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Operator
Good day and thank you for standing by. Welcome to the Site Sciences first quarter 2023 earnings results call. At 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 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 speaker today, Philip Taylor, Investor Relations. Please go ahead.
Philip Taylor
Thank you for participating in today's call. Presenting today are SiteScience's co-founder and Chief Executive Officer, Paul Badawi, Chief Financial Officer, Ali Bauerlin, and Head of Corporate Strategy, Tom Wong. Earlier today, Site Sciences released financial results for the three months ended March 31, 2023. A copy of the press release is available on the company's website at investors.sitesciences.com. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements within the meaning of the federal securities laws. Those include statements related to Site Sciences' anticipated financial performance and operating results. market opportunity, business strategy, and plans for developing and marketing new products. Forward-looking statements are based on estimates and assumptions as of today, are neither promises nor guarantees and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements. A description of some of the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements on this call can be found in the risk factors section of the annual report on Form 10-K filed with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. I will now turn the call over to Paul.
Paul Badawi
Thanks, Tripp. In the first quarter of 2023, we continue to penetrate and expand the glaucoma and dry eye markets. We generated total revenue of $18.8 million, growing 26% compared to the first quarter of 2022 and in line with our expectations. Our strong performance out of the gate and progress advancing underlying business drivers, including surgeons trained on Omni, positions us well to meet our financial and operating objectives for the year. We are reiterating our expectation for 2023 revenue to range between $89 million and $94 million. First quarter surgical glaucoma revenue was $17.3 million, up 25% compared to the same period in the prior year, and dry eye revenue was $1.5 million, representing growth of 47%. We also came in below our $30.5 million average adjusted operating expense target. Healthy revenue growth, strong gross margins, and disciplined spending drove strong operating leverage improvements. demonstrating further progress toward achieving cash flow breakeven in 2025 with a substantial cash cushion. As I'll discuss in more detail later, our ambitious clinical program continues to chart new territory in glaucoma and dry eye. We expect to have near-term readouts for two landmark studies this year where we seek to demonstrate the clinical superiority of both omni and tear care versus the existing therapeutic standards of care in glaucoma and dry eye, Two of the most prevalent diseases in eye care, which taken together represent total addressable market opportunities of over $16 billion. Demonstrating clinical superiority with both Omni and TierCare is an ambitious clinical goal and represent our original mission and purpose, to elevate patient care with transformative innovations that will create sustainable long-term value. Turning to our business units. In surgical glaucoma, our main objective is to provide surgeons with the best microinvasive solutions for their patients, regardless of disease state or cataract status. Our surgical glaucoma growth strategy focuses on three objectives. The first priority involves training more surgeons on our Omni technology. Surgeons continue to show strong interest in Omni. We trained over 150 US surgeons in the first quarter, but have reached less than half of the estimated 5,700 makes trained surgeons in the U.S., leaving plenty of runway for us to continue to train more surgeons over the coming years. When we train new surgeons, we further penetrate the legacy combination cataract make segments, and surgeons often select POAG patients with concomitant cataracts who are already on their operating room schedule for their first OMNI cases. Our second objective, increasing the utilization of OMNI among our trained surgeon base, is a natural extension of our exceptional training program. Omni's safety, efficacy, intuitive use, and broad FDA-cleared label provide us with a uniquely clear path to increase utilization by expanding use of our Omni technology across the entire population of POAG patients, including the $5 billion standalone opportunity. Once adept at using Omni, surgeons gain the necessary confidence to expand their usage to standalone cases, as well as more severe combination cataract cases. Now that we have achieved broad customer adoption, increasing utilization among our existing surgeon base is a powerful growth lever. The math is simple. If each of our first quarter active accounts performs just one additional OMNI procedure per month, annual revenue increases by $13 million, which represents just 0.2% of the overall MIGS opportunity. Our third objective is to drive adoption and utilization of Scion among specific subsets of