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RxSight, Inc. (RXST) Q3 2021 Earnings Call Transcript

By Motley Fool Transcribing – Nov 11, 2021 at 11:30AM

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RXST earnings call for the period ending September 30, 2021.

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RxSight, Inc. (RXST)
Q3 2021 Earnings Call
Nov 10, 2021, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day, and thank you for standing by. Welcome to RxSight third quarter 2021 earnings conference call. [Operator instructions] After the speakers presentation, there will be a question-and-answer session. [Operator instructions].

I would now like to hand the conference over to your first speaker today, Malcolm MacLeod. Please go ahead, sir.

Malcolm MacLeod

Thank you, operator. Presenting today are RxSight president and chief executive officer, Ron Kurtz; and chief financial officer, Shelley Thunen. Earlier today, RxSight released financial results for the three months ended September 30, 2021. 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 your questions during today's call, reflect management's views as of today November 10, 2021 only, and will include forward-looking statements and opinion statements, including predictions, estimates, plans, expectations, and other information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission. Our SEC filings can be found on our website or on the SEC's website.

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Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. We will also discuss certain non-GAAP financial measures. Disclosures regarding these Non-GAAP financial measures, including reconciliations with the most comparable GAAP measures can be found in the press release.

Please note, that this conference call will be available for audio replay on our website at on the investor calendar page on the news and events section on our investor relations page. With that, I will turn the call over to CEO, Ron Kurtz.

Ron Kurtz -- President and Chief Executive Officer

Thank you, Malcolm, and good afternoon, everyone. I'll begin today's call with a brief overview of the quarter along with some general observations. Shelley Thunen will then go into more of the financial details and will then take questions. In the third quarter, our light delivery device and light adjustable lens sales generated $5.8 million in revenue, representing 39% growth compared to Q3 2020, and 18% growth compared to the second quarter of this year.

For the nine months ended September 30th 2021, revenue was 14.2 million representing a 45% increase compared to the same period of 2020. With the addition of 31 Light Delivery Devices or LDDs, our installed base grew to 161 by the end of the quarter, while ophthalmic surgeons also implanted 1,977 light adjustable lenses or RxLALs during the quarter, bringing the total since our U.S. commercial launch to almost 11,000. Since the premium channel was created in 2005, enabling doctors to collect an additional fee above and beyond standard reimbursement for advanced technology intraocular lenses or ATI LALs, doctors and patients have been seeking a premium solution that consistently delivers excellent quality of vision without glasses.

The LAL uniquely meets this challenge by letting doctors optimize a patient's vision after surgery to achieve excellent vision over a range of distances at rates that are nearly doubled out of competitive products, but without reducing quality of vision or increasing unwanted effects such as glare or halos. In the third quarter, we also rolled out in important update to our technology called ActivShield, which protects the LAL from ambient UV light, providing additional scheduling flexibility for patients and doctors. We did see procedures grow throughout the quarter, and particularly in September as our ActivShield rollout was substantially completed. While we are early in the fourth quarter, we have continued to see procedure momentum accelerate and now expect revenue for the full year to be between 21 million to $21.4 million.

The growing excitement around RxSight is also evident in our ability to build out our U.S. commercial team efficiently and with very high quality. We have increased the LDD sales force to 14 above our previously stated goal of 12 by year-end. We now expect our LDD sales force to be at 18 by the end of 2021.

While this team is focused on developing new customers, we've also created a new LAL team -- sales team that is focused on rapid and expanded LAL utilization at RxSight practices. This group currently includes five members and is expected to expand to 18 in the first half of 2022, which will bring our direct field sales team to 36 members by that time. With that, I'd like to turn it over to Shelley for more details on the third quarter financial results.

Shelley Thunen -- Chief Financial Officer

Thank you, Ron. Good afternoon, everyone. As Ron noted, total revenue in the third quarter was $5.8 million an increase of 18% sequentially compared to the quarter ended June 30th 2021 and 39% increase compared to the third quarter of 2020. Looking at revenue by product, we sold 31 LDD systems in the third quarter of 2021, generating $3.7 million in revenue, compared to 25 LDD is driving $3 million of LDD revenue in the second quarter of 2021 and 19 in the third quarter of 2020 or $2.7 million dollars in sales in the prior year period.

