LENSAR, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial statements are unaudited. Dollar amounts below are in millions unless noted.
Business context
LENSAR develops and commercializes laser systems and related consumables for cataract treatment and astigmatism management. Its ALLY Adaptive Cataract Treatment System is FDA-cleared for femtosecond-laser-assisted cataract surgery and was in a controlled commercial launch. The company reported an installed base of approximately 285 systems. ALLY’s phacoemulsification features were disabled or removed pending a further FDA clearance process dependent on a third-party device serving as a predicate.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $12.0 | $8.0 | $20.3 | $17.4 |
| Gross profit / margin | $6.8 / 56.3% | $4.9 / 60.9% | $11.1 / 54.7% | $9.6 / 55.2% |
| Operating loss | $(2.9) | $(6.8) | $(7.2) | $(13.5) |
| Net loss | $(8.8) | $(6.8) | $(13.0) | $(13.4) |
| Net loss per share | $(0.81) | $(0.67) | $(1.21) | $(1.34) |
Q2 product revenue rose 64% to $9.4 million, primarily from increased system sales; lease revenue increased 20% to $1.7 million, and service revenue increased 6% to $0.9 million. For the first half, product revenue grew 18%, while lease revenue grew 18% and service revenue 3%. System sales and leases drove growth, partly offset by lower procedure volume.
Operating expenses included Q2 selling, general and administrative expense of $7.9 million, up 4%, and research and development expense of $1.5 million, down 61%. For the first half, those expenses were $14.6 million, up 6%, and $3.1 million, down 63%, respectively. Lower R&D primarily reflected reduced ALLY development and pre-launch inventory costs compared with 2022. Gross margin declined in Q2, in part because system sales carry lower margins than procedure licenses.
The $6.0 million increase in the fair value of warrant liabilities was a significant noncash expense in 2023 and contributed to the higher Q2 net loss despite improved operating results. Management reported adjusted EBITDA, a non-GAAP measure, of $(0.2) million in Q2 2023 versus $(4.3) million in Q2 2022, and $(2.0) million for the first half versus $(8.5) million.
Cash, liquidity and capital
- Cash and cash equivalents were $25.5 million at June 30, 2023, up from $14.7 million at December 31, 2022. Net cash used in operating activities was $8.8 million for the first half, compared with $5.4 million in 2022; inventory increased by $7.3 million.
- Current assets were $49.2 million and current liabilities $10.6 million. The company reported no conventional borrowings; operating lease liabilities totaled approximately $2.6 million, including current and long-term amounts.
- In May, LENSAR completed a private placement with NR-GRI for $20.0 million gross, comprising preferred stock and warrants. The balance sheet records $13.7 million of redeemable convertible preferred stock and $11.6 million of warrant liabilities. Management said available cash, together with expected product-sale and lease receipts, should fund operations for at least twelve months from the financial statements’ issuance.
- Minimum component purchase obligations were approximately $9.0 million over the next 18 months. LENSAR also has a 3% royalty obligation on certain revenue if the ALLY phacoemulsification features are cleared and operational.
Changes, outlook and risks
- Six-month revenue increased 17%, but procedure volume declined, particularly in South Korea, where reimbursement challenges drove an approximately $2.1 million decrease in procedure revenue. U.S. and European procedure volumes increased 13% and 24%, respectively. Management expects South Korean reimbursement challenges to continue near term.
- Management expects continued losses and operating cash outflows in the near term, and expects selling, general and administrative costs to rise as the ALLY launch expands. No specific revenue or earnings guidance was provided.
- Supply-chain shortages, long component lead times, single-source suppliers and inflation have raised costs and could impede ALLY production or customer demand. Management said inventory had mitigated significant near-term disruption to date.
- ALLY’s EU certification application was submitted in 2022; documentation for applications in South Korea, Taiwan and the Philippines was submitted in 2023. Additional clearances and certifications, production capacity, surgeon adoption, and patient willingness to pay for advanced procedures remain important uncertainties.
- Stockholders approved the private placement issuance on August 1, 2023, after quarter-end. The preferred stock and warrants could result in substantial dilution; the filing estimated approximately 52.3% of common shares outstanding as of August 2, 2023, assuming full conversion and cash exercise. NR-GRI also received specified consent rights and its affiliates had significant voting influence.
- A stockholder lawsuit challenging proxy disclosures related to the private placement remained pending; the company said it could not estimate any possible loss. A separate stockholder fiduciary-duty suit was voluntarily dismissed.
- In July 2023, the company received $1.178 million related to an employee retention credit, plus $0.057 million interest; it expects to recognize these amounts, net of associated professional fees, in Q3 2023.
Key facts for investors to verify
- Whether ALLY production and supply-chain availability support the launch, and the timing and status of phacoemulsification, EU and other international clearances.
- Whether recurring procedure and consumable revenue, margins and procedure volumes recover, particularly in South Korea.
- Cash burn and inventory requirements relative to management’s stated twelve-month liquidity outlook and purchase commitments.
- The potential dilution, warrant remeasurement volatility, governance rights and resale supply associated with the private placement.
- Developments in the pending proxy-related litigation and the recognition of the employee retention credit in Q3.