surgeons who opt for a more basic goniotomy procedure. Scion provides surgeons with a complementary technology to Omni and has gained rapid adoption. Our focus on constantly improving functionality and usability produced our next generation Omni technology, the recently launched Ergo series. We successfully executed a smooth introduction, and Ergo has gained wide and enthusiastic adoption. Omni has established a new standard in glaucoma surgery. Based on leading efficacy and usability, our Omni technology can greatly expand the use of MIGs. Omni's growth continues to outpace total MIGs market growth as a result of both share-taking within the legacy combo cataract segment and market expansion into the standalone segment. As surgeons get more comfortable using OMNI, they naturally increase usage. Our analysis of nationwide third-party claims data indicates strong growth in the standalone MIGS segment. In 2022, an index we created to track relevant standalone activity grew 26%, well ahead of the high single-digit growth in overall MIGS. To accelerate development of the standalone MIGS segment, we continue to execute our comprehensive market development program, leveraging targeted field resources, comprehensive patient and physician education, clinical evidence, and marketing initiatives. Our multicenter trace study illustrated the safety and efficacy of Omni in patients with uncontrolled IOP despite a history of trabecular bypass dent implantation at the time of cataract surgery. We are seeing more surgeons surgically intervening with Omni in these stented pseudophagic patients whose IOP has become uncontrolled. We are pleased to see that our Omni technology can be used to help improve the lives of the 1 million plus patients who have undergone combination cataract stent implantations and whose pressure may one day become uncontrolled. Last month, clinical ophthalmology published an extended follow-up from our ROMEO study involving seven centers and 72 mild to moderate glaucoma patients that demonstrated continued safety and effectiveness of our Omni technology in both standalone and combination cataract settings out to two years. As a reminder, the FDA reviewed the 12-month results from the original ROMEO study when clearing Omni's expanded label in 2021. So it is very gratifying to see that there is growing evidence of Omni's highly compelling one-year safety and efficacy results maintained through two years and beyond. Another important clinical program involves our study of the American Academy of Ophthalmology's IRIS registry, which includes 9,000 MIGS cases. The study analyzes post-surgical outcomes for the leading MIGS technologies in the U.S., including Omni, iStent, and Hydrus. We believe this data further supports our belief in the clinical superiority of Omni. We plan to present and publish these groundbreaking results, including comparative IOP and medication reduction outcomes at the one and two year marks at multiple medical meetings and in peer reviewed literature throughout 2023, including at the ASCRS meeting this weekend. We believe the combination of increasing evidence of sustained clinical benefits from use of the Omni surgical system at two years coupled with a non-implantable approach that does away with the lifelong concern of indwelling metallic implants sets a new standard in glaucoma surgery for the future. In striving to provide the best solutions for our customers, we developed the first bladeless goniotomy technology, Scion, the second product in our surgical glaucoma portfolio. We launched Scion last August. The usability, procedural predictability, Elegance of the technique and its general interaction with the anatomy are the main factors cited by surgeons who now use Scion as their goniotomy technology of choice. As we expected, many of our Scion users prioritize a simpler MIGS procedure and were not prior Omni customers, demonstrating that our portfolio approach has attracted new customers. We have observed a significant positive impact from Scion in Omni accounts with existing goniotomy practices, in terms of both overall revenue growth and increased Omni usage. Among accounts that ordered Omni in the first quarter of 2022, and both Omni and Scion in the first quarter of 2023, revenue grew 39%. These customers also increased their utilization of Omni by 16% on average. As intended, Scion has proven to be a complementary technology to Omni and has enhanced our sales growth and commercial strength. On the international front, our launch of direct operations in Germany, our second direct OUS market, has gone very well. Germany and the UK, our other direct OUS market, are two of the largest international MIGS markets. We will continue to prioritize expansion in our existing international markets while also considering launches in other countries with attractive market access, regulatory, and commercial environments. Before turning our attention to dry eye, I want to take a moment to highlight the activities we have scheduled for ASCRS this weekend in San Diego. Tomorrow, we're hosting a surgical glaucoma investor symposium that will feature presentations from leading Omni and Scion surgeons. We have