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 is being recorded. I would now like to turn the call over to Cameron Radinovic of Burns McClellan. Mr. Radinovic, please go ahead.

Thank you, operator. Good morning and welcome to the LENSAR Fourth Quarter and Full Year 2024 Financial Results Conference Call. Earlier this morning, the company issued a press release providing an overview of its financial results for the quarter and full year ended December 31, 2024. This press release is available on the Investor Relations section of the company's website at www.lensar.com. Joining me on this 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 performance 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 only as of the date of this live broadcast, February 27, 2025. 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. With that, it's 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 fourth quarter and full year 2024 call [ph]. LENSAR's performance in 2024 can be summarized in one word, outstanding. While there's no such thing as a year completely free of challenges, our team executed exceptionally well and achieved significant milestones throughout 2024, culminating in a record fourth quarter, positioning us for continued growth and market share gains in 2025 and beyond. As always, Tom will provide more granular detail on our financial performance but I will first share with you several operational highlights. We achieved significant revenue growth in 2024. Our fourth quarter top line revenue increased to a record $16.7 million which represents growth of 38% over Q4 2023, with full year revenue growth coming in at an impressive 27% over 2023. The success was fueled by strong performance across all revenue lines, particularly in system placements and procedure volumes. We placed a total of 31 ALLY Systems in the fourth quarter, a new quarterly high for LENSAR. 20 of the 31 systems were installed in the U.S. which is also a single quarter record for the company. We anticipate these new systems reach their full procedure productivity in the second half of 2025 and look forward to the recurring revenue these systems will contribute when they begin generating consistent procedure volume levels which we expect to happen in mid-Q2 for many of these systems. Notably, our expansion in laser placements into Europe and Southeast Asia continued from the third quarter launch with 24 systems total since launching ALLY outside the U.S. after clearance in mid-August 2024. We also continue to build a robust pipeline of executed contracts in the U.S. and consistent demand from our distributors serving customers outside the U.S. We ended…

Thank you, Nick. As Nick mentioned, the fourth quarter was an outstanding quarter for us. We finished the year with revenue of $16.7 million in the fourth quarter, representing a remarkable 38% increase over the $12.1 million in the fourth quarter of 2023. This growth was primarily driven by the 31 ALLY placements in the quarter and strong system sales, both domestically and internationally. Fourth quarter placements increased over 100% year-over-year globally and 33% in the United States. We also had strong procedure growth with overall procedures growing 22% on a worldwide basis and 24% in the United States when compared to the fourth quarter of 2023. For the quarter ended December 31, 2024, approximately 64% of our revenue was recurring compared to 73% in the same period of 2023. This shift reflects the increased contribution of ALLY System sales in total revenue which rose to $5.9 million from $3.3 million in the fourth quarter of 2023. Additionally, as Nick said, over 80% of our systems placed in 2024 were installed after June 1, meaning these systems have not yet received -- have not yet achieved full procedure productivity and thus, were not contributing to recurring revenue at their full capacity. Gross margin for the quarter was $7.1 million and represented a gross margin of 42% which was very similar to the 43% realized in the fourth quarter of 2023. Our gross margin for the year was 48%. We expect our gross margin percentage to increase in the future as our sales mix shifts to a greater proportion of procedure-based revenues which carry higher margin than System sales. We generally expect our gross margin to approximate 50% in 2025 with the gross margin percentage highest in the first quarter and lowest in the fourth quarter based on the seasonality of…

[Operator Instructions] Our first question will come from Frank with Lake Street Capital Markets.

Congrats on a really strong finish to the year and really strong total year. I was hoping to start with a little bit around kind of mix of placements in the fourth quarter. I heard you call out 20 of those occurred in the U.S. but could you maybe talk a little bit more to femto-naive competitive changeouts versus replacing LLS?

