LENSAR(LNSR) - 2021 Q4 - Annual Report

Part I Business LENSAR is a commercial-stage medical device company specializing in femtosecond laser systems for cataract surgery and developing the integrated ALLY system - LENSAR is a commercial-stage medical device company focused on femtosecond laser systems for cataract treatment and astigmatism management[26] - The company is developing the ALLY Adaptive Cataract Treatment System, designed to combine a femtosecond laser and a phacoemulsification system into a single, integrated unit. A 510(k) submission for the laser component has been accepted by the FDA, with an expected commercial launch in the second half of 2022, followed by a separate submission for the phacoemulsification features[26][42] - The global market for cataract/refractive lens exchange procedures is projected to grow from 30 million in 2021 to 37 million in 2026. In the U.S., procedures are expected to increase from 4.6 million to 5.3 million in the same period[27] - As of December 31, 2021, the company had approximately 255 systems installed in 16 countries, with 40% in the U.S. Two customers accounted for 16% and 13% of 2021 revenue[57] - The company manufactures its systems in Orlando, Florida, and relies on some single-source suppliers for components. It has a minimum purchase obligation of approximately $4.6 million as of December 31, 2021[59] - As of December 31, 2021, LENSAR owned approximately 115 issued patents and 97 pending patent applications globally, with patents expected to expire between 2026 and 2038[53][62] Risk Factors The company faces significant risks including operating losses, market acceptance, supply chain disruptions, intense competition, and regulatory compliance challenges - The company has a history of operating losses, with net losses of $19.6 million in 2021 and $19.8 million in 2020, and an accumulated deficit of $77.6 million as of December 31, 2021. Profitability is not assured[120] - Long-term growth is highly dependent on obtaining regulatory clearance for the ALLY system. The company plans a two-step 510(k) submission process, and failure to get clearance for either the laser or phacoemulsification features could impact future revenue[125] - The COVID-19 pandemic has adversely impacted the business by reducing elective surgeries, disrupting supply chains, and increasing costs. These impacts are expected to continue[129][131] - The company relies on some single-source suppliers for components and a third party for the phacoemulsification component of ALLY. Supply chain disruptions, such as the global semiconductor shortage, could delay manufacturing and harm operating results[144] - The company faces intense competition from large, well-established companies like Alcon, Johnson & Johnson, and Bausch + Lomb, which have greater resources and more established products[146][147] - The company is subject to extensive government regulation in the U.S. (FDA) and abroad. Failure to comply with regulations like the FDA's Quality System Regulation (QSR) could result in enforcement actions, recalls, or production shutdowns[193][207] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[319] Properties The company leases approximately 35,000 square feet for its corporate headquarters and manufacturing in Orlando, Florida, under a lease expiring in November 2027 - The company leases approximately 35,000 square feet for its corporate headquarters and manufacturing in Orlando, Florida[320] - The current lease expires in November 2027 and includes a five-year renewal option[320] Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not party to any material legal proceedings[321] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[323] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'LNSR', with no anticipated cash dividends in the foreseeable future - Common stock is traded on Nasdaq under the symbol 'LNSR'[326] - As of January 31, 2022, there were approximately 118 holders of record of the common stock[326] - The company does not anticipate paying any cash dividends in the foreseeable future[328] Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenue increased 30.6% in 2021 to $34.5 million, driven by procedure volume recovery, while net loss remained stable and R&D expenses rose Financial Performance (2021 vs. 2020) | (In thousands) | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $34,459 | $26,382 | 30.6% | | Product Revenue | $26,246 | $19,831 | 32.3% | | Lease Revenue | $4,966 | $3,601 | 37.9% | | Service Revenue | $3,247 | $2,950 | 10.1% | | Total Cost of Revenue | $16,626 | $12,307 | 35.1% | | Operating Loss | ($19,652) | ($18,502) | 6.2% | | Net Loss | ($19,601) | ($19,774) | -0.9% | - The increase in 2021 revenue was primarily driven by a 35% increase in procedure volume compared to 2020, which was significantly impacted by COVID-19 shutdowns[360] - Research and development expenses increased by 63.6% to $12.4 million in 2021, mainly due to costs for the continued development of the ALLY system, including materials for prototypes and pre-launch inventory[367] Non-GAAP Financial Measures Reconciliation (2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net loss | ($19,601) | ($19,774) | | Add: Interest expense | — | 1,340 | | Less: Interest income | (51) | (68) | | Add: Depreciation expense | 1,524 | 1,309 | | Add: Amortization expense | 1,240 | 1,256 | | EBITDA | ($16,888) | ($15,937) | | Add: Stock-based compensation expense | 6,866 | 9,026 | | Adjusted EBITDA | ($10,022) | ($6,911) | - As of December 31, 2021, the company had cash and cash equivalents of $31.6 million. Management expects this to be sufficient to operate the business through the anticipated launch of ALLY and into 2023[380][423] Cash Flow Summary (2021 vs. 2020) | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($8,969) | ($13,791) | | Net cash used in investing activities | ($354) | ($326) | | Net cash provided by financing activities | $361 | $50,001 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include concentrated credit risk, limited interest rate and foreign currency exposure, and potential inflationary pressures - As of December 31, 2021, three customers accounted for 37%, 13%, and 10% of the company's net accounts receivable, indicating a concentration of credit risk[426] - The company's cash and cash equivalents of $31.6 million are held in deposit demand accounts, resulting in minimal exposure to interest rate risk[423] - Inflationary factors may adversely affect operating results by increasing costs, although the impact to date is not believed to be material[427] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting or financial disclosure matters - None[430] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[432] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, based on the COSO 2013 framework[433][434] - As an emerging growth company, LENSAR is not required to have its independent registered public accounting firm provide an attestation report on its internal control over financial reporting[435] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information for Items 10 through 14 is incorporated by reference from the company's definitive proxy statement for its 2022 annual meeting of stockholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's proxy statement for the 2022 annual meeting of stockholders[441][442][443] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements and a comprehensive list of all exhibits filed, including corporate governance documents and material contracts - This section references the audited financial statements and notes, which are appended to the report[447][448] - A list of exhibits filed with the report is provided, including corporate governance documents, material contracts, and executive certifications[450][451][452] Form 10-K Summary The company reports no Form 10-K summary - None[454] Financial Statements Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on the company's financial statements for 2021 and 2020, confirming conformity with U.S. GAAP - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the financial statements for the years ended December 31, 2021 and 2020[466] - The audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB)[468] - The auditor was not engaged to perform, and did not express an opinion on, the effectiveness of the Company's internal control over financial reporting[468] Financial Statements The financial statements detail the company's performance, showing a net loss of $19.6 million in 2021 and total assets of $66.5 million Statements of Operations | (In thousands, except per share amounts) | 2021 | 2020 | | :--- | :--- | :--- | | Total revenue | $34,459 | $26,382 | | Total cost of revenue | 16,626 | 12,307 | | Operating loss | (19,652) | (18,502) | | Net loss attributable to common stockholders | $(19,601) | $(19,774) | | Basic and diluted net loss per share | $(2.09) | $(4.28) | Balance Sheets Summary | (In thousands) | As of Dec 31, 2021 | As of Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $31,637 | $40,599 | | Total current assets | 44,813 | 58,385 | | Total assets | $66,465 | $79,120 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $8,714 | $8,467 | | Total liabilities | $11,586 | $11,910 | | Total stockholders' equity | $54,879 | $67,210 | Statements of Cash Flows Summary | (In thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,969) | $(13,791) | | Net cash used in investing activities | (354) | (326) | | Net cash provided by financing activities | 361 | 50,001 | | Net (decrease) increase in cash | (8,962) | 35,884 | Notes to Financial Statements The notes provide detailed disclosure on accounting policies, the 2020 Spin-Off, recurring losses, customer concentration, and deferred tax assets - The company completed its Spin-Off from PDL BioPharma, Inc. on October 1, 2020, becoming an independent public company[485] - For the year ended December 31, 2021, two customers accounted for 16% and 13% of total revenue, respectively[535] - The company has a minimum purchase obligation of approximately $4.6 million over the next 12 months and potential future milestone payments of $2.4 million contingent on the regulatory approval and commercialization of ALLY[582][583] - As of December 31, 2021, there was $9.7 million of total unrecognized stock-based compensation expense, expected to be recognized over a weighted-average period of approximately 1.7 years[395][602] - The company maintains a full valuation allowance of $13.0 million against its deferred tax assets as of December 31, 2021, as it determined it was more likely than not that the assets would not be realized[608]