Hello and thank you for standing by. Welcome to the RxSight Third Quarter 2022 Earnings Conference Call. At this time, all the participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I'd like to now hand the conference over to your speaker today, Alex Huang, Associate Director of Investor Relations.

Thank you, operator. Presenting today are President and Chief Executive Officer of RxSight, Ron Kurtz; and Chief Financial Officer, Shelley Thunen. Earlier today, RxSight released financial results for the three and nine months ended September 30, 2022. A copy of the press release is available on the company's web site. Before we begin, I would like to inform you that comments and responses to questions during today's call reflect management's views as of today, November 7, 2022 and will include forward-looking statements and opinion statements, including predictions, estimates, plans, expectations and other information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission or SEC. Our SEC filings can be found on the company's or the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. We will also discuss certain non-GAAP financial measures. Disclosures regarding these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures can be found in the press release. Please note that this conference call will be available for audio replay on our website. With that, I will turn the call over to President and CEO, Dr. Ron Kurtz.

Good afternoon, and thank you for joining us. The RxSight team delivered record performance again this quarter, further demonstrating the significant advantages that our unique technology provides to both patients and doctors. Our financial and operational results continue to highlight the potential of the light adjustable lens to reshape and expand the premium IOL market as the LAL was increasingly positioned by practices as the premium lens of choice for their patients. On today's call, Shelly is going to begin with a recap of the third quarter results and an overview of guidance for the fourth quarter, after which I'll provide some additional color.

Thank you, Ron, and good afternoon, everyone. RxSight finished the third quarter with total revenue of $12.6 million, up 118% compared to the $5.8 million in the third quarter of 2021 and up 11% compared to the $11.4 million in the second quarter of this year. We attribute this strong performance to the ongoing growth of our installed base of light delivery devices and the superior clinical outcomes of our LAL technology, as well as the increase in cohesion and productivity of our recently expanded commercial team, which facilitates LDD sales and is charged with helping new practices become fully proficient and through the providers of our technology. Importantly, we delivered substantial sequential growth in a quarter that is usually seasonally softer for many medical device procedures overall, along with seasonally slower capital equipment purchases, underscoring the continued strong demand for our technology. In addition, from our vantage point, any impact to quarterly procedure volumes related to COVID or practice staffing shortages were negligible. Breaking up our performance by product line, we sold 49 LDDs in the third quarter of 2022, up 58% from the 31 units in the third quarter of 2021 and even with the second quarter of this year. We generated LDD revenue in the third quarter of 2022 of $5.7 million, up 55% compared to $3.7 million in the third quarter of 2021 and even with the second quarter of this year. Our LDD ASP was approximately $116,000 in the third quarter, down about 2% versus the year ago quarter and unchanged versus the second quarter of this year. Adding third quarter 2022 LDD unit placements, our installed base grew to 343, up 17% versus the second quarter of this year. LAL sales were also strong in the quarter with units up on a year-over-year and…

Thank you, Shelly. Our excite strategy is to execute an efficient razorblade business model that can generate sustained growth and margin expansion. Our third quarter results offer early support for that strategy, which we attribute to three distinct competitive advantages that set us apart from other premium IOL providers. One, the LAL offers the industry's most precise vision technology. Two, our proprietary system delivers the highest quality of vision. And three, the LAL is the only solution that is fully customizable to every patient's individual preferences and needs. Together, these important intangible benefits create a formidable argument for selecting the LAL over competing products. The recent American Academy of Ophthalmology Annual Meeting provided numerous opportunities for dissemination of these advantages and for RxSight to strengthen relationships with existing LAL surgeons and to introduce our technology to potential new users. Our exhibit and presentations by users about our technology were well attended, making for a highly successful meeting. Included in these presentations were several from participants in our ongoing Phase IV study documenting real world experience with the LAL since the introduction of active shield one year ago. More than 78% of 139 LALs corrected for distance achieve 2020 or better vision without glasses, with well over 90% within a half diopter of the desired cylinder or sphere correction. These results exceeded those of our FDA clinical trial, despite more than 20% of the Phase IV subjects having had previous corneal refractive surgery, which generally makes eyes more difficult to treat successfully with premium IOLs. Moreover, the unique design of the LAL makes it particularly well suited for optimizing vision with both eyes, a binocular approach that can reduce spectacle dependence across a range of distances. In the same Phase IV study of binocularly implanted patients, 85% achieved 2020 or better…

Thank you very much. [Operator Instructions] Our first question is with David Saxon with Needham and Company. David?