As expected, in our early stage of commercialization, LDDs continue to dominate the sales mix. Representing 63% of our revenue in the third quarter and 61% in the second quarter of this year, We sold 1,977 LALs in the third quarter of 2021 generating revenue of $1.9 million, compared to 1,825 LALs driving $1.8 million on LAL sales in the second quarter of 2021, and 1,513 LALs for $1.4 million of LAL revenue in the third quarter of 2020. Third quarter gross profit was $1.3 million, or 23.2% of revenue, compared to a gross loss of $800,000 in the second quarter ending June 30th 2021, and a $720,000 gross profit in the third quarter of 2022 or 17.3% of revenue. The sequential increase in gross profit was primarily due to a large reserve in the second quarter of 2021 for our previous version of the LAL due to ActivShield LAL introduction.

The increase in gross margin from the third quarter of 2020 is due to higher sales volume. Selling, general, and administrative expenses for the three months ended September 30th 2021 was $9.1 million, compared to $6.5 million for the three months ended June 30th 2021, and $3.8 million in the same period of the prior year. The sequential increase in SG&A expenses in the third quarter of 2021 compared to the second quarter was primarily due to increased headcount and sales and marketing, increased costs to operators public company, and an increase in stock-based compensation. Research and development expenses for the three months ended September 30th 2021 were $5.4 million, compared to $6.6 million for the three months ended June 30th 2021, and $5.8 million in the same period of the prior year.

The decrease in sales in research and development expenses sequentially and as compared to the prior period resulted from lower consumable materials for testing and prototype expense and lower clinical study expense. Our R&D costs can vary quarter to quarter depending on stage of development of products and timing of clinical studies. Our net loss in the third quarter was $12.7 million or $0.68 per share, basic and diluted attributable to common stock using a weighted average share count of 18.7 million shares, while we had a total of 27.4 million common shares outstanding at September 30th. EPS is calculated on a weighted average common shares outstanding during the quarter with few common shares outstanding prior to our IPO on July 31st of this year.

Prior to our IPO, most of our shareholders own preferred shares, which were converted to common shares immediately prior to the IPO. I would also like to highlight the non-GAAP disclosures in the press release with the non-cash stock-based compensation expense and the change in the fair value of warrants as it provides investors with useful comparative information. Stock-based compensation in the third quarter of this year was $2 million and the change in fair value of warrants results in the gain of $1.5 million in the quarter, resulting in a non-GAAP basic and diluted loss of $0.65 per share. Moving to the balance sheet, we ended the third quarter with $168.3 million of cash, cash-equivalents, and short-term debt investments.

Long-term debt was $39.6 million with the increase in momentum at the end of the third quarter and the beginning of this quarter, we expect revenues for the full year to be between 21 million to $21.4 million, an increase of 43% to 46% over the full year of 2020. Gross margin is expected to be between 18 and 19% with a net loss between 49 million to $50 million for the full year. Since we are year-end, this translates to revenue of 7.1 to $7.4 million in the fourth quarter, gross margin between 31 to 33%, and a net loss of 16 to $17 million for the fourth quarter. Now, I will turn the call back to Ron for closing remarks.

Ron Kurtz -- President and Chief Executive Officer

Thank you, Shelley. To conclude our prepared remarks, our message to surgeons and patients is clear, the LAL system provides optimal visual outcomes for patients after cataract surgery. We are actively sharing the clinical data and best practices that define this value, including at the American Academy of Ophthalmology meeting in New Orleans, scheduled for November 12th through the 15th. With our growing number of implant surgeons and installed base of LDDs, our expanding commercial capabilities and the potential for additional product enhancements, we believe, we are well positioned to execute on our opportunity to meet and exceed the progressively higher expectation of premium cataract patients and doctors.

And now, operator, please open the call for questions.

Questions & Answers:


Thank you. [Operator instructions]. Your first question comes from the line of Robbie Marcus from J.P. Morgan.

Your line is now open.

Malcolm MacLeod -- Investor Relations

Hey, guys. This is Alan on for Robbie. Just want to start by saying congrats on a good quarter. And I think it was a bit refreshing to not hear COVID-19 brought up as kind of an important dynamic as you track going forward.

But just to dive a little bit deeper into it. Was there any meaningful impacts on the quarter from the pandemic and Delta, you mentioned that you saw acceleration continuing through the quarter and in October, which is great to hear. But just in terms of the impact of pandemic, the kind of hospital staffing issues that we heard of any impact from those that we should keep in mind going forward?

