RxSight, Inc. (NASDAQ:RXST) Q3 2023 Earnings Call Transcript

RxSight, Inc. (NASDAQ:RXST) Q3 2023 Earnings Call Transcript November 12, 2023

Operator: Good day, and thank you for standing by. Welcome to the RxSight Third Quarter 2023 Earnings 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 and nine months ended September 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 questions during today’s call reflect management’s view as of today, November 9, 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. In a few minutes, Shelley will review our third quarter financial results and guidance for the balance of the year. But I wanted to first highlight several positive developments that we believe will further strengthen RxSight’s ability to penetrate and expand the high-growth premium cataract market. In the latter part of the third quarter, we launched our reconfigured light delivery device or LDD, and see sales of our previous LDD version. While offering identical functionality, the new LDDs reduced footprint addresses practice-based constraints with an updated design that has elicited very favorable feedback, including at its first public exhibit at the RxSight booth during last week’s Annual Meeting of the American Academy of Ophthalmology or AAO.

Even with a modest price increase, the reconfigured LDDs ROI remains highly attractive, generally paying for itself in about six to nine months, assuming approximately nine to ten light adjustable lens implantations per month. Also at the AAO meeting, there were numerous presentations discussing the LAL, indicating continued growth and awareness and interest. This included real-world clinical data on 738 bilateral LAL subjects from nearly 80 clinical sites that continues to illustrate the clear advantages of postoperative adjustability. Consistent with earlier data readouts, 97% of LAL subjects achieved uncorrected binocular distance vision of 2025 or better and 87% achieved 2020 or better. 91% of LAL subjects achieved uncorrected binocular near vision of J2 or better, which means they could read 5-point type without glasses, while 79% could read at J1 or better equivalent to 4-point type.

Just under 80% of subjects decided to optimize vision in one eye premier and intermediate distances often referred to as blended vision. For most of these subjects, the refractive difference between the eyes was quite small at 1.25 diopters or less. The results showed that 97% of blended vision LAL patients achieved 2020 for better uncorrected distance vision and 95% achieve J2 or better uncorrected near vision. Just under 25% of all LAL subjects in the study were post-refractive patients. However, there were no differences in visual outcomes between eyes that had previous refractive surgeries and those that had not, even though it is generally considered to be more difficult to achieve optimal results in post-refractive eyes. Also during the AAO meeting, preliminary Phase I clinical study results were reported on a new member of the Light Adjustable Lens family called the LAL Plus.

Approved by the FDA earlier this year, this new lens has a proprietary optical design that further extends the depth of focus before light treatments, but with the same ability to customize and deliver high-quality vision as the LAL. We believe this combination of quality and expanded range will be very attractive to premium Iowa surgeons and their patients, particularly to those who favor distance dominant vision in both eyes and might be considering an alternative such as multifocal lens that can be associated with reduced quality of vision. We will be expanding our ongoing Phase IV LAL clinical study to generate more real-world data while continuing a controlled commercial launch for the LAL Plus in the first half of 2024. Surgeons and practices already familiar with the LAL can seamlessly add the LAL Plus to their premium practice as there are no differences in the surgical procedure or post-op adjustment process.

The LAL will continue to offer outstanding visual results for those patients who are likely to utilize more blended vision or who have other ocular conditions such as previous corneal refractive surgery. We believe that with both the LAL and LAL Plus, doctors can provide nearly any patient with precise high-quality vision across a full range of distances while avoiding increased rates of glare, halos or loss of contrast sensitivity common to multifocal IOLs, thereby delivering the highest level of patient satisfaction. The reconfigured LDD and LAL Plus are good examples of our approach to innovation, which focuses on the continuous improvement of our technology to drive progressive adoption by patients and practices. Through such product enhancements, industry-leading clinical results and individualized high-touch customer service, we remain fully focused on helping doctors deliver the best possible vision to premium cataract patients, thereby also helping their practices to grow and prosper.

With that, I’ll turn the call over to Shelley for a recap of our quarterly financial performance and guidance outlook for the balance of 2023.

Shelley Thunen : Thank you, Ron. Good afternoon, everyone. RxSight generated third quarter 2023 revenue of $22.2 million, up 76% compared to $12.6 million in the year ago quarter, and up 7% compared to $20.8 million in the second quarter of 2023. We sold 13,657 LALs in the third quarter of 2023, up 107% and 8% compared to 6,595 units and 12,622 units in the same year ago quarter and second quarter of this year, respectively. Third quarter 2023 LAL unit sales generated revenue of $13.5 million, up 117% and 9% compared to $6.5 million and $12.4 million in the third quarter of 2022 and second quarter of 2023, respectively. This sequential performance is consistent with the typical seasonality patterns for cataract surgery volumes, which tend to be softer in the third quarter due primarily to summer vacation schedules.

