LENSAR, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited results; financial amounts below are in millions of dollars unless stated otherwise. LENSAR develops and sells or leases femtosecond laser systems and related procedure licenses and consumables for cataract surgery. The company became independent after its October 2020 spin-off from PDL BioPharma.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $8.27 | $7.15 | $23.24 | $18.10 |
| Gross profit / margin | $3.85 / 46.6% | $3.90 / 54.5% | $12.20 / 52.5% | $9.41 / 52.0% |
| Operating loss | $(6.17) | $(4.71) | $(15.74) | $(11.65) |
| Net loss | $(6.16) | $(4.76) | $(15.70) | $(12.95) |
| Basic and diluted loss per share | $(0.65) | $(0.64) | $(1.69) | $(4.04) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(8.23) | $(11.79) |
Q3 revenue increased 16%; nine-month revenue increased 28%. Growth reflected higher procedure volume and increased laser-system leasing; nine-month product revenue also benefited from system sales. Q3 gross margin fell year over year as cost of revenue rose 36%, faster than revenue, with higher service and lease costs and a sales mix that included relatively lower-margin system sales. Nine-month gross margin edged higher.
- Operating expenses were $9.71 in Q3 and $27.94 for nine months. R&D rose 59% in Q3 and 78% for nine months, primarily due to ALLY development. SG&A rose 4% in Q3 and 20% for nine months.
- Cash and cash equivalents were $32.34 at September 30, down from $40.60 at December 31, 2020. Nine-month investing cash outflow was $0.20; financing provided $0.17, mainly from employee stock purchases.
- Current assets were $46.66 and current liabilities $8.03, a current ratio of approximately 5.8. Total liabilities were $11.06, including $2.93 of long-term operating lease liabilities. The company reported no note payable or other borrowing balance.
- Accumulated deficit was $73.69. Stock-based compensation expense was $5.32 for the nine months.
Changes, outlook and risks
- Compared with 2020, revenue recovered as procedure volumes rose following pandemic-related interruptions. The installed base grew from approximately 225 systems at year-end 2020 to approximately 240 at September 30, 2021.
- Interest expense was zero in 2021, versus $1.34 for the first nine months of 2020, following the 2020 recapitalization that extinguished PDL-related debt and preferred stock.
- Management expected to submit a 510(k) application for the ALLY Adaptive Cataract Treatment System by the end of Q1 2022 and, subject to FDA clearance, begin commercialization in the latter half of 2022. This is a stated plan, not a guarantee; clearance and timing depend on FDA review and a third-party phacoemulsification component. Management expects R&D, SG&A and product costs to rise as development and launch preparations advance.
- Management said cash, together with expected product cash generation, should fund operations through the anticipated ALLY clearance and launch. It also expects to need additional capital to continue operations beyond 2022. Financing may be unavailable or dilutive or carry restrictive terms; the company had an effective $100 million shelf registration statement and had not sold securities under it as of the report date.
- COVID-19 continued to pose risks to procedures, sales activity, supply availability and costs. LENSAR reported component shortages and longer lead times, but said inventory had so far mitigated disruptions. Finished-goods inventory was described as elevated relative to historical levels.
- Other notable exposures include reliance on some single-source suppliers and international distributors, customer concentration (three customers represented 18%, 13% and 10% of net receivables), patient out-of-pocket payment for current laser-assisted procedures, and competition and regulatory risks. Potential ALLY-related obligations include up to $2.4 million of contingent milestone payments and a 3% royalty if specified intellectual property is used.
- The company reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of September 30, 2021. It noted a seasonal pattern in which Q4 is typically strongest and Q3 weakest.
Investor verification points
- Track ALLY development, Oertli’s component clearance, FDA submission and review, and whether the anticipated 2022 launch remains achievable.
- Assess cash burn and financing needs against management’s stated runway through launch and expected need for capital beyond 2022.
- Check whether revenue growth translates into improved gross margins, particularly given rising service costs, system-sales mix and expected ALLY manufacturing costs.
- Monitor supply-chain availability, inventory levels and any effects on current system sales or ALLY development.
- Review customer and distributor concentration, receivable collections, and the sustainability of procedure volumes and recurring revenue.