LENSAR Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 9, 2023

There are 5 speakers on the call.

Operator

Good morning and thank you for your participation. As a reminder, this conference call will be recorded. I would now like to turn the call over to Mr. Cameron Radinovic of Mr. Martinovic.

Operator

Please go ahead.

Speaker 1

Thank you. Good morning and welcome to the LENSAR 2nd Quarter 2023 Financial Results Conference Call. Earlier this morning, the company issued a press release providing an overview of its financial results for the quarter ended June 30, 2023. This press release is available on the Investor Relations section of the company's website at www.lensar.com. Joining me on the call today is Nick Curtis, Chief Executive Officer of Lenzar, who will review the company's recent business and operational progress.

Speaker 1

Following his comments, Tom Staub, Chief Financial Officer of Lenzar will provide an overview of the company's financial highlights before turning the call back over to the operator to facilitate answering any questions you may have. Today's conference call will contain forward looking statements, including those statements regarding future results, on unaudited and forward looking financial information as well as the company's future performance and or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause the company's actual results, performance or achievements to be materially different from any future results or performances expressed or implied in this presentation. You should not place undue reliance on these forward looking statements. For additional information, including a detailed discussion of the company's risk factors, Please refer to the company's documents filed with the Securities and Exchange Commission, which can be accessed on the website.

Speaker 1

In addition, this conference call contains time sensitive information that is accurate as of only the date of this live broadcast, August 9, 2023. LENSAR undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances after the date of this live conference call. It is my pleasure to turn the call over to Nick Curtis. Nick?

Speaker 2

Thank you, Cam, and good morning to everyone. Thank you for joining us on our Q2 2023 conference call. I'm pleased to report that LENSAR had a strong quarter, placing 14 systems in Q2, bringing our total number of Ally systems installed 2023 year to date to 2018, well on our way to our goal of having 30 or more systems installed this year. Our 2nd quarter revenue increased nearly 50% over the same quarter in 2022, which can be attributed to both robust system sales and an increase in lease revenue. Partially supporting these increases was the state start of multi system placements Into private equity owned and or managed ophthalmology groups.

Speaker 2

We're beginning to see momentum in both areas And hope to see strong demand as additional private practice surgeons as well as the PE groups realize the technological, financial and operational benefits to Ally that distinguish it from all other competitive systems, having older, slower and outdated technology. As we highlighted in the press release in July, the adoption of Ally in private equity owned ophthalmology groups Has been steadily increasing as we have completed the installation of multiple Ally systems in 5 private equity owned ophthalmology groups. Each of these groups has the potential to add multiple allies in the future upon benefiting from the system's higher levels of precision, ability to support improved patient outcomes and practice level efficiency in other sites within these commonly owned and or managed practices. Private equity owned ophthalmology groups are growing, currently account for about 14% of the total cataract surgery procedures being performed in the United States, making these groups synergistic new partners for LENSAR. We're regaining traction due to the advantageous financial and outcomes based value of using the Ally system.

Speaker 2

Looking more closely at the U. S. Market, which remains our primary area of focus in 2023 And into next year, procedure volumes grew 13% compared to the same period last year. To this point and according to recent data published by MarketScope, LENSAR continued to increase market share in the Q2 of 2023, With LENSAR systems utilized in an estimated 15.6% of all FLAX procedures during the Q2 of 2023. This marks an increase from the 15% reported in the Q1, demonstrating consistent growth and adoption, and most importantly, utilization of our technology in the market.

Speaker 2

Furthermore, we are particularly pleased with the performance of our Ally systems among users who have transitioned from or added to our previous generation LLS technology. Procedure volumes and utilization for these users increased by an impressive 15% over the first half of twenty twenty two. This level of growth has exceeded our internal expectations and demonstrates the value that Ally brings to practices in terms of operational efficiencies, yielding better economics for these practices. As a reminder, the U. S.

Speaker 2

Represents the largest premium procedure market in the world And one of significant importance to LENSAR, our company. The feedback we continue to receive from our growing customer base It's immensely gratifying reaffirming the positive impact that Ally is making in the field of femtosecond laser assisted cataract surgery and advancing the market for premium cataract surgery procedures overall. Particularly noteworthy are those users who have switched from competitive systems to Ally. To further highlight this point, 50% of our 2023 Ally placements are new surgeons that are recognizing the benefits of Ally and leaving behind the more entrenched legacy competitive systems previously used. We believe Ally's speed, ergonomics, size, open architecture and ability to communicate with multiple preoperative devices and managing astigmatism provide more versatility.

