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spk00: Hello, and thank you for standing by. Welcome to the RxSite third quarter 2022 earnings conference call. At this time, all the participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You'll then hear an automated message advising you that your hand is raised. Please be advised that today's conference is being recorded. I'd like to now hand the conference over to your speaker today, Alex Wang, Associate Director of Investor Relations.
spk03: Thank you, Operator. Presenting today are President and Chief Executive Officer of RxSight, Ron Kurtz, and Chief Financial Officer, Shelley Toonan. Earlier today, RxSight released financial results for the three and nine months ended September 30, 2022. 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 views as of today, November 7, 2022, and will include forward-looking 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 earlier today and in our filings with the Securities and Exchange Commission, or SEC. Our SEC filings can be found on the company's 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 these 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 also be available for audio replay on the company's website. With that, I will now turn the call over to President and CEO, Dr. Ron Kurtz.
spk02: Good afternoon and thank you for joining us. The RxSight team delivered record performance again this quarter, further demonstrating the significant advantages that our unique technology provides to both patients and doctors. Our financial and operational results continue to highlight the potential of the light adjustable lens to reshape and expand the premium IOL market, as the LAL is increasingly positioned by practices as the premium lens of choice for their patients. On today's call, Shelly is going to begin with a recap of the third quarter results and an overview of guidance for the fourth quarter, after which I'll provide some additional color.
spk01: Thank you, Ron, and good afternoon, everyone. RxSite finished the third quarter with total revenue of $12.6 million, up 118%, compared to the $5.8 million in the third quarter of 2021, and up 11% compared to the $11.4 million in the second quarter of this year. We attribute this strong performance to the ongoing growth of our installed base of light delivery devices and the superior clinical outcomes of our LAL technology, as well as the increase in cohesion and productivity of our recently expanded commercial team, which facilitates LDD sales and is charged with helping new practices become fully proficient enthusiastic providers of our technology. Importantly, we delivered substantial sequential growth in a quarter that is usually seasonally softer for many medical device procedures overall, along with seasonally slower capital equipment purchases, underscoring the continued strong demand for our technology. In addition, from our vantage point, any impact to quarterly procedure volumes related to COVID or practice staffing shortages were negligible. Breaking up our performance by product line, we sold 49 LDDs in the third quarter of 2022, up 58% from the 31 units in the third quarter of 2021, and even with the second quarter of this year. We generated LDD revenue in the third quarter of 2022 of $5.7 million up 55% compared to $3.7 million in the third quarter of 2021 and even with the second quarter of this year. Our LDD ASP was approximately $116,000 in the third quarter, down about 2% versus the year-ago quarter and unchanged versus the second quarter of this year. Adding third quarter 2022 LDD unit placements, our installed base grew to 343, up 17% versus the second quarter of this year. LAL sales were also strong in the quarter, with units up on a year-over-year and sequential basis. We sold 6,595 LALs in the third quarter of 2022, up 234% from 1,977 units in the same period last year, and up 22% from the 5,400 units in the second quarter of this year. We generated LAL revenue in the third quarter of $6.5 million, up 236% compared to $1.9 million in the year-ago quarter, and up 22% from the $5.3 million in the second quarter of this year. Growing LAL adoption was also evident in our revenue mix. In the third quarter of 2022, LAO revenue represented 52% of total revenue compared to 34% and 47% in the third quarter of 2021 and second quarter of 2022, respectively. The favorable shift in revenue mix helped to drive a third quarter 2022 gross profit, which was $5.4 million, or 42.5% of revenue, compared to $1.3 million or 23% of revenue in the third quarter of 2020 and $4.8 million or 42% of