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spk12: Ladies and gentlemen, thank you for standing by. Welcome to the Psych Sciences fourth quarter 2023 earnings results. At this time, all participants are in a listen-only mode. After the presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. And please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Chip Taylor with Investor Relations.
spk16: Thank you for participating in today's call. Presenting today are SightScience's co-founder and chief executive officer, Paul Badawi, chief financial officer, Allie Bauerlein, and chief commercial officer, Matt Link. Earlier today, Site Sciences released financial results for the three months and full year ended December 31st, 2023, and initiated guidance for full year 2024. 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. These forward-looking statements include statements related to the company's anticipated financial performance, operating results and liquidity position, current and long-term strategic objectives, market opportunity, business and commercial strategy, product reimbursement strategy, clinical trial results, and costs associated with pending litigation. 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 its public filings with the Securities and Exchange Commission, including in the risk factors section of the company's annual report on Form 10-K and quarterly reports on Form 10-Q. The company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. On the call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including adjusted operating expenses. The company believes these non-GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. See the company's earnings release for reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as additional information about the company's reliance on non-GAAP financial measures. I will now turn the call over to Paul.
spk15: Thanks, Tripp.
spk06: I'm extremely proud of the progress we made in both the fourth quarter and full year 2023. This year has reinforced the importance of our mission to develop transformative, interventional technologies that allow eye care providers to procedurally elevate the standards of care, empowering people to keep seeing. 2023 was a pivotal year for us as we executed on key strategic initiatives. We are very pleased to have accomplished several milestones throughout the year, including enhancing our executive team with proven high-growth MedTech leadership experience, with the additions of Ali Bauerlein, our Chief Financial Officer, and Matt Link, our Chief Commercial Officer. Both Ali and Matt have integrated seamlessly into their roles and have been vital to our many organizational enhancements. Following their hires, we realigned our structure to be more effective and laid the foundation for the next level of scale over the coming years. We also expanded the body of long-term clinical evidence supporting our technologies. Importantly, we announced the publication of long-term clinical data in a leading peer-reviewed journal including two-year follow-up data from the ROMEO study, three-year follow-up data from the Gemini 2 study, and six-month data from the Sahara RCT. We believe differentiated, long-term clinical data will help us drive coverage, equitable reimbursement, and commercialization success over time. In 2023, we generated revenue growth in the mid-teens. Our gross margins improved to all-time highs. and we significantly reduced our operating expenses and cash usage in the face of reimbursement uncertainty, while maintaining focused spend on critical areas. In a major development late in December, we were pleased with the withdrawal of the finalized LCDs from five Medicare administrative contractors, or MACs, that were scheduled to go effective in late January 2024. These MACs had previously identified certain MIGS procedures as investigational for glaucoma management, in patients over the age of 18, including canaloplasty in combination with trabeculotomy ab interno, which is a procedural description associated with our Omni surgical system. Throughout the process, we work closely with all key stakeholders, including national and state societies, congressional offices, medical device associations, and hundreds of MIG surgeons to help educate the MACs and CMS about the importance of MIG procedures involving our Omni system, and the long-term clinical evidence available. We executed this multi-pronged approach to challenge the LCDs while navigating new and complex dynamics with our surging customers resulting from the potential implications of these LCDs and our customers' preparations to adhere to potential coverage restrictions. Even with the reimbursement uncertainty, sales of our surgical glaucoma products proved very resilient. We believe this is a testament to the clinical efficacy of the comprehensive OMNI procedure as surgeons rely on its IOP and medication reduction capabilities to treat their patients. Again, we are thankful that our team and other industry stakeholders are steadfast in their alignment on the important role OMNI plays in treating their glaucoma patients. We will continue to advocate to ensure that there is equitable patient access to this critical technology. Coverage decisions are heavily governed by compelling long-term clinical data. We provided the match with a significant body of peer-reviewed long-term clinical evidence throughout the process, which was further strengthened by the publication of our Gemini 2 study in December. Favorable results from this prospective multicenter study demonstrated sustained and clinically significant IOP reduction of 29% from baseline at 36 months, and clinically significant IOP lowering medication reduction with 74% of the study patients medication-free at 36 months. The prospective three-year clinical outcomes in the GEMINI 2 trial confirm and extend the previously published 12-month data from the original GEMINI trial. GEMINI 2 included 66 patients across 11 participating sites, and any patients who were not already medication-free from the OMNI procedure underwent medication washout at the two-year and three-year endpoints so that the IOP-lowering effect of the OMNI procedure could be isolated and assessed. There is demonstrated consistency with clinical outcomes across all published OMNI studies, and this longer-term prospective multicenter trial data further supports the need for continued access to OMNI technology. We believe that new MIGS LCDs may be proposed in the future. While we are uncertain as to the timing and process that would be followed, if new LCDs are finalized, we are confident Our body of published, high-quality, long-term data, including the Gemini 2 study, supports continued coverage of procedures enabled by Omni for the appropriate patient population. We also plan to publish additional clinical data throughout 2024 that will further strengthen the body of evidence illustrating Omni's clinical efficacy, and we believe will support favorable coverage determinations. We look forward to continued engagement with the MACs CMS, and other stakeholders to ensure glaucoma patients and their physicians maintain appropriate and equitable access to medically reasonable and necessary mixed procedures and technologies. Looking ahead, we are working to reengage those accounts impacted by the LCDs, drive increased utilization, and train new surgeons. Despite the uncertainty associated with the LCDs, we had minimal employee attrition in the fourth quarter, and we are now backfilling those roles in the first quarter. As expected, given the fourth quarter LCD uncertainty, the surgeon training funnel was lighter than our historical average to end the year. We are still in the early stages of regrowing the funnel, as surgeons now have visibility on coverage. We are confident in our ability to recapture accounts lost, add new accounts and surgeons, and improve utilization over time. Our main commercial focus is increasing utilization across our customer base and reengaging with accounts that have not ordered Omni over the past two quarters due to the reimbursement uncertainty. The changes we made to our commercial organization in the fourth quarter are already proving beneficial in this regard. We believe we have a solid foundation in place to efficiently drive strong growth over the long term, including our anticipated return to double-digit revenue growth in the second half of 2024 and into 2025. I want to close our surgical glaucoma discussion by touching on our recent European launch. In February, we initiated the European launch of the ERGO series of the Omni surgical system. Following its US launch in March 2023, the ERGO series has been broadly adopted due to its improved ergonomics and an optimized cannula tip that provides gentle and precise access to Schlem's canal. We believe these design features will be invaluable to our European partners. Turning now to our dry eye business, our tear care technology provides a clinically proven, safe, and effective procedural intervention for patients suffering from evaporative dry eye disease, which is a multi-billion dollar annual US market opportunity with over 11 million patients diagnosed. Interventional dry eye procedures with tear care address the root underlying cause of evaporative dry eye disease, and we believe tear care represents a major advancement, providing patients with a more comprehensive, consistent, fast-acting, and long-term dry eye treatment. As discussed on our last call, we have streamlined our commercial focus and taken measures to reduce the commercial spend within our dry eye business and strategically shift some of that spend towards building out our market access and payer team that is now in place. We are actively working in 2024 to drive equitable market access for dry eye patients who can benefit from an interventional procedure with tear care. Importantly, our market access team has significant experience establishing reimbursement for new and innovative technologies and procedures. In 2024, we are focused on leveraging our foundational work with commercial payers and MACs to advocate for coverage of interventional eyelid procedures enabled by TierCare. The publication of our compelling Sahara six-month RCT data and budget impact model are the focal points of our discussions with payers. These discussions will be ongoing throughout the year and beyond, and coverage decisions will be subject to payer standard policy update timelines. Our goal is to begin receiving coverage decisions from payers starting in 2025 as we pursue this large market opportunity. At that point, we will expand tier care commercialization in geographies where coverage has been established. The publication of successful six-month results of the Sahara RCT comparing tear care to Restasis, the market-leading dry eye therapeutic for the treatment of dry eye disease, was published in Clinical Ophthalmology in December. Data from the RCT shows the tear care technology successfully delivered clinically and statistically significant improvements in every sign and symptom at all measured time points over a six-month period. Tear care was also superior to Restasis in the improvement of tear film breakup time, the study's primary objective endpoint, and a key measure of aqueous retention, tear stability, and the tear film's ability to protect the ocular surface. This trial was designed with feedback from medical directors of insurance companies to demonstrate safety, efficacy, and long-term performance, which are important in their coverage determinations. We believe the data generated by this trial is a critical building block for tear care and offers the most robust validation of tear care's clinical efficacy to date. In closing, we have incredible interventional technologies within both our surgical glaucoma and dry eye businesses that elevate the standard of care and improve treatment paradigms for millions of patients. We value the solid foundation we have built over the past decade and all of the learning and know-how we have acquired along the way. We have many things to be excited about this year in particular, as 2024 is a transformational year for us. In our surgical glaucoma segment, we expect to publish additional long-term, large-scale, real-world data on the differentiated clinical efficacy of Omni, including disease severity outcomes, ethnic minorities outcomes, and standalone outcomes. In addition, we are conducting a meta-analysis based on all Omni clinical studies and are also starting a multinational Omni RCT, further demonstrating our long-standing commitment to generating market-leading clinical evidence. We believe we are well-situated if any LCDs may return, and we remain critically focused and actively engaged with the payers and our many societies on our Omni market access strategy based on our differentiated technology, efficacy, and clinical data. We saw the resiliency of our customer base and sales in the fourth quarter, and we are now seeing increased utilization in the first quarter. This is an encouraging indicator of the return to growth we expect to deliver in the second half of the year. We expect Omni to continue to take share in the combo cataract market and continue to lead the growth of the growing standalone market. In our dry eye segment, we also expect to soon publish our Sahara one-year RCT results, which continue to show the superior benefits of tear care versus restasis in the treatment of dry eye disease. We plan to also publish a compelling budget impact model this year, showing the health economic impact and system savings for tear care versus restasis. This year, we also expect to start seeing claims paid for tear care. a critical step in our journey to ultimately establish broad coverage for tier care and for tier care to become a leading interventional treatment in dry eye. With so many important catalysts on our horizon and a strong, experienced team in place, we are very well positioned to reliably execute our plan and create value. We are particularly excited about the rest of this year as we continue to build and optimize our business, return to high growth, and drive towards profitability. I'll now turn the call over to Ali to discuss our financials.
