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spk00: Good morning, and thank you for your participation. At this time, all participants are in the 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 Cameron Radinovic of Burns MacMillan. Mr. Radinovic, please go ahead.
spk05: Thank you, Operator. Good morning, and welcome to the Lensar First Quarter 2022 Financial Results Conference Call. Earlier this morning, the company issued a press release providing an overview of its financial results for the quarter ended March 31st, 2022. This press release is available on the investor relations section of the company's website at www.lunzar.com. Joining me on the call today is Nick Curtis, Chief Executive Officer of LUNZAR, who will review the company's recent business and operational progress following his comments, Tom Staub, Chief Financial Officer of Lanzar, will provide an overview of the company's financial highlights before turning the call back over to Nick for closing remarks. 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 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 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 of the date of this live broadcast, May 9, 2022. Lenzar 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 is my pleasure to turn the call over to Chief Executive Officer Nick Curtis.
spk03: Nick? Thank you, Cameron, and good morning to everyone listening. Thank you for joining us on our first quarter 2022 conference call. We have achieved an impressive start to 2022 by returning to our historical growth trends, as well as delivering on our previously promised critical strategic milestone with the submission and the FDA's subsequent acceptance for substantive review, our 510 filing for Ally. Our first quarter revenue worldwide procedure volumes each increased more than 30% compared to the first quarter 2021. In addition to steady growth in procedure volumes, we have continued to see increases in both system sales and lease placements for our current generation lensar laser system with streamlined and teleaxis refractive capsulorhexis by increasing systems placed on a worldwide basis to approximately 255 systems. This represents a 30-system increase from March 31, 2021. These additional system placements and the associated year-over-year procedure increase represent a strong foundation upon which to launch ALLY and continued validation of the core feature technology advantages of the current LENZAR system in comparison to other femtosecond lasers available in the marketplace. Furthermore, we intend to continue leading innovation by giving refractive cataract surgeons even greater technology performance and procedure efficiencies with ALLY, thereby enabling them to provide highly optimized patient outcomes and provide an overall better patient experience in their cataract surgery procedures. These advancements and commitment to the continuous improvement of our device are at the heart of the reason why US-based Lensar laser systems perform twice as many procedures as the industry average. We've also made tremendous headway in broadening surgeon awareness of Ally, most recently as measured and recognized at the ASCRS a few weeks ago. I would like to highlight some metrics from the ASCRS meeting is it's arguably one of the largest and most relevant U.S. Congresses in our field. Attendance was significantly higher than last year, with nearly 3,000 surgeons attending in person. Furthermore, Lenzar was well represented, with eight podium presentations demonstrating improved patient outcomes and the management of astigmatism with reproducibility and precision that is not seen with manual and other laser technologies. This provides Lensar surgeons the opportunity to broaden use of their lasers to treat more patients because they have the confidence that they can deliver on their patients' expectations and these advanced cataract surgical procedures. We also had the opportunity to invite attendees to a Lensar experts meeting, which consisted of three comprehensive sessions covering a deep dive into user experiences with our current LLS, new clinical data, and review of the first human cases performed with Ally. For the first time, we opened attendance to include a small group of non-Lensar KOLs interested in the adoption of Lensar with Ally. We're thankful to the surgeons that presented their results and shared their experiences as well as to all the attendees. The turnout for these interactive sessions was very encouraging and expanded awareness of Lensar system's capabilities and the ability of our system to play a key role in facilitating better patient care. Over 140 ally demonstrations in total were completed. Over 120 surgeon demonstrations were performed, with 55% of these demos conducted for non-Lensar customers. MarketScope recognized the Lensar booth as one of the busiest at the ASCRS. That's gratifying recognition of our commitment to delivering cutting-edge technology and the enthusiasm surrounding allies. We also achieved a major milestone in the company's history with the submission and subsequent FDA acceptance of our 510K application for regulatory clearance of the Ally in February. Our application is undergoing substantive review by the FDA, and if cleared, we're on track to launch Ally in the second half of 2022. We look forward to continued and productive interactions with the FDA on our filing. Now more than ever, we believe that Ally represents the next great innovation in refractive cataract surgery. It appears this thought is shared by a number of surgeons that were excited to demo Ally for the first time. Ally has the potential to be the first platform in the market to combine a next-generation dual-pulse femtosecond laser