Q3 2023 LENSAR Inc Earnings Call
Right now it's just Brian.
To make sure we got to make sure that.
[music].
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.
A minder. This conference call is being recorded I would now like to turn the call over to Cameron right and nobody at Burns Mcclellan Mr. Ryan Novak. Please go ahead.
Thank you good morning, and welcome to <unk> third 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 September 32023.
This press release is available on the Investor Relations section of the company's website at Www Dot <unk> Dot com.
Joining me on the call today is Nick Curtis.
<unk> officer of ones are who will review the company's recent business and operational progress.
Following his comments, Tom Staab, Chief Financial Officer of lines Art will provide an overview of the company's financial highlights before turning the call back over to the operator.
Phil It answering any questions you may have.
Today's conference call will contain certain forward looking statements, including those statements regarding future results unaudited and forward looking financial information as well as the company's future performance <unk> 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.
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 November 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.
It's my pleasure to turn the call over to Nick Curtis Nick.
Thank you Kim and good morning to everyone.
Thank you for joining us on our third quarter 2023 conference call.
I'm pleased to report that we have maintained our momentum through the third quarter of this year with 11, new alloy systems installed and strong year over year growth in procedure volume driven primarily by the continued adoption of ally in the United States.
The first nine months of 2023, we placed 29 alloy systems and have exceeded our previously stated objective of 30 installations. Additionally.
Additionally, we exited the quarter end September 30, with a backlog of eight alloy systems pending installation.
Our third quarter revenue increased 26% over the same quarter in 2022, which was supported by both robust system sales and an increase in lease revenue.
We continue to make headway into private equity owned or managed ophthalmology groups, which remain core to our growth strategy based on their size scale and they are focused on improved efficiencies.
<unk> significantly reducing treatment times, improving patient throughput and treatment workflow and most importantly, increasing revenue and EBITDA for practices at <unk>.
This leads to an accelerated return on investment of ally compared to the other competitive systems.
As a result, we're seeing multiple alloy installations with facilities that are placed in ally unit in each or.
Our ally installed base totaled 39 systems as of the end of the third quarter across 31 surgical sites with three sites, having more than one system and use.
We expect this trend to continue as surgeons present, the results of several time and motion studies conducted in multiple facilities that demonstrates surgeon seek time savings of up to seven minutes and staff time savings of up to 18 minutes compared to competitive systems.
These savings are realized for patients as well with patient spending up to nearly one hour or less in the surgical facility during their cataract procedure.
Importantly, when looking at year over year growth globally, we observed a substantial 20% increase in total revenue during the first three quarters of 2023 when compared to 2022. This growth is particularly remarkable given the challenges posed by ongoing third party payer reimbursement issues in South Korea.
Which has driven our revenue in that region down to zero.
In the U S market, which remains our primary area of focus in the near term.
<unk> volumes increased 16% over the third quarter of 2022, while procedures among users who transitioned from a previous generation led to our laser system to ally or added ally to an existing LLS deployment increased 12% over the third quarter of last year.
Importantly, the ongoing consistent adoption of ally and continued growth in utilization is yielding in further market share gains for lens or in the third quarter.
According to the most recent data from market scope and estimated at 16, 4% of all U S. Femtosecond laser assisted cataract surgery procedures in the third quarter 2023 were performed using a lens our system.
By comparison, our market share in the third quarter of 2022, when we were launching ally was 14, 1%.
Waits too with two 3% procedure market share growth in the first year of allies launch.
Given our size the gains we have achieved are impressive and exciting and further confirm the value that ally is delivering economically operationally and clinically for surgeons.
We recently participated in the American Academy of Ophthalmology Congress over the weekend and while the overall meeting turn out with moderate we successfully conducted a remarkable 66 demos. These.
These demo spanned across 54 practices ambulatory surgery centers at various institutions eager.
To explore the potential of ally in their practices and centers.
This underscores the growing enthusiasm for the economic and clinical advantages at ally brings these.
These demonstrations are one of several key initiatives in expanding the lens of our pipeline.