LAL revenue as a percentage of total revenue was 61%, up from 52% and 60% in the third quarter of 2022 and second quarter of 2023, respectively. We sold 66 LDDs in the third quarter of 2023, up 35% compared to 49 units in the year ago period and relatively even with 67 units in the prior quarter. Third quarter 2023, LDD sales generated revenue of $7.9 million, up 39% and 3% versus the third quarter of 2022 and second quarter of ’23, respectively. As of September 30, 2023, our LDD installed base increased to 589 units, up 72% and 13% versus the third quarter of 2022 and the second quarter of 2023, respectively. As Ron indicated earlier, we launched the reconfigured LDD during the third quarter and phased out sales of the prior version. These reconfigured units, which are more cost-effective to manufacture, represented roughly one third of our unit sales during the period.

A price increase implemented at launch listed our total LDD ASP as compared to Q2, 2023 by about $5,000 to just over $120,000 in the third quarter. We expect the higher ASP for the reconfigured LDD to be maintained as we close out 2023 and enter 2024. Release of the reconfigured LDD with a higher average selling price and lower cost to manufacture, along with the continued shift in revenue mix drove an increase in the gross margin in the third quarter to approximately 62% compared to 42% in the year ago quarter and 58% in the second quarter of this year. SG&A expenses in the third quarter of 2023 were $19.1 million, up 28% versus $14.9 million in the year ago quarter, reflecting stocks implementation and consulting costs and increased expenses in sales and clinical personnel costs and travel.

On a sequential basis, SG&A expenses were up 5%, primarily due to soft implementation and consulting costs. R&D expenses in the third quarter of 2023 rose 11% to $7.1 million compared to $6.4 million in the same year ago quarter and $7.4 million in the second quarter of 2023. The change versus the year ago quarter was primarily due to increased headcounts and associated increase in salaries and stock-based compensation. We reported a GAAP net loss in the third quarter of 2023, up $12.4 million or a loss of $0.35 per basic and diluted share using weighted average shares outstanding of 35.7 million shares. This compares to a GAAP net loss of $16.8 million or $0.61 per share on a basic and diluted basis using a weighted average shares outstanding of 27.7 million shares in the same year ago quarter.

Noncash stock-based compensation and loss on extinguishment of debt in the third quarter of 2023 was $4.1 million and $1.4 million, respectively, resulting in a non-GAAP loss of $6.9 million or a loss of $0.19 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. As previously reported, we raised $11.7 million net of fees and expenses in July under our at-the-market or ATM program. We used these proceeds and cash reserves to pay off our remaining $20 million debt balance. We ended the third quarter of 2023 with cash, cash equivalents and short-term investments of $131.9 million compared to $147.1 million at June 30, 2023. The change reflects the net impact of the ATM proceeds, ESPP contributions and stock option exercises, net of the $20 million debt reduction.

Excluding the proceeds from financing and capital activities and use of capital for principal debt repayments, cash used in operating activities during the third quarter was $7 million compared to $9.5 million in the second quarter of 2023. The change was due primarily to a lower net loss driven by higher gross profit and a reduction in interest expense. Turning now to guidance, based on our third quarter 2023 performance, we are increasing our 2023 revenue guidance range to $85 million to $87 million, up from prior guidance of $81 million to $86 million. Our new guidance implies a year-over-year growth rate of 73% to 78%. We are also increasing our 2023 guidance range for gross margin to 61% to 61% versus prior guidance of 58% to 60%. The increase reflects the fourth quarter full benefit of improved gross margin from the reconfigured LDD with a higher ASP and lower cost to manufacture.

Our 2023 operating expense guidance range narrows to $106 million to $107 million, which includes noncash stock-based compensation of $15 million to $16 million. This annual guidance translate to fourth quarter 2023 revenue guidance of $25 million to $27 million, gross margin of 61% to 62%, and operating expense of $31 million to $32 million. Since late 2022, we have raised $101.1 million, net of fees and expenses through our confidentially marketed public offering or CMPO and ATM program, paid off our $40 million termed out loan and cut our annualized interest expense by approximately $5.6 million. As previously indicated, we believe our cash and short-term investment balances, combined with no outstanding debt will leave 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, Shelley. To summarize, LAL volumes in the third quarter continued their positive advance while favorable LDD unit trends provided an encouraging indicator for rising LAL usage in future periods. We are pleased with the early embrace of our newly released LDD and the potential of the LAL Plus to further widen the addressable patient base and stimulate additional procedure growth in 2024 and beyond. Our expanding Phase I clinical data paints an increasingly clear and convincing picture of the superior visual results postoperative adjustability can deliver to patients while creating sustained profitable revenue streams that help practices thrive. With surgeon adoption on the rise, we remain very optimistic about the future potential of our unique technology to reshape and expand the premium cataract market and create long-term value for our RxSight patients, doctors and shareholders.

