# RxSight, Inc. (RXST) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from RxSight, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1111485/000095017023006237/rxst-20221231.htm
Accession: 0000950170-23-006237
Filing date: 2023-03-06
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/RXST/
All MD&A years: /company/RXST/mda/
Previous year: /company/RXST/mda/fy2021/ (FY 2021)
Next year: /company/RXST/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. 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 “Risk Factors” in Part I, Item 1A and elsewhere in this Annual Report on Form 10-K. See “Special Note Regarding Forward-Looking Statements.”

Overview

We are a commercial-stage medical technology company dedicated to providing high quality customized vision to patients following cataract surgery. Our proprietary RxSight® Light Adjustable Lens system (“RxSight system”) is the first and only commercially available premium cataract technology that enables doctors to customize and optimize visual acuity for patients after surgery. The RxSight system is comprised of our RxSight Light Adjustable Lens® (“LAL”®), RxSight Light Delivery Device (“LDD”™) and accessories. Our LAL is a premium intraocular lens (“IOL”) made of proprietary photosensitive material that changes shape in response to specific patterns of ultraviolet (“UV”) light generated by our LDD.

We designed our RxSight system to address the shortcomings of competitive premium IOL technologies and provide a solution that doctors can trust to improve visual outcomes and achieve high levels of patient satisfaction. Competitive premium IOLs require patients to specify their visual priorities before surgery and be willing to accept various optical trade-offs associated with those choices. Once a patient has selected a competitive premium IOL, the surgeon must rely on a series of preoperative diagnostic tests and predictive formulae to choose the appropriate lens power. If the doctor’s prediction isn’t exact, the patient may experience suboptimal results that could necessitate a subsequent corneal refractive procedure or certain other compromises in order to reach vision targets.

In contrast, with the RxSight system, the surgeon implants the LAL during a standard cataract procedure, determines refractive error with patient input several weeks following surgery and then uses the LDD to modify the LAL with the precise visual correction needed to achieve the patient’s desired vision outcomes. We believe our RxSight system provides doctors and patients increased confidence and peace of mind by eliminating the high-stakes preoperative guesswork common to competitive premium IOLs and allowing patients to iterate their final vision characteristics with customized post-surgical adjustments.

We compete in the IOL market in the U.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 RxSight system is approved in Mexico and Canada for improving uncorrected visual acuity by adjusting the LAL power to correct residual postoperative refractive error. We may selectively pursue commercial expansion in these or other geographies that accept these approvals in the future, with a priority on markets where we see significant potential opportunity. New approvals may also be sought in large cataract markets with more complex regulatory processes such as Asia.

We are a Delaware corporation headquartered in Aliso Viejo, California with one wholly owned subsidiary located in Amsterdam, Netherlands. The wholly owned subsidiary has a registered branch in the United Kingdom and a wholly owned subsidiary located in Germany.

Our commercial efforts began in 2019 and have been primarily focused in the United States, where we are building a “razor and razor blade” business model to drive new customer adoption and ongoing LAL volume growth. Our United States commercial organization includes a direct sales team of LDD sales personnel and LAL account managers, as well as clinical specialists, field service engineers and marketing personnel. Our sales efforts are concentrated on the roughly 3,000 U.S. cataract surgeons that perform 70%-80% of all premium IOL procedures. As of December 31, 2022, we had established an installed base of 400 LDDs in ophthalmology practices and, since our inception though December 31, 2022, surgeons have implanted over 42,000 LALs.

We believe this business model provides an attractive and concentrated market opportunity addressable with a focused sales force. We intend to continue to make significant investments in our sales and marketing organization. We believe selectively 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. We plan to grow our business primarily by expanding the size of our LDD installed base and driving increased

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utilization of our LAL through heightened awareness of the superior clinical outcomes our RxSight system provides patients. To continue to strengthen our competitive position in the premium IOL market, our research and development activities are focused primarily on programs that improve clinical outcomes, improve customer experience, expand our indications for use, reduce manufacturing costs and lifecycle management.

Our near-term research and development activities are focused on enhancements to the RxSight system to improve the patient and doctor experience, expand the range of patients that can be treated, as well as expand the RxSight system indications and drive 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.

