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

I think it's probably time to kick off. Welcome. Thanks, everyone, for coming to the Morgan Stanley Healthcare Conference. Disclosures, morganstanley.com/researchdisclosures. Very excited. But what's much more excited for me is to have Ron and Shelley here from RxSight as CEO and CFO of spectrum. So thank you so much for joining guys.

Thank you for having us.

I mean why don't we start high level with the market in total maybe like what do you think you're seeing in the total -- not specific for you but the total cataract market in terms of patient volumes and how does consumer spend? Any big picture commentary would be great to start with.

So as I think everybody knows, the cataract market overall is the largest surgical market as a U.S.-focused company. We're focused on the U.S. portion of that market. And at the beginning of this year, we saw something that we hadn't seen for quite a while, which was an actual decrease in the overall cataract surgeries. Even though the demographic trends would suggest that they should continue to grow kind of in the low single-digit numbers. I think it's still why that happened is still open to interpretation. What we -- when you extend that over to premium, premium has been a little bit more stable. And so I think that one interpretation would be that the demographic of cataract surgery, which is generally 60 and above, it was -- some portion of that was impacted either in a real sense by the macro environment or psychologically perhaps by the change in administration that occurred during that time frame. But in any case, we saw that downturn. Some of the -- we also saw a drop in our volumes in Q1. And when we asked our doctors about that. They did report some patients either putting off surgery or trading down from premium to monofocal. And so I think that, that was definitely an effect continuing through Q2. But as we -- as you've seen and as we've heard some of the bigger players in the market comment that maybe there's some returning to what would be a normal trend from here on out. Do you want to add anything?

No.

Yes. I mean if you've given me in Q1, $1 million to the guess, I would never have guessed it would be monofocal but was soft originally rather than premium. It was a bit of -- at least to me, that was a bit of a surprise.

I think that -- I mean, of course, it's always hard to come up with a reason why you can always come up with a reason and explain something. It's not -- doesn't tell you that it's right. But in the U.S. when you have a monofocal procedure, those patients are still paying some money out of pocket, about 20%, which turns out to be $400, $500. And for a large percentage of the population, that's a meaningful amount. So I think that you certainly -- and that would be consistent with potentially premium being less affected since that demographic is less affected. And certainly, over the last year or more, we've seen the LASIK market very significantly impacted by the macro headwinds. That, of course, is a younger demographic, which is much more susceptible to those effects. But it doesn't mean that the cataract or premium markets are impenetrable. They can also be affected especially when you have that level of impact in the other demographics.

I never know how exactly accurate a picture of the marketcope data provides. But we saw in Q2, we saw monofocal toric pick way back up again and premium was actually okay. I mean, to your mind, that monofocal toric, is that people on premium downgrading? Or is that just the delayed procedures from Q1 in monofocal coming into Q2? I know it's a very specific question, but...

I think -- of course, we love the folks at Marcoscope. I think they do a good job. But it's very difficult to make quarter-to-quarter and sometimes we see those numbers change over time. So I think I'd be cautious. But I think if I were to step back, one thing that we've seen over a longer period of time is that toric has been a strong offering. And I think that, that is consistent with other long-term trends in premium, which have been towards higher quality of vision. So a toric lens, unlike a multifocal lens is -- provides the same overall level of quality of vision, lack of dysphotopsia lack of glare and halo than a traditional monofocal. And so there's very little downside. There's not that much upside, but there's very little downside. And that's been an area that physicians have gravitated too. And I would say it mirrors their interest in LAL, which also obviously has very high quality. And it also mirrors the effects in the multifocal world, which have moved from high levels of multifocality, which are associated with higher levels of visual phenomenon, negative visual phenomenon towards lower levels of multifocality. And we've seen that even in the most recent iterations of multifocal lenses where they've -- all the 3 major players have all moved in that direction again. And I think that, that just speaks to the level of importance that quality of vision plays for patients especially as cataract surgery moves into a younger demographic as patients increasingly decide to have cataract surgery. At an earlier age, we've seen that over the last 10 years, drop about 3 or 4 years is the mean age of cataract surgery. And those patients are going to be more susceptible to quality of vision issues because they're starting with less of a cataract and therefore, more quality of vision. So they will notice a drop in quality more.

