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spk01: Good day and thank you for standing by. Welcome to the RxSight third quarter 2023 earnings call. This time, all 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 will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Alex Wong. Please go ahead.
spk05: Thank you, Operator. Presenting today are RxSight President and Chief Executive Officer, Dr. Ron Kurtz, and Chief Financial Officer, Shelley Tunant. Earlier today, RxSight released financial results for the three and nine months ended September 30, 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, November 9, 2023, 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 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.
spk07: Good afternoon, and thank you for joining us. In a few minutes, Shelley will review our third quarter financial results and guidance for the balance of the year. But I wanted to first highlight several positive developments that we believe will further strengthen RxSight's ability to penetrate and expand the high-growth premium cataract market. In the latter part of the third quarter, we launched our reconfigured light delivery device, or LDD, and ceased sales of our previous LDD version. While offering identical functionality, the new LDD's reduced footprint addresses practice-based constraints, with an updated design that has elicited very favorable feedback, including at its first public exhibit at the RxSight booth during last week's annual meeting of the American Academy of Ophthalmology, or AAO. Even with a modest price increase, the reconfigured LDD's ROI remains highly attractive, generally paying for itself in about six to nine months, assuming approximately nine to 10 light adjustable lens implantations per month. Also at the AAO meeting, there were numerous presentations discussing the LAL, indicating continued growth in awareness and interest. This included real-world clinical data on 738 bilateral LAL subjects from nearly 80 clinical sites that continues to illustrate the clear advantages of postoperative adjustability. Consistent with earlier data readouts, 97% of LAL subjects achieved uncorrected binocular distance vision of 20-25 or better, and 87% achieved 20-20 or better. Ninety-one percent of LAL subjects achieved uncorrected binocular near vision of J-2 or better, which means they could read five-point type without glasses, while 79% could read at J-1 or better, equivalent to four-point type. Just under 80% of subjects decided to optimize vision in one eye for near and intermediate distances. often referred to as blended vision. For most of these subjects, the refractive difference between the eyes was quite small, at 1.25 diopters or less. The results showed that 97% of blended vision LAL patients achieved 20-20 or better uncorrected distance vision, and 95% achieved J2 or better uncorrected near vision. Just under 25% of all LAL subjects in the study were post-refractive patients, However, there were no differences in visual outcomes between eyes that had previous refractive surgeries and those that had not, even though it is generally considered to be more difficult to achieve optimal results in post refractive eyes. Also during the AAO meeting, preliminary phase four clinical study results were reported on a new member of the light adjustable lens family called the LAL+. Approved by the FDA earlier this year, this new lens has a proprietary optical design that further extends the depth of focus before light treatments, but with the same ability to customize and deliver high-quality vision as the LAL. We believe this combination of quality and expanded range will be very attractive to premium eye well surgeons and their patients, particularly to those who favor distance-dominant vision in both eyes and might be considering an alternative such as a multifocal lens that can be associated with reduced quality of vision. We will be expanding our ongoing Phase IV LAL Plus clinical study to generate more real-world data, while continuing a controlled commercial launch for the LAL Plus in the first half of 2024. Surgeons and practices already familiar with the LAL can seamlessly add the LAL Plus to their premium practice, as there are no differences in the surgical procedure or post-op adjustment process. The LAL will continue to offer outstanding visual results for those patients who are likely to utilize more blended vision or who have other ocular conditions such as previous corneal refractive surgery. We believe that with both the LAL and LAL+, doctors can provide nearly any patient with precise high-quality vision across a full range of distances while avoiding increased rates of glare, halos, or loss of contrast sensitivity common to multifocal IOLs, thereby delivering the highest level of patient satisfaction. The reconfigured LDD and LAL Plus are good examples of our approach to innovation, which focuses on the continuous improvement of our technology to drive progressive adoption by patients and practices. Through such product enhancements, industry-leading clinical results, and individualized high-touch customer service, we remain fully focused on helping doctors deliver the best possible vision to premium cataract patients, thereby also helping their practices to grow and prosper. With that, I'll turn the call over to Shelly for a recap of our quarterly financial performance and guidance outlook for the balance of 2023.
