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spk04: Ladies and gentlemen, thank you for your patience. The Lanzar Inc. First Quarter 2021 Financial Results Principal is due to begin shortly. Thank you. Thank you. Thank you. Good morning, and thank you for your participation. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference call will be recorded. I would now like to turn the call over to your host, Cameron Radnovik of Burns McLennan. Mr. Radnovik, please go ahead.
spk01: Thank you. Good morning and welcome to the Lenzar first quarter 2021 financial results conference call. Earlier this morning, the company issued a press release providing an overview of its financial statements for the first quarter ended March 31st, 2021. This press release is available on the investor relations section of the company's website at www.lenzar.com. Joining me on the call today is Nick Curtis, Chief Executive Officer of Lensar, who will review the company's recent business and operational progress. Following his comments, Tom Staub, Chief Financial Officer of Lensar, will provide an overview of the company's financial highlights for the first quarter before turning the call back over to Nick for closing remarks. 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 and or 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 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 of the date of this live broadcast, May 5, 2021. LensArt undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this live conference call. At this time, it is my pleasure to turn the call over to Nick Curtis. Nick?
spk00: Thank you, Cam, and good morning to everyone listening. Thank you for joining us on our first quarter 2021 conference call. I'm pleased to report that we have continued the positive momentum, which began in the second half of last year. showing a gradual rebound from the COVID-19 pandemic. We continue to observe positive industry trends in the first quarter of 2021 in most of the regions in which we operate, as seen through a recovery of elective surgeries, specifically in premium cataract procedures. Furthermore, we're beginning to see procedure growth as compared to pre-pandemic levels in certain markets. This recovery and growth includes the U.S., our largest operating region where our procedures sold increased 19% as compared to the first quarter 2020. While this increase is certainly encouraging, we know the situation globally remains very fluid, varying from region to region. Last week, we became aware of lockdowns and the related suspension of elective procedures in both Turkey and India from late April until now. With these lockdowns likely continuing throughout May, until authorities get their increasing infection rates under control. It's a sad situation and our thoughts go out to the people in these countries with the hope of swift corrective action, including vaccines and a return to their normal lives. While it is clearly difficult to predict what may happen in the coming months, we continue working hard and focusing our efforts on those markets that are less impacted by the pandemic, where we can truly make a difference while continuing to communicate regularly with our partners in each of these markets. This is helping stabilize performance in the near term, but more importantly, should serve us well in ramping more quickly as markets begin to reopen. In the near term, these lockdowns do have some effect on our business, with an impact in procedure volume and a delay in new system placements that limits our immediate growth. However, India and Turkey represented less than 10% of our 2019 and 2020 revenue, so we expect a noticeable but not drastic impact to our second quarter revenue. The silver lining is that cataracts do not go away or resolve without treatment. Ultimately, these patients will return to have their cataracts treated as these markets reopen, creating inherent resiliency to the cataract surgery market. Overall, we believe our first quarter performance gives us cause for cautious optimism as it relates to the rest of the year. Although the threat of COVID has not completely gone away, we've seen signs that suggest a gradual return to normal as vaccination rates and access to vaccines continue to increase, particularly in the United States. In addition to the 19% increase in U.S. procedures sold in Q1, global procedures sold were up approximately 21% over the first quarter of last year, an increase of nearly 5,000 procedures. Another encouraging sign from the industry, at least in the U.S., is a return of certain medical congresses to in-person formats. In fact, our team will be at the 2021 Hawaiian Eye and Retina meeting next week in Maui. Perhaps more importantly, the American Society of Cataract and Refractive Surgery, or ASCRS, annual meeting in July is currently planned to be an in-person meeting. On the other hand, several European meetings have either