RxSight, Inc. (RXST) Q1 2023 Earnings Call Transcript
Welcome to the RxSight First Quarter 2023 Earnings Conference Call. Please be advised that today’s conference is being recorded.
I would now like to hand it over to Alex Huang, Associate Director, Investor Relations. Please go ahead.
Thank you, operator.
Presenting today are RxSight President and Chief Executive Officer, Dr. Ron Kurtz; and Chief Financial Officer, Shelley Thunen. Earlier today, RxSight released financial results for the 3 months ended March 31, 2023. A 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 view as of today, May 9, 2023, and will include forward-looking statements 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 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 SEC’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. Disclosures 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.
Thank you, Alex. Good afternoon, and thank you for joining us.
The RxSight team extended its track record of solid growth with first quarter 2023 results that underscore the increasing adoption and utilization of our unique light adjustable lens system, which is the only premium cataract solution that customizes a patient’s vision after surgery and consistently delivers superior high-quality outcomes across a broad range of individual needs and preferences. I’ll discuss how doctors are leveraging our system’s distinct advantages in a few minutes. But first, Shelley will provide an overview of our first quarter 2023 financial performance.
Thank you, Ron, and good afternoon, everyone.
RxSight generated first quarter 2023 revenue of $17.5 million, up 96% compared to $8.9 million in the year ago quarter and up 9% compared to $16.1 million in the fourth quarter of 2022. We sold 56 LDDs in the first quarter of 2023, up 40% compared to 40 units in the year ago quarter and down 2% compared to 57 units in the fourth quarter of 2022. First quarter 2023 LDD sales generated revenue of $6.5 million, up 42% and down 2% versus the first and fourth quarters of 2022, respectively. The LDD sales include Canada, where we received approval and sold our first LDD in the fourth quarter of 2022 and another 5 LDDs in the first quarter of 2023.
Excluding these, U.S. LDD sales were 56% and 51% for the fourth quarter of 2022 and first quarter of 2023, respectively. The sequential shift in the U.S. is consistent with first quarter capital equipment seasonality typical for ophthalmology and was coupled with significant interest in Canada. As of March 31, 2023, our LDD installed base stood at 456 units, up 85% and 14% versus the first and fourth quarters of 2022, respectively.
We sold 10,523 LALs for $10.4 million in the first quarter of 2023, up 153% and 16% compared to the first and fourth quarters of 2022, respectively. LAL revenue represented 59% of total revenue in the first quarter of 2023, up from 46% and 56% in the first and fourth quarters of 2022, respectively. SG&A expenses in the first quarter of 2023 were $16.3 million, up 19% versus $13.6 million in the year ago quarter, reflecting increased expenses in sales and marketing personnel costs and travel and increased noncash stock-based compensation expense in sales, marketing and G&A. On a sequential basis, SG&A expenses were up 5% due primarily to an increase in noncash stock-based compensation expense, increased sales and marketing personnel costs and travel.
R&D expenses in the first quarter of 2023 rose 7% to $7.2 million compared to $6.7 million in both the first and fourth quarters of 2022. The change primarily reflects the usual fluctuations we experienced in material utilization and timing of clinical studies.
We reported a GAAP net loss in the first quarter of 2023 of $13.2 million or a loss of $0.42 per basic and diluted share using weighted average shares outstanding of 31.6 million shares. This compares to a GAAP net loss of $17.6 million or $0.64 per share on a basic and diluted basis in the same year ago quarter. Note that stock-based compensation in the first quarter of 2023 was $3.3 million, resulting in a non-GAAP loss of $9.9 million or a loss of $0.31 per basic and diluted share. Please refer to the unaudited non-GAAP reconciliations and disclosure included in today’s press release for more comparative information.
We ended the first quarter of 2023 with cash, cash equivalents and short-term investments of $153.9 million compared to $105.8 million at December 31, 2022. The change reflects the $64.5 million in net proceeds from our at-the-market and confidentially marketed public offering in the first quarter of 2023, minus cash used for operating activities of $16.5 million in the quarter for normal business operations and to pay accrued expenses from 2022, which included annual incentive compensation. We are increasing our 2023 revenue and gross margin guidance and reiterating our operating expense guidance as follows: revenue of USD79 million to USD84 million, up from previous guidance of USD78 million to USD83 million, implying year-over-year growth of 61% to 71% and assuming continued sequential quarterly growth with potential seasonality in the third quarter.