revenue in the second quarter of this year. Selling, general, and administrative expenses in the third quarter of 2022 were $14.9 million, up 64.5% compared to the $9.1 million in the year-ago quarter and up 3.7% compared to the $14.4 million in the second quarter of 2022. The quarter-over-quarter increase reflects primarily the 62% increase in our sales, marketing, and commercial headcount at the end of the third quarter of 2021 compared to today, as well as approximately $870,000 in higher stock-based compensation. The 3.7% sequential increase in SG&A from the second quarter of this year was related primarily to higher costs associated with our commercial headcount. Research and development expenses for the third quarter of 2022 were $6.4 million, up 18.8% compared to $5.4 million in the year-ago quarter, and up 3.2% compared to the $6.2 million in the second quarter of 2022. Our R&D costs, which include clinical and regulatory, can fluctuate from quarter to quarter based upon material utilization and timing of clinical studies. The sequential increase in the third quarter of 2022 was primarily due to increases in clinical study and regulatory. We reported a net loss in the third quarter of 2022 of $16.8 million, or a loss of 61 cents per basic and diluted shares. using a weighted average shares outstanding of 27.7 million shares. In the third quarter of 2021, our net loss was $12.7 million, or 68 cents per share on basic and diluted basis. Note also that stock-based compensation in the third quarter of 2022 was $2.9 million, resulting in a non-GAAP loss of $13.9 million or a loss of 50 cents per basic and diluted share. A non-GAAP disclosure is included in today's press release to provide useful comparative information for investors. Moving to the balance sheet, we ended the third quarter of 2022 with $112.8 million in cash, cash equivalents, and short-term investments. Long-term debt was $40 million. Given our third quarter performance, we are raising our 2022 full year revenue guidance to a range of $47 million to $48 million versus prior guidance of $44 to $46 million. Our new guidance implies revenue growth of 108% to 112% versus 2021. We are raising our gross margin guidance to a range of 41 to 43% of revenue. versus a prior guidance range of 37% to 38% of revenue. While gross margin for the first nine months of 2022 was 42.3%, at the high end of our new full-year guidance range, we expect continued gross margin pressure on the LDD in the fourth quarter and for mix in the quarter to be more heavily weighted toward LDD sales, which is consistent with usual capital equipment purchase seasonality patterns. We continue to succeed in procuring the necessary materials to manufacture the LDD and meet growing customer demand. However, we also continue to face supply chain constraints and inflationary pressures exacerbated by lingering COVID-related shutdowns in China and the war in Ukraine. Our operation team monitors our supplier channels continuously and works closely with our suppliers to mitigate disruptions wherever possible. Finally, we are revising our operating expense guidance range down to $86 million to $87 million from our previous guidance of $88 million to $90 million. Our operating expenses are much higher for SGMA than R&D as we continue to grow our sales and field support team significantly in 2022. Our annual revenue guidance implies fourth quarter 2022 revenue guidance of $14 million to $15 million. As noted earlier, we did not experience seasonal softness in either procedures or capital equipment in the third quarter, underscoring the growing enthusiasm for our products. Despite the strong third quarter results, sequential revenue for the fourth quarter is still expected to be between 11% and 19%. We do not expect the devastation caused by Hurricane Ian to have a noticeable impact on LAL procedure volumes in the fourth quarter, as fortunately, only four of our RxITE customers in the affected regions were impacted, two of which reopened within several days. While Florida is an important region, their procedures represented approximately 5% of our business in the previous several quarters. However, as we head into the winter months, we are mindful of the potential for a worse than usual lesion or a resurgence of COVID cases, which could pose some risk to near-term cataract surgery schedules. Our annual gross margin guidance implies a fourth quarter guidance range of 41% to 43% And our annual operating expense guidance implies fourth quarter operating expenses of $24 million to $25 million. With that, I'll turn the call back to Ron.
