Sight Sciences, Inc. (NASDAQ:SGHT) Q3 2022 Earnings Call Transcript

Sight Sciences, Inc. (NASDAQ:SGHT) Q3 2022 Earnings Call Transcript November 13, 2022

Operator: Good day, and thank you for standing by. Welcome to the Sight Sciences Third Quarter 2022 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. And, I would now like to hand the conference over to your speaker today, Mr. Trip Taylor. Sir, please go ahead.

Philip Taylor: Thank you for participating in today's call. Presenting today are Sight Sciences' Co-Founder and Chief Executive Officer, Paul Badawi; and Chief Financial Officer, Jesse Selnick. Earlier today, Sight Sciences released financial results for the 3 months ended June 30, 2022. A copy of the press release is available on the company's website at investors.sightsciences.com. I'd like to remind everyone that comments made by management today and answers to questions will include forward-looking statements within the meaning of the federal securities laws. Those include statements related to Sight Sciences' anticipated financial performance and operating results, market opportunity, the future impact of COVID-19 on operations, business strategy, and plans for developing and marketing new products.

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Forward-looking statements are based on estimates and assumptions as of today and are neither promises nor guarantees and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements. A description of some of the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements on this call can be found in the Risk Factors section of the Annual Report on Form 10-K filed March 24, 2022 and other filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly update or revise any forward-looking statements except as required by law. For more information, please refer to the forward-looking statement notices and risk factors in the recent SEC filings.

I will now turn the call over to Paul.

Paul Badawi: Thanks, Trip, and thank you all for joining us. Our third quarter results reflect continued strength and execution across our entire business. We are pleased with the progress we were making, penetrating and expanding both the MIGS and dry eye treatment markets, while taking the necessary steps to position the business to reach positive free cash flow in 2025. In the period, we achieved total revenue of $18.7 million, representing 43% growth year-over-year and 8% growth sequentially. Surgical Glaucoma revenue grew 37% year-over-year and 7% sequentially to $17.1 million in the third quarter, and Dry Eye revenue grew 145% year-over-year and 21% sequentially. We ended the quarter with just under $200 million of cash, which we currently expect will be more than enough to support our growth plan until we reach cash flow breakeven.

And, Jesse will elaborate on in his remarks we plan to achieve our intermediate growth targets with more moderate headcount growth and significant reductions in non-labor operating expenses. We expect to significantly reduce cash burn in 2023 and going forward, while driving continued robust top-line growth. We achieved several milestones in the third quarter, including: one, the successful introduction of SION, our innovative bladeless goniotomy device; two, the complete enrollment of SAHARA, our transformative dry eye RCT for the TearCare system; and three, the publication of multiple peer-reviewed articles featuring compelling clinical data that demonstrates expansive market opportunities for both OMNI and TearCare. Each of these commercially minded achievements strengthens our foundation for long-term market leadership and charge greenfield paths to growth in both glaucoma and dry eye.

Now, I would like to discuss the highly productive third quarter in detail for both of our business units, starting with Surgical Glaucoma. Our core mission in Surgical Glaucoma is to equip surgeons with the best possible solutions for their primary open-angle glaucoma or POAG patients, regardless of severity of disease or cataract lens status. The bulk of today's penetrated MIGS market consists of procedures performed in conjunction with cataract surgery, due to the narrower indications for use of legacy implants. This has resulted in an artificial bifurcation of the MIGS market into combination cataract, a $1 billion opportunity; and standalone, a $5 billion opportunity. We further segment the market based on severity of disease with mild and moderate patients, each accounting for approximately 40% of the patient population, and advanced patients representing the remaining 20% of the patient population for both a combination cataract and standalone segments.

Mild and early moderate combination cataract patients comprise the most well established segment of the MIGS market today, and surgeons have the broadest array of surgical device options to treat these patients. In rough numbers, this represents approximately a $400 million opportunity for patients with mild POAG and a $200 million opportunity for patients with early moderate POAG. The $600 million segment representing just 10% of the overall MIGS opportunity has attracted the most commercial interest thus far, due to the narrower indications for use of first mover products coupled with lower expectations for disease impact and changes in patients' sight. We believe the remaining 90% of the market are nearly $5.5 billion opportunity requires a greater level of efficacy and consistency to satisfy the needs of the surgeons and patients.

