RxSight, Inc. (NASDAQ:RXST) Q3 2022 Earnings Call Transcript

RxSight, Inc. (NASDAQ:RXST) Q3 2022 Earnings Call Transcript November 7, 2022

RxSight, Inc. beats earnings expectations. Reported EPS is $-0.61, expectations were $-0.71.

Operator: Hello and thank you for standing by. Welcome to the RxSight Third Quarter 2022 Earnings Conference Call. At this time, all the participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I’d like to now hand the conference over to your speaker today, Alex Huang, Associate Director of Investor Relations.

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Alex Huang: Thank you, operator. Presenting today are President and Chief Executive Officer of RxSight, Ron Kurtz; and Chief Financial Officer, Shelley Thunen. Earlier today, RxSight released financial results for the three and nine months ended September 30, 2022. A copy of the press release is available on the company’s web site. Before we begin, I would like to inform you that comments and responses to questions during today’s call reflect management’s views as of today, November 7, 2022 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 earlier today and in our filings with the Securities and Exchange Commission or SEC. Our SEC filings can be found on the company’s or the SEC’s website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. We will also discuss certain non-GAAP financial measures. Disclosures regarding these 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 website. With that, I will turn the call over to President and CEO, Dr. Ron Kurtz.

Ron Kurtz: Good afternoon, and thank you for joining us. The RxSight team delivered record performance again this quarter, further demonstrating the significant advantages that our unique technology provides to both patients and doctors. Our financial and operational results continue to highlight the potential of the light adjustable lens to reshape and expand the premium IOL market as the LAL was increasingly positioned by practices as the premium lens of choice for their patients. On today’s call, Shelly is going to begin with a recap of the third quarter results and an overview of guidance for the fourth quarter, after which I’ll provide some additional color.

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Shelley Thunen: Thank you, Ron, and good afternoon, everyone. RxSight finished the third quarter with total revenue of $12.6 million, up 118% compared to the $5.8 million in the third quarter of 2021 and up 11% compared to the $11.4 million in the second quarter of this year. We attribute this strong performance to the ongoing growth of our installed base of light delivery devices and the superior clinical outcomes of our LAL technology, as well as the increase in cohesion and productivity of our recently expanded commercial team, which facilitates LDD sales and is charged with helping new practices become fully proficient and through the providers of our technology. Importantly, we delivered substantial sequential growth in a quarter that is usually seasonally softer for many medical device procedures overall, along with seasonally slower capital equipment purchases, underscoring the continued strong demand for our technology.

In addition, from our vantage point, any impact to quarterly procedure volumes related to COVID or practice staffing shortages were negligible. Breaking up our performance by product line, we sold 49 LDDs in the third quarter of 2022, up 58% from the 31 units in the third quarter of 2021 and even with the second quarter of this year. We generated LDD revenue in the third quarter of 2022 of $5.7 million, up 55% compared to $3.7 million in the third quarter of 2021 and even with the second quarter of this year. Our LDD ASP was approximately $116,000 in the third quarter, down about 2% versus the year ago quarter and unchanged versus the second quarter of this year. Adding third quarter 2022 LDD unit placements, our installed base grew to 343, up 17% versus the second quarter of this year.

LAL sales were also strong in the quarter with units up on a year-over-year and sequential basis. We sold 6,595 LALs in the third quarter of 2022, up 234% from 1,977 units in the same period last year and up 22% from the 5,400 units in the second quarter of this year. We generated LAL revenue in the third quarter of $6.5 million, up 236% compared to $1.9 million in the year ago quarter and up 22% from the $5.3 million in the second quarter of this year. Growing LAL adoption was also evident in our revenue mix. In the third quarter of 2022, LAL revenue represented 52% of total revenue, compared to 34% and 47% in the third quarter of 2021 and second quarter of 2022, respectively. The favorable shift in revenue mix helped to drive the third quarter 2022 gross profit, which was $5.4 million or 42.5% of revenue, compared to $1.3 million or 23% of revenue in the third quarter of 2021 and $4.8 million or 42% of revenue in the second quarter of this year.

Selling, general and administrative expenses in the third quarter of 2022 were $14.9 million, up 64.5% compared to the $9.1 million in the year ago quarter and up 3.7% compared to the $14.4 million in the second quarter of 2022. The quarter-over-quarter increase reflects primarily the 62% increase in our sales, marketing and commercial headcount at the end of the third quarter of 2021 compared to today, as well as approximately $870,000 in higher stock based compensation. The 3.7% sequential increase in SG&A from the second quarter of this year was related primarily to higher cost associated with our commercial headcount. Research and development expenses for the third quarter of 2022 were $6.4 million, up 18.8% compared to $5.4 million in the year ago quarter and up 3.2% compared to the $6.2 million in the second quarter of 2022.

