Q2 2023 LENSAR Inc Earnings Call
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Ladies and gentlemen, please.
And by your conference will begin shortly.
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Good 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 would like to turn the call over to Mr. Kamran.
Please go ahead.
Thank you good morning.
And welcome to the lines are.
Second quarter 2023 financial results conference call.
Earlier this morning, the company issued a press release, providing an overview of its financial results for the quarter ended June 32023.
This press release is available on the Investor Relations section of the company's website at Www Dot one dot com.
Joining me on the call today, Nick Curtis Chief Executive Officer of ones are who will review the company's recent business and operational progress.
During his comments, Tom Staab, Chief Financial Officer of wines are will provide an overview of the company's financial highlights before turning the call back over to the operator to facilitate answering any questions you may have.
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 company's future performance and overachieve.
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 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 the date of this live broadcast August nine 2023.
<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.
My pleasure to turn the call over to Nick Curtis next.
Thank you Kim and good morning to everyone. Thank you for joining us on our second quarter 2023 conference call.
I'm pleased to report that lens are had a strong quarter, placing 14 systems in Q2, bringing our total number of ally systems installed 2023 year to date to 18, well on our way to our goal of having 30 or more systems installed this year.
Our second quarter revenue increased nearly 50% over the same quarter in 2022, which can be attributed to both robust system sales and an increase in lease revenue.
Partially supporting these increases was the state startup multi system placements into private equity owned <unk> managed ophthalmology groups.
We're beginning to see momentum in both areas and hope to see strong demand as additional private practice surgeons as well as the PD groups realize the technological financial and operational benefits to ally that distinguish it from all other competitive systems.
Older slower and outdated technology.
As we highlighted in our press release in July the adoption of alloy and private equity owned ophthalmology groups has been steadily increasing as we have completed the installation of multiple alloy systems and five private equity owned ophthalmology groups.
Each of these groups has the potential to add multiple allies in the future upon benefiting from the systems higher levels of precision ability to support improved patient outcomes and practice level of efficiency and other sites within these commonly owned <unk> practices.
Private equity owned ophthalmology groups are growing currently account for about 14% of the total cataract surgery procedures being performed in the United States, making these groups synergistic new partners for lens are where we are gaining traction due to the advantageous financial and outcomes based value of using the alloy system.
Looking more closely at the U S market, which remains our primary area of focus in 2023 and into next year procedure volumes grew 13% compared to the same period last year.
To this point and according to recent data published by market scope lens or continue to increase market share in the second quarter of 2023 with lens our systems utilized in an estimated 15, 6% of all flax procedures during the second quarter of 2023.
This marks an increase from the 15% reported in the first quarter.
Demonstrating consistent growth and adoption and most importantly utilization of our technology in the market.
Furthermore, we are particularly pleased with the performance of our ally systems. Among users who have transitioned from were added to our previous generation LLS technology.
Procedure volumes and utilization for these users increased by an impressive 15% over the first half of 2022.
This level of growth has exceeded our internal expectations and demonstrates the value that allied brings to practices in terms of operational efficiencies, yielding better economics for these practices.
As a reminder, the U S represents the largest premium procedure market in the world and one of significant importance to our company.
The feedback we continue to receive from our growing customer base is immensely gratifying reaffirming the positive impact at ally is making in the field of Femtosecond laser assisted cataract surgery.
Advancing the market for premium cataract surgery procedures overall.
Particularly noteworthy are those users who have switched from competitive systems to ally.
To further highlight this point, 50% of our 2023 Allied placements are new surgeons that are recognizing the benefits of alloy and leaving behind the more entrenched legacy competitive systems previously used.
We believe ally speed ergonomics size open architecture and ability to communicate with multiple preoperative devices and managing astigmatism provide more versatility.
And with the ability to perform in all sterile procedure are compelling reasons to switch from older generation technology.
Ally stands out as the state of the art solution, increasing productivity with faster and more efficient procedures. It provides the necessary features to allow surgeons to not only enhance their workflow, but also improve patient care and outcomes.
From a marketing and sales perspective, we continue to target and nurture nearly a 160 leads from high volume competitive Femtosecond laser users who have expressed interest in the alloy system.
These leads are at various stages of our marketing and sales cycle were confident that they are more than enough to deliver on our stated 2023 goal of at least 30 systems by year end 2023.
Capital equipment market and pacing from lead to close to install can be described as lumpy more seasonal and a bit unpredictable timing wise.