We intend to continue to make investments in our sales and marketing organization, primarily sales representatives, clinical applications specialists and technical service personnel to support new customers and upgrades and LAL account managers to facilitate adoption of use of our LALs among existing accounts. We will expand our marketing efforts with additional print and digital, social media and other 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 will 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 reporting requirements. Because of these and other factors, we expect to continue to incur net losses and negative cash flows from operations in the future.

We believe that our existing cash and cash equivalents and short-term investments, will enable us to fund our operating expenses and capital expenditure and meet our term loan covenant requirements for at least the next 12 months from the date of filing of this Annual Report on Form 10-K. Although we do not anticipate the need to raise additional capital or incur additional debt in order to reach profit from operations, as the same may be disclosed in the Company’s future Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q filed with the SEC, we may be required to raise additional capital through public or private equity offerings or debt financings, credit or loan facilities or by entering into partnerships or a combination of one or more of these funding sources in order to meet our liquidity requirements. We may also opportunistically access our at-the-market (“ATM”) facility under advantageous circumstances. If we raise additional funds by issuing equity securities, our stockholders may experience dilution.

Supply chain constraints, inflation and COVID-19 pandemic

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 in Europe and Asia, related to the COVID-19 pandemic, and COVID related shutdowns again in China and the more recently the military conflict in Ukraine, has resulted in the lack of availability of raw materials, including semiconductors, computers, monitors electronic parts, metals, packaging, adhesives, chemicals, 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. On January 31, 2023, the FDA approved our premarket approval supplement to our lower cost LDD for various modifications that are intended to reduce the cost to manufacture the device. However, we have deferred the introduction of our lower cost-to-manufacture LDD to the market until the second half of 2023, as it is less difficult to procure components and subcomponents for our existing LDD than the lower cost-to-manufacture LDD. Currently, we are procuring materials for both LDD's, which have the same functionality. Management’s expectation is that our gross margin will be impacted by the decision to continue to produce both LDD's, which it is necessary to mitigate potential supply chain issues. While we have taken measures to

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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 the U.S. economy and capital markets, which is expected to continue in 2023 and beyond and could negatively impact our financial results and liquidity.

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. 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.

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[[/GREPCENT_TABLE]]

* 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 our RxSight system.

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[[/GREPCENT_TABLE]]

During 2022, we had increased LDD sales of 81 and increased LAL sales of 16,956 when compared to 2021 from strong adoption of our RxSight system by practices and doctors combined with an increased LDD installed base.

Components of results of operations

Sales

Our sales consists 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 the United States. 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 with new and existing customers and as doctors perform more 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 revenue 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. Revenue for such service agreements will be recognized over the term of each contract.

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For the year ended December 31, 2022 and 2021, contract liabilities from service agreements with customers consisted of the following:

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[[/GREPCENT_TABLE]]

For the year ended December 31, 2022 and 2021 we had no customers who individually accounted for more than 10% of revenue.

Cost of sales

Cost of sales consists of materials, labor and manufacturing overhead internally to produce the Company’s 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 and 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 greater than 50% of the total cost to manufacture. In addition, we do not mark up our LDD substantially, as LDDs, as 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 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 research and development

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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 continued to record 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 in July 2021.

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, net

Interest and other income, net 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 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 years ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021, together with the dollar increase or decrease and percentage change in those items:

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[[/GREPCENT_TABLE]]

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Sales

Sales increased by $26.4 million, or 116.9%, to $49.0 million for the year ended December 31, 2022 from $22.6 million for the year ended December 31, 2021. The increase in sales was due to sales in 2022 of 81 more LDDs and 16,956 more LALs as compared to 2021, from the growth in our installed base of LDDs and increased adoption of our LAL by doctors and patients.