spk10: Thanks, Paul. Before I dive into the fourth quarter financial results, I want to reiterate that we are extremely proud of both our commercial and operational execution as we navigated significant challenges brought on by the LCD. Our expense management and reduction in cash use reflected our swift execution and the flexibility of our model. We feel these adjustments were essential and have well positioned us to support our future financial goals without limiting our strategic plan. As we announced in January, we closed a senior secured credit facility for up to $65 million with Hercules Capital, including an initially funded $35 million tranche under the facility. The new facility provides us with improved commercial terms and stronger financial flexibility as we execute our strategic goals while maintaining current debt outstanding. Combined with our disciplined expense management, we believe we are well positioned with strong financial footing and plan to achieve cash flow break-even without the need to raise additional equity capital while still investing in R&D and commercial expansion opportunities to support our long-term growth. Lastly, before turning to quarterly results, I want to briefly touch on the ongoing patent infringement case with Alcon. In April 2023, we reported that we had defeated all four patent invalidity challenges filed by Alcon, which are not appealable. The next steps include a trial that is currently scheduled to commence in April 2024. As a result, we expect to incur higher operating expenses in the first quarter of 2024 due to trial preparation work. Moving back to the fourth quarter, total revenue for the fourth quarter was $18.8 million at the top end of the revenue range we announced in January. This reflects a decrease of 9% compared to the fourth quarter of 2022, but stronger than we expected with the LCD uncertainty during this period, which was primarily driven by continued utilization of Omni by our customers. Surgical glaucoma revenues for the fourth quarter were 17.2 million, down 9% versus the comparable period. 1,064 customers ordered surgical glaucoma products in the fourth quarter, down about 4% from the third quarter of 2023, but still up about 5% from the fourth quarter of 2022. Utilization of ordering accounts was down about 5% sequentially and down about 16% from the fourth quarter of 2022. but still stronger than expected given the transient LCD dynamic. We believe this continued utilization shows the importance of Omni to our surgeons and emphasizes the unique benefits this comprehensive procedure provides for their patients. Similar to last quarter, our customer retention was solid, but utilization was down slightly. We believe these dynamics were primarily the result of the uncertainty surrounding the LCDs as we saw higher impact in the areas covered by the five Macs. Since the LCDs were withdrawn, our priority has been to re-engage and expand our customer base and drive increased utilization back to pre-LCD levels and beyond. Our dry eye revenues for the fourth quarter were 1.6 million, down 11% compared to the fourth quarter of 2022. The decline was primarily due to the evolution of our commercial strategy to focus on achieving market access and higher account utilization, which led to fewer new accounts and related smart hub sales, and due to our reduced sales infrastructure after our restructuring in October 2023. For the fourth quarter of 2023, we had 327 active dry eye customers, a 20% increase versus the fourth quarter of 2022. Additionally, we sold over 5,200 dry eye treatment lids in the quarter, a 2% increase versus the comparable period. Gross margin for the fourth quarter was 85% compared to 82% in the same period in the prior year. Our overall gross margin profile remains strong. However, there was a slight impact sequentially compared to the third quarter, driven by lower production volumes and higher overhead per unit. Total operating expenses for the fourth quarter were $27.1 million, a decrease of 20% compared to $33.9 million in the fourth quarter of 2022. Adjusted operating expenses were $22.3 million in the fourth quarter, a decrease of 27% compared to $30.6 million in the same period in the prior year and well below expectations. The decrease in total operating expenses in the comparable period was primarily driven by a $3.8 million reduction in non-personnel-related operating expenses, primarily due to lower sales-related and R&D expenses, and a $2.8 million reduction in personnel-related expenses, including lower incentive-based commission expense of $2 million, mostly due to lower than expected revenue, partially offset by a $1.2 million cash restructuring cost incurred in the fourth quarter of 2023. R&D expenses were $3.4 million in the fourth quarter of 2023 compared to $5.2 million in the fourth quarter of 2022. SG&A expenses were $23.7 million in the fourth quarter of 2023 compared to $28.7 million in the fourth quarter of 2022. We are proud of the cost containment efforts taken in the fourth quarter of 2023 and our ability to be agile without compromising on our commercial and R&D value drivers. Our loss from operations for the fourth quarter was 11.1 million compared to a loss of 17.1 million in the fourth quarter of 2022. Our net loss was 10.7 million or 22 cents per share in the quarter compared to a net loss of 16.9 million or 35 cents per share for the fourth quarter of 2022. We ended the quarter with 138.1 million of cash and cash equivalent and 35 million of debt excluding debt discounts and amortized debt issuance costs. We used just 6.4 million of cash in the quarter, reflecting continued operational discipline and a sequential improvement from 10 million of cash used in the third quarter of 2023 and a decrease versus 14.8 million used in the fourth quarter of 2022. This continues the strong trend of reduced cash usage that was evident throughout 2023. with 46.9 million of cash used in 2023 compared to 75.7 million of cash used in 2022, reflecting a 38% reduction. Moving to our outlook for the full year 2024, we are initiating revenue guidance of 81 to 85 million, representing a range of 0 to 5% growth compared to 2023. We expect the first half of 2024 revenues to be lower than the comparative period in the prior year as we recover and rebuild following the impact of the LCDs in the second half of 2023. We expect this will be followed by double-digit growth in the second half of the year versus the comparative period in the prior year as we regain commercial momentum and expand utilization and our customer base. We expect typical seasonality in 2024 where the second and fourth quarters tend to have stronger utilization than the first and third quarters. We do expect dry eye revenue to decline significantly in full year 2024 compared to full year 2023 due to the evolution of our commercial strategy, restructuring of our dry eye team, and the refocus on market access activities this year. We expect dry eye revenue to have accelerated growth in 2025 with reimbursement coverage and an expanded commercial presence. In terms of gross margin, we continue to expect overall gross margin to be in the mid-80s, but we do anticipate increased overhead costs per unit due to lower production builds planned in 2024 for both segments, the larger impact in the dry eye segment. We expect full year 2024 adjusted operating expenses of $107 to $110 million, representing a range of 0% to 3% decline compared to 2023, with higher first quarter adjusted operating expenses primarily due to higher legal expenses for pending litigation. While our guidance implies lower total revenue growth in 2024 than we saw in 2023, we believe it is prudent to put achievable revenue guidance in place and are focused on the right long-term value drivers in the organization by maintaining and establishing equitable market access for our products, continuing to expand our clinical portfolio showing strong efficacy, and building the right commercial infrastructure to produce consistent and predictable growth. We are proud of the resiliency seen in our customer base and sales, which is a testament to the benefits of our Omni technology. We believe we will return to double-digit revenue growth in the second half of 2024 with execution of these initiatives, as we are still in the early stages of penetration in both our surgical glaucoma and dry eye market opportunities. Operator, please open the line for questions.
