RxSight, Inc. (NASDAQ:RXST) Q1 2023 Earnings Call Transcript May 13, 2023

Operator: Welcome to the RxSight First Quarter 2023 Earnings Conference Call. Please be advised that today’s conference is being recorded. I would now like to hand it over to Alex Huang, Associate Director, Investor Relations. Please go ahead.

Alex Huang: Thank you, operator. Presenting today are RxSight President and Chief Executive Officer, Dr. Ron Kurtz; and Chief Financial Officer, Shelley Thunen. Earlier today, RxSight released financial results for the 3 months ended March 31, 2023. A copy of the press release is available on the company’s website. Before we begin, I would like to inform you that comments and responses to questions during today’s call reflect management’s view as of today, May 9, 2023, and will include forward-looking statements and opinion statements, including predictions, estimates, plans, expectations and other information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties.

These risks and uncertainties are more fully described in our press release issued today and in our filings with the Securities and Exchange Commission, or SEC. Our SEC filings can be found on our website or the SEC’s website. Investors are cautioned not to place undue reliance on forward-looking statements, and we disclaim any obligation to update or revise these forward-looking statements. We will also discuss certain non-GAAP financial measures. Disclosures regarding non-GAAP financial measures, including reconciliations with the most comparable GAAP measures can be found in the press release. Please note that this conference call will be available for audio replay on our Investor website. With that, I will turn the call over to President and Chief Executive Officer, Dr. Ron Kurtz.

Ron Kurtz: Thank you, Alex. Good afternoon, and thank you for joining us. The RxSight team extended its track record of solid growth with first quarter 2023 results that underscore the increasing adoption and utilization of our unique light adjustable lens system, which is the only premium cataract solution that customizes a patient’s vision after surgery and consistently delivers superior high-quality outcomes across a broad range of individual needs and preferences. I’ll discuss how doctors are leveraging our system’s distinct advantages in a few minutes. But first, Shelley will provide an overview of our first quarter 2023 financial performance.

Shelley Thunen: Thank you, Ron, and good afternoon, everyone. RxSight generated first quarter 2023 revenue of $17.5 million, up 96% compared to $8.9 million in the year ago quarter and up 9% compared to $16.1 million in the fourth quarter of 2022. We sold 56 LDDs in the first quarter of 2023, up 40% compared to 40 units in the year ago quarter and down 2% compared to 57 units in the fourth quarter of 2022. First quarter 2023 LDD sales generated revenue of $6.5 million, up 42% and down 2% versus the first and fourth quarters of 2022, respectively. The LDD sales include Canada, where we received approval and sold our first LDD in the fourth quarter of 2022 and another 5 LDDs in the first quarter of 2023. Excluding these, U.S. LDD sales were 56% and 51% for the fourth quarter of 2022 and first quarter of 2023, respectively.

The sequential shift in the U.S. is consistent with first quarter capital equipment seasonality typical for ophthalmology and was coupled with significant interest in Canada. As of March 31, 2023, our LDD installed base stood at 456 units, up 85% and 14% versus the first and fourth quarters of 2022, respectively. We sold 10,523 LALs for $10.4 million in the first quarter of 2023, up 153% and 16% compared to the first and fourth quarters of 2022, respectively. LAL revenue represented 59% of total revenue in the first quarter of 2023, up from 46% and 56% in the first and fourth quarters of 2022, respectively. SG&A expenses in the first quarter of 2023 were $16.3 million, up 19% versus $13.6 million in the year ago quarter, reflecting increased expenses in sales and marketing personnel costs and travel and increased noncash stock-based compensation expense in sales, marketing and G&A.

On a sequential basis, SG&A expenses were up 5% due primarily to an increase in noncash stock-based compensation expense, increased sales and marketing personnel costs and travel. R&D expenses in the first quarter of 2023 rose 7% to $7.2 million compared to $6.7 million in both the first and fourth quarters of 2022. The change primarily reflects the usual fluctuations we experienced in material utilization and timing of clinical studies. We reported a GAAP net loss in the first quarter of 2023 of $13.2 million or a loss of $0.42 per basic and diluted share using weighted average shares outstanding of 31.6 million shares. This compares to a GAAP net loss of $17.6 million or $0.64 per share on a basic and diluted basis in the same year ago quarter.

Note that stock-based compensation in the first quarter of 2023 was $3.3 million, resulting in a non-GAAP loss of $9.9 million or a loss of $0.31 per basic and diluted share. Please refer to the unaudited non-GAAP reconciliations and disclosure included in today’s press release for more comparative information. We ended the first quarter of 2023 with cash, cash equivalents and short-term investments of $153.9 million compared to $105.8 million at December 31, 2022. The change reflects the $64.5 million in net proceeds from our at-the-market and confidentially marketed public offering in the first quarter of 2023, minus cash used for operating activities of $16.5 million in the quarter for normal business operations and to pay accrued expenses from 2022, which included annual incentive compensation.

We are increasing our 2023 revenue and gross margin guidance and reiterating our operating expense guidance as follows: revenue of USD79 million to USD84 million, up from previous guidance of USD78 million to USD83 million, implying year-over-year growth of 61% to 71% and assuming continued sequential quarterly growth with potential seasonality in the third quarter. Gross margin of 56% to 58%, up from our previous guidance of 52% to 54%. The new guidance range compares to full year 2022 gross margin of 43.5% and is driven primarily by an increasing revenue contribution from the higher-margin LAL and some gross margin contribution from the lower cost to manufacture LDD, which we expect to start delivering in the second half of 2023. The increase in margin guidance relative to our prior guidance for 2023 reflects material price decreases we’ve been able to achieve related to our current LDD as well as freight savings and improvement in other costs included in LAL cost of sales.

