From the company, Ron Kurtz, CEO, and Shelley Thunen, CFO. It will be a fireside chat later on, but Ron has a quick presentation that he's going to walk through.
Great. Well, thanks very much, Craig. We just thought we'd do a quick presentation to level set things. RxSight is excited to lead premium IOLs into what we call the era of adjustability. These are our forward-looking statements. You know, over the past 60 years, IOL innovation has really been at the heart of the growth of cataract surgery and lens replacement market, starting with the advent of IOLs, which, you know, replaced the need for thick Coke bottle glasses. Then the introduction of foldable intraocular lenses, which replaced rigid lenses and allowed for small incision cataract surgery, and again, further growth in the market.
And then most recently, with the advent of premium IOLs, which reduce patients' dependence on glasses after surgery, and which have the ability for patients to pay above and beyond what reimbursed standard monofocal is reimbursed at. Obviously, cataract surgery and premium IOLs, in particular, are a key focus for patients, doctors, and industry. And we believe that we're entering the next phase of IOL innovation, which is the advent of adjustability and, as opposed to what has heretofore been all fixed optic IOLs, which really rely on preoperative measurements to be able to predict what that patient may want or need after surgery.
Once implanted, the focusing power of a fixed optic IOL obviously can't be changed, as opposed to an adjustable IOL, where the postoperative optimization of the focusing power is allowed using the Light Adjustable Lens technology platform, some of which of the components are shown here. LAL is really transforming the premium cataract surgery experience. Patients still undergo preoperative counseling, but it's streamlined. The surgery is a standard monofocal type IOL surgery, and then postoperatively, the patient comes back into the office, undergo a refraction, and they can then have an adjustment to usually in both eyes, to optimize their vision. They can trial that, and then eventually get that made permanent through what's called a lock-in treatment.
The advantages of adjustability on the clinical side are accuracy, quality of vision, and again, this ability to customize both eyes for best vision. But there's also a business advantages to the doctors and the practice. More doctors and practices are able to participate in the premium IOL segment because they don't have to be able to perform corneal refractive surgery or LASIK to be able to treat unhappy patients. Also, more patients are potentially able to choose a premium IOL even ones who may not be good candidates for multifocal lenses. And in fact, in our most recent customer survey, about 44% of patients would have gotten a non-premium IOL.
Of those who chose an LAL, about a third would have gotten an astigmatism or toric IOL, and about 30%, a little bit less, would have gotten a presbyopia-correcting IOL. That combination, leads to, because of the higher pricing of the LAL, leads to, about $2,100 in average additional practice net revenue per LAL implanted. You know, we believe the adoption, that we've seen over the past, three and a half years or so, really signals the onset of this new era in Premium IOLs.
you know, we have over 1,300 surgeons, 400 optometrists, who are trained on the technology, have implanted about 120,000 LAL implants, and we're very proud that 80% of the doctors who use our technology say that they would use the LAL in their eyes when and if they need cataract surgery. So, we believe that adjustability can spur the expansion of the premium IOL market, continuing this divergence between not just growth from the increasing numbers of patients who are entering the cataract age, but also conversion from lower-priced standard IOLs to premium procedures. We are 100% focused on realizing the full potential of our technology and market opportunity.
As many of you know, we did a secondary offering last week, and we are focused on long-term expansion of our educational efforts of clinicians, both ophthalmologists and optometrists, and through them to patients. Continued rapid platform development and expansion, as we've done over the last several years, and staged international expansion, particularly to the 20 or so major markets that represent about 80% of the global premium IOL procedures. So welcome to the era of adjustability, and thank you so much, Craig, for letting us go through that.
Great. Thanks, Ron, and really appreciate you and Shelley joining us today. You know, we're not too far removed from Q1, so we'd love to start there. And maybe if you could give us a recap of the strong Q1. Your revenue was up 69% year-over-year. You beat the Street by 7%. You raised your full year guidance by more than the first quarter beat. So, you know, just maybe to level set, you know, talk about the momentum in the business that you've seen and really what you've seen over the last several years, and it's been very impressive.