Adding complexity with PEO <unk> groups can extend the sales cycle timing wise, but we remain very optimistic that at the end of the day, we will continue to take market share from the older competitive technologies, while growing the overall market and Femtosecond laser utilization.
We're working hard at continuing to increase the interest and pipeline for ally and have a strong belief that we have the right initiatives in place, which are becoming more obvious over time.
When you remove south Korea from year to date procedure volumes are worldwide procedure volume has increased 15% year over year.
We are hopeful this challenges resolved in 2023 and that the strong contributing region returned to being a sizable piece of our procedure volume in 2024.
Lastly, we ended the quarter in a strong financial position with $25 5 million in cash and cash equivalents.
Following the successful completion of our May 2023 financing, we believe that lens or is it a strong an advantageous position to drive forward with our plans for allies continued success by increasing our marketing efforts, expanding our sales and distribution networks and continuing to build strong relationships with our valued customers.
<unk> distributors and other partners.
Now, let me turn the call over to Tom who will cover our financial highlights for the quarter.
<unk>.
Thank you Nick.
Our second quarter 2023 financial results are included in our press release issued earlier. This morning, but there are a few significant items for which I'd like to discuss.
Revenue was $12 million in the second quarter of 2023 compared to $8 million in the second quarter of 2022, reflecting a 49% increase.
As Nick mentioned, the increase was primarily due to increased system sales and increased lease revenue.
We had an exceptional quarter persistent system placements, increasing our installed base of approximately 30 units in the last 12 months.
This is especially noteworthy as we were limited to 10 Allied units in our controlled launch for the latter half of 2022 and had ceased production of our Gen. One LLS systems.
Furthermore, revenue in the second quarter of 2022 from South Korea was approximately $5 million.
So we increased revenue of approximately $4 $5 million were 56% for the second quarter of 2023, when you adjust for lost revenue from South Korea associated with a third party payer reimbursement issues.
This is this issue effects lens are as well as our competitors that operate in South Korea and has been an ongoing issue since the third quarter of 2022.
In addition, due to the timing of ally regulatory approval and other regions. We are limited to placing ally systems in the United States as our primary volume region. So that inherently limits, our revenue and growth until alloy is cleared for commercial sale and other significant regions.
We are looking forward to being able to sell ally in the EU in 2024 and to that end, we filed to obtain commercial clearance in September 2022.
We are also taking steps to obtain clearance in South Korea, Taiwan, and the Philippines with our distributors.
With that said the U S market is very important to us and we are extremely pleased with the increase in U S procedure volume, which increased approximately 13% when comparing the second quarter of 2023 to 2022.
Worldwide procedure volume increased by 6% in the second quarter of 2023 versus 2022, even though procedure volume continued to be negatively impacted by decreased procedure volume from South Korea.
In the second quarter of 2023, there were 35349 procedures sold compared to 33359 procedure sold in the second quarter of 2022.
Gross margin for the quarter was $6 8 million.
Representing a gross margin of 56% compared to $4 9 million and 61% realized in the second quarter of 2022.
Our gross margin for the second quarter and first half of 2023 is trending a little higher than we anticipated as we had projected our gross margin to be in the low fifties.
Although supply chain issues have created higher inventory cost and eroded margins somewhat we are seeing margin benefits associated with ally whereby one ally system margins are higher than LLS margins into ally procedure margins are higher than LLS procedure margins.
With these benefits in product sales mix being more heavily weighted to ally we.
We believe that future quarterly gross margins in 2023 will trend between $50 to 55%.
Total operating expenses for the second quarter of 2023 were $9 6 million compared.
Compared to $11 7 million in the second quarter of 2022.
The decrease in operating expenses was primarily attributable to significantly lower alloy development expenses following FDA clearance in the second quarter of 2022 <unk>.
Including including the inclusion of approximately $1 million of inventory cost charged to R&D that increased R&D costs in the 2022 period.
Although we will continue to innovate and invest and ally research and development, we do not expect our R&D expenditures to fluctuate significantly from the second quarter of 2023 and expect our 2023 annual investment in R&D to approximate $7 million.
Net loss for the quarter was $8 8 million or an 81 loss per share increased as compared to the $6 $8 million loss and 67 loss per share in the second quarter of 2022.
Our GAAP loss for the quarter was significantly impacted by the financing that we completed in may of this year.
