Good morning, everyone. Thanks for joining us on day four of the 25th Annual Needham Healthcare Conference. My name is David Saxon. I'm an analyst here at Needham on the med tech research team. With me today we have the RxSight team, including CEO Ron Kurtz and CFO Shelley B. Thunen. This morning we'll do a fireside chat. For those on the conference portal, there should be a box where you can submit questions. Alternatively, you can email me any questions you might have, and I'll try my best to fit them in. With that, Ron and Shelley, thanks so much for joining us this morning. We'll just jump into Q&A. Given we just came off of ASCRS late last week into the weekend, would love to just start there and kind of hear your feedback, and key takeaways from the conference.
Yeah, maybe I'll start. First, thanks very much for having us, David. I appreciate the opportunity. As you noted, the American Society of Cataract and Refractive Surgery meeting ended on Monday. It's the largest ophthalmic meeting dedicated to cataract and refractive surgery, and obviously an important meeting for us. I would say that one theme was, and something that we've talked about with you before, is the focus of ophthalmologists and ophthalmic practices on the premium channel, driven both by patient demand, but also by the continuing reductions in reimbursements for various ophthalmic procedures. We continue to see high interest in the field and specifically for the Light Adjustable Lens. We had a very positive conference. Good booth traffic, and one of the reasons for that was that the theme of our booth was when doctors become patients.
It was an opportunity for a number of doctors to talk about the reasons why they chose the LAL for their own cataract surgery. That was a very heartfelt program, with these highly experienced surgeons giving life to what we've already known from our surveys, that 80% of doctors, both optometrists and ophthalmologists, who use the LAL would choose it for their own eyes or their family's eyes. I think overall, that feeling was just very motivating for us as well as for our users.
Yeah. I just want to follow up on the comment you made around premium penetration, just given some lower cataract reimbursement. What are you hearing on that front? Is that a meaningful catalyst for doctors to kind of push premium lenses? I mean, J&J, I guess that was Tuesday, they talked about some strong momentum they're seeing. On the other hand, we have rising inflation and lower consumer confidence. What are you hearing or seeing on that front? Do you think we'll see higher penetration this year and going forward?
I think it's the companies like J&J and Alcon that are larger, have better visibility on the overall market. I think that their views on that are probably instructive. Certainly the anecdotal information that we're seeing is that practices understand, doctors understand that after 25-30 years of continual cuts in cataract surgery so that the average cataract is now reimbursed at around $500, it's just not sustainable. You need to move patients into the premium market. Now, the good news is that while of course inflation and consumer confidence are always important, this segment of the population is probably the most protected from that, in that the over 60 population controls roughly two-thirds of the wealth in the country.
They are looking at a life-changing decision of where am I going to spend that money for the rest of my 20 or 30 years that I have left? People typically value vision higher than all other health concerns, except for life itself. The ability to be free of glasses, or be relatively free of glasses, and have wonderful quality of vision, that's something that appeals certainly to that group, and they have the ability to pay. Mark, I don't know if you want to add anything there.
No, that's perfect, Ron. Thank you.
Okay, great. Then just looking at the outlook for LDDs, you talked about kind of expectations around 25 placements quarterly, adjusting for seasonality. Maybe talk about what's driving kind of the stability from the second half of 2025, and what could be kind of the areas that would be upside to that 25 number.
David, you're right. That was the language we used on the Q4 earnings call back in February, and I think what gave us confidence in saying it was that we'd seen some good stability in the back half of last year, Q3 and Q4, both quarters where we sold 25 LDD units. Our expectation, as you mentioned, is for a slight acceleration off of that on a quarterly basis as we go through the year. We did reference the potential for some seasonality in Q1. That's pretty typical, I think, as well as Q3, but that was indeed the guidance that we provided. In terms of what gives us the confidence, as I mentioned, it's the stability. It's also some progress, I'd say, that we're making on commercial initiatives, et cetera, which was also taken into consideration.
Yeah. Okay. Just in terms of penetration, focusing right now on just the U.S., the vast majority of your installed base at this point, just remind us what are those initiatives and, with the kind of pivot or evolution of the commercial strategy late last year, can that drive another leg of penetration over the next couple of years in the U.S.?
Yeah, absolutely. As you recall, we have about currently just over 1,100 systems in North America, and we did approximately 10% of the premium procedures in the U.S. last year by volume, about 15% by revenue. That obviously means that there's a lot that we aren't getting and that we have the potential to grow, both by adding new offices that can offer the Light Adjustable Lens by having an LDD, but also within practices that already have our technology, but where we can penetrate further, either by having additional doctors use the technology or use it more extensively.
