Ladies and gentlemen, thank you for standing by and welcome to the Sight Sciences Fourth Quarter 2023 Earnings Results. [Operator Instructions] And please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Trip Taylor with Investor Relations.

Thank you for participating in today's call. Presenting today are Sight Sciences Co-Founder and Chief Executive Officer, Paul Badawi; Chief Financial Officer, Ali Bauerlein; and Chief Commercial Officer, Matt Link. Earlier today, Sight Sciences released financial results for the 3 months and full year ended December 31, 2023 and initiated guidance for full year 2024. A copy of the press release is available on the company's website at investors.sightsciences.com. I would like to remind everyone that comments made by management today and answers to questions will include forward-looking statements within the meaning of the federal securities laws. These forward-looking statements include statements related to the company's anticipated financial performance, operating results and liquidity position, current and long-term strategic objectives, market opportunity, business and commercial strategy, product reimbursement strategy, clinical trial results and costs associated with pending litigation. Forward-looking statements are based on estimates and assumptions as of today, are neither promises nor guarantees and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed or implied by these statements. A description of some of the risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements on this call can be found in its public filings with the Securities and Exchange Commission, including in the Risk Factors section of the company's annual report on Form 10-K and quarterly reports on Form 10-Q. The company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law. On the call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including adjusted operating expenses. The company believes these non-GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. See the company's earnings release for a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as well as additional information about the company's reliance on non-GAAP financial measures. I will now turn the call over to Paul.

Thanks, Trip. I'm extremely proud of the progress we made in both the fourth quarter and full year 2023. This year has reinforced the importance of our mission to develop transformative interventional technologies that allow eye care providers to procedurally elevate the standards of care, empowering people to keep seeing. 2023 was a pivotal year for us as we executed on key strategic initiatives. We are very pleased to have accomplished several milestones throughout the year, including enhancing our executive team with proven high-growth med tech leadership experience, with the additions of Ali Bauerlein, our Chief Financial Officer; and Matt Link, our Chief Commercial Officer. Both Ali and Matt have integrated seamlessly into their roles and have been vital to our many organizational enhancements. Following their hires, we realigned our structure to be more effective and laid the foundation for the next level of scale over the coming years. We also expanded the body of long-term clinical evidence supporting our technologies. Importantly, we announced the publication of long-term clinical data in a leading peer-reviewed journal, including 2-year follow-up data from the ROMEO study, 3-year follow-up data from the GEMINI 2 study and 6-month data from the SAHARA RCT. We believe differentiated long-term clinical data will help us drive coverage, equitable reimbursement and commercialization success over time. In 2023, we generated revenue growth in the mid-teens. Our gross margins improved to all-time highs and we significantly reduced our operating expenses and cash usage in the face of reimbursement uncertainty while maintaining focused spend on critical areas. In a major development late in December, we were pleased with the withdrawal of the finalized LCDs from 5 Medicare administrative contractors, or MACs, that were scheduled to go effective in late January 2024. These MACs had previously identified certain MIGS procedures as investigational for…

Thanks, Paul. Before I dive into the fourth quarter financial results, I want to reiterate that we are extremely proud of both our commercial and operational execution as we navigated significant challenges brought on by the LCD. Our expense management and reduction in cash used reflected our swift execution and the flexibility of our model. We feel these adjustments were essential and have well positioned us to support our future financial goals without limiting our strategic plan. As we announced in January, we closed a senior secured credit facility for up to $65 million with Hercules Capital, including an initially funded $35 million tranche under the facility. The new facility provides us with improved commercial terms and stronger financial flexibility as we execute our strategic goals while maintaining current debt outstanding. Combined with our disciplined expense management, we believe we are well positioned with strong financial footing and plan to achieve cash flow breakeven without the need to raise additional equity capital, while still investing in R&D and commercial expansion opportunities to support our long-term growth. Lastly, before turning to quarterly results, I want to briefly touch on the ongoing patent infringement case with Alcon. In April 2023, we reported that we had defeated all 4 patent invalidity challenges filed by Alcon which are not appealable. The next steps include a trial that is currently scheduled to commence in April 2024. As a result, we expect to incur higher operating expenses in the first quarter of 2024 due to trial preparation work. Moving back to the fourth quarter. Total revenue for the fourth quarter was $18.8 million, at the top end of the revenue range we announced in January. This reflects a decrease of 9% compared to the fourth quarter of 2022 but stronger than we expected with the LCD…

[Operator Instructions] Our first question is from Matthew O'Brien with Piper Sandler.