Our R&D costs, which include clinical and regulatory can fluctuate from quarter to quarter based on material utilization and timing of clinical studies. This sequential increase in the third quarter of 2022 was primarily due to increases in clinical study and regulatory. We reported a net loss in the third quarter of 2022 of $16.8 million or loss of $0.61 per basic and diluted shares using a weighted average shares outstanding of 27.7 million shares. In the third quarter of 2021, our net loss was $12.7 million or $0.68 per share on basic and diluted basis. Note also that stock based compensation in the third quarter of 2022 million was $2.9 million, resulting in a non GAAP loss of $13.9 million or a loss of $0.50 per basic and diluted share.

A non-GAAP disclosure is included in today’s press release to provide useful comparative information for investors. Moving to the balance sheet, we ended the third quarter of 2022 with $112.8 million in cash, cash equivalents and short term investments. Long term debt was $40 million. Given our third quarter performance, we are raising our 2022 full year revenue guidance to a range of $47 million to $48 million versus prior guidance of $44 million to $46 million. Our new guidance implies revenue growth of 108% to 112% versus 2021. We are raising our gross margin guidance to a range of 41% to 43% of revenue versus the prior guidance range of 37% to 38% of revenue. While gross margin for the first nine months of 2022 was 42.3% at the high end of our new full year guidance range, we expect continued gross margin pressure on the LDD in the fourth quarter and for mix in the quarter to be more heavily weighted toward LDD sales, which is consistent with usual capital equipment purchase seasonality patterns.

We continue to succeed in procuring the necessary materials to manufacture the LDD and meet growing customer demand. However, we also continue to face supply chain constraints and inflationary pressures exacerbated by lingering COVID related shutdowns at China and the war in Ukraine. Our operation team monitors our supplier channel continuously and works closely with our suppliers to mitigate disruptions wherever possible. Finally, we are revising our operating expense guidance range down to $86 million to $87 million from our previous guidance of $88 million to $90 million. Our operating expenses are much higher for SG&A than R& D as we continue to grow our sales and build support team significantly in 2022. Our annual revenue guidance implies fourth quarter 2022 revenue guidance of $14 million to $15 million.

As noted earlier, we did not experience seasonal softness in either procedures or capital equipment in the third quarter, underscoring the growing enthusiasm for our products. Despite the strong third quarter results, sequential revenue for the fourth quarter is still expected to be between 11% and 19%. We do not expect the devastation caused by Hurricane Ian to have a noticeable impact on LAL procedure volumes in the fourth quarter, as fortunately, only four of our RxSight customers in the affected regions were impacted, two of which reopened within several days. While Florida is an important region, their procedures represented approximately 5% of our business in the previous several quarters. However, as we head into the winter months, we are mindful of the potential for a worse than usual or a resurgence of COVID cases, which could pose some risk to near term cataract surgery schedules.

Our annual gross margin guidance implies a fourth quarter guidance range of 41% to 43% and our annual operating expense guidance implies fourth quarter operating expenses of $24 million to $25 million. With that, I’ll turn the call back to Ron.

Ron Kurtz: Thank you, Shelly. Our excite strategy is to execute an efficient razorblade business model that can generate sustained growth and margin expansion. Our third quarter results offer early support for that strategy, which we attribute to three distinct competitive advantages that set us apart from other premium IOL providers. One, the LAL offers the industry’s most precise vision technology. Two, our proprietary system delivers the highest quality of vision. And three, the LAL is the only solution that is fully customizable to every patient’s individual preferences and needs. Together, these important intangible benefits create a formidable argument for selecting the LAL over competing products. The recent American Academy of Ophthalmology Annual Meeting provided numerous opportunities for dissemination of these advantages and for RxSight to strengthen relationships with existing LAL surgeons and to introduce our technology to potential new users.

Our exhibit and presentations by users about our technology were well attended, making for a highly successful meeting. Included in these presentations were several from participants in our ongoing Phase IV study documenting real world experience with the LAL since the introduction of active shield one year ago. More than 78% of 139 LALs corrected for distance achieve 2020 or better vision without glasses, with well over 90% within a half diopter of the desired cylinder or sphere correction. These results exceeded those of our FDA clinical trial, despite more than 20% of the Phase IV subjects having had previous corneal refractive surgery, which generally makes eyes more difficult to treat successfully with premium IOLs. Moreover, the unique design of the LAL makes it particularly well suited for optimizing vision with both eyes, a binocular approach that can reduce spectacle dependence across a range of distances.

In the same Phase IV study of binocularly implanted patients, 85% achieved 2020 or better binocular distance vision without glasses, while 97% were 2025 or better. The vast majority also achieved excellent binocular near vision without classes with 75% reading at the J1 level and 89% reading at the J2 level. To put this in context, J2 can be compared to reading the small print used in footnotes with J1 being even smaller. The LAL symmetrically broadened depth of focus helps to facilitate these high quality binocular results. Our LAL further enhances the patient experience by delivering the highest quality of vision. Other premium IOLs are often associated with complaints of glare, halos and reduced contrast sensitivity. Because the LAL design does not split light to different focal points, patient enjoy — patients enjoy excellent visual outcomes without increased rates of glare or halo or loss of contrast relative to a standard monofocal IOL.

