Sight Sciences, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Sight Sciences develops and sells ophthalmic devices across Surgical Glaucoma (OMNI and SION) and Dry Eye (TearCare). Amounts below are in millions of dollars unless noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $20.0 | $18.7 | $62.3 | $50.8 |
| Gross profit / margin | $17.3 / 86.6% | $15.7 / 84.3% | $53.2 / 85.4% | $42.1 / 82.9% |
| Operating expenses | $30.7 | $37.6 | $99.4 | $109.0 |
| Operating loss | $(13.4) | $(21.8) | $(46.2) | $(66.9) |
| Net loss | $(13.0) | $(22.2) | $(44.9) | $(69.3) |
| Net loss per share, basic and diluted | $(0.27) | $(0.46) | $(0.92) | $(1.45) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(40.7) | $(60.5) |
- Q3 revenue grew 7.1%; Surgical Glaucoma revenue rose 7.9% to $18.4 million, while Dry Eye revenue declined 1.3% to $1.6 million. Management attributed Surgical Glaucoma growth to more facilities ordering OMNI and SION, with flat unit use per ordering facility.
- For the first nine months, revenue grew 22.7%. Surgical Glaucoma increased 22.0% to $57.2 million and Dry Eye increased 30.4% to $5.1 million. Surgical Glaucoma generated 91.7% of nine-month revenue.
- Q3 gross margin improved to 86.6%, including 89.1% for Surgical Glaucoma and 57.4% for Dry Eye. Nine-month margin was 85.4%; Dry Eye margin improved substantially from 15.8% to 55.4%, partly reflecting prior-year SmartHub 1.0 recall charges and improved manufacturing economics.
- Lower operating expenses helped narrow losses: Q3 operating expenses fell 18.2% year over year, and nine-month expenses fell 8.8%. Higher interest expense partially offset the improvement; interest expense was $4.1 million for the nine months. Other income rose to $5.5 million, primarily from treasury investment discounts.
Financial position and liquidity
- At September 30, cash and cash equivalents were $144.5 million, versus $185.0 million at year-end 2022. Nine-month net cash decline was $40.5 million. Cash and cash equivalents included $136.3 million of short-maturity U.S. Treasury bills.
- Current assets were $173.6 million and current liabilities $14.3 million. Total liabilities were $49.6 million, including $33.8 million of term debt reported net of discount; principal outstanding was $35.0 million. Stockholders’ equity was $127.1 million.
- Nine-month cash used in operations was $40.7 million, compared with $60.5 million in 2022; capital expenditures were $0.5 million. The company reported a $284.1 million accumulated deficit.
- The secured term loan bears floating interest at reserve-adjusted SOFR plus 7%, matures November 1, 2025, and is secured by substantially all company assets, including material intellectual property. A 6% final payment fee applies. The company reported covenant compliance at September 30.
- Management said existing liquidity was expected to fund working capital and capital needs for at least 12 months from issuance of the financial statements. The filing also states the company expects continuing losses for at least the next several years and may need additional financing.
Material developments, outlook and risks
- Medicare coverage: On October 26, 2023, WPS published a final local coverage determination classifying certain procedures, including the OMNI procedure canaloplasty with trabeculotomy ab interno, as investigational. The determination was scheduled to take effect December 24, 2023. WPS-served states represented about 8% of 2022 Surgical Glaucoma revenue. Four other MACs had issued draft policies; jurisdictions covered by those four represented about 55% of 2022 Surgical Glaucoma revenue. If similar restrictions take effect, the company expects a material adverse business impact; the full effect is unknown. The filing also says it was seeking clarity on possible effects for SION procedures.
- Realignment: On October 17, the company initiated a strategic realignment, including an approximately 10% workforce reduction, to reduce costs, extend cash runway and support progress toward breakeven. It expected a cash restructuring charge of approximately $1.3 million in Q4 2023; actual costs and savings may differ.
- Loan amendment: On November 6, the company amended its credit agreement to require at least $50 million of unrestricted cash at all times and revise principal-payment timing. Payments can begin December 1, 2024, earlier after a defined reimbursement trigger event, or following certain continuing defaults. A reimbursement trigger includes three or more MACs issuing final determinations that classify OMNI or similar devices as investigational.
- Management outlook: The company intends to continue investing in clinical studies, commercial capabilities, market access and product development while controlling expenses. It provided no specific revenue or earnings guidance in the supplied filing text.
- Other risks and contingencies: The company is involved in patent litigation concerning the Hydrus Microstent; a five-day jury trial was scheduled to begin April 8, 2024, and the company could not estimate the financial impact. Management did not believe pending proceedings would have a material adverse effect, but noted legal costs and management distraction could arise.
- Controls: Management concluded disclosure controls were not effective at quarter-end because a previously reported material weakness remained. The remaining issue concerned sufficient accounting resources with deep technical accounting expertise. Management stated the financial statements fairly present the company’s financial position and results.
Most important facts for investors to verify
- Whether WPS’s final coverage policy takes effect as scheduled, how it affects OMNI and SION reimbursement, and whether the other four MACs finalize similar restrictions.
- Compliance with the amended $50 million unrestricted-cash covenant and the potential timing and trigger conditions for loan amortization.
- Whether the workforce realignment delivers the expected savings and cash runway extension, and whether restructuring charges remain near the estimated $1.3 million.
- Revenue growth, gross-margin trends and operating cash burn, especially given the company’s continued losses and reliance on Surgical Glaucoma products.
- Progress in remediating the internal-control material weakness and the outcome and costs of the patent litigation.