tailwind that you saw coming out of that conference, where you did have a.
A pretty big presence and is that part of what we're seeing here in this <unk> number.
Thanks.
I agree we had a very strong <unk> Crs and.
Certainly that has helped.
It helped us in Q2, I think it's <unk>.
Generally consistent with increasing awareness about the white adjustable lens and.
That awareness drives.
Interest on the parts of practices.
No.
We see that as a trend that has grown.
Sequentially and we would hope.
I would continue to grow.
Thanks, Robin and thanks, Sean.
Thank you one moment for our next question.
Okay.
Thank you. Our next question comes from Ryan Zimmerman of BTG. Please proceed with your question.
Hey, good afternoon, and congrats on a nice quarter.
I wanted to ask just a couple of questions Ron on more of a big picture question first but <unk>.
<unk> seen the uptake in the market here.
I think when we talked earlier this quarter it almost feels like your aspirations are expanding your aperture is widening.
And just as you see such good adoption does it change kind of how you view your commercial strategy in terms of not just the U S market, but I guess the question kind of handset aspirations beyond the U S, Canada, maybe Mexico or some of the clinical trial cases were done and what the.
The opportunity may be internationally, and if and when we could see that.
So as you know Ryan Ophthalmology is really an international field.
But the U S. Traditionally has led in terms of.
Especially in terms of the private pay markets.
So we're focused on.
Fully developing the U S market initially and we're.
That is our primary focus, but we do see.
Significant opportunities outside the U S as well and.
As we have started in Canada will continue to.
Develop those with time.
Okay.
Brian typically.
Cause the CE, Mark and kind of there you know.
The disarray relative to approvals and so that does push off any kind of European opportunity for us, but we don't think that that's something we would have pulled the trigger on any way given the opportunity in the U S.
Okay I appreciate that incremental color Shelley and then the second question.
One of our large peers in the ophthalmic market reported earlier this earnings season.
The premium market has been weak through the second quarter in a row, they've said that yet you continue to put up kind of.
Really good results.
And I'm curious what your view is of the health of cataract market.
Given some of the commentary we've seen from some of your larger competitors.
Yes.
Well the overall the cataract market continues to grow.
Driven by demographics, and then within the overall cataract market the premium market.
Still.
The main opportunity for practices to grow their revenue relative to continued reductions in <unk>.
Reimbursement that they receive.
For cataract surgery and other other reimburse services.
So we see the premium market as being.
Our primary engine for growth in ophthalmology.
And.
As you noted.
We have seen our numbers continue to grow.
Okay I'll leave it there thanks.
One moment for our next question.
Thank you. Our next question comes from Larry <unk> of Wells Fargo. Please proceed with your question.
Hi, This is Charles on for Larry can you hear me okay.
Yes.
Hi, Charles Hi.
Congrats on a nice quarter I wanted to follow up a little bit on your newer lower cost L. D. D. So that was approved at start of the year.
Just refresh us give an update where you guys are at preparing for the launch you were building inventory.
Last year it sounded like second half second half launch is that going to be a phased approach and is there going to be any kind of.
Limit by inventory availability there to talk about.
Thank you Charles So as you noted the reconfigured L D D.
<unk>.
<unk> was approved earlier in the year. It has the same functionality as our current LGD pre.
Primarily.
Has.
We will have its impact.
On the margin.
And as Shelly noted, we're anticipating that to be primarily towards the end of the year.
So.
That is really.
Been our plan for the year and I don't see many changes there.
To your question is supply chain.
Supply chain is still tough.
But it's continuing to improve.
And you know one of our strategy is not to.
Introduced the reconfigured L. D D until we're certain that we held the finished goods in stock as well as the supply chain has stabilized and so that is part of our strategy and ensuring that we have.
Full availability for our customers.
Okay, great. Thank you.
One moment for our next question.
Yeah.
Thank you. Our next question comes from Craig Bijou of BMA Securities. Please proceed with your question.
Hi, good afternoon, sorry about earlier, I guess I missed them.
Initial slot, but thanks for putting me on.
I guess.
Two questions on competition.
Yes, I wanted to kind of see what youre seeing on the <unk>.
<unk> level or at the ground level and what Youre hearing from docs anecdotally.
I believe and then it's a bit of a follow up on a question that was asked before but is it is it truly patient awareness is it patient.
Patient satisfaction the results at the Dot Youre seeing.
Is it the ability to potentially price at a premium to other competitive.
<unk> premium <unk> and then the second competition question is just anything that you guys know of or have heard or kind of worries you about some of the bigger players.
Good development of new lenses there.
So I think all the things that you mentioned Craig are in play.
