RxSight, Inc. (NASDAQ:RXST) Q2 2023 Earnings Call Transcript

RxSight, Inc. (NASDAQ:RXST) Q2 2023 Earnings Call Transcript August 7, 2023

RxSight, Inc. misses on earnings expectations. Reported EPS is $-0.39 EPS, expectations were $0.47.

Operator: Good day and thank you for standing by. Welcome to the RxSight Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker today, Alex Huang. 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 three months and six months ended June 30, 2023. A copy of the press release is available on the company’s website. Before we begin, I would like to inform you that comments and responses to — the questions during today’s call reflect management’s views as of today, August 7, 2023. And will include forward-looking and opinion statements, including predictions, estimates, plans, expectations, and other information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties.

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

Ron Kurtz: Good afternoon, and thank you for joining us. Today, we report another strong quarterly performance for RxSight, representing our tenth consecutive period of quarter-over-quarter top-line growth and driven by higher key operating metrics. In addition, we have taken further steps to strengthen our financial position. I’ll discuss the favorable trends underlying our business later in the call. But first, Shelly will review our second quarter 2023 financial performance and recent balance sheet transactions.

Shelley Thunen: Thank you, Ron. Good afternoon, everyone. RxSight generated second quarter 2023 revenue of $20.8 million up 83%, compared to $11.4 million in the year-ago quarter and up 19% compared to the $17.5 million in the first quarter of 2023. We sold 67 light delivery devices in the second quarter of 2023, up 37% compared to 49 units in the year-ago period. And up 20% compared to the 56 units in the first quarter of 2023. Second quarter 2023, LDD sales generated revenue of $7.7 million up 36% and 19% versus the second quarter of 2022 and first quarter of 2023, respectively. As of June 30, 2023, our LDD installed base increased to 523 units, up 78% and 15% versus the second quarter of 2022 and first quarter of 2023, respectively.

We sold 12,622 LALs in the second quarter of 2023, up 134% and 20% compared to the 5,400 units and 10,523 units in the same year-ago quarter and first quarter of this year, respectively. Second quarter 2023 LAL unit sales generated $12.4 million in revenue, up 132% and 19% compared to the $5.3 million and $10.4 million in the second quarter of 2022 and the first quarter of 2023, respectively. LAL revenue represented 60% of total revenue in the second quarter of 2023, up from 47% and 59% in the second quarter of 2022 and first quarter of 2023, respectively. Gross margin in the second quarter of 2023 was 58% compared to 42% in the same year-ago quarter and 59% in the first quarter of 2023. Recall that the first quarter 2023 gross margin was favorably impacted by LDD material price decreases, freight savings, and improvements in other costs included in LAL cost of sales.

So, the slight sequential change is consistent with our expectations. SG&A expenses as in the second quarter of 2023 were $18.2 million, up 27% and versus $14.4 million in the year-ago quarter, reflecting increased expenses in sales and marketing personnel costs and travel and increased noncash stock-based compensation in sales, marketing, and G&A. On a sequential basis, SG&A expenses were up 12% due primarily to increased personnel costs from increased headcount and increased marketing costs. R&D expenses in the second quarter of 2023 rose 20% to $7.4 million compared to $6.2 million in the year in the same year-ago quarter. And $7.2 million in the first quarter of 2023. The change versus the year-ago quarter was primarily due to increased clinical study costs and increased headcount.

We reported a GAAP net loss in the second quarter of 2023 of $13.8 million or a loss of $0.40 per basic and diluted share using weighted average shares outstanding of 34.5 million shares. This compares to a GAAP net loss of $16.7 million or $0.61 per share on a basic and diluted basis in the same year-ago quarter. Noncash stock-based compensation and loss on extinguishment of debt in the second quarter of 2023 was $4 million and $362,000, respectively, resulting in a non-GAAP loss of $9.5 million or a loss of $0.28 per basic and diluted share. Please refer to the unaudited non-GAAP reconciliation and disclosure included in today’s press release for more comparative information. We ended the second quarter of 2023 with cash, cash equivalents, and short-term investments of $147.1 million compared to $153.9 million at March 31, 2023.

