Earnings Call Transcript - LNSR Q4 2021

Operator, 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 Cameron Radinovic of Burns McLellan. Mr. Radinovic, please go ahead.

Cameron Radinovic, Investor Relations

Thank you. Good morning, and welcome to the LENSAR fourth quarter and full year 2021 financial results conference call. Earlier this morning, the company issued a press release providing an overview of its financial results for the quarter and full year ended December 31, 2021. 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 of LENSAR, will provide an overview of the company's financial highlights before turning the call back over to Nick for closing remarks. Today's conference call will contain forward-looking statements, including those statements regarding future results, 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 performance 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. In addition, this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, March 3, 2022. 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?

Nicholas Curtis, CEO

Thank you, Cameron, and good morning to everyone listening. Thank you for joining us on our fourth quarter and full year 2021 conference call. 2021 was a year of continued progress and execution for LENSAR, and I'm proud of all that we've accomplished since becoming a public company in the fall of 2020, despite facing the lingering challenges associated with the global COVID-19 pandemic. 2021 represented a return to our historical growth trends as well as meeting our development milestones leading up to our 510(k) filing for ALLY in the first quarter of 2022. Our full year revenue increased 31%, and procedures sold were up 37% over 2020. It's also an important metric to note, procedures were up approximately 22% in 2021, as compared to pre-pandemic levels in 2019, signifying a return to our historical trend of delivering 20-plus percent growth on an annual basis. In addition to steady growth in procedure volumes, we saw increases in both system sales and lease placements for our current product offering, LENSAR Laser System with Streamline and IntelliAxis Refractive Capsulorhexis. This is yet another indication reflecting our continued demand and confidence from the surgeon community and the value of our leading-edge cataract surgery technology. Even with the difficulty of placing capital equipment in new accounts, including the more time-consuming operating procedures and controls our surgeons and site space in the backdrop and uncertainty of the pandemic, we were successful in increasing our worldwide installed base of systems over 10% in 2021. One of the key benefits to the gradual easing of COVID-related restrictions has been our ability to engage in more direct in-person sales and marketing activities with physicians as well as industry events. Even though we were successful in adapting our operations to whatever situation the pandemic presented, face-to-face interactions and the ability to visit with existing and prospective customers is beneficial to the process of demonstrating and realizing the benefits of our more highly evolved current femtosecond laser as well as to engage in more productive discussions regarding the substantial benefits and enhancements of the ALLY system. As we entered the fourth quarter, our team scheduled several meetings and presentations around the AAO conference in New Orleans and ASCRS sponsored Aegean Cornea. LENSAR was able to leverage the growing appreciation of our current LENSAR system with our core feature technologies as well as the enhanced features and advancements in technology of our next-generation ALLY Adaptive Cataract Treatment System that we are planning to bring to femtosecond laser cataract surgical procedures. Turning to ALLY. We recently achieved a major milestone with the submission and FDA acceptance of our 510(k) application and regulatory clearance of ALLY, as promised. Our application is now undergoing substantive review by the agency, and we are on track to launch ALLY in the second half of 2022 if cleared by FDA. As we discussed in our press release announcing FDA acceptance of the 510(k), the submission is the first phase of a planned 2-step commercial release strategy. The ALLY Adaptive Cataract Treatment System, if cleared by the FDA, will be launched as the next-generation femtosecond laser. This launch will be followed by an additional 510(k) application seeking clearance of the phacoemulsification features contained within the integrated ALLY system later this year. LENSAR will begin commercialization of ALLY as planned with a controlled launch. ALLY will have the phacoemulsification device integrated as part of the system. However, the features will not be enabled for use until we receive FDA clearance on this aspect of the combined system. We believe the staged approach allows for the most efficient, expeditious and clear pathway to commercialization for ALLY and, more importantly, puts the most advanced and contemporary femtosecond laser in the hands of surgeons in 2022. The majority of competitive femtosecond lasers currently in use are nearing the end of their useful life and are clearly vulnerable to replacement. Ophthalmic surgeons demand the most contemporary and advanced technology, not systems that lack substantive relevant enhancements that are based on technology more than a decade old. They want access to the most efficient and best tools in their hands because it provides the opportunity to deliver best practice outcomes for their patients and their practices. Other than our current LLS, the first femtosecond lasers for cataract surgery entered the market as early as 2010, and they haven't evolved much from their initial state. These lasers lack the key features that are at the core foundation in the current generation LLS and in the ALLY Adaptive Cataract Treatment System. LENSAR's laser system has been evolutionary to include a suite of 6 significant upgrades in the past 6 years, providing better technology to assist the surgeon in delivering consistently better efficiencies and outcomes, improving both the patients and surgeons' experience in cataract surgery. Now we are moving to ALLY. ALLY is revolutionary, having the potential to address many of the limitations of current technology through its small footprint, significantly increased laser speeds in both the cornea and lens treatments that are part of the cataract procedure, enhanced ergonomics, superior imaging capabilities, and includes advanced astigmatism management features. We believe that ALLY sets a new standard for femtosecond laser-assisted cataract surgery with the potential to improve surgeon efficiency and enable them to deliver optimal outcomes for patients. The first in-market dual-pulse laser is designed to significantly reduce the duration of treatments, cutting procedure time by up to 2/3. We look forward to the FDA review process and updating you on all of our progress as we move closer to a potential clearance decision. While 2021 presented challenges, I believe we're on the verge of revolutionizing the cataract treatment market. We're at this juncture, thanks to the commitment, teamwork and support of the entire LENSAR team in working toward our collective objectives of continuing to be the technology leader in the industry. Now let me turn the call over to Tom to cover our financial highlights for the quarter and year. Tom?