Furthermore, our financing last quarter has enabled us to begin the process of hiring additional sales managers and sales development represented is to scale the lens of our business and allies footprint.
The STR is an important new role within our organization.
This team's objective is to identify educate cultivate and deliver qualified leads to our sales managers specifically.
Specifically, our <unk> are responsible for initiating personalised discussions with targeted high volume competitive femtosecond laser assisted cataract surgery surgeons.
And high volume premium Femto naive cataract surgeons, who have engaged in our digital campaigns with the goal of cultivating these relationships to shorten the sales cycle and set up appointments for our sales managers.
This initiative expands our marketing efforts in a meaningful way.
Our targeted approach to the market has resulted in nearly 50% of our installs in 2023 being in accounts, who were previously using a competitive femtosecond laser and 74% of our surgeon demos during that we're conducting.
With competitive with competitive Femtosecond laser users.
This strategy will continue to lead to an expansion of our system footprint and procedure market share.
The increase in our sales force and STR will allow us to expand our reach in the market.
Looking ahead in addition to expanding allies commercial footprint in the U S. In the coming months, we expect to receive the first ally marketing authorizations and begin allies international launch outside the U S through our distribution partners.
As a reminder, we submitted our application for European Union certification of ally in the third quarter of 2022.
We remain in close contact with our distributors in Europe, and elsewhere and the enthusiasm toward ally in their respective markets as significant.
We believe that we're well positioned to replicate the early success, we've seen in the U S abroad.
We look forward to realizing allies full potential to be a global disruptive technology by becoming the dominant femtosecond laser system for premium refractive cataract surgery.
Surgeons are recognizing that the time is getting closer and there was a need to begin replacing their old femtosecond lasers.
In addition practices that have never performed Femtosecond laser surgery are beginning to understand how <unk> ally system is addressing the limitations of the first generation of lasers that have been predominant in the market in the past.
We believe that lens ours in a strong position to continue executing on our key strategic initiatives aimed at maximizing the success of ally.
Now, let me turn the call over to Tom to cover our financial highlights for the quarter.
Tom.
Thank you Nick.
Our third quarter 2023 financial results are included in our press release issued earlier this morning, but I'd like to make some brief remarks on certain items to provide additional detail.
Revenue was $9 8 million in the third quarter of 2023 compared to $7 $7 million in the third quarter of 2022, reflecting a 26% increase.
As Nick mentioned, the increase was primarily due to increased system sales, but we generated growth in service and lease revenue as well.
We had a solid quarter of system placements and expect to place even more systems in the fourth quarter based upon ally demand.
Accordingly, we expect to exceed 11 alloy systems installed in the third quarter.
We have installed 29 alloy systems through the first nine months of 2023 and a total of 39 systems from allies launch in August of last year.
As Nick mentioned third party reimbursement issues in South Korea continue to be a drag on our quarterly results here.
Historically, South Korea has represented approximately 10% of our revenue and revenue from this region has been nonexistent for over a year.
Furthermore, we are limited to the United States as our only significant operating region in which to sell ally.
We look forward to receiving European clearance as well as clearance and some small and some other small operating regions in 2024.
Once we receive clearance in Europe, we expect placement numbers to increase significantly as ally would then be cleared in two significant operating regions.
We continue to watch South Korea and are pursuing clearance in that region too.
It was previously a significant operating region for us prior to third party reimbursement issues and we expect the region to return once again to being a significant contributor to our revenue in the future.
We cannot predict the timing of when South Korea Korea will return to significance due to the nature of the ongoing dispute.
We would like to have ally cleared and prepared to launch in South Korea. When third party reimbursement issues are resolved and we are preparing for that eventuality.
Gross margin for the quarter was $4 9 million, representing a gross margin of 50% compared to $3 $9 million and a 50% gross margin realized in the third quarter of 2022.
This matches, our previously issued guidance of the low Fifty's and represents the larger mix of ally sales and revenue that carry a lower gross margin percentage than procedure sales.
We continue to expect the low fifty's for our gross margin percentage for 2023 and are currently sitting at 53% for the nine months.