Gross margin of 56% to 58%, up from our previous guidance of 52% to 54%. The new guidance range compares to full year 2022 gross margin of 43.5% and is driven primarily by an increasing revenue contribution from the higher-margin LAL and some gross margin contribution from the lower cost to manufacture LDD, which we expect to start delivering in the second half of 2023. The increase in margin guidance relative to our prior guidance for 2023 reflects material price decreases we’ve been able to achieve related to our current LDD as well as freight savings and improvement in other costs included in LAL cost of sales. While we expect gross margin to improve throughout the year, they may vary depending on the mix between LAL and LDD revenue in any one quarter.
Operating expenses of USD105 million to USD108 million, representing a 24% to 28% rise over 2022, reflecting our ongoing investments to build a large, durable postoperative light treatment support infrastructure for sustained LAL procedure growth. Note that operating expense estimates include noncash stock-based compensation expense between USD15 million and USD16 million. Our 2023 interest expense should largely be offset by interest income given our higher levels of cash, cash equivalents and marketable securities from our equity raises in the fourth quarter of 2022 and during the first quarter of 2023. Finally, we anticipate decreasing cash used from operations for the remainder of 2023. Moreover, we do not anticipate the need to raise additional capital or incur additional debt in order to reach profit from operations.
With that, I’ll turn the call back to Ron.
Thank you, Shelley. I’d like to begin with a recap of the Annual Meeting of the American Society of Cataract and Refractive Surgery or ASCRS, which wrapped up in San Diego yesterday with overall attendance reported to be back to pre-pandemic levels. The meeting was very productive for RxSight with continued growth and positive awareness of the light adjustable lens system and many opportunities for our team to interact with current and prospective customers. In addition to more than 10 LAL focused presentations in the main ASCRS program, the RxSight booth featured a series of talks from LAL users who discussed their outcomes, methods for integrating the LAL into their practices and how they position it with patients relative to nonadjustable IOLs.
One of the highlights at ASCRS for RxSight was a presentation by Dr. John Vukich which documented how the LAL was used in 341 bilaterally implanted LAL patients from 45 RxSight customer sites. In this cohort, approximately 20% of patients chose to maximize distance vision in both eyes with over 99% achieving 20/25 or better distance vision and 93% able to read J3 or 6-point font. About 3/4 of patients chose to optimize one eye for near and intermediate vision with 95% of these patients still seeing 20/25 or better at distance and 94% able to read j2 or 5-point font. Finally, a smaller group of patients, about 6% elected to optimize both eyes for intermediate and near vision with 95% still seeing 20/25 or better at distance and over 91% able to read J1 or 4-point font. Importantly, approximately 2/3 of subjects changed their refractive goals after being able to test drive their vision during the light adjustment process, reinforcing the value of postoperative adjustability for both precision and customization.
While about 1/4 of the 341 patients had undergone a prior corneal refractive procedure like LASIK, there were no significant outcome differences in this group compared to the 3/4 of patients with no previous history of corneal surgery. It is more difficult to achieve excellent refractive results with nonadjustable IOLs in patients who have undergone LASIK or have other ocular conditions. And these patients also may not be good candidates for corneal laser touch-up procedures following cataract surgery. This real-world experience spotlights the core benefits of our technology relative to competing nonadjustable premium IOLs, namely, the ability to deliver consistently superior uncorrected binocular visual acuity across a wide variety of patient-driven goals, without the increased rates of glare, halos or loss of contrast sensitivity that are commonly seen with multifocal IOLs.
We believe that LAL’s superior visual outcomes are the principal drivers behind our favorable adoption trends, and as our strong first quarter numbers indicate an increasing number of practices are deciding to incorporate the LAL into their premium offerings, not only does this investment allow them to offer the best possible visual outcomes to their premium cataract patients, but it can also broaden their premium IOL patient pool and become a robust generator of profitable practice revenue, something that is increasingly important as practice income from other services fall. Feedback from existing LAL implanters indicates that roughly 40% of their LAL volume comes from patients who would otherwise have selected a non-premium IOL, while another 32% come from patients who would have otherwise selected a lower-priced Toricmonofocal IOL. These statistics indicate that patients are willing to pay more for a procedure that they and their doctor have confidence will meet their expectations and likely helps explain the LAL’s continued growth relative to other IOL choices.
