May 9, 2021
Operator
Good morning and thank you for your participation. At this time, all participants are in listen only mode.
Later, we will conduct a question-and-answer session. As a reminder, this conference call will be recorded.
I would now like to turn the call over to your host, Cameron Radinovic of Burns McClellan. Mr.
Radinovic, please go ahead.
Cameron Radinovic
Thank you. Good morning and welcome to the LENSAR's First Quarter 2021 financial Results Conference Call.
Earlier this morning, the company issued a press release providing an overview its financial statements for the first quarter ended March 31, 2021. This press release is available on the investor relations section of the company's website at www.lensar.com.
Joining me on the call today is Nick Curtis, Chief Executive Officer of LENSAR, who will review the company's recent business and operational progress. Following his comments, Tom Staab, Chief Financial Officer of LENSAR will provide an overview of the company's financial highlights for the first quarter before turning the call back over to Nick for closing remarks.
Today's conference call will contain certain forward-looking statements, including those statements regarding future results, unaudited and forward-looking financial information, as well as the company's future performance and/or achievements. These statements are subject to known and unknown risks and uncertainties which may cause the company's actual results, performance or achievements to be materially different from any future results or performances expressed or implied in this presentation.
You should not place undue reliance on these forward-looking statements. For additional information, including a detailed discussion of the company's risk factors, please refer to the company's documents filed with the Securities and Exchange Commission, which can be accessed on the website.
In addition, this conference call contains time-sensitive information accurate only as of the date of this live broadcast, May 5, 2021. LENSAR undertakes no obligation to revise or otherwise update any forward-looking statements to reflect events or circumstances after the date of this live conference call.
At this time, it is my pleasure to turn the call over to Nick Curtis. Nick?
Nick Curtis
Thank you, Cam, and good morning to everyone listening. Thank you for joining us on our first quarter 2021 conference call.
I'm pleased to report that we have continued the positive momentum, which began in the second half of last year, showing a gradual rebound from the COVID-19 pandemic. We continue to observe positive industry trends in the first quarter of 2021 in most of the regions in which we operate, as seen through a recovery of elective surgeries, specifically in premium cataract procedures.
Furthermore, we're beginning to see procedure growth as compared to pre pandemic levels in certain markets. This recovery and growth includes the US, our largest operating region where our procedures sold increased 19% as compared to the first quarter 2020.
While this increase is certainly encouraging, we know the situation globally remains very fluid varying from region to region. Last week, we became aware of lockdowns and the related suspension of elective procedures in both Turkey and India from late April until now, with these lockdowns likely continuing throughout May, until authorities get their increasing infection rates under control.
It's a sad situation and our thoughts go out to the people in these countries with the hope of swift corrective action, including vaccines, and a return to their normal lives. While it's clearly difficult to predict what may happen in the coming months, we continue working hard and focusing our efforts on those markets that are less impacted by the pandemic, where we can truly make a difference while continuing to communicate regularly with our partners in each of these markets.
This is helping stabilize performance in the near term, but more importantly should serve as well and ramping more quickly as markets begins to reopen. In the near term, these lockdowns do have some effect on our business with an impact in procedure volume and a delay in new system placements that limits our immediate growth.
However, India and Turkey represented less than 10% of our 2019 and 2020 revenue. So we expected noticeable but not drastic impact to our second quarter revenue.
The silver lining is that cataracts do not go away or resolved without treatment. Ultimately, these patients will return to have their cataract treated as these markets reopen, creating inherent resiliency to the cataract surgery market.
Overall, we believe our first quarter performance gives us cause for cautious optimism as it relates to the rest of the year. Although the threat of COVID is not completely gone away, we've seen signs that suggest a gradual return to new normal, as vaccination rates and access to vaccines continue to increase, particularly in the United States.
In addition to the 19% increase in US procedure sold in Q1, global procedures sold were up approximately 21% over the first quarter of last year, an increase of nearly 5,000 procedures. Another encouraging sign for the industry, at least in the US, is a return of certain medical congresses to in person format.