Cost of sales

Cost of sales increased by $9.6 million, or 53.1%, to $27.7 million for the year ended December 31, 2022 from $18.1 million for the year ended December 31, 2021, primarily due to the increase in the number of LALs and LDDs sold during the period. Gross margin increased to 43.5% in the year ended December 31, 2022 from 20.0% in 2021 due to the increased revenue from higher margin LALs from 34% of sales in 2021 to 56% of sales in 2022 and by the recording of a $2.4 million reserve primarily for excess LAL inventory as a result of the introduction of an updated LAL with ActivShield technology for the year ended December 31, 2021.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $25.9 million, or 78.8%, to $58.7 million for the year ended December 31, 2022, from $32.8 million for the year ended December 31, 2021. This increase was primarily attributable to an increase in selling and marketing personnel costs of $15.1 million due mainly to additional headcount, $2.4 million in post market study costs as well as increased travel costs of $2.3 million, due to increased LDD sales, and increased trade show costs of $1.1 million when compared to the year ended December 31, 2021. General and administrative expenses increased by $4.9 million primarily due to an additional $3.6 million from increased personnel costs and increased stock-based compensation as well as $1.7 million of increased costs related to operating as a public company.

Research and development expenses

Research and development expenses increased by $1.5 million to $26.0 million for the year ended December 31, 2022 from $24.5 million for the year ended December 31, 2021, an increase of 6.0%. This increase was primarily attributable to $1.9 million in increased clinical study costs and $0.9 million in increased personnel costs which were partially offset by $1.2 million reduced material costs.

Other income (expense)

Other income, net, decreased by $7.5 million to expense of $3.4 million for the year ended December 31, 2022 from income of $4.1 million for the year ended December 31, 2021, due primarily to a favorable change in fair value of warrant liabilities of $2.7 million, gain on expiration of warrant of $5.0 million for the year ended December 31, 2021 and increased interest expense of $1.3 million in 2022, primarily due to rising interest rates on our amended term loan. The increase in other expense was partially offset by an increase in interest income of $1.5 million in 2022 from higher interest rates on our short-term investments.

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 in the future.

As of December 31, 2022, we had cash and cash equivalents of $105.8 million, short-term investments of $94.0 million, long-term debt of $40.2 million and accumulated deficit of $546.0 million. For the years ended December 31, 2022 and 2021, our net losses from operations were $63.3 and $52.8 million, respectively. We generated sales of $49.0 million and had a net loss of $66.8 million for the year ended December 31, 2022, compared to sales of $22.6 million and net income of $48.7 million for the year ended December 31, 2021.

Prior to our IPO, which we completed in July 2021, our primary sources of capital were private placements of preferred stock, a structured transaction with a strategic partner, debt financing and from sales of our products.

On July 29, 2021, we completed our 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.

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Term Loan

On May 3, 2022, we entered into a Second Amendment to the Term Loan (as amended through the Second Amendment, (the “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 of May 3, 2022 from the original term loan. Under the Amended Term Loan, we may borrow an additional amount of up to $10.0 million through June 30, 2023, upon satisfaction of the applicable drawdown conditions and achievement of sufficient trailing twelve-month sales as provided in the agreement for the measurement period ending March 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 through September 30, 2023, upon satisfaction of the applicable drawdown conditions and achievement of sufficient trailing twelve-month sales as provided in the agreement for the measurement period ending June 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 on October 1, 2025, to February 1, 2027. The Company refers to its $60.0 million Amended Term Loan as its credit facility. See Note 8 - Term Loan in the Notes to the consolidated financial statements included in this annual report.

Standby letter of credit

We also have a standby letter of credit, expiring September 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 of December 31, 2022 and 2021, respectively.

Shelf Registration Statement

On August 8, 2022, we filed a $200.0 million shelf registration statement which became effective on August 12, 2022. The shelf registration is effective for three years and permits us to sell, from time to time, up to $200.0 million in aggregate value of our common stock, preferred stock, debt securities, warrants, and/or units. The shelf registration statement was intended to provide us with flexibility to access additional capital when market conditions are appropriate. Included in the $200.0 million shelf registration statement, we also filed a prospectus supplement to sell up to an aggregate value of $50.0 million dollars of our common stock through an ATM offering. The ATM shares were offered through BofA Securities, Inc. as sales agent. As of the date of this Annual Report on Form 10-K, a total of 1,355,216 shares of common stock, for total net proceeds of $17.1 million, have been issued and sold through the ATM offering, of which 879,341 shares of common stock, for net proceeds of $11.1 million, were sold in January 2023.

