RxSight, Inc. (NASDAQ:RXST) Q4 2022 Earnings Call Transcript

RxSight, Inc. (NASDAQ:RXST) Q4 2022 Earnings Call Transcript March 6, 2023

Operator: Good day and thank you for standing by. Welcome to the RxSight Fourth Quarter Earnings Conference Call. At this time, all 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 call is being recorded. I would now like to turn the conference over to your speaker today, Alex Huang, Investor Relations. Please go ahead.

Alex Huang: Thank you, operator. Presenting today are RxSight President and Chief Executive Officer, Ron Kurtz; and Chief Financial Officer, Shelley Thunen. Earlier today, RxSight released financial results for the three months and fiscal year ended December 31, 2022. A copy of the press release is available on the company’s website. Before we begin, I would like to inform you that the comments and responses to your questions during today’s call reflect management’s views as of today, March 6, 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 earlier today and in our filings with the Securities and Exchange Commission or SEC. Our SEC filings can be found on our website or on 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 finished strongly in 2022 and entered 2023 with favorable trends and signal accelerating adoption of the Light Adjustable Lens, the only premium cataract solution that enables doctors to customize patient’s vision after surgery and consistently deliver superior high quality outcomes. We are working closely with an expanding number of doctors and practices to leverage the unique advantages of our technology and grow the premium cataract market through multiple mechanisms. I’ll speak more about these efforts in a few minutes, but first, Shelley will review our fourth quarter and full 2022 results, discuss recent actions to further strengthen our balance sheet and summarize our 2023 guidance.

Shelley Thunen: Thank you, Ron, and good afternoon, everyone. As consistent with our January pre-announcement, RxSight reported fourth quarter revenue of $16.1 million, up 91% compared to $8.4 million in the year ago quarter and up 28% compared to $12.6 million in the third quarter of 2022. Growth was broad-based, reflecting both continued expansion of our installed base of Light Delivery Devices and a sharp increase in LAL procedure volumes. These positive trends reflect rising surgeon recognition of the tangible clinical and economic benefits that are our RxSight system delivers as well as the high-touch support we provide to ensure new practices can offer the LAL solution in a smooth and efficient manner. We sold 57 LDDs in the fourth quarter of 2022, up 27% compared to the 45 units in the year ago period and up 16% compared to the 49 units in the third quarter of 2022, when strong LDD unit growth overcame the third quarter’s usual seasonality expectations for slower capital equipment purchases.

Fourth quarter 2022 LDD unit placements generated $6.6 million in revenue, up 24% versus the year ago quarter and up 16% versus the third quarter of 2022. We ended 2022 with an LDD installed base of 400 units, up 94% versus year-end 2021 and up 28% versus the end of the third quarter of 2022. LAL sales continue to rise in the fourth quarter of 2022, reflecting surgeons and patients growing preference for the superior clinical performance of our customizable IOL. We sold 9,123 LALs in the period, up 208% from the 2,959 units in the fourth quarter of 2021 and up 38% from the 6,595 units in the third quarter of 2022. These procedure volumes translated into LAL revenue of $9 million in the fourth quarter of 2022, up 210% compared to the $2.9 million in the year ago quarter and up 38% compared to $6.5 million in the third quarter of 2022.

Higher LAL volumes also drove a shift in mix with LAL revenue representing 56% of total revenue compared to 34% in the fourth quarter of 2021 and 52% in the third quarter of 2022. This same dynamic helped to expand our gross margin to 46.1% in the fourth quarter of 2022, compared to 34% in the fourth quarter of 2021 and 42.5% in the third quarter of 2022. Fourth quarter 2022 SG&A expenses were $15.7 million, up 35% versus $11.6 million in the year ago quarter, higher costs associated with new sales, marketing and commercial personnel, we hired in latter part of 2021 and early 2022 drove the increase. On a sequential basis, SG&A expenses rose 5% from $14.9 million in the third quarter of 2022, due primarily to a major professional meeting, increased travel and increased incentive compensation on higher revenue.