That's really interesting. I mean the other dynamic that's been happening for a long time, but it's happening again in '26 is Medicare's relentless battering of monofocal reimbursement to the point where the nerdy forms that I follow, the docs are just like this is getting ridiculous. Has that -- do you think that has encouraged people to switch a little bit -- have that little extra conversation of getting their patients into toric, but also for you guys because you get a decent amount of patients who would have been monofocal slipping into an LAL. How helpful is it that, that -- the economics of that barometer just dropped down even more?

I mean I think it's an absolute driver of premium practices simply cannot survive. Physicians cannot maintain their income levels unless they're converting patients. And the good thing about, especially, obviously, we feel with our technology is they're delivering such a better outcome. A toric lens does deliver a better outcome for patients who have moderate to higher levels of astigmatism. But that's a relatively small percentage of the market. The percentage -- the bulk of patients who are having a monofocal lens are not going to be significantly impacted whereas by offering the LAL, which offers not only a higher degree of distance vision uncorrected that's significantly superior than what you can achieve with a monofocal lens but it also allows the patient and the doctor to titrate the vision in both eyes process called blended vision which is still the most common and we believe the most efficacious way to address presbyopia.

When you're thinking about earlier this year, when we discussed some of the macro headwinds and that side of things, do you think -- it sounds from the commentary we're towards the back end of that, maybe that there were fears around tariffs that were scaring people, but the confidence has returned. Is that something that you feel in the base business? Do you feel like the consumer is getting a little less skittish?

I don't know that we -- I don't think we can per se comment on the entire market. We follow obviously what the big players like Alcon and -- say, and that certainly seems to be their sentiment. But as a person who's in that age demographic, I mean, certainly, when you're faced with a lot of change, it's natural to kind of pull back. And then over time, people are adaptable, and they will normalize situations. And so I think we're probably in that phase.

One of the other trends that's happened in this industry for a while has been like private equity has been hoovering up a lot of clinics pretty aggressively over time. Again, as a customer base, they're pretty heavily incentivized towards patient mix. Do you see a discernible difference in the customers that you have that are private equity backed and the proportion of premium lenses there versus not? When they take over a practice, do you find that they're pushing that mix in a favor that's useful for you? Or is it just agnostic between?

So ophthalmology premium is -- I haven't looked specifically at that. Maybe, Shelley, you have, but the premium -- I'm sorry, the private equity represents roughly 20% or 30% of ophthalmic practices. They -- the traditional argument for private equity where they can ring out costs and make things more efficient, it's hard to make that argument in an ophthalmic practice. I always say that there's nothing more efficient than a single -- an ophthalmologist run practice because they don't have a salary, they're doing their own management. It's very hard to be more efficient. And I think that that's what the private equity firms have identified is that for them to really improve profitability at these practices, they have to do the things that make sense like converting as many patients as possible to premium. And I think increasingly, those private equity-driven practices recognize that the LAL is a great way to do that because it's a way to deemphasize the individual surgeon, although the surgeon is obviously still very important, but to disseminate the responsibility for that premium growth to a wider group of people, not only the surgeon but also their optometric colleagues, the technicians and refractive surgery and refractive counselors within a practice which you can argue that a private equity run practice is perhaps more focused on than not.

That makes sense. The -- one of the things that came up in the Q2 was the newer docs on the platform for the LAL, the utilization curves were looking a little bit different from some of the original docs. Maybe to sort of level set the room, it would be helpful if you could kind of give people a sense of what's going on there, what the pathway forward is and how that looks to you guys?

Maybe do you want to give the overall picture?

