Earnings Call Transcript - LNSR Q4 2025

Operator, Operator

Good morning, and thank you for your participation. Operator instructions were provided. As a reminder, this conference call will be recorded. I would now like to turn the call over to Lee Roth, President of Burns McClellan, Investor Relations Adviser to LENSAR. Mr. Roth, please go ahead.

Lee Roth, Investor Relations Adviser

Thanks, Josh. Once again, good morning, everyone, and welcome to the LENSAR Fourth Quarter and Full Year 2025 Financial Results and Strategic Update Conference Call. Earlier this morning, the company issued a press release providing an overview of its financial results for the fourth quarter of 2025. This 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; and Tom Staab, Chief Financial Officer of LENSAR, who will provide an overview of recent developments, our go-forward strategy and our Q4 financial results. Following these prepared remarks, we'll turn the call back over to the operator to answer your questions. Before we begin, I'd like to remind you all that today's conference call will contain forward-looking statements, including statements regarding our 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 known and unknown 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 call. We caution you not to place any undue reliance on these forward-looking statements. For additional information, including a detailed discussion of the 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 31, 2026. LENSAR undertakes no obligation to revise or 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 Nick Curtis, Chief Executive Officer of LENSAR. Nick?

Nicholas Curtis, Chief Executive Officer

Thank you, Lee. Good morning, everyone. I appreciate you joining us today. It is no doubt an understatement to say 2025 was a unique and unprecedented year for LENSAR. We take great satisfaction knowing that the leading eye care company in the world, Alcon, publicly recognized the value of ALLY and LENSAR given the joint acquisition announcement made in March of 2025. This validates our statement that ALLY is the best next-generation technology, delivering significant and relevant performance improvements in each of the critical elements of laser-assisted cataract surgery, including advanced ergonomics, efficiencies, imaging and automated treatment planning with a dual modality laser. ALLY is the only system that employs machine learning and compute power during treatment planning and optimized treatment to deliver outcomes that are better than any first-generation competitor. The termination of the acquisition agreement was a mutual pragmatic decision made after a year of focused effort and considerable expense from both sides. While this acquisition was approved overwhelmingly by our stockholders, ultimately, we made the decision to terminate because the Federal Trade Commission would seek to enjoin the merger. While both parties worked towards offering acceptable accommodation to allow it to close, it became clear the FTC was not open to changing their position. We were disappointed in the outcome. However, the upside of this process is the validation of the ALLY Robotic Laser Cataract System superiority compared to all other first-generation lasers available today as well as the value attributed to LENSAR based on the success the product has achieved since its launch and its future potential. Therefore, with new resolve and new purpose, we're excited to emerge and reengage as an independent company, picking up where we left off 12 months ago. We've spent the last two weeks working on initiatives and jump-starting relationships with key stakeholders. I'll briefly discuss the last two weeks and share our high-level go-forward strategy today. Relationships are important. And before I present our strategy, I would like to take a minute to thank our partner vendors, agents and suppliers who not only provided excellent support and counsel, ultimately shared that disappointment and financial burden with us through granting reductions in fees as well as extended payment terms. These partnerships are beneficial in LENSAR returning to our prior operating cadence, allocating more of our financial resources and attention to operations. We can immediately start getting back to our business as usual and a smooth return to focusing on growth and expanding our presence with increased installed base and procedures. We appreciate their collaboration and contribution to our future success. Additionally, in association with the termination of the acquisition, we received the $10 million transaction deposit that had been in escrow. In the last three quarters of 2025, we operated with an increasing degree of uncertainty among our partner customers, potential partner customers and distributors regarding our future and the timing of the close of the acquisition. Despite the uncertainty that delayed U.S. customer decision-making on ALLY and LENSAR and halted outside the United States distributor activities and purchasing systems, we expanded the ALLY installed base by nearly 50% compared to year-end 2024, while achieving 20-plus percent year-over-year growth in procedure volume for both the fourth quarter and full year 2025. There's no question the last nine months of 2025 were negatively impacted by the acquisition process and extended timeline and not just by the increased SG&A expenses associated with supporting the transaction. While our 2025 results include a 9% revenue growth, I need to be transparent and clear. We expect through the next several quarters of 2026, a gradual return to our historical operating performance. When you consider our longer-term growth metrics, the trajectory has been impressive. Our full year 2025 procedure volumes are up 50% compared to 2023, the first full year of ALLY commercial availability. By reflecting on a longer-term vantage point, you get a much better picture