Speaker 2

Combined with the ability to perform an all sterile procedure are compelling reasons to switch from older generation technology. Ally stands out as the state of the art solution, increasing productivity with faster and more efficient procedures and provides the necessary features to allow surgeons to not only enhance their workflow, but also improve patient care and outcomes. From a marketing and sales perspective, we continue to target and nurture nearly 160 leads from high volume competitive femtosecond laser users who have expressed interest in the Ally system. These leads are in various stages of our marketing and sales cycle. We're confident that they are more than enough to deliver on our stated 2023 goal of at least 30 systems by year end 2023.

Speaker 2

Capital equipment market and pacing from lead to close to install can be described as lumpy, more seasonal and a bit unpredictable timing wise. Adding complexity with PE owned and or managed groups can extend the sales cycle timing wise, but we remain very optimistic that at the end of the day, we will continue to take market share from the older competitive technologies, while growing the overall market in femtosecond laser utilization. We are working hard at continuing to increase the interest and pipeline for Ally and have a strong belief that we have the right initiatives in place which are becoming more obvious over time. When you remove South Korea from year to date procedure volumes, Our worldwide procedure volume has increased 15% year over year. We're hopeful this challenge is resolved in 2023 and that the strong contributing region returns to being a sizable piece of our procedure volume in 2024.

Speaker 2

Lastly, We ended the quarter in a strong financial position with $25,500,000 in cash and cash equivalents. Following the successful completion of our May 2023 financing, we believe that LENSAR is in a strong and advantageous position To drive forward with our plans for Ally's continued success by increasing our marketing efforts, expanding our sales and distribution networks, and continuing to build strong relationships with our valued customers, distributors and other partners. Now let me turn the call over to Tom, who will cover our financial highlights for the quarter. Tom?

Speaker 3

Thank you, Nick. Our Q2 2023 financial results are included in our press release issued earlier this morning, but there are a few significant items for which I'd like to discuss. Revenue was $12,000,000 in the Q2 of 2023 compared to $8,000,000 in the Q2 of 2022, reflecting a 49% increase. As Nick mentioned, the increase was primarily due to increased system sales and increased lease revenue. We had an exceptional quarter for system placements, increasing our installed base approximately 30 units in the last 12 months.

Speaker 3

This is especially noteworthy as we were limited to 10 Allied units in our controlled launch for the latter half of twenty twenty two and had ceased production of our GEN-one LLS systems. Furthermore, revenue in the Q2 of 2022 from South Korea was approximately $500,000 So we increased revenue approximately $4,500,000 or 56% for the Q2 of 2023 when you adjust for lost revenue from South Korea associated with the 3rd party payer reimbursement issues. This issue affects LENSAR as well as our competitors that operate in South Korea and has been an ongoing issue since the Q3 of 2022. In addition, due to the timing of Ally regulatory approval in other regions, we are limited to placing Ally Systems in the United States as our primary volume region. So that inherently limits our revenue and growth until Ally is cleared for commercial sale in other significant regions.

Speaker 3

We are looking forward to being able to sell Ally in the EU in 2024 and to that end, we filed to obtain commercial clearance in September 2022. We are also taking steps to obtain clearance in South Korea, Taiwan and the Philippines with our distributors. With that said, the U. S. Market is very important to us and we are extremely pleased with the increase in U.

Speaker 3

S. Procedure volume, which increased approximately 13% when comparing the Q2 of 2023 to 2022. Worldwide procedure volume increased by 6% in the Q2 of 2023 versus 2022, even though volume continued to be negatively impacted by decreased procedure volume from South Korea. In the Q2 of 2023, There were 35,349 procedures sold compared to 33,359 procedures sold in the Q2 of 2022. Gross margin for the quarter was $6,800,000 representing a gross margin of 56% compared to $4,900,000 61 percent realized in the Q2 of 2022.

Speaker 3

Our gross margin for the Q2 and first half of twenty twenty three is trending a little higher than we anticipated as we had projected our gross margin to be in the low Although supply chain issues have created higher inventory costs and eroded margins somewhat, We are seeing margin benefits associated with Ally whereby 1, Ally system margins are higher than LLS margins and 2, Ally procedure margins are higher than LLS procedure margins. With these benefits and product sales mix being more heavily weighted to Ally, We believe that future quarterly gross margins in 2023 will trend between 50% to 55%. Total operating expenses for the Q2 of 2023 were $9,600,000 compared to $11,700,000 in the Q2 of 2022. The decrease in operating expenses was primarily attributable to significantly lower Allied development expenses following FDA clearance in the Q2 of 2022, including the inclusion of approximately $1,000,000 of inventory costs charged to R and D that increased R and D costs in the 2022 period. Although we will continue to innovate and invest in Ally Research and Development, we do not expect our R and D expenditures fluctuate significantly from the Q2 of 2023 and expect our 2023 annual investment in R and D to approximate $7,000,000 Net loss for the quarter was $8,800,000 or an $0.81 loss per share and it increased as compared to the $6,800,000 loss and $0.67 loss per share in the Q2 of 2022.