Do you want to start, Ron, on the top line?
Yeah, just, you know, again, as you said, we've seen steady increase in visibility and adoption of the technology, and I think that what we saw in Q1 was more of the same. I'll let Shelley go through more of the quantitative aspects of it, but qualitatively, you know, again, that's some of the signaling that we're seeing from the market, that this is becoming a standard part of the premium IOL landscape.
Yeah, and I think also, in the first quarter, we were up sequentially, about 3% from the fourth quarter, and typically, your fourth quarter is the strongest, both for capital equipment as well as for LALs. And in the first quarter, we sold 66 LDDs as compared to, 77 in the previous quarter. So what you saw in that sequential increase, as we expected, is capital was a little lower in the first quarter. We had a terrific LAL quarter as well on the top line. We talked a lot about gross margin because we increased our guidance significantly, and, that was an important milestone for us because we're focused, number one, on top line, number two, on expanding gross margin.
We had very good gross margin because typically, you know, you get a little bit more balance between capital and LALs. They're the driver for margin mixes, and we had about 67% of our revenue come from the LAL. We did guide from 68%-70% because different quarters are stronger for capital as well. Then on SG&A, we, you know, upped our guidance by about $2 million. We let that about three-fifths of the total guidance fall to the bottom line.
Got it. Thanks, Shelley. Maybe focusing on the gross margin, obviously, that was a very positive surprise to the Street. And, I mean, I think it was nearly 500 basis points above e xpectations.
Right.
So, and I appreciate your comments that the mix will be a little bit different throughout the year.
Uh-huh.
So, I guess the question is, you know, is there still an opportunity to improve gross margin, even from the guidance? And what would it take to get gross margin at the high end of your guidance or even exceeding that?
Mm-hmm. That's a good question. Also, in the first quarter, what we saw is improved margin on the LDD, and we got improved margin starting in the third quarter of last year as we introduced our newer LDD, same functionality, but we had engineered out some costs. Very typical of what you do in capital equipment. We got some additional cost savings on material. The LDD is primarily material, but we got some of those a little bit earlier this year than expected, which was good news. And of course, we've held our ASP pretty consistently. We've had a lot of pricing discipline in the sales force, and that's important as well. But the biggest driver for margin is really just the percent between the LAL and the LDD.
We expect the LAL margins, which are quite good, they go up gradually because most of the cost inside of that is fixed overhead. And so you really have to get your production volumes up significantly over time. But as you said, you'll have a little different mix. You know, typically, second and fourth quarters are a bit stronger for capital equipment, and so you could see some variability during the year.
Got it. I want to follow up on one of the points that you made on the ASP of the LDD.
Mm-hmm.
So, the new LDD, you got 10% in Q4, 10% ASP increase. You had another roughly 3% increase in Q1 relative to Q4.
Maybe just talk about that. That's obviously a bullish sign, and that was also a surprise. So maybe talk a little bit about your-
Okay
... the pricing discipline that you that you did mention.
Yeah. You know, when we took the 10% price increase, you know, what we said is, in the third quarter and in the fourth, that we expected that price to be held going into 2024. Obviously, it held throughout the first quarter. But, you know, that number being a little higher just really has to do with two things. A customer who buys a second or third LDD or something out of a buying group gets a better price than somebody who's buying your first one. It's a very minor difference in price. And then, of course, to a much lesser extent, because they're a smaller part of our business, you know, Canada is a distributor market.
I think that it's just a mix thing, but as long as we stay in, you know, the 129,000-130,000 range, I think that that's very good. I always warn that capital tends to drift down a little bit. You know, we saw that previously over a couple of years. That can happen, but we're really happy about where we are right now.