Good to hear that things are supposed to perk up this year, especially on the Surgical Glaucoma side. But I'm just curious, what you're seeing maybe early days here in Q1 from a clinician recovery? How many of those stocks that were not using at the end of last year have come back to you? And then what you're seeing from a utilization perspective?

Matt, this is Matt here. I appreciate the question. I think as reflected in the comments both from Paul and Ali, we're seeing a steady state of recovery in all the areas that you just asked about in terms of individual accounts, ordering the percent of active accounts ordering and a steady state of reengagement and utilization from our customers which is what I think you would expect, considering the uncertainty that sort of was created with the LCDs in the second half of last year. And just to reiterate the comments from both Paul and Ali as well, I think that we saw a remarkable resiliency from our organization, our sales organization and also from our customers. And ultimately, we believe that's a reflection of the comprehensive nature of OMNI and the clinical value it delivers. And so again, early signs are a consistent state of recovery, consistent with our expectations.

Okay. Appreciate that, Matt. And then what's implied -- and I'm trying to run through the model, I didn't get to it in time here on the call. But I guess to get to this double-digit growth in the back half of the year and then into next year, what's implied from a recovery perspective in terms of the previous clinicians, getting new clinicians, training on utilization, all that fun stuff. And then, Ali, I guess I'm just trying to reconcile the growth outlook with some of the cuts that you've made from a spending perspective then to like getting to free cash flow positive with your existing cash levels. Just putting all that together, like, it's just difficult to reconcile all that together. So just maybe help bridge us to that point.

Sure. Happy to take that. So we're not going to get into the level of granularity down to the modeling perspective of number of accounts or utilization but we would expect all of those metrics to improve throughout the year, subject to, of course, typical seasonality in the business where you would typically see Q2 and Q4 utilization higher. But we do expect to increase the cadence of new accounts being added in the period as well as recovery of the account loss and then also improve our overall utilization, both combo cataract as well as standalone. So, all of those are areas that we are expecting to see improvements in 2024. I would say that the toughest comp for us will, of course, be the second quarter since that was our record sales last year. But outside of that, we expect to be able to continue to show nice progress in the business and that's really how you get to that double-digit growth in the back half of the year. So before we move to the question on cash, does that answer your question on kind of the puts and takes on the revenue side?

Yes. I just -- I wouldn't mind a little bit more color on just what's implied from a clinician perspective in terms of what you need to do, especially it's still a pretty competitive market. Generally speaking, there's somebody coming in on the stand-alone side in a big way. Just what's all implied there to get you to that double-digit number? Because I think it's better than people were expecting for the back half and especially for next year as well.

Yes. I think the majority of the increase is really utilization related. So of course, we do expect to continue to add accounts but utilization will be a primary driver of those double-digit increases.

Got it.

So moving to your question on our commentary around our level of investments. Obviously, we expect to continue to show progress this year in terms of our operating expense leverage, solid gross margins in the business and, of course, looking to increase revenue as well as particularly in the second half of 2024. So looking into the future, we expect to continue to be a growing double-digit growing company into 2025. And so looking at the investments needed to run our business and the level of spend needed, we expect to get leverage. That is really where, when you look at your modeling for cash flows over time, with growing revenues and operating expenses growing at a lower rate than revenue, of course, still growing and then small improvement on gross margin, although that's more incremental in nature. The real leverage to get to a cash flow breakeven is associated with OpEx cuts.