Thomas Staab, CFO

Thank you, Nick. Our fourth quarter and full year 2021 financial results are included in our press release issued earlier this morning, but I'd like to take this opportunity to expand on that information by adding some color to the remarks contained in the release. Revenue was $11.2 million in the fourth quarter of 2021 compared to $8.3 million in the fourth quarter of 2020. All individual components of revenue, product, lease and service increased from the fourth quarter of 2020. It was a very strong quarter for us, with total revenue increasing $2.9 million or 35% over the fourth quarter of 2020. The increase in 2021 total revenue was primarily driven by increased procedure volume generating approximately $1.8 million, with the remainder due to system sales and lease placements. In the fourth quarter of 2021, we sold 41,642 procedures compared to 30,503 procedures sold in the fourth quarter of 2020. Our procedure volume increased 37% over the fourth quarter of 2020 and 30% over the fourth quarter of 2019. Gross margin for the quarter was $5.6 million and represented a gross margin percentage of 50.2%. We increased gross margin $1 million in the quarter over the $4.7 million recorded in the fourth quarter of 2020. Total operating expense for the fourth quarter of 2021 were $9.5 million compared to $11.5 million in the fourth quarter of 2020. This decrease was largely due to less noncash stock compensation expense, somewhat offset by an increase in R&D expenditures. The increase in R&D for the fourth quarter of 2021 was related to additional costs for the continued development of ALLY as we neared our 510(k) filing as well as materials purchased for the manufacture of ALLY, which totaled approximately $1 million in the quarter. Total stock-based compensation in the fourth quarter of 2021 and 2020 was $1.5 million and $5.1 million, respectively. Net loss for the quarter decreased significantly and was $3.9 million or a $0.41 loss per share compared to a $6.8 million loss or a $0.78 loss per share in the fourth quarter of 2020. Adjusted EBITDA for the fourth quarter of 2021, which excludes stock-based compensation expense, was a $1.6 million loss compared to a $1.1 million loss in the fourth quarter of 2020. As of December 31, 2021, we had cash and cash equivalents of $31.6 million as compared to $40.6 million at December 31, 2020. Cash utilized in the fourth quarter was $700,000 and $9 million for the full year. With over $31 million in cash on hand at December 31, a cash burn of less than $10 million for 2021 and our ALLY 510(k) submission accepted for substantive review by the FDA, we have a strong balance sheet and positive momentum going into our anticipated ALLY launch in the second half of this year. I would also like to touch on a few other high points for 2021. Our total revenue for 2021 increased $8.1 million or 31% over 2020 levels. Our recurring revenue for the year was 86%, which represents all revenue outside of system sales and provides a recurring revenue foundation of approximately $30 million going into 2022. As you look at procedures, our annual procedure volume in 2021 increased 35% over 2020 levels and 22% over 2019 levels, indicating system utilization and a primary indicator of our business growth has returned to historical trend levels. Historically, excluding 2020, when elective procedures were shut down due to the pandemic, we successfully grew our business by at least 20% every year. As we report today, we feel we have persevered through the pandemic well, and we look forward to achieving exciting and pivotal ALLY milestones in 2022. In summary, our annual procedure and revenue growth, accompanied with our cash, provides strong pillars supporting the LENSAR foundation to launch ALLY in the second half of 2022. Now I'd like to turn the call back over to Nick for some closing remarks.

