RxSight, Inc. (RXST) Earnings Call Transcript & Summary

Good morning, everyone. I'm Robbie Marcus, the med tech analyst at JPMorgan. Really happy to introduce our next speaker, CEO of RxSight, Ron Kurtz. Ron will do a presentation followed by some Q&A with me and Shelley, the CFO. Ron?

Thank you, Robbie, and good morning, everyone. Thanks for the opportunity to present on RxSight. For the purposes of this talk, I'll be using the term light adjustable lens or LAL, to include both the LAL and the LAL+ versions of our technology as they share the core properties that we'll be discussing. We believe adjustability represents a paradigm shift in premium cataract surgery, providing a better medicine and better business approach and thereby driving a high-growth, high-margin, durable revenue model. For background, modern cataract surgery with an intraocular lens or IOL was introduced about 75 years ago and really revolutionized visual outcomes after cataract surgery in which the cloudy cataract is removed and replaced with a plastic lens, the focusing power of which has been determined using preoperative diagnostics and formula. Owing to its clinical success, standard cataract surgery is the most common procedure in ophthalmology and one of the most common surgeries overall. However, reimbursement to physicians is already low, approximately $500 in the U.S., including both preoperative and postoperative care and keeps declining further year-over-year. In 2024, there were approximately 32 million total cataract procedures with about 5 million in the U.S., with most patients using glasses after surgery to correct residual refractive errors, which if you've ever looked at a prescription for glasses, includes 3 components: spherical, astigmatism or cylinder and presbyopia corrections. In contrast, premium cataract surgery with fixed IOLs was introduced about 20 years ago with the goal of delivering better vision without glasses. Since insurance does not pay for this benefit, doctors can charge patients directly at market rates, resulting in about 3 to 10x more revenue than standard reimbursed cataract surgery. For this reason, premium cataract surgery has become a significant focus for both practitioners and industry with about 5 million global procedures annually, including about 1 million in the U.S. And this has been despite the clinical limitations of fixed premium IOLs, including that many patients still require glasses for best vision and some patients experience side effects such as glare, halo and loss of contrast vision, particularly at night. We believe the light adjustable lens enables a better approach, namely postoperative customization of the LAL for optimized vision without glasses. The process starts just like standard cataract surgery with the doctor choosing the approximate spherical power of the LAL and removing and replacing the cataractous lens. Beginning about 3 to 4 weeks after surgery, patients return for a standard refraction, but instead of giving the patient a prescription for glasses, that information is used to program the light delivery device or LDD, which we also make and sell and which can adjust the focusing power of the LAL in the patient's eye using UV light. Patients can then experience their vision -- their new vision over the next few days to a week. And when they return, they can have either additional refractive adjustments or that prescription can be made permanent with what is called a lock-in treatment. For a golf analogy, a fixed optic IOL restricts you to the T-shot, while the LAL also provides the ability to put the ball into the hole. The ability to adjust the lens after surgery, therefore, delivers an unmatched level of refractive precision. This is data from our recently completed post-approval study, showing that versus other lenses, LAL eyes have about 14x better odds of achieving what one would classify as an optimal visual outcome with very low levels of residual, spherical or astigmatism error. Doctors can use the refractive precision of the LAL along with its depth of focus to efficiently optimize vision bilaterally since the vast majority of patients eventually have cataract surgery in both eyes. As compared to fixed optic IOLs, there is no advantage to waiting to see what the vision in the first eye turns out to be before proceeding with surgery in the second eye. This permits doctors to do surgery in both eyes within a week or so of each other compared to an average of more than a month for other lenses, allowing them to line up the postoperative adjustments in each eye on the same day, thereby making the process twice as efficient while also enabling patients to optimize their binocular vision usually by choosing one eye to be a little bit more distant dominant and one eye to be a little bit more near dominant. The amount of this difference is typically very small, and it is set by the patients themselves. The brain then combines the images from both eyes to provide high-quality vision over a range of distances. There's a growing set of data and clinical consensus supporting the benefits of adjustability. In one of the largest real-world registries of over 3,000 eyes and 100 practices, more than 94% of eyes achieved very high levels of refractive precision, resulting in more than 90% of patients with outstanding binocular outcomes across a range of distances. This combination has led 92% of surveyed doctors to say that the LAL provides the highest quality of vision with more than 8 out of 10 saying that they would select an adjustable lens for their own surgery versus other premium lenses. Just as important as better clinical results is the ability of the LAL to enable a better business solution by boosting practice profitability through enhanced premium IOL adoption. The LAL enables more doctors and practices to participate in the premium segment since it doesn't restrict the procedure to those who can perform LASIK after surgery for patients with residual refractive error. It also enables more patients to choose a premium IOL since many who would not be a good candidate for a multifocal IOL can still choose a premium adjustable lens. In a third-party survey, about 40% of patients receiving an LAL would have otherwise received a non-premium IOL, while about 1/3 of patients would have received a toric or astigmatism-correcting IOL, for which doctors charge about half the price as for the LAL, with the rest coming from presbyopia-correcting IOLs. The combination of patients converting from each of these other lenses to the LAL with the LAL's higher revenue leads to approximately $2,000 in additional revenue per LAL implanted for the practice. This means that average practices can pay for the cost of the light delivery device in about 6 months, after which the additional revenue accrues to their bottom line. Driven by this better medicine and better business paradigm, RxSight has been able to build a track record of success since initial commercialization in 2020. The North American installed base of LDDs is now approaching 1,000 and LAL implantations grew to nearly 100,000 in 2024, thereby accounting for approximately 10% of the total premium procedures performed in the region. Revenue has also increased steadily, driven increasingly by the higher-margin LAL with nearly $140 million in 2024, representing an $8 million increase above our initial guidance for the year. Looking forward to the future of premium cataract surgery with adjustability and assuming that total cataract surgery volumes continue to grow in the low single digits, driven by aging of the population, we project that the premium category can grow from its current 20% to approximately 35% of total procedures, driven by increased patient expectations for vision without glasses, further reductions in insurance reimbursements and, of course, continued growth of adjustable technology. In this scenario, adjustability becomes the standard for premium procedures, accounting for at least 50% of premium IOL implants. To achieve this potential, we plan on continuing to expand access to adjustability by increasing the infrastructure for postoperative light treatments. Over the last several years, we have primarily done this by selling LDDs to a practice, which typically will start by offering light treatments at one of its offices while also serving patients from other locations in the practice, until such time that it becomes clear that the other offices can support their own LDD and generate more overall -- premium revenue overall. Other nearby practices generally pursue a similar approach, but they can now also take advantage of third-party LDD treatment centers, which enable surgeons to simply implant the LAL and outsource the LDD treatment. While this represents a relatively small portion of our current LDD installed base, we anticipate that it can provide additional accessibility for patients while also giving surgeons the opportunity to become acquainted with adjustable technology. Ultimately, some practices may decide to acquire an LDD themselves, while others may continue to simply implant the LAL. A second way we drive adoption is through continued technology and practice innovations. Since our initial FDA approval, we have demonstrated how the RxSight system can advance both via LAL and LDD technologies with over 40 PMA supplements approved for both. LAL examples include ActiveShield, LAL+ and most recently, the addition of low-power LALs. Light treatment innovations include expanded treatment ranges, the development of the compact LDD as well as popularization of light treatments by optometrists and now treatment centers. We expect this pace of advancement to continue for many years to come, with each one giving additional reasons for the next group of doctors and patients to adopt adjustability. Our technical, clinical and business advancements made in North America have also laid the groundwork for bringing the RxSight system to international markets, particularly in Asia and Europe, which together make up most of the global premium IOL procedures. We anticipate initial approvals and select early access opportunities in the first half of 2025, and similar to North America, plan to build out the infrastructure for postoperative light treatment, collaborating with local partners to leverage our experience and technology. In summary, we believe RxSight's adjustable IOL technology is becoming the new global standard for premium cataract surgery, which itself is arguably the most important market in ophthalmology due to its potential to offset progressive cuts in reimbursement with high-margin patient pay revenue. Thank you.

