Q1 2024 Rxsight Inc Earnings Call

Participants

Oliver Moravcevic; Vice President, Investor Relations; RxSight Inc

Ron Kurtz; President, Chief Executive Officer, Director; Rxsight Inc

Shelley Thunen; Chief Financial Officer; Rxsight Inc

Robbie Marcus; Analyst; J.P. Morgan

Ryan Zimmerman; Analyst; BTIG

Patrick Wood; Analyst; Morgan Stanley

Larry Biegelsen; Analyst; Wells Fargo

Steve Lichtman; Analyst; Oppenheimer & Co

Presentation

Operator

Good day and thank you for standing by, and welcome to the RxSight First Quarter 2024 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 to ask a question. During the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Oliver Moravcevic, VP of Investor Relations. Please go.

Oliver Moravcevic

Thank you, operator. Presenting today our XA President and Chief Executive Officer, Dr. Ron Kurtz; and Chief Financial Officer, Shelly Thunen earlier today are excited released financial results for the three months ended March 31st, 2024. 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 views as of today, May sixth, 2024, and will include forward looking and opinions, 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'll 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 will be available for audio replay on our investor website.
With that, I will turn the call over to our President and Chief Executive Officer, Dr. Ron Kurtz. Ron?

Ron Kurtz

Good afternoon, and thank you for joining us in a moment, Shelly will review our first quarter financial results and provide an update to our 2024 guidance, which we believe once again, demonstrates the sustained clinical and commercial performance of our light adjustable lens technology. After Shelley his financial review, I will return with some updates from the recent American Society of Cataract and Refractive Surgery Meeting, which included the full launch of LL. plus the newest member of our light adjustable Lens platform. Please take it away. Shelly.

Shelley Thunen

Thank you, Ron, and good afternoon. Everyone. RxSight generated first quarter 2024 revenue of $29.5 million, up 69% compared to $17.5 million in the year-ago quarter and up 3% compared to $28.6 million in the fourth quarter of 2023. During the current quarter, we sold 20,218 LALs and generated $19.9 million in revenue, up 92% and 12% compared to the first and fourth quarters of 2023, respectively. In Q1 of this year, LAL revenue represented 67% of total revenue, an increase from 59% and 62% in the first and fourth quarters of 2023, respectively.
During the first quarter of 2024, we sold 66 LDD, up 18% to 56 units in the year ago period. As expected, capital equipment sales reflected the typical first quarter seasonality. Therefore, on a sequential basis, our LDD units sold for the quarter were down 14% compared to the 77 units in the fourth quarter of 2023.
During the quarter, LDD sales generated revenue of $8.7 million, up 35% and down 13% versus the first and fourth quarters of 2023, respectively. As of March 31st, 2024, our installed base stood at 732 units, up 61% and 10% versus the first and fourth quarters of 2023, respectively.
Gross margin in the first quarter of 2024 was 70% compared to 59% and 62% in the first and fourth quarters of 2023, respectively. The increase primarily reflects the shift in product mix, the higher margin LAL revenue advancing to 67% of revenue. Lower cost to manufacture both LAL and LDD also contributed to the gross margin expansion in the quarter.
SG&A expenses in the first quarter of 2024 were $23.3 million, representing an increase of $7 million or 44% versus $16.3 million in the year ago quarter. This year-over-year change was primarily due to an increase in personnel costs, higher stock-based compensation expense and additional marketing study spending. On a sequential basis, SG&A expenses increased 10% due primarily to higher number of personnel and sales (technical difficulty) any cost. During the first quarter of this year, R&D expenses rose 11% to $8 million compared to $7.2 million in the first quarter of 2023. This year-over-year change primarily reflects an increase in salaries and stock-based compensation compared to the fourth quarter of 2023.
R&d expenses in the first quarter rose by 9%, primarily driven by onetime change in allocation of certain R&D related costs. We reported a GAAP net loss in the first quarter of $9.1 million or a loss of $0.25 per basic and diluted share. We think weighted average shares outstanding of 36.8 million shares. This compares to a GAAP net loss of $13.2 million or $0.42 per share on a basic and diluted basis in the first quarter of 2023. Note also that stock-based compensation in the first quarter of 2024 was $4.7 million, resulting in a non-GAAP loss of $4.4 million or a loss of $0.12 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 first quarter of 2024 with cash, cash equivalents and short-term investments of $125.4 million compared to $127.2 million on December 31st, 2023. Cash used in the quarter for operations was offset by $8 million of net cash received from stock option exercise. While we always have some cash generated from stock option exercises, more stock options were exercised than normal given the longer than usual open window and increased stock price. Approximately 16% of the stock option shares were exercised related to 10b5 plan transactions. We are pleased to announce that in April of this year, we entered into a new lease and amendment to existing leases at our campus and the lease of the California to extend the rental terms and options to ensure continued long-term access to our fill facilities, acquire additional square footage to expand manufacturing and align the lease end dates for each of our four facilities.
Moving on to our 2024 outlook, we are increasing our 2024 revenue gross margin and operating expense guidance as follows. Revenue of $132 million to $137 million, up from previous guidance of $128 million to $135 million, implying year-over-year growth of 48% to 54% and assuming continued sequential quarterly growth with normal seasonality in the third quarter due to summer vacations by the patient and doctors. Gross margin at 68% to 70%, up from our previous guidance of 65% to 67%. New guidance is primarily driven by slightly higher than expected launch revenue contributions from the LEML and continued cost reductions to produce both our LAL and LDD, along with continued pricing discipline for our LDT. Gross margin is likely to vary modestly during, depending on the mix between LAL and LDD revenue in any one quarter.
Operating expenses of $126 million to $130 million, up from our previous guidance of $125 million to $128 million and representing an implied increase of 21% to 25% over 2023. Our spending is focused on continuing efforts to leverage our commercial momentum and grow our educational efforts develop our pipeline and expand internationally as regulatory approvals are obtained. Note that the operating expense estimate includes non-cash stock-based compensation expenses between $22 million and $25 million. With that I'll turn the call back to Ron.