Nicholas Curtis, CEO

Thank you, Tom. I really appreciate everyone taking the time to listen this morning. And I'm going to turn the call back over to the operator, and we look forward to your questions.

Operator, Operator

Your first question is from Danielle Antalffy with SVB Leerink.

Danielle Antalffy, Analyst

And congrats on a really strong 2021 given all the dynamics there. I'm just curious if you could talk a little bit directionally about how to think about 2022 and the cadence. I mean, obviously, you had a strong Q4, even though we did have a COVID surge. Maybe talk a little bit more about what you saw towards the end of Q4 and into Q1 and how to think about procedure volume in the first quarter specifically, obviously, but then if that drives any sort of recovery in the back part of the year. And then I have a few follow-ups.

Nicholas Curtis, CEO

Thank you for the question, Danielle. In the fourth quarter, cataract surgeries typically see an increase as people reach their deductibles and utilize their healthcare funds before the year ends. Historically, the fourth quarter has been the strongest for procedures, followed by a decrease in the first quarter. However, we've noticed that the overall volume of cataract surgeries has declined due to the pandemic, yet patients seem more open to undergoing these procedures now. We are also introducing additional system placements that were robust in the fourth quarter, which will be installed as we enter the first quarter. I anticipate continued solid growth in procedure volumes moving forward.

Danielle Antalffy, Analyst

Okay. Got it. So kind of would it be fair to characterize Q1, and we could take this offline, too, but sort of normal seasonality or maybe more pronounced? Because of Omicron, is the message here you're actually still seeing pretty strong procedure volume and COVID's not having as much of an impact as maybe in some other areas within med tech?

Nicholas Curtis, CEO

I don't want to jinx us. We seem to be experiencing decent procedures overall. There's been some inconsistency in certain areas due to COVID, but then things recover strongly. The doctors are busy and return to their routines, especially if there's a period where they're not performing surgeries for a week or so, and then they get back to work.

Danielle Antalffy, Analyst

I got it. I have two broader questions. First, your procedure volumes per system appear to be significantly higher than those of other companies like J&J and Alcon. What factors are contributing to this, and how sustainable is it?

Nicholas Curtis, CEO

That's a great question because it's essential for LENSAR. Our system is significantly more efficient than others because we can transfer data from various preoperative devices directly into the system. This eliminates the need for manual marking and the transposition of data involved in surgical planning, as the surgical plan is generated automatically. The system also makes necessary adjustments for the doctor, allowing them to focus on making choices rather than managing the technical aspects manually. Additionally, the ergonomics of our system are superior regarding placement and usage. This efficiency encourages physicians to perform more cases. We are publishing a lot of data showcasing that surgeons using LENSAR lasers achieve better outcomes in cataract surgery compared to previous results or those from competing systems. This evidence fosters greater confidence and encourages higher utilization.

