Sight Sciences, Inc. (NASDAQ:SGHT) Q4 2023 Earnings Call Transcript

Sight Sciences, Inc. (NASDAQ:SGHT) Q4 2023 Earnings Call Transcript March 7, 2024

Sight Sciences, Inc.  isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Sight Sciences Fourth Quarter 2023 Earnings Results. [Operator Instructions] And please be advised that today’s conference is being recorded. I would now like to turn the conference over to your speaker today, Trip Taylor with Investor Relations.

Philip Taylor: Thank you for participating in today’s call. Presenting today are Sight Sciences Co-Founder and Chief Executive Officer, Paul Badawi; Chief Financial Officer, Ali Bauerlein; and Chief Commercial Officer, Matt Link. Earlier today, Sight Sciences released financial results for the 3 months and full year ended December 31, 2023 and initiated guidance for full year 2024. A copy of the press release is available on the company’s website at investors.sightsciences.com. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include statements related to the company’s anticipated financial performance, operating results and liquidity position, current and long-term strategic objectives, market opportunity, business and commercial strategy, product reimbursement strategy, clinical trial results and costs associated with pending litigation.

Forward-looking statements are based on estimates and assumptions as of today, are neither promises nor guarantees and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements. A description of some of the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements on this call can be found in its public filings with the Securities and Exchange Commission, including in the Risk Factors section of the company’s annual report on Form 10-K and quarterly reports on Form 10-Q. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.

On the call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including adjusted operating expenses. The company believes these non-GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. See the company’s earnings release for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as well as additional information about the company’s reliance on non-GAAP financial measures. I will now turn the call over to Paul.

Paul Badawi: Thanks, Trip. I’m extremely proud of the progress we made in both the fourth quarter and full year 2023. This year has reinforced the importance of our mission to develop transformative interventional technologies that allow eye care providers to procedurally elevate the standards of care, empowering people to keep seeing. 2023 was a pivotal year for us as we executed on key strategic initiatives. We are very pleased to have accomplished several milestones throughout the year, including enhancing our executive team with proven high-growth med tech leadership experience, with the additions of Ali Bauerlein, our Chief Financial Officer; and Matt Link, our Chief Commercial Officer. Both Ali and Matt have integrated seamlessly into their roles and have been vital to our many organizational enhancements.

Following their hires, we realigned our structure to be more effective and laid the foundation for the next level of scale over the coming years. We also expanded the body of long-term clinical evidence supporting our technologies. Importantly, we announced the publication of long-term clinical data in a leading peer-reviewed journal, including 2-year follow-up data from the ROMEO study, 3-year follow-up data from the GEMINI 2 study and 6-month data from the SAHARA RCT. We believe differentiated long-term clinical data will help us drive coverage, equitable reimbursement and commercialization success over time. In 2023, we generated revenue growth in the mid-teens. Our gross margins improved to all-time highs and we significantly reduced our operating expenses and cash usage in the face of reimbursement uncertainty while maintaining focused spend on critical areas.

In a major development late in December, we were pleased with the withdrawal of the finalized LCDs from 5 Medicare administrative contractors, or MACs, that were scheduled to go effective in late January 2024. These MACs had previously identified certain MIGS procedures as investigational for glaucoma management in patients over the age of 18, including canaloplasty in combination with trabeculotomy ab interno [ph] which is a procedural description associated with our OMNI surgical system. Throughout the process, we work closely with all key stakeholders, including national and state societies, congressional offices, medical device associations and hundreds of MIG surgeons to help educate the MACs and CMS about the importance of MIG procedures involving our OMNI system and the long-term clinical evidence available.

We executed this multipronged approach to challenge the LCDs while navigating new and complex dynamics with our surgeon customers resulting from the potential implications of these LCDs and our customers’ preparations to adhere to potential coverage restrictions. Even with the reimbursement uncertainty, sales of our surgical glaucoma products proved very resilient. We believe this is a testament to the clinical efficacy of the comprehensive OMNI procedure as surgeons rely on its IOP and medication reduction capabilities to treat their patients. Again, we are thankful that our team and other industry stakeholders were steadfast in their alignment on the important role OMNI plays in treating their glaucoma patients. We will continue to advocate to ensure that there is equitable patient access to this critical technology.

Coverage decisions are heavily governed by compelling long-term clinical data. We provided the MACs with a significant body of peer-reviewed, long-term clinical evidence throughout the process which was further strengthened by the publication of our GEMINI 2 study in December. Favorable results from this prospective multicenter study demonstrated sustained and clinically significant IOP reduction of 29% from baseline at 36 months and clinically significant IOP-lowering medication reduction with 74% of the study patients medication-free at 36 months. The prospective 3-year clinical outcomes in the GEMINI 2 trial confirm and extend the previously published 12-month data from the original GEMINI trial. GEMINI 2 included 66 patients across 11 participating sites.