Yes. Good afternoon. Hi, Ron and Shelley. Thanks for taking the questions and congrats on the quarter. Maybe I'll start with utilization. I mean, it reached a year to date high even in a seasonally weak quarter. So maybe help frame how we should think about utilization trends as we enter 2023? Can you talk about utilization across new and existing accounts and how quickly it takes a new account to get up the utilization curve?

Yes. Thank you very much, David. Yes, we reached a high 7.5 LALs per LDD. And as you know, we don't run the business on that metric, but it's a very telling metric of our success and the ability to increase volume at all of our accounts. And so, as we look at the various kind of chunks of timeframes in which customers adopted the technology because some obviously adopted during the height of COVID, some when COVID boots back and forth and more recently in 2022 when it's been -- when it's had less of an impact. And so, we see all of those groups continue to increase. The slope is higher, however, for our customers that have adopted in 2022. And we think it's multifactorial, right? Because some could be just a customer type as we continue to grow. Some is the advancements in our technology because as you see from the data that Ron talked about, the results continue to get better. And of course, as we think about it, we have more referrals now with a larger installed base. And most doctors do talk to peers as they make a decision to buy the technology. But I do think overall our data shows that newer customers adopt more rapidly than they did, let's say, a year ago or two years ago that makes sense, given the marketplace and that they tend to get to higher volumes sooner. And I think that's good news. Would you add anything to those trends, Ron?

The only thing I would add is that, also our sales force has matured and grown over the last year and they certainly have an important role in both setting the expectation at the time of the sale of the LDD, as well as quarterbacking the onboarding process and continuing to reinforce good -- best practices at each of the -- with the doctors and staff.

Okay. That's helpful. And then my second question is just on the P&L. I mean, you're bringing down the OpEx guidance, which is nice. So maybe talk about what's driving that leverage? I know you added a lot of the -- a lot to the commercial team this year. So how should we think about rep hiring in '23 and kind of maybe what OpEx growth could be next year and how much leverage you might see? Thanks so much and congrats on the quarter.

Thank you very much. I'm going to let Ron start and address the sales force.

Yes. As you noted, David, we expanded the sales force quite a bit in 2021 and 2022. We don't see a big change going forward. We'll continue to look geographically and see where there might be some fine tuning, especially with account managers as we increase the installed base they cover more and more accounts. But overall, we think we'll -- we're at a reasonable position currently.

Okay. Thank you, Ron. And so I think that that's important overall, because we probably won't be adding many people in the fourth quarter. And so, as we think about bringing down the amount that we're spending, a portion of that is non-cash stock based compensation. And with the pressure the stock is under as well as everybody else's stock, the [indiscernible] value of options that we grant and RSUs that we grant is lower. And so that tends to drive it down. And then I think, overall, we're being careful on our spending despite the amount of investments that we make.

Great. Thanks so much and congrats on the quarter.

Thank you very much.

Thank you. Our next question comes from Charles [Elson] (ph) with Wells Fargo. Charles?

Hi. Thanks for taking the question and congrats on the nice quarter. So I wonder I get some maybe early thoughts on it for 2023. I know it's too soon to give any official guidance, but wondered if first you might give any reaction? It looks like consensus is sitting around $80 million or looks like that would be around 67% growth year-over-year versus the midpoint of your guidance. First, do you have any initial reaction to that number?

Yes. As we're not giving guidance until later for 2023. I don't think we're reacting to that, but what I would say as we enter 2023, it's the same strategy as we've employed this year. First, sell the LED, sell it and get those practices up and successful in using that technology and increasing the number of LDDs used in each of our accounts. So I think as we think about 2023, there is blocking and tackling on the top line, same as we've done this year. And I think we've done that very successfully. We've raised guidance now 3 times for this year.

Okay. Thank you. And then, maybe just a quick follow-up on pivoting. So it sounds like you said there weren't many staffing or COVID challenges that you were seeing so far. So wondering either late in the quarter or early October so far, have you seen any early impacts around the macro uncertainty, whether it's like on the hospital side with capital budgets or on like the customers -- the patient side with -- like reticence to pay for a premium IOL?