Yes. And we've talked about this before. Even though this is an output number, what we saw among our classes of '23, '22 and then '21 and prior, while they are very small and as a class. Each they grew at about the same rate, '23 faster than the earlier classes that kind of made sense to us. And then what we saw in the class of '24, but we saw it more in the first and second quarters of '25 because you have to have enough time and grade to really see a trend. And what we saw in that trend is one they weren't adopting as quickly, not nearly as quickly as, say, the Class of '23, which was pretty good. And if you think about it, the other cohorts kind of flattened out with all the things Ronan has talked about, just the macro environment and then they started to drift down. And if you think about our procedure growth, the class or the number of LALs per LDD, we sold 305 LDDs in 2024. So that's approaching 1/3 of our installed base. So they have an outsized impact on the business overall. And I'll let Ron talk about this, but we think they're a slightly different customer, right? And we did so many installs in 2024. If you look at what we had and where we're going, and Rob can certainly talk about that, the focus of the company was selling LDDs. And we had an LDD sales force and we had an LAL sales force, right? And they reported under the same structure. And then we have a clinical group, which is about half, almost half of the 200 people we have that are field-facing -- and they're focused on getting new customers up and running, right? And from a clinical viewpoint, training in the OR, everybody's got a little bit different injector. And then training the practice, the ODs and the doctors on use of the LDD, right, and proctoring first cases, that focus was really on the newer customers. And what we're seeing is the newer customers needed something different, a lot more from our LAL salespeople in terms of practice conversion and practice flow and more from our clinical people, right? And so even though that was our focus, getting the new customers up, what we have decided that -- and we'll talk about that hopefully in another bit is by combining our LAL salespeople with the exact same accounts and territories as our clinical people in our test cases that we ran in the first and second quarter, what we did see is we could grow accounts by doing that. And of course, we've made the entire change in the organization in July to do that. And we think it's a positive move, but it will take some time for that -- hence, our guidance as well. Do you want to add to that, Ron?

No. And I think it applies not only to our more recent customers, but it also applies to historical customers as well because it's been 4 or 5 years we -- that we've that they've had our system. And there's always change that goes on in a practice. Doctors retire, staff leave. They need to be newly trained. And as Shelley mentioned, we were certainly over the last few years, definitely got into a mode of install, onboard, go to the next one, install, onboard, go to the next one. And now we certainly recognize the need to make sure that, that practice is well versed and continues to be supported as they continue to adopt the technology, which occurs over a longer period of time.

To your point, I remember when we were talking about the LDD originally and the whole reason you don't lease it, you want emotional buy-in from having broader system. To your point, if you then have churn in that customer, the new person may not have that emotional buy-in and so needs the clinical support to kind of -- is that what we're talking about?

Absolutely. And the #1 thing that we do is to demonstrate and optimize the clinical value of the product. And that requires -- it's not a difficult skill set. We're not teaching them how to do a different surgery, but it is a clinical expertise, and it's an expertise that's distributed throughout the practice. It's a -- the postoperative adjustments or postoperative optimization of vision, is not something that people did in cataract surgery. It didn't exist 5 years ago. And so we -- there is an expertise that's associated with that. And as we -- many of our initial customers came from the refractive surgery world, they picked that up very quickly. But as their practice develops as we got into new practices, there are different levels of preexisting knowledge. And we've learned a lot on how to optimize the process, make it efficient, make it more successful consistently. And that's something that they're not huge clinical techniques, but there are pearls of wisdom that have been picked up over the last 4 or 5 years that needed to be systematized and brought to the attention of a larger customer base.

How should we think about, therefore, the incremental investment that goes into supporting those customers? Is it just like -- is it a question of allocating to appoint the reps more effectively? Or do you think you need per account on average, if you like, a broader sales force?

Well, we certainly add to what I would call our clinical -- our customer-facing team as our installed base grows, and that will continue. So -- now what that number -- what those metrics ultimately turn out to be. Obviously, as you continue to penetrate the market, a lot of the skills that I've been talking about become part of the just broader clinical expertise of the field. But while we're still growing, which we still have this very significant potential for, we'll continue to add. I don't know if you want to add...

