Business context and reporting period
Sight Sciences, Inc. develops and commercializes ophthalmic medical devices. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021. Its Surgical Glaucoma segment sells the OMNI Surgical System; its Dry Eye segment sells TearCare. Surgical Glaucoma generated 95.6% of Q2 revenue and 95.1% of first-half revenue.
Financial performance and liquidity
Amounts below are in millions, except per-share data and percentages.
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $12.5 | $3.5 | $21.2 | $10.0 |
| Gross profit | $10.2 | $1.4 | $16.6 | $5.8 |
| Gross margin | 81.6% | 40.5% | 78.2% | 57.9% |
| Operating expenses | $21.3 | $9.1 | $39.3 | $22.2 |
| Loss from operations | $(11.1) | $(7.7) | $(22.7) | $(16.4) |
| Net loss | $(17.6) | $(8.3) | $(29.9) | $(17.5) |
| Net loss per share, basic and diluted | $(1.83) | $(0.88) | $(3.12) | $(1.85) |
For the six months ended June 30, 2021, operating cash flow was negative $25.3 million, investing cash flow was negative $0.4 million and financing cash flow was negative $0.3 million. Cash and cash equivalents declined by $25.9 million to $35.6 million. At June 30, total assets were $52.5 million, current liabilities $12.1 million and total liabilities $52.5 million. Term-loan principal was $35.0 million ($32.3 million carrying value after discounts); the $5.0 million revolver was undrawn and available. The term loan is secured by substantially all assets and bears variable interest.
Material changes versus prior comparable periods
- Q2 revenue increased 257.9% year over year; first-half revenue rose 111.7%. Management attributed growth primarily to higher OMNI unit sales, more ordering facilities and increased utilization. TearCare growth reflected SmartLid reorders.
- Gross margin improved substantially, primarily with higher OMNI sales volume and lower-cost manufacturing. Surgical Glaucoma gross margin was 85.2% in Q2 and 82.0% for the first half; Dry Eye margin remained low at 2.7% and 6.5%, respectively.
- Operating expenses rose 134.0% in Q2 and 77.1% in the first half, reflecting increased personnel, commercial investment, R&D, clinical work and IPO-related costs. Accordingly, operating and net losses widened despite revenue growth.
- Other expense included a $5.4 million Q2 charge and $4.9 million first-half charge, primarily from remeasurement of preferred-stock warrant liabilities. The warrant liability rose to $7.0 million at June 30 from $2.1 million at year-end.
- Comparisons are affected by COVID-19-related procedure disruptions and an OMNI inventory write-down in 2020. The $2.2 million PPP loan was forgiven in June 2021.
Outlook, risks and unusual items
- Management gave no specific revenue or earnings guidance. It expects continued net losses for at least the next several fiscal years and higher public-company costs. It stated that pre-IPO liquidity and available borrowing were expected to fund operations for at least 12 months.
- After quarter-end, the July 19, 2021 IPO raised approximately $253.0 million net of underwriting discounts and estimated offering costs. Preferred shares converted into common stock; these transactions are not reflected in the June 30 financial statements. Management said proceeds would support clinical trials, commercialization, R&D, working capital and general corporate purposes.
- COVID-19 and renewed restrictions could again delay elective procedures and reduce demand; the pandemic may also disrupt suppliers. Management reported no supply-chain disruptions to date but relies on third-party manufacturers and some single-source suppliers.
- TearCare expansion depends on additional FDA clearance and clinical evidence. The company withdrew its November 2020 510(k) submission after FDA requested additional safety tests and modifications, and intended to resubmit in the second half of 2021. TearCare procedures generally lack meaningful payer reimbursement.
- The company reported an accumulated deficit of $119.9 million and continued negative operating cash flow. Debt covenants include monthly revenue targets; the company reported compliance as of June 30, 2021. Other key risks include product adoption, reimbursement, competition, regulatory compliance and the concentrated dependence on OMNI.
- Management concluded disclosure controls were effective at a reasonable-assurance level, but disclosed a material weakness in financial-reporting controls identified in the 2020 audit, related to insufficient experienced accounting staff and segregation/review controls. Remediation steps were underway.
Important facts for investors to verify
- Whether post-IPO cash proceeds materially extend liquidity and how quickly operating cash burn changes.
- Whether OMNI growth and improved gross margins persist as manufacturing transitions continue, and whether TearCare margins and adoption improve.
- Progress and timing of TearCare’s FDA submission, clinical evidence and reimbursement access.
- Trends in procedure volumes, particularly the effects of COVID-19, and any supplier or manufacturing interruptions.
- Remediation and independent assessment of the disclosed material weakness; also monitor warrant-related accounting effects and debt covenant compliance.