LENSAR, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. LENSAR develops and commercializes laser systems and related products for cataract surgery and astigmatism management. Financial amounts below are in millions of dollars unless noted.
Key financial results
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $8.04 | $7.92 | $17.38 | $14.97 |
| Gross profit | $4.89 | $4.46 | $9.58 | $8.35 |
| Gross margin | 60.9% | 56.3% | 55.2% | 55.8% |
| Operating loss | $(6.80) | $(4.38) | $(13.48) | $(9.58) |
| Net loss | $(6.76) | $(4.36) | $(13.43) | $(9.54) |
| Net loss per share | $(0.67) | $(0.47) | $(1.34) | $(1.03) |
| Adjusted EBITDA, non-GAAP | $(4.31) | $(2.29) | $(8.53) | $(4.53) |
Revenue increased 1% in Q2 and 16% in the first half year over year. Q2 product revenue fell 5%, principally because sales of LENSAR systems declined as the company transitioned toward ALLY; higher procedure volume, lease revenue and service revenue partly offset the decline. First-half product revenue rose 13%, primarily on procedure volume. Recurring sources accounted for approximately 99% of Q2 and 94% of first-half revenue, versus 90% in both comparable 2021 periods.
Q2 gross margin improved year over year, while first-half margin edged lower. Operating expenses increased: Q2 selling, general and administrative expense was $7.57 million and R&D was $3.83 million; first-half amounts were $13.85 million and $8.62 million, respectively. Management attributed R&D growth mainly to ALLY development and pre-launch inventory costs. Those inventory costs were recorded in R&D through April 30, 2022, when commercialization was considered probable.
Cash, liquidity and obligations
- Cash and cash equivalents were $25.20 million at June 30, down from $31.64 million at December 31, 2021. First-half operating cash use was $5.40 million; investing cash use was $0.06 million; financing cash use was $0.99 million, including a $1.20 million contingent-consideration payment.
- Current assets were $35.21 million and current liabilities $11.22 million. Total liabilities were $13.80 million, including operating lease liabilities; the filing reports no borrowings or cash interest paid.
- Management said available cash and expected product-sale and lease proceeds should fund operations into 2024, and that cash on hand provided liquidity for at least 12 months from issuance of the statements. The company expects it will need additional capital to continue beyond 2024; financing may be unavailable or dilutive or carry restrictive terms.
- Contractual obligations included approximately $7.82 million of minimum component-purchase commitments through December 2023 and $3.1 million of operating lease payments. A further $1.2 million milestone payment tied to ALLY commercialization was considered probable and recorded as a current liability; certain ALLY revenue is also subject to a 3% royalty.
Outlook, material developments and risks
- The FDA cleared ALLY for its initial stage of commercialization. LENSAR planned a controlled launch of 8–12 systems beginning in Q3 2022 and broader U.S. availability in 2023. Supply-chain delays had constrained the 2022 rollout.
- ALLY’s phacoemulsification functionality was expected to remain disabled or removed for the initial launch and planned 2023 rollout. A second 510(k) submission depends on a third party’s device receiving FDA clearance to serve as the predicate; that party had withdrawn its submission and planned to resubmit later, leaving LENSAR unable to file its related submission until predicate clearance.
- Management expects revenue and SG&A to increase as the ALLY launch proceeds, but provided no quantified financial guidance. Commercial success depends on production capacity, component availability, regulatory clearances in additional markets and surgeon and patient adoption.
- COVID-related supply-chain disruptions, semiconductor shortages, longer lead times and inflation in components, labor and transportation continued to pressure costs and delay production. LENSAR said available inventory was sufficient to mitigate near-term disruption, but could not assure it would meet demand if constraints persisted or worsened.
- The company reported recurring losses and operating cash outflows, with an accumulated deficit of $91.03 million. It expects losses to continue for the foreseeable future. Other important risks include competition, reliance on suppliers and distributors, customer credit concentration, patient out-of-pocket costs and reimbursement uncertainty, and regulatory and intellectual-property risks.
- No material legal proceedings were reported. Management concluded disclosure controls were effective at the reasonable-assurance level as of June 30, 2022; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the planned ALLY launch placements and 2023 broader rollout occurred, and whether component shortages affected delivery, costs or demand.
- Progress and timing of the third party’s predicate-device clearance and LENSAR’s follow-on 510(k) submission for ALLY phacoemulsification functionality.
- Cash burn, liquidity runway and financing needs relative to management’s expectation of operating into 2024.
- Procedure-volume trends, system sales and recurring revenue mix, along with customer receivables concentration and collection experience.
- Whether higher component costs and the ALLY product mix affect gross margins, customer pricing or adoption; also monitor the recorded milestone liability and 3% ALLY royalty exposure.