The additional revenue from upgrading patients to the LAL also provides a rapid return on investment for the light delivery device of about 9 months based on an average of 9 LALs implanted per month. To help maximize the productivity of our growing LDD installed base, our field team works closely with new and existing customers to integrate the LAL into the clinic workflow by disseminating best practices and key success factors that maximize benefits and efficiencies with our system. We also provide ongoing strategic clinical and marketing support to ensure that doctors and staff members throughout the practice are well informed and enthusiastic LAL providers.
I’ll wrap up by saying that we plan to continue to leverage our better technology and customer focus to allow doctors to establish a successful new private pay ophthalmic franchise that offers distinct and meaningful advantages to patients and practices. A survey conducted by [Helio] Research and presented at the ASCRS Accelerator meeting with responses from over 250 U.S. ophthalmologists supports this thesis. It found that premium IOL procedures were believed to be the most likely to increase practice growth over the next 5 years with the light adjustable lens anticipated to make the most positive impact on patient care. While we are still early in the process, I’m confident that these benefits, coupled with favorable demographic and economic trends will help us build a durable high-margin business that also rewards our employees and shareholders.
With that, I’ll ask the operator to open the call for questions.
Thank you. At this time, we will conduct the Q&A session. [Operator Instructions] Our first question comes from Robbie Marcus from JP Morgan.
This is Allen on for Robbie. Congratulations on the good quarter to start off the year. I just had a few quick ones. Just starting with the quarter itself, what were you seeing when it came to adoption from new stores versus same stores? And how is utilization continued to trend for the docs that you’ve brought on board?
Thank you, Allen, for your question. And one of the metrics the Street looks at, but not the way we run the business is number of LALs per LDD per month, right? And Q4 and Q1 were very similar. And that was what we expected during this quarter because the fourth quarter is typically your highest volume quarter. And of course, we went from 7.5 to 8.9 between the third quarter and the fourth quarter of last year, which was a big jump. So we were very happy to see that sustained right about the same number in the first quarter of this year.
And then a quick follow-up. What are you seeing in the capital environment with rising interest rates, what kind of strength are you seeing in demand for LDDs and are you seeing that continuing so far in the second quarter?
So one thing to recall is that our capital equipment is in the $125,000 range. And so that’s not as high as some of the hospital-based capital equipments that may be more affected by those trends. Overall, as we said, the ROI for a light delivery device is very quick. And it enables practices to tap into that high profit premium market more effectively. So we continue to see strong demand for the LDD and we would anticipate that to continue.
Our next question comes from Craig Bijou from Bank of America.
Congrats on a strong start. I wanted to start with some of the comments on your seasonality, obviously, recognizing that Q1 has some seasonality in there. But wondering if you could provide maybe a little bit more color on the cadence throughout the year on how we should be thinking about, one, LDDs and then also the utilization for the LALs.
Okay. Thank you very much, Craig. Yes, on the LDD side, typically, what we see in the industry and of course, we’re U.S.-based is that you see the strongest quarters for LDD to be in the second and fourth quarters. And then the third quarter, the weakest and the first quarter kind of intermediate within it, but a little bit of seasonality. And that’s really driven by the fact that in the first quarter, people are already just getting their capital budgets together and making decisions for the year. However, this quarter, we have really strong results in the first quarter, both from our sales in the U.S. as well as from Canada, which is a new market for us. And so that’s a little unusual, but we’ve seen that before for the LDD. In the third quarter, it tends to be a little weaker just because of the fact that doctors are on vacation and are not making as much decisions than a pop up in the fourth quarter. Now we have largely grown through these dynamics, right, overall, but we’re certainly aware of it.
