Good morning, everyone. I'm Robbie Marcus, the MedTech analyst at JP Morgan. 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 formulae.
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 three 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 three 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 five million global procedures annually, including about one 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 cataract lens.
Beginning about three to four 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 new vision over the next few days to 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 tee 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 distance 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 eight 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 a third 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 six 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. 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 Plus, 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 costs in reimbursement with high-margin patient pay revenue. Thank you.
Great. Thank you. You pre-announced 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 sharper seasonality, not just for you, but the entire market and ophthalmology, and then as it relates to LDDs and LALs in fourth quarter?
Okay. Yeah. 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-blade 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 sat at $40.3 million, so both around, and $140 million for the year. So as we move into the fourth quarter, as Robbie 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 to 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 that 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 started 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 run 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 inline 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 inline, still strong growth, but still inline in the second half.
Yeah. As we think about seasonality, last year was different than any I've seen in the 30 years of selling capital equipment with either an implant 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 a strong second, third, and fourth quarters as well, stronger than we originally anticipated at the beginning of the year, and we did see more seasonality in the third quarter, a lot more vacations. As I look forward into this year, I guess one 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 the business and how you and I talk about guidance?
No, I agree. We set the same numbers that we their 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 2024 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?
Yeah. I think 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've introduced a new paradigm in ophthalmology.
There was no such thing as postoperative light treatments of lenses until four 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 that. 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?
Yeah, 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 O.U.S. 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 O.U.S. 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 2026 and 2027 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 has become standard, which means 50% or more of premium procedures. And we also have that same goal for O.U.S. 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 2025.
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.
Can you talk about the capital equipment environment? You do have an LDD that costs over $100,000. You've done phenomenally well placing this since you went public, exceeded expectations. With interest rates high, what are you seeing in the market, and is that change at all? Does the commentary that you're going to give hold also for the outside U.S. markets as well?
Do you want to start there?
Yes, please, your turn.
Okay. What we have found with our capital equipment, the ASP since the fourth quarter of 2023 has been around $130,000. That's remained very consistent. We have a lot of pricing discipline. But what it also tells us is that the capital equipment we know has for our average customer about a six-month payback that's very quick. $130,000 is not much more than a practice would pay for a piece of diagnostic equipment that might be in addition or a replacement, an upgrade in their practice. So with that fast payback and reasonable pricing, it is affordable overall. And I think that interest rates have not been a factor since we commercialized four years ago. Very few of our customers, a minority of our customers, actually finance the capital equipment. Most pay cash. And even for somebody who's financing, depending on the period, the payment's about $3,000 a month.
You can pay for that with two eyes, one patient or one and a half patients, depending on how you do that. So I think it's quite accessible for a practice as well. OUS, we're still not there, but again, we don't think interest rates are going to be a major factor in determining what doctors and their practices are going to choose. And of course, Ron should talk about the economics as well. Practices, not just in the U.S., but OUS need the premium market in order to survive. Would you add anything, Ron?
No, I think you said it well.
Okay.
As you've grown, your utilization per user has grown as well. So if you look at it, whether you segment it by quartiles or however you look at your user base, what are you seeing in terms of utilization and the split from your highest users and your lowest users? And what are you doing to help get the average up closer to the highest users?
Yeah. So do you want to address the second part first, Ron?
Yeah. I would just say that we have a diverse user base. So when you look at that number, that does not take into account what is the number of total cataract surgeries that that practice is doing and the number of premium cataract surgeries. So every case is different, and we don't manage the business based on an average number. We manage the business based on that individual practice and can we drive better clinical outcomes and better economic performance within that practice by having them adopt our technology. And it works for very small practices as well as very large practices.
Obviously, we'd like to have more large practices than small practices, but we'd also like to grow those small practices because sometimes, often actually, premium cataract surgery and cataract surgery in general is not highly concentrated in cataract surgery because it's such a mainstay of ophthalmology, represents probably 60% of the procedural volume of ophthalmologists. Everybody does cataract surgery. It's not like the LASIK field where we came in one of our previous companies where it's highly concentrated. So there are many practices that do high-volume cataract surgery that have not been able to convert that many patients to premium. There, obviously, we have a big runway ahead of us. We have others where they are more concentrated, but they still have room for growth on the premium side. And then, of course, we've got smaller practices. So it's really not from a day-to-day perspective.
We set goals for the individual practice, and we build it from there.
Maybe I could ask it a different way. Instead of volumes, maybe percentage of total IOL procedures. How do you see your highest users? I imagine you have some that are doing 100% or close to 100% and some much lower. And I guess, where does it stand on average? And how much more room is there theoretically to go in realistically?