With this financing we did and we will in the future Mark our warrant liability to future market value each quarter as calculated using the black sholes valuation models.
This liability will fluctuate quarter to quarter based upon the inputs to the black Scholes model with the company's stock price generally being a very significant variable in that calculation.
Due to the variations in stock price and other input assumptions from the completion of the financing to June 32023, we recorded a $6 million charge in the second quarter associated with a value change in the warrant liability.
This noncash charge significantly impacted our loss per share, thereby adding an approximate 55 cents.
Additional loss per share to our 26 loss per share, which would have been the quarterly loss per share without this warrant charge.
As of June 32023, we had cash and cash equivalents of $25 5 million as compared to $14 7 million on December 31 2022.
Cash generated in the quarter ended June 32023 was $17 5 million and was derived from the $19 1 million of net financing proceeds.
We believe this financing as Nick said significantly strengthens our balance sheet provides us more liquidity as well as the ability to expand our commercial operations to enhance allies initial success in the marketplace.
Now I'd like to turn the call over to the operator, and we look forward to answering your questions.
Thank you, ladies and gentlemen, I will now begin the question and answer session should you have a question. Please press the star followed later, one when you guys touched on.
Uhm prompt acknowledging your request questions will be taken in the order receipt should you wish to cancel your request. Please press the star followed by the tail.
Your first question is from Ryan Zimmerman from <unk>. Please ask your question.
Good morning, and thanks for taking the questions. Congrats on a really nice quarter here guys.
It seems like the launch is progressing well.
And Nick maybe just start on the launch.
I want to understand you talked about 160 potential leads.
Can you just talk to us a little bit about the pipeline process kind of the timeline do you expect.
That pipeline is kind of.
Narrows to contracts out.
Subsequently ally orders and kind of how you think about just the conversion rate.
Of that of that dynamic.
Yep.
Alright, Thanks, Brian I appreciate you take.
<unk> taken the time on the call today.
So so we have.
We've got some very strong did.
Digital marketing initiatives in place and social media initiatives, where we're peer to peer.
We're also started to institute.
These visits from an interested practice that's been let's say a qualified lead that there they're going to be making a decision on a system.
We take them to visit various accounts, where they can see the ally inaction.
Which helps to sort of.
Condensed the cell cycle. If you will typical of this type of equipment and the complexity of the sale or replacing a competitive device.
The lead process takes about seven months on average.
Right.
From the time that we make an initial contact to the time that there is a decision and it closes or it doesn't close.
And so the more leads we get into the pipeline and obviously some of those happened much sooner and some of those.
Sort of.
Link lengthen from there I mean, I made a comment that the private equity groups kind of <unk>.
Kris the complexity as well because now it's not just the surgeon at the site.
It makes the decision and can pull the trigger to to get the system in place, but now it goes through sort of like the business process and so the good news is it.
Lots of opportunity there and.
The bad news is is it the cycle takes it takes a little bit longer. So on average it's a seven month cycle strong digital initiatives in place.
In nurturing these leads to get them to the point, where we in many cases.
Set up the coal at the meeting for the sales reps that who will go into the account.
Take it a step further.
Okay.
And.
All of the disclosures you gave on productivity and the metrics I think that's great for investors to understand I was struck by the comment you made about a 15% increase.
I think it was procedure volume correct me, if I'm wrong by.
<unk> users specifically.
But if that's the case I mean kind of and talking with your ally user base today.
Where do you think that can go over time, I mean do they have more capacity.
Just off of comparing to the old base I guess.
Yes so.
We always thought that ultimately.
The volumes on let's say site per site basis leads our LLS to lens, our ally ultimately would increase and obviously that's the only metric that we can compare against right now because previous technology or older technology, we're going to come in and we do X number of cases, which may be more.
More than what they were doing before but we don't have that historical perspective.
What we do have is that with the connectivity and with the speed of the device. We're measuring in several of these groups, where we're measuring flow efficiency and time, we're doing these type studies and so the time savings youll start to see.
Range between like three.
Minutes 10 minutes, depending on what kind of Av.
Slow the practices is using today and we've seen more doctors.
Willingness to change their flow and move it into the operating room because of the ergonomics of the small size, which is which bed really increases the sort of the throughput and so we've been able to take save an hour to two hours a day.
Of a typical surgical day, so that if there is a backlog.
