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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day and thank you for standing by. Welcome to the RxSight Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your first speaker today, Alex Huang. Please go ahead.
Thank you, operator. Presenting today are RxSight President and Chief Executive Officer, Dr. Ron Kurtz; and Chief Financial Officer, Shelley Thunen. Earlier today, RxSight released financial results for the three months and six months ended June 30, 2023. A copy of the press release is available on the company's website.
Before we begin, I would like to inform you that comments and responses to -- the questions during today's call reflect management's views as of today, August 7, 2023. And will include forward-looking and opinion statements, including predictions, estimates, plans, expectations, and other information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties.
These risks and uncertainties are more fully described in our press release issued today and in our filings with the Securities and Exchange Commission, or SEC. Our SEC filings can be found on our website or the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements, and we disclaim any obligation to update or revise these forward-looking statements.
We will also discuss certain non-GAAP financial measures. Disclosures regarding non-GAAP financial measures, including reconciliations with the most comparable GAAP measures can be found in the press release. Please note that this conference call will be available for audio replay on our investor website.
With that, I will turn the call over to President and Chief Executive Officer, Dr. Ron Kurtz.
Good afternoon, and thank you for joining us. Today, we report another strong quarterly performance for RxSight, representing our tenth consecutive period of quarter-over-quarter top-line growth and driven by higher key operating metrics. In addition, we have taken further steps to strengthen our financial position. I'll discuss the favorable trends underlying our business later in the call.
But first, Shelly will review our second quarter 2023 financial performance and recent balance sheet transactions.
Thank you, Ron. Good afternoon, everyone. RxSight generated second quarter 2023 revenue of $20.8 million up 83%, compared to $11.4 million in the year-ago quarter and up 19% compared to the $17.5 million in the first quarter of 2023. We sold 67 light delivery devices in the second quarter of 2023, up 37% compared to 49 units in the year-ago period. And up 20% compared to the 56 units in the first quarter of 2023.
Second quarter 2023, LDD sales generated revenue of $7.7 million up 36% and 19% versus the second quarter of 2022 and first quarter of 2023, respectively. As of June 30, 2023, our LDD installed base increased to 523 units, up 78% and 15% versus the second quarter of 2022 and first quarter of 2023, respectively.
We sold 12,622 LALs in the second quarter of 2023, up 134% and 20% compared to the 5,400 units and 10,523 units in the same year-ago quarter and first quarter of this year, respectively. Second quarter 2023 LAL unit sales generated $12.4 million in revenue, up 132% and 19% compared to the $5.3 million and $10.4 million in the second quarter of 2022 and the first quarter of 2023, respectively.
LAL revenue represented 60% of total revenue in the second quarter of 2023, up from 47% and 59% in the second quarter of 2022 and first quarter of 2023, respectively. Gross margin in the second quarter of 2023 was 58% compared to 42% in the same year-ago quarter and 59% in the first quarter of 2023.
Recall that the first quarter 2023 gross margin was favorably impacted by LDD material price decreases, freight savings, and improvements in other costs included in LAL cost of sales. So, the slight sequential change is consistent with our expectations. SG&A expenses as in the second quarter of 2023 were $18.2 million, up 27% and versus $14.4 million in the year-ago quarter, reflecting increased expenses in sales and marketing personnel costs and travel and increased noncash stock-based compensation in sales, marketing, and G&A.
On a sequential basis, SG&A expenses were up 12% due primarily to increased personnel costs from increased headcount and increased marketing costs. R&D expenses in the second quarter of 2023 rose 20% to $7.4 million compared to $6.2 million in the year in the same year-ago quarter. And $7.2 million in the first quarter of 2023. The change versus the year-ago quarter was primarily due to increased clinical study costs and increased headcount.
We reported a GAAP net loss in the second quarter of 2023 of $13.8 million or a loss of $0.40 per basic and diluted share using weighted average shares outstanding of 34.5 million shares. This compares to a GAAP net loss of $16.7 million or $0.61 per share on a basic and diluted basis in the same year-ago quarter.
Noncash stock-based compensation and loss on extinguishment of debt in the second quarter of 2023 was $4 million and $362,000, respectively, resulting in a non-GAAP loss of $9.5 million or a loss of $0.28 per basic and diluted share.