spk12: Thank you. And as a reminder, to ask a question, simply press star 11 on your telephone and wait for your name to be announced. To withdraw the question, press star 11 again. Our first question is from Matthew O'Brien with Piper Sandler. Please proceed.
spk02: Matthew O' Oh, afternoon. Thanks so much for taking the questions. You know, good to hear that things are supposed to perk up this year, especially on the surgical clock coma side. But I'm just curious, you know, what you're seeing maybe early days here in Q1. from a clinician, you know, recovery? You know, how many of those stocks that were not using at the end of last year have come back to you? And then what you're seeing from a utilization perspective?
spk14: Hey, Matt, this is Matt here. Appreciate the question. I think as reflected in the comments, both from Paul and Ali, you know, we're seeing a steady state of recovery in all the areas that you've just asked about in terms of individual accounts, ordering the percent of active accounts, ordering in a steady state of re-engagement and utilization from our customers, which is what I think you would expect considering the uncertainty that sort of was created with the LCDs in the second half of last year. And just to reiterate the comments from both Paul and Ali as well, I think that we saw remarkable resiliency from our organization, our sales organization, and also from our customers And ultimately, we believe that's a reflection of the comprehensive nature of Omni and the clinical value it delivers. And so, again, early signs are a consistent state of recovery, consistent with our expectations.
spk02: Okay. Appreciate that, Matt. Good to talk to you again. And then what's implied, and I'm trying to run through the model. I didn't get to it in time here on the call. I guess to get to this double-digit growth in the back half of the year and then into next year, what's implied from a recovery perspective in terms of, you know, the previous clinicians getting new clinicians, training them, utilization, all that fun stuff. And then, Allie, I guess I'm just trying to reconcile the growth outlook with some of the cuts that you've made from a spending perspective, then to, like, you know, getting the free cash flow positive with your existing, you know,
spk10: cash levels just just putting all that together like it's just it's just difficult to reconcile all that together so just maybe help bridge us to that point thanks sure happy happy to take that so we're not going to get into the level of granularity down to the modeling perspective of number of accounts or utilization but we would expect all of those metrics to improve throughout the year and subject to, of course, typical seasonality in the business, where you would typically see Q2 and Q4 utilization higher. But we do expect to increase the cadence of new accounts being added in the period, as well as recovery of the accounts lost, and then also improve our overall utilization, both combo cataract as well as standalone. So all of those are areas that we are expecting to see improvements in 2024. I would say that the toughest comp for us will of course be the second quarter since that was our record sales last year. But outside of that, you know, we expect to be able to, you know, continue to show nice progress in the business. And that's really how you get to that double digit growth in the back half of the year. So before we move to the question on cash, did that answer your question on kind of the puts and takes on the revenue side?
spk02: Yeah, I just I wouldn't mind a little bit more color on just what's implied from a clinician perspective in terms of what you need to do, especially, you know, it's still a pretty competitive market. Generally speaking, there's somebody coming in on a standalone side, you know, in a big way, just what's all implied there to get you to that double-digit number? Because I think it's better than people were expecting for the back half and especially for next year as well. Thanks.
spk10: Yeah, I think the majority of the increase is really utilization-related. So, of course, we do expect to continue to add accounts, but utilization will be a primary driver of those double-digit increases.
spk02: Got it.
spk10: Thanks. So moving to your question on our commentary around Our level of investments, obviously, we expect to continue to show progress this year in terms of our operating expense leverage, solid gross margins in the business, and of course, looking to increase revenue as well as particularly in the second half of 2024. So looking into the future, we expect to continue to be a growing, double-digit growing company into 2025. And so, looking at the investments needed to run our business and the level of spend needed, we expect to get leverage on our operating expense base. So, that is really where when you look at your modeling for cash flows over time with growing revenues and operating expenses growing at a lower rate than revenue, of course, still growing. The small improvements on gross margin, although that's more incremental in nature, the real leverage to get to a cash flow break-even is associated with OPEX spend.
spk02: Okay. Thanks so much.
spk11: Thank you. One moment for our next question, please. And it comes from the line of Tom Stefan with TFL.
spk12: Please proceed.
spk04: Great. Hey, guys, thanks for the questions. To go back to the double-digit growth in 2025, Paul or Ali, could you potentially put maybe a little bit of a finer point around what that might look like? You know, it'd be great to just hear your thoughts on sort of a targeted medium-term growth rate as we look into the out years.
spk10: Yeah, I don't think we're prepared to give detailed guidance today on 2025. You know, we're still very early in 2024. And I think we will want to also see real visibility on the opportunities for care care in our business because that is a potential accelerant of our growth. So I think as we get farther into 2024 and really understand that opportunity, we'll be able to provide more guidance. But both of our markets are very large. There's huge potential for us on the standalone side in surgical glaucoma, continuing to take share in the combo cataract market, and then also on the dry eye side with really a new interventional procedure that really should be a market that we can really create over time. Those are really the drivers. Of course, we also have a small contributor associated with our OUS business as well, but we believe the U.S. markets will be the primary growth driver for the foreseeable future for us.
spk04: Got it. That's helpful. And then, Ali, appreciate all the color on guidance, but was wondering if maybe you could potentially give us a little bit more on the quarterly cadence. I know 2Q and 4Q. There's a seasonal benefit, but I guess for 1Q specifically, how should we be thinking about revenue or growth? And then my tack on to that would just be, will there be any sort of, I guess, call it a stocking benefit to consider as customers worked down inventory in the back half of last year? Thanks.
spk10: Yeah, sure. So taking the stocking question first, we really haven't seen material changes in stocking yet. We've seen a return of regular ordering and improvement of utilization tied to procedure volumes, but we haven't seen that uptick associated with just increasing their inventory levels. That may be something that we see in the future. That's not something that we've inherently baked into guidance or we think would be too material in nature, but that certainly is a potential that could occur at some point in time. In terms of the quarterly cadence, as we said, we do expect the first half to be down. Primarily the second quarter is the biggest challenge from a comp perspective for us. So looking at the first quarter with the increasing utilization and the recovery that we're seeing, Typically, you would see Q1 down from Q4. I don't think that we'll see that this year. It may be similar, but we do expect to see nice start to the year given those overall dynamics of usually utilization being down sequentially versus the fourth quarter.
spk03: That's perfect. Thanks, and congrats on the results.
spk10: Thank you.
spk12: Thank you. And as a reminder, to ask a question, simply press star one one to get in the queue. Our next question is from David Saxon with Needham and Company. Please proceed.
spk18: Great. Good afternoon, Paul and Ali. Thanks for taking my questions. I wanted to follow up on utilization specifically for the accounts that are coming back to Omni that maybe dropped off in the back half of last year. Are they going back to levels that they were at before? How does that typically trend? I know it's early days still, but would love to kind of hear what you're seeing there.
spk14: Hi, this is Matt. I'll take that. So, as sort of reiterated in the earlier comments, I mean, it's obviously early, but I think we're encouraged by seeing a steady cadence of a return to more sort of natural ordering patterns. And so I think everybody could appreciate under the sort of cloud or uncertainty of the LCDs in the second half of last year, in particular Q4, the uncertainty as to the final effective date of those LCDs, which obviously were fortunately ultimately withdrawn. There definitely were some efforts by accounts to manage inventory, ensuring that there wasn't excess inventory on the shelf. And again, while I think our sales organization did a phenomenal job staying in front of our customers and supporting them through that period of uncertainty, it obviously contributed to a decline, not just in Omni utilization, but MIGS in general in the second half and fourth quarter of last year. So again, early, early days, but what we are seeing is a steady state of recovery trending towards what we anticipate will be more normal ordering patterns into the question around stocking, not so much
spk18: bulk stocking but again a regular cadence of ordering maintaining inventory in support of a broader utilization of omni and that's what we're building towards through the balance of the year okay um great thanks matt super helpful um and then i wanted to ask on dry eye um ali i think you said it's going to be down significantly um I guess, you know, what's assumed in terms of smart hub placements are, is the Salesforce being incentivized to, you know, put out new placements or is revenue essentially being driven just by tier care consumables? And then just on the reimbursement front, you know, when you talk to, you know, your, I don't know, 370 or whatever it was, active accounts, about reimbursement, what are they saying in terms of where that needs to shake out in order for it to be an attractive procedure? Thanks so much.