spk02: Thank you, Shelly. RxSite's strategy is to execute an efficient razor-razorblade business model that can generate sustained growth and margin expansion. Our third quarter results offer early support for that strategy, which we attribute to three distinct competitive advantages that set us apart from other premium IOL providers. One, the LAL offers the industry's most precise vision technology. Two, our proprietary system delivers the highest quality of vision. And three, the LAL is the only solution that is fully customizable to every patient's individual preferences and needs. Together, these important and tangible benefits create a formidable argument for selecting the LAL over competing products. The recent American Academy of Ophthalmology annual meeting provided numerous opportunities for dissemination of these advantages and for RxSight to strengthen relationships with existing LAL surgeons and to introduce our technology to potential new users. Our exhibit and presentations by users about our technology were well attended, making for a highly successful meeting. Included in these presentations were several from participants in our ongoing Phase 4 study documenting real-world experience with the LAL since the introduction of ActiveShield one year ago. More than 78% of 139 LAL eyes corrected for distance achieved 20-20 or better vision without glasses, with well over 90% within a half diopter of the desired cylinder or sphere correction. These results exceeded those of our FDA clinical trial, despite more than 20% of the Phase IV subjects having had previous corneal refractive surgery, which generally makes eyes more difficult to treat successfully with premium eye wells. Moreover, the unique design of the LAL makes it particularly well suited for optimizing vision with both eyes, a binocular approach that can reduce spectacle dependence across a range of distances. In the same phase four study of binocularly implanted patients, 85% achieved 20-20 or better binocular distance vision without glasses, while 97% were 20-25 or better. The vast majority also achieved excellent binocular near vision without glasses, with 75% reading at the J1 level and 89% reading at the J2 level. To put this in context, J2 can be compared to reading the small print used in footnotes, with J1 being even smaller. The LAL's symmetrically broadened depth of focus helps to facilitate these high-quality binocular results. Our LAL further enhances the patient experience by delivering the highest quality of vision. Other premium IOLs are often associated with complaints of glare, halos, and reduced contrast sensitivity. Because the LAL design does not split light to different focal points, patients enjoy excellent visual outcomes without increased rates of glare or halo or loss of contrast relative to a standard monofocal IOL. Adjustability is perhaps the most significant of the trio of core LAL competitive strengths. With other premium IOLs, the doctor must select a lens and power before surgery, committing the patient to a specific visual approach and uncertainty as to whether their goals will be met. If it turns out that the doctor's preoperative IOL prediction is not correct, the patient either needs to use glasses or undergo a subsequent corneal procedure to reach their desired vision. The LAL eliminates this high-stakes preoperative decision-making since its focusing power can be adjusted after surgery when the patient's needs and desires can actually be evaluated and they have the opportunity to test drive their visual selections. The result is high-quality, fully customized vision that is achieved with the patient's active and ongoing involvement. Our patient-focused approach not only helps doctors deliver optimal care, but also helps them increase practice revenue and profitability. Surgeons can recommend the LAL with confidence, knowing it will deliver high-quality vision with few of the compromises that could otherwise undermine patient satisfaction and harm traffic building referrals. The LAL can therefore help doctors expand their premium IOL practice by appealing to even the most demanding patients who are seeking a truly premier outcome. These topics are of significant interest to both new and prospective LAL practices and were covered in additional AAO presentations that discussed how practices position and market the LAL how to achieve optimized visual outcomes, how to use the LAL to enter the premium channel, and PEARLS for managing LAL surgical and postoperative planning. We believe that new practices that efficiently integrate our technology will be consistent, higher volume users over the longer term. To facilitate this, our clinical field and customer service teams conduct a thorough onboarding process that provides personalized hands-on training and support to doctors and practice staff. Our LAL account managers quarterback this process while also engaging with practices on an ongoing basis to assist with patient awareness and education programs, patient flow processes, data analysis on LAL outcomes, and other referral and traffic building initiatives. We believe this focused, coordinated effort is helping new practices get up to speed more quickly and contributing to the triple-digit growth we're experiencing in LAL sales. To summarize, we believe RxSight is uniquely positioned in the high-growth private pay premium IWELL market, and we remain very optimistic about the tremendous potential that lies ahead. As our third quarter results demonstrate, the LAL is establishing a firm foothold in the market as more practices offer the benefits of adjustability. We are succeeding because the LAL is the industry's most precise technology capable of achieving superior visual outcomes that are customized to each patient's individual's needs and preferences. These potent competitive advantages form the cornerstone of our strategy to build a durable proprietary platform that serves the exacting needs of doctors and patients while growing a sustainable high-margin business that creates long-term shareholder value. And now, operator, please open the call for questions.
spk00: Thank you very much. As a reminder, to ask your question, you'll need to press star 11 on your telephone and then wait for your name to be announced. Please stand by while we compile the questions. Our first question is with David Saxon from Needham & Company. David?
spk06: Yeah, good afternoon. Hi, Ron and Shelley. Thanks for taking the questions and congrats on the quarter. Maybe I'll start with utilization. I mean, it reached a year-to-date high, even in a seasonally weak quarter. So maybe help frame how we should think about utilization trends as we enter 2023. Can you talk about utilization, you know, across new and existing accounts and, you know, how quickly it takes a new account to get up the utilization curve.