And any patients who are not already medication-free from the OMNI procedure underwent medication washout at the 2-year and 3-year end points so that the IOP lowering effect of the OMNI procedure could be isolated and assessed. There is demonstrated consistency with clinical outcomes across all published OMNI studies and this longer-term prospective multicenter trial data further supports the need for continued access to OMNI technology. We believe that new MIGS LCDs may be proposed in the future. While we are uncertain as to the timing and process that would be followed, if new LCDs are finalized, we are confident our body of published high-quality, long-term data, including the GEMINI 2 study, supports continued coverage of procedures enabled by OMNI for the appropriate patient population.

We also plan to publish additional clinical data throughout 2024 that will further strengthen the body of evidence illustrating OMNI’s clinical efficacy and we believe will support favorable coverage determinations. We look forward to continued engagement with the MACs, CMS and other stakeholders to ensure glaucoma patients and their physicians maintain appropriate and equitable access to medically reasonable and necessary MIGS procedures and technologies. Looking ahead, we are working to reengage those accounts impacted by the LCDs, drive increased utilization and train new surgeons. Despite the uncertainty associated with the LCDs, we have minimal employee attrition in the fourth quarter and we are now backfilling those roles in the first quarter.

As expected, given the fourth quarter LCD uncertainty, the surgeon training funnel was lighter than our historical average to end the year. We are still in the early stages of regrowing the funnel as surgeons now have visibility on coverage. We are confident in our ability to recapture accounts lost, add new accounts and surgeons and improve utilization over time. Our main commercial focus is increasing utilization across our customer base and reengaging with accounts that have not ordered OMNI over the past 2 quarters due to the reimbursement uncertainty. The changes we made to our commercial organization in the fourth quarter are already proving beneficial in this regard. We believe we have a solid foundation in place to efficiently drive strong growth over the long term, including our anticipated return to double-digit revenue growth in the second half of 2024 and into 2025.

I want to close our Surgical Glaucoma discussion by touching on our recent European launch. In February, we initiated the European launch of the Ergo series of the OMNI surgical system. Following its U.S. launch in March 2023, the Ergo series has been broadly adopted due to its improved ergonomics and an optimized cannula tip that provides gentle and precise access to Schlemm’s canal. We believe these design features will be invaluable to our European partners. Turning now to our Dry Eye business. Our TearCare technology provides a clinically proven, safe and effective procedural intervention for patients suffering from evaporative dry eye disease which is a multibillion-dollar annual U.S. market opportunity with over 11 million patients diagnosed.

Interventional dry eye procedures with TearCare address the root underlying cause of evaporative dry eye disease and we believe TearCare represents a major advancement providing patients with a more comprehensive, consistent, fast-acting and long-term dry eye treatment. As discussed on our last call, we have streamlined our commercial focus and taken measures to reduce the commercial spend within our dry eye business and strategically shift some of that spend towards building out our market access and payer team that is now in place. We are actively working in 2024 to drive equitable market access for dry eye patients who can benefit from an interventional procedure with TearCare. Importantly, our market access team has significant experience establishing reimbursement for new and innovative technologies and procedures.

In 2024, we are focused on leveraging our foundational work with commercial payers and MACs to advocate for coverage of interventional eyelid procedures enabled by TearCare. The publication of our compelling SAHARA 6-month RCT data and budget impact model are the focal points of our discussions with payers. These discussions will be ongoing throughout the year and beyond and coverage decisions will be subject to payer standard policy update time lines. Our goal is to begin receiving coverage decisions from payers starting in 2025 as we pursue this large market opportunity. At that point, we will expand TearCare commercialization in geographies where coverage has been established. The publication of successful 6-month results of the SAHARA RCT, comparing TearCare to Restasis, the market-leading dry eye therapeutic for the treatment of dry eye disease, was published in clinical ophthalmology in December.

Data from the RCT shows the TearCare technology successfully delivered clinically and statistically significant improvements in every sign and symptom at all measured time points over a 6-month period. TearCare was also superior to Restasis and the improvement of tear film breakup time, the study’s primary objective endpoint and a key measure of aqueous retention, tear stability and the tear film’s ability to protect the ocular surface. This trial was designed with feedback from medical directors of insurance companies to demonstrate safety, efficacy and long-term performance which are important in their coverage determinations. We believe the data generated by this trial is a critical building block for TearCare and offers the most robust validation of TearCare’s clinical efficacy to date.