And, maybe just following up on that, I think coming into the year, you said that the second half you would expect, you know, some price degradation.
Mm-hmm.
But, given what you saw in Q1, I mean, do you expect it more to be maybe, maybe that shows up a couple of years out versus the back half of 2024?
Yeah, you know, you can't really predict it, but I think where we are right now is a really good signal.
Okay. Good. Maybe we can just talk about, there is some seasonality in your business.
Mm-hmm.
Maybe just help us understand how we should think about, you know, one, you know, the utilization or LAL sales, and also LDD sales, and the seasonality, and how we should think about the cadence throughout the year.
Mm-hmm. Yeah. You know, it's very similar to what we've seen before. You know, this is my third rodeo with Ron Kurtz, our CEO. The two other companies he founded also were razor, razor blade model, meaning a piece of capital equipment, and in that case, it was a disposable, in this case, it's an implantable. And you tend to see the same thing. Other people see it as well. Capital tends to be strongest in the second and fourth quarter, and a little weaker in the first, and a little weaker in the third. First quarter is just people are just getting going on their allocations for capital, coming off the holidays.
Third tends to be weaker because doctors are on vacation, not as focused on capital, and that makes that fourth quarter typically the heaviest quarter of the year. And then on LALs, again, you see a little bit of seasonality. Sometimes you see a little in the first quarter. We didn't see much of that, obviously, given our numbers. Third quarter, you've got both patients and doctors on vacation, so you'll tend to see that. Because we're growing, we have grown in absolute, you know, dollars and percentage sequentially through that. So you don't see sometimes a more mature company might have a dip, particularly in the third quarter, but we've tended to grow through it, given that our installed base is growing.
Got it. So maybe shifting over to the financing that you guys did last week. You know, I would say, it came as a little bit of a surprise to me, a little bit of a surprise to investors, given the strong cash position and, you know, the operating leverage that you guys have been delivering over the last couple of years. You definitely had a path towards profitability. So maybe if we step back and just, you know, what's the rationale? And Ron touched on it in his presentation, but you know, give some of the rationale for the raise, why now is the right time?
Okay. Yeah, I think that's the question we were asked most frequently yesterday in our one-on-one and group meetings. And you just look at the first quarter and the raise and guidance that we gave. You know, you covered that already. And one of the things, you know, Ron talks about is the awareness we have in the marketplace about our RxSight and the RxSight system with our LDD and LAL. And so we've got a nice installed base of 732. We've done over 120,000 procedures. Those are growing as well. And those represent 1,200 or 1,300 doctors in the U.S. that do cataract surgery. Now, most do some kind of premium cataract surgery, but others have not entered the market for many reasons.
And Ron talked about, you know, one of those, in his talk. But that means we've got another 8 or 9 thousand doctors to reach, and we've got 50,000 optometrists in the U.S., and they refer patients in. And what we'd like them to do, because they tend not to recommend multifocals, in part because, you know, you might have a dissatisfied patient come back. We want them to be very aware of the LAL and be able to set their patients up to say: "Hey, you know, you might consider a premium. Talk to your ophthalmologist about it. I happen to like this," which would be the LAL. So as we think about kind of use of proceeds, the first is in the U.S., and that's about reaching, you know, many people.
There are a lot of, you know, ophthalmologists that don't go to large shows, right, but they'll go to regional shows. There are a lot of ophthalmologists who have optometric networks that we want to be able to make aware and educate about our, our product and what we're doing. And that's. You know, we've always kind of been in that business, but we want to do that more broadly because that sets up your growth in the long term, right? You want to continue that growth in 25 through, you know, a long time out, right?
Mm-hmm.
But it takes money, and it takes a little bit more time, right? And the $2 million we added to OpEx is part of that for this year. But that was kind of embedded because we knew we were going to do the CMPO. And then the second thing is R&D, you know, and Ron will talk about that much better than I do. But R&D is important. We have this philosophy of continuous improvement. We've had 36 PMA supplements approved since our initial approval, and that's important because we continue to raise the bar, and I'll let Ron talk about that. And then third is international. We don't have our approvals, even in Europe yet, because they're way behind going from the MDD to MDR. But the international markets are a great opportunity for us well.