spk10: Yeah, so looking at the peer care side of the business and inherent in guidance, it's really our 2024 guidance assumes that most of the revenue is coming from the sale of smart lids. And there is still a minimal number of new accounts being added. but that is significantly smaller than what we saw in 2023 and 2022. So that is the shift and that is the reason that we expect to see the decline in revenue of that business, along with the resizing of the sales force that occurred in October. In terms of the 327 accounts that we had on the tier care side of the business in the fourth quarter, you know, we don't, we're still working with payers. It's too early for us to say what the appropriate reimbursement will be for that. We think we have a compelling value proposition, compelling clinical data, but those conversations are just starting really now. So to talk about pricing would be premature, but we know that already the business model was effective on a cash pay market. So we think that there is a financial model that will work for us, will work for the patient, the providers, and, of course, our customers that are doing those procedures.
spk06: Yeah, I'd just like to add to that. On the health economics front, we've prepared a very solid budget impact model for tier care, comparing the health economics of tier care to other prescription eye drops like Restasis and others. and what the ultimate system savings would be. We submitted that budget impact model for presentation at the leading society meeting in this area is for International Society of Pharmacoeconomic and Outcomes Research. That will be presented in May in Atlanta. We're excited about that. The budget impact model should be submitted for publication very soon to a leading managed care journal. So between the Sahara six-month data, the Sahara 12-month data, crossover where all the Restasis patients were crossed over to TierCare, got a single TierCare treatment, and the compelling outcomes we saw there that should hopefully soon also be published, coupled with the budget impact model, coupled with our market access team across the country that's working with leading dry eye accounts and our sales team and providers and payers across the country, both commercial and MAC, Very excited about what progress we're going to make this year on the reimbursement side. Patients need access to these treatments. They need reimbursed access. We're creating a big new category in interventional dry eye.
spk18: Great. Thank you so much.
spk12: Thank you. One moment for our last question, please. And it comes from the line of Joanne Wench with Citi. Please proceed.
spk17: Good afternoon. This is Anthony on for Joanne. Thanks for taking our questions. Just going back to guidance, I just want to clarify the guidance you put out in surgical glaucoma that assumes that reimbursement is essentially unchanged for the year, so there's no new LCDs. And then in dry eye, could you maybe just talk about what your expectations are going into 2025? Do you expect to start the year with a large amount of covered lives, or do you expect these pair ones to be more on a rolling basis? Thank you.
spk10: Yeah, so inherent in guidance is under the assumption that we are in the current operating environment of LCD coverage, where Omni continues to have broad access and coverage in the market, which we think is fair and reasonable expectations for 2024.
spk05: From a tier care perspective, the work I described earlier, our payer team is engaged.
spk06: There's a lot of engagement with our providers and payers across the country. Right now, that's more on the claims level, so working with providers and payers to ensure tier care claims get reimbursed appropriately. Over time, in parallel with that effort, our market access team will be working on coverage policies. Now, these policies have annual cycles, but we will be doing that work this year, engaging with payers on policy-type coverage discussions, and we'd expect to hopefully generate coverage policy wins in 2025. At that point, we have, you know, great expectations for the business. Great. Thank you.
spk12: Thank you. And as a reminder, that is star 1-1 to get in the queue.
spk08: One moment, please.
spk11: I have a question from Margaret Andrew with William Blair.
spk12: Please, your line is open.
spk09: Hey, good afternoon, guys. Thanks for taking the questions. I wanted to maybe talk a little bit about some of the dynamics around getting formal coverage for canaloplasty goniatomy. You know, what steps have you taken at this point to kind of try to push that further? And any kind of other updates that you can share on the LCDs in the last several months? You know, any expectations for when we might hear any updates would be helpful. Thanks.
spk06: Hi, Margaret. So just to quickly recap what happened in the second half of 2023, it was an opportunity for us to engage with the five MACs, help better educate them on site sciences, on the omni-surgical system, on the comprehensive outflow procedure furnished by the omni-surgical system, and the most importantly, compelling long-term clinical evidence that we've generated for omni over the years. At the end of the year, it culminated with two important developments. One, the publication of our even longer-term three-year prospective Gemini study, as well as a meeting with the MACS following the Society's meeting with the MACS, which was another opportunity for us and our clinical stakeholders and a number of our glaucoma surgeon KOLs to help help further educate the MACs on Site Sciences Omni and our clinical data. We've been able to follow up. We intend to stay engaged with the payers throughout this year. We have followed up with the five MACs. In due course, we'll continue to engage with other payers such as the other two MACs. And we believe in addition to the clinical data that we had provided throughout 2023, which was substantial, we're continuing to generate really meaningful clinical data this year. We should expect to see a number of compelling publications I had mentioned earlier, such as, you know, Omni's results in ethnic minorities, a meta-analysis of Omni, which reaches the level of, you know, hopefully level one clinical evidence, long-term standalone Omni outcomes. So with further clinical evidence, continued engagement with the payers this year, we feel that we're very well prepared if and when LCDs are proposed again.
spk09: Okay. And then, you know, just to hit on the competitive standpoint one more time and relative to, you know, what's assumed in guidance both for this year as well as for next year, you know, what conversations are you guys having with clinicians and accounts in the field around using Omni for standalone cases? You're assuming utilization growth, so clearly you're hopefully hearing that within the field from your accounts. Does competition come up at all? Do you guys feel a need to change any commercial strategy? Or what kind of assurances can you kind of give us of what you're hearing to support that utilization growth?
spk14: Thanks, guys. Yes, this is Matt. Appreciate the question. Maybe taking the second part of that question first in terms of commercial strategy, we talked a bit about the restructuring of the organization in the second half of last year, and it really is intended to optimize our approach to the market as we continue to further segment the market based on the opportunities and given what we believe are unique opportunities for us or that site science is uniquely positioned for given the comprehensive nature of Omni and the associated efficacy. From a competition standpoint, from a sales perspective, I believe we're well positioned and strongly engaging the market and consistently receive the type of feedback we want to hear given the comprehensive nature of Omni and its ability to treat glaucoma in both combination MIGs as well as on a standalone basis. As it relates to standalone, we're obviously in an evolving marketplace. And so we see sort of a rapid expansion of the opportunity for interventional procedures, MIGS in particular, and the treatment of glaucoma, and ultimately standalone as a part of that. And so, given the comprehensive nature of Omni, the broad label, and our ability to pursue those opportunities, we see, we continue to see significant opportunity there. We see strong engagement from, you know, physicians broadly and physician advocates. But ultimately, you know, that's something that we will continue to develop in the marketplace And the market is receptive to that, again, with the evolution of this interventional mindset. So, you know, from a competitive standpoint, I'd say the market conditions seem consistent with prior periods, in which case, you know, site sciences as an organization, and particularly Omni, the procedure, I think is well-positioned to continue to compete effectively and take share.
spk06: And Margaret, we're in the, as you know, the very early days of standalone market development while it's been growing and Omni's proven a very strong product market fit, leading in efficacy. It's early days and we welcome additional entrants who can help. Really the challenge right now is changing the treatment paradigm. So moving from a medication mindset, maybe SLT, medications and SLT, and patients are then progressing, adding another medication, a third medication, a fourth medication, and progressing and ultimately needing an invasive procedure, we need to change the treatment paradigm to intervene in a minimally invasive but effective way sooner. There's a tremendous opportunity there. It's going to take a lot of effort. We've been over the past few years working on it. We've been making progress. We'd love for that progress to be accelerated with additional entrants and more people working to help change that mindset to change it from a medication pharmaceutical disease to a surgical disease. And we just returned from the American Glaucoma Society meeting. And I can say the buzz there around interventional glaucoma, the desire for glaucoma specialists to lead the shift in this treatment paradigm towards minimally invasive earlier interventions, it's alive and well, and I expect the next few years to be very exciting.
spk07: Great. Thanks, guys.
spk12: Thank you. And I'm not showing any further questions at this time. I would like to turn the call back to Paul. But are we for final comments?
spk06: Thank you for attending today's call. Coming into 2024, we have compelling commercial strategies in our two large market opportunities, robust clinical efficacy across our differentiated interventional portfolio, and an experienced management team ready to execute our plan. We look forward to engaging with the investment community around these exciting opportunities. Thank you.