In fact, our team will be at the 2021 Hawaiian Eye and Retina meeting next week in Mali. Perhaps more importantly, the American Society of Cataract and Refractive Surgery, or ASCRS Annual Meeting in July, is currently planned to be an in person meeting.
On the other hand, several European meetings have either been postponed and optimistically rescheduled for later in the year or cancelled altogether as a result of spikes in COVID in varying degrees of vaccine rollouts from country to country. As I mentioned in our year end earnings call in March, we believe our current generation LENSAR Laser System was Streamline 4 and IntelliAxis remains the most advanced laser available to cataract surgeons today.
We believe that the use of our technology enables better performance for surgeons and synergistically superior outcomes for patients. Let's turn to our next generation system ALLY.
We continue to receive enthusiastic feedback from the ophthalmic community, particularly around the new opportunities and efficiencies that ALLY will enable. Ally viewed as a significant advancement in the armamentarium to treat cataracts, one that builds upon the technological leadership we've established with our current generation LENSAR Laser System and considerably expands the value add that we will be able to offer cataract and refractive surgeons.
I mentioned the ASCRS annual meeting earlier. As a Congress for cataract and refractive surgeons, most important LENSAR market specific meetings in our industry.
I'm proud to say that LENSAR will be there with our LENSAR Laser System. And we'll be showcasing ALLY in a series of private by appointment only demonstrations to a sizable audience of leading cataract and refractive cataract surgeons.
I look forward to sharing key takeaways from the meeting when we report our second quarter results in August. We continue to make great progress in the development of ALLY and remain on track to file the 510-k application in the first quarter of 2022 and launch ALLY later in the year.
In addition, we recently successfully completed a DEKRA, notified body audit to the EU MDR requirements and as a result are well positioned for transitioning toward ALLY in Europe. Now let me turn the call over to Tom to cover our financial highlights for the quarter.
Tom Staab
Thank you, Nick. Our first quarter 2021 financial results are included in our press release today.
But I'd like to add a little color to those written remarks. Revenue was $7 million, compared to $5.9 million in the first quarter of 2020, reflecting a 19.3% increase.
The increase in revenue was primarily driven by sales of laser systems and increased procedure licensed sold, particularly in the United States, where procedure volumes exceeded pre-COVID levels. In the first quarter of 2021, there were a total of 28,122 procedures sold, compared with 23,225 procedures sold in the first quarter of 2020, reflecting a 21.1% increase, thus you see first quarter 2021 worldwide procedure volume, returning to and exceeding 2020 levels in the aggregate.
These procedure levels were prior to the shutdowns that have occurred in India and Turkey that Nick mentioned in his remarks, but we still expect to have procedure volume growth in most markets, particularly in the United States going forward in 2021. Although, we have had some system placements in the first quarter of 2021, the pandemic continues to depress laser system sales or what we consider nonrecurring revenue.
As our revenue streams are analogous to the l razor-razorblade subscription model, the depression of system placements retards our future growth. That is, the more systems we place, the more high margin recurring revenue we enjoy in the future.
In the COVID environment, there's a mindset of caution and uncertainty amongst physicians when making capital purchases and this overhang may continue as long as the pandemic persists. Fortunately, our recurring US revenue which we define as all revenue other than laser system sales has proven resilient upon surgeon practices reopening for business after a complete shutdown of elective procedures in March, April last year.
When evaluating the composition of our revenue, approximately 91% of our revenue was attributable to recurring sources for the three months ended March 31, 2021 compared to 99%, for the three months ended March 31 2020, as we had no system sales in that quarter. Gross margin for the quarter was $3.9 million, or 55% of total revenue, an increase in dollars from $3.6 million in gross margin percentage of 60% in the first quarter of '20.
The decrease in our gross margin percentage was attributed to laser system sales, which have a much lower gross margin than procedure revenue. R&D expenses were $2.7 million and $1.6 million for the quarters ended March 31, 2021, and 2020, respectively.
