Rxsight, Inc. quarterly report, Q3 FY2021

RxSight, Inc. — Form 10-Q Summary

Business Context and Reporting Period

RxSight is a commercial-stage medical technology company developing and selling light-adjustable intraocular lenses (RxLAL) and Light Delivery Devices (LDD) used after cataract surgery. The products are FDA-approved for sale in the United States and have regulatory approval in Europe and Mexico. The filing covers the quarter and nine months ended September 30, 2021, and was signed November 10, 2021.

As of September 30, 2021, the company had 161 LDDs installed, more than 13,000 cumulative surgeries using its system, 12 sales directors, and more than 56 clinical, field service, and customer service personnel. The company completed its initial public offering in July 2021.

Key Financial Metrics

Metric	Three Months Ended September 30, 2021	Three Months Ended September 30, 2020	Nine Months Ended September 30, 2021	Nine Months Ended September 30, 2020
Sales	$5.8 million	$4.2 million	$14.2 million	$9.8 million
Gross profit	$1.3 million	$0.7 million	$1.6 million	$0.3 million
Gross margin	23.2%	17.3%	11.6%	3.3%
Loss from operations	$(13.1) million	$(8.9) million	$(38.1) million	$(27.1) million
Net income (loss)	$(12.7) million	$30.7 million	$(33.0) million	$1.3 million
Net income (loss) per common share	$(0.68)	Not comparable due to pre-IPO capital structure	$(3.66)	Not comparable due to pre-IPO capital structure

Revenue mix for the first nine months was $8.5 million from LDDs and training, $5.3 million from RxLALs, and $0.4 million from service, warranty, and accessories.
Third-quarter LDD sales increased to 31 from 20 in the comparable period, while RxLAL units sold increased to 1,977 from 1,513.
SG&A expense increased 137.3% in the quarter and 96.7% for the nine-month period, primarily because of expanded commercial personnel, public-company costs, travel, marketing, and stock-based compensation.
R&D expense decreased 7.3% in the quarter but increased 11.5% for the nine-month period.
Stock-based compensation was $2.0 million for the quarter and $4.7 million for the nine-month period.

Cash Flow, Liquidity, and Debt

Cash and cash equivalents were $68.3 million and short-term investments were $100.0 million at September 30, 2021, for total cash, cash equivalents, and short-term investments of $168.3 million, compared with $69.0 million at December 31, 2020.
Cash used in operating activities was $36.0 million for the first nine months, compared with $27.0 million in the prior-year period.
Cash used in investing activities was $46.6 million, primarily reflecting net purchases of short-term investments of $45.0 million and capital expenditures of $1.6 million.
Cash provided by financing activities was $136.9 million, including approximately $119.6 million of net IPO proceeds, $15.0 million of term-loan borrowings, and $1.4 million from stock-option exercises.
The term loan had a gross principal balance of $40.0 million and a net carrying value of $39.6 million. The cash interest rate was 9.25%, and the loan is scheduled to mature in October 2025. The company was in compliance with its debt covenants at quarter-end.
Management expects existing capital resources to fund projected operating requirements for at least 12 months after issuance of the financial statements, but expects continuing operating losses and negative operating cash flow.

Material Changes Versus the Prior Comparable Period

Sales increased 38.8% in the quarter and 45.1% for the nine months, driven by higher RxLAL utilization, higher average selling prices, and increased LDD placements.
Gross margin improved because of operating leverage, although margins remained constrained by the relatively low-margin LDD business and fixed manufacturing overhead.
Cost of sales included a $0.6 million additional reserve for excess LAL inventory in the quarter and a $2.3 million reserve for the nine-month period following the introduction of an updated RxLAL with ActivShield technology.
Operating losses widened as the company accelerated sales, marketing, research, development, and public-company activities.
The prior-year periods benefited from substantial non-operating warrant fair-value gains, including a $39.5 million gain in the third quarter of 2020. The 2021 quarter included only a $1.5 million warrant fair-value gain.
The Series W warrant expired unexercised on March 31, 2021, producing a $5.0 million gain and eliminating related redemption provisions and accretion. Convertible preferred stock was converted to common stock in connection with the IPO.
The IPO materially strengthened the balance sheet, with approximately $120.0 million of net proceeds, but also resulted in increased public-company expenses and a significantly larger common-share base.

Guidance, Outlook, Commentary, and Risks

Management expects revenue growth from expanding the sales force, increasing LDD placements, growing the installed base, training more physicians, and increasing RxLAL utilization at existing accounts.
The company intends to continue substantial investments in sales and marketing, product development, clinical activities, manufacturing capacity, and public-company infrastructure. It expects substantial net losses and negative operating cash flow for at least the next several years.
Management described a “land and expand” strategy in which LDD placements establish an installed base that can generate recurring RxLAL and service revenue.
COVID-19 remains a significant risk because restrictions, provider capacity constraints, patient caution, supply-chain disruption, clinical-trial delays, and customer financial stress may reduce elective cataract procedures and product demand.
Key operational risks include limited commercial history, dependence on physician adoption and training, competition from larger medical-device companies, reimbursement and patient out-of-pocket requirements, product liability, regulatory compliance, clinical-trial outcomes, intellectual-property protection, and reliance on single- or sole-source suppliers.
The company operates a single manufacturing facility in California and has exposure to supply shortages, higher component costs, longer lead times, and potential disruptions from natural disasters or other events.
The credit facility is secured by substantially all personal property other than intellectual property and includes financial and operating covenants, potential additional borrowing conditions, variable interest rates, and an exit fee if not prepaid by specified dates.
No material legal proceedings or regulatory matters were considered probable or reasonably estimable at September 30, 2021. The company disclosed that future proceedings could nonetheless result in costs, management distraction, or adverse outcomes.
The company has no stated profitability guidance. It expects to require additional financing if revenue growth, cash generation, or operating performance do not meet expectations.

Most Important Facts for Investors to Verify

Whether LDD placements and RxLAL utilization continue to grow sufficiently to offset expanding SG&A, R&D, manufacturing, and public-company costs.
The pace of gross-margin improvement and the extent of future inventory reserves, product obsolescence, and manufacturing-cost pressure.
The company’s cash-burn rate and whether the stated liquidity runway remains adequate as losses continue.
Compliance with the term-loan covenants, future repayment requirements, variable interest exposure, and availability of additional loan tranches.
Progress in physician adoption, installed-base expansion, training, patient outcomes, and reimbursement support for premium procedures.
Effects of COVID-19, elective-procedure volumes, provider capacity, customer financial health, and medical-device supply-chain constraints.
Regulatory status of current products and future enhancements, including FDA, European, United Kingdom, and Mexican requirements.
Potential dilution from outstanding options, restricted stock units, future equity offerings, and shares subject to registration or lock-up expiration.