spk11: And with that, we thank you for participating, and you may now disconnect. Thank you. Thank you. Thank you. Bye. Thank you.
spk12: Ladies and gentlemen, thank you for standing by. Welcome to the Psych Sciences' fourth quarter 2023 earnings results. At this time, all participants are in a listen-only mode. After the presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. And please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Chip Taylor with Investor Relations.
spk16: Thank you for participating in today's call. Presenting today are SightScience's co-founder and chief executive officer, Paul Badawi, chief financial officer, Allie Bauerlein, and chief commercial officer, Matt Link. Earlier today, Site Sciences released financial results for the three months and full year ended December 31st, 2023, and initiated guidance for full year 2024. 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. These forward-looking statements include statements related to the company's anticipated financial performance, operating results and liquidity position, current and long-term strategic objectives, market opportunity, business and commercial strategy, product reimbursement strategy, clinical trial results, and costs associated with pending litigation. 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 its public filings with the Securities and Exchange Commission, including in the risk factors section of the company's annual report on Form 10-K and quarterly reports on Form 10-Q. The company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. On the call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including adjusted operating expenses. The company believes these non-GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. See the company's earnings release for reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, as well as additional information about the company's reliance on non-GAAP financial measures. I will now turn the call over to Paul.
spk15: Thanks, Tripp.
spk06: I'm extremely proud of the progress we made in both the fourth quarter and full year 2023. This year has reinforced the importance of our mission to develop transformative, interventional technologies that allow eye care providers to procedurally elevate the standards of care, empowering people to keep seeing. 2023 was a pivotal year for us as we executed on key strategic initiatives. We are very pleased to have accomplished several milestones throughout the year, including enhancing our executive team with proven high-growth MedTech leadership experience, with the additions of Ali Bauerlein, our Chief Financial Officer, and Matt Link, our Chief Commercial Officer. Both Ali and Matt have integrated seamlessly into their roles and have been vital to our many organizational enhancements. Following their hires, we realigned our structure to be more effective and laid the foundation for the next level of scale over the coming years. We also expanded the body of long-term clinical evidence supporting our technologies. Importantly, we announced the publication of long-term clinical data in a leading peer-reviewed journal including two-year follow-up data from the ROMEO study, three-year follow-up data from the Gemini 2 study, and six-month data from the Sahara RCT. We believe differentiated, long-term clinical data will help us drive coverage, equitable reimbursement, and commercialization success over time. In 2023, we generated revenue growth in the mid-teens. Our gross margins improved to all-time highs. and we significantly reduced our operating expenses and cash usage in the face of reimbursement uncertainty, while maintaining focused spend on critical areas. In a major development late in December, we were pleased with the withdrawal of the finalized LCDs from five Medicare administrative contractors, or MACs, that were scheduled to go effective in late January 2024. These MACs had previously identified certain MIGS procedures as investigational for glaucoma management, in patients over the age of 18, including canaloplasty in combination with trabeculotomy ad interno, which is a procedural description associated with our Omni surgical system. Throughout the process, we work closely with all key stakeholders, including national and state societies, congressional offices, medical device associations, and hundreds of MIG surgeons to help educate the MACs and CMS about the importance of MIG procedures involving our Omni system, and the long-term clinical evidence available. We executed this multi-pronged approach to challenge the LCDs while navigating new and complex dynamics with our surging customers resulting from the potential implications of these LCDs and our customers' preparations to adhere to potential coverage restrictions. Even with the reimbursement uncertainty, sales of our surgical glaucoma products proved very resilient. We believe this is a testament to the clinical efficacy of the comprehensive OMNI procedure as surgeons rely on its IOP and medication reduction capabilities to treat their patients. Again, we are thankful that our team and other industry stakeholders are steadfast in their alignment on the important role OMNI plays in treating their glaucoma patients. We will continue to advocate to ensure that there is equitable patient access to this critical technology. Coverage decisions are heavily governed by compelling long-term clinical data. We provided the match with a significant body of peer-reviewed long-term clinical evidence throughout the process, which was further strengthened by the publication of our Gemini 2 study in December. Favorable results from this prospective multicenter study demonstrated sustained and clinically significant IOP reduction of 29% from baseline at 36 months, and clinically significant IOP lowering medication reduction with 74% of the study patients medication-free at 36 months. The prospective three-year clinical outcomes in the GEMINI 2 trial confirm and extend the previously published 12-month data from the original GEMINI trial. GEMINI 2 included 66 patients across 11 participating sites, and any patients who were not already medication-free from the OMNI procedure underwent medication washout at the two-year and three-year endpoints so that the IOP lowering effect of the OMNI procedure could be isolated and assessed. There is demonstrated consistency with clinical outcomes across all published OMNI studies, and this longer-term prospective multicenter trial data further supports the need for continued access to OMNI technology. We believe that new MIGS LCDs may be proposed in the future. While we are uncertain as to the timing and process that would be followed, if new LCDs are finalized, we are confident Our body of published, high-quality, long-term data, including the Gemini 2 study, supports continued coverage of procedures enabled by Omni for the appropriate patient population. We also plan to publish additional clinical data throughout 2024 that will further strengthen the body of evidence illustrating Omni's clinical efficacy, and we believe will support favorable coverage determinations. We look forward to continued engagement with the MACs CMS and other stakeholders to ensure glaucoma patients and their physicians maintain appropriate and equitable access to medically reasonable and necessary mixed procedures and technologies. Looking ahead, we are working to reengage those accounts impacted by the LCDs, drive increased utilization, and train new surgeons. Despite the uncertainty associated with the LCDs, we had minimal employee attrition the fourth quarter, and we are now backfilling those roles in the first quarter. As expected, given the fourth quarter LCD uncertainty, the surgeon training funnel was lighter than our historical average to end the year. We are still in the early stages of regrowing the funnel, as surgeons now have visibility on coverage. We are confident in our ability to recapture accounts lost, add new accounts and surgeons, and improve utilization over time. Our main commercial focus is increasing utilization across our customer base and reengaging with accounts that have not ordered Omni over the past two quarters due to the reimbursement uncertainty. The changes we made to our commercial organization in the fourth quarter are already proving beneficial in this regard. We believe we have a solid foundation in place to efficiently drive strong growth over the long term, including our anticipated return to double-digit revenue growth in the second half of 2024 and into 2025. I want to close our surgical glaucoma discussion by touching on our recent European launch. In February, we initiated the European launch of the ERGO series of the Omni surgical system. Following its US launch in March 2023, the ERGO series has been broadly adopted due to its improved ergonomics and an optimized cannula tip that provides gentle and precise access to Schlem's canal. We believe these design features will be invaluable to our European partners. Turning now to our dry eye business, our tear care technology provides a clinically proven, safe, and effective procedural intervention for patients suffering from evaporative dry eye disease, which is a multi-billion dollar annual US market opportunity with over 11 million patients diagnosed. Interventional dry eye procedures with tear care address the root underlying cause of evaporative dry eye disease, and we believe tear care represents a major advancement, providing patients with a more comprehensive, consistent, fast-acting, and long-term dry eye treatment. As discussed on our last call, we have streamlined our commercial focus and taken measures to reduce the commercial spend within our dry eye business and strategically shift some of that spend towards building out our market access and payer team that is now in place. We are actively working in 2024 to drive equitable market access for dry eye patients who can benefit from an interventional procedure with tear care. Importantly, our market access team has significant experience establishing reimbursement for new and innovative technologies and procedures. In 2024, we are focused on leveraging our foundational work with commercial payers and MACs to advocate for coverage of interventional eyelid procedures enabled by TierCare. The publication of our compelling Sahara six-month RCT data and budget impact model are the focal points of our discussions with payers. These discussions will be ongoing throughout the year and beyond, and coverage decisions will be subject to payer standard policy update timelines. Our goal is to begin receiving coverage decisions from payers starting in 2025 as we pursue this large market opportunity. At that point, we will expand tier care commercialization in geographies where coverage has been established. The publication of successful six-month results of the Sahara RCT comparing tear care to Restasis, the market-leading dry eye therapeutic for the treatment of dry eye disease, was published in Clinical Ophthalmology in December. Data from the RCT shows the tear care technology successfully delivered clinically and statistically significant improvements in every sign and symptom at all measured time points over a six-month period. TierCare was also superior to Restasis in the improvement of tear film breakup time, the study's primary objective endpoint, and a key measure of aqueous retention, tear stability, and the tear film's ability to protect the ocular surface. This trial was designed with feedback from medical directors of insurance companies to demonstrate safety, efficacy, and long-term performance, which are important in their coverage determinations. We believe the data generated by this trial is a critical building block for tear care and offers the most robust validation of tear care's clinical efficacy to date. In closing, we have incredible interventional technologies within both our surgical glaucoma and dry eye businesses that elevate the standard of care and improve treatment paradigms for millions of patients. We value the solid foundation we have built over the past decade and all of the learning and know-how we have acquired along the way. We have many things to be excited about this year in particular, as 2024 is a transformational year for us. In our surgical glaucoma segment, we expect to publish additional long-term, large-scale, real-world data on the differentiated clinical efficacy of Omni, including disease severity outcomes, ethnic minorities outcomes, and standalone outcomes. In addition, we are conducting a meta-analysis based on all Omni clinical studies and are also starting a multinational Omni RCT, further demonstrating our long-standing commitment to generating market-leading clinical evidence. We believe we are well-situated if any LCDs may return, and we remain critically focused and actively engaged with the payers and our many societies on our Omni market access strategy based on our differentiated technology, efficacy, and clinical data. We saw the resiliency of our customer base in sales in the fourth quarter, and we are now seeing increased utilization in the first quarter. This is an encouraging indicator of the return to growth we expect to deliver in the second half of the year. We expect Omni to continue to take share in the combo cataract market and continue to lead the growth of the growing standalone market. In our dry eye segment, we also expect to soon publish our Sahara one-year RCT results, which continue to show the superior benefits of tear care versus restasis in the treatment of dry eye disease. We plan to also publish a compelling budget impact model this year, showing the health economic impact and system savings for tear care versus restasis. This year, we also expect to start seeing claims paid for tear care. a critical step in our journey to ultimately establish broad coverage for tier care and for tier care to become a leading interventional treatment in dry eye. With so many important catalysts on our horizon and a strong, experienced team in place, we are very well positioned to reliably execute our plan and create value. We are particularly excited about the rest of this year as we continue to build and optimize our business, return to high growth, and drive towards profitability. I'll now turn the call over to Ali to discuss our financials.
