Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the LENSAR Third Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Lee Roth of Burns McClellan. Mr. Roth, you may begin.

Thanks, Julia. Good morning, and once again, welcome to the LENSAR Third Quarter 2022 Financial Results Conference Call. Earlier this morning, the company issued a press release providing an overview of its financial results for the quarter ended September 30, 2022. A copy of this 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 before turning the call over to the operator for the Q&A session. Before we begin, I'd like to remind you that today's conference call will contain forward-looking statements, including statements regarding future results, unaudited and forward-looking financial information as well as information on the company's future performance and/or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause the actual results, performance or achievements to be materially different from any future results or performance expressed or implied on this conference call. You should not place any undue reliance on these forward-looking statements. For additional information, including a detailed discussion of the risk factors, please refer to the company's documents filed with the Securities and Exchange Commission, which can be accessed on our website. In addition, this conference call contains time-sensitive information accurate only as of the date of this live broadcast, November 9, 2022. LENSAR undertakes no obligation to revise or otherwise update any forward-looking statements to reflect events or circumstances after the date of this live call. With that said, it's now my pleasure to turn the call over to LENSAR's Chief Executive Officer, Nick Curtis. Nick?

Thank you, Lee, and good morning to everyone listening. Thank you for joining us on our third quarter 2022 conference call. When we spoke last quarter, I remarked on the progress that LENSAR had made in the first half of 2022. And I'm pleased to say that we continue to build on this progress by meeting several significant objectives during the third quarter. Consistent with the plan we disclosed on our second quarter conference call, we successfully launched the ALLY Adaptive Cataract system in the U.S., placing the first systems in the week of August 15. Furthermore, we've installed multiple ALLY systems in key sites over the balance of the quarter and are well on our way to meeting our previously stated objective of having approximately 10 systems placed by the end of this year. The U.S. market is of the utmost importance for LENSAR to establish acceptance of ALLY and fundamental to our driving strategy for significant growth. The U.S. represents the largest premium surgical procedure market in the world and the only territory where we have a direct-to-market commercial presence. Our plans in the U.S. include continued market expansion and market share gains with ALLY as our primary objective in the near to medium term, using its new technology with superior features compared to aging competitive devices to significantly expand our market presence. In the quarter, our U.S. procedure volumes were up approximately 9% over the third quarter of 2021. This increase was largely due to our existing LENSAR laser systems without the benefit of ALLY units which were only productive in the last month of the quarter and for which we were still -- are still in a controlled and limited launch. We were able to achieve this procedure and market growth through continued market share gains…

Thank you, Nick. Our third quarter 2022 financial results are included in our press release issued earlier this morning. It was a relatively quiet quarter from a financial perspective as we were transitioning from our LLS to our ALLY system, but there are a few items that I'd like to point out. Revenue was $7.7 million in the third quarter of 2022 compared to $8.3 million in the third quarter of 2021. As Nick mentioned, this was primarily driven by a 46% reduction of procedures in regions outside of the United States and Europe, entirely associated with a decrease in procedure volume in South Korea. The reimbursement issues in South Korea, as Nick mentioned, had an approximate $725,000 detrimental impact on revenue for the quarter. If procedure volume was consistent in South Korea with that of Q3 2021, revenue for the third quarter of 2022 would have increased approximately $200,000 or an approximate 2.5% increase in total revenue over Q3 2021. Excluding the impact of South Korea, we had anticipated a flat or small increase in Q3 2022 revenue as compared to Q3 2021 due to the transition of sales from our first-generation LLS system to ALLY in the quarter with the impact of the transition being exacerbated by supply chain production delays. In the third quarter of 2022, there were 28,453 procedures sold compared to 30,765 procedures sold in the third quarter of 2021. However, as Nick mentioned, U.S. procedure volume increased approximately 9% and Europe contributed a 3% increase in procedures over the third quarter of 2021, partially offsetting the procedure decline in South Korea. Gross margin for the quarter was $3.9 million, representing 50% compared to $3.9 million and 47% realized in the third quarter of 2021. This is consistent with the gross margin expectations we had…

[Operator Instructions] Your first question comes from Ryan Zimmerman from BTIG.

This is Sam on for Ryan. I was just wondering, can you discuss the ongoing rollout of ALLY? And how demo is converted to sales and placement since the launch? And then I have a follow-up.

So given the supply chain, we haven't really been doing demos per se. I'm actually pleased to report that the initial systems we've had mostly the systems have been sold so we're selling the systems in -- as part of the launch and the limited supply that we've got of systems. So we're not at a point yet in a broader rollout where you would consider more demonstrating of the technology. And in fact, as we get these systems installed, what I mentioned in my comments and my remarks were that we would be setting up these centers of excellence for these early sites and we would be taking interested physicians to those sites so that they could actually observe ALLY in action in surgery and see the performance for themselves.

So just for clarity, Sam, the demos that Nick was talking about are associated with the soft launch and the demo portion actually starts after we've completed that associated with the approximate 10 systems that Nick mentioned.

Yes. And where it might have been a little confusing is where there's demos I was referring to the congresses where we do demonstrations at the various meetings where doctors sign up for times or they walk up and we will demonstrate the system for them. But obviously, nothing like really seeing it in surgery.

Yes. That's really helpful. Then I have a follow-up. What kind of utilization are you seeing in accounts that have purchased the ALLY system? And how does that compare to U.S. procedure growth of 9%?

So there's always a sort of a ramp-up period because I mean, these systems have been in -- we started to put the systems in the field August 15, you go through your training of both the staff to support the physician and the physician training and then begin to do procedures. So there's some ramp-up associated there. But we -- put it this way, the system is so fast, and it does the procedure so efficiently that we're really pleased with the -- how fast the number of procedures are. And I will say that, that probably ramped up faster than what we might have expected for the first few systems, and we sold over 1,000 of those procedures already.

That's really promising to hear. Then I just have 1 more. Can you discuss your expectations for margins as the ALLY launch continues to scale?

So Sam, what we've previously said is looking probably into the rest of 2022 into 2023, margins are probably going to be approximately 50% once we see less of an impact of supply chain challenges, we expect that margin to escalate pretty significantly. We haven't given any future guidance, but certainly getting into the mid and upper 50s is what we would expect in the foreseeable future.

There are no further questions. At this time, I will turn the call back over to Nick for closing remarks.

Thank you. I'd like to take a moment to thank the entire LENSAR team for their commitment to continuous improvement in our organization and overall value proposition as well as our LENSAR partner customers. Without their support, thoughtful input and insights, we would not be thriving as we are. I'd like to thank you all for joining us for the call today and your continued interest in LENSAR. We look forward to updating you as we make further progress in the exciting remainder of 2022.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and ask that you please disconnect your lines. Thank you.