Danielle Antalffy, Analyst

Got it. Okay. And if I could squeeze in one more question, sorry, and then I'll get back on the line.

Nicholas Curtis, CEO

Sure. It's all right.

Danielle Antalffy, Analyst

Can you discuss ALLY and its disruptive impact on the market, as well as how it might enhance growth from both a capital placement and procedure volume standpoint?

Nicholas Curtis, CEO

The system is quite compact, similar in size to current phacoemulsification technology, allowing for versatile placement. Ergonomically designed as an adaptive cataract treatment system, it can be positioned anywhere within a 250-degree range for patients. In terms of ergonomics, it stands unmatched. Additionally, the laser operates four times faster in the cornea and twice as fast in the lens. With our dual-pulse laser, we're introducing the first device that is optimized for both the cornea and lens, addressing a need that has been overlooked by previous generations of lasers, including those from LENSAR. This innovation will transform treatment procedures significantly and disrupt the current market. Furthermore, the integration of six cameras for instantaneous imaging will enhance treatment quality, reduce procedure time by up to two-thirds, and allow for flexible placement based on the surgeon's and practice's preferences.

Operator, Operator

Your next question is from the line of Ryan Zimmerman with BTIG.

Phillip Dantoin, Analyst

This is Phil on for Ryan. Can you hear me okay?

Nicholas Curtis, CEO

We can hear you.

Phillip Dantoin, Analyst

All right. Awesome. So the first one right off the bat, how do you think about the early adoption of ALLY, existing LENSAR users or competitive equipment users? And what kind of pipeline do you think you have around ophthalmologists waiting to purchase ALLY?

Nicholas Curtis, CEO

That's a great question. Current LENSAR users are very interested in what we are doing with ALLY. The positive aspect is that ALLY will operate much more quickly and differently than their existing system, although the core technologies will remain the same. We're working on a strategy to attract many new customers since, as I mentioned earlier, the older lasers in the field from competitors haven't been upgraded like LENSAR has. We believe we can attract many new femtosecond laser users to LENSAR, which should contribute to our growth. We need to manage our existing customer base, ensuring we grow our business and maintain our placements while bringing in new customers to replace outdated technology. There's a lot of excitement around this, so striking the right balance is key. Regarding the pipeline, we've seen considerable interest from physicians looking to replace old technology. I don't want to go into too much detail now, but as we move forward with our launch, especially after filing, it's becoming a reality. We're currently focusing on securing the first 10 systems, which are crucial for subsequent systems in our controlled launch.

Phillip Dantoin, Analyst

Awesome. Just kind of shifting gears really fast. I appreciate the color you mentioned earlier about publishing those studies to help drive the procedure volume per system. But I was wondering, do you feel like a line of sight on extending those studies to helping with adoption of new physicians in the future?

Nicholas Curtis, CEO

Absolutely. I believe that's the best way to express it. As current femtosecond laser users begin to implement the ALLY, I am confident it will attract new physicians who have previously not used femtosecond lasers for various reasons, including the results we’ve seen. We've already noticed signs of this. I attended a conference recently where I met with several individuals who had not yet adopted femtosecond lasers but showed great interest in ALLY and the clinical data we discussed. I am convinced that this will indeed occur as we proceed.

Operator, Operator

There are no further questions. I will now turn the call back over to Nick for closing remarks.

Nicholas Curtis, CEO

Well, thank you. So 2021 was certainly an important year for us, and we're very excited about the filing of ALLY. I appreciate everyone joining the call today and your continued interest in what we're doing at LENSAR. And we certainly look forward to updating you as we make further progress and as we approach the launch of ALLY. Thank you.

Operator, Operator

This concludes today's conference call. You may now disconnect.