Sight Sciences, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Sight Sciences develops and sells ophthalmic devices in Surgical Glaucoma (OMNI and SION) and Dry Eye (TearCare). Figures below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $23.5 | $17.2 | $42.3 | $32.1 |
| Gross profit | $20.1 | $14.5 | $35.9 | $26.3 |
| Gross margin | 85.6% | 84.1% | 84.8% | 82.0% |
| Operating expenses | $35.3 | $37.4 | $68.6 | $71.4 |
| Operating loss | $(15.2) | $(22.9) | $(32.8) | $(45.1) |
| Net loss | $(14.8) | $(23.8) | $(31.8) | $(47.1) |
| Net loss per share | $(0.30) | $(0.50) | $(0.66) | $(0.99) |
- Q2 revenue rose 36.2% year over year; six-month revenue rose 31.7%. Surgical Glaucoma supplied 91.2% of Q2 revenue and 91.6% of six-month revenue. Growth reflected more ordering facilities and higher unit utilization, as well as continued TearCare customer and procedure growth.
- Q2 segment gross margins were 88.6% for Surgical Glaucoma and 54.8% for Dry Eye. For the first half, they were 87.6% and 54.4%, respectively. Management attributed the year-over-year improvement in total margin partly to prior-year TearCare SmartHub 1.0 recall charges; Surgical Glaucoma’s first-half margin was pressured by a one-time inventory write-off during transition to a next-generation OMNI device and product mix.
- Q2 R&D declined 11.9% to $5.2 million and SG&A declined 4.4% to $30.1 million. For the first half, R&D fell 14.5% to $9.9 million and SG&A fell 1.8% to $58.7 million. Management cited lower clinical, marketing and consulting costs, among other items.
- Six-month operating cash flow was $(30.9) million, versus $(40.3) million in the prior-year period. Investing cash flow was $(0.2) million and financing cash flow was $0.6 million. Cash and cash equivalents decreased by $30.5 million during the half.
- At June 30, cash and cash equivalents were $154.5 million, current assets $182.3 million and current liabilities $14.1 million. Long-term debt was $33.6 million net of discount, representing $35.0 million principal. Accumulated deficit was $271.1 million. The company held $123.4 million of U.S. Treasury bills within cash equivalents.
Changes, outlook and significant matters
- Net loss narrowed versus the prior year, alongside higher revenue and gross profit and lower operating expenses. Other income increased to $1.8 million in Q2 and $3.6 million in the first half, mainly from Treasury investment discounts; interest expense also rose, reflecting higher lending rates.
- Management expects continued net losses for at least the next several years, while investing in clinical studies, commercial capabilities, market access and product development. It aims to grow operating expenses more slowly than revenue. No specific revenue, margin or earnings guidance is provided.
- Management stated that existing liquidity was expected to fund working capital and capital requirements for at least 12 months from issuance of the financial statements. It also warned that additional financing may be needed if revenue, margins or expense control are inadequate; financing may not be available on acceptable terms.
- The $35.0 million secured Term Loan bears floating interest at reserve-adjusted SOFR plus 7.00%, matures November 1, 2025, and has a 6% final payment fee. Principal payments were scheduled to start in December 2023, but management expected to meet conditions to defer them to December 2024. The company reported covenant compliance at June 30. After quarter end, it paid off and terminated its undrawn $5.0 million revolver effective July 21, 2023; the Term Loan remains outstanding.
- Reimbursement is a material business risk. In June 2023, five Medicare Administrative Contractors issued draft coverage policies proposing non-coverage for certain non-implantable MIGS procedures, including procedures using OMNI and SION. The affected jurisdictions represented approximately 63% of 2022 Surgical Glaucoma revenue. If finalized as proposed, or if similar restrictions emerge, management warned of a potentially material adverse impact. Medicare physician-fee schedule reimbursement for the OMNI-associated CPT service declined from approximately $950 in 2021 to $622 in 2023. TearCare currently has limited reimbursement and is often paid for out of pocket.
- The company is pursuing a patent infringement lawsuit concerning Hydrus Microstent against Ivantis and Alcon; a five-day jury trial was scheduled to begin April 8, 2024. The company could not predict the outcome or estimate any financial impact.
- Disclosure controls and procedures were deemed ineffective at quarter end because a previously identified material weakness in internal control over financial reporting remained. The unresolved element concerned insufficient accounting resources with deep technical accounting expertise. Management said the financial statements fairly present the company’s position and results.
Investor verification points
- Track the outcome and timing of the five draft Medicare coverage policies, including any final policies, appeals or broader payer actions.
- Monitor cash burn, revenue growth, gross-margin trends and whether management’s stated liquidity runway remains supportable after termination of the revolver.
- Review Term Loan payment deferral conditions, floating-rate interest costs, covenant compliance and repayment obligations.
- Check progress in remediating the material weakness and restoring effective disclosure controls.
- Follow the Hydrus patent litigation and any developments that could create costs or affect competition.