Total operating expenses for the third quarter of 2023 were $6 9 million compared to $8 million in the third quarter of 2022.
The decrease in operating expenses was primarily attributable to significantly lower selling general and administrative costs associated with our reporting of an employee retention credit that offset approximately $1 $4 million of expense.
This <unk> reimbursement was fully recorded in the third quarter and so no future credit as expected with this program.
We intend to expand our selling organization to scale the business and drive continued to ally growth.
As mentioned in prior quarters, we will continue to innovate and invest and ally research and development, but we expect our R&D expenditures to be relatively stable quarter to quarter with our 2023 annual investment in R&D to approximate $7 million.
Net income for the quarter was $2 6 million or <unk> 13 per common share, reflecting an increase over a $4 million loss and a 39 loss per common share in the third quarter of 2022.
Our net income for the quarter was attributable to a change in fair value of our warrant liability, which created a $4 $3 million gain in the quarter.
Our warrant liability and the related quarterly adjustment will continue to be reported in our adjusted EBITDA presentation to allow our complete understanding and transparency of our quarterly results.
As of September 32023, we had cash and cash equivalents of $24 9 million as compared to $14 7 million on December 31 2022.
Cash used in the quarter was a half a million dollars.
That ends my remarks, and now I'd like to turn the call back over to Krista and we look forward to your questions.
If you would like to ask a question. Please press star one on your telephone keypad.
First question comes from the line of Ryan Zimmerman from BPI. Please go ahead.
Good morning, and thanks for taking the questions guys.
I guess to start an ally it sounds like you're really having good momentum here.
Maybe just to start Nick for you on feedback on ally and kind of your existing user base I mean I appreciate it all the time saving metrics youre, giving.
But just maybe more qualitatively kind of what youre hearing from the field about their use of ally.
How they think about it in the context of other systems and.
And then I have some other follow ups.
Sure. Thanks, Ryan I appreciate I appreciate the questions. So.
About half of our business today is coming from new users to lens are and.
Most of those customers have been using the older competitive system to it to achieve.
The whole time and motion savings.
Equating to a higher efficiency and depending on the practice and how busy they are and maybe how many users there are.
Other doing significantly more cases in a given surgical day or the ability to have better staff satisfaction and reducing the overhead by letting people go early they finished their day early and so theres not a practice that that hasn't experienced that in the <unk>.
Same way the other thing that.
That's significant I'd mentioned that three accounts.
Which is close to 10% already have more than one.
System installed in the in the practice of or moving to the idea of where they're putting one in each operating world. We didn't expect that to happen in the first 12 months 18 months before.
People will do that and so very quickly where.
Felt like people would be pretty invested with their competitive systems.
The theater model with the system sitting outside of the operating room, given the the ergonomics and what they're seeing with ally.
The desire to want to move into the operating room and <unk> and.
And save even more time and and staff touches if you will and this is evident.
No.
From that perspective across the board on the competitive user side.
They are anxious.
So it's not really like it if it's kind of a win like people are trying to figure out.
<unk>.
Their own economics, when it might make sense for them to to make the switchover.
Okay.
Hey.
Yes.
Great. Thank you and then.
I have a couple of others I'm going to keep rolling here, but Tom I mean, it looks like there was limited lease still grew to leasing this quarter, but limited leasing then.
If I just step back and thinking about kind of the health of your customer base.
It seems like Youre, not seeing any impact on capital demand, particularly in terms of the outright sale dynamics of the system relative.
Relative to maybe people.
I guess I would think more people would want to lease it although with rates higher maybe thats not the case I'm. Just curious if you can kind of comment on kind of how you're thinking about the macro environment.
Ophthalmic practices today in terms of capital demand in China.
What what your mix of sales versus lease says about the customer base.
I think theres two observations Ryan one is the macro environment for large capital purchases has certainly soured because of interest rates and just the overall.
<unk>, So I think what that shows US is just the strong.
Desire.
To distinguish.
Or the strong desire to use our system and there is an appreciation by those users that there is significant benefit over the competitive users.
They are a competitive systems.