Ron Kurtz -- President and Chief Executive Officer

Yes. Thank you for your question, Alan. Obviously, COVID is still a factor at both the macro and practice level. And the rates for COVID did increase over the quarter, but ophthalmic practices largely have been relatively less affected by the primary effects of COVID and more from secondary effects, how people take vacations and staffing levels primarily at ASCs, which can limit the throughput of ASCs.

So we certainly see COVID effects, but at our stage of development, we're still primarily impacted by factors related to our technology and our ramp.

Malcolm MacLeod -- Investor Relations

Got it. And then just as a quick follow-up. I think in this quarter, we saw you guys relative to our own forecast putting in a bit more LEDs than we and forecast that really drove a little bit about performance versus our model. So when we think about this momentum going forward, should we expect that fourth quarter will be driven by kind of another similarly strong quarter from LDD placement especially with capital budgets generally seeing more purchasing at the end of the year and coupled with some more modest improvements in LALs that right now, as you said, the focus really is expanding the base and then going deeper later.

Thank you very much.

Shelley Thunen -- Chief Financial Officer

Hi, Alan. This is Shelly. You do have both those things right, that you talked about. Our focus is on LDD sales because that does drive procedure growth.

Fourth quarter historically has been strong for capital equipment for the same reasons that you earlier because people want to get their accelerated depreciation on any capitals they buy in the fourth quarter. And fourth quarter tends to be good for procedures as well, that's a microeconomic kind of look. I think it really depends on what our particular doctors decide to do for us, but we are very pleased with the momentum that we have on LDD sales.


Your next question comes from the line of Danielle Antalffy from SVB Leerink. Your line is now open.

Malcolm MacLeod -- Investor Relations

Hi. This is Erin on for Daniel. Thanks so much for taking questions. I was just hoping -- Thanks for providing guidance.

I was just hoping you could maybe walk us through some of the assumptions included and the upper and lower end of the range and kind of what we can expect and what it might take to hit the lower and upper end of the range. Thanks much.

Shelley Thunen -- Chief Financial Officer

Yes, the range is pretty narrow at 7.1 million to 7.4 million. I think the difference in the range will necessarily primarily be about the number of LDDs we sell during the quarter. And that really is also why we have some range in the gross margin as well, because the gross margin on the LDD is lower, quite a bit lower than the LAL.

Malcolm MacLeod -- Investor Relations

OK, great. Thanks. And then just maybe if you could talk about what you're seeing in terms of utilization and how kind of new surgeons and once you place the LDD and how new surgeons or ramping and how we should think about utilization heading into the fourth quarter and looking ahead into 2022?

Ron Kurtz -- President and Chief Executive Officer

Yes. Thank you, Erin. We see a wide range of initial utilization and ramp, it really depends on the practice and our focus really is on educating the practices and that includes doctors, optometrists, other people in the practice about the value of the LAL and its unique ability to provide high quality vision and an extended range of vision, and that's something that is just not that combination is something that's just not available with other competitive products. And some practices pick up on that very early and ramp more quickly.

Others, they take a little bit a slower approach. Also, we do see -- that's one of the reasons why we've initiated the new sales position focused on LAL sales and ramping is to be able to accelerate that educational process.

Malcolm MacLeod -- Investor Relations

OK, great. Thanks so much.


Your next question comes from the line of Ryan Zimmerman from BTIG. Your line is now open.

Ryan Zimmerman -- BTIG -- Analyst

Hey, Ron. Hey, Shelley. How is everyone doing? Congrats on the quarter.

Shelley Thunen -- Chief Financial Officer

Good afternoon.

Ron Kurtz -- President and Chief Executive Officer

Thank you, Ryan.

Ryan Zimmerman -- BTIG -- Analyst

So first off, I'll see you guys in a few days at LAL. So I just want you answer my question on the increase in the LDD sales force. I guess, what are you seeing in the account that kind of accelerating that process. I think it's a good signal, but I would imagine there's something underlying at the -- how can you think about that.

And then certainly with the LAL rapid and expanded force that increases utilization, and also my other question to that is what do you expect when you put these people in place in terms of uptick? And how fast that could start to generate kind of consistent LAL usage? Thank you.

Ron Kurtz -- President and Chief Executive Officer

Thank you, Ryan. Maybe I'll take the first part of that question and Shelley will take the second. One factor in the rate of our hiring of sales folks is just the success that we've had in finding extremely qualified and interested people in joining RxSight. And so that's something that we have opportunistically take advantage of to accelerate our hiring.