That's really the pivot that we started almost a year ago, where our focus just naturally shifted from getting an installed base, a large installed base in the market, to driving procedures within that installed base through really both clinical and marketing efforts that are focusing on educating doctors and staff on the quality of the results that they get with the technology and how to better describe that and present that to patients.
Great. Thanks for that. Then pricing has started to come down since 2024. Now sitting kind of high teens, if you will. I think I'm modeling closer to $115 for 2025, in terms of LDD ASPs, I should say. Remind us, what's driving that pricing kind of downshift, if you will, and how should we think about pricing over 2026?
Yeah, I think some of it is kind of inevitable as you think about capital equipment and how that typically plays out from a pricing perspective. Over time, it does have the potential to drift lower. You're right, we saw a little bit of evidence of that in the fourth quarter, and we anticipate a little bit more as we go through 2026. I think that we've never wanted pricing to be an inhibitor to adoption for these LDD units. We're working with centers to be good partners and to adjust to support that level of adoption that we talked about earlier. That was taken into consideration as well as we were thinking about the year ahead.
The only other factor I'll mention is just as you contemplate the addition of OUS as we get into probably more so next year, that too need to be taken into consideration from an ASP perspective on the LDD front, where we do assume that to be a little bit lower than what we've seen in the U.S. traditionally.
Okay, just on a point you just made, Mark, about adjusting to kind of what practices and doctors are looking for. Is that just pricing or are you looking at alternative placement models like volume commitments or leasing or anything like that?
We would consider that. We've had a variety of different models in place and options for our customers, depending on their priorities and their situation. We've shown, I think, historically, a willingness to be flexible, and we'll continue to look for options where it makes the most sense. Ron, I don't know if you want to elaborate on that or add anything else on that point.
Yeah, I think that as Mark outlined, we've had a number of different programs and continue to look at ones that'll be attractive to getting new customers to be able to offer the technology to their patients. I think that for the most part, people have chosen to buy the unit, and that's primarily because the ROI has traditionally been quite good. Our focus has been to be able to continue to demonstrate that through the utilization efforts that we've really focused on in the last almost year. I think that will continue to be a prime driver for new capital placements.
If we look at kind of the 2025 cohort of doctors, the 163 placements, can you talk to what kind of utilization ramp you're seeing in that cohort, and maybe compare it to what you've seen historically?
It does take some time for that data to start to have meaning. I think it's a little bit early to be commenting about 2025 cohort. Our focus is on driving the utilization within offices, irrespective of the cohort or the year that they acquire the technology. We're focused on where is there an opportunity for growth at the individual practice level.
You've talked a little earlier this morning and on calls and conferences in the past about this kind of shift in commercial strategy, kind of re-engaging to drive utilization. Can you give us some feedback on what you're seeing and hearing from doctors, and what inning are we in terms of seeing those initiatives play out?
I think we're still in the early innings. As you recall, we went through a reorganization to better align our clinical and sales teams. I think that's been very successful. With them working hand-in-hand to identify within the individual practice what are the barriers to further adoption of the technology. It really depends on the practice. It could be that the practice had a change in staff, or the staff that was originally trained didn't gain the level of confidence that they needed. That becomes an additional training opportunity. It could be providing additional marketing support, and making sure that the messaging is consistent and accurate throughout the practice.
It's really a comprehensive program to ensure that the entire practice, obviously the surgeons in particular, but also the optometrists and the practice development people within the practice, that they are fully prepared to be able to offer the best visual results after cataract surgery, which is with the LAL.
Okay. Maybe just two follow-ups to that. I guess first, when do you think you'll be through the U.S. base? Is that something you can roll out completely in 2026? Then in the early innings thus far, are you seeing some traction in the accounts that you have engaged with around increasing utilization?
As we commented on the Q4 call, we definitely believe that the efforts that are underway are showing positive trends. We have over 1,100 sites in the U.S., so we're still in the early innings of that. As we move forward, prioritizing those practices that we think have the highest potential, I feel confident that we'll continue to show the benefits of that, and that will show up in our numbers.
Okay. Is this year a reasonable expectation for getting to the remaining accounts, or does that continue into 2027?
I think that it's an ongoing effort.
Yeah.
It doesn't end with. It's not just a one and done. It's really a full engagement with the practice that will be ongoing over time. Because, as you know, there are always staff changes. We introduce new product enhancements. Each one of these gives us an opportunity to go back into the practice, reengage, and continue to educate. That's a unique opportunity that we have because of the postoperative adjustments that are done in the clinic, and it's something that I hope that we continue to leverage for years to come.
Okay. Then just on guidance, I believe, if I'm not mistaken, it assumes low single-digit LAL volume growth, which works out to monthly utilization of around eight. Is that still a good way to think about the year? Here in April, are you any more or less confident in that expectation?