Please refer to the unaudited non-GAAP reconciliation and disclosure included in today's press release for more comparative information. We ended the second quarter of 2023 with cash, cash equivalents, and short-term investments of $147.1 million compared to $153.9 million at March 31, 2023. The change in the cash balance includes proceeds from our at-the-market program, or ATM stock option exercises, and employee stock purchase plan share issuances less the paydown of $20 million in GAAP plus termination fees and cash used in operations.
Excluding the proceeds from financing and capital activities and use of capital for principal debt repayments, cash used in operating activities during the second quarter was $9.5 million. This compares to $16.5 million in cash used in operating activities in the first quarter of 2023, which included annual bonus payouts and higher increases in accounts receivable and inventory relative to the second quarter of 2023.
On our last conference call, we indicated that we expect sequential quarterly reductions in cash used from operations in 2023. However, we may see a tick up in the third quarter because our second quarter cash used from operations was lower than expected due primarily to improvements in accounts receivable terms and higher accounts payable and accrued expenses.
During the second quarter of 2023, we continue to implement our ATM program designed to further strengthen our balance sheet raising $19.4 million net of fees through the sale of common shares. We used these proceeds to reduce our term loan debt by $0.5 million to $20 million. And as noted in today's press release, we raised an additional $11.9 million net of fees in July under the ATM and paid off our remaining $20 million debt balance.
Turning now to guidance. Based on our second quarter 2023 performance, we are increasing our 2023 guidance range to $81 million to $86 million, up from prior guidance of $79 million to $84 million. Our new guidance implies a year-over-year growth rate of 65% to 75% and assumes a typical cataract seasonality pattern with the third quarter lighter due to summer vacation schedules.
We are also revising our 2023 guidance range for gross margin to 58% to 60% versus prior guidance of 56% to 58%. The increase reflects the continuing favorable revenue mix of LAL sales, along with improved gross margin from our reconfigured LDD, which we expect to begin shipping this year with a gross margin benefit largely in the fourth quarter.
We are increasing our 2023 operating expense guidance of $106 million to $109 million an increase of $1 million at the top and bottom of the range. The increase reflects consulting fees additional headcount and expanded auditor fees relating to the implementation of SARBANES-OXLEY, with the increase in our market cap in the second quarter, we became subject to Section 404(b) of the SARBANES-OXLEY Act effective with our December 31, 2023, fiscal year-end and 10-K to be filed in February 2024.
The 2023 OpEx guidance represents a 25% to 29% rise over 2022 and primarily reflects our continued investments to build a large, durable, postoperative light treatment infrastructure to support sustained long-term LAL procedure growth. It also includes noncash stock-based compensation expense of $15 million to $16 million.
Since late 2022, we have raised $102.5 million net of fees through our confidentially marketed public offering and ATM program, paid off $40 million in term loan debt, and reduced our annual interest expense by approximately $5.6 million. We believe our cash interest term investment balances, combined with no outstanding debt strengthen our balance sheet and leaves us well-positioned to achieve profitability from operations with a healthy balance sheet.
With that, I'll turn the call back to Ron.
Thank you, Shelly. Last week, we marked the second anniversary of our IPO, and I'd like to use my time today to highlight the progress we've made to position RxSight for long-term success. First, we substantially increased the size and scope of our commercial organization, which has done a remarkable job as evidenced by the two-year growth trends in our business.
Compared to the second quarter of 2021, revenue was up 325% and quarterly LDD unit sales are up by more than 160%. Our installed base is roughly three times the size it was two years ago and now extends into Canada. Over this same period, LAL unit sales are up almost 600% and currently accounts for the majority of our total revenue.
As Shelly just summarized, we have also continued to strengthen our balance sheet and investor base, which we believe provides a strong foundation for continued execution of our growth strategy and sets us on a path for future operating profit. At the same time, we've added new institutional shareholders to our ownership base and experienced a fivefold increase in the average daily trading volume of our stock. Which, along with the rise in market capitalization has substantially increased the universe of institutions that can consider a meaningful RxSight position.
Driving our success since the IPO has been the outstanding performance of our light adjustable lens across a wide range of patient types and preferences. We focused our efforts these past two years on continually refining the LAL technology and the critical knowledge base to enable doctors to deliver the best possible experience and results for patients. The LAL stands apart from every other premium IOL in the market today because postoperative adjustability allows patients to achieve precise high-quality vision that they can test drive and customize to arrive at their unique desired visual outcome.