Research and development expenses for the fourth quarter of 2022 were $6.7 million, up 13% compared to $5.9 million in the year ago quarter and up 5% compared to $6.4 million in the third quarter of 2022. These fluctuations in R&D costs, which include clinical and regulatory, are typical for our business and reflect primarily quarter-to-quarter changes in material utilization and timing of clinical studies. We reported a net loss in the fourth quarter of 2022 of $15.6 million, or a loss of $0.56 per basic and diluted shares using weighted average shares outstanding of 28 million shares. In the year ago quarter, our net loss was $15.7 million or $0.58 per share on a basic and diluted basis. Note also that stock-based compensation in the fourth quarter of 2022 was $3 million, resulting in a non-GAAP loss with $12.6 million or a loss of $0.45 per basic and diluted share.

A non-GAAP disclosure is included in today’s press release to provide useful comparative information for investors. In the interest of time, I’ll provide a very brief recap of full year 2022 results compared to 2021. Revenue rose 117% to $49 million, driven by a 63% and 206% increase in LDD and LAL revenue, respectively. Our 2022 gross margin was 43.5% versus 20% in 2021. SG&A expenses rose 79% to $58.7 million due primarily to investments made to expand the size and scope of our commercial organization, resumption of in-person ophthalmic meetings and increased travel. R&D expenses rose 6% to $26 million. We reported a net loss in 2022 of $66.8 million versus a net loss of $48.7 million in 2021, reflecting primarily increased spending on SG&A to execute our growth strategy.

Excluding the $11.4 million in stock-based compensation 2022, our non-GAAP loss was $55.4 million or $2 per basic and diluted share. Moving to the balance sheet. We ended the year with $105.8 million in cash, cash equivalents and short-term investments, including $6 million in net proceeds from the sale of our common stock through and at the market offering in the fourth quarter. At year-end 2022, long-term debt was $40.2 million. In the first quarter of 2023 to-date, we raised approximately $64.8 million net of expenses and fees through additional ATM sales of our common stock and a public offering of 4.6 million shares of our common stock at $12.50 per share before underwriting discounts and commissions and offering expenses. Rolling our cash, cash equivalents and short-term investments at December 31 and the approximate $64.8 million in net proceeds from our ATM and public offering, our adjusted cash balance was $170.6 million before use of cash in the first quarter of 2023.

For those of you making modeling updates, we estimate our weighted average shares outstanding to be approximately 33.8 million in the first quarter of 2023. Our 2023 guidance is for revenue to be in the range of $78 million to $83 million implying year-over-year growth of 59% to 69%. We expect to see sequential growth quarterly with some seasonality expected in the first and third quarters primarily related to capital equipment sales. We expect our gross margin to expand to a range of 52% to 54%, reflecting an increased revenue contribution from the higher margin LAL procedure volumes partially offset by LDD sales, which carry a much lower gross margin due in part to lingering supply chain constraints and inflationary pressures. We continue to anticipate the launch of our lower cost to manufacture LDD sometime in the second half of 2023 depending on reliable availability of components and parts.

We expect operating expense to be between $105 million and $108 million, which represents an increase of 24% to 28% over 2022, and reflects the ongoing investments we’re making to establish a large and durable post-operative light treatment infrastructure to support sustained LAL procedure growth. Included in our cost primarily in operating expense is non-cash stock-based compensation expense of $15 million to $16 million. We expect that interest expense on our $40 million debt will largely by offset by interest income due to our higher cash, cash equivalents and marketable securities with the ATM and offering proceeds. Based on these projections, we anticipate decreasing cash use on a quarterly basis except for the first quarter of 2023 when we expect higher cash use as we pay expenses accrued all year for incentive compensation and other accrued expenses.

In addition, 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.