In closing, we have incredible interventional technologies within both our Surgical Glaucoma and Dry Eye businesses that elevate the standard of care and improve treatment paradigms for millions of patients. We value the solid foundation we have built over the past decade and all of the learning and know-how we have acquired along the way. We have many things to be excited about this year, in particular, as 2024 is a transformational year for us. In our Surgical Glaucoma segment, we expect to publish additional long-term, large-scale real-world data on the differentiated clinical efficacy of OMNI, including disease severity outcomes, ethnic minorities outcomes and stand-alone outcomes. In addition, we are conducting a meta-analysis based on all OMNI clinical studies and are also starting a multinational OMNI RCT, further demonstrating our long-standing commitment to generating market-leading clinical evidence.

We believe we are well situated, if any LCDs may return and we remain critically focused and actively engaged with the payers and our many societies on our OMNI market access strategy, based on our differentiated technology, efficacy and clinical data. We saw the resiliency of our customer base and sales in the fourth quarter and we are now seeing increased utilization in the first quarter. This is an encouraging indicator of the return to growth we expect to deliver in the second half of the year. We expect OMNI to continue to take share in the combo cataract market and continue to lead the growth of the growing stand-alone market. In our Dry Eye segment, we also expect to soon publish our SAHARA 1-year RCT results which continue to show the superior benefits of TearCare versus Restasis in the treatment of dry eye disease.

We plan to also publish a compelling budget impact model this year, showing the health economic impact and system savings for TearCare versus Restasis. This year, we also expect to start seeing claims paid for TearCare, a critical step in our journey to ultimately establish broad coverage for TearCare and for TearCare to become a leading interventional treatment in dry eye. With so many important catalysts on our horizon and a strong experienced team in place, we are very well positioned to reliably execute our plan and create value. We are particularly excited about the rest of this year as we continue to build and optimize our business, return to high growth and drive towards profitability. I’ll now turn the call over to Ali to discuss our financials.

Ali Bauerlein: Thanks, Paul. Before I dive into the fourth quarter financial results, I want to reiterate that we are extremely proud of both our commercial and operational execution as we navigated significant challenges brought on by the LCD. Our expense management and reduction in cash used reflected our swift execution and the flexibility of our model. We feel these adjustments were essential and have well positioned us to support our future financial goals without limiting our strategic plan. As we announced in January, we closed a senior secured credit facility for up to $65 million with Hercules Capital, including an initially funded $35 million tranche under the facility. The new facility provides us with improved commercial terms and stronger financial flexibility as we execute our strategic goals while maintaining current debt outstanding.

Combined with our disciplined expense management, we believe we are well positioned with strong financial footing and plan to achieve cash flow breakeven without the need to raise additional equity capital, while still investing in R&D and commercial expansion opportunities to support our long-term growth. Lastly, before turning to quarterly results, I want to briefly touch on the ongoing patent infringement case with Alcon. In April 2023, we reported that we had defeated all 4 patent invalidity challenges filed by Alcon which are not appealable. The next steps include a trial that is currently scheduled to commence in April 2024. As a result, we expect to incur higher operating expenses in the first quarter of 2024 due to trial preparation work.

Moving back to the fourth quarter. Total revenue for the fourth quarter was $18.8 million, at the top end of the revenue range we announced in January. This reflects a decrease of 9% compared to the fourth quarter of 2022 but stronger than we expected with the LCD uncertainty during this period which was primarily driven by continued utilization of OMNI by our customers. Surgical Glaucoma revenues for the fourth quarter were $17.2 million, down 9% versus the comparable period. 1,064 customers ordered surgical glaucoma products in the fourth quarter, down about 4% from the third quarter of 2023 but still up about 5% from the fourth quarter of 2022. Utilization of ordering accounts was down about 5% sequentially and down about 16% from the fourth quarter of 2022 but still stronger than expected given the transient LCD dynamics.

We believe this continued utilization shows the importance of OMNI to our surgeon and emphasizes the unique benefit this comprehensive procedure provides for their patients. Similar to last quarter, our customer retention was solid but utilization was down slightly. We believe these dynamics were primarily the result of the uncertainty surrounding the LCDs as we saw higher impact in the areas covered by the 5 MACs. Since the LCDs were withdrawn, our priority has been to reengage and expand our customer base and drive increased utilization back to pre-LCD levels and beyond. Our Dry Eye revenues for the fourth quarter were $1.6 million, down 11% compared to the fourth quarter of 2022. The decline was primarily due to the evolution of our commercial strategy to focus on achieving market access and higher account utilization which led to fewer new accounts and related SmartHub sales and due to our reduced sales infrastructure after our restructuring in October 2023.

