LENSAR(LNSR) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements LENSAR, Inc. presents unaudited condensed financial statements for Q1 2022, reporting a net loss of $6.7 million due to increased operating expenses Condensed Statements of Operations LENSAR's Q1 2022 revenue grew 33% to $9.3 million, but operating loss widened to $6.7 million due to increased R&D expenses Condensed Statements of Operations (Unaudited, in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Total revenue | $9,340 | $7,043 | | Total cost of revenue | $4,648 | $3,149 | | Selling, general and administrative expenses | $6,278 | $6,035 | | Research and development expenses | $4,788 | $2,746 | | Operating loss | $(6,683) | $(5,200) | | Net loss | $(6,674) | $(5,182) | | Net loss per share (Basic and diluted) | $(0.67) | $(0.56) | Condensed Balance Sheets Total assets decreased to $60.3 million by March 31, 2022, primarily due to reduced cash, while liabilities and equity also declined Condensed Balance Sheet Highlights (Unaudited, in thousands) | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $28,984 | $31,637 | | Total current assets | $38,550 | $44,813 | | Total assets | $60,299 | $66,465 | | Total current liabilities | $7,763 | $8,714 | | Total liabilities | $10,487 | $11,586 | | Total stockholders' equity | $49,812 | $54,879 | Condensed Statements of Cash Flows Net cash used in operating activities improved to $2.6 million in Q1 2022, resulting in a $2.7 million decrease in cash Condensed Statements of Cash Flows (Unaudited, in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,607) | $(4,619) | | Net cash used in investing activities | $(46) | $(114) | | Net decrease in cash and cash equivalents | $(2,653) | $(4,733) | Notes to the Condensed Financial Statements Notes detail business, accounting policies, ALLY System FDA status, revenue by geography, purchase commitments, and stock-based compensation - The company's next-generation ALLY™ Adaptive Cataract Treatment System's 510(k) submission has been accepted for substantive review by the FDA. Commercialization is expected to begin in the second half of 2022, subject to clearance[29] - Management believes the company's cash and cash equivalents are sufficient to meet projected obligations for at least twelve months from the issuance date of the financial statements[31] Revenue by Geographic Region (in thousands) | Region | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | United States | $3,970 | $3,438 | | South Korea | $1,434 | $998 | | Europe | $1,619 | $889 | | Asia (excluding South Korea) | $780 | $542 | | Other | $138 | $65 | | Total Product & Service Revenue | $7,941 | $5,932 | - The company has a minimum purchase obligation of approximately $4.3 million for manufacturing components, due by December 31, 2022. Additionally, it faces potential milestone payments of $2.4 million contingent on the regulatory clearance and commercialization of the ALLY system[63][64] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 financial performance, noting a 33% revenue increase, a 74% rise in R&D for ALLY, and liquidity sufficient into 2023, with 2022 being a transition year Overview LENSAR, a medical device company, is preparing to launch its ALLY System in H2 2022, marking 2022 as a transition year - The company is preparing to launch its next-generation ALLY Adaptive Cataract Treatment System, which combines femtosecond laser technology with a phacoemulsification system into a single unit[94] - The FDA has accepted the 510(k) submission for the ALLY System, and subject to clearance, commercialization is expected to begin in the second half of 2022[94] - The company views 2022 as a transition year, shifting focus from manufacturing and selling the LENSAR Laser System to the ALLY System[94][131] Results of Operations Q1 2022 total revenue increased 33% to $9.3 million, while R&D expenses surged 74% to $4.8 million for the ALLY System Revenue and Cost of Revenue Comparison (in thousands) | Category | Q1 2022 | Q1 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $9,340 | $7,043 | 33% | | Product Revenue | $6,969 | $5,158 | 35% | | Lease Revenue | $1,399 | $1,111 | 26% | | Service Revenue | $972 | $774 | 26% | | Total Cost of Revenue | $4,648 | $3,149 | 48% | - Research and development expenses increased by $2.1 million, or 74%, to $4.8 million in Q1 2022 compared to Q1 2021. This was primarily due to continued development of the ALLY System and materials purchased for ALLY inventory[121] Adjusted EBITDA Reconciliation (Non-GAAP, in thousands) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net loss | $(6,674) | $(5,182) | | EBITDA | $(5,833) | $(4,559) | | Adjusted EBITDA | $(4,226) | $(2,239) | Liquidity and Capital Resources LENSAR has an $84.3 million accumulated deficit, with cash sufficient into 2023, but requires additional capital beyond that, facing $7.6 million in contractual obligations - The company expects its cash and cash equivalents to be sufficient to operate through the anticipated clearance and launch of ALLY and into 2023[128] - LENSAR anticipates it will need to raise additional capital through equity or debt financings to continue its operations beyond 2023[128][132] - Material contractual obligations at March 31, 2022, include $3.3 million in operating lease payments and $4.3 million in minimum purchase obligations for inventory components within the next 12 months[136] Item 3. Quantitative and Qualitative Disclosures About Market Risk LENSAR faces credit risk concentration with four customers