several other presentations featuring our technologies throughout the weekend. You can find more information in our recent press releases. Now, turning to our dry eye business. There are 14 million diagnosed evaporative dry eye sufferers in the U.S. Our dry eye business has experienced rapid adoption despite lack of coverage by health insurance providers. The cash pay environment has not deterred our over 1,100 customers or the tens of thousands of patients who have sought treatment for meibomian gland disease with our tear care technology. We have placed ourselves at the vanguard of a transformational shift in dry eye treatment away from eye drops toward interventional procedures. We designed our controlled launch of TierCare to help us optimize the development of this large and underserved market. We've accumulated numerous important findings that we will leverage to serve pent-up demand, especially if we can achieve our market access goals. I'd like to take a moment to recap the dry eye market and our transformative mission with TierCare as we approach the readout this summer of our pivotal Sahara RCT. Daily artificial tears and daily prescription eye drops are the gold standard treatment in dry eye today and collectively represent many billions of dollars of annual revenue for their manufacturers. Restasis, our comparator in Sahara, is the top-selling dry eye therapeutic. Despite the significant commercial success of prescription eye drop therapeutics, they don't address disease meibomian glands, the primary root underlying cause of dry eye for most patients, estimated at 86%. of all dry eye cases. We designed TierCare to set a new standard in dry eye treatment. Correspondingly, we designed our Sahara RCT to prove TierCare superiority over the prescription gold standard with input from eight payer medical directors. If successful, the comparative clinical benefits and health economic value of TierCare will serve as the foundation of our market access strategy. As a reminder, in the third quarter of 2022, we completed enrollment of Sahara, a 345 patient randomized, masked, multicenter superiority study comparing interventional procedural treatment with tear care to twice daily prescription eye drop treatment with Restasis. Insurers have paid billions of dollars for Restasis and other dry eye medications. Sahara has the potential to prove that our tear care technology can improve clinical outcomes for patients and bottom lines for payers. We are pleased to report that we completed our last six-month patient follow-up in April. As a reminder, it can take several months to complete the data analysis. We plan to release top-line results this summer and present full results at a major medical meeting and publish these results in a leading medical journal later this year. To summarize, we continue to execute across our business generating strong growth in both surgical glaucoma and dry eye, and advancing the underlying commercial, clinical, and market access drivers that will bolster further growth. We have built a solid foundation to continue training new customers and expand utilization. Our plan for robust ongoing growth, coupled with our top-tier gross margins and disciplined operating expense spend, are positioning us to improve operating leverage, and keep us on a path to achieve positive cash flow in 2025. I now have the pleasure of formally introducing Ali Bauerlein as our new Chief Financial Officer. I am thrilled to have Ali on board. A proven entrepreneur and exceptionally talented executive, Ali brings public company CFO experience and a track record of co-founding and leading a rapidly growing med tech business through multiple phases of growth culminating in over $350 million of annual revenue. Ally is already making a positive impact at site in so many ways and is a perfect fit with our team. We're delighted to have Ally help us continue to scale the business the right way and drive towards profitable growth. Over to you, Ally.
Ali Bauerlein
Thanks for that kind introduction, Paul. And hello, everyone. Thanks for joining us today. I'm excited and proud to join the team, and I look forward to meeting new faces and reconnecting with friends across the investment community in my new role. Now let's get into the numbers. Total revenue for the first quarter was 18.8 million, representing 26% growth compared to the first quarter of 2022. As a reminder, the first quarter is typically the slowest of the year for us. Surgical glaucoma revenues for the first quarter were 17.3 million, up 25% versus the comparable period. We continue to show strong underlying growth fundamentals in customer retention and ordering facility. Additionally, we saw strong new account additions and surgeon training activity. Over 1,000 customers ordered surgical glaucoma products in the first quarter, up 26% compared to the prior year period. Our commercial team did a tremendous job introducing our technologies to customers in the first quarter. Our customer acquisition funnel remained strong, creating great momentum for 2023. We trained over 150 US surgeons on Omni and over 130 on Scion during the first quarter. Our dry eye revenues for the first