[Operator Instructions] And it comes from the line of Tom Stephan with Stifel.

Great. To go back to the double-digit growth in 2025, Paul, Ali, could you potentially put a little bit of a finer point around what that might look like? It'd be great to just hear your thoughts on sort of a targeted medium-term growth rate as we look into the out years?

Yes. I don't think we're prepared to give detailed guidance today on 2025. We're still very early in 2024. And I think we will want to also see real visibility on the opportunities for TearCare in our business because that is a potential accelerant of our growth. So I think as we get further into 2024 and really understand that opportunity, we'll be able to provide more guidance. But both of our markets are very large. There's huge potential for us on the stand-alone side in Surgical Glaucoma, continuing to take share in the combo cataract market and then also on the Dry Eye side with really a new interventional procedure that really should be a market that we can really create over time. So those are really the drivers. Of course, we also have a small contributor associated with our OUS business as well but we believe the U.S. markets will be the primary growth driver for the foreseeable future for us.

Got it. That's helpful. And then, Ali, I appreciate all the color on guidance. But I was wondering if maybe you could potentially give us a little bit more on the quarterly cadence. I know 2Q and 4Q bears a seasonal benefit. But I guess for 1Q specifically, how should we be thinking about revenue or growth? And then my tack on to that would just be, will there be any sort of, I guess, call it, a stocking benefit to consider as customers worked down inventory in the back half of last year?

Yes, sure. So taking the stocking question first, we really haven't seen material changes in stocking yet. We've seen a return of regular ordering and improvement of utilization tied to procedure volumes. But we haven't seen that uptick associated with just increasing their inventory levels. That may be something that we see in the future. That's not something that we've inherently baked into guidance or we think would be too material in nature but that certainly is a potential that could occur at some point in time. In terms of the quarterly cadence, as we said, we do expect the first half to be down. Primarily, the second quarter is the biggest challenge from a comp perspective for us. So looking at the first quarter with the increase in utilization and the recovery that we're seeing, typically, you would see Q1 down from Q4. I don't think that we'll see that this year, may be similar but we do expect to see nice start to the year given those overall dynamics of usually utilization being down sequentially versus the fourth quarter.

Congrats on the results.

Thank you.

[Operator Instructions] Our next question is from David Saxon with Needham & Company.

I wanted to follow up on utilization, specifically for the accounts that are coming back to OMNI that maybe dropped off in the back half of last year. Are they going back to levels that they were at before? How does that typically trend? I know it's early days still but would love to kind of hear what you're seeing there.

This is Matt. I'll take that. So as I sort of reiterated the earlier comments, I mean, it's obviously early but I think we're encouraged by seeing a steady cadence of a return to more sort of natural ordering patterns. And so I think everybody could appreciate under the sort of cloud or uncertainty of the LCDs in the second half of last year, in particular Q4 and uncertainty as to the final effective date of those LCDs which obviously were fortunately ultimately withdrawn, there definitely were some efforts by accounts to manage inventory, ensuring that there wasn't excess inventory on the shelf. And again, while I think our sales organization did a phenomenal job staying in front of our customers and supporting them through that period of uncertainty, it obviously contributed to a decline, not just in OMNI utilization but MIGS in general in the second half and fourth quarter of last year. So again, early, early days but what we are seeing is a steady state of recovery trending towards what we anticipate will be more normal ordering patterns into the question around stocking, not so much bulk stocking but again, a regular cadence of ordering, maintaining inventory in support of a broader utilization of OMNI and that's what we're building towards through the balance of the year.

Okay, great. Super helpful. And then I wanted to ask on Dry Eye. Ali, I think you said it's going to be down significantly. I guess, what's assumed in terms of SmartHub placements? Or is the sales force being incentivized to put out new placements? Or is revenue essentially being driven just by TearCare consumables? And then, just on the reimbursement front. When you talk to your, I don't know, 370 or whatever it was, active accounts, about reimbursement, what are they saying in terms of where that needs to shake out in order for it to be an attractive procedure?

