LENSAR, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; unaudited. LENSAR develops and commercializes laser systems and related products for cataract treatment. Its ALLY system is FDA-cleared for femtosecond-laser-assisted cataract surgery; its phacoemulsification features remained disabled or removed pending further clearance.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $9.8m | $7.7m | $30.1m | $25.1m |
| Operating loss | $(2.0)m | $(4.1)m | $(9.3)m | $(17.6)m |
| Net income (loss) | $2.6m | $(4.0)m | $(10.5)m | $(17.4)m |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(9.2)m | $(10.1)m |
- Q3 revenue grew 26% year over year; nine-month revenue grew 20%. Product revenue increased 30% in Q3 and 22% year to date, primarily reflecting higher system sales. Service revenue also increased; lease revenue rose 13% year to date.
- Cost of revenue was $4.9m in Q3 and $14.1m for nine months. Based on reported revenue and cost of revenue, gross profit before separately presented intangible amortization was approximately $4.9m (50%) and $16.0m (53%), respectively. Reported cost of service revenue exceeded service revenue in both periods.
- Q3 net income was not indicative of operating profitability: it included a $4.3m non-cash gain from revaluing warrant liabilities and a $1.4m Employee Retention Credit (ERC) benefit reducing SG&A. Excluding specified items, adjusted EBITDA was $(1.4)m for Q3 and $(3.3)m for nine months.
- Cash and cash equivalents were $24.9m at September 30, up from $14.7m at December 31, 2022. Operating activities used $9.2m and investing activities used $0.2m in the first nine months; financing provided $19.6m, principally from the May preferred-stock and warrant placement.
- Current assets were $48.6m versus current liabilities of $11.0m. Inventory was $17.5m, up from $11.7m at year-end. The balance sheet reported no conventional borrowing; liabilities included $2.4m of operating lease obligations and $7.3m of warrant liabilities. Series A redeemable convertible preferred stock was presented separately as $13.7m of temporary equity.
Changes, outlook and risks
- Nine-month product revenue growth reflected $4.2m of higher system revenue, partly offset by lower procedure volume, including an approximately $2.1m decline in South Korea. Management cited reimbursement challenges there and expected them to continue near term; U.S. and Europe procedure volumes increased 14% and 24%, respectively.
- Research and development expense declined 54% year over year for nine months, partly because ALLY development costs were lower after FDA clearance and 2022 pre-launch inventory costs had been expensed to R&D. SG&A was broadly flat year to date; the Q3 decline was largely due to the non-recurring ERC. Management expects SG&A to increase as ALLY commercialization expands and anticipates revenue growth, but provided no specific numeric guidance.
- Management expects current cash, together with cash from future product sales and leases, to fund operations for at least 12 months from the financial statements’ issuance date. It also expects near-term operating losses and cash outflows and says future funding needs depend on commercialization, production, and regulatory progress.
- ALLY commercialization and growth depend on production capacity, component availability and cost, market adoption, and additional regulatory clearances or certifications. EU certification was submitted for review; documentation was submitted in 2023 for applications in South Korea, Taiwan, and the Philippines. The planned phacoemulsification clearance depends on a third-party predicate device whose FDA submission was under review.
- Supply-chain delays, single-source suppliers, semiconductor constraints, and inflation may limit production or pressure margins and customer demand. The company had approximately $7.6m of minimum component purchase obligations over the next 15 months.
- In May 2023, LENSAR raised $20.0m gross through preferred stock and warrants. The preferred stock is convertible into approximately 7.9m common shares; warrants cover approximately 4.4m shares. Full conversion and exercise could materially dilute current holders. North Run and affiliates held 47.1% of voting power at September 30, 2023, and certain preferred-stock terms impose consent rights and restrictions.
- A stockholder class action challenges disclosures in the proxy statement for the private placement. The company denies the claims; it said the outcome and any potential loss could not be estimated.
Important facts for investors to verify
- Whether ALLY system placements, procedure volumes, and recurring consumables revenue continue to grow, and whether system sales’ lower margins affect profitability.
- Progress and timing of the third-party predicate device review, ALLY phacoemulsification clearance, and international certifications.
- Cash burn, inventory accumulation, supplier commitments, and whether management’s stated 12-month liquidity outlook remains supportable.
- The impact of preferred-stock conversion, warrant exercise, associated governance restrictions, and potential dilution on common shareholders.
- The resolution and potential cost of the proxy-related class action, and the sustainability of results excluding the one-time ERC and warrant fair-value movements.