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.

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?

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…

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…

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 Instructions] Our first question comes from Richard Newitter of SVB Leerink.

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?

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…

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.

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.

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.

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.

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.

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.

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?

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.

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.

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.

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.

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.

Our next question comes from Kevin Cai of Madison Avenue.

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?

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.

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.

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.

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?

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.

Just suffice to say that we're going to have pretty high expectations for our performance there.

There are no further questions in the queue at this time. So I will turn the call back over to Nick.

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.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.