For the fourth quarter of 2023, we had 327 active dry eye customers, a 20% increase versus the fourth quarter of 2022. Additionally, we sold over 5,200 dry eye treatment leads in the quarter, a 2% increase versus the comparable period. Gross margin for the fourth quarter was 85% compared to 82% in the same period in the prior year. Our overall gross margin profile remains strong. However, there was a slight impact sequentially compared to the third quarter, driven by lower production volumes and higher overhead per unit. Total operating expenses for the fourth quarter were $27.1 million, a decrease of 20% compared to $33.9 million in the fourth quarter of 2022. Adjusted operating expenses were $22.3 million in the fourth quarter, a decrease of 27% compared to $30.6 million in the same period in the prior year and well below expectations.

The decrease in total operating expenses in the comparable period was primarily driven by a $3.8 million reduction in nonpersonnel-related operating expenses, primarily due to lower sales related and R&D expenses and a $2.8 million reduction in personnel-related expenses, including lower incentive-based commission expense of $2 million, mostly due to lower-than-expected revenue, partially offset by a $1.2 million cash restructuring costs incurred in the fourth quarter of 2023. R&D expenses were $3.4 million in the fourth quarter of 2023 compared to $5.2 million in the fourth quarter of 2022. SG&A expenses were $23.7 million in the fourth quarter of 2023 compared to $28.7 million in the fourth quarter of 2022. We are proud of the cost containment efforts taken in the fourth quarter of 2023 and our ability to be agile without compromising on our commercial and R&D value drivers.

Our loss from operations for the fourth quarter was $11.1 million compared to a loss of $17.1 million in the fourth quarter of 2022. Our net loss was $10.7 million or $0.22 per share in the quarter compared to a net loss of $16.9 million or $0.35 per share for the fourth quarter of 2022. We ended the quarter with $138.1 million of cash and cash equivalents and $35 million of debt, excluding debt discounts and amortized debt issuance costs. We used just $6.4 million of cash in the quarter, reflecting continued operational discipline and a sequential improvement from $10 million of cash used in the third quarter of 2023 and a decrease versus $14.8 million used in the fourth quarter of 2022. This continues the strong trend of reduced cash usage that was evident throughout 2023, with $46.9 million of cash used in 2023 compared to $75.7 million of cash used in 2022, reflecting a 38% reduction.

Moving to our outlook for the full year 2024. We are initiating revenue guidance of $81 million to $85 million, representing a range of 0% to 5% growth compared to 2023. We expect the first half of 2024 revenue to be lower than the comparative period in the prior year as we recover and rebuild following the impact of the LCDs in the second half 2023. We expect this will be followed by double-digit growth in the second half of the year versus the comparative period in the prior year as we regained commercial momentum and expand utilization and our customer base. We expect typical seasonality in 2024, where the second and fourth quarters tend to have stronger utilization than the first and third quarters. We do expect Dry Eye revenue to decline significantly in full year 2024 compared to full year 2023 due to the evolution of our commercial strategy, the restructuring of our dry eye team and the refocus on market access activities this year.

We expect Dry Eye revenue to have accelerated growth in 2025 with reimbursement coverage and an expanded commercial presence. In terms of gross margin, we continue to expect overall gross margin to be in the mid-80s but we do anticipate increased overhead cost per unit due to lower production builds planned in 2024 for both segments, the larger impact in the Dry Eye segment. We expect full year 2024 adjusted operating expenses of $107 million to $110 million, representing a range of 0% to 3% decline compared to 2023 with higher first quarter adjusted operating expenses, primarily due to higher legal expenses for pending litigation. While our guidance implies lower total revenue growth in 2024 than we saw in 2023, we believe it is prudent to put achievable revenue guidance in place and are focused on the right long-term value drivers in the organization by maintaining and establishing equitable market access for our products, continuing to expand our clinical portfolio showing strong efficacy and building the right commercial infrastructure to produce consistent and predictable growth.

We are proud of the resilience we’ve seen in our customer base and sales which is a testament to the benefits of our OMNI technology. We believe we will return to double-digit revenue growth in the second half of 2024 with execution of these initiatives as we are still in the early stages of penetration in both our Surgical Glaucoma and Dry Eye market opportunities. Operator, please open the line for questions.

Operator: [Operator Instructions] Our first question is from Matthew O’Brien with Piper Sandler.

See also 15 Countries with Cyber Warfare Capabilities and These 10 Stocks Can Skyrocket if Donald Trump Wins US Election 2024.