So, thank you for the question. I appreciate it. We -- so as we mentioned, 75% of these placements were new to LENSAR customers. To try to break it down a little, we actually -- as you can see, identical [ph] number of systems, we displaced only a few LLSs, in fact, well below what we thought we were going to be. And in fact, most of these practices that have LLS actually have moved the LLS to another location. So as far as [indiscernible] placing an LLS that just went into no service at all, we're only talking about a couple -- let's say, a handful of machines over the course of the year. In terms of competitive -- what the competitive rates were, about 30% of the systems were replacement of competitive devices. And then there was about 21% and I'm giving you sort of more for the year than the specific quarter, 21% of the systems, just under 22% actually were femto-naive. So we're both growing the market with femto-naive surgeons and sites that are coming on and at the same time, pretty robust replacement of competitive devices. Does that answer your question?

Yes, that was perfect. And maybe just to follow up kind of on that a little bit more. I think you've talked about in the past kind of order of operations, first, take market share; second, replace old LLS systems; and then third, start to go after that femto-naive market. As you've scaled throughout the year and really proven out the benefits of the technology, maybe give an update on kind of that strategy itself and where we lie within that?

Yes. So the strategy -- I'm pleased to say, for now, the strategy is working very well. I think that the company is best served and the surgeon is best served actually, where we go out, given the small sales force that we've got relatively to the much larger companies, spending our time with private equity groups and the larger individual practices that are -- have already accepted laser cataract surgery that are looking to continue providing higher efficiencies and better outcomes and convert more patients. That strategy is good. We don't have to missionary convince someone that they should be doing laser cataract surgery and those sites can become more productive faster. What we are seeing which I'm actually pleased to see that femto-naive [ph] customers, when we designed ALLY, we designed it in mind to really please the practices that have already accepted laser cataract surgery and are looking again to increase those efficiencies, improve the outcomes and we'll recognize that with ALLY. We really felt like we were also addressing the shortcomings that existed in first-generation technology and always believed that as a third segment there, we -- again, with a smaller group, we didn't want to necessarily go out day 1. We wanted to establish a solid base of new-to-LENSAR users and replace competitive devices so that, in essence, through their peer-to-peer and presentations that we would do and abstracts, it would then begin to demonstrate to those surgeons and sites that heretofore either abandon laser cataract surgery or were not doing it. We believe that the system addresses those. And so I'm actually pleased to say that with 21.8% to 22% of customers being femto-naive, they're more or less coming to us at the meetings and the demonstrations and whatnot versus us directly soliciting those at this time. So I'm very pleased with that. And we're going to continue on the path that we are strategy-wise, I think it served us well. Sorry for the long answer.

No, that's great.

And Frank, the only thing that I would add going forward, we're going to continue to target 70% to 85% new customers. But the way we classify that is that they were not a customer in the fiscal year that we're talking about. So obviously, when Nick mentioned in his script that we had systems that were installed and they were adding additional ALLY units in their operating room or to their practice, if they were an existing customer at January 1 in the year, they would -- I mean, if they had an existing ALLY, they would be considered an old customer, not a new customer. So the -- we're still targeting heavily competitive accounts because that contributes to our recurring revenue the strongest. However, it's important to know how we classify existing versus new customers.

Okay, that's helpful. And then just last one for me. Obviously, you're taking a lot of market share. It's a competitive market. There's some other large players in the market. Any changes you're seeing from how they're operating, any investments they're making into their technology or any real change on the competitive front?

It's always a challenge for a smaller, single product company like ours. I would just say that there's strong competition. And -- but we don't see that we're threatened from a technology perspective at all and don't see anything immediate on the horizon there to threaten -- the much larger competitors have the other products and it's a strong, let's say, tug of war between bundling and price versus increasing productivity and improving outcomes and being able to do more in less time. So that's sort of the decision process that the practices have to go to. And really, again, not so much if but when they decide to move out of that bundle and move towards our laser technology-wise.

And our next question comes from Ryan Zimmerman with BTIG.

This is Izzy [ph] on for Ryan. I apologize for any background noise. I just want to echo the congratulations on the progress that you guys made in fourth quarter and in 2024 as a whole. So just to start, I appreciate that you are now providing some guidance for 2025 but I have a couple of questions there. So first, as you think about the composition of sales for next year in the context of growing recurring revenue base, how are you thinking about the split between the mix of sales and leases versus procedural or consumable revenue?