Adjustability is perhaps the most significant of the trio of core LAL competitive strengths. With other premium IOLs, the doctor must select a lens and power before surgery, committing the patient to a specific visual approach and uncertainty as to whether their goals will be met. If it turns out that the doctor’s preoperative IOL prediction is not correct, the patient either needs to use glasses or undergo a subsequent corneal procedure to reach their desired vision. The LAL eliminates this high stakes preoperative decision making since its focusing power can be adjusted after surgery when the patient’s needs and desires can actually be evaluated and they have the opportunity to test drive their visual selections. The result is high quality, fully customized vision that is achieved with the patient’s active and ongoing involvement.

Our patient focused approach not only helps doctors deliver optimal care, but also helps them increase practice revenue and profitability. Surgeons can recommend the LAL with confidence knowing it will deliver high quality vision with few of the compromises that could otherwise undermine patient satisfaction and harm traffic building referrals. The LAL can therefore help doctors expand their premium IOL practice by appealing to even the most demanding patients who are seeking a truly premier outcome. These topics are of significant interest to both new and prospective LAL practices and were covered in additional AAO presentations that discussed how practices physician and market the LAL, how to achieve optimized visual outcomes, how to use the LAL to enter the premium channel and pearls from managing LAL surgical and postoperative planning.

We believe that new practices that efficiently integrate our technology will be consistent higher volume users over the longer term. To facilitate this, our clinical field and customer service teams conduct a thorough onboarding process that provides personalized hands on training and support to doctors and practice staff. Our LAL account managers quarterback this process, while also engaging with practices on an ongoing basis to assist with patient awareness and education programs, patient flow processes, data analysis on LAL outcomes and other referral and traffic building initiatives. We believe this focused coordinated effort is helping new practices get up to speed more quickly and contributing to the triple digit growth we’re experiencing in LAL sales.

To summarize, we believe RxSight is uniquely positioned in the high growth private pay premium IOL market and we remain very optimistic about the tremendous potential that lies ahead. As our third quarter results demonstrate the LAL is establishing a firm foothold in the market as more practices offer the benefits of adjustability. We are succeeding because the LAL is the industry’s most precise technology capable of achieving superior visual outcomes that are customized to each patient’s individuals’ needs and preferences. These potent competitive advantages form the cornerstone of our strategy to build a durable proprietary platform that serves the exacting needs of doctors and patients, while growing a sustainable high margin business that creates long term shareholder value.

And now operator, please open the call for questions.

Q&A Session

Operator: Thank you very much. Our first question is with David Saxon with Needham and Company. David?

David Saxon: Yes. Good afternoon. Hi, Ron and Shelley. Thanks for taking the questions and congrats on the quarter. Maybe I’ll start with utilization. I mean, it reached a year to date high even in a seasonally weak quarter. So maybe help frame how we should think about utilization trends as we enter 2023? Can you talk about utilization across new and existing accounts and how quickly it takes a new account to get up the utilization curve?

Shelley Thunen: Yes. Thank you very much, David. Yes, we reached a high 7.5 LALs per LDD. And as you know, we don’t run the business on that metric, but it’s a very telling metric of our success and the ability to increase volume at all of our accounts. And so, as we look at the various kind of chunks of timeframes in which customers adopted the technology because some obviously adopted during the height of COVID, some when COVID boots back and forth and more recently in 2022 when it’s been — when it’s had less of an impact. And so, we see all of those groups continue to increase. The slope is higher, however, for our customers that have adopted in 2022. And we think it’s multifactorial, right? Because some could be just a customer type as we continue to grow.

Some is the advancements in our technology because as you see from the data that Ron talked about, the results continue to get better. And of course, as we think about it, we have more referrals now with a larger installed base. And most doctors do talk to peers as they make a decision to buy the technology. But I do think overall our data shows that newer customers adopt more rapidly than they did, let’s say, a year ago or two years ago that makes sense, given the marketplace and that they tend to get to higher volumes sooner. And I think that’s good news. Would you add anything to those trends, Ron?

Ron Kurtz: The only thing I would add is that, also our sales force has matured and grown over the last year and they certainly have an important role in both setting the expectation at the time of the sale of the LDD, as well as quarterbacking the onboarding process and continuing to reinforce good — best practices at each of the — with the doctors and staff.

David Saxon: Okay. That’s helpful. And then my second question is just on the P&L. I mean, you’re bringing down the OpEx guidance, which is nice. So maybe talk about what’s driving that leverage? I know you added a lot of the — a lot to the commercial team this year. So how should we think about rep hiring in ’23 and kind of maybe what OpEx growth could be next year and how much leverage you might see? Thanks so much and congrats on the quarter.

Shelley Thunen: Thank you very much. I’m going to let Ron start and address the sales force.

Ron Kurtz: Yes. As you noted, David, we expanded the sales force quite a bit in 2021 and 2022. We don’t see a big change going forward. We’ll continue to look geographically and see where there might be some fine tuning, especially with account managers as we increase the installed base they cover more and more accounts. But overall, we think we’ll — we’re at a reasonable position currently.