RXSIGHT, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes thereto for the year endedDecember 31, 2021 , included in our Annual Report on Form 10-K filed with theU.S. Securities and Exchange Commission onMarch 8, 2022 . In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Part II, Item 1A (Risk Factors) of, and elsewhere in, this Quarterly Report on Form 10-Q. See "Special Note Regarding Forward-Looking Statements." We are a commercial-stage medical technology company dedicated to improving the vision of patients following cataract surgery. Our proprietaryRxSight system, comprised of our LAL, LDD and accessories, is the first and only commercially available intraocular lens ("IOL") technology that enables doctors to customize and optimize visual acuity for patients after cataract surgery. Our LAL is made of proprietary photosensitive material that changes shape in response to specific patterns of ultraviolet light generated by our LDD. With theRxSight system, the surgeon performs a standard cataract procedure to implant the LAL, determines refractive error with patient input after healing is complete, and then uses the LDD to modify the lens with the exact amount of visual correction needed to achieve the patient's desired vision outcomes. Alternative IOL technologies, in contrast, are not adjustable following the procedure and therefore require patients to make pre-operative choices about their visual preferences, which can often result in patient dissatisfaction when visual outcomes fail to meet expectations. We designed ourRxSight system to maximize patient and doctor satisfaction through superior visual outcomes. In the pivotal study that formed the basis for our FDA approval, the observed rate of eyes with 20/20 or better uncorrected distance visual acuity for our LAL was 70.1% and in follow-up readings of 51 patients 82.4% achieved 20/20 or better uncorrected distance visual acuity with our LAL. This compares favorably to the results of pivotal studies with similar study designs and patient populations that supported FDA approval of Alcon's Acrysof Toric (38.4%), and J&J's Tecnis Toric (43.6%). We began commercializing our solution inthe United States in the third quarter of 2019 and are focused on establishing theRxSight system as the standard of care for premium IOL procedures. As ofJune 30, 2022 , we had an installed base of 294 LDDs in ophthalmology practices, and since our inception, surgeons have performed over 26,000 surgeries with ourRxSight system. We compete in the IOL market in theU.S. The LAL is a premium IOL which is partially reimbursable under Medicare, and in some cases by private payors. Premium IOLs are sold at a higher price point than conventional IOLs, as they provide refractive correction of vision unlike a conventional IOL that only replaces the natural lens with a clear lens (which is the standard for Medicare reimbursement). Our products are also approved for sale inEurope andMexico . We are not actively marketing our products for sale inEurope orMexico ; however, we have approval in both for improving uncorrected visual acuity by adjusting the LAL power to correct residual postoperative refractive error. We have one customer inGermany and one inMexico , both of which have participated in our clinical studies and perform commercial cases. We are aDelaware corporation, headquartered inAliso Viejo, California , and have one wholly owned subsidiary. Our subsidiary is located inAmsterdam, Netherlands , which itself has one wholly owned subsidiary inGermany and a registered branch in theUnited Kingdom . Our commercial strategy involves a "razor and razor blade" sales model, through which we aim to drive adoption of ourRxSight system by increasing our installed base of LDDs, which enable consumable revenues from the sale of our LALs. We believe this commercial strategy over time may provide a degree of predictability in terms of our commercial growth and a consumable revenue stream from sales of our LALs. We are currently focused on driving adoption with surgeons performing a high volume of premium cataract procedures. According to the 2021 Premium Cataract Surgery Market Report ("Market Scope 2021 Premium Report"), approximately 10,000 surgeons perform cataract surgeries inthe United States and we estimate that as many as 3,000 surgeons performed approximately 70% to 80% of the premium procedures inthe United States in 2021. In 2022, according to the Market Scope 2022 IOL Market Report the ("Market Scope 2022 IOL Market Report"), conventional cataract surgery is expected to comprise 88% of procedures worldwide and 80% of procedures inthe United States ; however, revenue for the premium IOL market is approximately 42% of the