of what we see as the future opportunity for LENSAR and ALLY. Since the launch in August of 2022, we grew our installed base to approximately 200 ALLY systems and grew our procedure volume, gaining market share from 14% procedure share in the U.S. to 23.4% as of the end of 2025. I want to say we gained almost 9.5 percentage points of market share in 3.5 years. These market share gains come from three specific areas. First, it comes from competitive accounts, replacing first-generation lasers with our ALLY Robotic Laser Cataract System accounts for the largest gain in share. Second, the gain in share is demonstrated by what happens after we replace a competitive system. LENSAR on average performs 27% more procedures annually than the national average per laser, providing evidence that we are growing the overall market for robotic laser cataract procedures. Third, nearly 50% of our systems in Q4 2025 were from femto-naive surgeons, further expanding the market for laser cataract-assisted surgery. The data provides evidence LENSAR is addressing the shortcomings of the first-generation laser-assisted cataract surgical lasers by delivering the most technologically advanced next-generation robotic laser for cataract surgery in multiple ways. Significantly improving efficiencies and patient throughput, allowing for more procedures with faster treatments and fewer staff interactions, leading to the potential for fewer mistakes, less anxiety and a better overall patient experience. Second, customizing precise, specific reproducible treatments optimized by utilizing features such as machine learning and surface anatomy recognition, imaging and optimizing data for treatments by communicating with preoperative devices in the surgeon offices, leading to better outcomes in refractive cataract surgery using astigmatism management. To put in perspective, our competitors have the ability to bundle more products using cataract procedures, more feet on the street and much deeper financial human and operational resources. Despite this, we've been incredibly successful in increasingly growing ALLY's market share. Why? LENSAR is a small, nimble and resilient organization. We're known for innovation that aligns with surgeons' practices and patients' objectives. LENSAR is and always will be a surgeon and practice-centric organization. We have extensive clinical evidence that is giving surgeons the confidence to make the decision to implement ALLY in their practice. Over the last three years, ALLY's performance, placements and procedure volume speaks for itself. All I can say as we start the second quarter of 2026, we expect to compete as we have in the past. We are back. I'd like to spend a few moments talking about our business outside the United States. As a reminder, while LENSAR started commercializing ALLY in the U.S. in August of 2022, it wasn't until two years later that we received the European certification and began to sell ALLY internationally. Looking at the timeline, ALLY had been on the market outside the United States for roughly seven months when the transaction was announced. The uncertainty over the post-acquisition ALLY distribution landscape had a greater impact on our outside the United States distributors than our U.S. customers, and that uncertainty caused a meaningful slowdown in our international business expansion over the last year. With our distributors, the ALLY launch got off to a very successful start, quickly gaining acceptance with new sites and meaningful momentum, which came to a hard stop. After meeting with the distributors post-acquisition termination announcement, I believe we will begin to return to significant system growth in these international markets over time. Most, if not all, the distributors were both happy and relieved with the termination of the merger. Although they have all indicated their enthusiasm and are ready to support the business going forward, their conservative immediate forecast indicates this will take some time. We will work together on the transition timing to regain the lost momentum and begin to contribute to an increase in worldwide system and procedure market share. I'm confident in our ability to drive long-term success and create value for our surgeon partners in the United States, our distribution partners overseas, our global customers, the patients they serve and our shareholders. We also continue to rely on our long-term existing physician partners and private equity groups as they are our partners in success. These partners recognize we are working hard to deliver and provide the most responsive service, support and best product in the market. Going forward, we'll be focusing on a few key areas. Continuing to grow our procedure volumes and recurring revenue will be critical to our success. This will come through a combination of additional system placements and increased utilization on the 200 ALLY systems currently in the field. Our procedure revenue is recurring in nature. It is stable. It has a predictable trajectory following an install and importantly, carries a significantly higher margin than system revenue. The acceleration of system growth discussed in my remarks will contribute to significant long-term growth in procedure volumes, which will further strengthen our recurring revenue base. An important statistic to consider here is system utilization rates, another area where we are well positioned for success and driving overall market growth. Once again, LENSAR systems in the U.S. perform an average of 27% more procedures than the national annual average of lasers currently installed. There is not another robotic femtosecond laser available in the marketplace. We're excited to speak with you, answer your questions, and we appreciate the confidence and support you put into the LENSAR team. Now let me turn the call over to Tom, and he'll cover our financial highlights for the quarter. Tom?