Ron Kurtz

Thank you, Shelly are extremely strong. First quarter performance was followed by continued keen interest in our light adjustable lens technology. At the recent annual meeting of the American Society of Cataract and Refractive Surgery, the second largest US ophthalmic conference with over 5,000 attendees. The LL. was prominently featured in over 20 formal session presentations and its use in various clinical settings was a common topic and discussion forums. In one of these presentations, Dr. Hunter Newsom reported on data collected from approximately 1,000 bilaterally implanted LAL subjects at nearly 100 practices. Proximately 90% of eligible patients detained attained by ocular drug division of 2020 or better, while over 90% were able to reach a two or 5.5 with both sides. Dr. Newsome also discuss the newest member of the RxSight platform, the LL. plus presenting initial clinical data from 10 practices that compared monocular distance corrected vision in over 200 LL. plus and 100 L Allyes with both group. While both groups attained excellent distance vision, LAL plus-size exhibited more than a line improvement at near both groups demonstrated excellent binocular vision with comparatively high rates of patients achieving 2020 or better. Doctors now have two LEOs to choose from to achieve the most customized visual outcomes possible after cataract surgery, with the growing number of doctors and practices offering the LAL. and LL. plus as well as increasing uptake by patients, we believe we are establishing a new standard for premium IOL offerings in the US. Based on this momentum, we are even more committed to reaching the full potential of our exciting unique adjustable technology and premium market opportunity. This includes expanding programs that enhance the clinical knowledge base of ophthalmologists, optometrists and other eye care professionals, thereby leading to a better informed and serve public. We believe that when patients understand the full benefits of adjustability, they are more likely to choose in LEO over a fixed lens alternative and thereby it optimize their vision in ways that are meaningful to them. Reaching our full potential also includes maintaining our commitment to rapid innovation exemplified not only by the recently commercialized LAL plus, but also by ongoing advancements to the LTD. and LAL insertion technology. In addition, we continue to believe that the success of the LEO in both the US and Canada can be replicated in most major markets and look forward to building successful international programs, particularly in Asia and Europe following regulatory approvals. Overall, we feel our strong first quarter results along with a very positive reception at this year's ASCRS, further support our vision to make adjustability the standard for premium cataract and lens replacement surgery.
With that, I'll ask the operator to open the call for questions.

Question and Answer Session

Operator

(Operator Instructions) Robbie Marcus, JPMorgan.

Robbie Marcus

Thanks for taking the question and congrats on a very nice quarter and two for me. Maybe first to start volumes, both in LAL. and LDT. were really strong in the quarter, but also So is pricing. If I do my math correct here since maybe speak to what you're seeing in the field in terms of both adoption trends as you continue to place more than expected LDTs and utilization, but also on the pricing side because it continues to be robust for both of them. Thanks.

Shelley Thunen

Okay. Why don't we start with Ron on the adoption trends? And I'll follow up on the ASP. three.