You know, like you said, we are intra-quarter now. We'll report on May sixth. The way you framed it is accurate in terms of our expectations for utilization as we go through the year around that eight-ish level.
Okay. We hear about these open access accounts and organizations. Can you talk about that opportunity? How many LDDs are in that type of model, and could that be meaningful over time in the U.S.?
I'm sorry, David, I had a little bit of an issue on the audio. Could you repeat that question?
Yeah, sure. Just around the open access model.
Yes.
Yeah.
It's a relatively small portion of the procedures at this point. There is definitely a place for that model. Just to be clear, that's a model where a surgeon will implant the LAL but will not have the LDD in their own practice, but will send the patient to a third party to do the light treatments, which is their focus. There's very good communication between the surgeon and the light-treating doctor. I think that can work, especially for lower volume or early practitioners who are just trying to get introduced to the technology. We've seen some steady growth in that, but it still represents a relatively small percentage of the procedures.
That's obviously one end of the spectrum. I think the traditional way is just the doctor does the procedure and the light treatments. In the middle, what are you hearing or seeing in terms of doctors passing on the light treatment to someone else in the practice, a technician or staff?
The most common practice is that the ophthalmologist, of course, does the surgery, and post-operatively, the light treatments can be done by the ophthalmologist in the office. Most ophthalmic practices that do especially if they're doing a modest or moderate amount of premium IOLs, have optometrists as part of their practice. The optometrists, of course, are able to do the light treatments as well. That is a very common division of labor because the process of the light treatment is actually very analogous to what optometrists do normally in terms of fitting glasses or contact lenses. It's performing a refraction, optimizing that refraction for that patient, making sure the patient enjoys or is satisfied with that refraction, and then following up after the light treatments to decide if any further light treatments or adjustments are required.
That's well within the skill set of the optometrist. At this point, I would say the bulk of the light treatments that are done in North America are being done by optometrists employed or part of an ophthalmic practice that is caring for the entire patient.
Okay. We're going to talk about international in just a few minutes. I guess just while we're on this topic, what do you expect to play out internationally, or does it depend on the region?
In terms of the division between.
Division between the light.
Yeah.
Yeah.
Most countries have optometrists or an analogous position. We've seen already for example, in the U.K., where that's the beginning practice. As we're starting outside the U.S., just as we start with practices in the U.S., we always want the surgeon to be able to be very familiar with the light adjustment procedure so that they can explain it and understand and troubleshoot with the patient. They typically will hand that off. I would imagine that over time, in those countries that have optometrists, that would also be the case.
Okay. Maybe just looking at some competitive dynamics. J&J have their PureSee coming out. That's an EDOF lens. Alcon has their True Plus, monofocal plus. I guess, how are you thinking about those launches, even if it's indirect? You don't compete to a great extent with the EDOF, but there's some level of distraction, right? How are you thinking about those two competitive launches?
Yeah. Again, as you know, this has gone on for many years in the premium space. At this point, there's relatively little differentiation between the EDOF and multifocal lenses that have been out there. Most of the major companies have them. They've made very small tweaks and things that the FDA doesn't consider significant enough to require clinical data, is generally something that is very modest, if at all noticeable. We think that at this point. The major companies all have, within that group, competitive trifocal and multifocal lenses. Really, they have very similar features and very similar drawbacks, so the differentiated product in the space is the Light Adjustable Lens. It's because we can optimize that vision after surgery and customize it to the patient. That is something that no other lens can do, and that's what results in the great clinical results that our doctors are able to achieve.
While there may be short-term disruptions like we saw last year where there are incentives given to doctors to use an initial product launch, that tends to wane pretty quickly.
A lot of these are coming out with price premiums. Pricing on the LAL front, you guys haven't really talked about taking price at all. Is that something that can be incorporated into your kind of growth algorithm with just the LAL and LAL+? Or do you think you need to do an LAL 2.0, something like that to start taking price?
Well, recall we can make changes both, unlike other technologies, we make improvements both to the lens, but also to the LDD where we add additional features. I think that we have traditionally been at the highest pricing level at the premium space. We've not had pushback on price on the LAL side, and we've been able to maintain that. Certainly as we continue to add functionality and features that are beneficial to the doctor and the patient, we would look to those opportunities. We want to do it in concert with providing the physician in practice also an opportunity to continue to premium price.
Okay. Maybe we'll switch to international. You're in a number of international countries. Can you just start by framing the size of those in aggregate, kind of the international opportunity?
Actually, while the penetration of premium outside the U.S. is lower, in the U.S., roughly 20%, outside the U.S., depending on the country, the top 20 markets vary from 10%-15% penetration. However, in aggregate, those 20 or so markets represent about double the size of the U.S. market. There certainly is a very significant opportunity outside. As I've already mentioned, it's fairly concentrated to the major countries in Europe and Asia. The first step of accessing those, of course, is regulatory approval. We've made good progress last year and continuing this year with approvals in Europe, Korea, some of the Asian countries. We mentioned on our last call, Australia, and we're continuing to make progress for some of the larger Asian countries.