spk10: Thanks, Paul. Before I dive into the fourth quarter financial results, I want to reiterate that we are extremely proud of both our commercial and operational execution as we navigated significant challenges brought on by the LCD. Our expense management and reduction in cash use reflected our swift execution and the flexibility of our model. We feel these adjustments were essential and have well positioned us to support our future financial goals without limiting our strategic plan. As we announced in January, we closed a senior secured credit facility for up to $65 million with Hercules Capital, including an initially funded $35 million tranche under the facility. The new facility provides us with improved commercial terms and stronger financial flexibility as we execute our strategic goals while maintaining current debt outstanding. Combined with our disciplined expense management, we believe we are well positioned with strong financial footing and plan to achieve cash flow break-even without the need to raise additional equity capital while still investing in R&D and commercial expansion opportunities to support our long-term growth. Lastly, before turning to quarterly results, I want to briefly touch on the ongoing patent infringement case with Alcon. In April 2023, we reported that we had defeated all four patent invalidity challenges filed by Alcon, which are not appealable. The next steps include a trial that is currently scheduled to commence in April 2024. As a result, we expect to incur higher operating expenses in the first quarter of 2024 due to trial preparation work. Moving back to the fourth quarter, total revenue for the fourth quarter was $18.8 million at the top end of the revenue range we announced in January. This reflects a decrease of 9% compared to the fourth quarter of 2022, but stronger than we expected with the LCD uncertainty during this period, which was primarily driven by continued utilization of Omni by our customers. Surgical glaucoma revenues for the fourth quarter were 17.2 million, down 9% versus the comparable period. 1,064 customers ordered surgical glaucoma products in the fourth quarter, down about 4% from the third quarter of 2023, but still up about 5% from the fourth quarter of 2022. Utilization of ordering accounts was down about 5% sequentially and down about 16% from the fourth quarter of 2022. but still stronger than expected given the transient LCD dynamic. We believe this continued utilization shows the importance of Omni to our surgeons and emphasizes the unique benefits this comprehensive procedure provides for their patients. Similar to last quarter, our customer retention was solid, but utilization was down slightly. We believe these dynamics were primarily the result of the uncertainty surrounding the LCDs as we saw higher impact in the areas covered by the five Macs. Since the LCDs were withdrawn, our priority has been to re-engage and expand our customer base and drive increased utilization back to pre-LCD levels and beyond. Our dry eye revenues for the fourth quarter were 1.6 million, down 11% compared to the fourth quarter of 2022. The decline was primarily due to the evolution of our commercial strategy to focus on achieving market access and higher account utilization, which led to fewer new accounts and related smart hub sales, and due to our reduced sales infrastructure after our restructuring in October 2023. For the fourth quarter of 2023, we had 327 active dry eye customers, a 20% increase versus the fourth quarter of 2022. Additionally, we sold over 5,200 dry eye treatment lids in the quarter, a 2% increase versus the comparable period. Gross margin for the fourth quarter was 85% compared to 82% in the same period in the prior year. Our overall gross margin profile remains strong. However, there was a slight impact sequentially compared to the third quarter, driven by lower production volumes and higher overhead per unit. Total operating expenses for the fourth quarter were $27.1 million, a decrease of 20% compared to $33.9 million in the fourth quarter of 2022. Adjusted operating expenses were $22.3 million in the fourth quarter, a decrease of 27% compared to $30.6 million in the same period in the prior year and well below expectations. The decrease in total operating expenses in the comparable period was primarily driven by 3.8 million reduction in non-personnel related operating expenses, primarily due to lower sales related and R&D expenses, and a 2.8 million reduction in personnel related expenses, including lower incentive based commission expense of 2 million, mostly due to lower than expected revenue, partially offset by a 1.2 million cash restructuring costs incurred in the fourth quarter of 2023. R&D expenses were $3.4 million in the fourth quarter of 2023 compared to $5.2 million in the fourth quarter of 2022. SG&A expenses were $23.7 million in the fourth quarter of 2023 compared to $28.7 million in the fourth quarter of 2022. We are proud of the cost containment efforts taken in the fourth quarter of 2023 and our ability to be agile without compromising on our commercial and R&D value drivers. Our loss from operations for the fourth quarter was $11.1 million compared to a loss of $17.1 million in the fourth quarter of 2022. Our net loss was $10.7 million or $0.22 per share in the quarter compared to a net loss of $16.9 million or $0.35 per share for the fourth quarter of 2022. We ended the quarter with $138.1 million of cash and cash equivalent and 35 million of debt excluding debt discounts and amortized debt issuance costs. We used just 6.4 million of cash in the quarter, reflecting continued operational discipline and a sequential improvement from 10 million of cash used in the third quarter of 2023 and a decrease versus 14.8 million used in the fourth quarter of 2022. This continues the strong trend of reduced cash usage that was evident throughout 2023. with 46.9 million of cash used in 2023 compared to 75.7 million of cash used in 2022, reflecting a 38% reduction. Moving to our outlook for the full year 2024, we are initiating revenue guidance of 81 to 85 million, representing a range of 0 to 5% growth compared to 2023. We expect the first half of 2024 revenues to be lower than the comparative period in the prior year as we recover and rebuild following the impact of the LCDs in the second half of 2023. We expect this will be followed by double-digit growth in the second half of the year versus the comparative period in the prior year as we regain commercial momentum and expand utilization and our customer base. We expect typical seasonality in 2024 where the second and fourth quarters tend to have stronger utilization than the first and third quarters. We do expect dry eye revenue to decline significantly in full year 2024 compared to full year 2023 due to the evolution of our commercial strategy, restructuring of our dry eye team, and the refocus on market access activities this year. We expect dry eye revenue to have accelerated growth in 2025 with reimbursement coverage and an expanded commercial presence. In terms of gross margin, we continue to expect overall gross margin to be in the mid-80s, but we do anticipate increased overhead costs per unit due to lower production builds planned in 2024 for both segments, the larger impact in the dry eye segment. We expect full year 2024 adjusted operating expenses of $107 to $110 million, representing a range of 0% to 3% decline compared to 2023, with higher first quarter adjusted operating expenses primarily due to higher legal expenses for pending litigation. While our guidance implies lower total revenue growth in 2024 than we saw in 2023, we believe it is prudent to put achievable revenue guidance in place. and are focused on the right long-term value drivers in the organization by maintaining and establishing equitable market access for our products, continuing to expand our clinical portfolio showing strong efficacy, and building the right commercial infrastructure to produce consistent and predictable growth. We are proud of the resiliency seen in our customer base and sales, which is a testament to the benefits of our Omni technology. We believe we will return to double-digit revenue growth in the second half of 2024 with execution of these initiatives, as we are still in the early stages of penetration in both our surgical glaucoma and dry eye market opportunities. Operator, please open the line for questions.