been postponed and optimistically rescheduled for later in the year or canceled altogether as a result of spikes in COVID and varying degrees of vaccine rollouts from country to country. As I mentioned in our year-end earnings call in March, we believe our current generation Lensar laser system was streamlined for and IntelliAccess remains the most advanced laser available to cataract surgeons today. We believe that the use of our technology enables better performance for surgeons, and synergistically superior outcomes for patients. Let's turn to our next generation system, Ally. We continue to receive enthusiastic feedback from the ophthalmic community, particularly around the new opportunities and efficiencies that Ally will enable. Ally is viewed as a significant advancement in the armamentarium to treat cataracts, one that builds upon the technological leadership we've established with our current generation Lensar laser system considerably expands the value add that we will be able to offer cataract and refractive surgeons. I mentioned the ASCRS annual meeting earlier. As a Congress for Cataract and Refractive Surgeons, it's one of the most important Lensar market-specific meetings in our industry. I'm proud to say that Lensar will be there with our laser system and will be showcasing Ally in a series of private, by appointment only demonstrations to a sizable audience of leading cataract and refractive cataract surgeons. I look forward to sharing key takeaways from the meeting when we report our second quarter results in August. We continue to make great progress in the development of Ally and remain on track to file the 510K application in the first quarter of 2022 and launch Ally later in the year. In addition, we recently successfully completed a DECRA notified body audit to the EU MDR requirements and as a result are well positioned for transitioning toward Ally in Europe. Now let me turn the call over to Tom to cover our financial highlights for the quarter. Tom?
spk03: Thank you, Nick. Our first quarter 2021 financial results are included in our press release today, but I'd like to add a little color to those written remarks. Revenue was $7 million compared to $5.9 million in the first quarter of 2020, reflecting a 19.3% increase. The increase in revenue was primarily driven by sales of laser systems and increased procedure license sold, particularly in the United States, where procedure volumes exceeded pre-COVID levels. In the first quarter of 2021, there were a total of 28,122 procedures sold, compared with 23,225 procedures sold in the first quarter of 2020, reflecting a 21.1% increase. Thus, you see first quarter 2021 worldwide procedure volume returning to and exceeding 2020 levels in the aggregate. These procedure levels were prior to the shutdowns that have occurred in India and Turkey that Nick mentioned marks, but we still expect to have procedure volume growth in most markets, particularly in the United States going forward in 2021. Although we have had some system placements in the first quarter of 2021, The pandemic continues to depress laser system sales or what we consider non-recurring revenue. As our revenue streams are analogous to the razor rate description model, the depression of system placements retards our future growth. That is the more systems we place, the more high margin recurring revenue we enjoy in the future. In the COVID environment, there is a mindset of caution and uncertainty among physicians when making capital purchases. and this overhang may continue as long as the pandemic persists. Fortunately, our recurring U.S. revenue, which we define as all revenue other than laser system sales, has proven resilient upon surge in practices reopening for business after a complete shutdown of elective procedures in March, April last year. When evaluating the composition of our revenue, Approximately 91% of our revenue was attributable to recurring sources for the three months ended March 31, 2021, compared to 99% for the three months ended March 31, 2020, as we had no system sales in that quarter. Gross margin for the quarter was $3.9 million, or 55% of total revenue, an increase in dollars from $3.6 million and a gross margin percentage of 60% in the first quarter of 2020. The decrease in our gross margin percentage was attributable to laser system sales, which have a much lower gross margin than procedure revenue. R&D expenses were $2.7 million and $1.6 million for the quarters ended March 31st, 2021 and 2020, respectively. The increase was primarily due to additional cost for the continued development of Ally in anticipation of our 510 filing with the Food and Drug Administration in the first quarter of 2022, as well as increased personnel expenses, which includes an increase in stock-based compensation expense. Selling, general, and administrative expenses for the quarter ended March 31, 2021, were $6 million, an increase of $1.3 million, or 