RxSight, Inc. 2022 Q3 Form 10-Q Summary
Business context and reporting period
RxSight is a commercial-stage medical technology company developing and selling light-adjustable intraocular lenses (LALs), Light Delivery Devices (LDDs), and related services for cataract surgery. The company sells primarily in the United States and also operates in Europe. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
As of September 30, 2022, the company reported an installed base of 343 LDDs and more than 32,000 cumulative surgeries using the RxSight system. Its commercial organization included 20 LDD sales personnel, 17 LAL sales personnel, and approximately 88 clinical, service, customer support, and marketing personnel.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Sales | $12.6 million | $5.8 million | Up 118.0% |
| Gross profit | $5.4 million | $1.3 million | Up 299.4% |
| Gross margin | 42.5% | 23.2% | Up 19.3 percentage points |
| Operating loss | $(16.0) million | $(13.1) million | Loss increased $2.8 million |
| Net loss | $(16.8) million | $(12.7) million | Loss increased $4.1 million |
| Net loss per share | $(0.61) | $(0.68) | Improved per share due primarily to higher share count |
| Metric | Nine months 2022 | Nine months 2021 | Change |
|---|---|---|---|
| Sales | $32.9 million | $14.2 million | Up 132.3% |
| Gross profit | $13.9 million | $1.6 million | Up $12.3 million |
| Gross margin | 42.3% | 11.6% | Up 30.7 percentage points |
| Operating loss | $(48.3) million | $(38.1) million | Loss increased $10.2 million |
| Net loss | $(51.1) million | $(33.0) million | Loss increased $18.2 million |
| Operating cash flow | $(45.0) million | $(36.0) million | Cash use increased $9.0 million |
Q3 revenue consisted of $5.7 million from LDDs and training, $6.5 million from LALs, and $0.4 million from service warranties, service contracts, and accessories. Nine-month revenue consisted of $15.9 million from LDDs and training, $16.0 million from LALs, and $1.0 million from service warranties, service contracts, and accessories.
For the nine months, LDD units sold increased by 69 and LAL units sold increased by 10,792 versus the prior-year period. In Q3, LDD units sold increased by 18 and LAL units sold increased by 4,618 year over year.
At September 30, 2022, cash and cash equivalents were $8.9 million, short-term investments were $103.9 million, and cash, cash equivalents and short-term investments totaled $112.8 million, compared with $159.3 million at December 31, 2021. Total assets were $155.7 million and accumulated deficit was $530.4 million.
Net cash used in operating activities was $45.0 million for the nine months. Investing activities provided $29.5 million, primarily from net maturities of short-term investments, while financing activities provided $25,000. Cash, cash equivalents and restricted cash declined by $15.4 million to $9.7 million during the period.
The company had $40.0 million of term loan principal outstanding, recorded at $40.025 million net of issuance costs and premium. The amended facility has a total commitment of $60.0 million, including potential additional borrowings of up to $20.0 million subject to sales and other conditions. The loan bears interest at the greater of 9.25% or one-month Term SOFR plus 9.09%, matures February 1, 2027, and is secured by substantially all personal property other than intellectual property. The company was in compliance with its loan covenants at September 30, 2022.
Material changes versus the prior comparable period
- Revenue growth was driven by higher LDD adoption and increased utilization of the installed base, resulting in substantially higher LAL sales.
- Gross margin improved materially because of favorable product mix and operating leverage. The prior-year nine-month margin was adversely affected by a $2.3 million excess and obsolete LAL inventory provision related to the updated LAL with ActivShield technology.
- Selling, general and administrative expense increased 64.5% in Q3 and 102.6% for the nine-month period, primarily from expanded sales and marketing headcount, commissions, travel, customer acquisition, post-market studies, stock-based compensation, and public-company costs.
- Research and development expense increased 18.8% in Q3 and 3.9% for the nine-month period, reflecting higher clinical study and personnel costs, partly offset by lower material costs for the nine-month period.
- Interest expense increased as a result of higher interest rates and the amended term loan. Prior-year gains from warrant fair-value changes and warrant expiration did not recur, contributing to the larger year-to-date net loss.
- Cash used in operations increased despite significant revenue growth, reflecting continuing operating losses and increased investment in commercial expansion and working capital, including inventories and accounts receivable.
Guidance, outlook, commentary, risks and unusual items
Management expects continued substantial operating losses and negative operating cash flow for at least the next several years while it expands sales and marketing, conducts clinical and research activities, and develops product enhancements. Management believes existing cash, cash equivalents, and short-term investments are sufficient to fund planned operations for at least 12 months from the financial statement issuance date, but expects to require additional financing over the longer term.
On August 8, 2022, the company filed a $200 million shelf registration statement and established a prospectus supplement for a potential $50 million at-the-market equity offering. No material change was reported in the planned use of the 2021 IPO proceeds, which have been used to expand sales, customer support, operations, and research and development.
The company deferred launch of its lower-cost-to-manufacture LDD until the second half of 2023. The FDA requested additional information for approval of that product, and the company responded during the third quarter. Until approval and supply-chain issues are resolved, the company plans to continue producing the more expensive current LDD, which management expects will pressure gross margin.
Key risks include dependence on continued physician and patient adoption, competition from larger medical-device companies, reimbursement and patient out-of-pocket costs, regulatory approvals and post-market requirements, clinical-trial outcomes, product liability and recalls, intellectual-property disputes, reliance on single- and sole-source suppliers, inflation, higher interest rates, COVID-19 effects, geopolitical disruption, and the need for additional capital. The company also cited longer lead times and limited availability of semiconductors, electronics, metals, chemicals, resins, packaging, and other components.
No material legal proceedings or contingencies were identified as probable and reasonably estimable at September 30, 2022. The company had a $260,000 standby letter of credit supporting an operating lease. Management concluded that disclosure controls and procedures were effective at the reasonable assurance level, with no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether strong LAL procedure growth and the 343-unit LDD installed base continue to translate into recurring consumable revenue.
- Quarterly gross-margin trends, including the effect of continuing to manufacture the higher-cost current LDD and the timing of the lower-cost LDD launch.
- Operating cash burn, working-capital requirements, and the projected duration of the $112.8 million cash and short-term investment balance.
- Whether the company can satisfy sales milestones and other conditions for the potential additional $20.0 million of term-loan borrowings.
- Any use of the $50 million ATM facility or other equity or debt financing, including resulting dilution and financing terms.
- FDA feedback and approval timing for the lower-cost LDD and the status of ongoing and post-market clinical studies.
- Supply-chain availability, component pricing, inventory levels, and the risk of further inventory reserves or production interruptions.
- Changes in reimbursement, premium-IOL patient demand, competitive activity, product safety, recalls, or regulatory compliance.