Q&A Session

Matthew O’Brien: Good to hear that things are supposed to perk up this year, especially on the Surgical Glaucoma side. But I’m just curious, what you’re seeing maybe early days here in Q1 from a clinician recovery? How many of those stocks that were not using at the end of last year have come back to you? And then what you’re seeing from a utilization perspective?

Matt Link: Matt, this is Matt here. I appreciate the question. I think as reflected in the comments both from Paul and Ali, we’re seeing a steady state of recovery in all the areas that you just asked about in terms of individual accounts, ordering the percent of active accounts ordering and a steady state of reengagement and utilization from our customers which is what I think you would expect, considering the uncertainty that sort of was created with the LCDs in the second half of last year. And just to reiterate the comments from both Paul and Ali as well, I think that we saw a remarkable resiliency from our organization, our sales organization and also from our customers. And ultimately, we believe that’s a reflection of the comprehensive nature of OMNI and the clinical value it delivers. And so again, early signs are a consistent state of recovery, consistent with our expectations.

Matthew O’Brien: Okay. Appreciate that, Matt. And then what’s implied — and I’m trying to run through the model, I didn’t get to it in time here on the call. But I guess to get to this double-digit growth in the back half of the year and then into next year, what’s implied from a recovery perspective in terms of the previous clinicians, getting new clinicians, training on utilization, all that fun stuff. And then, Ali, I guess I’m just trying to reconcile the growth outlook with some of the cuts that you’ve made from a spending perspective then to like getting to free cash flow positive with your existing cash levels. Just putting all that together, like, it’s just difficult to reconcile all that together. So just maybe help bridge us to that point.

Ali Bauerlein: Sure. Happy to take that. So we’re not going to get into the level of granularity down to the modeling perspective of number of accounts or utilization but we would expect all of those metrics to improve throughout the year, subject to, of course, typical seasonality in the business where you would typically see Q2 and Q4 utilization higher. But we do expect to increase the cadence of new accounts being added in the period as well as recovery of the account loss and then also improve our overall utilization, both combo cataract as well as standalone. So, all of those are areas that we are expecting to see improvements in 2024. I would say that the toughest comp for us will, of course, be the second quarter since that was our record sales last year.

But outside of that, we expect to be able to continue to show nice progress in the business and that’s really how you get to that double-digit growth in the back half of the year. So before we move to the question on cash, does that answer your question on kind of the puts and takes on the revenue side?

Matthew O’Brien: Yes. I just — I wouldn’t mind a little bit more color on just what’s implied from a clinician perspective in terms of what you need to do, especially it’s still a pretty competitive market. Generally speaking, there’s somebody coming in on the stand-alone side in a big way. Just what’s all implied there to get you to that double-digit number? Because I think it’s better than people were expecting for the back half and especially for next year as well.

Ali Bauerlein: Yes. I think the majority of the increase is really utilization related. So of course, we do expect to continue to add accounts but utilization will be a primary driver of those double-digit increases.

Matt Link: Got it.

Ali Bauerlein: So moving to your question on our commentary around our level of investments. Obviously, we expect to continue to show progress this year in terms of our operating expense leverage, solid gross margins in the business and, of course, looking to increase revenue as well as particularly in the second half of 2024. So looking into the future, we expect to continue to be a growing double-digit growing company into 2025. And so looking at the investments needed to run our business and the level of spend needed, we expect to get leverage. That is really where, when you look at your modeling for cash flows over time, with growing revenues and operating expenses growing at a lower rate than revenue, of course, still growing and then small improvement on gross margin, although that’s more incremental in nature. The real leverage to get to a cash flow breakeven is associated with OpEx cuts.

Operator: [Operator Instructions] And it comes from the line of Tom Stephan with Stifel.

Tom Stephan: Great. To go back to the double-digit growth in 2025, Paul, Ali, could you potentially put a little bit of a finer point around what that might look like? It’d be great to just hear your thoughts on sort of a targeted medium-term growth rate as we look into the out years?

Ali Bauerlein: Yes. I don’t think we’re prepared to give detailed guidance today on 2025. We’re still very early in 2024. And I think we will want to also see real visibility on the opportunities for TearCare in our business because that is a potential accelerant of our growth. So I think as we get further into 2024 and really understand that opportunity, we’ll be able to provide more guidance. But both of our markets are very large. There’s huge potential for us on the stand-alone side in Surgical Glaucoma, continuing to take share in the combo cataract market and then also on the Dry Eye side with really a new interventional procedure that really should be a market that we can really create over time. So those are really the drivers. Of course, we also have a small contributor associated with our OUS business as well but we believe the U.S. markets will be the primary growth driver for the foreseeable future for us.