spk12: Thank you. And as a reminder, to ask a question, simply press star 11 on your telephone and wait for your name to be announced. To withdraw the question, press star 11 again. Our first question is from Matthew O'Brien with Piper Sandler. Please proceed.
spk02: Matthew O' Oh, afternoon. Thanks so much for taking the questions. You know, good to hear that things are supposed to perk up this year, especially on the surgical clock coma side. But I'm just curious, you know, what you're seeing maybe early days here in Q1. from a clinician, you know, recovery? You know, how many of those stocks that we're not using at the end of last year have come back to you? And then what you're seeing from a utilization perspective?
spk14: Hey, Matt. This is Matt here. Appreciate the question. I think as reflected in the comments, both from Paul and Ali, you know, we're seeing a steady state of recovery in all the areas that you just asked about in terms of individual accounts, uh ordering the percent of active accounts ordering and a steady state of re-engagement and utilization from our customers which is what i think you would expect um considering the uncertainty uh that sort of was created with the lcds in the second half of last year and just to reiterate the comments from both paul and ali as well i think that we saw a remarkable resiliency from our organization our sales organization and also from our customers And ultimately, we believe that's a reflection of the comprehensive nature of Omni and the clinical value it delivers. And so, again, early signs are a consistent state of recovery, consistent with our expectations.
spk02: Okay. Appreciate that, Matt. Good to talk to you again. And then what's implied, and I'm trying to run through the model. I didn't get to it in time here on the call, but I guess to get to this double-digit growth in the back half of the year and then into next year, what's implied from a recovery perspective in terms of, you know, the previous clinicians getting new clinicians, training them, utilization, all that fun stuff. And then, Allie, I guess I'm just trying to reconcile the growth outlook with some of the cuts that you've made from a spending perspective then to, like, you know, getting the free cash flow positive with your existing, you know,
spk10: cash levels just just putting all that together like it's just it's just difficult to reconcile all that together so just maybe help bridge us to that point thanks sure happy happy to take that so we're not going to get into the level of granularity down to the modeling perspective of number of accounts or utilization but we would expect all of those metrics to improve throughout the year and subject to, of course, typical seasonality in the business, where you would typically see Q2 and Q4 utilization higher. But we do expect to increase the cadence of new accounts being added in the period, as well as recovery of the accounts lost, and then also improve our overall utilization, both combo cataract as well as standalone. So all of those are areas that we are expecting to see improvements in 2024. I would say that the toughest comp for us will of course be the second quarter since that was our record sales last year. But outside of that, you know, we expect to be able to, you know, continue to show nice progress in the business. And that's really how you get to that double digit growth in the back half of the year. So before we move to the question on cash, did that answer your question on kind of the puts and takes on the revenue side?
spk02: Yeah, I just I wouldn't mind a little bit more color on just what's implied from a clinician perspective in terms of what you need to do, especially, you know, it's still a pretty competitive market. Generally speaking, there's somebody coming in on the standalone side, you know, in a big way, just what's all implied there to get you to that double digit number? Because I think it's better than people were expecting for the back half and especially for next year as well. Thanks.
spk10: Yeah, I think the majority of the increase is really utilization related. So, of course, we do expect to continue to add accounts, but utilization will be a primary driver of those double digit increases. Got it. Thank you. So moving to your question on our commentary around Our level of investments, obviously, we expect to continue to show progress this year in terms of our operating expense leverage, solid gross margins in the business, and, of course, looking to increase revenue as well, particularly in the second half of 2024. So looking into the future, we expect to continue to be a growing, double-digit growing company into 2025. And so looking at the investments needed to run our business and the level of spend needed, we expect to get leverage on our operating expense base. So that is really where, when you look at your modeling for cash flows over time with growing revenues and operating expenses growing at a lower rate than revenue, of course, still growing, and then small improvements on gross margin, although that's more incremental in nature, the real leverage to get to a cash flow break-even is associated with op-ex spend.
spk08: Okay. Thanks so much.
spk11: Thank you. One moment for our next question, please. And he comes from the line of Tom Stefan with TFL.
spk12: Please proceed.
spk04: Great. Hey, guys. Thanks for the questions. To go back to the double-digit growth in 2025, Paul or Ali, could you potentially put maybe a little bit of a finer point around what that might look like? You know, it would be great to just hear your thoughts on sort of a targeted medium-term growth rate as we look into the out years.
spk10: Yeah, I don't think we're prepared to give detailed guidance today on 2025. You know, we're still very early in 2024. And I think we will want to also see real visibility on the opportunities for care care in our business because that is a potential accelerant of our growth. So I think as we get farther into 2024 and really understand that opportunity, we'll be able to provide more guidance. But both of our markets are very large. There's huge potential for us on the standalone side in surgical glaucoma, continuing to take share in the combo cataract market, and then also on the dry eye side with really a new interventional procedure that really should be a market that we can really create over time. Those are really the drivers. Of course, we also have a small contributor associated with our OUS business as well, but we believe the U.S. markets will be the primary growth driver for the foreseeable future for us.
spk04: Got it. That's helpful. And then, Ali, appreciate all the color on guidance, but was wondering if maybe you could potentially give us a little bit more on the quarterly cadence. I know 2Q and 4Q. There's a seasonal benefit, but I guess for 1Q specifically, how should we be thinking about revenue or growth? And then my tack on to that would just be, will there be any sort of, I guess, call it a stocking benefit to consider as customers worked down inventory in the back half of last year? Thanks.
spk10: Yeah, sure. So taking the stocking question first, we really haven't seen material changes in stocking yet. We've seen a return of regular ordering and improvement of utilization tied to procedure volumes, but we haven't seen that uptick associated with just increasing their inventory levels. That may be something that we see in the future. That's not something that we've inherently baked into guidance or we think would be too material in nature, but that certainly is a potential that could occur at some point in time. In terms of the quarterly cadence, as we said, we do expect the first half to be down. Primarily the second quarter is the biggest challenge from a comp perspective for us. So looking at the first quarter with the increasing utilization and the recovery that we're seeing, Typically, you would see Q1 down from Q4. I don't think that we'll see that this year. It may be similar, but we do expect to see nice start to the year given those overall dynamics of usually utilization being down sequentially versus the fourth quarter.
spk03: That's perfect. Thanks, and congrats on the results.
spk10: Thank you.
spk12: Thank you. And as a reminder, to ask a question, simply press star one one to get in the queue. Our next question is from David Saxon with Needham and Company. Please proceed.
spk18: Great. Good afternoon, Paul and Ali. Thanks for taking my questions. I wanted to follow up on utilization specifically for the accounts that are coming back to Omni that maybe dropped off in the back half of last year. are they going back to levels that they were at before? How's that typically trend? I know it's early days still, but would love to kind of hear what you're seeing there.
spk14: Hi, this is Matt. I'll take that. So as sort of reiterating the earlier comments, I mean, it's obviously early, but I think we're encouraged by seeing a steady cadence of a return to more sort of natural ordering patterns. And so I think everybody could appreciate under the sort of cloud or uncertainty of the LCDs in the second half of last year, in particular Q4, the uncertainty as to the final effective date of those LCDs, which obviously were fortunately ultimately withdrawn. There definitely were some efforts by accounts to manage inventory, ensuring that there wasn't excess inventory on the shelf. And again, while I think our sales organization did a phenomenal job staying in front of our customers and supporting them through that period of uncertainty, it obviously contributed to a decline, not just in Omni utilization, but MIGS in general in the second half and fourth quarter of last year. So again, early days, but what we are seeing is a steady state of recovery trending towards what we anticipate will be more normal ordering patterns. And to the question around stocking, not so much
spk18: bulk stocking but again a regular cadence of ordering maintaining inventory in support of a broader utilization of omni and that's what we're building towards through the balance of the year okay um great thanks matt super helpful um and then i wanted to ask on dry eye um ali i think you said it's going to be down significantly um I guess, you know, what's assumed in terms of smart hub placements are, is the sales force being incentivized to, you know, put out new placements or is revenue essentially being driven just by peer care consumables? And then just on the reimbursement front, you know, when you talk to, you know, your, I don't know, 370 or whatever it was, active accounts, about reimbursement, what are they saying in terms of where that needs to shake out in order for it to be an attractive procedure? Thanks so much.