Yes. So looking at the per care side of the business and inherent in guidance, it's really our 2024 guidance assumes that most of the revenue was coming from the sale of SmartLids and there is still a minimal number of new accounts being added but that is significantly smaller than what we saw in 2023 and 2022. So that is the shift and that is the reason that we expect to see the decline in revenue of that business along with the resizing of the sales force that occurred in October. In terms of the 327 accounts that we had on the TearCare side of the business in the fourth quarter, we don't -- we're still working with payers. It's too early for us to say what the appropriate reimbursement will be for that. We think we have a compelling value proposition, compelling clinical data but those conversations are just starting really now. So to talk about pricing would be premature. But we know that already, the business model was effective on a cash pay market. So we think that there is a financial model that will work for us, will work for the patients, the providers and, of course, our customers that are doing those procedures.

Yes. I'd just like to add to that on the health economics front, we've prepared a very solid budget impact model for TearCare comparing the health economics of TearCare to other prescription eye drops like Restasis and others. And what the ultimate system savings would be, we submitted that budget impact model for presentation at the leading society meeting in this area is for International Society of Pharmacoeconomic and Outcomes Research. That will be presented in May in Atlanta. We're excited about that. The budget impact model should be submitted for publication very soon to a leading managed care journal. So between the SAHARA 6-month data, the SAHARA 12-month data, crossover, where all the Restasis patients were crossed over to TearCare, a single TearCare treatment and the compelling outcomes we saw there that should hopefully soon also be published, coupled with the budget impact model, coupled with our market access team across the country that's working with leading dry eye accounts and our sales team and providers and payers across the country, both commercial and MAC, very excited about what progress we're going to make this year on the reimbursement side. Patients need access to these treatments. They need reimbursed access. We're creating a big new category in interventional dry eye.

One moment for our last question, please. And it comes from the line of Joanne Weunsch with Citi.

This is Anthony [ph] on for Joanne. Just going back to guidance, I just want to clarify the guidance you put out in Surgical Glaucoma that assumes that reimbursement is essentially unchanged for the year. So there's no LCDs. And then in Dry Eye, could you maybe just talk about what your expectations are going into 2025? Do you expect to start the year with a large amount of covered lives? Or do you expect these payer wins to be more on a rolling basis?

Yes. So inherent in guidance is under the assumption that we are in the current operating environment of LCD coverage where OMNI continues to have broad access and coverage in the market which we think is fair and reasonable expectations for 2024. I'm sorry, what was the...

From a TearCare perspective, the work I described earlier, our payer team is engaged. There's a lot of engagement with our providers and payers across the country. Right now, that's more on the claims level. So working with providers and payers to ensure TearCare claims get reimbursed appropriately. Over time, in parallel with that effort, our market access team will be working on coverage policies. Now these policies have annual cycles but we will be doing that work this year, engaging with payers on policy-type coverage discussions and we'd expect to hopefully generate coverage policy wins in 2025. At that point, we have great expectations for the business.

[Operator Instructions] We have a question from Margaret Andrew with William Blair.

I wanted to maybe talk a little bit about some of the dynamics around getting formal coverage for canaloplasty and trabeculotomy. What steps have you taken at this point to kind of try to push that further? And any kind of other updates that you can share on the LCDs in the last several months? Any expectations for when we might hear any updates would be helpful.