On February 7, 2023, we entered into an underwriting agreement with BofA Securities, Inc., which the we agreed to issue and sell 4,000,000 shares of our common stock in a Public Offering, pursuant to our shelf registration statement, which was declared effective on August 12, 2022. The shares of common stock were sold at a price to the public of $12.50 per share. Under the terms of the underwriting agreement, we also granted the underwriters an option exercisable for 30 days from the date of the underwriting agreement to purchase up to an additional 600,000 shares of common stock on the same terms and conditions. The Public Offering closed on February 10, 2023. The underwriters' option was exercised in full on February 10, 2023 and closed on February 14, 2023. We received net proceeds of approximately $53.7 million from the Public Offering, after deducting underwriters' discounts and commissions of $3.5 million and offering expenses of $0.3 million.

Funding requirements

Our future liquidity and capital funding requirements will depend on numerous factors, including:

•
our sales growth;

•
our research and development efforts;

•
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;

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•
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.

In January 2023, we sold 879,341 common shares through the ATM offering for $11.1 million in net proceeds after deducting underwriting discounts and commissions. In addition, in February of 2023 we sold 4,600,000 common shares in a Public Offering and received net proceeds of approximately $53.7 million, after deducting underwriters' discounts and commissions of $3.5 million and offering expenses of $0.3 million.

We expect that our current cash, cash equivalents and short-term investments and additional capital raised, through the date of filing of this Form 10-K will be sufficient to fund our operations for at least the next 12 months. Although, based on our current planned operations, we do not anticipate the need to raise additional capital or incur additional debt in order to reach profit from operations, as the same may be disclosed in the Company’s future Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q filed with the SEC, we may be required to raise additional capital through public or private equity offerings or debt financings, credit or loan facilities or by entering into partnerships or a combination of one or more of these funding sources in order to meet our liquidity requirements. We may also opportunistically access our (“ATM”) facility under advantageous circumstances.

See Part I, Item 1A (Risk Factors) of this Annual Report on Form 10-K for additional risks associated with our substantial capital requirements and Note 12 - Leases and Note 15 - Subsequent Events in the Notes to Consolidated Financial Statements included in Part II - Item 8 in this Annual Report on Form 10-K for additional information.

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:

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[[/GREPCENT_TABLE]]

Cash used in operating activities

Net cash used in operating activities for the year ended December 31, 2022 was $58.8 million, consisting primarily of a net loss of $66.8 million, a change in operating assets and liabilities of $7.4 million, partially offset by non-cash stock-based compensation of $11.4 million, and depreciation and amortization of $3.9 million.

Net cash used in operating activities for the year ended December 31, 2021 was $44.7 million, consisting primarily of loss from operations of $48.7 million, a non-cash gain on expiration of an unexercised warrant of $5.0 million, an increase in

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operating assets and liabilities of $2.7 million, offset by non-cash stock-based compensation of $7.6 million, depreciation and amortization of $4.0 million and the provision for obsolete and excess inventory of $2.4 million.

Cash provided by (used in) investing activities

Net cash provided by investing activities for the year ended December 31, 2022 was $40.0 million, consisting of net maturity of short-term investments of $42.3 million and purchases of property and equipment of $2.4 million.

Net cash used in investing activities for the year ended December 31, 2021 was $81.9 million, consisting of net purchases of short-term investments of $160.0 million and purchases of property and equipment of $1.9 million which were partially offset by maturities of short-term investments of $80.0 million.

Cash from financing activities

Net cash from financing activities for the year ended December 31, 2022 was $6.3 million, consisting primarily of net proceeds from our at-the-market offering of $6.0 million and proceeds from stock options exercised and issuance of common stock under the employee stock purchase plan of $1.8 million which were partially offset by payments of employee taxes of $0.6 million and payments for offering costs of $0.6 million in connection with the filing of our shelf registration statement.

Net cash from financing activities for the year ended December 31, 2021 was $137.3 million, consisting primarily of net proceeds from the IPO of $119.6 million, a draw on the Company’s term loan of $15.0 million and proceeds from stock options exercised of $1.6 million.