The increase was primarily due to additional cost for the continued development of ALLY in anticipation of our 510-k filing with the Food and Drug Administration in the first quarter of 2022, as well as increased personnel expenses, which includes an increase in stock-based compensation expense. Selling, general and administrative expenses for the quarter ended March 31, 2021 were $6 million, an increase of $1.3 million, or 26.3%, compared to $4.8 million for the first quarter of 2020.
The increase was primarily due to increased personnel expenses, which was largely attributable to stock- based compensation. Total stock-based compensation expense recorded for the quarters ended March 31, 2021 in 2020, was $2.3 million and $85,000 respectively.
With the spin off and recapitalization of the company, stock-based compensation expense represents a significant expense for us going forward. But it is a non cash expense, so it does not affect our cash runway, or our ability to fund the filing and launch of ALLY.
As of March 31, 2021, we have $12.4 million of unrecognized stock-based compensation expense, which will be recognized before the end of 2023. Approximately $3.8 million of this will be recognized in the remainder of 2021.
Looking forward, we expect to expand our commercial infrastructure to increase market share, and then further expand infrastructure prior to the launch of ALLY in 2022. However, with the ongoing pandemic, we are moderating our immediate expansion plans and judiciously adding infrastructure when it immediately contributes to our business.
We are also monitoring our supply chain, which has been impacted by the ongoing pandemic. At this point, we have been able to adjust our operations to meet both our immediate needs and future objectives.
But we are incurring higher costs due to the scarcity of items. Net loss for the quarter ended March 31, 2021 was $5.2 million, or a loss of $0.56 per share, compared to a net loss of $3.7 million, or loss of $3.3 and $0.44 per share in the first quarter of 2020.
Adjusted EBITDA for the first quarter of 2021, which is -- effects of the stock-based compensation expense was $2.2 million loss and compares to an equivalent $2.2 million loss in the first quarter of 2020. Consistent with the fourth quarter of 2020, if you add that cash base R&D expenses from our adjusted EBITDA, the result approximates to zero.
Thus, our commercial operations are cash flow neutral when evaluating our EBITDA operations, without considering normal working capital fluctuations in our balance sheet accounts, simply said, our adjusted EBITDA or cash used in the first quarter of 2021 corresponds directly to cash used in the development of ALLY. As of March 31, 2021, we had cash and cash equivalents of $35.9 million, compared to $40.6 million at December 31, 2020.
Cash utilized in the first quarter of 2021 was $4.7 million. Based on our cash position and operational forecasts, we believe we have sufficient cash to fund our operations through the filing of our 510-k application and the expected launch of ALLY in 2022.
Now I'd like to turn the call back over to Nick for some closing remarks.
Nick Curtis
Thank you, Tom. The solid and continued progress in expanding market share and growth over the last three quarters is a testament to the persistence of our team and the technology we have developed.
I believe that we're well positioned to continue to grow LENSAR into a market leader in the refractive cataract surgery space. Our dedication to producing relevant, significant core technology features which provide our partner surgeons the treatment tools, and the practice efficiencies to provide industry leading outcomes, and improving the patient experience is the foundation for everything we do.
Our ALLY system has the potential to highly disrupted cataract surgery market, as it will represent revolutionary advancement to the cataract surgery treatment ecosystem that surgeons have available to provide superior patient care and enable the ability to restore high quality of vision to their patients. I'm truly appreciative of the excitement and the reception that we've received from the ophthalmic community.
And I'm thrilled to have the opportunity to showcase it at the ASCRS to expand on the enthusiasm we've seen thus far. We look forward to updating you on the development of ALLY, we get closer to the filing of the 510-k.
And I'll turn the call back over to the operator and we look forward to your questions.
Operator
[Operator Instructions] Our first question comes from Richard Newitter of SVB Leerink.
UnidentifiedAnalyst
Hey, Nick and Tom. It's Jamie on for Rich.
