LENSAR, Inc. (NASDAQ:LNSR) Q4 2022 Earnings Call Transcript March 16, 2023
Operator: Good morning, and thank you for your participation. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference call will be recorded. I would now like to turn the conference over to Lee Roth of Burns McClellan. Mr. Roth, please go ahead.
Lee Roth: Thanks, Joanna. Good morning, and once again, welcome to the LENSAR Fourth Quarter and Full Year 2022 Financial Results Conference Call. Earlier today we issued a press release providing an overview of our financial results for the quarter and full year ended December 31, 2022. A copy of 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 LENSAR, who will review the company's recent business and operational progress. Following his comments, Tom Staab, Chief Financial Officer, who will provide an overview of our company's financial highlights before we turn the call back over to the operator to facilitate answering any questions you might have.
Before I turn it over to management, I'd like to remind you that today's conference call will contain forward-looking statements, including statements regarding future results, unaudited and forward-looking financial information as well as information on the company's future performance and/or achievements. These statements are subject to unknown and known risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from any future results or performance expressed or implied on this conference call. You should not place any undue reliance on these forward-looking statements. For additional information, including a detailed discussion of the company's risk factors, please refer to our documents filed with the Securities and Exchange Commission, which can be accessed on the website.
In addition, this call contains time-sensitive information accurate only as of the date of this live broadcast, March 16, 2023. LENSAR undertakes no obligation to revise or otherwise update any forward-looking statements to reflect events or circumstances after the date of this live call. With that said, it's now my pleasure to turn the call over to LENSAR's Chief Executive Officer, Nick Curtis. Nick?
Nick Curtis: Thank you, Lee, and good morning to everyone listening. Appreciate you joining us on our fourth quarter and full year 2022 conference call. 2022 was a transformational year for LENSAR, marked by the successful launch of our next-generation system ALLY. On our third quarter conference call, shortly after the launch of ALLY in August, I laid out our goal of having 10 ALLY systems placed by year-end. I'm pleased to say that indeed, we placed the 10 systems. But in December alone, we signed contracts for an additional six ALLY's to be installed in the first half of this year. To date, feedback from our initial surgeon customers has been incredibly positive with some referring to it as a revolution in how flat procedures are performed.
The features of ALLY that surgeons are most enthusiastic about are the impressive speed and precision of the laser, it's small footprint and unparalleled ergonomics. Faster laser procedures from start to finish that significantly reduced treatment time by up to two-thirds are creating improved patient throughput and translating to more procedures on given surgery days. As you may have seen in our press release today, Dr. James Khodabakhsh, Chief of Department of Ophthalmology, Cedars Sinai Medical Center, shared that ALLY has been so fast and accurate that it has shortened its surgery day by an hour to an 1.5, while a different surgeon recently shared with us that he was blown away by ALLY's speed and efficiencies remarking that the procedure was so fast, he had a double check to make sure the procedure was actually completed.
Another user stated that ALLY takes flex to a whole new level. It's important to note that in addition to supporting increased patient throughput and procedures per day or a shortened surgical day ALLY also appears to be driving increased femtosecond laser-assisted cataract surgery use in some instances. As one user noted that ALLY's speed and precision have increased his confidence and that as a result, he is now converting more than 95% of its patients to laser cataract surgery. This is a surgeon who had used a competitor's first-generation laser and prior to ALLY had abandoned femtosecond laser-assisted cataract surgery altogether. Another perhaps less tangible benefit to the surgery center, that I'd like to briefly touch on is how ALLY could contribute to improved employee satisfaction in the workplace environment.
During the administrator session of the Caribbean Eye Conference last month, the results of a recently conducted survey of top administrators, many of whom manage multiple high-volume ambulatory surgery centers were shared. The study found that the biggest concern, which was ranked number one by 71% of responders with staff turnover. Looking at the speed and efficiency benefits that Dr.Prakashdescribed surgeonscould choose to treat the same number of patients per day, shortening their as well as their surgical staff workday, likely enhancing employee satisfaction. Alternatively, surgeons can choose to increase the number of procedures performed in a day. Both prospected to translate into more revenue and increased profitability for the ASC and the surgeon.