Speaker 3

Our GAAP loss for the quarter was significantly impacted by the financing that we completed in May of this year. With this financing, we did and we will in the future mark our warrant liability to future market value each quarter as calculated using the Black Scholes valuation model. This liability will fluctuate quarter to quarter based upon the inputs to the Black Scholes model with the company's stock price generally being a very significant variable in that calculation. Due to the variations in stock price and other input assumptions from the completion of the financing to June 30, 2023, We recorded a $6,000,000 charge in the 2nd quarter associated with a value change in the warrant liability. This non cash charge significantly impacted our loss per share, thereby adding an approximate $0.55 additional loss per share to our $0.26 loss per share, which would have been the quarterly loss per share without this warrant charge.

Speaker 3

As of June 30, 2023, we had cash and cash equivalents of $25,500,000 as compared to $14,700,000 on December 31, 2022. Cash generated in the quarter ended June 30, 2023 was $17,500,000 and was derived from the $19,100,000 of net financing proceeds. We believe this financing, as Nick said, significantly strengthens our balance sheet, provides us more liquidity as well as the ability to expand our commercial operations to enhance Ally's initial success in the marketplace. Now I'd like to turn the call over to the operator and we look forward to answering your questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Questions will be taken in the order received. Your first question is from Ryan Zimmerman from BTIG. Please ask your question.

Speaker 4

Good morning and thanks for taking the questions. Congrats on a really nice quarter here guys. It seems like the launch is progressing well. Nick, maybe to start on the launch. I want to understand, you talked about 160 potential leads.

Speaker 4

Can you just talk to us a little bit about the pipeline process, kind of the timelines you expect as that pipeline kind of narrows Contracts out and subsequently Ally orders and kind of how you think about just the conversion rate

Speaker 2

So we have got some very strong digital marketing initiatives in place and social media initiatives were peer to peer. We've also started to institute these visits From an interested practice that's been, let's say, a qualified lead that they're Going to be making a decision on a system, we take them to visit various accounts where they can see the Ally in action, which helps to sort of Condense the sell cycle, if you will. Typical of this type of equipment and the complexity of the sale or Replacing a competitive device, the lead process takes about 7 months on average. From the time that we make an initial contact to the time that there's a decision and it closes or it doesn't close. And so the more leads we get into the pipeline and obviously some of those happen much sooner and some of those Sort of lengthen from there.

Speaker 2

I made a comment that the private equity groups kind of Increase the complexity as well because now it's not just the surgeon at the site that makes the decision and can pull the trigger to get the system in place, but now it goes through sort of like the business process. And so the good news is that there's lots of opportunity there. And the bad news is that the cycle takes a little bit longer. So on average, it's a 7 month cycle, strong digital initiatives in place in nurturing these leads to get them to the point where we, in many cases, Set up the call and the meeting for the sales reps then who will go into the account and take it a step further.

Speaker 4

Okay. And all the disclosures you gave on productivity and the metrics, I think are great for investors to understand. I was struck by the comment you made about a 15% increase, and I think it was procedure volume, correct me if I'm wrong, by Ally users specifically, but if that's the case, I mean, kind of and talking with your Ally user base today, Where do you think that can go over time? I mean, do they have more capacity Just off of comparing to the old base, I guess.

Speaker 2

Yes. So we always thought that ultimately The volumes on a, let's say, site for site basis, LENSAR LLS to LENSAR Ally ultimately And obviously that's the only metric that we can compare against right now because previous technology or older technology, We're going to we come in and we do X number of cases, which may be more than what they were doing before, but we don't have that historical perspective. What we do have is that with the connectivity and with the speed of the device, we're measuring in several of these groups We're measuring flow, efficiency and time. We're doing these time studies and so the time savings you'll start to see range between like 3 minutes and 10 minutes depending on what kind of flow that the practice is using today and we've seen more doctors willingness to change their flow and move it into the operating room because of the ergonomics and the small size, which is which then really increases the sort of the throughput. And so we've been able to take save an hour to 2 hours a day of a typical surgical day, so that if there's a backlog, I can cite several different sites where we've taken backlogs from 4 months to 2 months, which is really good for the practice.

Speaker 2

And so we've cut the backlogs in half already With an ally, and at one of those sites, we just added a second ally. And so I would think that would continue to improve And then they're going to be able to continue to increase their volume, if you will. And then Seeing the additional cases on people who are switching from their competitive devices. So where can that go? On average, like best practices could convert Over 50% of their total volume to premium cases.

Speaker 2

And I think that we'll see it continue to trend that way. Other practices that are high volume practices are much lower rates. And of course, you've got your more boutique practices, which are in the 70% to 90%, some are at 100%. But on average, The best practices, when I say best practices, I don't mean the best medical practices, I mean the best putting best practices in place in terms of How they handle patients is in the neighborhood of between 50% 60% on a high volume practice. And so There's some significant upside there when you look at the market in general on premiums, which is Including torics and multifocals at what 15%, 17% of the market.