Thomas Staab, Chief Financial Officer

Thank you, Nick. I'd like to discuss our fourth quarter and fiscal 2025 results. However, my remarks will be succinct and pointed for two reasons. One, our fourth quarter and 2025 results were impacted by conducting our operations under the previously contemplated acquisition by Alcon; and two, we start the second quarter as a stand-alone company tomorrow. So I'll highlight the relevant aspects of Q4 and our 2025 results as they relate to our future results and operations. In association with the termination of the merger, there are some significant adjustments to our future financial statements that I'd like to highlight. First, the $10 million merger deposit that was being held in our bank account becomes ours. Thus, the cash that we report at December 31 of $18 million is ours with full title and the $10 million deposit liability will be eliminated in our first quarter 2026 results. Second, we recorded $17.1 million in total acquisition costs in 2025, with $14 million of those expenses unpaid as of December 31. With the termination of the merger, approximately $4.3 million of the unpaid balance will be eliminated or written off by concession of our acquisition advisers and then $5 million of the remaining liability will be payable starting in May 2027, a significant payment deferral. Lastly and importantly, as Nick has mentioned, we have reengaged with our key stakeholders, including our distributors, and we start today with the help of these key stakeholders to reestablish our stand-alone operations at an operating cadence more similar to prior to the announcement of our acquisition. Our performance in the fourth quarter was solid with a total revenue of $16 million, representing a 4% decline year-over-year, primarily as a result of lower system sales. As you look at regional sales, U.S. ALLY sales were 12 systems, increasing one system from Q4 2024. However, there was only one ALLY sale outside the United States in the fourth quarter of 2025 compared to 10 ALLY systems sold outside the United States in the fourth quarter of 2024. We attribute the fluctuation in ALLY unit sales year-over-year largely to our distributors' uncertainty as to when their collaboration with ALLY and LENSAR would end. You can understand our excitement as initial conversations with distributors demonstrated their willingness and enthusiasm to reengage. This will be an important growth driver to top line revenue, recurring revenue as well as enhanced cash flow. The quicker our distributors reach out to potential ALLY customers and reengage in ALLY's promotion, the faster our operations outside the United States begin to meaningfully contribute to our total system sales and enhance our cash flow. Another important aspect of our business is recurring revenue. While total 2025 revenue increased a respectable 9% over 2024, 2025 recurring revenue increased 15% over 2024, offsetting the decrease in system sales for the year. The decrease in system sales for 2025 was entirely due to sales outside the United States, decreasing to 20 systems in 2025 from 23 systems in 2024. This is especially noteworthy as eight systems, 40% of our fiscal 2025 system sales occurred in the first quarter of 2025 prior to the acquisition announcement. And the comparable 2024 period, as Nick mentioned, was only five months of activity as we did not receive regulatory approval and launch in Europe and Taiwan until August 2024. Recurring revenue grew 17% in the fourth quarter 2025 to $12.7 million, annualizing to over $50 million, and we exited the full year 2025 at $46.3 million, up 15% compared to the $40.1 million in 2024. This performance reflects the continued expansion of our installed base as well as increased system utilization with procedure volume remaining a key driver. Fourth quarter procedure volume increased approximately 20% year-over-year and full year procedures grew 22%, surpassing 206,000 globally. We placed 15 ALLY systems in the fourth quarter, bringing the installed base to just over 200 ALLY systems, up 48% year-over-year, while our total combined installed base of ALLY and LLS systems grew to approximately 435, an increase of 13%. We exited 2025 with a backlog of 13 systems pending installation. Gross margin for the quarter was $6.9 million and represented a gross margin percentage of 43% compared to a 42% gross margin in the fourth quarter of 2024. Our gross margin for the full year was 46% versus 48% for fiscal 2024. The decline in margin percentage represents the impact of inflationary cost increases to our raw materials and production processes accompanied by tariffs assessed in 2025. We did not pass on tariff costs to our customers. We are forecasting an increase in our gross margin percentage and expect it to be in the 46% to 49% range for fiscal 2026. The more successful we are with system sales, the lower we will be in this gross margin range. However, increased system sales will have a more beneficial impact on our recurring revenue as gross margin percentage and recurring revenue factors are inversely correlated when it comes to ALLY sales. Other than the recurring revenue, another important aspect of our 2025 results is that we maintained a positive adjusted EBITDA for the year with a fourth quarter adjusted EBITDA of $595,000, thereby indicating operating cash flow positive operations, excluding any working capital impact. We are proud of our positive adjusted EBITDA operations for the year, considering we operated nine-plus months under the pending acquisition. And during that period, we were missing top line revenue and cash flow from our typical system sales outside the United States. From an expense perspective, our fourth quarter results were impacted by approximately $3.5 million in merger-related costs, which drove a 51% increase in SG&A year-over-year to $10.3 million and a 41% increase in total operating expenses to $11.9 million in the fourth quarter. Going forward, we expect that the underlying expense profile of the business will become more stable with our cash-based operating expenses being a reasonable guide for 2026 with us expecting no more than a 10% increase in cash-based operating expenses and the majority of this increase devoted to commercial activities. As we look ahead, our focus is on transitioning from this 12-month period of disruption to one of execution and growth with three clear priorities: first, accelerating revenue growth. We expect continued expansion of our installed base and increasing system utilization, thereby increasing recurring revenue. Second, maintaining our cost discipline. This priority continues and has been a focus since launching ALLY. Third, enhancing cash flow, especially as it relates to increasing system sales, particularly outside the United States. We believe that the combination of cash on hand as well as the discounted and extended payment terms of acquisition costs provide us with the necessary flexibility and financial resources to effectively restart our operations and return to our previous growth run rate and operating success. We would now like to turn the call over to Josh for Q&A. We're happy to answer your questions.