26.3%, compared to $4.8 million for the first quarter of 2020. The increase was primarily due to increased personnel expenses, which was largely attributable to stock-based compensation. Total stock-based compensation expense recorded for the quarters ended March 31, 2021 and 2020 was $2.3 million, and $85,000 respectively. With the spinoff and recapitalization of the company, stock-based compensation expense represents a significant expense for us going forward, but it is a non-cash expense, so it does not affect our cash runway or our ability to fund the filing and launch of Ally. As of March 31, 2021, we have $12.4 million of unrecognized stock-based compensation expense, which will be recognized before the end of 2023. Approximately $3.8 million of this will be recognized in the remainder of 2021. Looking forward, we expect to expand our commercial infrastructure to increase market share and then further expand infrastructure prior to our launch of Ally in 2022. However, with the ongoing pandemic, we are moderating our immediate expansion plans and judiciously adding infrastructure when it immediately contributes to our business. We are also monitoring our supply chain, which has been impacted by the ongoing pandemic. At this point, we have been able to adjust our operations to meet both our immediate needs and future objectives, but we are incurring higher costs due to the scarcity of items. Net loss for the quarter ended March 31st, 2021 was $5.2 million or a loss of 56 cents per share compared to a net loss of $3.7 million or a loss of $3.44 per share in the first quarter of 2020. Adjusted EBITDA for the first quarter of 2021, which effects of the stock-based compensation expense was $2.2 million loss and compares to an equivalent $2.2 million loss in the first quarter of 2020. Consistent with the fourth quarter of 2020, if you add back cash-based R&D expenses from our adjusted EBITDA, the result approximates zero. Thus, our commercial operations are cash flow neutral when evaluating our EBITDA operations without considering normal working capital fluctuations in our balance sheet accounts. Simply said, our adjusted EBITDA or cash used in the first quarter of 2021 corresponds directly to cash used in the development of Ally. As of March 31st, 2021, we had cash and cash equivalents of $35.9 million compared to $40.6 million at December 31st, 2020. Cash utilized in the first quarter of 2021 was $4.7 million. Based on our cash position and operational forecasts, we believe we have sufficient cash to fund our operations through the filing of our 510 application and the expected launch of Ally in 2022. Now I'd like to turn the call back over to Nick for some closing remarks.
spk00: Thank you, Tom. The solid and continued progress in expanding market share and growth over the last three quarters is a testament to the persistence of our team and the technology we have developed. I believe that we're well positioned to continue to grow Lensar into a market leader in the refractive cataract surgery space. Our dedication to producing relevant, significant, core technology features which provide our partner surgeons the treatment tools and the practice efficiencies to provide industry-leading outcomes and improving the patient experience is the foundation for everything we do. Our ally system has the potential to highly disrupt the cataract surgery market, as it will represent revolutionary advancement to the cataract surgery treatment ecosystem that surgeons have available to provide superior patient care and enable the ability to restore high quality of vision to their patients. I'm truly appreciative of the excitement and the reception that we've received from the ophthalmic community, and I'm thrilled to have the opportunity to showcase it at the ASCRS to expand on the enthusiasm we've seen thus far. We look forward to updating you on the development of allies as we get closer to the filing of the 510 . I'll now turn the call back over to the operator, and we look forward to your questions.
spk04: Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on the telephone keypad now. If you change your mind, it's star followed by 2. Our first question comes from Richard Neuwitter of SVB Limerick. Your line is open. Please go ahead.
spk05: Hey, Nick and Tom. It's Jamie on for Rich. Oh, hey, Jamie. How are you? Thanks for taking my question. Good. So I was in a nice procedure performance here in 1Q. I was just wondering, can you talk a little bit more about the volume trends you saw through 1Q the U.S. and international markets, and how you're seeing that trend heading into the second quarter. Appreciating some of your comments here around the OUS lockdowns that are taking effect. And then maybe just, you know, within that, how the utilization per system is trending relative to some of the metrics you've quoted in the past and, you know, the more normalized levels you've seen pre-COVID.
