LENSAR, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone Q4 report; the filing does not provide a clear standalone Q4 financial summary. LENSAR became an independent public company on October 1, 2020 following its spin-off from PDL BioPharma. Pre-spin-off financials include allocated PDL costs and may not reflect the company’s costs as a standalone public company.
Business and financial performance
LENSAR develops and sells or leases femtosecond laser systems used in cataract surgery. Revenue also comes from procedure licenses, patient interface device kits and service contracts. Its next-generation integrated laser and phacoemulsification system, ALLY, was in development.
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $26.4 million | $30.5 million |
| Operating loss | $18.5 million | $12.7 million |
| Net loss | $19.8 million | $14.7 million |
| Net cash used in operations | $13.8 million | $12.6 million |
| Cash and cash equivalents at year-end | $40.6 million | $4.6 million |
- Revenue declined 13.6%, principally reflecting COVID-19-related suspension of elective cataract procedures for about three months and lower system sales and leases. Procedures performed fell 10%; the installed base rose from 207 to approximately 225 systems.
- Product revenue was $19.8 million, lease revenue $3.6 million and service revenue $3.0 million. Recurring sources represented approximately 85% of revenue, versus 79% in 2019.
- Cost of revenue was $12.3 million, down 28.9%. Revenue less reported cost of revenue was $14.1 million, or approximately 53% of revenue, compared with $13.2 million, or approximately 43%, in 2019. Intangible amortization is reported separately as an operating expense.
- SG&A increased 38.6% to $23.8 million, largely due to personnel costs, including stock-based compensation, and professional services. R&D was $7.6 million, broadly unchanged.
- FY2020 adjusted EBITDA was a loss of $6.9 million, versus a loss of $7.9 million in 2019. This non-GAAP measure excludes $9.0 million of stock-based compensation in 2020, compared with $0.9 million in 2019.
Liquidity, capital and balance sheet
- Year-end current assets were $58.4 million and current liabilities $8.5 million. Cash was $40.6 million; inventory was $13.5 million, up from $8.1 million in 2019.
- Cash used in investing was $0.3 million; financing provided $50.0 million, primarily from PDL capital contributions and stock transactions. Operating cash use exceeded the prior year by $1.2 million.
- No note payable or Series A preferred stock remained at year-end. In July 2020, LENSAR issued shares to PDL to extinguish approximately $32.6 million of debt and its preferred stock obligations. Lease liabilities totaled $3.8 million.
- Management said cash and expected product-sale and lease proceeds should fund operations through the anticipated ALLY clearance and launch. The company also stated it expects to need additional capital to continue operations beyond 2022.
Changes, outlook and key risks
- COVID-19 reduced procedures, system placements and revenue, led to lease concessions of approximately $0.3 million, increased inventory, and caused minor supply-chain disruption. Procedure volumes had returned to pre-pandemic levels in the United States and Europe, but system placement growth remained affected.
- Management anticipated submitting ALLY for FDA 510(k) clearance by the end of Q1 2022 and, subject to clearance, beginning commercialization in the latter half of 2022. The filing also describes the launch as projected by the end of 2022. Timing and clearance are uncertain; development depends partly on a third party developing and supplying the phacoemulsification component.
- Key commercial risks include reliance on patients’ out-of-pocket spending for advanced procedures, competition from larger medical-device companies, dependence on international distributors and some single-source suppliers, and customer concentration. Three customers each accounted for 12% of 2020 revenue; two customers accounted for 11% and 10% of year-end receivables.
- The company reported a $2.4 million minimum component-purchase obligation. Potential milestone payments of $2.4 million under an intellectual-property license are contingent on regulatory approval and commercialization. Management reported no material legal proceedings.
- Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2020. The auditor issued an unqualified opinion on the financial statements; it was not engaged to opine on internal-control effectiveness.
Important facts for investors to verify
- Whether revenue, procedure volumes and system placements recover and grow after the pandemic-related decline, particularly in international markets.
- ALLY’s development progress, supplier readiness, FDA submission and clearance timing, launch costs, and actual surgeon and facility demand.
- Cash burn and financing needs relative to management’s stated runway; the company expects to need additional capital beyond 2022.
- Inventory growth, customer and distributor concentration, receivable collectability, and exposure to single-source suppliers.
- The effect of substantial stock-based compensation and the standalone public-company cost base on reported losses and future cash requirements.