Then on the procedure side, again, we’re growing in procedures really 2 ways. So first of all, adding LDDs and having new customers in the mix and that helps the absolute number. And then we’re also looking to increase the productivity in each one of our practices. So we have account managers and clinical personnel in the field that work with the individual accounts to train them on use of the LDD, train new doctors in a practice as well as train on what we call the infrastructure, which is the ability for them to integrate this into their practice. But you do see some seasonality in the third quarter a little bit and then a high pop-up. And certainly, within our numbers, we got a high pop up in the fourth quarter a bit more than usual. And then, of course, we were able to maintain that productivity in the first quarter, which we were very pleased by.
Got it. thanks Shelley, that’s helpful. And apologies if I missed it, but on the gross margin, the very strong gross margin in Q1, obviously, mix played into that. But was there improvement on the LDD side? And then as we think going ahead for the rest of the year, with the lower-cost LDD coming on, I guess, recognizing you raised gross margin guidance, but why is that the kind of the right range? And could it be higher given your strong Q1 performance?
Yes. Thank you very much. The Q1 performance was unusually strong at 59%, and we increased our guidance based on the first quarter results. to 56% to 58% as well. And we did get some material cost savings that we were able to push through on our existing LDD. And of course, that inventory moves very quickly. So we’re getting that benefit in the first and second and even into the third quarter on our existing LDD. At the margin, we expect some additional improvement, obviously, from our lower cost to manufacture LDD as well and then, of course, mix. But it was really generated primarily by the fact that some of the costs that are usually period costs in the first period for both the LAL and LDD as well as overabsorption of labor were important to us in the first quarter. So we’re not moving up the guidance to that level for the balance for the entire year.
Okay. Makes sense.
Our next question comes from David Saxon from Needham & Co.
This is Joseph on for David. First one, I just wanted to know if you guys got any takeaways from the customer event you hosted Friday? And maybe just the general feedback that you got from ASCRS this year?
Thank you, Joseph. We had strong feedback throughout the ASCRS show. I think generally, people who attend the show are very aware of the light adjustable lens and the benefits that it offers both to patients and practices. And they expressed that by attending our evening event in high number and then having a very steady and strong booth attendance both that are talks in the booth as well as just in between those. So overall, I think the meeting was a very good meeting for us and indicative of excellent interest in the technology.
Sure. It’s great to hear. And then maybe, I guess, on LAL, just touching on the gross margin long term. I think in the past, you guys have talked about 80% to 90% at scale. Do you still feel confident in that number? And if you do, how should we think about the time to get there? Is that going to be here in the next few years or longer term just given the growth that we’ve seen?
Yes. We have always said that the LAL could be a gross margin product in the 80% plus range. But it’s at pretty high volume because the vast majority of the cost for the LAL is fixed overhead, right, and a modest amount of labor and a small amount of material. But your overhead for your molding and your chemistry facilities and clean rooms and all of that is really what determines that. We haven’t yet given an expectation of when that would be. but I don’t see it in the short term. We’re just continuing to grow to that each and every year.
Our next question comes from Ryan Zimmerman from BTIG.
Sorry, I missed you guys at ASCRS. I want to ask a couple of questions. Some of the competitors in the IOL space have called out PC IOL market weakness. And curious, just Ron, to get your thoughts on that. I mean, clearly, you guys are not seeing that in the results today, but why do you think that is? And kind of what is your view of the broader PCL market today? And then I have a follow-up.
Yes. Thank you, Ryan. And I think it’s always good for those who aren’t as familiar to remind that PC IOL stands for presbyopia correcting IOLs. And that is one of the segments of premium IOLs, the other being toric IOLs and now, of course, adjustable IOLs. And there are other procedures that are often associated with in the premium space as well. So we have heard that commentary that the presbyopia-correcting IOL segment might be flat or sideways a bit. And I think to put that into context, we’ve seen that before. As oftentimes, you’ll have new entrants into the presbyopia correcting or multifocal segment that will come in with a lot of promise to reducing some of the side effects that are associated with all multifocal IOLs, glare, halo, loss of contrast. And over a period of a year or 2, then patients and doctors realize that these things have not gone away. And then you see a movement to quality of vision. We saw that in 2008, 2009 when toric IOLs first became available in large numbers, and we saw a movement from PC IOLs to toric IOLs. And I think you’re seeing a similar effect now where people are moving towards quality of vision, which, of course, is good for us.