spk00: Sure. So let me, let me start with, um, you know, so market scope, you know, has sort of, um, forecasted, you know, how the procedures, you know, we'll come back and what the procedure, you know, where the procedures are both in terms of the U S and globally. And interestingly, they're talking about a backlog. That's going to take about two years to fill, you know, COVID here in order to get back to what they would consider to be normalized levels. and they recently published their 2020 numbers on what the cataract totals were. And so what's interesting in that time is that we've actually performed better and gained market share during this time, and that we actually grew an additional 2% to 3% when the market was actually contracting during that time. And so what that really indicates for me is, and particularly in the United States, is that given the sort of the reimbursement environment and doctors coming back to work, they're certainly, I would say, on a percentage basis, we've seen some increased conversion rates that relate to, so they might be doing overall fewer cataract patients today, but they're doing more of the advanced technology premium cases in those both because they're delivering on the outcomes to the patients and meeting patient expectations. And patients have become pretty critical given the fact that they've had to wear masks and glasses and their cataracts in effect have gotten worse over the last year if they were putting off surgery. So we've seen positive trends in that regard that relate to the utilization of the laser. Outside the United States, it's a little bit different story because it's been a little bit more choppy by country. And so we've seen some positive trends of the market coming back, for instance, in Germany where we're primarily, you know, that's primarily where we're centered. And they have a reimbursement system in a similar environment to the United States in terms of patients entering the system and where doctors and how doctors can offer these procedures and can in effect receive reimbursement directly from the patient on this. And so we're seeing a recovery there as well, as well as some activity for some potential new business there as well. And so we're focusing a lot in those areas. You know, China is going to be an interesting market. It's going to be a little longer for us to really realize the true values there, and a lot has to do with just the systems not having been there as long, and premium IOLs and whatnot haven't been there as long, and premium IOL levels are at a lower penetration rate there as people learn more about the technology and the doctors become more comfortable with offering these various options to the patients. So that's a little more longer-term play from a growth perspective for us. In terms of Turkey and India, we have quite a bit of activity, potential activity in India, and so we were cautiously optimistic before their complete shutdown here from an activity perspective. So we're just continuing to monitor there and stay pretty close to it. And, um, you know, that could have some upside for us if they get back to a situation where they're, um, where they're going to be open up. We've got, you know, let's say, you know, a pipeline there. So we're really focusing a lot in the United States and in Europe where we can control more of our activity and what we're doing right now. And we've got a little longer term play going on in China, South Korea, um, you know, was impacted by COVID as well. That was another market that's pretty robust for us from a systems perspective. But they're working through some reimbursement concerns there, you know, with their whole system. And so that's on a little bit of a sort of maintain market right now versus growing. And we're looking forward to Ally, you know, for instance, in those markets. Did that answer your question, Jamie?
spk05: Yeah, I guess from a quarterly cadence perspective, how are you guys thinking about your procedure growth? Are you thinking about it in terms of being sequential improvement across worldwide? and geographically, or just kind of help calibrate me a little bit, considering 1Q, you know, did have a very strong performance, just trying to get a better sense of how to be thinking about the cadence moving through the remainder of the year on procedure growth. And then I have a couple of follow-ups.
spk00: Sure. So in the counteract business in general now, you know, obviously there's been a lot of unprecedented territory covered over the last, you know, since the end of 2019. But Traditionally, in the cataract business, there's some seasonality, particularly when you look at getting into the summer months. You know, Europe goes on vacation, you know, for nearly an entire month during that time. And in the United States, obviously as well, people are not as focused on their cataract surgery. So traditionally, the third quarter, you would see, you know, fewer procedure numbers overall, but we're still seeing and we're small enough that right now we're still seeing some positive trends that relate to growth for us and some increased market share as it relates to procedures and uptake. And so I would say that we're cautiously optimistic that we will sequentially continue to grow the business through this quarter and and looking towards the third quarter to minimize the seasonality.