The change in the cash balance includes proceeds from our at-the-market program, or ATM stock option exercises, and employee stock purchase plan share issuances less the paydown of $20 million in GAAP plus termination fees and cash used in operations. Excluding the proceeds from financing and capital activities and use of capital for principal debt repayments, cash used in operating activities during the second quarter was $9.5 million. This compares to $16.5 million in cash used in operating activities in the first quarter of 2023, which included annual bonus payouts and higher increases in accounts receivable and inventory relative to the second quarter of 2023. On our last conference call, we indicated that we expect sequential quarterly reductions in cash used from operations in 2023.

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However, we may see a tick up in the third quarter because our second quarter cash used from operations was lower than expected due primarily to improvements in accounts receivable terms and higher accounts payable and accrued expenses. During the second quarter of 2023, we continue to implement our ATM program designed to further strengthen our balance sheet raising $19.4 million net of fees through the sale of common shares. We used these proceeds to reduce our term loan debt by $0.5 million to $20 million. And as noted in today’s press release, we raised an additional $11.9 million net of fees in July under the ATM and paid off our remaining $20 million debt balance. Turning now to guidance. Based on our second quarter 2023 performance, we are increasing our 2023 guidance range to $81 million to $86 million, up from prior guidance of $79 million to $84 million.

Our new guidance implies a year-over-year growth rate of 65% to 75% and assumes a typical cataract seasonality pattern with the third quarter lighter due to summer vacation schedules. We are also revising our 2023 guidance range for gross margin to 58% to 60% versus prior guidance of 56% to 58%. The increase reflects the continuing favorable revenue mix of LAL sales, along with improved gross margin from our reconfigured LDD, which we expect to begin shipping this year with a gross margin benefit largely in the fourth quarter. We are increasing our 2023 operating expense guidance of $106 million to $109 million an increase of $1 million at the top and bottom of the range. The increase reflects consulting fees additional headcount and expanded auditor fees relating to the implementation of SARBANES-OXLEY, with the increase in our market cap in the second quarter, we became subject to Section 404(b) of the SARBANES-OXLEY Act effective with our December 31, 2023, fiscal year-end and 10-K to be filed in February 2024.

The 2023 OpEx guidance represents a 25% to 29% rise over 2022 and primarily reflects our continued investments to build a large, durable, postoperative light treatment infrastructure to support sustained long-term LAL procedure growth. It also includes noncash stock-based compensation expense of $15 million to $16 million. Since late 2022, we have raised $102.5 million net of fees through our confidentially marketed public offering and ATM program, paid off $40 million in term loan debt, and reduced our annual interest expense by approximately $5.6 million. We believe our cash interest term investment balances, combined with no outstanding debt strengthen our balance sheet and leaves us well-positioned to achieve profitability from operations with a healthy balance sheet.

With that, I’ll turn the call back to Ron.

Ron Kurtz : Thank you, Shelly. Last week, we marked the second anniversary of our IPO, and I’d like to use my time today to highlight the progress we’ve made to position RxSight for long-term success. First, we substantially increased the size and scope of our commercial organization, which has done a remarkable job as evidenced by the two-year growth trends in our business. Compared to the second quarter of 2021, revenue was up 325% and quarterly LDD unit sales are up by more than 160%. Our installed base is roughly three times the size it was two years ago and now extends into Canada. Over this same period, LAL unit sales are up almost 600% and currently accounts for the majority of our total revenue. As Shelly just summarized, we have also continued to strengthen our balance sheet and investor base, which we believe provides a strong foundation for continued execution of our growth strategy and sets us on a path for future operating profit.

At the same time, we’ve added new institutional shareholders to our ownership base and experienced a fivefold increase in the average daily trading volume of our stock. Which, along with the rise in market capitalization has substantially increased the universe of institutions that can consider a meaningful RxSight position. Driving our success since the IPO has been the outstanding performance of our light adjustable lens across a wide range of patient types and preferences. We focused our efforts these past two years on continually refining the LAL technology and the critical knowledge base to enable doctors to deliver the best possible experience and results for patients. The LAL stands apart from every other premium IOL in the market today because postoperative adjustability allows patients to achieve precise high-quality vision that they can test drive and customize to arrive at their unique desired visual outcome.

