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spk02: welcome to the rx site first quarter 2023 earnings conference call at this time all participants are in listen only mode after the speaker's presentation there will be a q a session to ask a question during this session you would need to press star 1 1 on your telephone you would then hear an automated message advising your hand is raised to withdraw your question please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand it over to Alex Wong, Associate Director, Investor Relations. Please go ahead.
spk07: Thank you, Operator. Presenting today are RxSight President and Chief Executive Officer, Dr. Ron Kurtz, and Chief Financial Officer, Shelley Toonan. Earlier today, RxSite released financial results for the three 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.
spk04: Thank you, Alex. Good afternoon, and thank you for joining us. The RxSight team extended its track record of solid growth 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.
spk00: 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 five 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 31st, 2023, our LED installed base stood at 456 units, up 85% and 14% versus the first and fourth quarters of 2022, respectively. We sold 10,523 LELs 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. SD&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 non-cash 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 non-cash 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 experience in material utilization and timing of clinical studies. We reported a gap net loss in the first quarter of 2023 of $13.2 million or a loss of 42 cents per basic and diluted share using weighted average shares outstanding of 31.6 million shares. This compares to a gap net loss of $17.6 million or 64 cents 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 reconciliation 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 31st, 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 $79 to $84 million, up from previous guidance of $78 million to $83 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 increase in 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 $105 to $108 million, representing a 24 to 28% rise over 2022, reflecting our ongoing investments to build a large, durable, post-operative light treatment support infrastructure for sustained LAL procedure growth. Note that operating expense estimates include non-cash stock-based compensation expense between $15 and $16 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 use 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.
spk04: Thank you, Shelly. 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 our site with continued growth in 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 non-adjustable IOLs. One of the highlights at ASCRS for RxSight was a presentation by Dr. John Bukic, 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 six-point font. About three-quarters 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 five-point font. Finally, a smaller group of patients, about 6%, elected to optimize both eyes for intermediate and near vision, With 95% still seeing 2025 or better at distance and over 91% able to read J1 or four point font. Importantly, approximately two thirds 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 a quarter 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 three quarters of patients with no previous history of corneal surgery. It is more difficult to achieve excellent refractive results with non-adjustable 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 non-adjustable 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 LALs 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 toric monofocal 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 nine months, based on an average of nine 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 the 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 Icelerator 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 five 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.
spk02: Thank you. At this time, we will conduct the Q&A session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Robbie Marcus from JP Morgan. Please go ahead.
spk10: Hi, this is Alan 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 has utilization continued to trend for the docs that you've brought on board?
spk00: Thank you, Ellen, for your question. And, you know, 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.
spk03: Thanks. And then a quick follow-up.
spk10: What are you just seeing in the capital environment with rising interest rates? What kind of strength are you seeing in demands for LVDs, and are you seeing that continuing so far in the second quarter? Thank you.
spk04: Thank you, Alan. So, you know, one thing to recall is that our capital equipment, you know, is in the $125,000 range. That's not as high as some of the hospital-based capital equipment 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 capacity premium market more effectively. So, we continue to see strong demand for the LDD, and we would anticipate that to continue.
spk03: Thank you. One moment for our next question. Our next question comes from Craig Bayou from Bank of America.
spk08: Please go ahead. Good afternoon. Thanks for taking the questions. Congrats on a strong start. I wanted to start with some of the comments on 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, you know, LDDs, and then also the utilization for the LALs.
spk00: Okay. Thank you very much, Craig. Yeah, on the LDD side, typically what we see in 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, you know, in the first quarter people are already, you know, 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, you know, 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, you know, we're growing in procedures really two 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.
spk08: Yeah, thanks, Shelley. That's helpful. And apologies if I missed it, but on the gross margin, you know, 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, you know, with the lower cost LDD coming on, I guess, you know, why is the, recognizing you raised gross margin guidance, but why is that the kind of the right, the right range and could it be higher given your strong Q1 performance?
spk00: Yeah, thank you very much. Yeah, the Q1 performance was unusually strong at 59% and, you know, 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, you know, 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.