The growing body of real-world clinical data collected over the past two years underscores the LAL's ability to deliver superior uncorrected binocular visual acuity with the vast majority of patients achieving excellent vision over a range of distances without increases in visual side effects such as glare and halo or reductions in contrast vision. A combination of outcomes that are increasingly being prioritized by doctors and patients but are difficult to achieve consistently with competing fixed power lenses.
By appealing to a wide variety of standard and premium IOL patients, the LAL enables practices to achieve a rapid return on investment for the LDD and established an important ongoing premium revenue stream that can be further leveraged as additional practitioners tap into an existing light treatment infrastructure.
We believe this will continue to be an important factor in growing LAL utilization, which has been rising steadily over the past two years. In closing, we are pleased with the strides that the RxSight team has made in collaborating with our customers and investors as a public company. While we are still in the early stages of adoption, the LAL is beginning to change the premium IOL landscape and fuel expansion of this high-growth market. Through a continued focus on customer needs and the thoughtful execution of our growth strategy, we believe the LAL can ultimately occupy a leading position in the premium cataract market, delivering sustained long-term value to all stakeholders.
With that, I'll ask the operator to open the call for questions.
[Operator Instructions]. Our first question is from Craig Bijou of BofA Securities. Please proceed with your question.
[Operator Instructions]. Our next question comes from Robbie Marcus of JPMorgan. Please proceed with your question.
Great. Thanks for taking the question. Congrats on a nice quarter. Maybe, to start, you know, this is the third quarter in a row by my math, where we're seeing a really nice tick-up in utilization in lens per LDD in the quarter. I think starting in the fourth quarter and now first and second, it's a pretty significant step up. So maybe just speak to some of the trends you're seeing.
How broad-based is this across the portfolio? Is it driven by a top percentage or is it more wholesome from top to bottom across users? And then, I'll throw my second question in as well. You've had another quarter of really nice LDD placement. The installed base is now over 500. How are you thinking about where you stand in terms of penetration of LDDs versus the, broader, potential base? And is future growth going to be coming more from LAL uptake or LDD placements? Thanks a lot.
Thank you, Robbie. I'll start, and Shelly can add in anything. So, with respect to utilization, generally, we think the increase in utilization has been broad-based. And some of that is attributable to existing customers who have continued to increase their utilization as -- as they've seen the benefits of the technology as more doctors in the practice have access to the infrastructure that has already been established in those practices.
And then also with new customers, both because the characteristics of the light adjustable lens are more broadly known. And so, doctors are more confident in starting with more of a commitment to the technology, starting with larger volumes. And then, of course, our team, which consists both of our sales team as well as our clinical trainers. As we have learned over the last several years how to give practices the information for them to start more efficiently and to expand more efficiently. So, I think all of those have been factors in the growth of LAL utilization, and we would anticipate that those factors would continue -- anything to add there, Shelly?
No.
With respect to LDD penetration, as you noted, we're above 500 now. We still think that's a fraction of the overall possibility in the U.S. There are several thousand practices that do cataract surgery. And we're still in a minority of those. So, we still see room for growth on the LDT side as well.
Yes, I would just add to clarify a little bit. One of the things that's been nice about our LDD sales as well is that we've had good discipline in terms of pricing. That the pricing and ASP for the LDD has remained -- changes are very narrow. And then just to clarify on what Ron said in terms of penetration, there are about 10,000 surgeons in the U.S. today who do cataract surgery. We believe a few thousand, 2,000 to 3,000 to the majority, maybe 70% of the total number.
But we don't believe our total market is limited to those high-volume practices. Because, in fact, as we get more mature, obviously, today, we're fishing where the fish are, but it also offers an opportunity for other surgeons to provide premium IOL, specifically the LAL to their patients with superior results and allow them to get in the market. Anything else, Ron?
No. Any follow-up, Robby?
No, you answered it all. I appreciate taking the question. Thanks a lot.
[Operator Instructions]. Our next question comes from Steve Lichtman of Oppenheimer & Co. please proceed with your question.
Thank you, everyone. Beyond the top line, the other standout looked to be on the gross margin side. So, A couple of questions there. One, what's driving the underlying gross margin benefit? Is it just a mix? Or is there something else afoot? And then secondly, Shelley, can you level set us on where you think we should be exiting the fourth quarter with a lower-cost LDD system in place?
Okay. Thank you, Steve. Yes, the gross margin has really been driven by a few things. One is, of course, mix, right, with the LAL substantially more profitable at the margin level, than the LDD and that is something we see as a continuing trend. Costs have also gone down as we -- we've increased the amount of production we have in the LAL as well.