Andrey_Popov/Shutterstock.com

Ron Kurtz: Thank you, Shelley. I’d like to begin by thanking both our RxSight team members and our partner practices for all their efforts in Q4 and throughout 2022 that resulted in our very strong financial performance. As Shelley outlined in our guidance, we are confident that RxSight will continue robust revenue growth in 2023 and believe that this will over time also expand the overall market for premium cataract surgery. In contrast to non-adjustable intraocular lenses that rely on preoperative predictions, the LAL uniquely enables doctors to optimize and customize a patient’s vision after cataract surgery, when an individual specific refractive targets can be accurately determined. Doctors then use the office based LDD to non-invasively achieve these targets with significantly higher precision than non-adjustable IOLs. Importantly, patients can test drive their vision after a light treatment and modify their targets if needed, flexibility that was utilized by about two-thirds of LAL patients in our most recent Phase 4 study.

In this same study, over 90% of LAL patients achieved 2020 or better binocular distance vision without glasses while over 90% also were able to read the five €“ read 5-point font typically used in footnotes. Importantly, the LAL is not associated with increased rates of glare, halo or loss of contrast vision, all of which are commonly reported with premium multifocal IOLs. The combination of high quality customizable vision appeals to a broad range of patients, including those typically choose or are guided to a non-premium or lower priced premium IOL. A recent third-party survey of 50 practices offering RxSight technology found that 40% of patients who were implanted with an LAL would’ve otherwise received a non-premium monofocal IOL. A number that approximates the fraction of cataract patients reported to have concurrent ocular conditions such as previous corneal refractive surgery or glaucoma that many doctors believe make them less than ideal candidates for premium multifocal IOLs. Since non-premium monofocal IOL procedures pay doctors only the amount reimbursed by Medicare and other third-party payers, the conversion of these patients to premium LAL procedures substantially increases private pay revenue to the doctor and practice.

This survey also found that about one-third of LAL patients would’ve received a non-adjustable premium astigmatism correcting or a toric IOL, which make up about half of all premium IOL procedures, but deliver modest clinical benefits particularly for the majority of patients with low levels of astigmatism that are difficult to predict preoperatively. Non-adjustable toric procedures also deliver about the half the private pay revenue to the doctor and practice compared to LAL procedures. The final quarter of LALs replaced premium presbyopia correcting or multifocal IOLs. Taken together, this distribution translated into an average additional revenue of nearly $1,700 per LAL implanted and a payback period of just nine months for the LDD based on an average of nine LALs implanted per month at these practices.

This data indicates that adding the LAL to practices already performing significant numbers of premium IOL procedures provides very significant economic benefits by moving more patients from non-premium or lower price premium procedures to the LAL, while also providing a high quality alternative to premium multifocal IOLs. While these higher volume premium practices continue to be the primary targets for our sales force, the clinical and economic benefits of the LAL is even stronger for practices that have not adopted premium IOLs in large numbers. Many of these practices do not offer corneal refractive surgery such as LASIK and therefore have been handicapped in their ability to fix unhappy non-adjustable premium IOL patients. Since such postoperative LASIK procedures if needed are generally included in the premium IOL procedure price paid by the patient.

The LAL largely obviates the need for postoperative LASIK corrections since patients automatically undergo refractive optimization with the LDD. Once the LAL is introduced into a practice, another potential growth opportunity opens up as other surgeons in the practice can tap into the now established light treatment infrastructure and deliver the same high quality premium results as their colleagues who are primarily focused on premium cataract surgery. These additional LAL procedures benefit patients, these new LAL surgeons and the practice, which may receive additional revenue for providing the light treatment service and can establish a reputation for consistent high quality customized outcomes. In summary, we believe there are multiple mechanisms for LAL procedural growth, including new LDD placements at high and low volume premium practices, as well as the increased conversion of conventional and lower priced premium IOLs to LAL procedures by both higher volume premium surgeons and their lower premium volume colleagues.

Increased premium procedural revenue is critically important to most, if not all ophthalmic practices, as it is one of the only avenues available to them that mitigates the continued reductions in reimbursements for non-patient pay procedures. As an ophthalmologist, I enjoy meeting with our current and future customers at their practices, at informal dinners and at professional meetings. One observation that has been reinforced by these encounters is that just like patients, each doctor and practice is unique requiring a customized approach. To accomplish this, we deploy an experienced team of clinical field and customer service personnel to complete installation of the LDD and provide training both in the operating room where the LAL implantations are performed and in the office where LDD treatments occur.