Yes, we're always adding clinical people. I think the organization is different as well. And if you go back to the beginning of time, we had to sell LDDs. And so we had those sales forces combined because the focus was on selling LDDs, and we were very successful at it. Now LALs are a larger percentage of our revenue by quite a bit. And so it's a change in structure and it's more nuanced, but it also allows for better closed feedback system because you've got your salespeople for LAL matched with a clinical force that's the same, right? They're not being pulled into other territories or to other accounts. And so you're going to be able to see, but we're leaving time in our guidance for that to happen through 2025. What programs and tactics were best for each customer. And how do we select those customers that we're going to go after first, right? Because we're not going to hit all 1,100-plus accounts this year, right? But I think that we can discern what works best in the structure. for us and learn something throughout 2025 about what's going to be most effective to grow LAL growth. But also since LDD absolute number of installs fell in the second quarter, that's related to their peers, right? So they're not going to go get a reference from somebody who was installed 3 or 4 years ago. They're going to go to a reference that was installed last year and say, how are your patients doing clinically? How are you doing economically? And we think that as those customers did not ramp as quickly, it did not give potential customers the same level of confidence to invest in the LDD because you can always wait, right? And so we think it's a circular argument on LDD sales.

Word of mouth is less.

Right. And so you need to get our LAL sales up in absolute numbers, that's what I look at, some people look at the number of LAL per LDD. And then going out into the future, and we've said it's nominal this year and probably pretty nominal next year is international because we'll we've gotten a number of approvals this year as well. And that will give us an expansion base, but we're also careful about providing that guidance because just like the U.S. people want to see their KOLs perform well. And of course, we've got a lot of clinical data here in the U.S., but they want to see their own KOLs get the same results as both clinically and economically.

Makes sense.

But that's another growth factor for us out in the future.

I definitely want to hit on that. I mean as I sat here, I'm looking at the EKG little symbol behind you guys on the screen. And it sort of reminds me of the premium IOL market because a lot of the time, the new shiny exciting keys come in and people trial it and then they flip back and things like that. How -- for you guys, how disruptive or not do you think it's been having -- there was Odyssey and then there's Endy and then BVIs got fine. like all these little different extra distractions, whereas I think there was a window where it was apart from maybe Symphony, there's a window where it was really just PanOptix and Vivity, if you know what I mean, it was quite -- there was just less noise. Is that noise really affecting you? Or am I on the wrong track?

No. I think that's a correct observation. There was this kind of tax alone for the last 4 or 5 years, which was -- which kind of tamped down competition. But as B&L and J&J primarily in the U.S., have introduced competitive products. And I think now the products are quite similar. They've all kind of gone in that same direction that I mentioned earlier. And that has made the overall space more competitive, which at the -- it's mainly between those players and you see share changes between those players primarily, but it has an impact on us. About 25%, 30% of our patients come from multifocal patients who otherwise would have gotten multifocal IOLs. And so if you have more competition in that space, there's going to be more competition with us as well. But I think that's -- that runs a course. And we'll see how things -- you can only incentivize things for so long. At some point, you have to make money.

Yes. People try stuff and then eject after a while. I do want to hit on OUS because obviously, you guys are an extremely U.S.-focused business. I know you've done work on Canada and that side of things. But how are you thinking about that kind of midterm, the opportunity set, the investment? Because to your point, there needs to be some support. People -- you want them to have a good experience with that word of mouth. Conceptually, I think I'm sure that they understand that the lens, you get a lot of the pulse feedback in the U.S. that probably helps quite a bit. But how do you see that -- those markets being different? Where would you focus? And what -- how you see that opportunity long term?

So we're fortunate again that we're following in the path of premium overall. And about 80% of premium lenses are OUS primarily -- the U.S. is the largest market, but 4 out of 5 lenses that are premium are outside the U.S., primarily in about 20 countries, the major economies of Europe and Asia. And so that's where we have focused our resources for regulatory approval, as Shelley mentioned, we had to go through the EU MDR process, which we completed and have started to early commercialization in Europe. We similarly got our approval in South Korea in the spring and have started there as well. Some of the Southeast Asian countries, the Asian countries where we have -- where there's a relatively quick approval. And then we're in the process in the other major economies. So I think they're a big opportunity. It's been the fastest-growing area of premium for other companies. And ophthalmology ultimately is a global field. So I can walk into an ophthalmology office or an OR anywhere in the world, anywhere in the developed world, and it's essentially very similar. But as Shelley said, the -- it's important for each country to have success. And we will certainly leverage the learnings that we've had in the U.S. to support customers and develop the clinical data in those markets and develop the clinical expertise, both amongst physicians as well as our own staff so that, that can be done successfully and sustainably.