spk03: And, Jamie, as you look at sort of how we look at our operating regions, which are U.S., E.U., and the rest of the world, so U.S. has come back, and it's strong. And we've been saying that, you know, for the last six months. We saw that in the last six months of 2020. We continue to see that in the first quarter. EU not quite as strong, but returned back to pre-COVID levels. And then the rest of the world, as Nick mentioned, has been very, very choppy and really hasn't returned back to what we would consider pre-COVID levels. And then you further exacerbate that situation with Turkey and India. And although not a huge part of our business, still is going to make that part of our operating results drag. So I would be, if you're looking for the second quarter, I would look for strong procedure growth in the United States, sort of moderate in the EU, and probably underperformance in the rest of the world. And then we'll go into the third quarter, as Nick mentioned, and there's some seasonality there. And I would guess that we'll have a very strong fourth quarter with the caveat that we'll see how everybody reopens through the pandemic and how the vaccinations go, particularly in the EU and the world.
spk05: Got it. That's super helpful, Tom. Thank you for that. On the capital environment side, so I was just wondering if you could, from a housekeeping perspective, what was the ending installed base in 1Q and then just commenting on the current capital environment situation considering there was just another larger competitor that did report strong capital quarter on their refractive and FACO equipment. So just wondering what you're seeing, hearing in the marketplace and how you expect that trend to progress throughout the rest of the year as well.
spk00: So we saw some growth in our overall base of business. So we're up to approximately 230 systems installed globally. We did convert a couple of systems in the United States that were on rentals to purchase the deals, and that was reflected in the results for the quarter there. So, you know, our pipeline is probably the deepest that it's ever been right now. And I think that what we've been doing in terms of messaging with Ally and giving some of these previews and whatnot is creating a lot of interest in Lensar. And we're working towards that, motivating people to change today in order to get on board with where Lensar is going. And again, the drawing these core feature technologies. So although there was some delay to the expansion of the base, we still expanded the base in the first quarter, and I would expect in the second quarter here that we will continue to expand the base, albeit with a little fewer capital sales and I would say more placements, although we are forecasting some capital sales there as well. And for us, if the recurring revenue is growing, the number of procedures are there, there's some compounding effect to delay of getting systems into the field because of the ramp up associated with building the procedures. I think we'll see strong equipment placements in this quarter, in the second quarter.
spk05: Okay, that's super helpful. Lastly, I guess on the P&L, I think Tommy said growth margin was 60%. I just wanted to make sure I heard that correctly because I think I was calculating it to be about 55%. Nonetheless, ahead of our thinking. So just curious how we should be thinking about that through the rest of the year and as well as OpEx just because that did come in a little bit higher than expected.
spk03: Yeah, so you're exactly right, Jamie. The 60% referred to the 2020 quarter. The 55% is for the 21 first quarter. So your numbers are correct. And, you know, obviously that is a nice gross margin for us. We had a couple of system sales, maybe not as robustly as what we would like. And so as Nick mentioned, if we're successful in the second quarter in placing systems, you may take a couple points off the gross margin to place those systems because ultimately, you know, system sales have a much lower margin than procedures. But the faster we place systems, the more benefit we get in future high margin procedure growth. So, you know, that's sort of how we're thinking. And what was your other question, Jamie?
spk05: Just on the OPEC side of things, it came in a little bit higher, at least versus what we were thinking in the quarter. So just Calibrating us on how to think about that through the balance of the year. Thanks.
spk03: Yeah. So, you know, it's, we are, as we've mentioned, we're trying to build the commercial infrastructure and we made some significant strides, increasing a number of positions, making that in that, uh, particularly in the United States where we have a direct sales force with the hopes that that pays off. And, you know, we kind of moderated that because of the pandemic. So I would think that the G&A run rate is going to be about the same and that our R&D run rate is going to increase because the closer we get to the Q1 2022 filing of Ally, the higher our R&D expenses will be. And my guess is you'll start seeing that uptick in Q2 and then Q3 and Q4 and really starting significantly in Q3 and then continuing in Q4.