I can cite several different sites, where we've taken backlogs from four months to two months, which is really good for the practice and so we've cut the backlogs and have already with at ally and one of those sites. We just added a second alloy and so I would think that we continue to improve and that theyre going to be able to.
<unk> to increase their volume if you will and then seeing the additional cases.
<unk>.
People, who are switching from their competitive devices, so where can that go.
On average.
Best practices.
Convert over 50% of their total volume to premium cases.
And I think that we'll see it continue to trend that way other practices that are high volume practices are much lower rates and of course, you've got your more boutique practices, which are in the 70% some are at 100% but on average.
The best practices when they see best practices I don't mean, the best medical practices I mean, the best putting best practices in place in terms of how they handle patients is in the neighborhood of between 50 and 60%.
On a at a high volume practice and so there is some significant upside there.
When you look at when you look at the <unk>.
The market in general on premiums, which is excluding toric and multifocal.
<unk> at what 15%, 17% of the market right.
Yes.
No question about that so maybe turning to Tom for a couple of financial questions I'm going to keep rolling here if that's okay.
Number one.
The previous stated I think you haven't given formal guidance. So you said revenue can grow at least 20% I believe for the year I.
Just wanted to see kind of where you stand on that I didn't hear that in your comments.
And then second question heard you heard you on the margins for this year.
As allied base steps up and consumables and procedures pick up.
Just your thoughts on kind of longer term margin trends.
And then the last question sorry, I am here with a few time.
How do you put in the recent cash infusion north thanks for taking the questions guys.
Yes, thanks for the questions Ryan your statement at the beginning was right, which was a really great quarter for us.
In regards to revenue guidance Nick's remarks.
It's very hard to predict.
When pay practices and when doctors are going to actually pull the trigger even with the technology.
What we have given is we said that we were going to place at least 30 systems and you see that year to date. We've placed 18. So that gives you a little historical benchmark going forward as well as the guidance that we have given in regards to revenue.
And.
We do know that the placements and revenue were trending up.
But we haven't given it up formal percentage.
In regard to.
Yes in regards to your margin trends Youre exactly right.
With our razor razor blade model and the procedures, obviously, they garner a much higher <unk>.
Margin than the actual sale or lease up the laser and to the tune of more than two X. So the more successful we are in placements. The more there is a drag on.
On the margins. However, I do think that going forward that $50 to 55% will continue to increase and we certainly see it going into the <unk> and.
It really depends on the saturation of.
<unk>.
<unk>.
Lasers into the U S and more importantly outside the United States when we get.
Clearance approvals such that we can do that.
And I am sorry, Ryan I might have forgotten your third yes.
No problem I threw a lot at you I apologize just how youre, putting the recent cash infusion to work where do we expect to see increases in spend and how are you utilizing that cash.
So Ryan I can answer some of that we are definitely looking to scale up to the field organization and so we're looking in several areas.
The digital our digital marketing efforts.
Where we are sort of have inside sales and contact with customers.
Working well for us and.
So I would think we would see some expansion in that regard.
In the field as it relates to field service and our.
Our application specialists.
Training and in sales, where will we will continue to add some sales reps and then on the business development side.
Since we are silver settle on the astigmatism management side and the connectivity.
A lot.
We're bringing on more and more competitive users.
Instituting.
Solid astigmatism management programs.
Patient education at the practice level will be other areas that youll see us growing in order to support the growing number of procedures and.
Ryan.
You've been following us for a while we've been talking about our financing.
For some time.
And with supply chain and in the pandemic, we kind of delayed.
Things with.
2000, $19 million to $20 million that we brought in in May that really allows us to invest in the commercial organization invest in inventory to make sure that we have continuous supply and you can see that our inventory balances have gone up significantly and thats by design. It probably is exacerbated a little bit just because.
The supply chain and making sure that we have the ability to keep our production to meet.
To meet demand in the marketplace, especially when we get approvals outside the United States. So now where footwear were financed and we're going to make those investments that we've been talking about and potentially delayed a little bit. We're have already made some of those in regards to our inventory.
I appreciate the color and congrats on a really nice quarter guys.
Thanks Rod.
Thank you.
There are no further questions at this time I will now hand, the call over to Nick for closing remarks.
Thank you.
Thank you all for joining our call today.
Obviously your continued interest in leads are really excited about what we're doing and we look forward to continuing to update you as we make further progress in the <unk>.
Exciting remainder of 2023, thanks for joining the call today.
Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.