Yes. No, that’s helpful, Ron. And it certainly aligns with kind of what the largest pure play just reported this evening. The second question I want to ask about is just your installed base now is pushing 456 units, What does it take, in your view, to service this growing installed base? And just kind of help us level set us maybe on the sales force size and plans going forward, be it capital or consumable because you are now at reaching some pretty sufficient scale.
So as you know, Ryan, we currently have about 40 people in our sales force, and they’re divided roughly equivalent between the LDD or capital equipment side and the LAL or procedure side. And we feel good about our LDD sales force that has been in place for a little bit longer period of time. We started growing that soon after the IPO nearly 2 years ago. And we feel that we’re covering the U.S. market quite well. The LAL sales force came in a little bit later. And of course, as the installed base grows, their function is to onboard new accounts with working closely with our clinical training and other field staff, but also to drive adoption at existing customers. And so as their local installed base grows, we’ll add to that number as appropriate.
Our next question comes from Steven Lichtman from Oppenheimer.
I wanted to ask 2 LDD questions. First, U.S. came in ahead, as you noted, Shelley, which bodes well. Wondering if you could talk to the type of accounts that you’re targeting here more recently and that are maybe in the pipeline. Are you continuing to focus on higher volume, premium-focused docs? Or are you getting interest, particularly coming off of the conference even this past weekend from a broader array of potential customers. Just qualitatively, what are you seeing out there in terms of the type of customers you’re targeting?
Well, thanks for the question, Steve. Really, we see continued strong interest from those higher volume sites, which, of course, can make the ROI calculations work pretty easily. And so those are still the lion’s share of our customers or our new customers. But we continue to see smaller practices who may not have been as involved with the premium IOL space also show significant interest and some of our best customers are those because we typically will represent a larger fraction of their premium IOL practice if they haven’t been doing much in the way of premium prior to that. So it’s a mix but we think we have something to offer to both of those groups.
Great. And then on the other side of LDD, the Canada numbers obviously still relatively small but notable. Can you talk to what the opportunity you see in Canada as you expand out there? And then maybe just more broadly, how you’re thinking about other regions outside of the U.S. potentially for expansion?
Yes. Well, Canada, obviously, because of its proximity, it’s got a good population, 40 million people. It’s a significant cataract market, very similar, a lot of commonalities in terms of practice patterns with the U.S. So it’s a natural extension for us. We have an excellent distributor in Canada who knows that market very well as well. And so we think that’s going to be, as it’s already shown itself to be a strong area for growth. Beyond that, we’re continuing to look at opportunities like that, primarily in Europe and Asia, although those will be a little bit later in terms of time frame.
Our next question comes from Lawrence Biegelsen from Wells Fargo.
And congrats on a nice quarter. A couple for me. Ron, how are you thinking about future product enhancements? What’s the pipeline look like over the next year or 2?
Thank you, Larry. So I think that we’re going to continue to do what we’ve done. As you know, we’ve had about 25 PMA supplements since our initial FDA approval. These tend to be evolutionary improvements that move the product forward, address things that we think can improve our market share and functionality. And we continue to invest in those, and we’ll continue to bring those to market as they get approvals.
But nothing to call out, Ron, areas that you’re focused on?
Nothing specific at this time. Okay. Fair enough. And by our math, it looks like your share of AT-IOLs, was about 5% in the first quarter of 2023. I don’t know if your math is similar. But I guess my question is, where do you think that could go over time? How do you think about the ultimate penetration here? Well, my own view is that in the long run, adjustability is going to be a differentiating factor for premium IOLs and that eventually, most, if not all, premium IOLs will need to be adjustable to gain the benefits of that feature. And so we have a nice head start, we’re continuing to drive both our market share and product development, and our goal is to become the standard for premium IOLs, which generally means that we’re at least 50% of the market. Now that doesn’t happen tomorrow. But over the long term, that’s our goal.
Thank you. I am showing no further questions. I will now turn the call over to Dr. Kurtz for closing remarks.
Well, thank you all for your time and attention today. We appreciate your interest in RxSight, and we look forward to updating you on our progress in future quarters. Goodbye.
Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.