LENSAR, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless noted.
Business context and reporting period
LENSAR develops and commercializes laser systems and related consumables for cataract treatment and astigmatism management. Q1 revenue came from its existing LENSAR Laser System, including system sales and leases, procedure licenses, consumables and services. The company described 2022 as a transition year as it shifts manufacturing and commercial focus toward its next-generation ALLY system. Its installed base was approximately 255 LENSAR systems at March 31, 2022.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $9.34 million | $7.04 million |
| Gross profit / gross margin | $4.69 million / 50.2% | $3.89 million / 55.3% |
| Operating loss | $(6.68) million | $(5.20) million |
| Net loss | $(6.67) million | $(5.18) million |
| Basic and diluted loss per share | $(0.67) | $(0.56) |
| Cash used in operating activities | $(2.61) million | $(4.62) million |
| Cash and cash equivalents at period end | $28.98 million | $35.87 million |
- Revenue increased 33% year over year. Product revenue rose 35% to $6.97 million, lease revenue rose 26% to $1.40 million, and service revenue rose 26% to $0.97 million. Management attributed growth primarily to higher procedure volume, which exceeded pre-pandemic levels.
- Cost of revenue increased 48% to $4.65 million, outpacing revenue growth and reducing gross margin by about 5.1 percentage points. Service costs rose particularly due to expensive replacement parts on several systems.
- SG&A was $6.28 million, up 4%. R&D was $4.79 million, up 74%, reflecting continued ALLY development and approximately $2 million of materials for ALLY inventory. Those pre-launch inventory costs were recorded as R&D expense.
- Adjusted EBITDA, a non-GAAP measure, was a loss of $4.23 million, compared with a loss of $2.24 million in Q1 2021.
- Cash fell $2.65 million from December 31, 2021. The company reported no cash flows from financing activities in the quarter. Current assets were $38.55 million and current liabilities $7.76 million, implying a current ratio of approximately 5.0. Total liabilities were $10.49 million, including operating lease liabilities; the filing does not report borrowings or other funded debt.
- Management said cash on hand and expected product-sale and lease cash flows should fund operations through the anticipated ALLY clearance and launch and into 2023, assuming clearance and a limited 2022 launch. It expects to need additional capital to continue operations beyond 2023.
Material changes versus the prior comparable period
- Growth was broad-based across product, lease and service revenue; U.S. sales represented 50% of product and service revenue, versus 58% a year earlier. The revenue table excluding leases showed increases in South Korea, Europe, Asia excluding South Korea, and the United States.
- Despite higher revenue, net loss widened by $1.49 million. Increased R&D and service costs were notable drivers; stock-based compensation declined to $1.61 million from $2.32 million.
- Operating cash use improved by $2.01 million year over year, while ending cash was $6.88 million below the March 31, 2021 balance.
- Inventory declined to $4.28 million from $6.49 million at year-end 2021, including a $1.06 million transfer from inventory to leased equipment.
Outlook, risks, contingencies and unusual items
- The FDA had accepted the first ALLY 510(k) submission for substantive review. Subject to clearance, management expected commercialization of the femtosecond-laser version in the second half of 2022. A second 510(k) application for integrated phacoemulsification features was planned later in 2022; timing and clearance were not assured. Management described a limited initial launch followed by a planned full commercial launch in 2023.
- Supply-chain disruption, semiconductor shortages, longer lead times, and inflation in components, labor and transportation could delay ALLY production, constrain customer supply and pressure margins or customer demand. Management said available inventory was sufficient for near-term needs and the anticipated initial launch, subject to clearance.
- The company had approximately $4.28 million of minimum component purchase obligations due by December 31, 2022. It could also owe $2.4 million in ALLY-related milestone payments contingent on regulatory clearance and commercialization, plus royalties of 3% on certain ALLY revenue.
- Management expects continued operating losses and cash outflows for the foreseeable future. Additional financing may be required beyond 2023; it may not be available on acceptable terms and could dilute shareholders or restrict operations.
- Other key risks include patient willingness to pay for advanced procedures often not covered by insurance, customer and distributor concentration, competition, regulatory and reimbursement uncertainty, and dependence on suppliers—including a third party for ALLY’s phacoemulsification component. The filing reported that four customers accounted for 17%, 14%, 10% and 10% of net accounts receivable.
- Notes-receivable credit-loss provision was $129,000 in Q1 2022; total provision for expected credit losses in the cash-flow reconciliation was $134,000. Management reported no material legal proceedings and no material off-balance-sheet arrangements. Disclosure controls were considered effective at the reasonable assurance level.
Important facts for investors to verify
- Subsequent FDA decisions and actual timing of both planned ALLY clearances, launch and full commercial rollout.
- Whether supply availability, production capacity and component costs support the targeted ALLY launch and customer demand.
- Actual cash burn and revenue performance against management’s stated funding runway into 2023, and the timing, amount and terms of any required financing.
- Whether revenue growth converts into improved gross margin, particularly given rising service costs and supply-chain inflation.
- Customer and distributor concentration, collections on receivables, and the extent of future credit losses.
- Potential ALLY milestone and royalty obligations, and the commercial and reimbursement assumptions underlying expected adoption.