Thanks for taking my question. So obviously nice procedure performance here in 1Q.
I was just wondering, can you talk a little bit more about the volume trends you saw through -- in the US and international markets and how you're seeing that trend heading into the second quarter? Appreciating some of your comments here around the US lockdowns that are taking effect.
And then maybe just within that how the utilization for system is trending relative to some of the metrics you've quoted in the past, and the more normalized levels, you've seen pre-COVID?
NickCurtis
Sure, so let me start with, so market scope here has sort of forecasted how the procedures will come back and what the procedure -- where the procedures are, both in terms of the US and globally. And interestingly, they're talking about a backlog that's going to take about two years to fill with COVID, here in order to get back to what they would consider to be normalized levels.
And they recently published their 2020 numbers on what the cataract totals were. So what's interesting in that time is that we've actually performed better and gain market share during this time, and that we actually grew an additional 2% to 3% when the market was actually contracting during that time.
And so what that really indicates for me is in particularly in the United States, is that given the sort of the reimbursement environment and doctors coming back to work there's certainly, I would say, from on a percentage basis, we've seen some increased conversion rates that relate to so they might be doing overall fewer cataract patients today, but they're doing more of the advanced technology premium cases in those both because they're delivering on the outcomes to the patients. And in meeting patient expectations and patients have become pretty critical, given the fact that they've had to wear masks and glasses and, their cataracts, in effect have gotten worse over the last year, if they were putting off surgery.
So we've seen positive trends in that regard that relate to the utilization of the laser. Outside the United States, it's a little bit different story because it's been a little bit more choppy by country.
And so seeing some positive trends of the market coming back, for instance, in Germany where we're primarily that's primarily where we're centered and they have a reimbursement system and in a similar environment to the United States in terms of patients entering the system and where doctors and how doctors can offer these procedures can affect receive reimbursement directly from the patient on this, and so we're seeing a recovery there as well, as well as some activity for some potential new business there as well. And so we're focusing a lot in those areas.
China is going to be an interesting market, it's going to be a little longer for us to really realize the true values there and a lot has to do with just the system's not having been there is as long and premium IOLs and whatnot, haven't been there as long and premium IOL levels are in a lower penetration rate there, as people learn more about the technology, and the doctors become more comfortable with offering these various options to the patients. So that's a little more longer term play from a growth perspective, for us.
In terms of Turkey and India, we had, we have quite a bit of activity, potential activity in India. And so we were cautiously optimistic before their complete shutdown here, from an activity perspective.
So we're just continuing to monitor there and stay pretty close to it. And that could have some upside for us, if they get back to a situation where they're going to be open up, we've got let's say a pipeline there.
So we're really focusing a lot in the United States and in Europe, where we can control more of our activity and what we're doing right now. And we've got a little longer term play going on in China.
South Korea was impacted by COVID, as well, that was another market. That's pretty robust for us, from a systems perspective, but they're working through some reimbursement concerns there with their whole system.
And so that's a little bit of sort of maintain market right now versus growing. And we're looking forward to ALLY for instance, in those markets.
Did that answer your question, Jamie?
UnidentifiedAnalyst
Yes, I guess from a quarterly cadence perspective, how are you guys thinking about your procedure growth? Or are you thinking about in terms of being sequential improvement across worldwide, and geographically are just kind of helped calibrate me a little bit, considering 1Q did have very strong performance, just trying to get a better sense of how to be thinking about the cadence moving through the remainder of the year on procedure growth, and then I have a couple of follow up.
NickCurtis
Sure. So in the cataract business in general, now obviously, there's been a lot of unprecedented territory coverage over the last, since the end of 2019.
But traditionally, in the cataract, there's some seasonality, particularly when you look at getting into the summer months, Europe goes on vacation for nearly an entire month during that time, and in the United States, obviously, as well people are not as focused on their cataract surgery. So traditionally, the third quarter, you would see fewer procedure numbers overall, but we're still seeing, and we're small enough but right now, we're still seeing some positive trends that relate to growth for us, it's an increased market share as it relates to procedures and uptake.