with a world-leading Swiss-made faecal emulsification technology in a fully integrated system, allowing surgeons to prep the patient once, perform a sterile flax and cataract procedure. The significantly faster scanning and laser treatment time and not having to move and reprep the patient demonstrated that our patient treatment experience to date indicated a time savings of 10 minutes per case. Ally is a transformative system that integrates current LLS core features, including cataract density imaging, customized fragmentation and energy settings, optimized incisions with proprietary astigmatic guidance technology to adapt to every patient condition, surgeon treatment preference, and the work environment. I look forward to the remainder of 2022 at LensArm, as we have been able to build off the momentum generated in 2021 and the excitement surrounding Ally and the SCRS as confirmation of our beliefs that we're on the verge of revolutionizing the cataract surgery market. We look at this excitement as a strong indicator that our commitment to delivering substantive and meaningful advancements is beginning to pay off. We look forward to updating you on our Ally filing in the coming quarters. And now I'm going to turn the call over to Tom to cover our financial highlights for the quarter. Tom?
spk04: Thank you, Nick. Our first quarter 2022 financial results are included in our press release issued earlier this morning. But I'd like to take this opportunity to expand on that information by adding some color to those remarks. Revenue was $9.3 million in the first quarter of 2022 compared to $7 million in the first quarter of 2021. All individual components of revenue, product, lease, and service increased from the first quarter of 2021. It was a very strong quarter for us with total revenue increasing 33% over the first quarter of 2021. The increase in 2022 total revenue was primarily driven by increased procedure volume. In the first quarter of 2022, there were 38,901 procedures sold compared to 28,122 procedures sold in the first quarter of 2021. Our procedure volume increased 38% over the first quarter of 2021. Gross margin for the quarter was $4.7 million, or a 50% gross margin percentage, and represents an approximate $800,000 increase compared to the $3.9 million realized in the first quarter of 2021. By all measures, the first quarter of 2022 was a strong quarter for us, with a 33% increase in revenue and a 38% increase in procedures, both representing impressive performance. Congratulations to our team for such an outstanding quarter. Looking to the rest of the year, 2022 represents a transition year for us, and we expect our gross margin percentage for the year to approximate 50%, with the latter part of the year having a higher gross margin percentage than the first half of the year. The transition of our manufacturing from our first-generation system to Ally and supply chain challenges which include difficulty in obtaining inventory and a higher cost of raw materials, lead us to expect a lower gross margin percentage in 2022 than percentages achieved previously. We expect annual gross margins to begin to improve in 2023 and continue to improve in future years as we are able to realize manufacturing and purchasing economies of scale and absorb overhead more efficiently. In addition, and relatively unique to this quarter, our Q1 2022 gross margin was negatively impacted by higher service costs. Approximately $600,000 was incurred to replace expensive parts in several installed systems. The replacement of these expensive parts and the magnitude it occurred in the first quarter is considered unusual. Total operating expense for the first quarter of 2022 were $11.4 million, compared to $9.1 million in the first quarter of 2021. The increase in operating expenses was largely due to an increase in R&D activities as we filed our 510 for Ally and purchased inventory components and built Ally prototypes for which these costs were expensed to R&D and will be until we receive FDA clearance on our 510 . Also included in operating expenses were non-cash stock-based compensation expenses of $1.6 million and $2.3 million in the first quarter of 2022 and 2021, respectively. The increase in R&D expense for the first quarter of 2022 was related to additional costs for the continued development of Ally, as well as materials purchased for the manufacture of Ally, which amounted to approximately $2 million. Accordingly, our R&D expenses were somewhat inflated in the first quarter due to these inventory purchases. We expect this situation to continue in the second quarter of 2022 and up until we obtain clearance on our 510 filing. Net loss for the quarter was $6.1 million, or a $0.67 loss per share, compared to $5.2 million, or a $0.56 loss per share in the first quarter of 2021. Adjusted EBITDA for the first quarter of 2022 which excludes the effects of stock-based compensation expense mentioned earlier, was a $4.2 million loss compared to a $2.2 million loss in the first quarter of 2021. As a reminder, we use adjusted EBITDA to evaluate our cash flow and profit from operations. When you consider or deduct R&D expense, we have a positive cash flow and profit from our operations. As of March 31st, 2022, we had cash and cash equivalents of $29 million as compared to $31.6 million at December 31st, 2021. Cash utilized in the quarter was $2.6 million. With $29 million in cash at March 31st, a cash burn of less than $10 million for fiscal 2021, and our Ally 510 accepted for review by the FDA we have a strong balance sheet in which to launch Ally and have positive momentum going into the second quarter. Now I'd like to turn the call back over to our operator, Jerome, and we look forward to your questions.