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worldwide IOL market, due to higher lens pricing, and is expected to grow significantly faster. In 2022, according to the Market Scope 2022 IOL Market Report, conventional IOL market revenues are expected to be approximately$2.9 billion worldwide and is expected to grow to$4.2 billion in 2027, a CAGR of 7.3%. In 2022, according to the Market Scope 2022 IOL Market Report, premium IOL revenues are expected to be approximately$740 million inthe United States and$2.2 billion worldwide and are expected to grow at a CAGR of 11.0% and 12.5%, respectively, through 2027. We believe this provides an attractive and concentrated market opportunity addressable with a focused sales force. We currently employ a sales team that, as ofJune 30, 2022 , includes 20 LDD sales personnel, 18 LAL sales personnel, and a group of approximately 75 clinical specialists, field service, customer service, and marketing personnel. Our sales personnel generally have relevant experience selling cataract surgery products, as well as medical device service and clinical experience. We believe increasing the number of sales representatives, practice development personnel and clinical trainers will help facilitate further adoption of our products among existing customer accounts as well as broaden awareness of our products to new accounts. While we intend to initially focus our growing commercial efforts in theU.S. , in the future, we may selectively pursue commercial expansion inAsia ,Europe ,Australia or other geographies with significant market opportunity for premium IOLs, leveraging our CE and FDA approvals. Our near-term research and development activities are focused on improving customer experience, expanding our indications for use, reducing manufacturing costs and lifecycle management and enhancements to theRxSight system to improve clinical outcomes to drive product adoption. We believe that over time, our adjustable lens solution can be used to address a broad range of cataract surgery patients, including those that would otherwise elect for a conventional cataract procedure today. Additional development and clinical studies that are designed to provide clinical evidence of the safety and effectiveness of our existing and future generations of products are also anticipated. Finally, we may in the future seek to acquire or invest in additional businesses, products or technologies that we believe could complement or expand our portfolio, enhance our technical capabilities or otherwise offer growth opportunities. OnJuly 29, 2021 , we completed our Initial Public Offering ("IPO"), which resulted in the issuance and sale of 8,248,549 shares of common stock, including 898,549 shares sold pursuant to the exercise of the underwriters' over-allotment option at the IPO price of$16.00 per share. We received net proceeds of approximately$119.6 million from the IPO, after deducting underwriters' discounts and commissions of$9.2 million and offering costs of$3.2 million . Prior to our IPO, our primary sources of capital had been private placements of preferred stock, a structured transaction with a strategic partner, debt financing and revenue from sales of our products. Since inception, we raised a total of$191.3 million in net proceeds from private placements of preferred stock,$120.0 million from a strategic partner, approximately$39.2 million in net proceeds from a credit facility, and approximately$12.4 million from issuance of common stock from stock option exercises and shares issued from the employee stock purchase plan. As ofJune 30, 2022 , we had cash and cash equivalents of$24.0 million , short-term investments of$104.6 million , long-term debt of$39.9 million and an accumulated deficit of$513.6 million . We generated net sales of$20.3 million and had a net loss of$34.3 million for the six months endedJune 30, 2022 , as compared to sales of$8.4 million and net loss of$20.3 million for the six months endedJune 30, 2021 . We have made, and intend to continue to make, significant investments in our sales and marketing organization, primarily sales representatives, clinical applications specialists and technical service personnel to support new customers and upgrades and practice development personnel to facilitate adoption of use of our LALs among existing accounts. We will expand our marketing efforts with additional advertising and customer tools to expand their local advertising. We will also continue to make significant investments in research and development and clinical expenses to make enhancements in our current products. As a public company, we have incurred, and will continue to incur costs that we have not previously incurred or have previously incurred at lower rates, including increased costs for employee-related expenses, director and officer insurance premiums, audit and legal fees, investor relations fees, fees to members of our board of directors and expenses for compliance with public-company 28
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reporting requirements. Because of these and other factors, we expect to continue to incur substantial net losses and negative cash flows from operations for at least the next several years.
Key business metrics
We regularly review several operating and financial metrics to evaluate our
business, measure our performance, identify trends affecting our business,
formulate our business plan and make strategic decisions. We believe the number
of LDDs installed, LALs implanted and the number of doctors performing surgery
with our products are indicators of our ability to drive adoption and generate
revenue. We believe these are important metrics for our business. Due to our
limited commercial history, we may not yet be able to accurately assess
seasonality and other trends, and we will continue to evaluate our business in
the future using these and other financial metrics as we observe trends in our
business.
We believe the number of LDDs sold in each quarter and our LDD installed base at
the end of each period are important metrics as they represent an installed base
into which we can sell our LALs.
