Good morning and thank you for your participation. At this time all participants are in a 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 Mr. Cameron Radinovic of Burns McClellan. Mr. Radinovic, please go ahead.

Thank you. Good morning, and welcome to the LENSAR Second Quarter 2023 Financial Results Conference Call. Earlier this morning, the company issued a press release providing an overview of the financial results for the quarter ended June 30, 2023. 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 before turning the call back over to the operator to facilitate answering any questions you may have. Today's conference call will contain 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 that is accurate as of only the date of this live broadcast, August 9, 2023. LENSAR undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this live conference call. It is my pleasure to turn the call over to Nick Curtis. Nick?

Thank you, Cam, and good morning to everyone. Thank you for joining us on our second quarter 2023 conference call. I'm pleased to report that LENSAR had a strong quarter, placing 14 systems in Q2, bringing our total number of ALLY systems installed 2023 year-to-date to 18, well on our way to our goal of having 30 or more systems installed this year. Our second quarter revenue increased nearly 50% over the same quarter in 2022, which can be attributed to both robust system sales and an increase in lease revenue. Partially supporting these increases was the start of multisystem placements into private equity-owned and/or managed ophthalmology groups. We're beginning to see momentum in both areas and hope to see strong demand as additional private practice surgeons, as well as the PE groups realize the technological, financial and operational benefits to ALLY that distinguish it from all other competitive systems, having older, slower and outdated technology. As we highlighted in the press release in July, the adoption of ALLY in private equity-owned ophthalmology groups has been steadily increasing as we have completed the installation of multiple ALLY systems in five private equity-owned ophthalmology groups. Each of these groups has the potential to add multiple ALLYs in the future. Upon benefiting from the system's higher levels of precision, ability to support improved patient outcomes and practice level efficiency and other sites within these commonly owned and/or managed practices. Private equity-owned ophthalmology groups are growing, currently account for about 14% of the total cataract surgery procedures being performed in the United States, making these groups synergistic new partners for LENSAR, where we're gaining traction due to the advantageous financial and outcomes-based value of using the ALLY system. Looking more closely at the U.S. market, which remains our primary area of focus in…

Thank you, Nick. Our second quarter 2023 financial results are included in our press release issued earlier this morning, but there are a few significant items for which I’d like to discuss. Revenue was $12 million in the second quarter of 2023 compared to $8 million in the second quarter of 2022, reflecting a 49% increase. As Nick mentioned, the increase was primarily due to increased system sales and increased lease revenue. We had an exceptional quarter for system placements increasing our installed base approximately 30 units in the last 12 months. This is especially noteworthy as we were limited to 10 ALLY units in our controlled launch for the latter half of 2022 and had ceased production of our Gen 1 LLS systems. Furthermore, revenue in the second quarter of 2022 from South Korea was approximately $0.5 million, so we increased revenue approximately $4.5 million or 56% for the second quarter of 2023 when you adjust for lost revenue from South Korea associated with a third-party payer reimbursement issues. This issue affects LENSAR as well as our competitors that operate in South Korea and has been an ongoing issue since the third quarter of 2022. In addition, due to the timing of ALLY regulatory approval in other regions, we are limited to placing ALLY systems in the United States as our primary volume region, so that inherently limits our revenue and growth until ALLY is cleared for commercial sale in other significant regions. We are looking forward to being able to sell ALLY in the EU in 2024, and to that end, we filed to obtain commercial clearance in September 2022. We are also taking steps to obtain clearance in South Korea, Taiwan, and the Philippines with our distributors. With that said, the U.S. market is very important to…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question is from Ryan Zimmerman from BTIG. Please ask your question.

Good morning and thanks for taking the questions. Congrats on a really nice quarter here, guys. Seems like the launch is progressing well. Nick, maybe to start on the launch, I want to understand you talked about 160 potential leads. Maybe just talk to us a little bit about the pipeline process, kind of the timelines you expect, as that pipeline kind of narrows to contracts out and subsequently, ALLY orders and kind of how you think about just the conversion rate of that dynamic.

Yes. All right. Thanks, Ryan. I appreciate you taking the time on the call today. So we have got some very strong digital marketing initiatives in place and social media initiatives were peer to peer. We’ve also started to institute these visits from an interested practice that’s been a, let’s say, a qualified lead that they’re going to be making a decision on a system. We take them to visit various accounts where they can see the ALLY inaction, which helps to sort of condense the sell cycle, if you will, typical of this type of equipment and the complexity of the sale or replacing a competitive device. The lead process takes about seven months on average, from the time that we make an initial contact to the time that there’s a decision and it closes or it doesn’t close. And so the more leads we get into the pipeline, and obviously, some of those happen much sooner, and some of those sort of lengthen from there. I made a comment that the private equity groups kind of increase the complexity as well, because now it’s not just the surgeon at the site that makes the decision and can pull the trigger to get the system in place, but now it goes through sort of like the business process. And so the good news is that there’s lots of opportunity there and the bad news is that the cycle takes a little bit longer. So on average, it’s a seven month cycle, strong digital initiatives in place, in nurturing these leads to get them to the point where we, in many cases, set up the call and the meeting for the sales reps then who will go into the account and take it a step further.