Operator, Operator

Operator instructions were provided. Our first question comes from Frank Takkinen with Lake Street Capital Markets.

Frank Takkinen, Analyst

A lot to cover. So maybe I'll start with the distributor commentary, Nick, it sounds like the conversations you've had over the last few weeks have been really positive, but I did hear the comment of exercising a little conservatism as you reengage with those folks and think about kind of how that's going to actually translate to outside the United States system revenues. What more can you tell us there? And how should we be thinking about reading into that commentary and applying it to our models as we think about growth reaccelerating throughout 2026 or 2027?

Nicholas Curtis, Chief Executive Officer

Sure. Frank, good to hear from you. It's been a while since we've done these calls. So the business outside the United States is different in a lot of cases, particularly in a few of the countries where you don't have as many private practice and ambulatory surgery center owners who can make the decision or a private equity group that makes the decision, for example, in Germany, where we have a large private equity group, and we are one of the primary suppliers there. And so in some of the particularly Southeast Asia markets, some of these go on tenders. And given the uncertainty, they were hesitant to engage in a tender because they're over an extended period of time. So, for example, they'll start reengaging in these tenders and those tenders take time. And quite frankly, we may have lost a few renewals in the short term from some of these deals, not our deals where they had our systems, but where we had an opportunity to quickly replace a competitive system. And so I just expect that it's going to take us several quarters to really reinvigorate, get out and assess where some of those tenders are, where we have opportunities and begin to do that as well as participating in some of the various conferences like we do here. And so I just caution to say that because we had this massive quick start when we got the ALLY approved two years later, now essentially, there's been zero activity for the last nine months and so there will be some restart-up. And it's not like there's a backlog sitting there because essentially, these distributors didn't—again, we're planning for life without LENSAR—they didn't expect to be distributing on a going-forward basis. So they're really enthused. And I just say it's going to take us a little time to get back to that sort of momentum that we had in the last quarter of 2024.