2022 2021
Q1 Q2 Q1 Q2 Q3 Q4
LDDs Sold 40 49 13 25 31 45 Installed Base at End of Period 246 294 * 105 130 161 206
* Reduced by one LDD taken out of installed base in Q2 2022.
We believe the number of LALs sold (reported as implanted in a patient) in each quarter is an important metric indicative of adoption and utilization of ourRxSight system. During the quarter endedJune 30, 2022 , we saw increased LDD sales of 24 and increased LAL sales of 3,575 when compared to the quarter endedJune 30, 2021 from strong adoption of ourRxSight technology by practices and doctors combined with an increased LDD installed base. 2022 2021 Q1 Q2 Q1 Q2 Q3 Q4 LALs Sold 4,166 5,400 1,567 1,825 1,977 2,959
Components of results of operations
Sales
Our sales consist of the sale of LALs used in cataract surgeries, the LDDs for delivering light to the LALs to adjust the lens post-surgery, as needed, and service and accessories. Revenue is derived from sales of products primarily in theU.S. and sales to a single customer in each ofGermany andMexico . Customers are primarily comprised of ophthalmic practices (LDD sales) and ambulatory surgery centers (LAL sales). We expect revenue to increase in absolute dollars as we expand our sales organization and sales territories, add customers, expand the base of doctors that are trained to use our products, and expand awareness of our products including our ActivShield™ technology with new and existing customers and as doctors perform more premium procedures using our products.
LALs are held at customer sites on consignment. The single performance obligation is satisfied, and revenue is recognized for LALs upon customer notification that the LALs have been implanted in a patient.
Our LDD contracts contain multiple performance obligations bundled into one transaction price, with all obligations generally satisfied within one year. The LDD capital asset and related components revenue is recognized upon installation and customer acceptance, training is recognized upon completion of training by at least one doctor, and the initial warranty and service agreement are recognized ratably over the service period. After the first year, service contracts can be purchased separately on a standalone basis. We recorded contract liabilities of$738,000 and$540,000 related to such service agreements as ofJune 30, 2022 andDecember 31, 2021 , respectively. Revenue for such service agreements will be recognized over the term of each contract.
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For the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
LDD (including training)
5,349 1,792 9,453 3,321
Service warranty, service
contracts, and accessories 328 140 595 258
$ 11,360 $ 4,897 $ 20,301 $ 8,381
For the three and six months ended June 30, 2022 we did not have any one
customer who individually accounted for more than 10% of revenue. For the three
months ended June 30, 2021 , we had one customer who individually accounted for
approximately 13% of revenue. For the six months ended June 30, 2021 , we had no
customer who individually accounted for 10% or more of revenue.
Cost of sales
Cost of sales consists of materials, labor and manufacturing overhead internally to produce our products as well as the cost of shipping and handling. Overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management, including stock-based compensation. Cost of sales also includes depreciation expense for production equipment and certain direct costs such as shipping costs and royalty and license fee expense. Shipping costs billed to customers are included in sales. We expect cost of sales to increase in absolute dollars as our revenue grows and more of our products are sold.
We calculate gross margin as gross profit/loss divided by sales. Our gross margin has been and will continue to be affected by a variety of factors, including average selling prices, product sales mix, production and ordering volumes, manufacturing costs, product yields, headcount and cost-reduction strategies. Our gross margin could fluctuate from quarter to quarter as we introduce new products, and as we adopt new manufacturing processes and technologies.
Our LDD, as is typical of many medical device capital equipment products, has a low gross margin, as the material cost of the LDD is significant, representing over 60% of the total cost to manufacture. In addition, we do not mark up our LDD substantially, as LDDs, once sold, generate LAL procedures. Our LAL gross margin is higher, with low material cost but high fixed overhead costs. As our manufacturing volume of the LAL increases, we expect the gross margin may improve significantly.
Operating expenses
Selling, general and administrative expenses
Selling, general and administrative, or SG&A, expenses consist primarily of personnel-related expenses, including wages, incentive bonuses, stock-based compensation and benefits related to administrative, selling and marketing functions, education programs for doctors, commercial operations and analytics, finance, information technology and human resource functions. Other SG&A expenses include sales commissions, travel expenses, promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, training for doctors, professional services fees such as legal, patent registration costs, accounting, audit and tax fees, board of directors' expenses, insurance costs, general corporate expenses and facilities-related expenses. We expect SG&A expenses to continue to increase in absolute dollars as we expand our sales and marketing organization and infrastructure to both drive and support the anticipated growth in revenue and due to additional legal, accounting audit and tax fees, insurance and other expenses associated with being a public company.