spk01: Yes, thank you very much, David. Yes, we reached a high of 7.5 LALs per LDD. And as you know, we don't run the business on that metric, but it's a very telling metric of our success and the ability to increase volume at all of our accounts. And so as we look at, you know, the the various kind of chunks of timeframes in which customers adopted the technology, because some obviously adopted during the height of COVID, some when COVID was back and forth, and more recently in 2022, when it's had less of an impact. And so we see all of those groups continue to increase. The slope is higher, however, for our customers that have adopted in 2022. And we think it's multifactorial, right? Because some could be just a customer type as we continue to grow. Some is the advancements in our technology, because as you see from the data that Ron talked about, the results continue to get better. And of course, as we think about it, we have more referrals now with a larger installed base. And most doctors do talk to peers as they make a decision to buy the technology. But I do think overall our data shows that newer customers adopt more rapidly than they did, let's say, you know, a year ago or two years ago. That makes sense given the marketplace. And that they tend to get to higher volumes sooner. And I think that's good news. Would you add anything to those trends, Ron?
spk02: The only thing I would add is that also our sales force has been matured and grown over the last year, and they certainly have an important role in both setting the expectation at the time of the sale of the LDD as well as quarterbacking the onboarding process and continuing to reinforce best practices with the doctors and staff.
spk06: Okay, that's helpful. And then my second question is just on the P&L. I mean, you're bringing down the OpEx guidance, which is nice. So maybe talk about what's driving that leverage. I know you added a lot to the commercial team this year. So, you know, how should we think about rep hiring in 23 and kind of, you know, maybe what OpEx growth could be next year and how much leverage you might see? Thanks so much and congrats on the quarter.
spk01: Thank you very much. I'm going to let Ron start and address the Salesforce.
spk02: Yeah, as you noted, David, we expanded the Salesforce quite a bit in 21 and 22. We don't see a big change going forward. We'll continue to look geographically and see where there might be some fine-tuning, especially with account managers as we increase the installed base and they cover more and more accounts. But overall, we think we're at a reasonable position currently.
spk01: Okay. Thank you, Ron. And so I think that that's important overall because we probably won't be adding many people in the fourth quarter. And so as we think about bringing down the amount that we're spending, a portion of that is non-cash stock-based compensation. And with the pressure the stock is under, as well as everybody else's stock, you know, the Black-Scholes value of options that we grant and RSUs that we grant is lower. And so that tends to drive it down. And then I think overall we're being careful on our spending despite the amount of investment that we make.
spk06: Great. Thanks so much, and congrats on the quarter.
spk00: Thank you very much. Thank you. Our next question comes from Charles Elson with Wells Fargo. Charles?
spk05: Hi. Thanks for taking the question and congrats on the nice quarter. So I wanted to get some maybe early thoughts on 2023. I know it's too soon to give any official guidance, but wondering if first you might give any reaction. It looks like consensus is sitting around 80 million or looks like that would be around 67% growth year over year versus the midpoint of your guidance. First, do you have any initial reaction to that number?
spk01: Yeah, as we're, you know, not giving guidance until later for 2023, you know, I don't think we're reacting to that. But what I would say is we enter 2023 as the same strategy as we've employed this year. You know, first sell the LDD and get those practices up and successful in using the technology and increasing the number of LDDs used in each of our accounts So I think as we think about 2023, you know, there's, it's blocking and tackling on the top line, same as we've done this year. And I think we've done that very successfully. We've raised guidance now three times for this year.
spk05: Okay. Thank you. And then maybe just a quick follow-up, pivoting. So it sounds like you said you weren't many staffing or COVID challenges that you were seeing so far. I was wondering either late in the quarter or early October so far, have you seen any early impacts around the macro uncertainty, whether it's like on the hospital side with capital budgets or on like the customer's, the patient's side with any reticence to pay for a premium IOL?
spk02: Charles B., as you know, almost all of our LDDs are sold to individual practices, so they're not constrained as much, perhaps, as those large hospital capital budgets. That's not to say it's easy, but at least that's not typically a constraint. On the patient side, I think it's always important to recall that our patient demographic is older. There tend to be people who are at the peak of their earning potential or soon thereafter. They're still very active and focused on optimizing their vision for their particular lifestyles. And they're willing to pay, you know, for the best outcomes that they can achieve. So we haven't, you know, we have not anecdotally seen any effect from, you know, some of the macro headwinds. It's not to say that we won't, but both historically, that hasn't necessarily been the case with the premium IOL market, if you go back to, say, 2008, 2009. Okay.
