LENSAR, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. LENSAR designs and commercializes laser systems and related products for cataract surgery and astigmatism management. Financial amounts below are in millions, except per-share data.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $7.748 | $8.272 | $25.126 | $23.237 |
| Gross profit and margin | $3.889; 50.2% | $3.851; 46.6% | $13.473; 53.6% | $12.203; 52.5% |
| Operating loss | $(4.083) | $(6.165) | $(17.564) | $(15.740) |
| Net loss | $(3.991) | $(6.155) | $(17.424) | $(15.699) |
| Net loss per share, basic and diluted | $(0.39) | $(0.65) | $(1.73) | $(1.69) |
- Revenue mix: Q3 product revenue was $5.486 million (down 10% year over year), lease revenue $1.472 million (up 15%), and service revenue $0.790 million (down 13%). Nine-month revenue rose 8%, driven mainly by higher procedure volume and lease revenue.
- Cash flow: Operating cash used was $10.098 million in the first nine months, versus $8.230 million a year earlier. Investing used $0.058 million; financing used $2.188 million, including a $2.4 million contingent-consideration payment. Cash declined $12.344 million to $19.293 million.
- Liquidity and obligations: Current assets were $32.171 million and current liabilities $9.788 million at September 30. Total liabilities were $12.218 million, including operating lease liabilities; the filing reports no borrowings or interest paid. The company had an accumulated deficit of $95.018 million.
- Other measures: Adjusted EBITDA, a non-GAAP measure, was a loss of $1.564 million in Q3 and $10.095 million for nine months, compared with losses of $3.890 million and $8.423 million, respectively, in 2021.
Changes versus prior year
- Q3 revenue fell 6%, primarily due to fewer system sales and lower procedure volume outside the U.S. and Europe, including reimbursement challenges in South Korea. U.S. and European procedure volume increased.
- Nine-month revenue increased 8%, chiefly from higher procedure volume; lower sales of legacy LENSAR systems partly offset the increase as the company transitioned to ALLY.
- Q3 net loss narrowed, primarily as research and development expense fell 50% to $1.577 million. Nine-month net loss widened, mainly reflecting increased ALLY development and pre-production costs, alongside higher SG&A and service and lease costs.
- U.S. revenue from product and service sales represented 70% of the total in Q3 and 60% for the nine-month period, compared with 50% and 55%, respectively, in 2021.
Outlook, risks and unusual items
- The FDA cleared the ALLY System in June 2022 for its initial stage of release. LENSAR targeted a controlled launch during the remainder of 2022 and expected broad U.S. availability in 2023. The phacoemulsification features were disabled or removed in initial systems; a further 510(k) submission depends on clearance of a third-party predicate device.
- Supply-chain constraints delayed ALLY components and launch inventory. The company cited semiconductor shortages, longer lead times, inflation in components, labor and transportation, and the risk that it may not meet demand or may face lower margins.
- LENSAR submitted ALLY for EU certification in September 2022 and planned applications in additional international markets. Regulatory timing and approvals remain uncertain.
- Management expected cash on hand and future product-sale and lease proceeds to fund operations into 2024, but said additional capital would be needed to continue beyond 2024. Future financing may dilute shareholders or be unavailable on acceptable terms.
- Operating losses and cash outflows are expected to continue. SG&A is expected to rise with the ALLY launch; revenue and commercialization depend on production capacity, regulatory progress, market adoption, and reimbursement and patient willingness to pay for advanced procedures.
- ALLY inventory costs were expensed as R&D through April 30, 2022; after FDA clearance, those costs were capitalized to inventory. The company paid $2.4 million in milestone consideration during the first nine months and disclosed a 3% royalty on certain revenue if ALLY’s phacoemulsification features are cleared and operational.
- Supply agreements include approximately $7.495 million of minimum purchase obligations by December 31, 2023; operating lease payments were approximately $3.0 million. Management reported no material legal proceedings and no off-balance-sheet arrangements. Disclosure controls were judged effective at the reasonable-assurance level.
Important facts for investors to verify
- Progress, timing and scope of ALLY production, launch, EU certification and the predicate-device clearance needed for phacoemulsification functionality.
- Whether supply availability and costs improve, and the resulting effects on system deliveries, gross margins and customer demand.
- Cash burn and capital needs relative to management’s expectation of funding operations into 2024; potential financing and dilution.
- Procedure volumes, particularly in South Korea, and the effect of reimbursement and patient out-of-pocket costs on adoption.
- Execution against the $7.495 million purchase commitment, and the potential future 3% ALLY royalty.