Research and development expenses
Research and development expenses consist of expenses incurred in performing research and development and engineering activities for new products and technology, clinical studies and regulatory submissions and compliance. The expenses include personnel-related expenses, including wages, incentive bonuses, stock-based compensation 30
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and benefits, costs incurred at clinical trial sites, regulatory and manufacturing engineering costs, including those related to various laboratory and research equipment and supplies, expense of pre-approved inventory utilized for clinical trial and research purposes, costs incurred in the development of manufacturing processes in excess of capitalizable value, fees paid to consultants and contract clinical organizations and direct FDA related costs and costs related to FDA premarket approval submission preparation. Research and development expenses are expensed as incurred. We expect R&D expenses as a percentage of revenue to vary over time depending on the level and timing of our new product development efforts, as well as our clinical development, clinical trials and registries and other related activities.
Change in fair value of warrants
Change in fair value of warrants consists of gains and losses resulting from the remeasurement of the fair value of our preferred stock warrant liabilities at each balance sheet date. We recorded adjustments to the estimated fair value of the preferred stock warrants until the conversion of the underlying convertible preferred stock into common stock which occurred immediately prior to the completion of our IPO inJuly 2021 .
Expiration of warrant
Expiration of warrants represents the gain from the expiration of warrants unexercised and the reversal of the corresponding warrant liability.
Interest expense
Interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our indebtedness.
Interest and other income
Interest and other income consists primarily of interest income earned on our cash and cash equivalents.
Comprehensive loss All components of comprehensive loss, including net loss, are reported in the condensed consolidated financial statements in the period in which they are recognized. Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on short-term investments and foreign currency translation adjustments.
Results of operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months endedJune 30, 2022 and 2021 together with the dollar increase or decrease and percentage change in those items. 31
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Three Months Ended June 30, Change
(in thousands, except
percentages) 2022 2021 ($) (%)
Sales $ 11,360 $ 4,897 $ 6,463 132.0 %
Cost of sales 6,572 5,709 863 15.1
Gross profit (loss) $ 4,788 $ (812 ) $ 5,600 (689.7 )%
Operating expenses:
Selling, general and
administrative 14,388 6,502 7,886 121.3
Research and development 6,192 6,563 (371 ) (5.6 )
Total operating expenses 20,580 13,065 7,515 57.5
Loss from operations $ (15,792 ) $ (13,877 ) $ (1,915 ) 13.8 %
Other income (expense), net:
Change in fair value of warrants - 1,214 (1,214 ) (100.0 )
Interest expense (1,136 ) (826 ) (310 ) 37.5
Interest and other income 196 15 181 1,206.7
Total other (expense) income,
net: (940 ) 403 (1,343 ) (333.2 )%
Loss before income taxes (16,732 ) (13,474 ) (3,258 ) 24.2
Income tax expense 0 3 (3 ) (97.9 )
Net loss $ (16,732 ) $ (13,477 ) $ (3,255 ) 24.1 %
Other comprehensive loss
Unrealized loss on short-term
investments (76 ) (4 ) (72 ) 1,804.2
Foreign currency translation
(loss) gain (9 ) 1 (10 ) (1,001.7 )
Total other comprehensive loss (85 ) (3 ) (82 ) 2,739.5
Comprehensive loss $ (16,817 ) $ (13,480 ) $ (3,337 ) 24.8 %
Sales
Sales increased by $6.5 million , or 132.0%, to $11.4 million for the three
months ended June 30, 2022 , from $4.9 million for the three months ended June
30, 2021 . The increase in total sales was primarily due to incremental sales of
3,575 LALs and 24 LDDs from strong adoption of our RxSight technology by
practices and doctors combined with an increased LDD installed base.