Well, I'm going to let Tom answer part of this but what I'm going to say is that what I see is that, particularly as we get into the larger groups, I see that there'll be more aggressive placements of systems. And so the percentage of sold systems to systems [ph] will drop slightly as the placement demand goes up higher. And so we'll place a higher percentage of systems than we will sell systems overall. And so that mix will change slightly where we were more weighted on the sales side and less on the placement. And as we get more sites and as we continue to grow share, that starts to shift a bit. Tom, I don't know if you want to put any other color in that or...

Yes. Thanks for the question, Izzy. So like we said before, with the EU and Taiwan clearances and the fact that we're a distributor sales model outside the United States, with those additional sales coming in, we'll be more aggressive in the United States on our placements but we'll still keep the sales/lease mix on an aggregate basis about the same and it was about 60% for the year. And so between 50% and 60% placements in the aggregate is about what you should target.

Okay, that's helpful. And as we think about the OUS sales, do you have any expectations on when we might start to see an inflection there given the timing of the product approvals?

Well, we're looking to get some approvals in additional countries. From an inflection perspective, because overall, outside U.S., utilization of these systems because the -- let's say, the premium market segments are smaller in most of the countries. And so there was a significant amount of demand in the beginning here. And just like in the U.S., where we started to ramp up slow and then from there, begin to grow into more new-to-LENSAR customers, I think you're going to see the same -- I don't think you're going to see the same rate outside U.S. quarter-to-quarter as we did in the last, given the demand that was there but this will begin to grow over the course of the year as we move from, let's say, existing LENSAR KOLs outside new [ph] to LENSAR customers. And so there is a substantive number of systems outside of the U.S., 300 systems or so in the EU. LENSAR has a big presence in Germany. We're starting to see some expansion there and whatnot. So I would say it's just going to be one of those steady sort of growth into 2025. And actually, I would see much larger growth coming in 2026.

And just curious, as you guys continue to expand into further or additional OUS markets, do you have any thoughts around you would like to establish a direct presence or continue with the distributor model?

So that's a really great question. I think that it should always be a topic of discussion to think about if and when you might look at certain markets from a direct perspective. I'd say that certainly in the EU and in Asia, we're very comfortable with our distributor, our relationships there and their commitment to the product. I would say it's certainly a topic of discussion in other areas as to if and when we might go direct. And so yes, I think as we continue to grow, we'll see that in some of these other markets, when we assess the opportunity, we may consider a direct presence.

And Izzy, I just wanted to correct my previous statement. I think I said we expected 60% placements. It's actually 60% sales. If I said placements, I meant sales. So I just want to correct that.

And then, Tom, last one for me. Just we noticed that there was a bit of a fluctuation -- or there's been some fluctuations in SG&A from quarter-to-quarter. So I was curious if the $7 million that we saw for fourth quarter is the right baseline for 2025? Or do you expect this to ramp up as you continue to invest in growing the business?

Yes. So it's a little bit of a misnomer. Like we've said before, on cash-based commercial expenses, they were increasing at 16% but we actually decreased our administrative expenses. So I think that we're going to continue to invest in the commercial infrastructure and we're going to do that gradually and as probably a little more aggressively than what we've had in the past but not much so. I don't think that we'll be able to squeeze as many administrative expenses or any additional administrative expenses out of the business. And so you'll see the SG&A line tick up just because there isn't that offset that we've seen before.

Congratulations again on the progress in 2024.

Thanks, Izzy [ph]. Appreciate it.

This now concludes our question-and-answer session. I would like to turn it back over to Nick Curtis for closing remarks. Go ahead, Nick.

Thank you, everyone, for your participation in today's call. We certainly appreciate it. We're pleased to have shared our strong 2024 results with you. We're really excited about the opportunities that lie ahead. LENSAR is committed to revolutionizing the field of laser cataract surgery through innovative technology and, of course, a real dedication to excellence. We believe that ALLY has the potential to really transform the surgical experience for both the surgeons and patients and thus the name ALLY and we're committed to making that vision a reality. And we certainly look forward to continuing this journey with you and we'll continue to provide further updates on our progress. Thanks for joining.

Thanks everybody for your participation today. This does now conclude the program. You may disconnect.