Critical accounting policies, significant judgments and estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP, which requires us to make estimates that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. Generally, we base our estimates on historical experience and on various other assumptions in accordance with U.S. GAAP, that we believe to be reasonable under the circumstances. Actual results may differ from these estimates and such differences could be material to the financial position and results of operations.

While our significant accounting policies are described in more detail in the “Summary of Accounting Polices” in Note 2 in the Notes to Consolidated Financial Statements included in Part II - Item 8 in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

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Revenue recognition

Our revenues from sales are generated from the sale of light adjustable intraocular lenses, the LAL, used in cataract surgery along with a specifically designed machine for delivering light to the eye, the Light Delivery Device (“LDD”), to adjust the lens post-surgery, as needed. Revenue from sales is recognized from products sold in the U.S. and Europe. Customers are primarily comprised of ambulatory surgery centers, hospitals, and physician private practices.

We recognize revenue from sales when promised goods or services are transferred to customers at a transaction price that reflects the consideration to which we expect to be entitled in exchange for those goods and services. Specifically, we apply the following five steps to recognize revenue from sales: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue from sales when, or as, we satisfy a performance obligation. We apply the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, we assess the goods promised within each customer contract to determine the individual deliverables in its product offerings as separate performance obligations and assesses whether each promised good or service is distinct. The transaction price is determined based on the consideration expected to be received, based either on the stated value in contractual arrangements or the estimated cash to be collected in non-contracted arrangements. We recognize revenue from sales as the amount of the transaction price that is allocated to the respective performance obligation when, or as, the performance obligation is satisfied, considering whether or not this occurs at a point in time or over time. We elected to account for shipping costs as fulfillment costs rather than a promised service and exclude from revenue any taxes collected from customers that are remitted to government authorities.

Our LDD contracts contain multiple performance obligations bundled for one transaction price, with all obligations generally satisfied within one year. For these bundled arrangements, we account for individual products and services as separate performance obligations if they are distinct, that is, if a product or service is separately identifiable from other items in the bundled package, and if a customer can benefit from it on its own or with other resources that are readily available to the customer. Our LDD contracts include a combination of the following performance obligations: (1) LDD capital asset and related components, (2) training and (3) device service (initial year). Each of these three performance obligations are considered distinct. The LDD capital asset is distinct because the customer can benefit from it together with other resources that are readily available to the customer. Training on the use of the machine is offered as a distinct activity after installation of the LDD to enhance the customer’s ability to utilize the machine by having an industry professional provide best practices and customize training to the specific needs of the customer. Each LDD comes with a twelve-month manufacturer’s warranty (service-type) that includes preventative maintenance, unscheduled service (labor and parts) and software updates. After the first year, service contracts can be purchased separately on a standalone basis. We recognize revenue as performance obligations are satisfied by transferring control of the product or service to a customer. Specifically, revenue for the LDD capital asset is recognized at a point in time at installation. Revenue for training is also recorded at a point in time, generally 60 days after installation. Revenue for the device service is recognized ratably over time after installation, generally 12 months. We have determined that the transaction price is the invoice price, net of adjustments, if any. The allocation to the separate performance obligations is based upon the relative standalone selling price. Standalone selling prices are based on observable prices at which we separately sell the products or services. We estimate the standalone selling price using the market assessment approach considering market conditions and entity-specific factors including, but not limited to, features and functionality of the products and services, geographies, type of customer and market conditions. The Company regularly reviews and updates standalone selling prices as necessary.

LALs are held at customer sites on consignment. The single performance obligation is satisfied, and revenue from sales is recognized for LALs upon customer notification that the LALs have been implanted in a patient. For the year ended December 31, 2022 and 2021, credits related to returns and rebates on list prices were not significant.

The Company adopted the practical expedient permitting the direct expensing of costs incurred to obtain contracts where the amortization of such costs would occur over one year or less, and it applied to substantially all the Company’s contracts.

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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 Accounting Policies—Recent Accounting Pronouncements” in Note 2 to our Consolidated Financial Statements included in Part II - Item 8 in this Annual Report on Form 10-K 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 compliance 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 Annual Report on Form 10-K and may elect to take advantage of other reduced reporting requirements in our future filings with the SEC. 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” 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 $1.235 billion; (iii) the date on 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.