Cost of sales
Cost of sales increased by$0.9 million , or 15.1%, to$6.6 million for the three months endedJune 30, 2022 , from$5.7 million for the three months endedJune 30, 2021 , primarily due to the incremental increase in the number of LALs and LDDs sold during the period. Gross margin increased to 42.2% in the three months endedJune 30, 2022 , from (16.6)% for the three months endedJune 30, 2021 primarily due to improved operating leverage and favorable product mix. Gross margin for the three months endedJune 30, 2021 was negatively impacted by a$1.7 million reserve for excess LAL inventory as a result of the introduction of our updated LAL including our ActivShield technology.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by$7.9 million , or 121.3%, to$14.4 million for the three months endedJune 30, 2022 , from$6.5 million for the three months endedJune 30, 2021 . This increase was primarily attributable to an increase in selling and marketing costs of$5.8 million mainly due to increased salaries from increased headcount, sales commissions, incentive bonuses and employee benefits of$3.5 million ,$0.6 million of increased stock-based compensation expense due to increased headcount,$0.7 million in additional post market study costs, new customer acquisition costs and increased travel costs of$0.6 million from increased LDD sales and increased tradeshow costs of$0.4 million when compared to the three months endedJune 30, 2021 . General and administrative expenses increased$2.1 million due to increased personnel expenses of$0.6 million primarily due to increased headcount, reinstatement of incentive bonuses,$0.6 million increased costs related to operating as a public company and increased stock-based compensation of$0.6 million when compared to the three months endedJune 30, 2021 .
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Research and development expenses
Research and development expenses decreased by$0.4 million , or 5.6%, to$6.2 million for the three months endedJune 30, 2022 , from$6.6 million for the three months endedJune 30, 2021 . This decrease was primarily attributable to decreased clinical study costs.
Other income (expense), net
Other income (expense), net, increased by$1.3 million to expense of$0.9 million for the three months endedJune 30, 2022 from income of$0.4 million for the three months endedJune 30, 2021 due an increase in interest expense of$0.3 million on our amended term loan due to higher average outstanding balances and increased interest paid which were offset by the change in the fair value of liability classified warrants of$1.2 million .
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Comparison of the six months ended
The following table summarizes our results of operations for six months ended
Six Months Ended June 30, Change
(in thousands, except
percentages) 2022 2021 ($) (%)
Sales $ 20,301 $ 8,381 $ 11,920 142.2 %
Cost of sales 11,752 8,074 3,678 45.6
Gross profit $ 8,549 $ 307 $ 8,242 2684.7 %
Operating expenses:
Selling, general and
administrative 28,008 12,113 15,895 131.2
Research and development 12,911 13,206 (295 ) (2.2 )
Total operating expenses 40,919 25,319 15,600 61.6
Loss from operations $ (32,370 ) $ (25,012 ) $ (7,358 ) 29.4 %
Other income (expense), net:
Change in fair value of warrants - 1,214 (1,214 ) (100.0 )
Expiration of warrant - 5,018 (5,018 ) (100.0 )
Interest expense (2,196 ) (1,524 ) (672 ) 44.1
Interest and other income 242 32 210 656.7
Total other income (expense),
net: (1,954 ) 4,740 (6,694 ) (141.2 )%
Loss before income taxes (34,324 ) (20,272 ) (14,052 ) 69.3
Income tax expense 4 10 (6 ) (63.9 )
Net loss $ (34,328 ) $ (20,282 ) $ (14,046 ) 69.3 %
Other comprehensive loss
Unrealized (loss) gain on
short-term investments (150 ) 3 (153 ) (5,105.1 )
Foreign currency translation loss (13 ) (3 ) (10 ) 327.3
Total other comprehensive loss (163 ) - (163 ) -
Comprehensive loss $ (34,491 ) $ (20,282 ) $ (14,209 ) 70.1 %
Sales
Sales increased by $11.9 million , or 142.2%, to $20.3 million for the six months
ended June 30, 2022 , from $8.4 million for the six months ended June 30, 2021 .
The increase was due to incremental sales of 6,174 LALs primarily due to an
increased LDD installed base and incremental sales of 51 LDDs from strong
adoption of our RxSight technology by practices and doctors combined with an
increased LDD installed base.