Ron Kurtz

I think as you noted, Robbie, the adoption trends continue to be very positive. And we think that's a combination of the clinical outcomes with the ILAL. and now the LEO plus as well as the continued focus I have five our customer base on the premium IOL market and the potential to offset the revenue losses that they're seeing in their reimbursed areas. And so overall, we anticipate continued strong adoption. And with that, we've been able to maintain good pricing discipline.

Shelley Thunen

Thank you, Ron. And as you recall, I know Robbie, on in the third quarter when we introduced the newer LDE., we increased our price by about 10%. And at that time and again, at year end, we felt like the ASP. would continue to hold through going into the for into 2024. We certainly saw that in the first quarter, the ASP. was up about $3,000 as compared to the fourth quarter. I don't think it's any particular item that increase that is much is mix of customers, how large they are, whether it was the second or third LDDR. and again, I think really good pricing discipline from our sales force, bolstered by the fact that the result and actually clinically and that we have more and more references for new doctors too to go to.

Robbie Marcus

And Great. Maybe as a follow-up, I wanted to talk on the competitive environment by my math there closing in on 10% or so of the premium IOL market on. I imagine that's a pretty disruptive mark. As you look at your competitors, you're starting to take larger shares and not just some early adopters, but hitting more of the mass market appeal. What, if anything, are you seeing in terms of a response from your competitors? And how do you feel about your ability to continue to grow and take share as you're moving up the adoption curve? Thanks a lot.

Ron Kurtz

Well, I would say that as we've noted before, a significant percentage of LAL cases are coming from patients who otherwise would not have selected a premium IOL. And because of that, you know, while some of our and some of our share, our numbers are coming from other competitors in the premium space, very large percentage are coming from either standard monofocal IOLs or or Toric IOLs, which tends to have less focus than the presbyopia correcting IOLs. And so I think that that may not generate as much interest as as say, is that as the 10% number that you quoted, I might otherwise, Shelly, do you have anything you want to add?

Shelley Thunen

No, I don't think so. I think that people are taking notice of all. Certainly ALCRS., we had initial talk about just kind of the booth traffic. We had as well as the number of presentations we had in the end. And there are papers presented at ASCRS. I think that certainly has led to higher visibility forward.

Ron Kurtz

Absolutely. I think that we're there are more and more practices that are using the technology and getting excellent results in that that word travels. But in terms of competitors, I mean, I think that they've been aware of. We are excited for some time and we'll continue to follow it.

Operator

Ryan Zimmerman, BTIG.

Ryan Zimmerman

Good morning and or afternoon. Excuse me, too. Many earnings calls. Just wanted to ask about a couple of things. The install base now is that's 700. You've had a number of units, an appeal now for numerous years as that install base grows. I'm just wondering if there's any service revenue considerations we should be thinking about. I would imagine that can start to grow maybe step up a little bit over the course of this year and in 2025.

Shelley Thunen

Yes, I think that's a good question, Ryan. We do have a line on our P&L for Service & Accessories and exactly what you talk about primarily service revenue. When we sell the LDD in accordance with GAAP, we carve out about $7,000 out of the LDD. revenue and ASP., and that is amortized over a year period into the service line. And in addition, we find about 80% of our customers when they're on one-year warranty expires, take a service contract with us, and the other 20% tend to use time and materials. And so we should continue to see that line grow as our installed base grows.

Ryan Zimmerman

And Shelly, margins were fantastic this quarter, probably the most, I think, encouraging thing for long-term investors. You're guiding a little below 70%. You did over 70% revenue this quarter, just a hair, why does that regress in the rest of the year below 70%? Because I mean, you're just on fantastic trajectory with more LAL soul. Dr. Barton?

Shelley Thunen

Yes. I think that's the primary driver for margin in a given quarter is the percent of LEO as a percent of revenue in the first quarter, it was quite high because typically see lower LDT sales capital sales, which we did. So I think that as you go through the next three quarters, we can see some different mix shifts as well. And of course, the LDT has a much lower gross margin and then the LDL. And of course, as I mentioned, you know, you did have a nice ASP. bump in the first quarter as well. That might be usual or unusual as well. And we've been able to roll in lower material cost components more quickly than we had planned. But I think really the difference in any given quarter is going to be percent of LTL in percent of sales.

Operator

Patrick Wood, Morgan Stanley.

Patrick Wood

Fantastic, and thank you for taking the questions. I guess the first one. I know you guys don't split the guide down, but just qualitatively for LDT placements, would you expect that kind of similar growth that we saw year on year and LDD placements in Q1. Would you expect that to be a similar kind of growth trajectory through the year or a bit of an uptick in that and a drop in the LL.s. I'm just trying to work out roughly the passing of those two things out even just qualitatively.