Stated another way, we believe the vast majority of MIGS market growth over the next decade will be driven by devices that offer increased and reliable efficacy within the rapidly expanding moderate to advanced combination cataract segment, and the entirety of the growing standalone segment. This is where we excel. Today, we offer 2 best-in-class MIGS solutions that have rapidly gained market acceptance, our flagship OMNI Surgical System and our newly introduced SION surgical instrument. SION, the world's first bladeless goniotomy device has been extremely well received by our surgeon customers. And we expect it to thrive in the established penetrated and more competitive mild to early moderate combo cataract segment, especially in cases where considerations such as efficiency and ease of use may take priority.

We anticipate the use of OMNI will continue to expand the combination cataract and standalone segments due to its proven efficacy, superior design and intuitive use. It remains our flagship MIGS product. We believe use of OMNI has extended MIGS interventions to combo cataract patients beyond mild and well into moderate and even advanced disease. When doctors need a strong result, we believe using OMNI is the most effective and trusted solution due to its comprehensive mechanisms of action that can treat the entire 360 degrees of disease conventional outflow pathway and address all sources of outflow resistance. We are confident that OMNI possesses the requisite clinical functionality and clinical results to compel long-term market expansion and penetration of the remaining $5 billion plus MIGS market opportunity.

Our surgical commercial goals are: one, continue expanding the large and growing moderate to advanced disease combination cataract and standalone MIGS segment, based on OMNI's differentiated efficacy profile; two, drive adoption and utilization of SION among specific subsets of surgeons, who may prioritize faster or simpler procedures; and three, increase our total share of MIGS with OMNI and SION, while also growing the overall MIGS market. OMNI's adoption and utilization continues to grow among existing MIGS surgeons. We believe that our efforts to support this adoption and growth have not only resulted in continued shift , but have also expanded the combination cataract segment to include a broader spectrum of POAG patients due to OMNI superior and consistent efficacy.

We continue training new surgeons with our technology, while increasing OMNI utilization and existing accounts. Because of OMNI is differentiated efficacy position, we continue to enjoy outstanding Surgical Glaucoma count retention, especially in the market expansion segments where efficacy really drives decision making. Our brand and identity as the market expanding efficacy leader in MIGS continues to grow as the surgical community, medical societies and payors, better understand the efficacy and consistency of OMNI, as demonstrated in real world results and clinical trials. The support from both new and existing surgeons reaffirms our confidence that the use of OMNI will continue to grow the MIGS market and serve as the foundational MIGS procedure.

OMNI is currently the only device within FDA-cleared indication for ab interno use to lower IOP and post-cataract adults with POAG. Based on its differentiated usability and clinically demonstrated efficacy, we believe OMNI has demonstrated optimal product market fit for continued MIGS market expansion, and we strongly believe in its ability to remain a top of the efficacy driven MIGS market expansion categories. Based on our analysis of third-party projecting claims data and our observations in the field lead us to believe that OMNI continues to expand the MIGS market; our claims analysis indicates that growth in U.S. OMNI shipments outpaced the total MIGS utilization growth rate by over 40% for the LTM period ending in the third quarter of 2022.

We are working to accelerate the adoption of OMNI as the leading standalone MIGS intervention and we continue to focus our efforts on demonstrating the safety and efficacy of OMNI in all use cases through peer-reviewed publications, market education and commercial execution. Over 1 million eyes have received trabecular bypass stents, primarily in mild to moderate combination cataract cases. As glaucoma is a progressive disease, over time these patients may require further intervention to lower their IOP. In October, International Ophthalmology published a peer-reviewed article based on data from TREY, our multicenter IRB approved study designed to evaluate the effectiveness and safety of OMNI in eyes with uncontrolled IOP, despite a history of trabecular microbypass stent implantation, in conjunction with cataract surgery and medication usage.