Cost of sales
Cost of sales increased by $3.7 million , or 45.6%, to $11.8 million for the six
months ended June 30, 2022 from $8.1 million for the six months ended June 30,
2021 , primarily due to the increase in the number of LALs and LDDs sold during
the period. Gross margin increased to 42.1% for the six months ended June 30,
2022 , reflecting favorable product mix, from 3.7% for six months ended June 30,
2021 . The six months ended June 30, 2021 were negatively impacted as a result of
recording a $1.7 million reserve for the six months ended June 30, 2021 that did
not recur in the six months ended June 30, 2022 for excess LAL inventory as a
result of the introduction of our updated LAL including our ActivShield
technology.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by$15.9 million , or 131.2%, to$28.0 million for the six months endedJune 30, 2022 , from$12.1 million for the six months endedJune 30, 2021 . The increase was primarily driven by an increase in selling and marketing related expenses of$11.7 million due mainly to additional selling and marketing headcount costs of$6.9 million ,$1.1 million in higher selling and marketing stock-based compensation expenses, increased travel costs of$1.3 million due to increased LDD sales and the temporary reduction in selling and marketing travel costs during the six months endedJune 30, 2021 caused by COVID-19 and increased tradeshow costs of$0.7 million and increased materials and post market study cost of$1.7 million .
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General and administrative costs increased$4.2 million , due to increased personnel expenses of$1.1 million primarily due to increased headcount,$1.4 million in higher general and administrative stock-based compensation expenses and$1.7 million in higher administrative fees related to being a public company.
Research and development expenses
Research and development expenses decreased by$0.3 million , or 2.2%, to$12.9 million for the six months endedJune 30, 2022 , from$13.2 million for the six months endedJune 30, 2021 . This decrease was primarily attributable to decreased clinical study costs.
Other income (expense), net
Other income (expense), net, increased by$6.7 million to$2.0 million for the six months endedJune 30, 2022 , from income of$4.7 million for the six months endedJune 30, 2021 , due primarily to the change in fair value of warrant liabilities of$1.2 million , gain on expiration of a warrant of$5.0 million and$0.7 million of increased interest expense on our amended term loan due to higher average outstanding balances and increased interest paid.
Liquidity and capital resources
Sources of liquidity
We have incurred significant operating losses and negative cash flows from operations since our inception, and we anticipate that we will incur significant losses for at least the next several years. As ofJune 30, 2022 , we had cash, cash equivalents and short-term investments of$128.6 million . For the six months endedJune 30, 2022 , and 2021, our loss from operations were$32.4 million and$25.0 million , respectively. We had an accumulated deficit of$513.6 million as ofJune 30, 2022 .
Prior to our IPO, which we completed in
OnJuly 29, 2021 , we completed our IPO through an underwritten sale of 8,248,549 shares of its common stock at a price of$16.00 per share. The aggregate net proceeds from the offering, inclusive of an additional 898,549 common shares sold pursuant to the exercise of the underwriters' over-allotment option, after deducting underwriting discounts and commissions and other offering expenses, were approximately$119.6 million .
Term Loan
OnMay 3, 2022 , we entered into a Second Amendment ("Second Amendment") to the Term Loan (as amended through the Second Amendment, ("Amended Term Loan"). The Amended Term Loan increased the loan and security agreement to$60.0 million , of which$40.0 million was fully funded as ofMay 3, 2022 from the original term loan. Under the Amended Term Loan, we may borrow an additional amount of up to$10.0 million throughJune 30, 2023 , upon satisfaction of the applicable drawdown conditions and we achieve sufficient trailing twelve-month sales as provided in the agreement for the measurement period endingMarch 31, 2023 . Subject to the terms and conditions of the Amended Term Loan, we may also borrow an additional amount of up to$10.0 million throughSeptember 30, 2023 , upon satisfaction of the applicable drawdown conditions and we achieve sufficient trailing twelve-month sales as provided in the agreement for the measurement period endingJune 30, 2023 . The Amended Term Loan bears interest at a rate per annum equal to the greater of (i) 9.25% or (ii) 1-Month Term Secured Overnight Financing Rate ("SOFR") (or, if greater, 0.16%) plus an applicable margin of 9.09%. If there is an event of default under the Amended Term Loan additional interest of 5% applies. The Amended Term Loan extends the maturity date of the loan and security agreement, which was due to expire onOctober 1, 2025 , toFebruary 1, 2027 . The Company refers to its$60.0 million Amended Term Loan as its credit facility. See Note 6 - Term Loan in the Notes to the unaudited condensed consolidated financial statements included in this quarterly report. Funding requirements
Our future liquidity and capital funding requirements will depend on numerous factors, including:
• our sales growth;
•
our research and development efforts;
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•
our sales and marketing activities;
•
working capital investments, primarily in inventories and accounts receivable;
•
debt service and debt covenant requirements;
•
our ability to raise additional funds or borrow on our credit facility to finance our operations;
•
the outcome, costs and timing of any clinical trial results for our current or future products;
•
the emergence and effect of competing or complementary products;
•
our ability to maintain, expand, enforce and defend our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or other intellectual property rights;
•
our ability to retain our current employees and the need and ability to hire additional management, sales, research and development, scientific and customer support personnel;
•
the terms and timing of any collaborative, licensing or other arrangements that we have or may establish;
•
operating and finance lease payments for our facilities;
•
the extent to which we acquire or invest in businesses, products or technologies; and
•
the impact of the COVID-19 pandemic.