spk05: Good to hear. Appreciate it.
spk00: Thank you very much. And our next question is from Ryan Zimmerman of BTIG. Hi. Ryan?
spk04: Thank you. Yeah, thank you. Can you hear me okay? Perfectly, Ryan. How are you? Great. Congrats on the quarter, guys. Very, very impressive. I'd love to just spend a moment on the short-term first and then maybe talk about some of the other dynamics. But, you know, if you look at kind of the quarter-over-quarter growth that we've seen historically in the business From the third to the fourth quarter, it's been, you know, it's been very strong, just seasonally speaking. And so, you know, with the implied guidance, Shelly, I just would love to get your philosophy about, you know, your fourth quarter implied guide this quarter, given kind of what you've done historically and remind us kind of the puts and takes on the fourth quarter that you're considering as we think about, you know, the fourth quarter.
spk01: Yeah, you know, it's kind of interesting. I look back to the beginning of the year and we got it from 40 to 44 million on the top line, and now we're guiding 47 to 48 million with somewhere in the range of 11 to 19% sequential over Q3. You know, we think a lot of our own blocking, tackling, and the success that our doctors are having with their results and patients' happiness is very important and was important to the third quarter volume. But it's been a very surprising Q3. And the, you know, momentum and the strength in Q3 was pretty consistent throughout the quarter. And so I think, you know, part of it is, of course, is one, we don't want to get out, you know, over our skis. And also, you know, did we pull some things in from fourth quarter, particularly on the LDD side? And so I continue to look at that because, you know, frankly, I've called seasonality wrong, you know? And so I, you know, that's part of my thought process because it's about the whole year and our momentum going into 2023. And, you know, I think that we have not been hit by COVID much in the last two quarters. And, you know, we're, You know, we're just, while fourth quarter tends to be very, very strong, we think about the holidays. You know, is that going to be different than what we've had before? Usually that doesn't impact us much. But, you know, we continue to look at that as well. And we haven't seen the flu season yet. And so we're hoping that doesn't impact us in terms of scheduled surgeries as well. So that's kind of the thought process. Overall, 11 to 19% is, you know, pretty broad at the end of the year. But we feel comfortable with that number.
spk04: Okay. I appreciate that. And then, you know, the gross margins are doing really nicely just as the LAL scale. But I'd love, you know, to understand a little bit more about the gross margin expectations. You know, if we strip out the LALs, do you still kind of expect the LDD margins kind of in that mid-30s range, maybe a little lower? And what's the gating factor there for when that can actually start to improve? And should we still think about your LDDs kind of carrying forward that kind of margin profile in the next year?
spk01: Yeah, I think that's a really good question. As you know, because of supply chain constraints and inflation, Our goal is always to sell capital in the 20% to 30% gross margin range, preferably a little higher, but not so high that we impede our sales. It has decreased, and we're well below the low end of that number right now with our current LDD. You pay to have parts right now. And then I think the – and during this period of time, as we've increased our production on the LAL, we've brought down the cost on that. So, you know, the effect of the LAL increasing as a percentage of revenue, those decreasing costs as, you know, offset the pressure that we're getting from our existing LDD. But to get into the 20% to 30% range for our capital, you know, we've spoken about our lower cost to manufacture LDDs. And we hope to introduce that in the second half of 2023. That's subject one to FDA approval, but just as importantly to supply chain. That continues to be difficult, although we work very closely to bring those components in as well as the components that we're bringing in for our current product. And that's the strategy to improve the margin on the LDD side as we grow in the second half of next year. And I think just the important thing to remind ourselves again is that it's the same functionality, but it was designed over a several-year period to take out some of the cost. And so that's an important initiative for us in terms of increasing margin, but just as importantly, you know, continuing to grow our LAL procedure volume. That is what really drives margins.
spk04: Very helpful, Shelley. Thank you, and congrats again. Very exciting to see.
spk00: Thank you very much. Thank you. At this time, I would like to turn it back to Dr. Kurtz for our closing remarks.
spk02: Great. Well, thank you all for your time and attention today and for your continued interest in RxSight. Wish the best for the rest of the day. Thank you.
spk00: This concludes our program for the day. Thank you very much for your participation. Have a wonderful day.
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