Overall, the findings demonstrated significant benefits of standalone OMNI intervention for patients with a history of receiving combination cataract stent procedures. This unique clinical data provides strong validation of OMNI'S potential to provide benefits throughout the entire lifecycle of POAG. At the European Glaucoma Society Congress in Greece make surgeon presented OMNI data demonstrating durable safety and efficacy over 3 years with standalone use of OMNI and patients with open-angle glaucoma. We expect to see further studies to corroborate these impressive long-term results in the future. We're also very excited about significant clinical research project involving comparative real world clinical data for the most common MIGS procedures held within the AAO's IRIS real world patient data registry that we believe will help stakeholders including patients, providers and payors better understand the performance of leading MIGS devices in everyday clinical practice.

We look forward to sharing the results of this very informative comparative analysis of clinical evidence based on 1,000s of real world MIGS cases over the coming months. Commercially, our team of glaucoma clinical consultants continue driving standalone utilization of OMNI, we have seen uplift in certain GCC markets, and have identified the initiatives that deliver the greatest impact. We have begun standardizing these best practices throughout our GCC territories to help drive OMNI utilization within our growing installed base. We are learning fast, optimizing our market development and institutionalizing best practices every single day, driving scale and leverage for our commercial efforts that is showing up ultimately in our continued customer stickiness and strong top-line performance.

The entire Sight Sciences' product portfolio was featured in presentations by top KOLs at the American Academy of Ophthalmology and European Society of Cataract and Refractive Surgeons Meetings. We hosted peer discussions between surgeons and provided demonstrations of our products. The level of interest and engagement was very encouraging for both OMNI and SION, the focus of our third and newest growth initiative for Surgical Glaucoma. In mid-August, we launched SION with a group of select surgeons. The initial feedback was extremely positive and we were very pleased with the success of our broader commercial rollout and progress now. SION enables a complementary revenue opportunity, while allowing us to expand our reach to serve specific subsets of customers who may prioritize a faster or simpler procedure.

SION is the world's only bladeless goniotomy device and represents our third consecutive best in category device. Satisfying the American Academy of Ophthalmology definition of goniotomy and aligning with CPT code 65820. SION is designed to allow surgeons to smoothly, efficiently and reliably excise and remove several clock-hours of diseased trabecular meshwork tissue via an ab interno approach. Our target customer for SION includes 3 types of combination cataract MIGS surgeons that are distinct from target OMNI customers: number one, high volume cataract surgeons only looking to perform the quickest MIGS procedures; number two, surgeons who are initially less experienced with MIGS, such as surgical fellows at academic institutions; and number three, surgeons looking for the most cost effective MIGS procedures and facilities that may emphasize procedural profitability.

These surgeons or use cases have very little overlap with our flagship OMNI device. We have seen evidence that some SION surgeons will also consider using OMNI as they grow familiar with the best-in-class technologies we offer. Because our target customers for SION fit within the existing call patterns for our Surgical Glaucoma sales team. The fixed investment necessary for customer acquisition is substantially already in place. Transitioning now to our Dry Eye business, where we are focused on establishing fair market access and reimbursement for dry eye treatment procedures. While TearCare continues to expand the current cash pay market, we remain committed to generating strong clinical data that will help us achieve appropriate reimbursement which, if successful, would hugely expand the evaporative dry eye market.

In August, Clinical Ophthalmology published comparative symptoms clinical data on advanced dry eye patients from the OLYMPIA RCT, which represents further progress establishing TearCare as a leading dry eye treatment. The authors of this analysis concluded that the TearCare procedure delivered superior symptoms improvements, quality of vision and symptom frequency over LipiFlow and patients suffering from advanced dry eye disease. This data reinforces our confidence in the clinical and economic value to TearCare brings to patients, providers and payors. I'm pleased to announce that we completed patient enrollment for our SAHARA RCT ahead of schedule. This keeps us on track to provide a randomized safety and efficacy readout of TearCare versus deleting prescription eye drop medication Restasis by the second half of 2023.

