RxSight, Inc. 10-Q Summary
Business context and reporting period
RxSight is a commercial-stage medical technology company that develops, manufactures and sells light-adjustable intraocular lenses (LALs), Light Delivery Devices (LDDs) and related services and accessories for cataract surgery. The company primarily sells in the United States and also has regulatory approvals in Europe, Canada and Mexico. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
- At September 30, 2023, the installed base was 589 LDDs, and more than 78,000 LALs had been implanted since inception.
- Third-quarter activity included 66 LDDs sold and 13,657 LALs sold, compared with 49 LDDs and 6,595 LALs in the prior-year quarter.
- Management noted that the third quarter typically experiences softer cataract surgery volumes because of summer vacation schedules.
Financial performance and key metrics
| Metric | Q3 2023 | Q3 2022 | Change |
|---|---|---|---|
| Sales | $22.2 million | $12.6 million | Up 76.0% |
| Gross profit | $13.7 million | $5.4 million | Up 156.4% |
| Gross margin | 62.0% | 42.5% | Up 19.5 percentage points |
| Loss from operations | $(12.5) million | $(16.0) million | Improved by $3.4 million |
| Net loss | $(12.4) million | $(16.8) million | Improved by $4.4 million |
| Basic and diluted loss per share | $(0.35) | $(0.61) | Improved |
| Metric | Nine months 2023 | Nine months 2022 | Change |
|---|---|---|---|
| Sales | $60.5 million | $32.9 million | Up 83.8% |
| Gross profit | $36.1 million | $13.9 million | Up 159.7% |
| Gross margin | 59.7% | 42.3% | Up 17.4 percentage points |
| Loss from operations | $(39.2) million | $(48.3) million | Improved by $9.1 million |
| Net loss | $(39.4) million | $(51.1) million | Improved by $11.7 million |
| Basic and diluted loss per share | $(1.16) | $(1.86) | Improved |
Q3 revenue consisted of $13.5 million from LALs, $7.9 million from LDDs and training, and $0.8 million from service, warranty and accessories. The nine-month mix was $36.3 million from LALs, $22.1 million from LDDs and training, and $2.1 million from service, warranty and accessories.
Operating expenses increased 23.1% to $26.2 million in Q3 and 21.1% to $75.3 million for the nine-month period. SG&A increased primarily because of expanded sales and marketing headcount, commissions, bonuses, customer acquisition, public-company compliance costs and stock-based compensation. Research and development increased due to personnel, clinical-study and stock-based compensation costs.
Interest and other income increased substantially because of higher interest rates and larger short-term investment balances. Interest expense declined after the company repaid its term loans, although the company recorded a $1.4 million Q3 and $1.8 million nine-month loss on extinguishment of debt.
Liquidity, cash flow and capital structure
- Cash and cash equivalents were $9.9 million at September 30, 2023, compared with $11.8 million at December 31, 2022.
- Short-term investments were $122.0 million, resulting in cash, cash equivalents and short-term investments of $131.9 million, versus $105.8 million at year-end 2022.
- Total assets were $181.9 million and stockholders’ equity was $161.5 million at September 30, 2023.
- The company had no term loan outstanding at September 30, 2023. It repaid the prior $40.0 million term loan in June and a new $20.0 million term loan in August.
- Net cash used in operating activities was $33.3 million for the first nine months of 2023, compared with $45.0 million in the prior-year period.
- Net cash used in investing activities was $26.7 million, including $3.2 million of capital expenditures and net purchases of short-term investments.
- Net cash provided by financing activities was $58.0 million, primarily from the February public offering and ATM equity sales, partially offset by debt repayments.
- The accumulated deficit was $585.5 million at September 30, 2023.
The company believes its existing cash, cash equivalents and short-term investments will fund operations for at least 12 months from the filing date. Management expects continuing operating losses and negative operating cash flow in the near term and states that, based on current plans, it does not anticipate needing additional capital or debt to reach operating profitability. This statement is forward-looking and remains dependent on sales growth, spending, working capital needs and market conditions.
Material changes versus the prior comparable period
- Revenue growth was driven by 7,062 additional LALs and 17 additional LDDs sold in Q3 2023, and by 20,641 additional LALs and 51 additional LDDs during the first nine months.
- Gross margin expanded materially because of operating leverage, a higher proportion of LAL revenue and lower LDD material costs following introduction of the compact LDD.
- Operating and net losses narrowed despite continued investment in commercial expansion, research and development and clinical activities.
- The company eliminated term debt during the third quarter, which management expects to reduce interest expense by approximately $0.6 million in the remaining three months of 2023 and approximately $2.3 million in 2024.
- Common shares outstanding increased to 35.8 million at September 30, 2023 from 28.3 million at December 31, 2022, primarily due to public and ATM offerings and equity award activity.
- The company completed the authorized $50.0 million ATM program, with $47.5 million of net proceeds through September 30, 2023, and received approximately $53.6 million of net proceeds from a February public offering.
Guidance, outlook, risks and unusual items
- Management expects continued revenue growth from expanding the LDD installed base, increasing LAL utilization, broadening the sales organization and investing in research and development.
- The company expects continued net losses and negative cash flows in the near future; no formal revenue or profitability guidance is provided in the filing.
- Key risks include limited commercial operating history, dependence on physician and patient adoption, competition from larger medical-device companies, reimbursement and patients’ out-of-pocket willingness to pay, product liability and clinical or regulatory developments.
- The company relies on third parties, including single- and sole-source suppliers, and reports longer lead times, limited component availability, inflation, higher supplier costs and expedited shipping expenses.
- The company maintains cash, cash equivalents and short-term investments with one financial institution, with some balances exceeding FDIC insurance limits, although investments are primarily in U.S. Treasury securities and money market funds.
- There were no legal proceedings or regulatory matters for which a material loss was considered probable or reasonably estimable at September 30, 2023.
- Disclosure controls and procedures were assessed as effective at the reasonable-assurance level, with no material changes in internal control over financial reporting during the quarter.
- Because the market value of non-affiliate holdings exceeded $700 million, the company expects to become a large accelerated filer and cease being an emerging growth company and smaller reporting company as of December 31, 2023, subject to applicable transition provisions.
Most important facts for an investor to verify
- Whether LAL utilization continues to grow after the 589-unit LDD installed base was reached and whether the company can sustain recent revenue growth.
- Whether gross-margin improvement persists as product mix, manufacturing costs and LDD pricing evolve.
- The pace at which operating losses and negative operating cash flow decline, and the timing of potential operating profitability.
- Whether $131.9 million of cash, cash equivalents and short-term investments is sufficient under actual spending and growth conditions.
- Potential dilution from equity compensation, future offerings and any renewed use of the shelf registration statement.
- Reimbursement conditions, patient out-of-pocket demand and physician adoption relative to competing premium IOL products.
- Supply-chain reliability, sole-source exposure, regulatory compliance and any product-liability, recall or adverse-event developments.
- Additional costs and control requirements associated with the expected transition to large accelerated filer status and the loss of emerging-growth-company exemptions.