So, Charles, as you know, almost all of our LDDs are sold to individual practices. So they're not constrained as much perhaps as those large hospital capital budgets. That's not to say it's easy, but at least that's not typical constraint. On the patient side, I think it's always important to recall that our patient demographic is older. There tend to be people who are at the peak of their earning potential or soon thereafter. They're still very active and focused on optimizing their vision for their particular lifestyles. And they're willing to pay for that for the best outcomes that they can achieve. So we have not anecdotally seen any -- an effect from some of the macro headwinds. It's not to say that we won't, but both historically that hasn't necessarily been the case with the premium IOL market if you go back to say 2008, 2009.

Okay. Good to hear. Appreciate it.

Thank you very much. And our next question is from Ryan Zimmerman of BTIG. Ryan?

Hi. Thank you -- Yes, thank you. Can you hear me okay?

Perfectly, Ryan. How are you?

Great. Congrats on the quarter guys. Very impressive. I'd love to just spend a moment on the short term first and then maybe talk about some of the other dynamics. But if you look at kind of the quarter over quarter growth that we've seen historically in the business, from the third to the fourth quarter, it's been very strong just seasonally speaking. And so with the implied guidance, Shelley, I just would love to get your philosophy about your fourth quarter implied guide this quarter given kind of what you've done historically and remind us kind of the puts and takes on the fourth quarter that you're considering as we think about the fourth quarter?

Yes. It's kind of interesting. I look back to the beginning of the year we guided from $40 million to $44 million on the top line and now we're guiding $47 million to $48 million with somewhere in the range of 11% to 19% sequential over Q3. We think a lot of our blocking, tackling and the success that our doctors are having with their results and patients happiness is very important and was important to the third quarter volume. But it's been a very surprising Q3. And the momentum and the strength in Q3 was pretty consistent throughout the quarter. And so I think part of it is, of course, one, we don't want to get out over our skis and also do we pull some things in from fourth quarter, particularly on the LDD side. And so I continue to look at that, because, frankly, I've called seasonality wrong. And so that's part of my thought process, because it's about the whole year and our momentum going into 2023. And I think that we have not been hit by COVID much in the last two quarters. And we're just -- while fourth quarter tends to be very, very strong, we think about the holidays. Is that going to be different than what we've had before? Usually, that doesn't impact us much, but we continue to look at that as well. And we haven't seen the flu season yet. And so, we're hoping that doesn't impact us in terms of scheduled surgeries as well. So that's kind of the thought process. Overall, 11% to 19% is pretty broad at the end of the year, but we feel comfortable with that number.

Okay. I appreciate that. And then the gross margins are doing really nicely just as the LAL scale. But I'd love to understand a little bit more about the gross margin expectations. If we strip out the LALs, do you still kind of expect the LDD margins kind of in that mid-30s range, maybe a little lower? And what's the gating factor there for when that can actually start to improve? And should we still think about your LDDs kind of carrying forward that kind of margin profile into next year?

Yes, I think that's a really good question. As you know, because the supply chain constraints and inflation, our goal is always to sell capital in the 20% to 30% gross margin range, preferably a little higher, but not so high that we impede our sales. It has decreased and we're well below the low end of that number right now with our current LDD. You pay to parts right now and then I think the -- and during this period of time as we've increased our production on the LAL, we've brought you on the cost on that. So the effect of the LAL increasing as a percentage of revenue, those decreasing costs as we’ll offset the pressure that we're getting from our existing LDD. But to get into the 20% to 30% range for our capital, we've spoken about our lower cost to manufacture LDD. And we hope to introduce that in the second half of 2023. Now that subject, one, to FDA approval, but just as importantly to supply chain. That continues to be difficult, although we work very closely to bring those components in, as well as the components that we're bringing in through our current product. And that's the strategy to improve the margin on the LDD side as we grow in the second half of next year. And I think just the important thing to remind ourselves again is that, it's the same functionality, but it was designed over a several year period to take out some of the cost. And so, that's an important initiative for us in terms of increasing margin, but just as importantly continuing to grow our LAL procedure volume. That is what really drives margin.

Very helpful, Shelley. Thank you, and congrats again. Very exciting to see.

Thank you very much.

Thank you. And at this time, I would like to turn it back to Dr. Kurtz for our closing remarks.

Great. Well, thank you all for your time and attention today and for your continued interest in RxSight. Wish the best for the rest of the day. Thank you.

This concludes our program for the day. Thank you very much for your participation. Have a wonderful day.