We do expect to see some nice margin expansion in the fourth quarter, but not much in the third relative to what we achieved in the first and second quarter. Due to the fact that our reconfigured LDD will bear a higher gross margin, and we think that will have benefits. So, we should see some differential between the third and the fourth quarters based upon not only mix but as well as the introduction of our reconfigured LDD.
Great. Thanks. And then just my follow-up, I guess, on the LDD number, real nice sequential increase here and above our expectations. Can you talk to ASCRS and how coming out of that any tailwinds that you saw coming out of that conference where you did have a pretty big presence? And is that part of what we're seeing here in this LDD number? Thanks.
I agree. We had a very strong ASCRS, and certainly, that has helped us in Q2. I think it's generally consistent with increasing awareness about the light adjustable lens and that awareness drives interest on the parts of practices. So, we see that as a trend that has grown sequentially, and we would hope that would continue to grow.
Thanks, Ron. Thanks, Shelley.
[Operator Instructions]. Our next question comes from Ryan Zimmerman of BTIG. Please proceed with your question.
Hi, good afternoon. And congrats on a nice quarter. I wanted to ask just a couple of questions, Ron, more of a big picture question first. But as you've seen the uptake in the market here, I think when we talked earlier this quarter, it always feels like your aspirations are expanding, your aperture is widening. And just as you see such good adoption, does it change kind of how you view your commercial strategy in terms of not just the U.S. market, but I guess the question kind of hints that aspirations beyond the U.S., Canada, maybe Mexico or some of the clinical trial cases were done -- and what the opportunity may be internationally and if and when we could see that?
So, as you know, Ryan, ophthalmology is really an international field. But the U.S. traditionally has led in terms of especially in terms of the private pay markets. And so, we're focused on fully developing the U.S. market initially and we're -- that is our primary focus. But we do see significant opportunities outside the U.S. as well. And we'll -- as we have started in Canada, we'll continue to develop those with time.
I think from specifically to you because the CE mark and kind of their the disarray relative to approvals. And so that does push off any kind of European opportunity for us. But we don't think that, that's something we would have pulled the trigger on anyway. Given the opportunity in the U.S.
Okay. I appreciate that incremental color Shelly. And then the second question, one of the large peers in the ophthalmic market reported earlier this earnings season said the health of the premium market has been weak. Since the second quarter in a row, they've said that, yet you continue to put up kind of, I think, really good results. And I'm curious if what your view is of the health of cataract market, given some of the commentary we've seen from some of your larger competitors?
Well, overall, the cataract market continues to grow driven by demographics. And then within the overall cataract market, the premium market is still the main opportunity for practices to grow their revenue -- relative to continued reductions in reimbursement that they receive. -- for cataract surgery and other reimbursed services. So, we see the premium market as being a primary engine for growth in ophthalmology. And as you noted, we have seen our numbers continue to grow.
[Operator Instructions]. Our next question comes from Larry Biegelsen of Wells Fargo. Please proceed with your question.
This is Charles on for Larry. Can you hear me okay?
Yes.
First, congrats on the nice quarter. I wanted to follow up a little bit -- so on your newer lower-cost LDD, that was approved at the start of the year. Can you just refresh us give an update where you guys are at preparing for the launch and building inventory? Last year, it sounded like second half Second half launch. Is that going to be a phased approach? And is there going to be any kind of limit by inventory availability there to talk about? Thanks.
Thank you, Charles. So, as you noted, the reconfigured LDD was approved earlier in the year. It has the same functionality as our current LDD primarily has -- will have its impact on the margin. And as Shelly noted, we're anticipating that to be primarily towards the end of the year. So that has really been our plan for the year, and I don't see many changes there.
To your question is supply chain. Supply chain is still tough, but it's continuing to improve. And one of our strategy is not to introduce the reconfigured LDD until we're certain that we have the finished goods and stock as well as the supply chain has stabilized. And so that is part of our strategy and ensuring that we have full availability for our customers.
Okay, great. Thank you.
[Operator Instructions]. Our next question comes from Craig Bijou of BofA Securities. Please proceed with your question.
Good afternoon. Sorry about earlier. I guess I missed my initial slot. But thank to guess -- I had two questions on the competition. And I wanted to kind of see what you're seeing on the field level or the ground level and what you're hearing from docs anecdotally, I believe -- and it's a bit of a follow-up on the question that was asked before, but -- is it truly patient awareness? Is it the patient satisfaction, the results that the doctor has seen? Is it the ability to potentially price at a premium to other competitive premium IOLs?
