Sight Sciences, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Sight Sciences develops and commercializes ophthalmic devices for glaucoma and dry eye disease. Its two reportable segments are Surgical Glaucoma and Dry Eye.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $18.8 million | $14.9 million | +26.5% |
| Gross profit / gross margin | $15.8 million / 83.8% | $11.8 million / 79.6% | Gross margin +4.2 percentage points |
| Operating expenses | $33.3 million | $34.0 million | -2.0% |
| Loss from operations | $(17.6) million | $(22.2) million | Loss narrowed $4.6 million |
| Net loss | $(17.1) million | $(23.3) million | Loss narrowed $6.2 million |
| Operating cash flow | $(17.4) million | $(22.0) million | Cash use decreased |
- Segment revenue: Surgical Glaucoma was $17.3 million, up 25.0%; Dry Eye was $1.5 million, up 47.4%. Surgical Glaucoma contributed 92.1% of revenue.
- Segment gross margins: Surgical Glaucoma was 86.4%, versus 89.3%; Dry Eye was 54.0%, versus (52.5%). Total gross margin was higher primarily because the prior-year period included SmartHub 1.0 recall charges. Surgical Glaucoma margin declined due to an inventory write-off during transition to a next-generation OMNI device and product mix.
- Expenses and other items: R&D declined 17.3% to $4.7 million; SG&A increased 1.0% to $28.7 million. Interest expense rose to $1.3 million. Other income was $1.8 million, primarily from amortization of purchase discounts on cash-equivalent Treasury investments.
- Cash and debt: Cash and cash equivalents were $167.3 million at March 31, down from $185.0 million at year-end; they included $157.3 million of Treasury bills. Term-loan principal was $35.0 million ($33.5 million carrying amount); the $5.0 million revolver was undrawn. The company was in compliance with debt covenants.
- Balance sheet: Current assets were $193.7 million and current liabilities were $15.1 million. Accumulated deficit was $256.3 million.
Changes, outlook, and risks
- Surgical Glaucoma revenue growth reflected more OMNI and SION units sold, driven by both more ordering facilities and greater utilization. Dry Eye growth reflected expansion of the TearCare installed base.
- Management expects continued net losses for at least the next several fiscal years and plans continued investment in clinical studies, sales and marketing, market access, education, and product development. It also states it is focused on controlling spending and growing operating expenses more slowly than revenue.
- Management believes existing liquidity, product revenue, and available revolver borrowings will fund operations for at least 12 months; the filing also notes additional financing may be needed if revenue, margins, or cost control are insufficient. Dry Eye margins are expected to remain below Surgical Glaucoma margins in the near and medium term.
- The $35.0 million term loan bears a floating rate of reserve-adjusted SOFR plus 7.00%, matures November 1, 2025, and is scheduled to begin principal payments in December 2023. Management expects to meet conditions to defer payments until December 2024. The loan is secured by substantially all company assets, including material intellectual property.
- The company is suing Ivantis and Alcon over alleged infringement of patents related to the Hydrus Microstent; defendants dispute infringement and validity. A jury trial was scheduled for April 8, 2024. The company could not predict the outcome or estimate any financial impact.
- Disclosure controls and procedures were deemed ineffective due to a continuing material weakness in internal control over financial reporting, related to insufficient accounting resources with deep technical accounting expertise. Management said the financial statements fairly present the company’s results and position; remediation requires further validation and testing over sustained reporting cycles.
- Other risks include reliance on third-party manufacturers, reimbursement limitations for TearCare (patients generally pay out of pocket), and the need to sustain product demand and improve margins. Management reported no material changes to the risk factors in its 2022 Form 10-K.
Important facts for investors to verify
- Whether OMNI/SION demand growth and TearCare adoption continue, and whether Surgical Glaucoma margins recover after the product transition.
- Cash burn relative to management’s stated liquidity runway, and whether debt-payment deferral conditions are met.
- Progress and effectiveness of remediation of the material weakness in internal controls.
- Developments in the Hydrus patent litigation, including trial timing and any financial consequences.
- Whether TearCare reimbursement or patient access improves, and whether third-party suppliers can meet production needs.