And so I would say that we're cautiously optimistic that we will sequentially continue to grow the business through this quarter. And looking towards the third quarter to minimize the seasonality.
TomStaab
And Jamie, as you looks at sort of how we look at our operating regions, which are US, EU, and rest of the world. So, US have come back and it's strong.
And we've been saying that for the last six months, we saw that in the last six months of 2020. We continue to see that in the first quarter.
EU, not quite as strong, but returned back to pre-COVID levels. And then the rest of the world, as Nick mentioned, has been very, very choppy and really hasn't returned back to what we would consider pre-COVID levels.
And then you further exacerbate that situation with Turkey and India, and although not a huge part of our business, still it's going to make that part of our operating results drag. So I would be -- if you're looking for the second quarter, I would look for strong procedure growth in the United States, sort of moderate in the EU, and probably underperformance in the rest of the world, and then we'll go into the third quarter, as Nick mentioned, and there's some seasonality there.
And I would guess that we'll have a very strong fourth quarter with the caveat that we'll see how everybody opens, reopens through the pandemic and how the vaccinations go, particularly in the -- world.
UnidentifiedAnalyst
Got it. That's super helpful, Tom.
Thank you for that. On the capital environment side.
So I was just wondering if you could, from a housekeeping perspective, what was the ending install base in 1Q, and then just commenting on the current capital environment in 1Q, considering there was just another larger competitor that did report strong capital quarter on their refractive and laser equipment. So just wondering what you're seeing hearing in the marketplace and how you expect that trend to progress throughout the rest of the year as well.
NickCurtis
So we saw some growth in our overall base of business. So we're up to approximately 230 systems installed globally, we did convert a couple of systems in the United States that were on rentals to purchase the deals, and that was reflected in the results for the quarter there.
So our pipeline is probably the deepest that it's ever been right now. And I think that what we've been doing in terms of messaging with ALLY and getting some of these previews and whatnot is creating a lot of interest in LENSAR.
And we're working towards that motivating people to change today, in order to get on board with where LENSAR is going. And again, the drawing these core feature technologies.
So although there was some delay to the expansion of the base, we still expanded the base in the first quarter. And I would expect in the second quarter here that we will continue to expand the base.
Albeit with a little fewer capital sales, and I would say more placements, although we are forecasting some capital sales there as well. And for us, the recurring revenue is growing.
The numbers of procedures are there, there's some compounding affected delay of getting systems into the field because of the ramp up associated with building the procedures. I think we'll see strong equipment placements in this quarter in the second quarter.
UnidentifiedAnalyst
Okay, that's super helpful. Lastly, I guess, on the P&L, I think Tom said gross margin was 60%.
I just wanted to make sure I heard that correctly. Because I think I was calculating it to be about 55%.
Nonetheless, ahead of our thinking, so just curious how we should be thinking about that through the rest of the year. And as well as OpEx just because that did come in a little bit higher than expected.
TomStaab
Yes, so you're exactly right, Jamie, at the 60% preferred to the 2020 quarter, the 55% is for the '21 first quarter. So your numbers are correct.
And obviously, that is a nice gross margin for us. We had a couple of system sales, maybe not as robustly as what we would like.
And so as Nick mentioned, if we're successful in the second quarter in placing systems, you may take a couple points off the gross margin to place those systems because ultimately system sales have a much lower margin than procedures. But the faster we place systems, the more benefit we get in future high margin procedure growth.
So that's sort of how we're thinking. And what was your other question, Jamie?
UnidentifiedAnalyst
Just on the OpEx side of things, it came in a little bit higher, at least, versus what we were thinking in the quarter. So just calibrating us on how to think about that for the balance of the year?
Thanks.
TomStaab
Yes, so it's, we are, as we mentioned, we're trying to build the commercial infrastructure. And we made some significant strides increasing a number of positions, making that in -- particularly in the United States where we have a direct sales force, with the hopes that pays off.