Probably on R&D and international, maybe, Ron, you want to make a couple comments on where we're going to spend that money?
Yeah, you know, I think that our, as Shelley mentioned, our philosophy is continue to move the platform. And this is true for any technology. In order to get to that next adopting doctor or patient, you have to address whatever it is that's holding them back. And the way you do that is just continually innovate the product. You've seen examples of that. We did that a couple of years ago with ActivShield. We, you know, most recently, LAL+, the new LDD was an example. And we've had many others that are kinda underneath, that we don't make as much a deal about, but to the user, they're very meaningful. And we just wanna continue to, you know, lay the groundwork for that for many years to come.
And it takes, you know, several years to get an R&D program from start to finish. So, you know, now that we see the signal from the marketplace, that we have, you know, something that we think can be impactful for a long time, it makes sense to invest in that. And then, you know, same thing on the international side. You know, the U.S. market is the largest, but it represents about 25% of the premium IOL market. That means 75% or 80% is outside the U.S. It's fairly concentrated, about 20 major countries. And, you know, those countries tend, they may not admit it, but they tend to take their lead from the U.S.
And so, we've had success at the two other previous efforts of establishing the value of the technology in the U.S. and then spreading it internationally. You know, ophthalmology is very much a global, especially, you know, in the kind of the Northern Hemisphere, is very much a global field, and there's a lot of room for us to grow there.
I wanna ask maybe specifically on, you know, what's holding back docs from adoption, and you said there were a number of different things, but I guess I doubt that you're gonna explain what you're gonna do next, but what specifically it is that's holding it back. But how do you think about the investment needed or, you know, what's the incremental technology lift that's needed to address some of those things that you've already identified?
Yeah, you know, as you can kinda tell, we're always taking their feedback. And then you have to take their feedback, and you have to turn that into, you know, a technology roadmap that also fits with the technology. And that's what is, you know, that's all. And it has to fit with your regulatory plan. So this is always, it's never exact, you know, a one-to-one. We try to move the technology forward efficiently, and it's sometimes hard to predict what is going to be moving the needle for any one particular group. And sometimes you only know that in hindsight.
So the thing that we concentrate on is bringing value, clinical value primarily, but also, you know, operational value to the customer.
Is it more, I mean, and you may or may not answer this, the strategy that you have had is PMA supplements, you know, just kinda adding on to your technology. Is it more that versus... I mean, and we're not talking about a new system or is it more just incremental improvements in the same path that you've done?
Yeah, we're. I mean, primarily. I mean, there's you never wanna say never, but t here's, you know, we think, you know, as we've outlined, this is the largest opportunity in ophthalmology. Premium, you know, cataract surgery is the most common surgical procedure. Premium IOLs are really the only area where ophthalmic practices and ophthalmologists can grow their high-margin revenue. So this is their focus as well, and we wanna be, and we're 100% focused on this.
And maybe, I mean, I always ask you about international. You're now talking about it a little bit more. I think, you know, part of what your message has been is you wanna get the technology right, and at a level where then you feel comfortable going and expanding and going through the regulatory approval. So it seems with LAL+, the new LDD, that you're at that point. So, I mean, maybe you can just talk about what are the target markets that you're looking at, and, you know, when should we start to see some more information, whether it's, you know, you disclosing it or some approvals or just some regulatory progress down the regulatory path?
Yeah, you know, it's. I mean, I showed a map of the countries that's pretty, it's pretty obvious which ones are going to be the targets. You know, there's Europe traditionally has been, you know, an area of opportunity, you know, culturally pretty similar to the US and market opportunity pricing similar. The major countries in Europe all are good opportunities. As Shelley mentioned, you know, the European regulatory authorities have changed their system from MDD, where we actually had our CE, to MDR, which is a more complex system, and the notified bodies are just far behind. So we're making progress.