Shelley Thunen

Yes, qualitatively, of course, you know, the LAL grows much faster than the LDT and that's to be expected because our primary focus is not only just getting new customers, getting new customers faster as well as continuing to penetrate in our existing customers and get them to continue to grow. So we have seen this shift between the LL. and LDV. and the more installed base you get, you know, continue to get that but in terms of breaking it out, I think kind of the general trends that we've been known for the last, you know, three or four years with LEOs is increasing much faster than LDD. is indicative of what we wanted.

Patrick Wood

Makes sense. And I thank you. And then again, qualitatively of the LDT placements that you've seen, the last three four five months out side of things. Can you give us some sort of flavor how much of that is new accounts, existing accounts buying a second system, just that you know, how that's trended over time very recently would be would be helpful.

Shelley Thunen

Yes, it's predominantly new accounts. And what you see now a little bit is I wouldn't call them repeat accounts in the following sense because each sale is to an individual office, although the doctor or the underlying owner may be the same price because you're still selling to the primary doctors in the practice that want to pick up the LEO, some doctors have, you know, two or three separate offices. They start one, but then they might have different partners in secondary offices we see other people that are part of a larger network or buying group, and each of those are individual sales. But I would say the vast majority are brand new customers to us that we haven't had in our installed base. There are always are some that buy that we know, and they're really just expanding their footprint in their practices or in their network.

Operator

David Saxon, Needham & Company.

Hi, this is Joseph on for David. I'm just wondering, though, how you guys are thinking about the competitive landscape with Odyssey in cotton in the early launch of PanOptix Pro coming in the future?

Ron Kurtz

Well, thank you. I would categorize those competitive offerings as being part of these, the fixed lenses that are very similar to other fixed lenses in the marketplace. And so while they may gain some attention at the end of the day, they're going to be compared against those more similar products than, say the light adjustable lens. And so we expect that that the market will continue to see new offerings, but that DLL will continue to have a unique set of benefits for patients.

Okay. Got you. And then maybe just a quick one to give some color around the balance sheet and how you guys are thinking about runway to free cash flow profitability?

Shelley Thunen

Yes, I think so what you have seen is reduced cash use in each quarter. We've increased both revenue and gross margin. On what you do see in this guidance is that we we had a pretty big increase in our guidance for gross margin, but we also did increase OpEx a bit. And I think the increase in gross margin gives us an opportunity. We'll let most of those dollars fall to the bottom line, but we will continue to continue this balance between growth and gross margin percent and absolute dollars with continued investment in OpEx. But I think we've been very careful in this guidance balance though.

Operator

Tom Stephan, Stifel.

Great. Hi, everyone. Thanks for taking the questions. And maybe I'll start with LAL plus some. Could you maybe I guess, qualitatively explain, but how LEO plus was contemplated in 2024 guidance, maybe in terms of the cadence of the rollout. I guess in other words, just guidance assume kind of a methodical ramp of A. plus. Is it a fast ramp up, maybe somewhere in between any color there would be would be helpful.

Shelley Thunen

Okay. And you know, in terms of mix between LALLL. plus your prices, the same amount, $1,000 per unit.
Right. And I think that for us, and Ron can comment on this a little bit more part of the pricing strategy, of course, is that we want the doctor and patient to pick the ideal end to them knowing that both are adjustable. And we think that, you know, the results that we had in the first quarter are part of just our original guidance or strategy for the year with this concept of having two LDLs in our product family overall. And I don't know if he would comment anything additional in that realm.

Ron Kurtz

So I mean, recall that the LAO. plus was approved in 2023. And it was we had some initiated some initial I am Phase four clinical studies in the fall. So we certainly have that in our minds of developing 2024 guidance.

Got it. That's helpful. And then just my follow-up, I guess on gross margin, Shelly, can you maybe level set us on where gross margins stand between your different products? Because when I run a low 30% gross margin on the LDD. sales, I'm arriving at maybe 85% plus gross margin on the rest of the business. Are those fair places to be on both sides? I guess I'm mainly curious about where LEO gross margin is tracking toward?

