LENSAR, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unaudited financial statements; dollar amounts below are in millions unless stated otherwise. LENSAR develops and commercializes laser systems for cataract treatment and astigmatism management. Its ALLY System had FDA clearance, was launched in the U.S. starting in August 2022, and had also received clearance in India.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $8.25 | $9.34 |
| Gross profit and margin | $4.32; 52.4% | $4.69; 50.2% |
| Operating loss | $(4.36) | $(6.68) |
| Net loss | $(4.27) | $(6.67) |
| Net loss per share | $(0.40) | $(0.67) |
| Adjusted EBITDA, non-GAAP | $(1.78) | $(4.23) |
| Cash used in operating activities | $(6.70) | $(2.61) |
At March 31, 2023, cash and cash equivalents were $7.97, current assets $29.98, and current liabilities $9.99. The resulting current ratio was approximately 3.0. Total liabilities were $12.52, including operating lease liabilities of $2.72; the filing reports no borrowings. Inventory was $15.67, up from $11.74 at year-end 2022. Accumulated deficit was $101.78. The company reported no income tax expense for the quarter.
Changes versus the prior-year quarter
- Revenue fell 12% to $8.25. Product revenue declined 19% to $5.66, primarily due to lower procedure revenue in South Korea, including an approximately $1.5 decline associated with reimbursement challenges. U.S. and European procedure volumes increased 13% and 5%, respectively.
- Lease revenue increased 16% to $1.63; service revenue was nearly unchanged at $0.97.
- Research and development expense declined 66% to $1.65, mainly reflecting lower ALLY development costs and the absence of approximately $2.4 of pre-launch inventory costs expensed in Q1 2022. Selling, general and administrative expense rose 8% to $6.76, primarily due to ALLY commercialization.
- Net loss narrowed, but operating cash use increased substantially. The company attributed cash use in part to inventory investment; the cash flow statement shows a $4.38 cash outflow from inventory changes.
- Recurring sources represented approximately 92% of Q1 revenue, compared with 89% a year earlier. The installed base of LENSAR and ALLY systems was approximately 275 at quarter-end.
Outlook, risks, and unusual items
- Management expects near-term operating losses and operating cash outflows to continue. It expects revenue and selling, general and administrative expense to increase as ALLY commercialization expands; no numerical revenue or earnings guidance was provided.
- ALLY’s phacoemulsification features were being delivered disabled or removed. A further FDA clearance depends on a third-party predicate device receiving clearance; the filing gives no definite timing. EU certification was submitted in September 2022 and remained pending in the discussion.
- Supply-chain constraints, semiconductor availability, component inflation, production capacity, and reliance on some single-source suppliers could limit ALLY deliveries, raise costs, or weigh on customer demand. Minimum component purchase commitments were approximately $4.73 over the next 24 months.
- Other principal risks include customer willingness to pay for advanced procedures, reimbursement and procedure-volume challenges, competition, regulatory approvals, international distributor dependence, customer credit exposure, and the need for additional capital. One customer represented 13% of accounts receivable; separately, the filing states one customer represented 13% of revenue for the quarter.
- Subsequent financing: On May 12, 2023, the company agreed to sell $20.0 of Series A convertible preferred stock and warrants to purchase approximately 4.37 million common shares. It anticipated a May 19 closing and approximately $19.1 of net proceeds for working capital and general corporate purposes; the filing does not establish that the transaction had closed by May 15, 2023. The preferred stock is senior to common stock in specified distributions and liquidation, and the anticipated terms restrict debt above $1.0.
- The company filed for an employee retention credit of approximately $1.6 but recognized no amount because eligibility and recovery were uncertain. A contingent $0.25 professional fee would be due if the full credit were received. Management reported no material legal proceedings or claims expected to materially affect results.
- Management concluded disclosure controls and procedures were effective at the reasonable-assurance level as of March 31, 2023; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the preferred-stock and warrant financing closed, its final net proceeds, and resulting conversion, dilution, voting, and debt-restriction terms.
- ALLY production and delivery progress, supply availability and costs, and the status and timing of EU certification and the third-party predicate clearance needed for phacoemulsification functionality.
- Whether U.S. and European procedure-volume growth can offset South Korea’s reimbursement-related decline, and whether customer demand supports the ALLY launch.
- Cash burn, inventory growth, and liquidity runway relative to management’s stated expectation of at least one year of funding, including the effect of commercialization spending and supply commitments.
- Customer concentration and credit exposure, and the outcome of the employee retention credit application.