LENSAR, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. LENSAR is a commercial-stage medical-device company selling and leasing laser systems and related procedure licenses and consumables for cataract surgery. It became an independent public company in October 2020 following its spin-off from PDL BioPharma; its shares trade on Nasdaq as LNSR. Financial amounts below are in U.S. dollars unless otherwise noted.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $7.92 million | $5.05 million | $14.97 million | $10.95 million |
| Gross profit / margin | $4.46 million / 56.3% | $1.95 million / 38.6% | $8.35 million / 55.8% | $5.51 million / 50.3% |
| Operating loss | $(4.38) million | $(3.84) million | $(9.58) million | $(6.94) million |
| Net loss | $(4.36) million | $(4.50) million | $(9.54) million | $(8.18) million |
| Net loss per share, basic and diluted | $(0.47) | $(4.20) | $(1.03) | $(7.65) |
- Revenue growth: Q2 revenue increased 57.0% year over year; six-month revenue increased 36.6%. Management attributed growth mainly to higher procedure volumes as activity recovered from pandemic-related shutdowns. The installed system base grew from approximately 225 at year-end 2020 to 235 at June 30, 2021.
- Revenue mix: Q2 product revenue was $6.06 million, lease revenue $1.14 million and service revenue $0.73 million. Management said approximately 90% of revenue in both 2021 comparison periods came from recurring sources, excluding system sales.
- Cash flow: Operating cash use was $6.08 million for the six months, versus $11.74 million a year earlier. Investing cash use was $0.13 million; financing provided $0.17 million, primarily from employee stock-plan share issuance. Cash and cash equivalents declined $6.05 million from year-end.
- Liquidity and obligations: Cash and cash equivalents were $34.55 million at June 30, 2021, versus $40.60 million at December 31, 2020. Current assets were $51.57 million and current liabilities $7.72 million. Total liabilities were $10.86 million. The former PDL note and Series A preferred stock had been extinguished in 2020; the filing reports no note payable to PDL at quarter-end. Long-term operating lease liabilities were $3.06 million. Contractual obligations totaled $4.69 million, including operating leases and approximately $1.03 million of purchase obligations.
- Other balance-sheet items: Inventory was $12.45 million, down from $13.47 million at year-end; equipment under lease was $4.94 million, up from $3.58 million. Accumulated deficit was $67.54 million.
Material changes versus the prior comparable period
- Revenue increased substantially from the pandemic-affected 2020 comparison period. Management said U.S. procedure volumes exceeded pre-pandemic levels; system sales were a more limited contributor to six-month growth.
- Gross margin improved, while operating loss widened. Selling, general and administrative expense rose to $5.52 million in Q2 and $11.55 million for the first six months; research and development expense rose to $3.01 million and $5.75 million, respectively, principally reflecting ALLY development, personnel and stock-based compensation.
- Six-month net loss increased despite higher revenue, in part because operating expenses rose. Interest expense fell to zero from $1.28 million for the six months, following the 2020 recapitalization that eliminated PDL debt and preferred-stock obligations.
- Stock-based compensation was $3.75 million for the first six months, compared with $0.09 million in the prior-year period. This non-cash expense materially affected reported operating results; adjusted EBITDA, a non-GAAP measure, was a loss of $4.53 million versus a loss of $5.38 million.
- Per-share loss comparisons are affected by the substantial change in weighted-average shares outstanding, from 1.07 million in first-half 2020 to 9.24 million in first-half 2021, following the 2020 recapitalization and spin-off-related share transactions.
Outlook, risks and contingencies
- Management expects continuing operating losses and cash outflows for the foreseeable future. It believes cash on hand and expected product cash generation are sufficient to operate through the anticipated ALLY clearance and launch, projected for the latter half of 2022, but expects to need additional capital to continue operations beyond 2022. The company has an effective shelf registration statement permitting offerings of up to $100 million; it had not sold securities under it as of the filing date.
- LENSAR anticipated submitting a 510(k) application for its next-generation integrated cataract system, ALLY, by the end of Q1 2022. Clearance and launch timing depend on FDA review and are not assured. Development also relies on a third party, Oertli, for the phacoemulsification component. Management expects R&D and, closer to launch, SG&A expenses to increase.
- COVID-19 continues to pose risks to commercial activity and component availability. The company reported supply disruptions and longer lead times, including semiconductor-related constraints, but said inventory had so far mitigated the effect. It also noted that procedure volumes recovered, while system placements remained affected.
- Key business risks include continued losses and future financing needs; reliance on customer willingness to pay for advanced procedures often not covered by insurance; competition; reliance on international distributors and certain suppliers; customer credit concentration; regulatory approval and reimbursement uncertainty; and intellectual-property, product-liability and manufacturing risks. Two customers represented 14% and 13% of accounts receivable at June 30.
- Potential contingent payments include up to $2.4 million in milestone payments tied to regulatory approval and commercialization of the next-generation system, and possible royalties of 3% on certain licensed intellectual property if used in its development. The filing says management was not aware of legal claims expected to have a material adverse effect and that LENSAR was not party to material legal proceedings.
- Management concluded disclosure controls and procedures were effective at the reasonable-assurance level as of June 30, 2021. No material changes in internal control over financial reporting were reported for the quarter.
Important facts for investors to verify
- Whether procedure-volume growth and system placements can continue after the pandemic-recovery comparison period, and how product, lease and recurring consumable revenues develop.
- Whether the ALLY filing, FDA clearance and planned second-half 2022 launch remain achievable, including progress and regulatory status of Oertli’s component.
- Cash consumption, cash runway and the timing, amount and terms of any financing needed beyond 2022, including potential shareholder dilution.
- Whether rising SG&A, R&D and stock-based compensation can be supported by revenue growth, and the resulting path to profitability.
- Whether supply constraints, customer concentration, reimbursement limits and patient out-of-pocket costs affect sales, margins or collections.