Rxsight, Inc. annual report, FY2022

RxSight, Inc. — FY2022 Form 10-K Summary

Business context and reporting period

RxSight is a commercial-stage medical technology company developing and selling the RxSight Light Adjustable Lens system, consisting primarily of the Light Adjustable Lens (LAL), Light Delivery Device (LDD), and accessories for customized vision correction after cataract surgery. The filing covers the fiscal year ended December 31, 2022, and compares results with fiscal 2021. It is an annual report, not a standalone fourth-quarter filing.

Commercial operations began in 2019 and remain primarily U.S.-focused.
At December 31, 2022, the installed base was 400 LDDs, compared with 206 at December 31, 2021.
More than 42,000 LALs had been implanted since inception; 2022 LAL implants were 25,284 versus 8,328 in 2021.
The Company had 292 full-time employees and operates in one reportable segment.

Financial performance and liquidity

Metric	FY2022	FY2021	Change
Sales	$49.0 million	$22.6 million	+116.9%
Gross profit	$21.3 million	$4.5 million	+372.2%
Gross margin	43.5%	20.0%	+23.5 percentage points
Operating expenses	$84.6 million	$57.3 million	+47.7%
Loss from operations	$(63.3) million	$(52.8) million	Loss increased $10.5 million
Net loss	$(66.8) million	$(48.7) million	Loss increased $18.1 million
Net loss per share	$(2.41)	$(3.57)	Improved due primarily to higher share count
Operating cash flow	$(58.9) million	$(44.7) million	Cash use increased $14.1 million

Sales growth reflected 81 additional LDDs sold and 16,956 additional LALs sold compared with 2021. Quarterly 2022 LDD sales were 40, 49, 49 and 57; LAL sales were 4,166, 5,400, 6,595 and 9,123.
Gross-margin expansion primarily reflected a greater mix of higher-margin LAL revenue, which increased from 34% of sales in 2021 to 56% in 2022, and a $2.4 million excess-LAL inventory reserve recorded in 2021.
SG&A increased $25.9 million to $58.7 million, driven principally by sales and marketing headcount, post-market study costs, travel, trade shows, public-company costs and other personnel expenses.
Research and development expense increased 6.0% to $26.0 million, including higher clinical-study and personnel costs.
Interest expense rose to $4.9 million from $3.7 million, primarily because of higher interest rates on the term loan. FY2021 also included $7.7 million of favorable warrant-related items that did not recur in 2022.
At December 31, 2022, cash and cash equivalents were $11.8 million, short-term investments were $94.0 million, and total cash, cash equivalents and short-term investments were $105.8 million, down from $159.3 million at year-end 2021.
Total assets were $150.2 million, total liabilities were $60.3 million, and stockholders’ equity was $89.9 million at year-end.

Debt, liquidity and financing

Term-loan debt, net, was $40.2 million at December 31, 2022. The amended facility permits total borrowings of up to $60.0 million, with up to $20.0 million of additional borrowing 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 all debt covenants at December 31, 2022. The facility includes restrictive covenants, a performance-to-plan sales covenant and potential acceleration upon default.
Operating cash use was partially offset by $40.0 million of net investment maturities and $6.3 million of financing cash inflows. Year-end cash, cash equivalents and restricted cash totaled $12.6 million.
Management stated that available liquidity, together with subsequent financing, is expected to fund operations for at least 12 months from the filing date. Management does not currently anticipate needing additional capital or debt to reach operating profitability, but this expectation depends on assumptions that may prove incorrect.
In January 2023, the Company received $11.1 million of net ATM proceeds. In February 2023, it completed a 4.6 million-share public offering, including the exercised over-allotment, for approximately $53.7 million of net proceeds. These financings diluted existing stockholders.

Material changes, outlook and unusual items

The principal operating change was rapid expansion of the LDD installed base and LAL utilization, producing more than double the annual sales.
The Company continues to invest heavily in sales, marketing, clinical studies, regulatory activities and product development, so it expects continued net losses and negative operating cash flow.
The FDA approved a lower-cost-to-manufacture LDD supplement on January 31, 2023. Commercial introduction was deferred until the second half of 2023 because the Company considered existing LDD components easier to procure. Producing both LDD versions is expected to pressure gross margin in the near term.
Supply-chain constraints, inflation, higher interest rates, COVID-19 effects, semiconductor and component shortages, expedited freight and supplier price increases remain material operating issues.
The Company is pursuing second sources, increased inventory and longer lead times to mitigate supply risk. Some components remain dependent on single- or sole-source suppliers.
The Company is conducting a required 500-eye post-approval study and expects to complete enrollment in 2024.
No material litigation or regulatory matter was identified as probable and reasonably estimable at year-end. A $0.3 million standby letter of credit supported a facility lease.
Management reported effective disclosure controls and effective internal control over financial reporting at December 31, 2022; the external auditor was not required to attest to internal control because RxSight was a non-accelerated filer.
After year-end, the Board increased executive base salaries effective March 1, 2023 and approved 2022 executive cash bonuses totaling approximately $1.1 million for the named executive officers.

Key risks and contingencies

Limited commercialization history, continuing losses, negative cash flow and dependence on achieving substantial revenue growth and market adoption.
Competition from substantially larger IOL manufacturers, including Alcon, Johnson & Johnson Vision and Bausch + Lomb.
Dependence on surgeon adoption, patient willingness to pay premium out-of-pocket charges, reimbursement policies and the additional post-surgical visits and UV-protection requirements associated with the LAL.
Regulatory, clinical and post-market risks, including the possibility of adverse events, recalls, additional studies, approval delays or restrictions on product indications.
Manufacturing concentration in Aliso Viejo, California, lack of redundant facilities and exposure to earthquakes, fires, supplier failures and production interruptions.
Variable-rate debt, restrictive covenants, collateral security interests and potential acceleration or additional interest upon default.
Intellectual-property challenges, product-liability exposure, healthcare fraud-and-abuse rules, privacy obligations and international regulatory requirements.
Federal NOL carryforwards of approximately $300.4 million are subject to expiration for some amounts and potential Section 382 ownership-change limitations; the Company has recorded a full valuation allowance against its deferred tax assets.

Important facts for investors to verify

Confirm quarterly revenue, LDD placements, LAL utilization and gross margin trends, rather than relying only on full-year growth.
Assess whether the installed base is generating sustainable recurring LAL volume and whether customer utilization meets management’s expectations.
Monitor operating cash burn, inventory growth, accounts receivable, remaining liquidity and the timing and conditions for additional term-loan draws.
Evaluate the gross-margin effect and execution risk of producing both existing and lower-cost LDD versions.
Review the results and enrollment progress of the required post-approval study and any associated regulatory developments.
Track supply-chain concentration, component availability, manufacturing capacity and potential facility-renewal requirements.
Consider dilution from the ATM facility, February 2023 public offering, equity compensation and additional financing needs.
Reconcile the filing’s liquidity statements with the audited financial statements: the Company remained loss-making and cash-flow negative despite strong revenue growth.