quarter were 1.5 million, up 47% compared to Q1 2022. We grew our installed tier care base to 1,184 facilities as of March 31st, 2023 versus 632 as of March 31st, 2022. Gross margin for the first quarter was 84% compared to 80% in the prior year comparable period. The increase was primarily due to the margin impact from our voluntary replacement of tier care hubs in the first quarter of 2022. Our operations team continues to perform well, driving manufacturing efficiencies and top-tier margin. R&D expenses were $4.7 million compared to $5.6 million in the first quarter of 2022, and SG&A expenses were $28.7 million compared to $28.4 million in the prior year period. Total operating expenses for the first quarter were $33.3 million, a decrease of 2% compared to $34 million in the first quarter of 2022 and in line with our expectations. We continue to drive focused spending. Adjusted operating expense for the quarter was $29.7 million versus our stated 2023 quarterly average target of $30.5 million. Our loss from operations for the first quarter was $17.6 million compared to a loss of $22.2 million in the first quarter of 2022. We had a net loss of $17.1 million, or $0.35 per share, in the quarter, compared to a net loss of $23.3 million, or $0.49 per share, for the first quarter of 2022. We ended the quarter with $167.3 million of cash and cash equivalent and $35 million of long-term debt before debt discounts. we reduced cash usage by 20% compared to the first quarter of 2022. As a reminder, the first quarter includes our annual employee bonus payments. We expect cash usage to decrease in the second quarter due to higher revenue and the absence of bonus payments, partially offset by higher adjusted operating expenses. Overall, we expect operating loss and cash usage will continue to decrease over time as our business model begins to flex the considerable operating leverage driven by our high gross margins and targeted operating spend. Based on our solid start to the year and favorable trends, we are reaffirming our annual revenue guidance of 89 to 94 million. We expect first half of 2023 revenue distribution will be similar to what we experienced in 2022. We expect that average quarterly adjusted operating expense of approximately 30.5 million will allow us to achieve our plans for the year, but we expect second quarter adjusted operating expenses to be higher than the annual average given the timing of certain expenditures. We continue to proactively manage our liquidity and operating expenses to maintain our strong cash position. We recently filed a universal shelf S3 registration statement for good corporate housekeeping. We do not intend to raise capital at this time. We are confident that our robust growth trends, market-leading positions in MIGS and MGD, strong balance sheet, leading gross margins, and disciplined spend will enable us to achieve our 30% medium-term revenue growth target and positive free cash flow by year-end 2025, while maintaining a substantial cash cushion. With that, operator, you may open the line for questions. Tom Huang, our head of corporate strategy, will also join us for Q&A.
Operator
As a reminder, to ask a question, please press TAR11 on your telephone and wait for your name to be announced. To withdraw your question, please press TAR11 again. Please limit your questions to one question and one follow-up only. Thank you. Please stand by while we compile Q&A roster. Our first question comes from the line of Matthew with Brian with PSE. Your line is now open.
Matthew
Hey, this is Phil on for Matt. Thanks for taking our questions. And just for starters, I want to talk about the touch on the reimbursement changes this year. What have you seen on that front specifically as it relates to canaloplasty, of course, this year and perhaps the potential for goniotomy down the road? And what are you seeing on the developed customer relation to retention rate for Omni?
Paul Badawi
Yeah. Hi. So on the first question regarding canaloplasty reimbursement, the change we've discussed in the past, there was a review of the CAT1 codes, the most commonly used CAT1 codes in MIGS a couple of years ago. Canaloplasty 66174 was one of those codes, and bypass stenting was the other code that was reviewed by The Rock. And following that review and analysis, it was concluded that the pro-fee would be reduced sequentially over two years. So it got reduced from $950 to $750 in the first year and $750 to $600 in the second year. And that's the $600 pro-fee rate is something that's in effect as of January 1st of this year. From a, you know, what does that mean perspective, if you think about it relative to other procedures, either competing mixed procedures and or cataract surgery alone, the pro fee moving to 600, while it's never, you know, something that surgeons, facilities, manufacturers get excited about, the fee hasn't necessarily changed relative to anything else. So it's still North of cataract surgery alone, it still has a premium to stenting, and it was below goniotomy last year, and it remains below goniotomy. So, relatively speaking, it hasn't changed, and we feel fine about overall where the reimbursement is.