spk00: Thank you, Ron. Good afternoon, everyone. RxSight generated third quarter 2023 revenue of $22.2 million up 76% compared to $12.6 million in the year-ago quarter, and up 7% compared to $20.8 million in the second quarter of 2023. We sold 13,657 LALs in the third quarter of 2023, up 107% and 8% compared to $6,000 595 units and 12,622 units in the same year-ago quarter and second quarter of this year, respectively. Third quarter 2023 LAL unit sales generated revenue of $13.5 million, up 107%, and 9% compared to $6.5 million and $12.4 million in the third quarter of 2022, and second quarter of 2023, respectively. This sequential performance is consistent with the typical seasonality patterns for cataract surgery volumes, which tend to be softer in the third quarter due primarily to summer vacation schedules. LAL revenue as a percentage of total revenue was 61%, up from 52% and 60% in the third quarter of 2022, and second quarter of 2023 respectively. We sold 66 LDDs in the third quarter of 2023, up 35% compared to 49 units in the year-ago period, and relatively even with 67 units in the prior quarter. Third quarter 2023 LDD sales generated revenue of $7.9 million, up 39% and 3% versus the third quarter of 2022 and second quarter of 23, respectively. As of September 30th, 2023, our LED installed base increased to 589 units of 72% and 13% versus the third quarter of 2022 and the second quarter of 2023, respectively. As Ron indicated earlier, we launched the reconfigured LDD during the third quarter and phased out sales of the prior version. These reconfigured units, which are more cost-effective to manufacture, represented roughly one-third of our unit sales during the period. A price increase implemented at launch lifted our total LDD ASP as compared to Q2 2023 by about $5,000, to just over $120,000 in the third quarter. We expect the higher ASP for the reconfigured LDD to be maintained as we close out 2023 and enter 2024. Release of the reconfigured LDD with a higher average selling price and lower cost to manufacturer along with the continued shift in revenue mix drove an increase in the gross margin in the third quarter to approximately 62% compared to 42% in the year-ago quarter and 58% in the second quarter of this year. SG&A expenses in the third quarter of 2023 were $19.1 million, up 28%, versus $14.9 million in the year-ago quarter, reflecting SOX implementation and consulting costs and increased expenses in sales and clinical personnel costs and travel. On a sequential basis, SG&A expenses were up 5% primarily due to SOC's implementation and consulting costs. R&D expenses in the third quarter of 2023 rose 11% to $7.1 million compared to $6.4 million in the same year-ago quarter and $7.4 million in the second quarter of 2023. The change versus the year-ago quarter was primarily due to increased headcount and associated increase in salaries and stock-based compensation. We reported a GAAP net loss in the third quarter of 2023 of $12.4 million, or a loss of 35 cents per basic and diluted share, using weighted average shares outstanding of 35.7 million shares. This compares to a GAAP net loss of $16.8 million or 61 cents per share on a basic and diluted basis using a weighted average shares outstanding of 27.7 million shares in the same year-ago quarter. Non-cash stock-based compensation and loss on extinguishment of debt in the third quarter of 2023 was $4.1 million and $1.4 million respectively resulting in a non-GAAP loss of $6.9 million or a loss of 19 cents 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. As previously reported, we raised $11.7 million net of fees and expenses in July under our at-the-market or ATM program. We used these proceeds in cash reserves to pay off our remaining $20 million debt balance. We ended the third quarter of 2023 with cash, cash equivalents, and short-term investments of $131.9 million compared to $147.1 million at June 30, 2023. The change reflects the net impact of the ATM proceeds, ESPP contributions, and stock option exercises net of the $20 million debt reduction. Excluding the proceeds from financing and capital activities and use of capital for principal debt repayments, cash used in operating activities during the third quarter was $7 million compared to $9.5 million in the second quarter of 2023. The change was due primarily to a lower net loss driven by higher gross profit and a reduction in interest expense. Turning now to guidance. Based on our third quarter 2023 performance, we are increasing our 2023 revenue guidance range to $85 to $87 million up from prior guidance of $81 to $86 million. Our new guidance implies the year-over-year growth rate of 73 to 78%. We are also increasing our 2023 guidance range for gross margin to 61 to 61% versus prior guidance of 58 to 60%. The increase reflects the fourth quarter full benefit of improved gross margin from the reconfigured LDD with a higher ASP and lower cost to manufacture. Our 2023 operating expense guidance range narrows to $106 to $107 million, which includes non-cash stock-based compensation of $15 to $16 million. This annual guidance translates to fourth quarter 2023 revenue guidance of $25 to $27 million, gross margin of 61 to 62%, and operating expense of $31 to $32 million. Since late 2022, we have raised $101.1 million net of fees and expenses through our Confidentially Marketed Public Offering, or CMPO, and ATM program, paid off our $40 million term loan, and cut our annualized interest expense by approximately $5.6 million. As previously indicated, We believe our cash and short-term investment balances, combined with no outstanding debt, will leave us well positioned to achieve profitability from operations with a healthy balance sheet. With that, I'll turn the call back to Ron.