Great. You preannounced on Sunday fourth quarter results and guidance for 2025. Maybe we could start there. Shelley or Ron, maybe walk us through what you saw in the fourth quarter as it relates to, first, the market and the market versus third quarter where there was a seasonal -- sharper seasonality, not just for you, but the entire market in ophthalmology, and then as it relates to LDDs and LALs in fourth quarter.

Yes. I just want to provide a little context for the entire year before we address just fourth quarter. We ended the year with $139.9 million in revenue, which was up 57% from 2023. Our installed base of LDDs increased by 46% and LALs, which grow faster in a razor-razorblade model, increased by 79% during the year. So the whole year was a tremendous success. And as we think about guidance in context to the fourth quarter, during the first half and by the time we hit the third quarter, we had increased our initial guidance by $8 million at the mid of the range and $5 million at the top of the range, and based upon the beats in the first half of the year, that put about $2.5 million into the second half already in terms of our expectations. So we guided approximately $40 million for the fourth quarter. Our numbers were $40.2 million. The Street has it at $40.3 million, so both around and $140 million for the year. So as we move into the fourth quarter, as Ravi (sic) [ Ronald ] said, definitely, there was some more seasonality in the third quarter, a lot more doctors taking vacations as well. I think as we guide and look forward into the fourth quarter, it turned out as expected and also with that implied raise already in those numbers, and that was certainly based upon the strength that we saw in the company in the first half and going into the third and fourth quarters as well. So I think we were very pleased with the fourth quarter, high mark overall, number of LDDs sold were 83, just over 29,000 LALs and of course, very close to at $40.2 million. So high marks for the company overall. I don't think we have any particular industry insight into the fourth quarter versus, let's say, third. Everybody said it was more seasonal in the third quarter, a lot of people on vacation, and in addition to the fact that the largest European show was in Barcelona this year, people did tack on some vacation time as well as people start traveling into Europe, particularly your KOLs and early adopters, which are among our customers. So I don't know what you would add about the fourth quarter, Ron, at all.