Based on our current planned operations, we expect that our current cash, cash equivalents and short-term investments will be sufficient to fund our operations for the next 12 months after the date our most recent financial statements were issued. Our ability to continue as a going concern is dependent upon our ability to successfully secure sources of financing from equity or debt securities, loans or collaborative agreements and ultimately achieve profitable operations. In the long-term it is likely we will require additional financing from debt or equity to satisfy our liquidity requirements, fund working capital and pay our obligations. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us, if at all. If adequate funds are not available on acceptable terms when needed, we may be required to significantly reduce operating activities, which may have a material adverse effect on our business and/or results of operations and financial condition. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Additional capital may not be available on reasonable terms, or at all.
See Part II, Item 1A (Risk Factors) of this Quarterly Report on Form 10-Q for additional risks associated with our substantial capital requirements.
Summary statement of cash flows
The following table sets forth the primary sources and uses of cash, cash equivalents, and restricted cash for each of the periods presented below:
For the Six Months Ended June 30,
(unaudited)
2022 2021
Net cash (used in) provided by:
Operating activities $ (29,808 ) $ (22,231 )
Investing activities 28,985 33,680
Financing activities 480 16,391
Effect of foreign exchange rate on cash, cash
equivalents
and restricted cash (14 ) (3 )
Net (decrease) increase in cash, cash equivalents
and restricted cash $ (357 ) $ 27,837
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Cash used in operating activities
Net cash used in operating activities for the six months endedJune 30, 2022 , was$29.8 million , consisting primarily of a net loss of$34.3 million , a change in operating assets and liabilities of$3.3 million , partially offset by non-cash stock-based compensation of$5.6 million , and depreciation and amortization of$2.0 million . Net cash used in operating activities for the six months endedJune 30, 2021 , was$22.2 million , consisting primarily of a net loss of$20.3 million , a non-cash gain on expiration of an unexercised warrant of$5.0 million , an increase in operating assets and liabilities of$2.3 million , partially offset by non-cash stock-based compensation of$2.6 million , provision for excess and obsolete inventory of$1.7 million , and depreciation and amortization of$1.9 million .
Cash provided by investing activities
Net cash provided by investing activities for the six months endedJune 30, 2022 , was$29.0 million , consisting of net maturities of short-term investments of$30.4 million which were offset by purchases of property and equipment of$1.4 million .
Net cash provided by investing activities for the six months ended
Cash provided by financing activities
Net cash provided by financing activities for the six months endedJune 30, 2022 , was$0.5 million , primarily from proceeds from issuances of common stock of$1.0 million partially offset by$0.4 million for payments for employee taxes related to stock compensation. Net cash from financing activities for the six months endedJune 30, 2021 , was$16.4 million , consisting primarily of proceeds from a draw on the Company's term loan of$15.0 million and proceeds from stock options exercised of$1.3 million .
Contractual obligations and commitments
We have a standby letter of credit, expiringSeptember 30, 2024 , issued by a financial institution as a required security for one operating lease. The aggregate amount of the letter of credit was$0.3 million as ofJune 30, 2022 andDecember 31, 2021 , respectively.
Critical accounting policies, significant judgments and use of estimates
Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, which may affect our future financial statement presentation, financial condition, results of operations and cash flows. We believe that accounting policies we have identified as critical involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, those are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations. For a summary of our critical accounting policies and estimates, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K filed with theSEC onMarch 8, 2022 . There have been no material changes to our critical accounting policies and estimates during the six months endedJune 30, 2022 .
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Our significant accounting policies are described in the notes to our financial
statements included in our Annual Report on Form 10-K filed with the
Indemnification agreements
We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement, misappropriation or other violation claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal.