spk07: Thank you, Shelly. To summarize, LAL volumes in the third quarter continued their positive advance. while favorable LDD unit trends provide an encouraging indicator for rising LAL usage in future periods. We are pleased with the early embrace of our newly released LDD and the potential of the LAL Plus to further widen the addressable patient base and stimulate additional procedure growth in 2024 and beyond. Our expanding phase four clinical data paints an increasingly clear and convincing picture of the superior visual results postoperative adjustability can deliver to patients, while creating sustained profitable revenue streams that help practices thrive. With surge in adoption on the rise, we remain very optimistic about the future potential of our unique technology to reshape and expand the premium cataract market. and create long-term value for RxSight patients, doctors, and shareholders. In these challenging times, we greatly appreciate that RxSight is not dependent on government reimbursement decisions and caters to a highly desirable patient demographic with a strong U.S. initial focus and a large global opportunity. In contrast to other clinical areas, we also do not see exposure to GLP-1 or other potential pharma products. And now I'll ask the operator to open the call for questions.
spk01: Thank you. At this time, we will conduct the question and answer 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 a question, please press star 1-1 again. Please stand by while we compile our Q&A roster. First question comes from Craig Bijoux with C of A Securities. Go ahead, your line is open.
spk06: Great, thank you. Good afternoon, and congrats on another strong quarter. So I wanted to start with, appreciate some of your comments on the Q3 seasonality, and obviously the guidance assumes a Q4 step-up. So based on what you're seeing thus far in the quarter, just wanted to see, is Q4 kind of tracking towards normal seasonality that we've that you would have seen in past years? And specifically, how should we think about the seasonality impact on both utilization and LDD placements?
spk00: While we don't comment on intra-quarter results, we will say that we expect Q4 to be seasonally the strongest quarter of our year. It typically is, and you certainly see that in the revenue guidance.
spk06: Got it. Thanks, Shelley. And then maybe for Ron, just on LAL+, you know, I appreciate those comments and maybe just what's different about LAL+, so obviously it sounds like it's going to be improved upon LAL and some better clinical outcomes, but, you know, Is the process, the fitting process, or anything different? Is pricing going to be different? Is the cost for you guys to manufacture different?
spk07: So in terms of the clinical process, it's identical, both from the surgery as well as the LDD treatment. And from a financial aspect, it's also identical from our perspective in terms of pricing. And we really just want the doctor to choose the best LAL for that particular patient. We think that the LAL obviously has served as a great choice, particularly for those patients, as we see in our study, who choose blended vision or who might have other conditions such as being post refractive. And we feel that the LAO Plus is going to be particularly strong for those patients who might be more inclined to choose distance-dominant vision in both eyes and might be considering a multifocal lens but would like to avoid some of the drawbacks of that technology.
spk06: Great. Thanks for taking the question.
spk00: Yes, that's exactly the same as the LAL.
spk06: Thank you both.
spk04: Stand by for our next question. The next question comes from Robbie Marcus with JP Morgan.
spk01: Go ahead. Your line is open.
spk02: Hi, everyone. This is actually Rohan on for Robbie. Just want to say congrats on another nice quarter here. Just two from me. The first is just how are you thinking about penetration today across your LDD base? And how should we think about the growth in LDDs relative to LALs next year and beyond? Obviously, you've seen a pretty nice sequential step up as a percentage of total sales. So just if you could provide some color on where that should settle out, that would be helpful.