As a reminder, SAHARA was designed with input from medical directors and payors to provide the clinical foundation of obtaining future reimbursement coverage, if successful. In parallel, we are intentionally growing our installed base of TearCare users in today's cash pay market and believe reimbursement would stimulate immediate growth of TearCare procedures. In summary, we remain well positioned to continue distancing ourselves as the market leader in MIGS and dry eye and to increase the number of patients we serve. Our commitment to growing physician adoption and utilization across our product portfolio can support strong growth over the coming years. Leveraging our strong revenue growth trajectory and gross margins we are committed to a disciplined and lean operating budget that will allow us to optimize our considerable resources with a clear path to profitability.

I will now turn the call over to Jesse Selnick, our CFO.

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Jesse Selnick: Thanks, Paul. We posted record third quarter revenue of $18.7 million, representing 43% growth year-over-year and 8.4% growth sequentially. This is an extremely strong result in a weak seasonal quarter in our industry. As a point of comparison in the third quarter of 2021, we grew only 4.5% sequentially that we achieved 77% revenue growth for the year. Both OMNI and TearCare performed well in the quarter that we comfortably exceeded consensus revenue estimates, even without SION small revenue contribution in the tail end of the quarter. Overall, we were quite pleased with our progress as we strengthen our leading position through continued share growth and market expansion in our 2 more established products, and SION fully launches into the market in the fourth quarter and in 2023.

Our Surgical Glaucoma revenues for the third quarter were $17.1 million, up 37% from $12.4 million in the third quarter of 2021 and sequentially up to 7.4%, which represents a nearly 400 basis point improvement over our comparable sequential growth in the third quarter of 2021. We continue to show strong underlying growth fundamentals in retention and ordering facilities. While utilization increased notably which is a critical measuring stick for our market expansion efforts behind. 913 facilities ordered OMNI during the third quarter compared to 875 facilities in the second quarter, demonstrating the continued combination of strong new customer acquisition activity and our high retention rate. Our developed customer retention rate, which is designed to measure the percentage of our embedded facility base from the previous quarter that reorders in the most recent quarter, was over 99% in Q3.

SURGICAL GLAUCOMA customer acquisition funnel remains strong for both products, which creates great momentum for the rest of 2022 and into 2023. In the third quarter of 2022, we trained over 160 new OMNI surgeons in the U.S. bringing us to a total of nearly 2,200 U.S. surgeons trained on OMNI, and also trained over 120 surgeons on SION. Given the universe of U.S., MIGS trained surgeons is estimated to be approximately 5,600. We obviously have a substantial amount of remaining runway they continue to roll out both products and targeted surgeons. The Dry Eye segment revenues for the third quarter were $1.6 million, up 145% from $0.7 million in the third quarter of 2021 and a sequential increase of 20.7% from the second quarter of 2022. We grew our installed base to 881 facilities added September 30, 2022 from 762 as of June 30, 2022 and 497 at the end of the third quarter of 2021.

We were at a super exciting time in our TearCare commercial lifecycle. As we have had great success this year in growing our installed base and are now complementing that activity with efforts to drive utilization and consumption in our base and anticipation of SAHARA readouts in mid-2023 and potential reimbursement breakthroughs thereafter. Our combined gross margin for the third quarter was 84%, consistent with 84% for both the corresponding prior year period and the second quarter of 2022. Gross margin in Surgical Glaucoma was 89% in the third quarter compared to 87% in the prior year period, and 88% in the second quarter of 2022. Gross margin in Dry Eye was 38% in the quarter versus 33% in the prior year period, and 41% in the second quarter of 2022.

We remain very pleased with the performance of our operations group on both sides of the business in the face of global supply chain issues. SG&A expenses for the quarter were $31.5 million, which was in line with our $31.4 million of SG&A in the second quarter and an increase of $20.8 million in the third quarter of 2021. This quarter exhibited the early impact of the cost optimization initiatives and modest headcount reduction we made in the third quarter. Those initiatives are still ongoing and will result in additional non-labor efficiencies in Q4 and into 2023. Q3 reported SG&A includes several non-recurring expense items related to our cost optimization programs such as severance, which I'll discuss in further detail shortly. Approximately 50% of our year-to-date SG&A expenses are headcount related, which gives us great flexibility to accelerate or decelerate a large portion of our non-labor OpEx as needed to appropriately fuel our growth, while managing liquidity.