A long way. I mean, we have, as you said, we have some customers where we're highly penetrated in their premium, but they may not be fully penetrated in premium, so there's still room for us to grow by converting more monofocal IOLs or standard monofocal IOLs to the LAL, but we also have customers that may have started out. Typically, people will use the LAL for their toughest customers, their toughest patients because of the advantages, so they're going to try it out on the toughest ones, but over time, they realize that the same great results that they're getting with their toughest patients are achievable even more easily with their standard patients, and so I think that we have a 10% overall market share. We have a lot of room to grow before we get to 50% or more.
Maybe talk to the selling experience because from the physician perspective, being able to convert the non-premium to premium is a very lucrative proposition. But I imagine you walk in and you lead with clinical data and then talk about the business model as well. So maybe just speak to the sales experience and the receptivity you're receiving around the country.
Yeah. I think that it's, again, a diverse population. We have, over the last four years, obviously raised awareness of adjustability. But I'm always maybe shouldn't be surprised that there are a lot of ophthalmologists that don't go to the big meetings. They're focused on their own business, and they don't really know that much. So it can be the gamut. It can be somebody who's been following our technology closely for years and years, or it's somebody who's really, this is their first introduction. And you have to start with the clinical advantages because ultimately, from everything I've experienced in ophthalmology, if you have a clinically significant, meaningful benefit to patients, that will drive standard of care. The field of ophthalmology, it's right in front of you. The patient sees after surgery what they see or after their light adjustments, in our case. And that's very apparent.
You don't have to do a big clinical study to know that their, say, ejection fraction went from 30%-40%. It's very obvious, so the sales cycle is having them understand the clinical benefits, but very early on, we also introduce the benefits on the business side as well because it's critical, and one of the things that I like to have people do as an exercise is just they're seeing patients every day. Do a test case. Present how you normally present for a premium IOL that you currently use, trying to explain what a multifocal lens is and what a toric IOL is versus, excuse me, saying, "We're going to put a lens in your eye that we're then going to adjust to your needs after surgery, and you'll be involved with that decision." That is intuitively extremely compelling to patients.
If doctors do that, they'll sign up surgeries immediately on their first day.
Shelley, you've expressed a longer-term gross margin target of 80% as you shift more to higher-margin LALs versus LDDs. How should we think about your pacing towards that target and the timelines to get there?
Yeah. I think 80% is when the vast majority of all of your revenue comes from the LAL. So that's way out there. It's more of a mature company. We're going to be a growth company for a long period of time. We have increased gross margins significantly, and we got it 71%-73% based upon what we would expect a mix to be, including much higher growth on the LAL side, which makes sense. But yes, we do see ourselves marching there. As a smaller company, as we took cost out of the product, we've made a tremendous amount of improvement as well. But definitely, the LAL, particularly as we get bigger, will be an 80% plus gross margin product.
Ron mentioned expanding the sales force this year. I imagine that's necessary to help sustain top-line growth. But how should we think about OpEx growth in 2025 and the charge towards profitability?
Yeah. We did give OpEx guidance as well. And when we raised money in our CMPO in mid-last year, we did say that we were going to increase both sales and marketing as well as R&D spending. And again, that is based upon, particularly in sales and marketing, where most of it will be. Sales and marketing is primarily people, but we've had a very lean marketing budget since we commercialized the product. We're spending more on marketing. And those are not direct to consumer, but they're really the things that doctors can utilize on their websites, written materials depending on their patients and things like that, a little bit more internet presence, things like that that we do. So we'll expand that. Another big initiative is this optometric education that Ron talked about as well because we've got 50,000 people who are referrals for their patients.
They also get back those patients. They want them to be happy. They're typically a family optometrist as well. So that's an expanded use of sales and marketing dollars. But always we add people. And because we're in a growth phase, it's not like we say to ourselves, "Oh, a clinical person, for instance, they should have 10 accounts now, but now every year we're going to increase it by one and try and make them more productive." We're really how we're growing is increase in revenue, increase in gross margin, and letting a good piece of that fall to the bottom line while being careful about our OpEx. But there are times in a business when it's more mature where you're going to say, "I want more leverage." But we're adding a lot of customers.
And of course, our goal is to get our existing customers to more than 50% of their premium business. And also, they're growing their premium business. They report 40% of their LAL patients would have gotten a monofocal otherwise. So we're continuing to be in the business of education. R&D, it's primarily people. We have projects that go out in development from two years to 10 years. A lot of opportunity as Ron talks about for continuous improvement in the product, although we have terrific results today. And so we'll add on that. OpEx has a little bit for expansion internationally as well, and that makes sense. I think we've said many times we don't spend that OpEx ahead of approvals. We can get ready, but not go overboard on that.
Great. Thank you very much for a great presentation, and thank you for attending.