While we expect gross margin to improve throughout the year, they may vary depending on the mix between LAL and LDD revenue in any one quarter. Operating expenses of USD105 million to USD108 million, representing a 24% to 28% rise over 2022, reflecting our ongoing investments to build a large, durable postoperative light treatment support infrastructure for sustained LAL procedure growth. Note that operating expense estimates include noncash stock-based compensation expense between USD15 million and USD16 million. Our 2023 interest expense should largely be offset by interest income given our higher levels of cash, cash equivalents and marketable securities from our equity raises in the fourth quarter of 2022 and during the first quarter of 2023.

Finally, we anticipate decreasing cash used from operations for the remainder of 2023. Moreover, we do not anticipate the need to raise additional capital or incur additional debt in order to reach profit from operations. With that, I’ll turn the call back to Ron.

Ron Kurtz: Thank you, Shelley. I’d like to begin with a recap of the Annual Meeting of the American Society of Cataract and Refractive Surgery or ASCRS, which wrapped up in San Diego yesterday with overall attendance reported to be back to pre-pandemic levels. The meeting was very productive for RxSight with continued growth and positive awareness of the light adjustable lens system and many opportunities for our team to interact with current and prospective customers. In addition to more than 10 LAL focused presentations in the main ASCRS program, the RxSight booth featured a series of talks from LAL users who discussed their outcomes, methods for integrating the LAL into their practices and how they position it with patients relative to nonadjustable IOLs. One of the highlights at ASCRS for RxSight was a presentation by Dr. John Vukich which documented how the LAL was used in 341 bilaterally implanted LAL patients from 45 RxSight customer sites.

In this cohort, approximately 20% of patients chose to maximize distance vision in both eyes with over 99% achieving 20/25 or better distance vision and 93% able to read J3 or 6-point font. About 3/4 of patients chose to optimize one eye for near and intermediate vision with 95% of these patients still seeing 20/25 or better at distance and 94% able to read j2 or 5-point font. Finally, a smaller group of patients, about 6% elected to optimize both eyes for intermediate and near vision with 95% still seeing 20/25 or better at distance and over 91% able to read J1 or 4-point font. Importantly, approximately 2/3 of subjects changed their refractive goals after being able to test drive their vision during the light adjustment process, reinforcing the value of postoperative adjustability for both precision and customization.

While about 1/4 of the 341 patients had undergone a prior corneal refractive procedure like LASIK, there were no significant outcome differences in this group compared to the 3/4 of patients with no previous history of corneal surgery. It is more difficult to achieve excellent refractive results with nonadjustable IOLs in patients who have undergone LASIK or have other ocular conditions. And these patients also may not be good candidates for corneal laser touch-up procedures following cataract surgery. This real-world experience spotlights the core benefits of our technology relative to competing nonadjustable premium IOLs, namely, the ability to deliver consistently superior uncorrected binocular visual acuity across a wide variety of patient-driven goals, without the increased rates of glare, halos or loss of contrast sensitivity that are commonly seen with multifocal IOLs. We believe that LAL’s superior visual outcomes are the principal drivers behind our favorable adoption trends, and as our strong first quarter numbers indicate an increasing number of practices are deciding to incorporate the LAL into their premium offerings, not only does this investment allow them to offer the best possible visual outcomes to their premium cataract patients, but it can also broaden their premium IOL patient pool and become a robust generator of profitable practice revenue, something that is increasingly important as practice income from other services fall.

Feedback from existing LAL implanters indicates that roughly 40% of their LAL volume comes from patients who would otherwise have selected a non-premium IOL, while another 32% come from patients who would have otherwise selected a lower-priced Toricmonofocal IOL. These statistics indicate that patients are willing to pay more for a procedure that they and their doctor have confidence will meet their expectations and likely helps explain the LAL’s continued growth relative to other IOL choices. The additional revenue from upgrading patients to the LAL also provides a rapid return on investment for the light delivery device of about 9 months based on an average of 9 LALs implanted per month. To help maximize the productivity of our growing LDD installed base, our field team works closely with new and existing customers to integrate the LAL into the clinic workflow by disseminating best practices and key success factors that maximize benefits and efficiencies with our system.

We also provide ongoing strategic clinical and marketing support to ensure that doctors and staff members throughout the practice are well informed and enthusiastic LAL providers. I’ll wrap up by saying that we plan to continue to leverage our better technology and customer focus to allow doctors to establish a successful new private pay ophthalmic franchise that offers distinct and meaningful advantages to patients and practices. A survey conducted by [Helio] Research and presented at the ASCRS Accelerator meeting with responses from over 250 U.S. ophthalmologists supports this thesis. It found that premium IOL procedures were believed to be the most likely to increase practice growth over the next 5 years with the light adjustable lens anticipated to make the most positive impact on patient care.

While we are still early in the process, I’m confident that these benefits, coupled with favorable demographic and economic trends will help us build a durable high-margin business that also rewards our employees and shareholders. With that, I’ll ask the operator to open the call for questions.

Q&A Session

Operator: Thank you. At this time, we will conduct the Q&A session. [Operator Instructions] Our first question comes from Robbie Marcus from JP Morgan.

Operator: Our next question comes from Craig Bijou from Bank of America.

Operator: Our next question comes from David Saxon from Needham & Co.

Operator: Our next question comes from Ryan Zimmerman from BTIG.

Operator: Our next question comes from Steven Lichtman from Oppenheimer.

Operator: Our next question comes from Lawrence Biegelsen from Wells Fargo.

Operator: Thank you. I am showing no further questions. I will now turn the call over to Dr. Kurtz for closing remarks.

Ron Kurtz: Well, thank you all for your time and attention today. We appreciate your interest in RxSight, and we look forward to updating you on our progress in future quarters. Goodbye.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.