Recent accounting pronouncements
See the section titled "Summary of Significant Accounting Policies-Recent Accounting Pronouncements" in Note 2 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information.
Emerging growth company and smaller reporting company status
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and an exemption from the requirements to obtain a non-binding advisory vote on executive compensation or golden parachute arrangements. We have elected to take advantage of certain of the reduced disclosure obligations in this Quarterly Report on Form 10-Q and may elect to take advantage of other reduced reporting requirements in our future filings with theSEC . As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests. The JOBS Act permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. However, we have chosen to irrevocably "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. We will remain an emerging growth company until the earliest of: (i) the last day of the fiscal year following the fifth anniversary of the consummation of our initial public offering (i.e.December 31, 2026 ); (ii) the last day of the fiscal year in which we have total annual gross revenue of at least$1.07 billion ; (iii) the last day of the fiscal year in which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded$700.0 million as of the last business day of the second fiscal quarter of such year; or (iv) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period. We are also a "smaller reporting company" as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than$250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than$100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than$700.0 million measured on the last business day of our second fiscal quarter.
COVID-19 pandemic, supply chain constraints and inflation
We are subject to the continuing risks related to the public health crises, primarily the global pandemic associated with COVID-19. The COVID-19 outbreak may continue to negatively impact our operations and revenues and overall financial condition by decreasing the number of ourRxSight systems sold. While the potential 38
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economic impact brought by and the duration of COVID-19 may be difficult to assess or predict, the widespread pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.
We rely on third parties, including single and sole source suppliers, to manufacture certain components and subcomponents of our products. We do not have long-term supply agreements with, or guaranteed commitments from our suppliers, including single and sole source suppliers. We utilize purchase orders or blanket orders covering the medium term of 18-24 months for the majority of our supplier base. While we depend on our suppliers to provide us and our customers with materials in a timely manner that meet our and their quality, quantity and cost requirements, since the start of the COVID-19 pandemic and resultant supply chain constraints, vendors will miss delivery dates, extend delivery dates or in some circumstances cancel purchase orders because these suppliers may encounter problems during manufacturing for a variety of reasons, any of which could delay or impede their ability to meet our demand. The expansion of global lead times, particularly inEurope andAsia , related to the COVID-19 pandemic, and COVID related shutdowns again inChina and the more recently the war inUkraine , has resulted in the lack of availability of raw materials, including semiconductors, computers, monitors electronic parts, metals, packaging, adhesives, resins and subcontract painted components. Certain suppliers have passed on higher prices, surcharges and expedited shipping fees to defray the higher commodity prices they are paying due to short supply and pushed out delivery dates. Additionally, due to these supply chain constraints we will identify and qualify new vendors or substitute components which requires testing, validations and documentation adding to internal costs and diverting engineering resources from other projects. Previously, we deferred the introduction of our lower cost-to-manufacture LDD to the market until 2023, as it was less difficult to procure components and subcomponents for our existing LDD than the lower cost-to-manufacture LDD. OnJune 30, 2022 , we received notification from theFood and Drug Administration ("FDA") that additional information will be required for the approval of its lower-cost-to-manufacture LDD. We believe we can provide the additional requested information to the FDA and obtain FDA approval, however we are also procuring material for our current LDD to mitigate any delay in theFDA's approval, allowing us to sell both LDDs, which have the same functionality. Our management's expectation is that the Company's gross margin will be impacted by its decision to continue to produce the current LDD, which is more expensive to produce than the lower cost-to-manufacture LDD, but it is necessary in order to mitigate potential supply chain issues and delay in FDA approval of the lower cost-to-manufacture LDD. While we have taken measures to mitigate business continuity risk, including increasing standard lead times, payment of expedite fees, issuance of a limited number of non-cancelable purchase orders, advance delivery of critical components ahead of normal delivery dates and second sourcing, our suppliers may cease producing the components we purchase from them or otherwise decide to cease doing business with us. Any supply interruption from our suppliers or failure to obtain additional suppliers for any of the components or subcomponents used in our products would limit our ability to manufacture our current and new products and could have a material adverse effect on our business, financial condition and results of operations. Uncertain macroeconomic conditions including recent inflationary pressures and the rise in interest rates have created significant uncertainty in theU.S. economy and capital markets, which is expected to continue into 2023 and beyond and could negatively impact our financial results and liquidity.
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