Ali Bauerlein
Yeah, and I can take the second part of the question. You had asked about retention rates. We're very pleased with the retention rates that we continue to see in the business. We're still continue to see in the high 90 percentile ranges for customer retention, which we really think is optimal and excellent and shows the true benefits of our technologies and how much customers do like to use the products. So I do want to reiterate that that continues to be a very strong metric for the company.
Matthew
Oh, great. Glad to hear that. For my follow-up, can you just expand a bit on the DTC pilot? How is that progressing, and what are your thoughts for that Q2 execution phase? I believe it was.
Ali Bauerlein
Yeah, sure. I can take that question. You know, we're still in the early stages of that. We are on track, though. As we said on the last call, Q1 was really for us to design that program, and Q2 was for us to do the trial of the direct consumer initiative. And we're in the midst of that. It's too early for us to give a specific readout of results. But, you know, we really did this study and are doing this study because we believe there is strong consumer interest in better treatments, both for glaucoma and dry eyes. So we're hoping to prove out that thesis. And as we have more information to report, we will let you guys know.
Matthew
Great. Thanks so much.
Tom
one moment for your next question and your next question comes from the line of tom stefan with diesel your line is now open great hi everyone thanks for taking the questions um i'll start with the near term one just on uh trends in market share uh paul maybe if you can talk about what surgical glaucoma trends in the quarter looked like for you and maybe what that has looked like entering 2Q, anything you saw in the competitive environment broadly, maybe any shifts you would call out or that developed. And then just back onto that, I want to ask about market share. A key competitor last night, I think, reported flat quarter-over-quarter U.S. results, but surgical glaucoma for you was down, I think, maybe in the high single-digit range. Just your thoughts there, and You know, how investors should be viewing that comparison, maybe just based on what you are seeing play out year to date? And then I have a follow up.
Paul Badawi
Yeah. Hi, Tom. I'll take the first question in terms of trends, what we're seeing. I think we're seeing a good operating environment. You know, it's last year. There were a number of new products that were introduced early in the year that kind of stabilized by the end of the year. And I think we headed into first quarter of this year in a far more stable environment. And I think our business performance is a reflection of it. That's both in combo cataract as well as standalone. I think both business lines, Omni's use in mild to moderate combo cataract is growing nicely. And we continue to take share there as we have been for several years. Our standalone business, Omni's use in moderate standalone and also in an advanced standalone prior to more invasive surgeries, that's picking up as well. And again, as I had mentioned in the prepared remarks, some of the data that we look at in the claims analysis, it does show that the standalone market is indeed growing and we believe that we're a key driver behind that growth. We feel great about the operating environment we're in. We feel great about the predictability, and we feel great about the growth rates in both combo cataract as well as standalone.
Tom
Okay, got it.
Tom
And then just a longer-term question to pivot. I just want to ask about standalone glaucoma. I think I asked something similar last call, but obviously there's some new devices coming in. maybe over the next 12 months, a standalone stent, which currently is rolling out, and then a drug delivery device. And they're notably trying to expand into the standalone MIGS market. So, you know, how should we be thinking about the impact that could have on MIGS more broadly? Is it fair to think about, and I want to put words into your mouth, is it fair to think about these products and other companies' efforts toward expanding the interventional mindset, call it, maybe as a net positive more broadly for the MIG space? Thanks.
Paul Badawi
Yeah, great question, Tom. First of all, I do think that the standalone market estimated at $5 billion in its infancy today. I do believe that more companies, more resources devoted to the significant education of the market to drive market development is a positive driver for everybody. I do believe in that. As it relates to our competitive positioning, we're obviously very passionate about Omni and what it can do for standalone patients. The clinical data speaks for itself. We have a growing body of clinical evidence in standalone, mild, moderate, and severe. That's very compelling and it all goes back to our reason for being. And I think that that's on display very clearly in standalone cases. And that's to offer surgeons something that in as minimally invasive a manner as possible can address as much of the underlying disease as possible. And when we can offer surgeons that kind of technology that can comprehensively restore disease anatomy and restore outflow, and do so more than any other technologies, we believe that we create a very competitive safety and efficacy proposition. So I'll just ask, you know, everybody to imagine this. You're sitting in the angle. You've advanced your solution across the anterior chamber, and you're now sitting in the iridocorneal angle, and you have options. What should you do at that point for this standalone patient? We believe strongly that at that moment, you're already in the eye. that you should comprehensively address as much of the disease underlying anatomy as possible. And when you do that, you can hopefully mitigate the need or do away with the need altogether for meds. So that's our goal with Omni. We continue to iterate on the product and technology so that we can make it more and more usable, user-friendly, and more effective. And ideally, we can help surgeons get their patients off of meds. We have a strong bias that, you know, if you're going to go into the eye and do angle surgery on a standalone basis, make it as comprehensive as humanly possible. And we do that with Omni.