Margaret, so just to quickly recap what happened in the second half of 2023 was an opportunity for us to engage with the 5 MACs, help better educate them on Sight Sciences, on the OMNI Surgical system, on the comprehensive outflow procedure furnished by the OMNI Surgical system and the most importantly, compelling long-term clinical evidence that we've generated for OMNI over the years. At the end of the year, it culminated with 2 important developments. One, the publication of our even longer-term 3-year prospective GEMINI study; as well as a meeting with the MACs following the society's meeting with the MACs which was another opportunity for us and our clinical stakeholders in a number of our glaucoma surge in KOLs to help further educate the MACs on Sight Sciences OMNI and our clinical data. We've been able to follow up. We intend to stay engaged with the payers throughout this year. We have followed up with the 5 MACs. In due course, we'll continue to engage with other payers such as the other 2 MACs. And we believe, in addition to the clinical data that we had provided throughout 2023 which was substantial, we're continuing to generate really meaningful clinical data this year. We should expect to see a number of compelling publications I had mentioned earlier, such as OMNI's results in ethnic minorities, a meta-analysis of OMNI which reaches the level of hopefully Level 1 clinical evidence, long-term stand-alone OMNI outcomes. So with further clinical evidence, continued engagement with the payers this year, we feel that we're very well prepared if and when LCDs are proposed again.

Okay. And then just to hit on the competitive standpoint one more time and relative to what's assumed in guidance both for this year as well as for next year, what conversations are you guys having with clinicians and accounts in the field around using OMNI for stand-alone cases? You're assuming utilization grows. So clearly, you're hopefully hearing that within the field from your accounts. Does competition come up at all? Do you guys feel a need to change any commercial strategy? Or what kind of assurances can you kind of give us of what you're hearing to support that utilization growth?

Yes, this is Matt. I appreciate the question. Maybe taking the second part of that question first in terms of commercial strategy. We talked a bit about the restructuring of the organization in the second half of last year and it really is intended to optimize our approach to the market as we continue to further segment the market based on the opportunities and given what we believe are unique opportunities for us or Sight Sciences uniquely positioned for given the comprehensive nature of OMNI and the associated efficacy. So from a competition standpoint, from a sales perspective, I believe we're well positioned in strongly engaging the market and consistently receive the type of feedback we want to hear, given the confidence nature of OMNI and its ability to treat glaucoma in both combination MIGS as well as on a stand-alone basis. So as it relates to stand-alone, we're obviously in an evolving marketplace. And so we see sort of a rapid expansion of the opportunity for internal procedures, MIGS, in particular, in the treatment of glaucoma and ultimately stand-alone as a part of that. And so given the comprehensive nature of OMNI, the broad label and our ability to pursue those opportunities, we see -- we continue to see significant opportunity there. We see strong engagement from physicians broadly and physician advocates. But ultimately, that's something that we will continue to develop in the marketplace and the market is receptive to that again with the evolution of this interventional mindset. So from a competitive standpoint, I'd say the market conditions seem consistent with prior periods, in which case, Sight Sciences as an organization and particularly OMNI the procedure, I think is well positioned to continue to compete effectively and take share.

And Margaret, we're in the -- as you know, the very early days of stand-alone market development. While it's been growing and OMNI's proven a very strong product market fit leading in efficacy, it's early days and we welcome additional entrants who can help. Really, the challenge right now is changing the treatment paradigm to moving from a medication mindset, maybe SLT, medications and SLT and patients are then progressing adding another medication, a third medication, a fourth medication and progressing and ultimately needing an invasive procedure, we need to change the treatment paradigm to intervene in a minimally invasive but effective way sooner. There's a tremendous opportunity there. It's going to take a lot of effort. We've been, over the past few years, working on it. We've been making progress. We love for that progress to be accelerated with additional entrants and more people working to help change that mindset to change it from a medication pharmaceutical disease to a surgical disease. And we just returned from the American Glaucoma Society meeting and I can say the buzz there around interventional glaucoma, the desire for glaucoma specialists to lead the shift in this treatment paradigm towards minimally invasive earlier interventions, it's alive and well and I'd expect the next few years to be very exciting.

Thank you. And I'm not showing any further questions at this time. I would like to turn the call back to Paul Badawi for final comments.

Thank you for attending today's call. Coming into 2024, we have compelling commercial strategies in our 2 large market opportunities, robust clinical efficacy across our differentiated interventional portfolio and an experienced management team ready to execute our plan. We look forward to engaging with the investment community around these exciting opportunities. Thank you.

And with that, we thank you for participating and you may now disconnect.