The growing body of real-world clinical data collected over the past two years underscores the LAL’s ability to deliver superior uncorrected binocular visual acuity with the vast majority of patients achieving excellent vision over a range of distances without increases in visual side effects such as glare and halo or reductions in contrast vision. A combination of outcomes that are increasingly being prioritized by doctors and patients but are difficult to achieve consistently with competing fixed power lenses. By appealing to a wide variety of standard and premium IOL patients, the LAL enables practices to achieve a rapid return on investment for the LDD and established an important ongoing premium revenue stream that can be further leveraged as additional practitioners tap into an existing light treatment infrastructure.

We believe this will continue to be an important factor in growing LAL utilization, which has been rising steadily over the past two years. In closing, we are pleased with the strides that the RxSight team has made in collaborating with our customers and investors as a public company. While we are still in the early stages of adoption, the LAL is beginning to change the premium IOL landscape and fuel expansion of this high-growth market. Through a continued focus on customer needs and the thoughtful execution of our growth strategy, we believe the LAL can ultimately occupy a leading position in the premium cataract market, delivering sustained long-term value to all stakeholders. With that, I’ll ask the operator to open the call for questions.

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Q&A Session

Operator: [Operator Instructions]. Our first question is from Craig Bijou of BofA Securities. Please proceed with your question. [Operator Instructions]. Our next question comes from Robbie Marcus of JPMorgan. Please proceed with your question.

Robbie Marcus : Great. Thanks for taking the question. Congrats on a nice quarter. Maybe, to start, you know, this is the third quarter in a row by my math, where we’re seeing a really nice tick-up in utilization in lens per LDD in the quarter. I think starting in the fourth quarter and now first and second, it’s a pretty significant step up. So maybe just speak to some of the trends you’re seeing. How broad-based is this across the portfolio? Is it driven by a top percentage or is it more wholesome from top to bottom across users? And then, I’ll throw my second question in as well. You’ve had another quarter of really nice LDD placement. The installed base is now over 500. How are you thinking about where you stand in terms of penetration of LDDs versus the, broader, potential base? And is future growth going to be coming more from LAL uptake or LDD placements? Thanks a lot.

Ron Kurtz : Thank you, Robbie. I’ll start, and Shelly can add in anything. So, with respect to utilization, generally, we think the increase in utilization has been broad-based. And some of that is attributable to existing customers who have continued to increase their utilization as — as they’ve seen the benefits of the technology as more doctors in the practice have access to the infrastructure that has already been established in those practices. And then also with new customers, both because the characteristics of the light adjustable lens are more broadly known. And so, doctors are more confident in starting with more of a commitment to the technology, starting with larger volumes. And then, of course, our team, which consists both of our sales team as well as our clinical trainers.

As we have learned over the last several years how to give practices the information for them to start more efficiently and to expand more efficiently. So, I think all of those have been factors in the growth of LAL utilization, and we would anticipate that those factors would continue — anything to add there, Shelly?

Shelley Thunen : No.

Ron Kurtz : With respect to LDD penetration, as you noted, we’re above 500 now. We still think that’s a fraction of the overall possibility in the U.S. There are several thousand practices that do cataract surgery. And we’re still in a minority of those. So, we still see room for growth on the LDT side as well.

Shelley Thunen : Yes, I would just add to clarify a little bit. One of the things that’s been nice about our LDD sales as well is that we’ve had good discipline in terms of pricing. That the pricing and ASP for the LDD has remained — changes are very narrow. And then just to clarify on what Ron said in terms of penetration, there are about 10,000 surgeons in the U.S. today who do cataract surgery. We believe a few thousand, 2,000 to 3,000 to the majority, maybe 70% of the total number. But we don’t believe our total market is limited to those high-volume practices. Because, in fact, as we get more mature, obviously, today, we’re fishing where the fish are, but it also offers an opportunity for other surgeons to provide premium IOL, specifically the LAL to their patients with superior results and allow them to get in the market. Anything else, Ron?

Ron Kurtz : No. Any follow-up, Robby?

Robbie Marcus : No, you answered it all. I appreciate taking the question. Thanks a lot.

Operator: [Operator Instructions]. Our next question comes from Steve Lichtman of Oppenheimer & Co. please proceed with your question.