Speaker 4

Right, Right. Yes. No question about that. So, maybe turning to Tom for a couple of financial questions. I'm going to keep rolling here, if that's okay.

Speaker 4

Number 1, you guys have previously stated, I think you haven't given formal guidance, but you said Revenue can grow at least 20%, I believe, for the year. I just want to see kind of where you stand on that. I didn't hear that in your comments. And then second question, heard you on the margins for this year. As Allied base steps up And consumables and procedures pick up, just your thoughts on kind of longer term margin trends?

Speaker 4

And then the last question, sorry, I'm hitting with a few, Tom. How are you putting the recent cash infusion to work? Thanks for taking the questions guys.

Speaker 3

Yes. Thanks for the questions, Ryan. And your statement at the beginning was right, which was a really great quarter for us. In regards to revenue guidance, in Nick's remarks, It's very hard to predict when PE practices and when doctors are going to actually pull the trigger even with the technology. What we have given is we said that we were going to place at least 30 systems and you see that year to date we've placed 18.

Speaker 3

So that gives you a little historical benchmark going forward as well as the guidance that we have given in regards to revenue. And we do know that the placements and revenue were trending up, but we haven't given enough formal percentage. In regards to your margin trends, you're exactly right. With our razor razorblade model and the procedures, obviously, they garner a much higher margin than the actual sale or lease of the laser And to the tune of more than 2x. So the more successful we are in placements, the more there is a drag And we certainly see it going into the 60s.

Speaker 3

And it really depends on the saturation of lasers into the U. S. And more importantly outside the United States when we get clearance approval such that we can do that. And I'm sorry, Ryan, I might have forgotten your 3rd question.

Speaker 4

Yes. No problem. I threw a lot at you. I apologize. Just how you're putting the recent cash infusion to work?

Speaker 4

Where do we expect to see increases in spend and how are you utilizing that cash?

Speaker 2

So Ryan, I can answer some of that. We are definitely looking to scale up The field organization and so we're looking in several areas. The digital our digital marketing efforts Where we are sort of have inside sales and contact with customers It's working well for us. And so I would think we would see some expansion in that regard In the field as it relates to field service and our application specialists in training and in sales Where we'll continue to add some sales reps. And then on the business development side, Since we are so versatile on the astigmatism management side and the connectivity, a lot and we're bringing on more and more competitive users, I think instituting solid astigmatism management programs and patient education at the practice level Will be other areas that you'll see us growing in order to support the growing number of procedures.

Speaker 3

And Ryan, You've been following us for a while. We've been talking about a financing, for some time. And with supply chain and the pandemic we kind of delayed things. With the $19,000,000 $20,000,000 that we brought in, in May, that really allows us to invest in the commercial organization, Invest in inventory to make sure that we have continuous supply. And you see that our inventory balances have gone up significantly.

Speaker 3

That's By design, it probably is exacerbated a little bit just because of supply chain and making sure that we have The ability to keep our production to meet demand in the marketplace, especially when we get approvals outside the United States. So now we're financed and we're going to make those investments that we've been talking about and potentially delayed a little bit Or have already made some of those in regards to our inventory.

Speaker 4

I appreciate the color. Congrats on a really nice quarter guys.

Speaker 2

Thanks Ryan.

Speaker 1

Thanks

Operator

Ryan. Thank you. There are no further questions at this time. I will now hand the call over back to Nick for closing remarks.

Speaker 2

Thank you. Thank you all for joining our call today and obviously your continued interest in LENSAR. We're really excited about what we're doing and we look forward to continuing to update you as we make further progress in the exciting remainder of 2023. Thanks for joining the call today.

Operator

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.

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Key Takeaways

  • Q2 revenue reached $12.0M, up 49% year-over-year, driven by robust Ally system sales and lease revenue with 14 systems placed in the quarter and 18 YTD toward a goal of 30 installations.
  • U.S. market share for FLACS procedures climbed to 15.6% in Q2 from 15% in Q1, and U.S. procedure volumes grew 13% year-over-year, signaling strong customer adoption of the Ally platform.
  • LENSAR aims to install at least 30 systems in 2023, supported by a pipeline of about 160 high-volume leads and an average capital equipment sales cycle of seven months.
  • Gross margin declined to 56% in Q2 from 61% in Q2’22 due to elevated inventory costs, but is expected to trend between 50% and 55% as Ally product mix increases.
  • Net loss was $8.8M (–$0.81/share), including a $6M non-cash warrant liability charge, while cash and cash equivalents rose to $25.5M following May financing to fund commercial expansion.
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Earnings Conference Call
LENSAR Q2 2023
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