Okay. And all the disclosures you gave on productivity and the metrics I think are great for investors to understand. I was struck by the comment you made about a 15% increase and I think it was procedure volume, correct me if I’m wrong, by ALLY users specifically. But if that’s the case, I mean, kind of and talking with your ALLY user base today, where do you think that can go over time? I mean, do they have more capacity just off of comparing to the old base, I guess?

Yes. So we always thought that ultimately, the volumes on a, let's say, site for site basis, LENSAR LLS to LENSAR ALLY ultimately would increase. And obviously, that's the only metric that we can compare against right now because previous technology or older technology, we're going to – we come in and we do X number of cases, which may be more than what they were doing before, but we don't have that historical perspective. What we do have is that with the connectivity and with the speed of the device, we're measuring in several of these groups where we're measuring flow, efficiency and time. We're doing these time studies. And so the time savings, you'll start to see range between like 3 minutes and 10 minutes depending on what kind of flow that the practice is using today. And we've seen more doctors' willingness to change their flow and move it into the operating room because of the ergonomics and the small size, which then really increases the sort of the throughput. And so we've been able to take – save an hour to two hours a day of a typical surgical day so that if there's a backlog, I can cite several different sites where we've taken backlogs from four months to two months, which is really good for the practice. And so we've cut the backlogs in half already with an ALLY in one of those sites, we just added a second ALLY. And so I would think that would continue to improve, and then they're going to be able to continue to increase their volume, if you will. And then seeing the additional cases on people, who are switching from their competitive devices. So where can that go? On average, like best practices convert over 50% of their total volume to premium cases. And I think that we'll see it continue to trend that way. Other practices that are high-volume practices are at much lower rates. And of course, you've got your more boutique practices, which are in the 70% to 90%, some are at 100%. But on average, the best practices, when I say best practices, I don't mean the best medical practices, I mean the best – putting best practices in place in terms of how they handle patients is in the neighborhood of between 50% and 60% on a high-volume practice. And so, there's some significant upside there when you look at the market in general on premiums, which is including torics and multifocals at, what, 15%, 17% of the market.

Right, right. Yes, no question about that. So maybe turning to Tom for a couple of financial questions. I'm going to keep rolling here if that's okay. Number one, you guys have previously stated, I think you haven't given formal guidance, but you said revenue can grow at least 20%, I believe, for the year. I just want to see kind of where you stand on that. I didn't hear that in your comments, Tom. And then your second question, I heard you on the margins for this year. As the ALLY base steps up and consumables and procedures pick up, just your thoughts on kind of longer-term margin trends? And then the last question, sorry, I'm hitting you with a few, Tom. How are you putting the recent cash infusion to work? Thanks for taking the questions guys.

Yes. Thanks for the questions, Ryan. And your statement at the beginning was right, which was a really great quarter for us. In regards to revenue guidance, Nick’s remarks, it’s very hard to predict when PE practices and when doctors are going to actually pull the trigger, even with the technology. What we have given is we said that we were going to place at least 30 systems, and you see that year-to-date, we’ve placed 18. So that gives you a little historical benchmark going forward as well as the guidance that we have given in regards to revenue. And we do know that the placements and revenue were trending up but we haven’t given a formal percentage. In regards to…

Okay.

Yes, in regards to your margin trends, you’re exactly right. With our razorblade model and the procedures, obviously they garner a much higher margin than the actual sale or lease of the laser and to the tune of more than 2x. So the more successful we are in placements, the more there is a drag on the margins. However, I do think that going forward that 50% to 55% will continue to increase, and we certainly see it going into the 60%s. And it really depends on the saturation of lasers into the U.S. and more importantly outside the United States when we get clearance approval such that we can do that. And I’m sorry, Ryan, I might’ve forgotten your third question.

Yes. No problem. I threw a lot at you, I apologize. Just how you’re putting the recent cash infusion to work, where do we expect to see increases in spend and how are you utilizing that, that cash?

So Ryan, I can answer some of that. We are definitely looking to scale up the field organization. And so we’re looking in several areas of the digital – our digital marketing efforts where we are sort of have inside sales and contact with customers is working well for us. And so I would think we would see some expansion in that regard in the field as it relates to field service and our application specialists in training and in sales where we’ll continue to add some sales reps. And then on the business development side, since we are so versatile on the astigmatism management side and the connectivity a lot and we’re bringing on more and more competitive users I think instituting solid astigmatism management programs and patient education at the practice level will be other areas that you’ll see us growing in order to support the growing number of procedures.

And Ryan, you’ve been following us for a while. We’ve been talking about a financing for some time. And with supply chain and the pandemic we kind of delayed things with the $19 million, $20 million that we brought in, in May that really allows us to invest in the commercial organization, invest in inventory to make sure that we have continuous supply. And you see that our inventory balances have gone up significantly. That’s by design, it probably is exacerbated a little bit just because of supply chain and making sure that we have the ability to keep our production to meet demand in the marketplace, especially when we get approvals outside the United States. So now we’re financed and we’re going to make those investments that we’ve been talking about and potentially delayed a little bit or have already made some of those in regards to our inventory.

I appreciate the color. Congrats on a really nice quarter, guys.

Thanks, Ryan.

Thanks, Ryan.

Thank you. There are no further questions at this time. I’ll now hand the call over back to Nick for closing remarks.

Thank you. Thank you all for joining our call today and obviously your continued interest in LENSAR, really excited about what we’re doing and we look forward to continuing to update you as we make further progress in the exciting remainder of 2023. Thanks for joining the call today.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.