comprising 51% of receivables and holds $29.0 million in cash with minimal interest or foreign currency risk - The company had cash and cash equivalents of $29.0 million as of March 31, 2022, held in deposit accounts exceeding FDIC insurance limits[149] - The company faces credit risk concentration, with four customers accounting for 17%, 14%, 10%, and 10% of its net accounts receivable as of March 31, 2022[150] - While inflation has not had a material impact to date, a high rate of inflation in the future could adversely affect operating results if selling prices do not increase in line with costs[151] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2022[154] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[155] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings, with no expected material adverse effects from ordinary course claims - As of the filing date, the company is not a party to any material legal proceedings[158] Item 1A. Risk Factors This section details risks including operating losses, ALLY System launch dependence, COVID-19 impacts, competition, regulation, IP protection, and future capital needs Risks Related to Our Business Business risks include a history of operating losses ($84.3 million accumulated deficit), ALLY System dependence, COVID-19 disruptions, and intense competition - The company has a history of operating losses, with a net loss of $6.7 million for Q1 2022 and an accumulated deficit of $84.3 million as of March 31, 2022. It expects to incur losses for the foreseeable future[160] - The commercial success of the ALLY System is critical and depends on receiving regulatory clearances and achieving significant market acceptance[161] - The COVID-19 pandemic and related actions have impeded global supply chains, increased costs, and had an adverse impact on the business, which is expected to continue[166] - The company's future capital needs are uncertain, and while current cash is expected to last into 2023, it will likely need to raise additional funds beyond that point[174][175] Risks Related to Government Regulation LENSAR faces extensive government regulation, risking delays in ALLY System 510(k) clearance, post-marketing compliance, QSR adherence, and uncertain clinical trial outcomes - The company's products are regulated as medical devices and are subject to extensive oversight by the FDA and foreign counterparts, with non-compliance potentially leading to significant enforcement actions[227] - There is a risk of not receiving, or being delayed, in receiving necessary regulatory clearances for future products, including the ALLY System. The FDA has significant discretion in the 510(k) clearance process[230][233] - The clinical trial process is lengthy, expensive, and has uncertain outcomes. Delays can occur for numerous reasons, including issues with patient enrollment and regulatory disagreements[252][254] Risks Related to Intellectual Property Matters Success depends on protecting intellectual property, facing risks of patent challenges, infringement, costly litigation, and potential competition from jointly-owned ALLY System IP - Commercial success depends on obtaining and maintaining issued patents, trademarks, and other intellectual property rights. Failure to do so could allow competitors to use the company's technologies[275] - As of March 31, 2022, the company owned approximately 42 U.S. patents, 35 pending U.S. patent applications, 75 issued foreign patents, and 65 pending foreign and Patent Cooperation Treaty applications[280] - The company may become a party to costly intellectual property litigation, which could interfere with its ability to sell products and divert management's attention and resources[289] Risks Related to Owning Our Common Stock Risks for common stock include potential price depression from share sales, reduced disclosure as an emerging growth company, no anticipated dividends, and anti-takeover provisions - The company is an "emerging growth company" and a "smaller reporting company," which allows it to take advantage of certain exemptions from various reporting requirements, potentially making its stock less attractive to investors[312][316] - The company does not anticipate paying cash dividends in the foreseeable future, meaning stockholders must rely on stock appreciation for any return on investment[319] - Anti-takeover provisions in the company's charter documents and Delaware law could discourage takeover attempts and may depress the trading price of the common stock[320] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2022, the company repurchased 8,142 shares at $5.84 each for employee tax withholding, not under a formal program Common Stock Repurchases (Q1 2022) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | January 2022 | 8,142 | $5.84 | | February 2022 | — | — | | March 2022 | — | — | | Total | 8,142 | $5.84 | - The repurchased shares were surrendered by employees to satisfy tax withholding obligations on vested restricted stock awards and are not part of a formal repurchase program[332] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[333] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[334] Item 5. Other Information The company reports no other information to disclose for this period - None[335] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and XBRL data files - The report includes a list of exhibits filed, such as the Separation and Distribution Agreement, corporate governance documents, and required officer certifications under Sarbanes-Oxley[337]