spk00: So let me just clarify. I think you're asking about penetration of LDDs in the U.S. marketplace. Is that what you're asking?
spk02: Yeah, just kind of trying to get at like how much growth is left in LDD placements. Obviously, over time, LALs will make up the majority of your revenues. I think that's kind of how people model it out. But just wanted to get a sense for like where that should plateau on the LDD side.
spk00: Yeah, you know, we've always said that there's about 30,000 ophthalmologists in the U.S. and about 10,000 of those perform cataract surgery. We've recently gotten updated data that about 4,000 perform about 70 or 80% of the premium procedures. So that's getting a bit more distributed than the 3,000 that we have mentioned earlier. But we think that the LDD is an ideal way for every doctor, even those that are not doing premium procedures, to enter the premium market with a low capital cost and great results for their patients. Ron, maybe you want to add something else about that.
spk07: Yeah, I would agree. I think that the, you know, obviously we're focused on doctors who are doing the most premium procedures initially. But as we continue to expand, we want to be able to offer this to other doctors who may not be that, have not been traditionally focused on the premium market, but increasingly see this as their primary way to build the revenue in their practice and to thrive. And really, you know, I don't think we know what the upper limit of LDD placements is going to be over time as practices develop, as they open new offices, et cetera.
spk02: Thanks. That's really helpful. Just one more from me. I guess utilization was also strong again in the quarter. So just wanted to dive into where kind of a lot of this growth is coming from. Is it more from kind of your top users or did you see it as being broad based in the quarter? And then just to follow up, how do you expect utilization to kind of trend in 2024 if you can provide just some preliminary color there?
spk00: So, you know, I think that the utilization and the increase in procedures, you know, comes from two areas like it always does, you know, new surgeons who have gotten installed typically in the previous quarter, in the beginning of this quarter, the third quarter, and that's always a growth driver. But also, we look for increased utilization as well. And while the absolute number of LAL procedures went up 8% in the quarter as compared to the second quarter, typically you do kind of see a little less sequential growth in the third quarter just because of seasonality. And so the utilization, you know, per doctor or per LDD, however you want to look at it, overall was a little bit lower, but that's just a function of seasonality. But we have the benefit of continuing to grow our overall installed base, and that grows the number of procedures, even in a quarter that might be considered a little weaker, but we see growth among all types of our customers.
spk03: Great. Thank you.
spk04: Stand by for our next question, please. Our next question comes from Larry Beigelstein with Wells Fargo.
spk01: Go ahead. Your line is open.
spk09: Hey, guys. Thanks for taking the question. Maybe switching gears to the new LDD, Shelly, a couple of questions on that. How will that play out in terms of the gross margin impact? I think we've assumed that the current LDD has a gross margin of about 25%. How should we think about the gross margin of the new LDD? And you gave some helpful color here on the ASPs. It looks like the new LDD has an ASP of about $130,000. Is that a good number to use going forward? And do you expect the vast majority of new systems to be with the new LDD going forward?
spk00: Yeah, you certainly did the math from my commentary as well. It was about a 10%, maybe a little bit more increase in terms of the ASP compared to our previous product overall. And if you think back to some of the commentary that we made previously, we had said that, you know, our goal for capital equipment is between 20 and 25% gross margin. And we were below that number. And that was really a function of the fact that the material costs had increased so much with CHIP and other component shortages as well. While we don't break out the margin between both products, there are two things that are driving the margin up. One is the ASP, which is really nice, as well as the fact that it's less expensive to manufacture, primarily because the material is less expensive.
spk09: And you expect, going forward, the new LDD to basically replace the old one in terms of system sales?
spk00: Yeah, we have already made that transition from the pre-LDD to the reconfigured LDD, and that will represent our full Q4 revenue from the LDD.
spk09: Got it. Just curious on international, anything noteworthy in the third quarter for international sales, and how are you thinking about new international markets in 2024? Thanks for taking the questions, guys.
spk07: Maybe I'll comment first. You know, we had previously mentioned that we had begun commercialization in Canada. That continues to go well. We're very excited about our new customers in Canada. Had an opportunity to have a technology meeting last week. And then, you know, we're also excited about the global opportunity for this product. We haven't provided a specific timeline for that, but, you know, we believe that the LAL is going to be attractive to doctors, you know, across the world, you know, Europe, Asia, et cetera.