Tom
And hey, Tom, this is Tom. I just wanted to, you know, answer your question on market share as well. In terms of, you know, our growth this quarter year over year at 25%, You know, that was about, you know, seven times higher than, you know, the other company you referenced in terms of quarter over quarter, or sorry, year over year growth. So, I think we still can, we're still continuing to take a lot of share in MIGS overall and continue to develop the standalone SMEC segment.
Tom
Really appreciate all the comments. Thanks, guys.
Mike Ahrens
Thank you.
Operator
Your next question comes from the line of Mike Ahrens with William Blair. Your line is now open.
Mike Ahrens
Great. Hey, everyone. Thanks for taking the questions. So maybe just to start here with one on the ergo series. Have the usability improvements helped you reach a new segment of surgeons at all since it was launched? You know, maybe those that are more focused on procedure efficiency than previous Omni users, such as maybe a higher volume cataract surgeons, for example?
Paul Badawi
Yes. Great question. And yes, it's helped in multiple ways. It's helped with our existing customer base, optimize the surgical experience, the handle, the usability is better. The tip of the device in the angle is better. The catheter entry into the canal is better. And so just having designed the system to help make the procedure more reproducible helps surgeons become even more confident in the restored outflow procedures that our Omni technology facilitates. So I'd say it made our current customer base happier. I think it does help surgeons who maybe had tried Omni or maybe residents or fellows and thought it a little challenging. It can help them become more confident in it. And lastly, importantly, anytime you've got a new product and something exciting and new to talk about, we have a very significant commercial infrastructure, very effective commercial sales force. It allows them to go in with something new to those surgeons who might not have tried Omni yet, but we're considering it. And so I think that's been a nice advantage also.
Mike Ahrens
Got it. That makes sense. And then maybe just one on a tier care. If you guys were to see positive results from the six month readout, you know, of course there's the longer term data still, but what would be the next steps, if any, you guys would expect to take maybe in the remainder of the year and next year from, you know, a regulatory or commercial standpoint?
Paul Badawi
Yeah. So from a regulatory perspective, You know, we currently have a very nice label. We've already expanded the label of TierCare. Could we use the results of Sahara, if successful, to expand the label further? Potentially, you know, like a signs and symptoms indication, potentially. But that's not the primary objective of the study. The study is oriented around supporting payer decision making. So in terms of timing, expect this summer for us to announce a top-line readout. We're aiming to then submit for publication in a top-tier journal. Again, this all assumes success, but we would aim to submit in a top-tier journal in the, you know, late summer or early Q3 timeframe, hopefully have a publication on the six-month clinical outcomes in a top journal by end of year. And then with that data, we would be very excited to go and have very compelling discussions with the clinical data, as well as in parallel, a health economic analysis in terms of how TierCare not only can hopefully offer superior dry eye treatments for patients, but also help payers and their bottom line. So we'll be running that analysis in parallel this year. And so by the end of the year, we'll be ready to go to payers with this complete reimbursement package. And early 2024, we'd be making the rounds with payers. And that would obviously be a very exciting exercise. And we would be quite aggressive in the execution of that exercise.
Mike Ahrens
Got it. That's very helpful.
Tom
Thanks, guys. Thanks. And I see no further questions at this time.
Operator
I will now turn the call back over to Paul Vitale, CEO.
Paul Badawi
Thank you all for your interest in site sciences. We appreciate it and have a great rest of your day.
Operator
This concludes today's conference call. Thank you for your participation. You may now disconnect. Have a good day.
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