That being said, our FTE count will be a key driver of the SG&A line item. As of September 30, 2022, we had 250 full time €“ 253 full time employees versus 284 at June 30, 2022, and 197 as of September 30, 2021. R&D expenses for the quarter were $6.1 million compared to $4.3 million in the third quarter of 2021, and $5.9 million in the second quarter of 2022. In total, operating expenses for the third quarter were $37.6 million, a 50% increase from $25.1 million in the third quarter of 2021 and essentially flat to the second quarter of 2022. Included within the $37.6 million was $3.2 million of non-cash stock compensation, and depreciation and amortization expense, $1.7 million of severance and pre-termination comp expense for physicians eliminated during the quarter, a of expense related to the termination of certain clinical programs, which we discussed in our second quarter call and approximately $1 million of additional non-recurring items.

Excluding these items, our operating expenses in the quarter would have been approximately $30.5 million, which we believe is a fair representation of our current cost structure going forward. Our leadership team is close to finalizing our operating budgets and investment envelope for 2023 with the twin pillars of cost discipline and smart investments in our future. We believe we can meet all of our goals in 2023, while maintaining quarterly normalized recurring cash operating expenses near the $30.5 million level from the third quarter. This investment in our business will support our near-term growth requirements and fund a number of high value pipeline and market development activities to create long-term value. More than 10% of our operating expense budget in 2023 will be earmarked for discretionary investment projects that can be flexed and/or cancelled without any impact to our core operations.

Our loss from operations for the 3 months ended September 30, 2022, was $21.8 million, compared to a loss of $22.9 million in the second quarter of 2022, and $14 million for the third quarter of 2021. We had a net loss of $22.2 million or $0.46 per share in the quarter based on a weighted average share count of 47.9 million shares, compared to a net loss of $17.2 million or $0.43 per share for the third quarter of 2021 based on a weighted average share count of 39.8 million shares. We ended the quarter with $199.8 million of cash and cash equivalents and $33 million of long-term debt, including $2 million of debt discount. One note in our debt facilities that we fully expect to meet the requirements necessary to extend our principal amortization to December 2023, at which point we have the ability to further extend the amortization another year subject to certain conditions.

As evidenced in our discussion of our operating expenses, we continue to proactively manage our liquidity and operating expenses to maintain our strong cash position. We are confident that our strong balance sheet, leading gross margins and disciplined spend can support positive free cash flow in 2025, while maintaining substantial cash position and reserve. Finally, turning to our outlook for 2022, we're tightening our full year revenue guidance range to $70 million to $72 million, based on the strength of our performance in Q3 and confidence in our trajectory in Q4, and heading into 2023. For the year, the range implies annual growth rates of approximately 43% to 47% over 2021. In summary, we continue to make substantial progress revolutionizing the glaucoma and dry eye markets.

We remain committed to leveraging our technology to improve the lives of patients with dry disease, and continue to produce excellent financial results similar to those in Q3. I'll now turn the call back over to Paul for some concluding comments before we open up the call for Q&A.

Paul Badawi: Thanks, Jesse. Before we head into Q&A some brief summary comments and why we are so enthusiastic on where our company is positioned today. Number one, we grew 8.4% sequentially in Q3, a much higher growth rate than third quarter of 2021 during a 77% revenue growth year. Number two, we created an extremely robust growth funnel by training new surgeons and winning new accounts to a level that we believe will support our near- and medium-term growth objectives. Number three, we are actively expanding the actionable addressable market with compelling real world clinical data and studies like TREY. Number four, we will remain disciplined on OpEx and committed to our outstanding unit economics with another mid-80s gross margin results for the quarter, which placed us in a confident liquidity position.

And lastly, we just want to thank all of our physicians, customers and patients for their trust in us and our employees for executing our vision with excellence. This concludes our prepared remarks. Operator, please open up the call for questions.

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