Further, several users have remarked upon improvements to patient comfort and overall patient experience. Perhaps an even more important contribution to growth than driving better surgeon efficiency is supporting surgeons' ability to deliver improved patient outcomes more consistently when utilizing our advanced technology. It is gratifying to receive this important feedback on both practice efficiency and improved patient outcomes, which we believe will increase surgeon confidence using ALLY and ultimately lead to patient conversions to femtosecond laser-assisted cataract surgery and higher utilization within the practice. Furthermore, this feedback supports our strong belief that as we grow the ALLY installed base and more surgeons learn about the technology through peer-to-peer interaction, ALLY will firmly establish itself as an integral value-added tool for ophthalmic surgeons, allowing LENSAR to not only grow share of the existing market but also to potentially catalyze the next phase of market expansion.
Importantly, interest from prospective ALLY users is extremely high and continues to grow. Earlier this month, we attended the AECOS meeting in Aspen, Colorado. And during a panel led session titled, what am I doing differently in 2023, which featured presentations by leading cataract surgeons. Three of the four surgeons on the panel stated that they already use or will be using ALLY and share why they use ALLY to treat their premium cataract patients, which demonstrates a strong peer-to-peer recommendation to all attendees. This is another great example of the increasing groundswell of interest that we've experienced in the first quarter of this year. In addition, I'd like to emphasize this provides further confirmation that our controlled targeted launch with early technology adopters and higher volume competitive laser key opinion leaders and LENSAR key opinion leaders is the right strategy.
Another significant opportunity we have with ALLY is to place one or more systems with each practice of private equity-owned groups. Thanks to its small footprint, enhanced economics, significant reduction in procedure time and opportunity to guide better outcomes, these private equity groups are expressing interest in ALLY in their expanding locations as well as replacing their older femtosecond laser technology with ALLY. ALLY represents a true generational change and we're continuing to expand our efforts to get the message out to a broader surgeon audience. Additionally, we have increased our hands-on experiences with more demo opportunities during ophthalmic meetings in the US and are creating opportunities for interested surgeons to observe femtosecond laser-assisted cataract surgery in one of our centers of excellence to experience the ALLY difference.
Our goal is to continue to educate the market on ALLY's many benefits over previous generation femtosecond lasers and let them experience the generational change for themselves. While the demand for ALLY has remained high, our 2022 rollout was constrained by supply chain challenges. We expect these challenges to abate in 2023, allowing us to make the system more broadly available this year. Consistent with our surgeon-centric culture, we've been completely transparent with our customers as far as installation timing. With that said, it's somewhat gratifying to hear our potential customers say that they want the device as quickly as we can get it to them. Looking at our business performance for the year, we achieved a slight increase in overall worldwide procedure volumes, but more importantly, we've achieved a 3% and 11% growth in US procedure volumes in Q4 and for the full year in comparison to 2021 respectively.
The US represents the largest premium procedure market for LENSAR and is fundamental for driving our strategy of market share and penetration with growth in both ALLY system adoption and over time utilization. According to confirming data for market scope, we continue to expand our footprint in the US market and have continued to take competitive market share. In addition, and importantly, this growth clearly demonstrates that demand for femtosecond laser-assisted cataract surgery procedures in the US remained strong despite the ongoing economic uncertainty, which we all face. This, coupled with the opportunity to replicate the experience I described a moment ago of the customer who's converting more patients from standard to a premium laser cataract procedure, thanks to ALLY gives us confidence that we can continue our execution plan to grow our share of the procedure market as we continue our further transition away from legacy technology increase our overall share of the total US installed base, and continue to broaden Ally's presence in the market.
To recap, LENSAR has accomplished some very significant milestones in 2022. We oversaw the successful launch of ALLY and initiated the transition to the new technology from our LENSAR laser system, placed 10 ALLY Systems in the first four and a half months of a controlled launch, and have created significant demand for ALLY through a strategic rollout designed to optimize uptake and build sustainable long-term demand for the system, while allowing us to effectively navigate a challenging macro environment. Now, let me turn over the call to Tom to cover our financial highlights for the quarter. Tom?