spk00: Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. And if you would like to withdraw your question, press the pound key. Your first question comes from the line of Ryan Zimmerman with BTIG. Your line is open.
spk02: Good morning. Thanks for taking the questions. I just want to start with talking about the install base and utilization a little bit. And it continues to grow really nicely. And the procedure volumes are very encouraging to see. And I'm just curious, Nick, if you could kind of talk about, I mean, some of your users have been with the system for a while. you know, kind of how their utilization looks on their system relative to newer users and kind of what it takes for those newer users to ramp up, I think would be helpful to understand. And if you could also just comment on kind of, I mean, the procedure violence, again, very encouraging. You know, how is that trending into April and early May?
spk03: Yeah, thanks, Ryan. Those are really good questions. So, you know, we kind of look at things like once a customer has had a system for, let's just call it six months, because there's a ramp-up period. And the ramp-up period usually consists of getting into a new account, getting the staff trained, support staff is very important, getting the clinical operators trained, getting people comfortable with the system, getting the doctors trained to the point where They understand the features and the differences primarily between the Lensar system and the system that they may have been using prior to Lensar in. And so there's this sort of ramp-up period, which is in that first 90-day period where we look at going from very little revenue to where we're generating, you know, good procedure volumes. After that 90 days, they start to get to the procedure volumes that they were at prior to putting Lenzar in there. And then by the time we're in that most four to six month, four to six month out, we're usually operating very efficiently within the practice and beginning to see procedure growth. the the you know as we continue to evolve the system by adding preoperative surgical devices and and adding other efficiencies and whatnot we see that existing uh accounts um as they continue to be more comfortable they grow within that as well they either grow organically through the three percent growth rate annually that that comes just from cataract surgery in general And then what's been happening is that conversion rates to these types of procedures, and particularly in the area of management of astigmatism, continues to grow within the practice as they continue to optimize their nomograms and whatnot. You know, given any real shutdown, your second question, you know, any real slowdown as a result of any COVID variances or something unusual that we can't, you know, that we can't predict, we see that procedure volumes, you know, will continue to be strong, particularly as it appears that there still is a backlog from COVID in just, you know, available surgical time for doctors to be able to do their cases. So, you know, we would expect that, at least from a surgical procedure perspective, that we would continue to be strong there.
spk04: And very encouraging. And, Brian, just one other thing to add to Nick's comments is outside the United States, procedure volume was really, really strong in the first quarter. As you go into April and early May, outside the United States has backed off a little bit, but the U.S. has picked up a little bit, and the U.S. is 50% of our volume. All in all, you're seeing a slight downtick from the first quarter, but it's still a very robust procedure volume, and you'll see procedures increase from you know, the second quarter, or we would expect you would see that they would increase from the second quarter of 21.
spk02: Very helpful. Thanks for taking my questions. Hey, no problem, Ryan. Thank you.
spk00: And your next question comes from the line of Danielle Antofi with SVB. Your line's open.