These experts work cooperatively with our LAL and LDD sales professionals to provide ongoing strategic clinical and marketing support to the practice. Together, the RxSight team is developing close relationships with doctors and practices, which is a major reason why we receive world class ratings for willingness to recommend both our technology and company. We also continue to make investments that drive high quality product improvements and manufacturing capacity, vital efforts that are now safeguarded by our strengthened balance sheet. Relying on decades of experience establishing successful private pay businesses and ophthalmology, we believe the RxSight team is building a durable high margin business with the goal of becoming the standard for premium cataract surgery.

Our performance throughout 2022 demonstrates the early progress that we’ve made by addressing the needs of doctors and their premium cataract patients. So far in 2023, positive awareness of our unique technology continues to grow, reflecting our laser focus on the core strengths that set us apart in the industry, high quality, fully customized clinical results that meet the exacting expectations of patients and deliver clear economic advantages to doctors and practices. With that, I’ll ask the operator to open the call for questions.

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Q&A Session

Operator: Thank you. The first question will be coming from Craig Bijou of Bank of America. Your line is open.

Craig Bijou: Great. Thanks guys for taking the questions. Just want to start with the revenue guidance, and I wanted to see if you guys could provide a little bit more detail in terms of expectations for LDD growth and LAL growth. And then, Shelley, I heard your comments on some seasonality on the system sales but wanted to see if you guys could give a little bit more color on how to think about utilization seasonality. You guys ramped nicely throughout the year in 2022. So should we expect a similar level of sequential improvement for utilization in 2023 and €“ or are there kind of other factors to consider?

Shelley Thunen: Okay. Thank you, Craig, for your questions. I’ll start with the revenue guidance. While we don’t break out the LDD revenue from the LAL revenue and our guidance, I think that one of the things that I said is that we’re going to continue to have margin expansion and margin expansion is driven by LAL sales. They were 56% of revenue in the fourth quarter in a very strong quarter for LDD sales. So we will expect to see the LAL sales continue to increase and be more than 50% of the overall total revenue, even with expanding LDD sales as well. And I think that’s important too, both our margin as well as our revenue guidance. And then you asked a little bit about seasonality. And so typically what you see, although, we did not see it last year at all, is that you see a little bit of heavier revenue for capital equipment sales in the second and fourth quarter with a little bit lower in the first and the third.

In the first, it’s just that people are getting going on their capital equipment allocations for the year and starting up their practice. In the third quarter, it tends to be a little lower, although, we did not see it this year with very heavy LDD sales as doctors and patients are on vacations, so they’re not as focused on capital. LDD revenue and our LAL revenue in our case continues to grow really from two sources. One is as we sell more LDDs, we continue to sell more LALs. And then the other thing that we’re focused on with our professional teams is for practices both new and existing to increase the number LALs that they’re doing pretty consistently as well. And so we’re very focused on that. We saw sequential growth quarter-over-quarter in 2022, and because we’re continuing to grow, that’s a more realistic expectation.

But the percentage growth quarter-over-quarter can be variable. And it’s variable for two reasons. One is that, you’ve got some seasonality, particularly in the third quarter, but also a little bit of math, right? The more LDDs that you place in a quarter than the previous quarter, you still have expansion from them, but the number of LALs per LDD may not be growing as quickly as it would in another quarter. And so I think that’s everything you asked, Craig. Did I cover everything?

Craig Bijou: Yes, you got it. Thank you, Shelley. And then maybe I can ask on gross margin. Obviously you’re looking for a pretty big step up in 2023, and I appreciate your comments on the mixed benefit driving that step up. I did want to see, have you contemplated or are you assuming any benefit from the launch of the lower cost €“ cost to manufacture LDD? And maybe if you could just give a little bit of color on what that lower cost to manufacture LDD could provide from a margin benefit perspective going forward?