Frank Takkinen, Analyst

Very helpful. And then as we think about placements going forward, it seems like there are two phenomena going on. Outside the United States is likely more capital placement oriented. And then in the U.S., with each incremental placement, it gets incrementally harder. So maybe there's less upfront payment and more kind of lease-based placements. How should we think about that throughout the year and a mix of more lease-based or usage-based placements versus actual capital sales throughout the year?

Nicholas Curtis, Chief Executive Officer

Great question. So as you know, and as Tom had indicated, when we sell a system outside the United States, when it leaves our dock, we essentially recognize revenue on the system sale itself. And so it's a very quick recognition. In the U.S., the revenue recognition is different. You have to get the system installed. You have to begin training and the system is accepted by the customer, the end user, before you begin to recognize revenue. And on procedure deals or when we do placements and even when we sell a system in the U.S., usually, you're looking at in the neighborhood of close to 60 days before you really start getting into the revenue phase where they get to some normal procedure volume because you're training people and you're getting the systems put in place and procedures and whatnot. Traditionally, we've been in the neighborhood of somewhere north of 50% sold systems in the U.S. and, say, 50-50 or perhaps even a little bit more on sold versus placed. I would expect that that's probably going to drop a little bit. What we've seen is that the competition, lacking the system, go out with procedures and try to drive a price competitive offering versus what we do with the value proposition of a much more efficient, faster, better treatment overall. So I think that over the next couple of quarters, you'll see us go from that sort of 50% to 55% sold systems versus placed systems in the U.S. to a lower percentage, particularly as outside the United States takes a little time to ramp up there.

Frank Takkinen, Analyst

Yes. No, that's very helpful. I appreciate that. And then maybe just the last one for Tom. I heard the comment, a 10% increase in cash OpEx. So I just want to make sure I understand that. Essentially, if we look at 2025 OpEx and back out the $17.1 million of M&A-related expense and then grow that 10%, is that what you're inferring? So you would be in the neighborhood of kind of $38 million, $39 million of operating expense for 2026?

Thomas Staab, Chief Financial Officer

That's exactly right, Frank. The only thing that I'll say is the way we look at things is cash-based operating expenses. So we threw out amortization as well as stock-based compensation and then it's the 10% off that base. But yes, you're correct.

Operator, Operator

Our next question comes from Ryan Zimmerman with BTIG.

Ryan Zimmerman, Analyst

So maybe just to start, I don't think I heard the procedure growth was still really good worldwide. I'm wondering if you could comment, Nick, on U.S. procedure growth because I think you also faced a tougher comp there. We saw a bit of a slowdown in cataract volumes through much of 2025. Maybe you could just comment on where that stands? And then as you think about the business going forward, I appreciate that the system dynamics will be choppy as you get the train out the station. But talk to us about the recurring revenue side of things, particularly around procedures and how you think that will function as we look ahead to 2026?

Nicholas Curtis, Chief Executive Officer

Thanks, Ryan. Good to hear from you. So as Tom had mentioned, we exited the year with approximately $46 million in recurring revenue, and that was ramping closer to $50 million when you look at the fourth quarter on a rolling forward basis. Our business is becoming very healthy on the recurring revenue side. It was 79% of our revenue in the fourth quarter. As we go forward, we expect that those 200 installed systems will continue to produce. We're doing approximately about 600 procedures a year on average on the ALLY units in the U.S. on a going-forward basis. That is quite a bit higher than the average installed base. We expect that to continue. Because of what we do with astigmatism management, we started to see more femtosecond-laser-naive adoption, which represented 50% of our new business in the fourth quarter. So we expect that to continue and to grow as well. Those accounts of caution take a little bit longer to get to the steady-state—they take longer to ramp because they've never done lasers before; they're putting in a new system and training staff and educating patients. So that will take a quarter or two to get those folks up to speed as more new customers come on, but they represent a significant segment. When you look at cataract surgery reimbursements and the need to deliver better outcomes, our astigmatism management—over 65% of procedures that we do involve some form of astigmatism management. So you'll see the mix of customers that previously were replacing older competitive devices; on average, we do 20% to 27% more procedures than the national average of systems. We take about a 60-day ramp and you see those procedures come up to where our averages are or higher. And then you'll see a mix of newer customers and some office-based surgery centers, which tend to be lower volume accounts and take more time to ramp. So you may see the average number of procedures for new entrants be lower at first, but you'll see more systems in the field and the current installed base will continue to grow.