Shelley Thunen

Yes. Well, we don't break them out both of them. Certainly we're finding them on information overall, as I've always stated, you know, our gross margin on the LDD capital equipment we're trying to get between 20% and 30%. As you go back into early 23, we were below the 20% or right at. And today we are above the 30% and of what I would call well above overall. And even just this, you know, little $3,000 higher ASP. in the first quarter, it contributed to about a two percentage point increase in gross margin for the LDT. So we're trending a bit higher than we would otherwise, and I could attribute that to one and the pricing ASP discipline on the on with our sales force, the value of the product, as well as the fact that we were able to roll in some lower material costs a little bit earlier on the LTL side, we don't comment, but we believe that that product is in this kind of range in the 80% something range and probably likely over a very long time to become a 90% product. But that's it, you know, kind of way out there. Is that get your volumes up to that.

Operator

Larry Biegelsen, Wells Fargo.

Larry Biegelsen

Yes, good afternoon. Thanks for taking the questions. So on the Q4 call, you said you'd be talking more about international markets later this year. And today aggregate spending is going towards your OUS clearances and Ron, you spoke more about Europe and Asia in your prepared remarks today that are occurred on the Q4 call. So my question is, does this imply you're closer to other major market launches? And what are you including in the guidance for OUS markets in 2024? And I had one follow-up.

Ron Kurtz

Yes, and I don't think anything's changed, Larry. We continue to focus primarily on the US market, but we pursue our regulatory filings outside the US in attractive markets. And we certainly will be updating as we make progress in those.

Shelley Thunen

And I think as far as revenue goes through 2024, obviously one Canada that has grown nicely for us, considering good market for us. I think in terms of the other markets. These regulatory cycles are getting pretty long. For instance, Europe, we've seen it longer than we originally anticipated and continues to get pushed out and on if we have anything outside of Canada internationally, I would expect in 2024 is pretty minor.

Larry Biegelsen

Got it. And one follow-up question for me. Utilization. It looks like it was about 9.2 LALs per LDD. per month in the first quarter and it grew about 5% a year. It looks like it's a little slower than what we've seen the last few quarters. Why is that? And how are you guys thinking about utilization for the rest of this year? Thank you.

Shelley Thunen

So I think the difference between my numbers and your numbers is that we calculate the number of LEOs for LDD. by taking as the number of LEOs over the number of LDTs installed at the beginning of the quarter.
Right you don't get a lot of normal time LTL revenue out of new installs.
That in fact, kind of if I look back, we were at 10.2 in the fourth quarter and we were at 10.1 in the first quarter, which I think is terrific.
And overall and kind of if you go back to, let's say, in Q4 of 2022, we are about 8.9. So I think that we've gotten good sequential growth, although a little dip in the third quarter of 23 versus five.

Operator

Steve Lichtman, Oppenheimer & Co.

Steve Lichtman

Thank you. I run Chile and congratulations on. I wanted to ask, Ron, I think you mentioned on targeting optometrists in terms of driving awareness. I think you talked to that SCRS. as well. Can you talk a little bit about what that looks like in this field in terms of how you approach that and some of the potential benefits in terms of referrals and things like that from from a targeting net backwards? Thanks.

Ron Kurtz

Yes, so I know optometry is obviously a very significant part of eye care, particularly in the U.S. and are involved integrally involved with a cataract surgery, both in terms of it's a counseling of patients, preoperatively as well as helping to manage patients through the through the course of their post-op periods. And that can be either independent or separate optometry practices that work in conjunction with ophthalmic offices where it can be optometrists within ophthalmic practices. And we we obviously, for those practices that have our technology. Many of them have optometrists and we work very closely with them. Many of them have become very experienced and knowledgeable about our technology. They are often just as academically minded as a as a as the ophthalmologists and like to present at their respective meetings. And we see more of that, we certainly want to support that. And then through our ophthalmic practices. We certainly want to support their educational events with optometrists in their community as well. And that's that's something that's important in driving awareness of the technology is very attractive. Just fundamentally to optometrists generally because it fits with their overall ethos of quality of vision.

Steve Lichtman

Great. And then just as a quick follow-up, are you are you adding to the sales force on the LDD. side this year? And if so, how much are you increasing that?

Shelley Thunen

Yes, I think that if we look at our planned headcount, as you know, they're primarily in our clinical applications and LAL folks to work closely with the LDT. We may add a few on LDD., but certainly not at the rate that we add to those two other groups that have.

Operator

Thank you. And I would now like to hand the conference back to CEO Ron Kurtz for closing remarks.

Ron Kurtz

Well, thank you all for your time and attention today. We appreciate your interest in RxSight. I look forward to updating you on our progress in future quarters. Good bye.

Operator

This concludes today's conference call.T hank you for participating. You may now disconnect.