You know, hopefully, we'll, you know, be able to move forward here, you know, in the not-too-distant future. The other major area of opportunity is obviously in Asia, where, you know, 60% of the world's population lives. And, the second, third, and fourth, and maybe even the fifth markets are in Asia, in terms of IOLs. And so, those have they tend to have historically a little bit higher, longer regulatory approvals, but generally in the year to two range. And again, you wanna enter that process when you have, you know, a platform that you're comfortable with.
It's always gonna move, but you have to start sometime, and it's good to do that when you're, you know, when you're not doing very rapid.
And how do we think about adoption of, say, your technology in those markets? And maybe it's more, I mean, broader question, I'm not asking specifically what you guys are gonna do, but, you know, the premium IOL market is far less penetrated outside the U.S. So, you know, you're a cash pay in the U.S., so maybe just try to frame how adoption may be different or may be very similar to, you know, what we've seen in the U.S. or what we would expect, you know, in the next couple of years.
Yeah, I think every market is going to be a little bit different. And, you know, we're fortunate to have, you know, for example, in Canada, we partnered with somebody who we've worked with before, who's very high quality and is, you know, knows that market really well. And, you know, we'll, you know, whether we go direct or use the same model, it'll depend on the market. But, having that local experience is very helpful. But, you know, adoption is, you know, we're gonna have to go through, you know, in the U.S., we did a clinical trial, so we had a kind of a coterie of surgeons, you know, roughly 20 or so, who already were familiar with the technology.
We're gonna have to go through, you know, some that kind of innovator group again in each of these markets. They'll be able to leverage the experience, and we'll be able to leverage everything we've learned the last few years, but we still need to go through that process.
Got it. And maybe last one on the financing. You know, obviously, the rationale and where the use of proceeds are going, you know, that seems pretty clear. How does that impact operating leverage going forward? So you've shown strong operating leverage. I mean, should we assume that there's an incremental spend because you do have the financing?
Yeah, there will be incremental spend, but the way we kind of look at our business, number one is top line revenue, number two is margin. That drives every opportunity you have. But we'll continue to try and balance the operating leverage in OpEx and we've always been careful. We've made our investments as we can see what's coming in the business and where we need to spend money. So I think we'll have the same philosophy, but we should see some increase in OpEx, you know, more likely 2025, 2026.
Got it. Okay. Only a couple of minutes left, and, Ron, I'm gonna ask you a question on just the premium IOL market. You probably could go on for a while on it, but, you know, we obviously hear a lot of comments on, you know, mixed things about the market, and I know you separate PC IOL versus the, advanced technology IOLs. But, I mean, any comments, you know, as we end this session here, on the status of the market?
You know, the market continues to grow. You know, it's as you mentioned, you know, some of the larger companies that are, they're focused on the presbyopia-correcting IOL market because that's where they have the highest margin. But toric IOLs, astigmatism-correcting IOLs, which is actually the larger fraction, and there's several ancillary procedures that are also done under the rubric of premium IOLs. Those continue to grow, and again, it's being driven by clinical outcomes, patients' desires to be free of glasses, you know, after cataract surgery and lens replacement surgery, and then and overall demographics, aging of the population.
And then what we talked about, and this is, you know, to get back to your previous question, it's the practices are very, very motivated to find high revenue, high revenue sources that can offset reductions in reimbursement. That's not just a U.S. phenomenon. Because of the global, global aging demographic, that's happening in every country where there's tremendous pressure on the reimbursed system in medicine, and the only area that people can go to, and the only area that there's, you know, is opportunity really for them, is on the private premium side.
Great. I think with that, we're out of time. So Shelley, Ron, thank you again for coming.
Thank you so much, Craig.