No, I would just reiterate, we were very pleased, again, record high numbers for LALs and LDDs.

I agree, I think it was 41% sales growth in the fourth quarter. But we did see historically since the IPO, multiple quarters where you would exceed the guidance expectation. And even in the first half of the year, you beat and you raised more than the beat with in-line sales in third and fourth quarter. So I guess the question is, did something change versus your plan? Or has your guidance philosophy changed? I'm trying to think about 2025. Should we expect much more of the upside in the first half of the year versus the guide if it plays out the same? Or maybe help me understand since it was a pretty in line -- still strong growth, but still in line in the second half.

Yes. As we think about seasonality, last year was different than any I have seen in the 30 years of selling capital equipment with either an implantable or disposable with the first quarter not being -- it's typically seasonally a little bit weaker, whereas the first quarter was quite strong, followed on with the strong second, third and fourth quarters as well, stronger than we originally anticipated at the beginning of the year. So -- and we did see more seasonality in the third quarter, a lot more vacations. As I look forward into this year, I guess, 1 out of 30 years doesn't convince me that seasonality is going to change overall. I would expect it probably will be as we've seen in the past with Q1 seasonally a little weaker quarter, Q2, strong Q3. We're hoping for less seasonality than we saw last year. And then Q4, of course, as it was last year and in previous times, our strongest quarter of the year. I don't think our guidance philosophy has changed. We try and be as realistic as possible. I think that we don't try and game it. We try and give the best estimate that we can of where we see the business is going to be, notwithstanding the fact that each year since we've been public and since we've commercialized, our growth has been stronger and higher adoption than maybe we would say at the beginning of the year where we have a broader range of guidance versus where you get in the fourth quarter when you're around a number. Ron, would you add anything relative to what we're seeing in the business and how you and I talk about guidance?

No, I agree. We want -- we set the same numbers that we -- they're public numbers, both internally and externally. And so we set a realistic but stretch numbers, and we try to overachieve them.

Great. Maybe if we look to 2025, how should we think about the key drivers relative between LDDs and LALs? And any different dynamics as we move into 2025 versus '24 we should be considering?

Do you want to start, Ron, and talk about kind of what we're seeing for the year and what we plan on doing.

Yes. I think it's -- a lot of it is very similar in 2024. We're going to focus both on getting more LDDs out there, so more patients and doctors have access to the technology. We'll continue to drive growth primarily in the North American market. But as we get approvals outside the U.S., those will come as well. And then those, of course, drive overall LALs, but we also have the opportunity to drive LAL growth within our customers. Our goal is to be more than 50%, the predominant premium lens within their practices. We're far from that. So we have a lot of opportunity to continue to grow within our practices. We do that through a number of ways. A lot of it is still through education. Our field force is primarily clinically focused. And we're -- we've introduced a new paradigm in ophthalmology. There was no such thing as postoperative light treatments of lenses until 4 years ago. And we've got to bring that clinical knowledge base and that practice knowledge base to new and existing customers as we continue to refine them. So we are doing that both on the clinical side as well as on the marketing side. And one of the items that we mentioned that we would expand our spending on was in sales and marketing for those efforts, both in our ophthalmic practices, but increasingly towards the optometric community, where 50,000 optometrists are the primary eye care providers for most patients in the U.S. The other way I mentioned is technology improvements. We've continued to drive customer-driven technology requests. We don't talk about them a lot in advance. We deliver them in the most efficient manner that we can, which means keeping flexibility within the regulatory bodies. But we're constantly bringing new features and benefits to our customers. They expect that. That's part of their -- that's something that we've established as a track record in our other companies as well. And it's a, I think, a comfort for them to know that the technology that they're buying, which is already at a super high level, is only going to get better.

I know you're launched in Canada. You have plans to enter Europe this year. How should we think about what's embedded for U.S. versus outside U.S. revenue in the guidance range?

Yes, that's a good question. We have said that we would expect to get some regulatory approvals in the first half of this year. I think that's the first time we've been that specific because regulatory approvals OUS have been quite extended, primarily in Europe due to the conversion to the MDD and the backlog at the notified bodies as well. We have put in some OUS revenue in addition to Canada in our projections, but it's very modest because this will be a year of getting approvals and getting started in selected countries as we get those approvals. So it's very definitely still a U.S. story. We would see more momentum commercially in '26 and '27 on the international. We have spending, obviously, in OpEx, but again, consistent with the revenue for international expansion as well. But we're excited about the opportunity, the premium market outside the U.S. is about 10% of the total cataract surgery versus in the U.S., about 20%, but it's growing rapidly, and it's still for the premium market, about 80% of the market, but the U.S. is the largest single market. And when we think about our overall goal in terms of penetration, our goal is to become the standard, which means 50% or more of premium procedures. And we also have that same goal for OUS in the largest countries where we would start and expand and where the most procedures are done as well. So we've really got a long runway as we think about both the U.S. and international in our overall strategy and guidance for '25.

Shelley, if I look at your guidance, modest to me is plus or minus $5 million. Is that a good place to be in?

We're not being that specific. That might be a bit high.

Okay.

Okay.