I think that.
Right now earlier in the launch Youre seeing a heavier contingent of those.
Hi, Femto volume users converting and they want to do even more cases faster and better the economics im not so sure that going for.
In the future that youre going to see that the.
The heavier mix on sales just because you can't discount the macro economic environment and that is a headwind for us, but we've been very very successful in the past and it's just hard to predict where that percentage is going to go but if you pressed me I would say the leasing percentage.
It's probably going to be a higher part of the allied mix and obviously I think what youre going to see is the more alloy systems, we get out there the more cross pollination between physicians and the ability for a physician to go in and see how successful the practice has become and how how.
How much faster and better they can do these procedures and so peer to peer conversation and observation is just it.
Its worth its weight in gold and it's the best marketing that can happen and so.
It's like that commercial.
He'd tell somebody else in.
It just it just expands from there and so the more systems, we get out.
The more demand youre going to see for ally just because of that cross.
Very good and then a couple for me Homerun for me. So I saw early submitted.
500 10-K.
I think that was public last week, it's a O.
The fact almost location component.
I'm just wondering Nick if you want to comment on kind of.
When they could potentially be on the market with that and how it impacts maybe either the customer base or commercialization plans in the future.
Yes.
Another good question Ryan.
So they did submit their 500 10-K.
For the Pharos device and <unk> is going to be our predicate device for the.
Optional.
Let's say FICO, we modification option to the ally and so customers can either retrofit.
Al.
The <unk> system into their current ally if they have ally in the field today without it.
Or they can order it with the FICO device when they order their ally to begin with.
Either way.
This will be optional for our customers on a going forward basis.
We would expect that debt.
I'm, a little reticent to comment too much on it.
What is or at least.
Is this really under their control as it relates to the clearance of the device, but suffice to say that that <unk>.
<unk> is 180 days.
With a file.
And that can move slightly depending on.
The questions and win win.
Early response with the response and so.
Just suffice to say.
Somewhere between down 180 days.
If they're going to get the clearance.
I think we'd get a clearance and then we would take their data.
And use that data and our own five 10-K submission for the alloy. So I wouldn't expect that it would be.
Adoption for led to our customers until sometime much later in 2024, assuming that that really gets their timing.
Timely, yes sort of.
Yes.
Okay Fair enough and then last one for me.
The additional salespeople youre planning to hire and somebody in new roles and I appreciate your color on that.
Just help us understand kind of what that cadence looks like when those people you essentially have those people in place when.
When they can be productive and just how to think about that impact from the additional salespeople as we move into 2024.
Yes.
Given the interest that we're seeing in an ally right now and sort of the activity level, where it's going to be honest I wish I had them yesterday.
And so I'm pretty excited about the fact that we're going to we're going to scale here.
Quite a bit.
I would say that between now given the cycle of interviews holidays coming and whatnot realistically I would say it's between now and the let's say the end of the first quarter.
In 2024 from a.
Bringing onboard and scaling and people also have with their current jobs year, and sort of clean up and bonuses and stuff and so I would expect that by the end of the first quarter. We would have several new hires in place. There. We're actively we should be bringing on a second.
D R. Here.
Within the next 30 days or so.
If not if not before that and so and the SDR has been really.
Interesting and key position for us in terms of generating the leads and setting up of the sales appointments, which is really key.
And our current salespeople they have to run hard because they.
They cover large geographies now and so these are these leads are coming from all over so.
We're really excited about that we're also considering a distributor up and up.
The upper Midwest area.
A good reach into into several several different states up there and sort of a mixed in with the.
Our direct employees.
Got it alright.
Thank you for taking my questions.
Thank you Ryan I appreciate it.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
And we have no further questions in the queue. At this time I will now turn the call over to Chris for closing remarks.
Thank you.
I appreciate everybody joining our call today as you can tell we're really excited.
Sure.
Whats going on here with lens are now and I. Appreciate your continued interest in what we're doing we really look forward to updating you as we continue to make further progress for the exciting remainder of 2023.
Stay tuned folks.
Okay.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
[music].
Okay.
[music].