spk10: Yeah, so looking at the peer care side of the business and inherent in guidance, it's really our 2024 guidance assumes that most of the revenue is coming from the sale of smart lids. And there is still a minimal number of new accounts being added. but that is significantly smaller than what we saw in 2023 and 2022. So that is the shift, and that is the reason that we expect to see the decline in revenue of that business, along with the resizing of the sales force that occurred in October. In terms of the 327 accounts that we had on the tier care side of the business in the fourth quarter, you know, we don't we're still working with payers. It's too early for us to say what the appropriate reimbursement will be for that. We think we have a compelling value proposition, compelling clinical data, but those conversations are just starting really now. So to talk about pricing would be premature, but we know that already the business model was effective on a cash pay market. So we think that there is a financial model that will work for us, will work for the patient, the providers, and, of course, our customers that are doing those procedures.
spk06: Yeah, I'd just like to add to that. On the health economics front, we've prepared a very solid budget impact model for tier care, comparing the health economics of tier care to other prescription eye drops like Restasis and others. and what the ultimate system savings would be. We submitted that budget impact model for presentation at the leading society meeting in this area, ISPOR, International Society of Pharmaco-Economic and Outcomes Research. That will be presented in May in Atlanta. We're excited about that. The budget impact model should be submitted for publication very soon to a leading managed care journal. So between the Sahara six-month data, the Sahara 12-month data, crossover where all the Restasis patients were crossed over to TierCare, got a single TierCare treatment, and the compelling outcomes we saw there that should hopefully soon also be published, coupled with the budget impact model, coupled with our market access team across the country that's working with leading dry eye accounts and our sales team and providers and payers across the country, both commercial and MAC, Very excited about what progress we're going to make this year on the reimbursement side. Patients need access to these treatments. They need reimbursed access. We're creating a big new category in interventional dry eye.
spk18: Great. Thank you so much.
spk12: Thank you. One moment for our last question, please. And it comes from the line of Joanne Wench with Citi. Please proceed.
spk17: Good afternoon. This is Anthony on for Joanne. Thanks for taking our questions. Just going back to guidance, I just want to clarify the guidance you put out in surgical glaucoma that assumes that reimbursement is essentially unchanged for the year, so there's no new LCDs. And then in dry eye, could you maybe just talk about what your expectations are going into 2025? Do you expect to start the year with a large amount of covered lives, or do you expect these pair ones to be more on a rolling basis? Thank you.
spk10: Yeah, so inherent in guidance is under the assumption that we are in the current operating environment of LCD coverage, where Omni continues to have broad access and coverage in the market, which we think is fair and reasonable expectations for 2024.
spk05: From a tier care perspective, the work I described earlier, our payer team is engaged.
spk06: There's a lot of engagement with our providers and payers across the country. Right now, that's more on the claims level, so working with providers and payers to ensure tier care claims get reimbursed appropriately. Over time, in parallel with that effort, our market access team will be working on coverage policies. Now, these policies have annual cycles, but we will be doing that work this year, engaging with payers on policy-type coverage discussions, and we'd expect to hopefully generate coverage policy wins in 2025. At that point, we have, you know, great expectations for the business. Great. Thank you.
spk12: Thank you. And as a reminder, that is star 1-1 to get in the queue.
spk08: One moment, please.
spk11: I have a question from Margaret Andrew with William Blair.
spk12: Please, your line is open.
spk09: Hey, good afternoon, guys. Thanks for taking the questions. I wanted to maybe talk a little bit about some of the dynamics around getting formal coverage for canaloplasty gonadotomy. You know, what steps have you taken at this point to kind of try to push that further? And any kind of other updates that you can share on the LCDs in the last several months? You know, any expectations for when we might hear any updates would be helpful. Thanks.
spk06: Hi, Margaret. So just to quickly recap what happened in the second half of 2023, it was an opportunity for us to engage with the five MACs, help better educate them on site sciences, on the omni-surgical system, on the comprehensive outflow procedure furnished by the omni-surgical system, and the most importantly, compelling long-term clinical evidence that we've generated for omni over the years. At the end of the year, it culminated with two important developments. One, the publication of our even longer-term three-year prospective Gemini study, as well as a meeting with the MACS following the Society's meeting with the MACS, which was another opportunity for us and our clinical stakeholders and a number of our glaucoma surgeon KOLs to help help further educate the MACs on Site Sciences Omni and our clinical data. We've been able to follow up. We intend to stay engaged with the payers throughout this year. We have followed up with the five MACs. In due course, we'll continue to engage with other payers such as the other two MACs. And we believe in addition to the clinical data that we had provided throughout 2023, which was substantial, we're continuing to generate really meaningful clinical data this year. We should expect to see a number of compelling publications I had mentioned earlier, such as, you know, Omni's results in ethnic minorities, a meta-analysis of Omni, which reaches a level of, you know, hopefully level one clinical evidence, long-term standalone Omni outcomes. So with further clinical evidence, continued engagement with the payers this year, we feel that we're very well prepared if and when LCDs are proposed again.
spk09: Okay. And then, you know, just to hit on the competitive standpoint one more time and relative to, you know, what's assumed in guidance both for this year as well as for next year, you know, what conversations are you guys having with clinicians and accounts in the field around using Omni for standalone cases? You're assuming utilization grows, so clearly you're hopefully hearing that within the field from your accounts. Does competition come up at all? Do you guys feel a need to change any commercial strategy? Or what kind of assurances can you kind of give us of what you're hearing to support that utilization growth?
spk14: Thanks, guys. Yes, this is Matt. Appreciate the question. Maybe taking the second part of that question first in terms of commercial strategy, we talked a bit about the restructuring of the organization in the second half of last year, and it really is intended to optimize our approach to the market as we continue to further segment the market based on the opportunities and given what we believe are unique opportunities for us or that site science is uniquely positioned for given the comprehensive nature of Omni and the associated efficacy. From a competition standpoint, from a sales perspective, I believe we're well positioned and strongly engaging the market and consistently receive the type of feedback we want to hear, given the comprehensive nature of Omni and its ability to treat glaucoma in both combination MIGs as well as on a standalone basis. As it relates to standalone, we're obviously in an evolving marketplace. And so we see sort of a rapid expansion of the opportunity for interventional procedures, MIGS in particular in the treatment of glaucoma and ultimately standalone as a part of that. And so given the comprehensive nature of Omni, the broad label and our ability to pursue those opportunities, we see, we continue to see significant opportunity there. We see strong engagement from physicians broadly and physician advocates, but ultimately that's something that we will continue to develop in the marketplace And the market is receptive to that, again, with the evolution of this interventional mindset. So from a competitive standpoint, I'd say the market conditions seem consistent with prior periods, in which case, you know, site sciences as an organization and particularly Omni, the procedure, I think is well positioned to continue to compete effectively and take share.
spk06: And Margaret, we're in the, as you know, the very early days of standalone market development while it's been growing and Omni's proven a very strong product market fit, leading in efficacy. It's early days and we welcome additional entrants who can help. Really the challenge right now is changing the treatment paradigm. So moving from a medication mindset, maybe SLT, medications and SLT, and patients are then progressing, adding another medication, a third medication, a fourth medication, and progressing and ultimately needing an invasive procedure, we need to change the treatment paradigm to intervene in a minimally invasive but effective way sooner. There's a tremendous opportunity there. It's going to take a lot of effort. We've been over the past few years working on it. We've been making progress. We'd love for that progress to be accelerated with additional entrants and more people working to help change that mindset to change it from a medication pharmaceutical disease to a surgical disease. And we just returned from the American Glaucoma Society meeting. And I can say the buzz there around interventional glaucoma, the desire for glaucoma specialists to lead the shift in this treatment paradigm towards minimally invasive earlier interventions, it's alive and well, and I'd expect the next few years to be very exciting.
spk07: Great. Thanks, guys.
spk12: Thank you. And I'm not showing any further questions at this time. I would like to turn the call back to Paul Bablawi for final comments.
spk06: Thank you for attending today's call. Coming into 2024, we have compelling commercial strategies in our two large market opportunities, robust clinical efficacy across our differentiated interventional portfolio, and an experienced management team ready to execute our plan. We look forward to engaging with the investment community around these exciting opportunities. Thank you.
spk12: And with that, we thank you for participating, and you may now disconnect.
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