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Tom Staab: Thank you, Nick. Our fourth quarter and full year 2022 financial results are included in our press release issued earlier this morning. But I'd like to take this opportunity to expand on some of that information by adding some color to remarks contained in the press release. Revenue was $10.2 million in the fourth quarter of 2022 and compared to $11.2 million in the fourth quarter of 2021. Consistent with our third quarter results, and as mentioned on our call last quarter, this decrease was primarily due to the continued softness in procedure volume as well as the transition away from LLS to ALLY manufacturing, which reduced laser inventory availability and constrained our growth. Much of the procedure volume softness was associated with ongoing third-party payer reimbursement challenges in South Korea, and to a more limited extent, the timing of procedure purchases outside of South Korea.
This timing fluctuation was offset partially by the growth in the US market, as Nick mentioned in his remarks. The continuing reimbursement issues in South Korea had an estimated $900,000 detrimental impact on revenue for the fourth quarter. With that said, fourth quarter 2022 revenue was up 32% on a sequential basis as compared to the third quarter of 2022, driven primarily by ALLY system installations and procedure growth in the US and Europe. In the fourth quarter of 2022, we sold 31,400 procedures compared to 41,642 procedures sold in the fourth quarter of 2021. Our procedure volume decreased 25% over the fourth quarter of 2021, again, primarily due to the softness in the South Korean market. As Nick mentioned, procedure volume in the United States, our most important market, was up 3% in Q4 2022 as compared to Q4 2021.
Gross margin for the quarter was $6.5 million and represented a gross margin percentage of 63%. We increased gross margin $852,000 in the quarter from $5.6 million in the fourth quarter of 2021, despite a decrease of $1 million in revenue quarter-over-quarter. This increase in gross margin is a function of a higher gross margin percentage on ALLY sales versus LLS sales as well as charging inventory items to R&D expense prior to the approval of ALLY in June of 2022. Total operating expenses for the fourth quarter of 2022 were $9.1 million compared to $9.5 million in the fourth quarter of 2021. This decrease was largely due to less R&D expenditures, somewhat offset by an increase in SG&A expenses. The decrease in R&D expenses of $1.8 million was primarily attributable to significantly lower ALLY development expenses following FDA clearance, including no longer charging inventory costs to R&D expense.
These expensed inventory items represented $1.1 million in the fourth quarter of 2021. SG&A costs increased due to increased trade show and commercial activity related to the promotion of ALLY. Lastly, included in operating expenses was non-cash stock-based compensation of $1.7 million and $1.5 million in the fourth quarter of 2022 and 2021, respectively. Net loss for the quarter decreased quarter-over-quarter and was $2.5 million or a $0.24 loss per share compared to $3.9 million or a $0.41 loss per share in the fourth quarter of 2021. Adjusted EBITDA for the fourth quarter of 2022, which excludes stock-based compensation expense, was a $65,000 loss compared to a $1.6 million loss in the fourth quarter of 2021. The quarter-over-quarter change reflects a significant decrease and represents breakeven status in the fourth quarter of 2022 on an adjusted EBITDA measurement perspective.
As of December 31, 2022, we had cash and cash equivalents of $14.7 million as compared to $31.6 million at December 31, 2021. Cash utilized in the fourth quarter was $4.6 million and $17 million for the full year. Fourth quarter cash burn of approximately $4.6 million is almost exclusively associated with increased accounts receivable and inventory balances associated with the launch of ALLY and making ALLY more broadly available in 2023. As mentioned earlier, we were effectively operating at breakeven in the fourth quarter as cash was almost entirely dedicated to working capital usage. As we have mentioned, 2022 was a transition year as the company transitioned its manufacturing and sale of its first generation LLS to ALLY. And thus, our growth was limited to supply chain challenges in the transition to commercialization of ALLY.
Due to the transition, our total revenue for 2022 increased $900,000 or approximately 3% compared to 2021 levels. However, given the traction and demand we saw in the fourth quarter and continue to see, despite strong competitive and macroeconomic headwinds, we expect to return to 20% plus revenue growth in fiscal 2023 as we enter the first full year of ALLY being commercially available in the United States. Additionally, we expect the European launch as well as to submit additional regulatory filings for ALLY in the next 12 months. Our recurring revenue for the year was 86%, which represents revenue outside of system sales and provides a recurring revenue foundation of over $30 million going into 2023. Now, I'd like to turn the call back over to Joanna to open the lines for questions.