spk00: We're building systems and we're starting our facility expansion in order to increase manufacturing capability and all those activities are going on now.
spk03: So the one thing I would say is as you see the investment in R&D, you should view that as a very positive thing because that puts more certainty around the Q1-22 filing and the, you know, the expectations for Ally when we launch that in 2022.
spk00: Jimmy, I just want to mention one other thing, like in order to for us to, you know, we're working really hard to stay on timeline as far as the file goes for Ally and our progress there. And given some of the supply chain considerations that we're that we're dealing with, you know, right now is from from a mitigation strategy perspective. we're looking at it in the big picture longer term. We're willing to pay a little more where we can pay more to get the supply chain into our system so we can continue to build these systems and get what we need to be done from a clinical perspective to keep the progress going. And we've decided that if we can second source a few of these parts or if we can get them you know, by hook or by crook and another way and pay more for them, we're willing to do that now in order not to sacrifice timing of this. And so that sort of served us well right now. But, you know, we want to continue that.
spk05: Great. Thanks, guys, for taking my question.
spk00: Sure. Thank you.
spk04: Our next question comes from Kevin Kai of Madison Avenue. Your line is open. Please go ahead.
spk02: Hi, Nick. Hi, Tom. Good morning. Can you hear me all right?
spk00: Yep. Hey, Kevin. How are you?
spk02: Great, Nick. So my first question is, how do you see the competitive landscape for Ally as we get closer to launch?
spk00: I still see the competitive landscape being, you know, sort of lens are, you know, it's ours to really go after. I think There's only one other company that I can see right now that has a device that they're working on, and it's a company from overseas, and they don't have a present brand. They don't have any present business. They don't necessarily come out of the medical device business. I wish them well because all ships rise when people are paying attention to various technologies, but I don't view that there's going to be a significant number of competitors as we move towards the market with Ally, certainly not on rollout.
spk02: Got it. Thank you.
spk03: Kevin, I think I'd say that we really view Ally as a disruptive technology, and that's disruptive as we compare it to any potential competitive devices, too. So we are incurring a lot more cost and putting a lot of effort in making sure we meet this Q1-22 deadline, which is difficult in a pandemic environment. I mean, you see in any of the 10Ks that are coming out in the Q1, a lot of industry, a lot of companies are running into supply chain issues. And so far we've been able to navigate that because it's so important that we get Ally out because we think it's such a great technology.
spk00: We're going to have great technology as well as, you know, very opportunistic timing in terms of getting it out. And I think this preceding of the market for us and these introductions of the product and the various meetings that we're attending and speaking at, you know, are bearing some fruit in terms of the increasing pipeline for us with current gen and the interest that people have today.
spk02: Got it. Thank you. Very helpful. And my other question is, let's assume that we have a successful launch of Ally. Can you help us understand what a range of outcomes might look like in terms of Ally revenue that we'll generate?
spk03: Yes. So, Kevin, we obviously – As we get closer to the launch, we'll think about the guidance that we give. We're at a point now where it doesn't really behoove us to give any type of guidance other than to say that we view Ally as a very, very disruptive technology and really a significant opportunity for the company because, to Nick's prior remarks, there's just not a whole lot of competition out there, and we think that we have the best mousetrap and based on the feedback that we're getting via KOLs, that it's not just in our minds. It's broadly shared amongst the community.
spk00: Just suffice to say that we're going to have pretty high expectations for our performance there.
spk02: Got it. Thank you. Well, congratulations on the quarter. That's it for me.
spk00: Thank you. Thanks, Kevin.
spk04: There are no further questions in the queue at this time, so I will turn the call back over to Nick.
spk00: So I'd like to really thank everyone for joining our call today and also for your continued interest and support in Lensar. We look forward to updating you as we make further progress as we approach the filing and the launch of Ally. Stay tuned. Thank you.
spk04: This concludes today's call. Thank you for joining. You may now disconnect your lines.
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