Sight Sciences, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Sight Sciences develops and sells ophthalmic medical devices. Its Surgical Glaucoma portfolio includes OMNI and SION; its Dry Eye portfolio includes TearCare. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $18.7 | $13.1 | $50.8 | $34.3 |
| Gross profit / margin | $15.7 / 84.3% | $11.0 / 84.3% | $42.1 / 82.9% | $27.6 / 80.5% |
| Operating expenses | $37.6 | $25.1 | $109.0 | $64.4 |
| Operating loss | $(21.8) | $(14.0) | $(66.9) | $(36.8) |
| Net loss | $(22.2) | $(17.2) | $(69.3) | $(47.0) |
| Net loss per share | $(0.46) | $(0.43) | $(1.45) | $(2.38) |
- Revenue growth: Q3 revenue rose 42.6% year over year; nine-month revenue rose 48.2%. Surgical Glaucoma revenue increased 37.2% in Q3 and 43.8% year to date, driven mainly by more OMNI units sold, more ordering facilities, and higher utilization. Dry Eye revenue grew 145.0% in Q3 and 132.4% year to date as the TearCare installed base expanded.
- Margins: Q3 Surgical Glaucoma margin was 88.7%, up from 87.0%; Dry Eye was 37.9%, up from 32.7%. For the nine-month period, margins were 88.5% and 15.8%, respectively. Consolidated nine-month margin improved to 82.9%, while Q3 consolidated margin was unchanged at 84.3%.
- Expenses and losses: Q3 operating expenses increased 50.0%; nine-month expenses increased 69.3%, led by hiring, stock-based compensation, clinical studies, professional services, marketing, and travel. Net loss widened year over year in both periods, despite revenue and gross-profit growth.
- Cash flow: Nine-month operating cash use was $60.5 million, versus $41.8 million in 2021. Investing cash use was $0.8 million; financing provided $0.4 million, compared with $252.4 million in 2021, primarily reflecting IPO proceeds in that prior period.
- Liquidity and debt: At September 30, cash and cash equivalents were $199.8 million, including $174.4 million of U.S. Treasury securities; current assets were $222.3 million and current liabilities $17.4 million. Long-term debt was $33.2 million on the balance sheet, representing $35.0 million principal less unamortized discount and issuance costs. The $5.0 million revolver was undrawn and available. Management said liquidity and available borrowing were expected to fund operations for at least 12 months.
Material changes and notable items
- Compared with the prior-year periods, revenue and gross profit grew, but operating costs rose faster and losses increased. Management attributed higher Surgical Glaucoma margins in part to manufacturing efficiencies after shifting primary OMNI production to an Asian contract manufacturer.
- Nine-month Dry Eye cost of goods sold included $0.9 million of charges associated with a voluntary recall of SmartHub 1.0 devices. The filing does not state the number of devices affected or provide a quantified estimate of any further recall-related cost.
- Other income was $0.8 million for the nine-month period, compared with $6.9 million of expense in 2021. The current-period amount primarily reflected amortization of purchase discounts on cash-equivalent investments; the prior-year expense included fair-value remeasurement of preferred-stock warrants that were converted and exercised in 2021.
Outlook, risks, and contingencies
- Outlook: The company provided no specific revenue, earnings, or margin guidance in the supplied filing text. Management expects continued net losses for at least the next several fiscal years and plans continued investment in clinical studies, product development, sales, marketing, education, and market access.
- Funding and debt: Management believes existing liquidity can cover at least 12 months, but states that additional financing may be needed. The secured MidCap facility is collateralized by substantially all company assets, including material intellectual property. Principal payments were scheduled to begin in December 2022, with possible extensions subject to conditions; management expected to qualify to defer commencement to December 2023. The company reported compliance with all debt covenants at September 30, 2022.
- Demand and supply: Products are used in procedures that may be considered elective. COVID-19 resurgence could reduce demand or disrupt suppliers and contract manufacturers. The company relies on third parties for manufacturing and describes potential supply-chain risks.
- Reimbursement: Management notes there is no meaningful Medicare or private-payer reimbursement coverage for TearCare procedures; patients typically pay out of pocket.
- Litigation: Sight Sciences alleges patent infringement involving the Hydrus Microstent against Ivantis and Alcon; defendants deny infringement and challenge patent validity. A jury trial was scheduled for April 8, 2024, and patent-office review petitions were pending. The company said it could not predict the outcome or reasonably estimate any financial impact.
- Controls: Management concluded disclosure controls and procedures were not effective because of previously identified material weaknesses in internal control over financial reporting, related to insufficient accounting personnel and technical expertise, segregation of duties, and review processes. Remediation was underway but not complete; management stated the financial statements fairly present results in all material respects.
Important facts for investors to verify
- Whether revenue growth, OMNI utilization, and expansion of the TearCare installed base continued after Q3, and how that translated into margins and operating losses.
- The scope, resolution, and any additional costs or customer effects of the SmartHub 1.0 recall.
- Cash burn, liquidity runway, financing needs, and the timing and conditions for deferring term-loan principal payments.
- Developments in the patent litigation and inter partes review proceedings, including potential financial or business consequences.
- Progress in remediating the material weaknesses and achieving effective internal controls.