In these challenging times, we greatly appreciate that RxSight is not dependent on government reimbursement decisions and caters to a highly desirable patient demographic with a strong U.S. initial focus and a large global opportunity. In contrast to other clinical areas, we also do not see exposure to GLP-1 or other potential pharma products. And now I’ll ask the operator to open the call for questions.

Operator: At this time, we will conduct the question-and-answer session. [Operator Instructions] First question comes from Craig Bijou with BoA Securities. Go ahead. Your line is open.

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Q&A Session

Craig Bijou: Great. Thank you. Good afternoon and congrats on another strong quarter. So I wanted to start with, I appreciate some of your comments on the Q3 seasonality. And obviously, the Q4 or the guidance assumes a Q4 step up. So based on what you’re seeing thus far in the quarter, just wanted to see, is Q4 kind of tracking towards normal seasonality that you would have seen in past years? And specifically, how should we think about the seasonality impact on both utilization and LDD placements?

Shelley Thunen: Yeah. While we don’t comment on intra-quarter results, we will say that we expect Q4 to be seasonally the strongest quarter of our year. Typically is, and you certainly see that in the revenue guidance.

Craig Bijou: Got it. Thanks, Shelley. And then maybe for Ron, just on LAL Plus. I appreciate those comments. And maybe just what’s different about LAL Plus? So obviously, it sounds like it’s going to be improved upon LAL and some better clinical outcomes. But is the process, the fitting process or anything different? Is pricing going to be different? Is the cost for you guys to manufacture different?

Ron Kurtz: So in terms of the clinical process, it’s identical, both from the surgery as well as the LDD treatment. And from a financial aspect, it’s also identical from our perspective in terms of pricing. And we really just want the doctor to choose the best LAL for that particular patient. We think that the LAL obviously has served as a great choice, particularly for those patients as we see in our study who choose blended vision and/or who might have other conditions such as being post-refractive. And we feel that the LAL Plus is going to be particularly strong for those patients who might be more inclined to choose distance dominant vision in both eyes and might be considering a multifocal lens, but would like to avoid some of the drawbacks of that technology.

Craig Bijou: Great. Thanks for taking the question.

Shelley Thunen: And I would just add, yes, you asked about manufacturing cost. That’s exactly the same as LAL.

Operator: The next question comes from Robbie Marcus with JPMorgan. Go ahead. Your line is open.

Rohin Patel : Hi, everyone. This is actually Rohin on for Robbie. I just want to say congrats on another nice quarter here. Just two from me. The first is just how are you thinking about penetration today across your LDD base? And how should we think about the growth in LDDs relative to LAL next year and beyond? Obviously, you’ve seen a pretty nice sequential step-up as a percentage of total sales. So just if you could provide some color on where that should settle out, that would be helpful.

Shelley Thunen: So let me just clarify. I think you’re asking about penetration of LDDs in the U.S. marketplace. Is that what you’re asking?

Rohin Patel : Yeah. Just kind of trying to get at like how much growth is left in LDD placements. Obviously, over time, LAL will make up the majority of your revenues. I think that’s kind of how people model it out, but just wanted to get a sense for like, where that should plateau on the LDD side?

Shelley Thunen: Yeah. You know, we’ve always said that there’s about 30,000 ophthalmologists in the U.S. and about 10,000 of those perform cataract surgery. We’ve recently gotten updated data that about 4,000 perform about 70% or 80% of the premium procedures. So that’s getting a bit more distributed than the 3,000 that we have mentioned earlier. But we think that the LDD is an ideal way for every doctor, even those that are not doing premium procedures to enter the premium market with a low capital cost and great results for their patients. Ron, maybe you want to add something else about that?

Ron Kurtz: Yes, I would agree. Obviously, we’re focused on doctors who are doing the most premium procedures initially. But as we continue to expand, we want to be able to offer this to other doctors who may have not been traditionally focused on the premium market, but increasingly see this as their primary way to build the revenue in their practice and to thrive. And really, I don’t think we know what the upper limit of LDD placements is going to be over time as practices develop, as they open new offices, et cetera.