Certainly the awareness of the of the.
Quality of the results that patients and doctors can obtain with the light adjustable lens is an important factor.
Once the system becomes available to doctors then that allows.
Tim to offer it to more patients more doctors in the practice.
So I think all of these things are in play.
Yeah.
And the ability to.
I have a really strong ROI.
It is obviously a factor as well and.
Doctors for pricing.
Technology at a level commensurate with its.
The quality of the results that it produces.
So all of those.
Are important to growth.
With respect to competition.
Again.
The only we.
You have the same visibility of the competition that everybody else does as far as we can tell.
We don't see anything on the.
Horizon and even in the near mid term there are.
Some.
Projects out there.
But.
This is <unk>.
It's not an easy task to make a technology that delivers all the aspects of the light adjustable lens and.
It remains to be seen.
Whether whether and when somebody is going to be able to do that.
And then.
Even even when somebody enters if they do.
There'll be entering at a point where.
We'll already have introduced a whole slew of improvements to the technology in response to market requirements.
So I think it's going to be a tough tough road for somebody to follow up.
Got it that's helpful. Thanks, Ron and maybe a quick follow up for Shelley.
On the new LGD.
Hi, guys.
It's part of longer term peak margins, but I guess my question is about.
How should we think about where you can bring Pete.
<unk> gross margin and how long does it take you to get to that level.
So I think youre asking not specifically about the reconfigured LGD or are you talking about overall margins in the long run for the company.
Yes, more overall margins Shelley I know.
You have been reluctant to provide some detail so youre willing to give detail I'd love to hear it but just overall margins for the company.
Yes.
You know with a reconfigured LT, Dan I think I've said this before we expect to be able to stabilize that margin in the 20% to 30%.
Range, and we've been lower than that and hopefully more towards the high end as we.
Because we've got good volume in that product as well overall really if we think out long term you know there's a big market.
For L. D D sales, but typical of razor razor blade companies in the long run we would expect probably 90% of our revenue to come from the L. A L. A.
And that is very price stable has been so far because of the value. It offers and I would expect long range will be in the mid 80% gross margin level, maybe even its highest 90, but that remains the same.
Great Thanks, and congrats on a strong quarter.
Okay.
One moment for our next question.
Thank you.
Question comes from David Saxon of Needham <unk> Co. Please proceed with your question.
Yeah, Hi, Ron Hi, Shelly, Thanks for taking my questions and congrats on the quarter.
Maybe to follow up to one of Craig's questions. It's been two years since you've been public.
A little further along in the launch so I wanted to ask are you seeing hearing the same areas of pushback from prospective docs as you were a few years ago or has the awareness and interest has been established and it's just more of a question.
Getting out and engaging with the docs and pricing Ltvs.
And also any color on kind of how the.
Sales cycle that's changed.
Okay.
Yes. Thank you David I think you know.
The same general.
Interactions are going on I think we have.
Obviously, a larger and more experienced.
Our commercial team and we have more experience that we can point to.
And that we can refer.
New practices or practices looking at our technology to so that they can get.
Information not only from us, but from other customers that might be like.
More like that.
Hi.
So for example.
Unlike other <unk>.
Intraocular lenses, we are a piece of capital equipment.
Obviously.
It has a cost to it.
But.
Over the last several years we've established.
The ROI for that piece of capital is pretty quick.
Six to nine months on average and can be quite faster.
So.
That makes.
New practices coming on board more comfortable.
But they still need to go through.
Their own financial analysis.
Ed.
So it's yes.
Both Shelley and I have been in.
Similar business models before and I would say it never gets easy.
But.
We've seen I think we have.
Hi.
More more answers for potential customers.
Got it thanks for that Ron maybe.
Follow up for Shelley just on the operating expense guidance I think it implies around 33% growth in the back half versus 20% growth.
You saw in the first half so what's what's driving.
Giving that what investments are you are you making.
Anything there would be helpful. Thanks, so much.
Thank you so much of course I did mention the Sox expenses as well as the audit fees associated with Fox you get most of that right at the end of the year and also for the back end here.
We add clinical applications personnel on pace with our LDP sales.
We had a few are account managers and other people that we need to expand our marketing and of course by the third and fourth quarter you get the full impact of those additions as well during the year and.
That's what really drives the opex up as.
As you exit the year.
Great. Thank you.
Okay.
I am showing no further questions at this time and I would now like to turn the conference back to Ron Kirk for closing remarks.
Well. Thank you all for your time and attention today as always we appreciate your interest in our excite and look forward to updating you on our progress in future quarters.
Goodbye.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
Okay.
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