The next step, of course, is establishing the in-country expertise and KOL structure, and that's the stage we're at right now, both in Europe and Asia, making good, steady progress, attending all the major meetings, introducing the technology, and getting a very positive response. Even at the American Society of Cataract and Refractive Surgery in Washington, D.C., this past week, we had significant international interest in the product.
Okay. Just to clarify, so the top 20 international countries are double the size of the U.S. Is that relative to the 1 million or so premium IOLs in the U.S.?
Correct.
Okay. All right. That's helpful. In terms of international utilization, I think internationally, optometrists or ophthalmologists do different or a wider range of procedures, I should say, back of the eye. What's the utilization outlook on the international side relative to the U.S.? Is it just naturally going to be lower?
Traditionally, in most geographies, there are fewer ophthalmologists per population. Even though they may be more varied in the work that they're doing, they tend to be higher volume, especially at those that are focused in the premium market. We have a little experience of this with Canada, which is somewhat in between maybe the U.S. and Europe. There our trends have generally been somewhat more positive and somewhat higher volumes per surgeon.
Okay. All right. That's interesting. All right, on China, I don't think you're approved there at this point, but maybe just give us a sense for, is that a 2026 potential? Maybe it's 2027, we'll call it over the near term. If and when that does happen, how should we think about VBP and kind of timing to launch?
We do have access to Hong Kong just through the free trade rules that are there. We have started to get some experience in the Chinese market. As you note, the regulatory approval process in China is one of the more onerous ones. That does take more time. We haven't laid out exactly when that would get approval. You can have approval and start to get experience without being under VBP. My understanding is that VBP actually is sometime after, and would not necessarily be a restraint to us, since that's really a volume buying pricing structure, which we may or may not want to be focused on initially.
Shelley B. Thunen, maybe we'll round it out with some gross margin questions. You have some higher cost inventory on the balance sheet that'll flow through in 2026. Maybe just give your latest thoughts on the cadence of that. Does that bleed into 2027 or at low single digit LAL volume growth, does that kind of fully wrap up in 2026?
Yeah, no real change to our assumptions there, David. I think the commentary that we offered back in February on the Q4 earnings call is the latest update that we've provided on that. Just as a reminder, yeah, we forecasted at the time 70%-72% gross margin, and that margin dynamic that you just mentioned was reflected in that guidance, whereby that higher cost inventory is likely to show up beginning in Q2, and then as we go through the year. We stopped short of saying how long we anticipated that to persist. We did not make any comments on 2027, and I don't have an update for you on that front. We're monitoring it closely, though.
Okay. I forget, so apologies if you've said this, but have you talked about when it might trough? Is this a third quarter or fourth quarter dynamic, or still kind of TBD?
We didn't go into detail on that, David. Just what I had mentioned earlier. 70%-72% for the full year, consistent with gross margin levels that we saw back in 2024.
Okay. Just on the LAL gross margin potential, the company's historically talked about 85%+ with international going to be a larger portion of the story, 2027 and beyond. Is 85 still a good way to think about it with international pricing?
LALs are tremendous. It's a great product, and as a result, it is highly profitable for us. We haven't said in terms of where that might trend over time, but we've seen relative stability from an LAL pricing perspective, and we anticipate that to continue. The comments I made earlier around pricing on LDDs and the expectation there for some price sensitivity as we get deeper into the OUS launch is relevant and still valid. From an LAL perspective, I think the expectation is that we can maintain a pretty level price point there.
All right. Maybe two last questions. I guess on the international front, how would you frame the investments needed in 2026 and 2027 to really drive this ramp?
Yeah, as Ron was talking about earlier, we do view OUS as being a significant long-term contributor to our growth, and we want to invest to put ourselves in a position to capture that. I don't have a way to quantify it for you, but needless to say, we're making big investments there, building out the teams, the infrastructure, establishing relationships with key opinion leaders, which Ron talked about earlier as well. That will come with some level of spend, certainly.
On just the U.S. commercial strategy and evolution there, have you identified any additional areas that need resources to kind of accelerate that initiative?
I think we're always investing in the team and wanting to put them in a position to lead and succeed. Nothing unique I'd say with respect to that level of investment. It's ongoing. It has been for some time. Nothing specific that I'd call out on that from an investment perspective right now.
Okay, great. All right. Well, we're at time. Ron and Mark, I really appreciate you guys taking the time. For everyone who tuned in, I appreciate you dialing in. With that, thanks so much, and we can wrap there.