spk08: Okay. Makes sense. Thanks for taking the questions.
spk00: Thank you very much.
spk02: Thank you.
spk03: One moment for our next question. Our next question comes from David Saxon from Needham & Co.
spk02: Please go ahead.
spk11: Hi, this is Joseph on for David. First one, 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?
spk04: Thank you, Joseph. We had, you know, strong feedback throughout the ASCRS show. I think, you know, generally, you know, 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 express that by attending our evening event in high number and then having a very steady and strong booth attendance, both at our talks in the booth as well as just in between those. So, you know, overall, I think the meeting was a very good meeting for us and indicative of excellent interest in the technology.
spk11: 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, you know, 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? Thank you.
spk00: Thank you very much. Yeah, 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 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.
spk11: Okay, thank you very much.
spk00: Thank you.
spk02: Thank you.
spk03: One moment for our next question.
spk02: Our next question comes from Ryan Zimmerman from BTIG. Please go ahead.
spk05: Hey, good afternoon. Thanks for taking the questions. Sorry I missed you guys at ASCRS. I want to ask a couple questions. Some of the competitors in the IOL space have called out PCIOL market weakness. And, you know, curious, Ron, to get your thoughts on that. I mean, clearly you guys are not seeing that in the results today. But, you know, why do you think that is? And kind of what is your view of the broader PCIOL market today? And then I have a follow-up.
spk04: Yeah, thank you, Ryan. And I think it's always good for those who aren't as familiar to remind that PCIOL 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 premium IOL 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, you know, I think to put that into context, we've seen that before as oftentimes you'll have new entrance 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 eye wells, glare, halo, loss of contrast. And over a period of a year or two, 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 movement from PCIOLs 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.
spk05: Yeah, no, that's helpful, Ron. certainly aligns with kind of what the largest peer play just reported this evening. The second question I want to ask about is just your install base now is pushing 456, or it is 456 units, excuse me. You know, what does it take in your view to service this growing install base and just kind of help us level set us maybe on the Salesforce size and plans going forward? be it capital or consumable, because you are now reaching some pretty sufficient scale.
spk04: 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 two years ago. And we feel that we're covering the US 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.
spk05: Sounds good. Thank you guys for taking the questions.
spk04: Thank you.
spk02: Thank you.
spk03: One moment for our next question. Our next question comes from Steve Littman from Oppenheimer.
spk02: Please go ahead.
spk09: Thank you. Hi, Ron and Shelley. Wanted to ask two LVD 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?
spk04: 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 in 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, you know, we think we have something to offer to both of those groups. Great.
spk09: And then on the other side of LDD, you know, the The Canada numbers, obviously still relatively small, but notable. Can you talk to what the opportunities 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?
spk04: Yeah, 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 timeframe.
spk09: Great. Thanks, Ron.
spk04: Thank you.
spk03: Thank you. One moment for our next question.
spk02: Our next question comes from Lawrence Beagleson from Wells Fargo. Please go ahead.
spk06: Good afternoon. Thanks for taking the question, and congrats on a nice quarter. A couple from me. Ron, how are you thinking about future product enhancements? What's the pipeline look like over the next year or two?
spk04: 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.
spk06: But nothing to call out. Ron, areas that you're focused on?
spk01: Nothing specific at this time.
spk06: Okay. Fair enough. And by our map, it looks like your share of ATIOLs 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, you know, the ultimate penetration here? Thank you.
spk04: Well, you know, my own view is that in the long run adjustability is going to be a differentiating factor for premium Iowa wells, and that eventually most, if not all, premium Iowa wells 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 Iowa wells, which generally means you know, that we're at least 50% of the market. Now, that doesn't happen tomorrow, but over the long term, that's our goal.
spk06: All right. Thanks for taking the questions.
spk00: Thank you. Thank you.
spk02: Thank you. I am showing no further questions. I will now turn the call over to Dr. Kurtz for closing remarks.
spk04: 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.
spk02: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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