LENSAR, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 9, 2024. Amounts below are in U.S. dollars. Financial statement amounts are in thousands unless stated otherwise.
Business context
LENSAR develops and commercializes femtosecond laser systems and related consumables and services for cataract surgery and astigmatism management. Its portfolio includes the LENSAR Laser System and the next-generation ALLY Adaptive Cataract Treatment System. ALLY is FDA-cleared and available in the United States; the company also reports clearance in India and the Philippines. The company is pursuing additional international certifications and clearances.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Product revenue | $7.433 million | $5.658 million | +31% |
| Lease revenue | $1.947 million | $1.629 million | +20% |
| Service revenue | $1.208 million | $0.965 million | +25% |
| Total revenue | $10.588 million | $8.252 million | +28% |
| Gross profit | $5.664 million | $4.320 million | +31% |
| Gross margin | 53.5% | 52.4% | +1.1 percentage points |
| Operating loss | $2.850 million | $4.361 million | Loss narrowed |
| Net loss | $2.157 million | $4.272 million | Loss narrowed |
| Net loss per share, basic and diluted | $0.19 | $0.40 | Loss per share narrowed |
| Net cash used in operating activities | $5.307 million | $6.696 million | Cash use decreased |
Revenue growth reflected higher procedure volume and system sales; management attributed approximately $1.3 million of product revenue growth to procedure volume and $0.5 million to system revenue. Approximately 90% of Q1 2024 revenue came from recurring sources, compared with 92% a year earlier. Gross margin improvement was partly offset by higher service costs and a greater mix of system sales, which carry lower margins than procedure licenses. Service cost of revenue exceeded service revenue by $523,000.
SG&A was approximately $6.8 million, broadly unchanged year over year; R&D declined 12% to $1.444 million. Net loss included a $495,000 non-cash gain from the change in fair value of warrant liabilities. Adjusted EBITDA, a non-GAAP measure, was a loss of $1.277 million versus a loss of $1.781 million in Q1 2023.
Liquidity, balance sheet and cash flow
- At March 31, 2024, cash and cash equivalents were $13.958 million; short- and long-term investments totaled $5.188 million. Cash, cash equivalents and investments were approximately $19.1 million.
- Cash and cash equivalents declined $6.663 million during the quarter. Operating activities used $5.307 million; investing activities used $1.226 million, primarily for investment purchases net of maturities; financing activities used $130,000.
- Inventory increased to $17.816 million from $15.689 million at year-end. The quarter included a $144,000 inventory write-down.
- Total liabilities were $20.552 million. The filing does not report conventional borrowings; disclosed obligations include operating lease liabilities of $2.171 million and warrant liabilities of $7.962 million. The company also has $13.747 million of Series A redeemable convertible preferred stock recorded as temporary equity, with a $20 million aggregate liquidation preference.
- Management believes available cash and investments, together with expected cash from product sales and leases, will fund operations for at least 12 months from issuance of the financial statements. The company nevertheless expects near-term operating losses and cash outflows and may need additional capital.
Material changes, outlook and risks
- Compared with Q1 2023, revenue increased 28% and net loss narrowed by about half. Product, lease and service revenue all grew, while operating cash use decreased.
- Management expects revenue and SG&A to increase as ALLY placements and commercial expansion continue, and expects operating losses in the near term. The filing provides no specific revenue or earnings guidance.
- ALLY commercialization depends on production capacity, supply availability and timing of further regulatory clearances or certifications. Management cites inflation, supply-chain disruptions, component cost increases and single-source suppliers as continuing risks that may constrain production, margins or customer demand.
- On April 30, 2024, the company identified a triggering event affecting certain intangible assets and contract liabilities. It is assessing the impact and says a net impairment of up to $3.8 million is a potential outcome, with assessment expected to be completed in Q2 2024.
- The company has a minimum purchase obligation of approximately $4.767 million over the next nine months and approximately $2.2 million in operating lease obligations. A 3% royalty on certain revenue may apply if ALLY phacoemulsification features are cleared for commercialization and become operational.
- A stockholder class action concerning disclosures related to the 2023 private placement is pending. Defendants moved to dismiss; the company says it cannot predict the outcome or estimate potential loss.
- The 2023 private placement included preferred shares convertible into approximately 7.94 million common shares and warrants for approximately 4.37 million shares. Potential conversion and exercise create substantial dilution exposure; the preferred holder also has specified consent rights and the preferred stock has senior liquidation rights.
- Other material business risks include reliance on patient-paid advanced procedures, reimbursement uncertainty, competition, international distributor and customer concentration, product liability, regulatory compliance and intellectual property protection. One customer accounted for 13% of Q1 2024 revenue.
Important facts for investors to verify
- ALLY system placements, procedure volumes, recurring revenue share and progress toward international regulatory approvals.
- Whether gross-margin gains can continue as system sales, service costs, inventory write-downs and component costs change.
- Cash burn, available liquidity and management’s stated minimum 12-month runway, particularly if sales growth or supply availability disappoints.
- The outcome of the impairment assessment and whether a charge of up to $3.8 million is recorded in Q2 2024.
- Potential dilution, preferred-stock rights and warrant valuation changes, as well as the result of the pending class action.