And then the second competition question is just anything that you guys know of or have heard or kind of worries you about some of the bigger players and the development of new lenses there.
So, I think all the things that you mentioned, Craig, are in play. Certainly, the awareness of the quality of the results that patients and doctors can obtain with the light-adjustable lens is an important factor. Once the system becomes available to doctors, then that allows them to offer it to more patients, more doctors in the practice.
So, I think all of these things are in play. -- and the ability to have a really strong ROI is obviously a factor as well. And doctors are pricing the technology at a level commensurate with its -- the quality of the results that it produces. So, all of those are important to growth.
With respect to competition, again, the only -- we have the same visibility of the competition that everybody else does as far as we can tell, we don't see anything on the horizon even in the near midterm. There are some projects out there, but this is -- it's not an easy task to make a technology that delivers all the aspects of the light adjustable lens, and it remains to be seen whether and when somebody is going to be able to do that.
And then -- even when somebody enters if they do, they'll be entering at a point when we'll already have introduced a whole slew of improvements to the technology in response to market requirements. So, I think it's going to be a tough road for somebody to follow.
Got it. That's helpful. Thanks, Ron. And maybe a quick follow-up for Shelley. On the new LDD and I guess it's part of longer-term peak margins. But I guess my question is about how should we think about where you can bring peak gross margin. And how long does it take you to get to that level?
So, I think you're asking not specifically about the reconfigured LDD -- or are you talking about overall margins in the long run for the company?
Yes, more overall margins, Shelly, I know you have been reluctant to provide some details. So, if you're willing to give detail, I'd love to hear it, but just overall margins for the company.
Yes. And so, with the reconfigured LDD, and I think I've said this before, we expect to be able to stabilize that margin in the 20% to 30% range, and we've been lower than that and hopefully, more towards the high end as we -- because we've got good volume in that product as well.
Overall, really, if we think out long term, there's a big market for LDD sales, but typical of razor, razor blade companies, in the long run, we would expect probably 90% of our revenue to come from the LAL, and that is very price stable, has been so far because of the value it offers. And I would expect long range will be in the mid-80% gross margin level, maybe even as high as 90%, but that remains to be seen.
[Operator Instructions]. Our next question comes from David Saxon of Needham & Co. Please proceed with your question.
Yes. Hi, Ron. Hi, Shelley. Thanks for taking my question. Congrats on! the quarter. Maybe to follow-up to one of Craig's questions. It's been two years since you've been public. You've been a little further along in the launch. So, I wanted to ask, are you seeing -- hearing the same areas of pushback from prospective docs as you were a few years ago? Or has the awareness and interest been established? And it's just more of a question of getting out and engaging with the docs and placing LDDs -- and also, any color on kind of how the sales cycle has changed?
Yes. Thank you, David. I think the same general interactions are going on. I think we have obviously, a larger and more experienced commercial team, and we have more experience that we can point to and that we can refer new practices or practices looking at our technology too so that they can get information not only from us, but from other customers that might be more like them.
So, for example, we're -- unlike other intraocular lenses, we have a piece of capital equipment. And that obviously has a cost to it. But over the last several years, we've established that the ROI for that piece of capital is pretty quick. Six months to nine months on average and can be quite faster.
And so that makes new practices coming on board more comfortable but they still need to go through their own financial analysis. And so, it's both Shelly and I have been in similar business models before and I would say it never gets easy. But we've seen -- I think we have more answers for potential customers.
Got it. Maybe a follow-up for Shelly. Just on the operating expense guidance. I think it implies around 33% growth in the back half versus 20% growth we saw in the first half. So, what's driving that? What investments are you making -- anything there would be helpful.
Thank you so much. Of course, I did mention the stock expenses as well as the audit fees associated with stock. You get most of that right at the end of the year. And also, for the back-end year, we add clinical applications personnel in pace with our LDD sales. We had a few account managers and other people as we need to expand our marketing -- and of course, by the third and fourth quarter, you get that full impact of those additions as well during the year. And that's what really drives the OpEx up as you exit the year.
Great. Thank you.
I'm showing no further questions at this time, and I would now like to turn the conference back to Ron Kurtz for closing remarks.
Well, thank you all for your time and attention today. As always, we appreciate your interest in RxSight and look forward to updating you on our progress in future quarters. Goodbye.
This concludes today's conference call. Thank you for participating. You may now disconnect.