2024-01-16 13:12:52 ET
Summary
- RxSight reported preliminary Q4 results, capping off a record year for growth where sales climbed by approximately 82%.
- The company is capturing strong demand for its adjustable intraocular lens technology for cataract and lens replacement surgery.
- Recognizing a positive outlook, we expect the stock to face renewed volatility against high expectations that may be difficult to surpass.
RxSight, Inc. ( RXST ) has emerged as a breakout growth story with shares more than tripling in value over the past year. Within the segment of ophthalmic medical technology, the company markets the first-of-its-kind adjustable intraocular lens for cataract and lens replacement surgery.
Compared to traditional solutions and alternatives on the market, RxSight's Light Adjustable Lens (LAL) utilizes a photosensitive material that changes shape and power in response to UV light. This allows surgeons to fine-tune a patient's vision after the initial procedure to optimize results.
The company's latest trends are highlighted by impressive operating momentum suggesting growing industry adoption of the company's platform. While RxSight is not currently profitable, financial trends are moving in the right direction and support a positive long-term outlook. We believe RXST deserves a closer look, with the caution that shares are speculative at the current level.
RXST Financial Metrics
RXST recently released its preliminary Q4 results and offered strong guidance for the year ahead into 2024. The company says it expects to report $28.6 million in revenue for the quarter, representing a 78% increase over the period last year, surpassing management's previous target.
Top-line revenue includes the sale of 77 Light Delivery Devices (LDDs) which is the specialized equipment that interacts with specific portions of the silicone-formulated lens enabling changing the mechanical and optical properties of the lens through spherical and cylindrical refraction adjustments.
The current LDD installed base current at 666 units represents the capacity for ophthalmologists to utilize light-adjustable lenses for eye surgeries as part of their regular practices. On this point, the company sold 18,071 LALs during the quarter, bringing the full-year total to 54,873, an increase of 117% over 2022.
So to explain the relative strength of the stock in recent months, the sense here is that high growth is based on a strong market response and success in what is still the early stages of a broader commercialization strategy.
In terms of financials, going back to the Q3 results reported back in November, a gross profit of $13.7 million, representing a 62% margin, climbed by 156% y/y with the margin improving from 43% in the prior year. Similarly, the net loss of -$6.9 million, narrowed from -$13.9 million in Q3 2022. The expectation here is for some sequential improvement with the final Q4 data.
The other update here was otherwise solid guidance for the year ahead. RxSight sees 2024 revenue between $128.0 and $135.0 million, reflecting growth of around 48% at the midpoint. There is also some upside to the gross profit margin, in a range from 65% to 67%.
The latest efforts here include the development of "LAL plus", already approved by the FDA, and expected to support even higher levels of adjustment precision by surgical practitioners. The expectation is for the commercialization to roll out into the second half of 2024 as the growth driver for the company.
The current market consensus matches these figures for 2024, eyeing a continuation of the growth momentum above 30% through 2025. At the same time, the company is not expected to be profitable over the period.
In terms of the balance sheet, RxSight is reporting a cash position of $127.2 million against effectively zero debt. Comments during the last earnings conference call suggested management's confidence that the liquidity is ample for the foreseeable future.
What's Next For RXST?
The attraction of RxSight is its positioning in this "premium" segment of intraocular lens surgery with the company noting the superior performance and higher satisfaction among customers. The data delivered from the clinical trial cleared by the FDA showed that 90% of LAL patients achieved 20/20 or better visual acuity. This compares to just 40% from alternative solutions.
So while cataract and lens replacement surgery are relatively simple procedures performed more than 30 million times annually worldwide, the RxSight solution is intended as a valued added option that can make sense for a significant number of patients willing to pay for an enhanced outcome.
The bullish case for the stock is that RxSight ultimately captures a larger market share within this group and evolves into the industry standard.
According to RxSight, from an approximate $4 billion addressable market just in this premium IOL segment, that level is expected to climb above $7 billion by 2030. From a high-level perspective, themes like an aging global population with eyesight deterioration are tailwinds for an expanding market.
We draw a parallel from RxSight to Staar Surgical Co ( STAA ), as a competitor, which markets a separate intraocular lens replacement system. The similarities here are that both represent an alternative to corrective eyeglasses, temporary contact lenses, and even "LASIK" surgery for certain conditions.
While the implantable Staar system covers a wider range of refractive errors , the main difference is that RxSight has the "adjustable" option while all other premium IOLs, including from Staar, are fixed power lenses.
In many ways, it appears RxSight is already capturing market share at the margin through stronger revenue growth. While RXST has been a high flier over the past year, shares of STAA have lost more than half its value with the fortunes of each company sort of reversing.
The caution we draw here is that with RXST trading at a 13x forward sales multiple, STAA at one time had a similar growth premium attachment which ended up leading to the current disappointment for shareholders amid what has evolved into a long-running selloff.
Final Thoughts
Putting it all together, we rate RXST as a hold balancing a favorable view of the product and long-term opportunity against the pricey valuation following what has already been a breathtaking rally. On the upside, it will likely take a few more quarters of stronger-than-expected growth to maintain the bullish momentum.
We wouldn't be surprised if shares are trading higher over the next year, but it's probably too late for investors to turn aggressively bullish. Shareholders that got in early hit a proverbial home run, but there's also a case to be made that many of the positives have already been priced in.
The backdrop for a company like this expected to grow sales by nearly 50% for the year ahead warrants a closer look, but the reality here is that the stock as an investment is speculative and high risk.
Ultimately, the market will want to see a path to profitability and positive recurring cash flows sooner rather than later. The risk is that top-line growth already facing high expectations hits a roadblock, coming in weaker than expected. In this scenario, the stock would be highly sensitive to both shifting sentiment and a reset of any earnings expectations timetable.
For further details see:
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