spk09: So no timeline, Ron?
spk03: Not at this time. All right. Thanks.
spk04: One moment for our next question.
spk01: Next question comes from David Jackson with Needham & Co. Go ahead. Your line is open.
spk10: Hi, everyone. This is Joseph on for David. Maybe just staying with geography. Are there, I guess, any areas in the U.S. that you still need to get into? Or I guess is your guys feeling that you're well represented in all those major areas in the U.S.? ?
spk07: I would say that we're equally represented geographically. We have a good footprint across all the major regions, but there's still room for growth in all of them, and so we have efforts across the country.
spk10: Okay, great. I guess expectations for fourth quarter and, you know, moving into 2024, I guess around hiring any color there would be great. You know, do you need to, you know, expand hiring just given the new LDD and the new LAL, you know, on the way? Yeah, just any color around there would be great.
spk00: Okay, you know, I'm going to actually let Ron comment first because the new LDD is very easy to install. And in fact, it's a little easier than our other one, which was just a four-hour installation. And the new LDD can also be moved around within a clinic, providing just a little bit more flexibility where they want to do the light treatments. The LAL, and I think, Ron, the process is exactly the same. So it doesn't require additional training for a doctor who already is doing LAL treatments as well as implementing the LAL.
spk07: Yeah, so I think the impact on our field force is just going to be the continued growth of the installed base and utilization as we train more doctors and continue to do installations. That does, you know, as the installed base and the number of implanting surgeons goes up, we do increase our clinical training and account management core a little bit to account for that.
spk10: Okay. That's perfect. Thanks very much. If I could just squeeze one quick one in there. Appreciate the info on the balance sheet. that you guys gave, but do you think you could give any specific timing around operating breakeven?
spk00: No, we haven't done that yet. You know, we're balancing, of course, top line growth along with leverage.
spk10: Okay, great. Well, congrats on the terrific quarter.
spk01: Thank you.
spk10: Thank you.
spk04: One moment for our next question. The next question comes from Steven Lichten with Oppenheimer and Co.
spk01: Go ahead. Your line is open.
spk08: Thank you. Good evening and congratulations. Ron and Shelley, you know, with the growing installed base, to what extent do you think we're at a point where surgeons not offering LAL might be losing out prospective patients to other offices in their area? And that might be another incremental driver of demand here. And if you're not hearing that yet, anecdotally, do you see that as a potential based on what you're seeing from current customers in terms of marketing programs, et cetera?
spk07: Well, we hope that's the case. But I would say that I think the bigger factor is that doctors want to be able to offer this technology to their patients. They're trying to give their patients the best visual acuity, the best clinical results that they can. As they become more aware of the LAL and its performance, either through people in their area or through their attendance at meetings like the AAO, they're looking for ways to drive their own businesses. And focusing on premium IOLs is the best way to do that. It's the, you know, the one area of their business that they can control. And it's a win-win for the practice and their patients.
spk08: Got it. Okay, great. And then, secondly, R&D is still at a healthy percent of sales even on the higher base. You know, we saw the LAL Plus, of course, How should we think about how you're looking at sort of the investment years? Should we look for continued incremental advancements? Are you focusing more on clinical data? Can you talk a little bit about where your R&D focus is overall?
spk07: Well, I would look back to what, you know, we've done over the past several years where we've continued to drive innovation of the technology. You know, we've mentioned before that we've had over 30 PMA supplements approved by the FDA since our initial FDA approval, and those have driven, you know, They can be considered incremental advances, but cumulatively they have a significant impact on both outcomes as well as the usability of the technology. And so this is the way that we penetrate the market, both on the practice side as well as on the patient side. continuing to raise the bar of our technology, and we'll continue to do that for many years to come.
spk08: Great. Thanks, Ron.
spk07: Thank you.
spk01: I'm showing no further questions at this time, so I would now like to turn it back to Ron for closing remarks.
spk07: Well, thank you all for your time and attention today. As always, we appreciate your interest in ArcSight, and we look forward to updating you on our progress in future quarters. Goodbye.
spk01: This does conclude the program. You may now disconnect.
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