Also, we're obviously -- this is a very large market and there's an established pattern of relatively smaller territories within that. Where salespeople can really go deep into their territories and again educate the field on the benefits of RxSight technology, again, that combination of quality and range of vision. So, I would say those are the main factors in determining the pace of hiring.

Shelley Thunen -- Chief Financial Officer

We just started hiring for our LAL sales team. We have five on now and expect to have 18 by the end of the second quarter. Again, we expect that pace to come up pretty quickly. One is the things that we see in terms of adoption, you can measure it, of course as we're adding LDD so rapidly, which is good, we are increasing the number per quarter.

And of course, it takes a while for people to get going and we find that our clinical apps folks are really busy on training and training new doctors, as well as training new technicians even in the ASC. So while they are very important in the practices of the time, we think we need the additional help with the LAL sales team. This is a relatively new case you're starting out, but we would expect that the efforts that they make on education about the product as well as patients flow in the practice and how to sell the product will be very important to us and if we grow and get more and more LDDs. And of course, it also allows us to go back to existing customers from very high adopters and we'll be able to serve their best practices and be able to let other people know about that as well, but also to help practices, maybe have an adopted as quickly.

So, I think twenty twenty two will tell us a bit more about the activity of that sales force, but we expect be effective and we are hiring really very qualified people who's done there before further company.

Ryan Zimmerman -- BTIG -- Analyst

OK. That's very helpful. I appreciate that color. And then just the last question for me.

I'll hop back in the queue. Your pricing on the LDD, I think higher than we expecting. And certainly the LAL too. And I appreciate the comments about fourth quarter run into the quarter [Inaudible] on the momentum.

What are your expectations around pricing? And do you expect it to be stable and just how to think about pricing components? Thanks for taking the questions.

Shelley Thunen -- Chief Financial Officer

Yes. As we think about pricing, in the short run, that might be through the first half of 2022. We expect it to be stable both for the LDD and the LAL.

Ryan Zimmerman -- BTIG -- Analyst

Thank you.


Your next question comes from the line of Lawrence Biegelsen from Wells Fargo. Your line is now open.

Malcolm MacLeod -- Investor Relations

Hi. This is Charles on for Larry. First congrats on the next quarter. It's a little bit too early for 2022 guidance.

But I'd be curious to hear your thoughts, it looks like consensus is currently sitting at around 39 million in revenue close to 86% yearly growth. Curious to hear your initial reactions to that number and just more generally what might be driving the growth in the next year and finally puts and takes in 2022? Thanks.

Shelley Thunen -- Chief Financial Officer

Of course. As you did say that it is early for 2022 guidance, we're very focused on the fourth quarter right now. And we do see the microeconomics continuing to improve a bit procedures are overall picking up, we do think that our individual practice patterns are more important than the microeconomics, but we're happy to see that. The other thing that other people have commented on is while we're getting some recovery from COVID, it's more gradual and I think everybody thought and that will be limited really by ASC availability for surgeons to practice.

And what we're really focused on as we get into the focus on now and it would be the same focus in 2022 is one, LDD sales, two, increasing the number of LAL at each center and that's our LAL sales force as well that we're growing. And really underpinning all that is education about the product and benefits that we offer. So, there's no other product that compares to ours in terms of visual acuity as well as glare halos and of course excellent contrast vision. So, Ron, I think you might want to talk about that just a little bit in terms of a positioning in the product and what we're making sure we let people know about.

Ron Kurtz -- President and Chief Executive Officer

Yeah. I think you've done a great job, but you hear other products talking about their relative comparison to other premium IOLs that have either side effects or effects on visual quality, and that's simply not a factor with the LAL, and we're fully comparable to conventional monofocal IOL in that regard, and so that is preservation of visual quality, while still delivering range of vision. That's really the reason for the product and it's the unique ability of the product due to its adjust ability to achieve those results.

Malcolm MacLeod -- Investor Relations

Thanks, guys.


[Operator signoff]

Duration: 29 minutes

Call participants:

Malcolm MacLeod -- Investor Relations

Ron Kurtz -- President and Chief Executive Officer

Shelley Thunen -- Chief Financial Officer

Unknown speaker -- Investor Relations

Ryan Zimmerman -- BTIG -- Analyst

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