And we kind of moderated that because of the pandemic. So I would think that G&A run rate is going to be about the same and that our R&D run rate is going to increase because the closer we get to the Q1, 2022 filing of ALLY, the higher our R&D expenses will be.
And my guess is you'll start seeing that uptick in Q2, and then Q3 and Q4, really starting significantly in Q3. And then continuing in Q4.
NickCurtis
So we're building systems, and we're starting our facility expansion in order to increase manufacturing capability and all those activities are going on now.
TomStaab
So the one thing I would say is, as you see the investment in R&D, you should view that as a very positive thing, because that puts more certainty around the Q1 '22 filing and the expectations for ALLY when we launch that in 2022.
NickCurtis
Jamie I just want to mention one other thing, like in order to, for us to, we're working really hard to stay on timeline, as far as the filing goes for ALLY and our progress there. And given some of the supply chain considerations that we're dealing with right now is from a mitigation strategy perspective, we're looking at it in the big picture, longer term, we're willing to pay a little more where we can pay more to get the supply chain into our system.
So we can continue to build these systems and get what we need to be done from a clinical perspective to keep the progress going. And we decided that if we can second source few of these parts or if we can get them by hook or by crook in another way and pay more for them.
We're willing to do that now, in order not to sacrifice timing of this. And so that sort of service well right now.
But we want to continue that.
Operator
Our next question comes from Kevin Cai of Madison Avenue.
KevinCai
Hi, Nick. Hi, Tom.
Good morning. Can you hear me, all right?
Nick, so my first question is how do you see the competitive landscape for ALLY as we get closer to launch?
NickCurtis
I still see the competitive landscape being sort of LENSAR it's -- it's really go after, there's only one other company that I can see right now that has a device that they're working on. And it's a company from overseas, and they have they don't have a present brand they don't have any present business.
They don't necessarily come out of the medical device business. I wish them well, because all ships rise when people are paying attention to various technologies, but I don't view that there's going to be a significant number of competitors, as we move towards the market with ALLY, certainly not on rollout.
TomStaab
We really view ALLY as a disruptive technology. And that's disruptive as we compare it to any potential competitive devices, too.
So we are incurring a lot more cost and putting a lot of effort in making sure we meet this Q1 '22 deadline, which is difficult in the pandemic environment. And I mean, you see in any of the 10-K that are coming out in Q1, a lot of industry, a lot of companies are running into supply chain issues.
And so far we've navigate that, because it's so important that we get ALLY out because we think it's such a great technology.
NickCurtis
We think we have great technology, as well as very opportunistic timing, in terms of getting it out. And I think this pre seeding of the market for us and these introductions of the product and the various meetings that we are attending and in speaking at are bearing some fruit in terms of the increasing pipeline for us with current gen and the interest that people have today.
KevinCai
Got it. Thank you, very helpful and my other question are assumed that we have a successful launch of ALLY.
Can you help us understand what a range of outcomes might look like in terms of ALLY revenue that we will generate?
TomStaab
Yes, so Kevin, we obviously as we get closer to the launch will think of about the guidance that we give, we're at a point now where it doesn't really behoove us to give any type of guidance other than to say that we view ALLY as a very, very disruptive technology and really a significant opportunity for the company. Because to Nick's prior remarks, there's just not a whole lot of competition out there.
And we think that we have the best mousetrap and based on the feedback that we're getting via the KOL, that it's not just in our minds, it's broadly shared amongst the community.
NickCurtis
Just suffice to say that we're going to have pretty high expectations for our performance there.
Operator
There are no further questions in the queue at this time. So I will turn the call back over to Nick.
Nick Curtis
So I'd like to really thank everyone for joining our call today and also for your continued interest and support in LENSAR. We look forward to updating you as we make further progress as we approach the filing and the launch of ALLY.
Stay tuned. Thank you.
Operator
Ladies and gentlemen, this concludes today's call. Thank you for joining.
You may now disconnect your lines.