I remember when premium IOLs was trialed in Europe first because the CE mark was so easy before they put NTR and blew it all up for themselves. That actually created a very fragmented market in some ways in Europe. Is that a little bit easier to then tackle? I know the countries are fragmented, but even within them, the positioning is rather than the kind of initial monolith on the U.S. side where you had one peer that had like 70%, 80% of the share. I'm just -- that's obviously just the premium side. Is it a little easier when it's fragmented on the competition or difference?

I don't think it's easier. It will be different. But I think that Europe in particular, but they have a lot more choices of different IOLs. So it's we're definitely a differentiated product, but there's a lot more just other products out there. So I think that, that will be -- we'll need to make that case as we did in the U.S., focusing on KOLs in an individual market, building up a set of data that they can reference both economically and clinically. And I think that we're well positioned to do that.

Is the OUS is a little less litigious to make a stereotype. Is there a difference in like risk tolerance of dysphotopsia U.S. versus OUS or ultimately, you just don't ever want your patient to be unhappy and so it doesn't really make a difference?

I think that globally, we've seen different levels of success of multifocal lenses and the same -- but the same trends, there's been this movement to less multifocality actually led OUS. And so I think that, that bodes well for us. But again, we're going to need to establish ourselves in each market.

Shelley, you have an unenviable job of providing guidance in a challenging market, challenging volatile, which makes things tricky. When we were updating our numbers, I remember looking at '26, it to be like, I have no idea what to put in here I want to do. That's not your f, have no idea. Do you guys feel like you -- we should think about this business as base IOL market growth and then Rx can continue to take share and work on greenfield OUS and should be structurally above that, maybe to be specific in terms of LALs. Is that a fair just starting benchmark to think about the business, just even just conceptually, I know you don't want to guide '26.

I think that when we look at market share up until last quarter, where we stayed about equal 10%, 11%. If you look at the premium market, defined by the PC-IOLs, the toric IOLs and ourselves, right? And toric, as Ron mentioned, has been 50% or greater of that overall premium market. And they've done a good job in studying it. If you pull us out, the market has been flat to a little bit shrinking, right? So we've been the growth factor in the market. And we think in the long term, we should be, right, because the -- there's an opportunity for doctors who are not doing premium or not a lot of premium to get into the market and be able to say to their patients, we have a reliable way of getting you to the vision I'm promising you rather than predicting it, right? And then your choice, if you don't get what you want is to wear glasses in some instances, the patients opt for another procedure, which is LASIK, but that doctor also has to have LASIK in the practice in order to do that. So we think that the market -- we're a grower in the market because 40% of the patients come from patients who would have otherwise gotten a monofocal. So we think that we've got some wind at our back, right? The Medicare provides the wind at the back for all of us, right, unfortunately. And for doctors, they really do have to go to a patient pay procedure. And LASIK, as Ron mentioned, has just plummeted, right? And that's the demographic and the fact that you can put it off pretty much forever, right? We've seen some effect, but not as much. But demographics work for us. That's definitely a wind in our back as well. And just the fact that people get 92%, 94% of patients get to 20/20 at distance and comparable at near. Well, that's a tremendous opportunity for the company and also doctors make more money with that, and they can more reliably sell to their patients and also sell quality of vision. So we think ultimately, the market should grow. And ultimately, we should be a factor in that growth.

40 years on, and I'm still dodging LASIK. So see if I can keep it going. Ron, Shelley, thank you so much. Perfect timing. Really appreciate it.

Thank you so much.

Thank you.