spk01: Hey, good morning, guys. Thanks so much for taking the question. Congrats on a really strong quarter and a strong showing at ASCRF. Nick, I was wondering as you think about Ally, thank you guys so much for the data on a number of demos and particularly new or non-current users. So as we think about that and think about the upcoming FDA approval of Ally, how do we think about the rollout there? You know, I spent some time at the booth. I can see that the anticipation is high. So I'm guessing a lot of these docs are just asking, when can we get one? So help us understand that. how you guys are approaching the rollout of Ally once it's approved.
spk03: Hi, Danielle. Thanks for getting on the call today and thank you for coming by at SCRS and seeing the system as well. So, we obviously are excited and we know that surgeons are very enthused to want to see Ally in their practices, you know, sooner rather than later. That said, it would be imprudent on our part, particularly with a brand new piece of technology that's moved from an R&D into a full blown manufacturing that we are cautious and that we control our launch. And so we're planning on what we refer to as 10 friends and family sites um, when we begin the rollout with, um, with Ally shortly after, uh, after the clearance. And that will consist of, of, of course, um, some existing, uh, Lensar users and in a few of new KOL users that, that we've been working with, um, along with our, our current user, uh, KOLs in sort of this whole process to begin with as we move forward. And so, um, we're looking at putting those 10 sites in place and then following those sites for a few months in order to be comfortable that everything is performing exactly how we expected, that we understand what we're doing from a training perspective, that the surgeons are adapting to it, that we're getting what we advertise, so to speak. And then we'll expand into an additional phase which from there looks to be another somewhere between 10 and 20 systems. And so before we get into, you know, sort of full launch mode in 2023.
spk01: Got it. Okay. So that was my next question. So right to think about this as 2022 will be more measure 23. You can let the reins loose here.
spk03: Yep, assuming that we don't have, you know, continued issues as it relates to supply chain, of course, but yes. Sure.
spk01: Okay. Okay, and then when thinking about utilization, just following up on Ryan's question there, utilization on the current system versus how we should think about utilization on Ally. And I know, you know, it hasn't launched yet, so I guess TBD, but theoretically you have to think that utilization could move significantly higher with Ally given the improved efficiencies on the system. So just how are you guys thinking about it, even theoretically or qualitatively would be helpful. Thanks so much for taking the question.
spk03: Hey, no problem. Those are great questions and obviously things that we're very keen on wanting to get answered as quickly as possible as well. So we're working in a couple of different situations here because you may recall that in past I've said that most of these systems today, no matter what company they're from, sit outside of the operating room. And that with Ally, you have the opportunity to move into the operating room if you want to take advantage of full efficiency of the system to perform a sterile procedure, to be able to switch, even if you weren't using the Lensar FACO system and you're using whatever FACO system you're using today to switch from the Femto to the FACO in a sterile environment, certainly from a flow perspective becomes much more efficient and faster. And so we see this happening in part of what we're going to be doing in these 10 accounts is that you'll likely have a few accounts that will continue to put the laser where they have the laser today in order to just really become comfortable with the system and the fact that it is that much faster and efficient. And then you'll have a few of these accounts that will put them right into the operating And we have a private equity group. One of the private equity groups that we're working with actually wants to study and do some flow analysis with us because they're interested in Ally on a much broader basis for more of their practices and ORs, if you will. So we'll have an experiment where we put one in each of two operating rooms And we'll see how much faster and more efficient and better use of the human resource as well in terms of transporting patients and whatnot that we do. I alluded to the fact that in our first clinical patients that we had done, the doctor was reporting that we were saving in the treatment time about two minutes and in the transport time and prepping of the patient another eight minutes or about 10 minutes with each patient in their cataract journey there. And so, really, the next months are going to be in those three scenarios really testing those things out. Did I answer your question?
spk01: It sure did. Thank you, Nick. That was so helpful. Thanks, guys.
spk00: Thank you. I'll hand the call back to Nick Curtis.
spk03: Thank you, everybody, for joining our call today. As you can tell, we're quite enthusiastic about what's going on here at Lenzar. We certainly appreciate the fact that you're interested as well, and we look forward to continuing to update you as we make further progress.
spk00: All right, thank you. And that concludes today's conference. Thank you all for joining. Give me now this connect.
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