Ryan Zimmerman, Analyst

Very helpful. Just to circle back, Tom, on expenses. I appreciate the math and commentary that you gave. It's helpful. In this transitory period, I imagine expenses came down artificially. Now you also need to get the train up the station. When you think about the cadence of expenses, shouldn't we see some type of acceleration—foot on the gas—to get operations coming again? I'm wondering if the 10% is the right number as I think about into '27 and beyond. I know it's a little premature, but it seems like there are multiple vectors and cross currents around operating expenses for 2026.

Thomas Staab, Chief Financial Officer

Very astute question and a very good observation, Ryan. Yes, our expenses did go down over the last 13 months because of being under the acquisition process. Even though our advisers discounted and extended the payment terms, that's still a big nut for us to cover as a small company. We're being very judicious in our expenses and the increases are primarily going to be commercial in 2026. Then as our distributors come online and we see a larger contribution of sales outside the United States and more cash flow coming in, I fully envision ramping up our commercial activities in 2027 well beyond 10%—but we're kind of in this moderation phase until we're certain how quickly our distributors can come back after this 13-month lag where they effectively put their pencils down.

Ryan Zimmerman, Analyst

Right. No, understood. When you think about what's entailed—and this is more direct to you, Nick—yes, you've had conversations with the distributors outside the United States. They understand where you guys are as a company now not going through with the merger. Does your thinking around your outside the United States efforts change? Do you see bigger opportunities than perhaps you thought before? Is there room to go beyond the markets you were in pre-merger? Some of those approvals were really good; we saw a good uptake in Europe. But now the question is, as a stand-alone, does your aperture change outside the United States?

Nicholas Curtis, Chief Executive Officer

Great question. It's interesting because in terms of replacing some of the older competitive systems, I've seen interest in a few other countries that we have not gone into. I'll be looking at opportunities such as Australia and New Zealand, where there's quite a bit of interest in replacing older systems. That would be a market we haven't been in that we may look into. I think we'll see activity in Southeast Asia come back; as I said, there's more of a tender business there and it will take more time, but I expect systems there this year. I also think there's more expansion growth in Europe into countries where we haven't been before because ALLY addresses many of the shortcomings that led people to abandon femtosecond laser-assisted cataract surgery previously. Having a good installed base in the U.S. and seeing uptake here has helped distributors who see replacement opportunities. There are many systems outside the United States sitting in accounts that are not very productive on the competitive systems, so we'll have opportunities to replace them. I don't see the opportunity coming back in South Korea soon due to reimbursement issues, so that market remains out of scope for the near term. We may also look at some markets in Latin America where we haven't been active. Those are longer-term opportunities. For 2026, I think we'll see Europe come back and see more growth in Southeast Asia, and then we'll evaluate other markets like Australia, New Zealand and parts of Latin America over time.

Ryan Zimmerman, Analyst

Okay. I appreciate it. I know this call was a change in plan from what everyone expected, but it's good to hear from you guys, and we'll get the dust off and move forward.

Nicholas Curtis, Chief Executive Officer

Ryan, that's life—life throws curves. The reality is what you do to adjust and how you pivot. You have two choices: you can quit or you can come out fighting. I've never quit, and I intend to come out fighting.

Operator, Operator

Thank you. I would now like to turn the call back over to Nick Curtis for any closing remarks.

Nicholas Curtis, Chief Executive Officer

I really appreciate everyone joining us today. It's been invigorating to do a call after not having one for about a year. While the termination of the merger was not the outcome that we anticipated, I think it positions us to move forward with a much greater focus and control as an independent company. As a stand-alone company, we certainly know we have the best product available. I think that came out loud and clear through the process, and we're ready to capitalize on the significant market opportunities that lie ahead. Rebuilding momentum is going to take several quarters, but our priorities are very clear and I believe our team is aligned to deliver. We're confident that this path will enable us to unlock even greater long-term value for our surgeons, patients and shareholders, and we look forward to sharing our progress with you all as we move forward. In closing, once again, LENSAR is back. Thank you.

Operator, Operator

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.