RxSight, Inc. 10-Q Summary
Business context and reporting period
RxSight is a commercial-stage medical technology company developing and selling light-adjustable intraocular lenses (LALs), Light Delivery Devices (LDDs), and related services for cataract surgery. The LAL can be adjusted after implantation using the LDD. The company markets primarily in the United States and has regulatory approvals in Europe and Mexico, although it was not actively marketing in those international markets.
This unaudited Form 10-Q covers the quarter and six months ended June 30, 2022. As of quarter-end, RxSight had 294 LDDs installed and surgeons had performed more than 26,000 procedures using its system. The company had approximately 20 LDD sales personnel, 18 LAL sales personnel, and approximately 75 clinical, service, customer support, and marketing personnel.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Sales | $11.4 million | $4.9 million | $20.3 million | $8.4 million |
| Gross profit | $4.8 million | $(0.8) million | $8.5 million | $0.3 million |
| Gross margin | 42.2% | (16.6)% | 42.1% | 3.7% |
| Operating loss | $(15.8) million | $(13.9) million | $(32.4) million | $(25.0) million |
| Net loss | $(16.7) million | $(13.5) million | $(34.3) million | $(20.3) million |
| Net loss per share | $(0.61) | $(3.28) basic | $(1.25) | $(5.00) basic |
- Second-quarter sales increased 132.0% year over year; six-month sales increased 142.2%.
- Second-quarter LDD sales were $5.7 million and LAL sales were $5.3 million. Six-month LDD sales were $10.3 million and LAL sales were $9.5 million.
- Quarterly LDD units sold increased to 49 from 25, while LALs sold increased to 5,400 from 1,825. For the six months, LDD units sold were 89 versus 38 and LALs sold were 9,566 versus 3,392.
- SG&A expense increased 121.3% in the quarter and 131.2% for the six months, primarily from expanded sales and marketing infrastructure, personnel, commissions, travel, trade shows, post-market studies, and public-company costs.
- Research and development expense declined 5.6% in the quarter and 2.2% for the six months, primarily because of lower clinical study costs.
- Operating cash flow was $(29.8) million for the six months, compared with $(22.2) million in the prior-year period. Capital expenditures were $1.5 million.
- Cash, cash equivalents, and short-term investments totaled $128.6 million at June 30, 2022, down from $159.3 million at December 31, 2021. Cash and cash equivalents were $24.0 million and short-term investments were $104.6 million.
- Accounts receivable was $6.9 million and inventory was $11.6 million at June 30, 2022, compared with $4.9 million and $8.0 million, respectively, at year-end 2021.
- Accumulated deficit was $513.6 million. Total stockholders’ equity was $110.0 million.
Debt, liquidity, and capital resources
- Term loan carrying value was $39.9 million at June 30, 2022. The May 2022 amendment increased the total credit facility to $60.0 million, of which $40.0 million was funded.
- The facility bears interest at the greater of 9.25% or one-month Term SOFR plus 9.09%, subject to a 5% default-rate increase. It matures February 1, 2027 and is secured by substantially all personal property other than intellectual property.
- RxSight may be able to borrow up to an additional $20.0 million in 2023, subject to specified conditions, including trailing-twelve-month sales milestones and other drawdown requirements.
- The company was in compliance with its loan covenants at June 30, 2022. Principal payments are scheduled to begin in 2025, with $16.4 million due in 2025, $21.8 million in 2026, and $1.8 million in 2027.
- Management believes existing cash, cash equivalents, and short-term investments will fund planned operations for at least 12 months from issuance of the financial statements, but expects continuing operating losses and negative operating cash flow and may require additional financing over the longer term.
Material changes versus the prior comparable period
- Revenue growth reflected higher LDD installations and increased LAL utilization as the installed base expanded.
- Gross margin improved substantially because of favorable product mix and operating leverage. The prior-year period included a $1.7 million reserve for excess LAL inventory related to the introduction of an updated LAL with ActivShield technology; no comparable reserve was recorded in 2022.
- Despite revenue and gross-margin improvements, the operating loss increased because SG&A investment substantially exceeded the gross-profit improvement.
- Net loss increased partly because the prior-year period included a $5.0 million gain from warrant expiration and a $1.2 million warrant fair-value gain. These items did not recur in 2022.
- Interest expense increased to $2.2 million for the six months from $1.5 million, reflecting higher debt balances and interest costs.
- Inventory increased by $3.6 million from year-end, while accounts receivable increased by $2.0 million, contributing to operating cash usage.
Guidance, outlook, commentary, risks, and unusual items
- No formal numerical revenue, margin, or profitability guidance is provided. Management expects substantial net losses and negative operating cash flow for at least the next several years while it expands sales, marketing, research and development, and clinical activities.
- Management expects revenue growth from additional LDD placements, a larger trained physician base, greater LAL utilization, expanded sales territories, and increased market awareness.
- On June 30, 2022, the FDA requested additional information for approval of a lower-cost-to-manufacture LDD. RxSight expects to provide the information but is continuing to procure and produce its existing, more expensive LDD to mitigate potential supply and approval delays. Management expects this decision to pressure gross margin.
- Supply-chain constraints, inflation, higher component prices, longer lead times, COVID-19 effects, China-related shutdowns, and the war in Ukraine could restrict manufacturing or increase costs. The company relies on third parties, including single- and sole-source suppliers, and generally lacks long-term supply commitments.
- Key business risks include limited commercial history, continued losses, dependence on adoption by doctors and patients, competition from larger medical-device companies, reimbursement and patient out-of-pocket costs, regulatory and clinical requirements, product liability, intellectual-property protection, manufacturing concentration, and the need for additional capital.
- The company has no material legal proceedings for which a loss is considered probable or reasonably estimable and maintains a $310,000 standby letter of credit for a lease. Management concluded disclosure controls were effective at the reasonable-assurance level, with no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Whether the rapid LDD installation and LAL utilization growth continues and converts into sustainable operating leverage.
- The timing and outcome of FDA review of the lower-cost LDD and the resulting effect on gross margin and supply availability.
- The pace of cash burn relative to the $128.6 million liquidity balance and the timing and terms of any future equity or debt financing.
- Compliance with minimum-sales and other covenants under the amended term loan, including eligibility for the additional $20.0 million of borrowing capacity.
- Inventory quality, obsolescence exposure, receivables growth, and the company’s ability to manage supply-chain constraints without service or production interruptions.
- Evidence of market acceptance, reimbursement stability, clinical outcomes, adverse events, product recalls, and competitive response in the premium IOL market.