Sight Sciences - Q3 2024

Executive Summary

• Q3 revenue was $20.2M (+1% YoY) with an 84% gross margin; EPS was $(0.22) vs $(0.27) a year ago as OpEx fell 8% YoY; sequentially, revenue declined on softer surgical glaucoma utilization and seasonality.
• Free cash flow turned positive at $0.4M (vs $(10.0)M cash used in Q3’23) on working capital improvements; cash ended at $118.6M with $35.0M of debt.
• Management maintained FY24 revenue guidance ($81–$83M) and lowered adjusted OpEx guidance to $104–$106M from $107–$109M; expects double-digit surgical glaucoma growth in Q4 but < $0.5M dry eye revenue post price increase.
• Reimbursement is a mixed setup: finalized LCDs affirm Medicare coverage for single-MIGS procedures (canaloplasty and goniotomy) effective mid-Nov, but the final 2025 Medicare rule did not grant device‑intensive status to CPT 66174; combination-MIGS restrictions are a near-term headwind.

What Went Well and What Went Wrong

• What Went Well

  • Positive free cash flow: “We generated $0.4 million of cash in the quarter reflecting continued operational discipline and a substantial improvement in working capital”.
  • Cost discipline: Total OpEx down 8% YoY to $28.1M; adjusted OpEx down 11% YoY to $23.8M, enabling narrower loss and reduced FY OpEx guidance.
  • Dry Eye outperformed expectations ahead of the Oct 1 price increase; management highlighted “significant interest in buying TearCare SmartLids before the price increase”.

• What Went Wrong

  • Surgical glaucoma underperformed expectations; slower-than-expected recovery from LCD uncertainty, uneven territory rebound, and increased trialing of lower-priced devices during the disruption.
  • Gross margin compressed to 84% (vs 87% YoY) on higher overhead per unit from lower production volumes in both segments; dry eye margin fell to 48% (from 57%).
  • CMS did not assign device‑intensive status to CPT 66174 for 2025; combination-MIGS restrictions likely to weigh on device volumes near term.

Transcript

Operator (participant)

Thank you for standing by. My name is Janine, and I will be your conference operator for today. At this time, I would like to welcome everyone to Sight Sciences' Third Quarter 2024 Earnings Results Call. All lines have been placed on mute to prevent any background noise. Today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star one on your touch-tone phone, and to withdraw your question, please press star one again. I would like to turn the conference over to Trip from Investor Relations. Please go ahead.

Trip Taylor (Head of Investor Relations)

Thank you for participating in today's call. Presenting today are Sight Sciences' co-founder and Chief Executive Officer, Paul Badawi, and Chief Financial Officer, Ali Bauerlein. Also in attendance is Sight Sciences' Chief Commercial Officer, Matt Link. Earlier today, Sight Sciences released financial results for the three months ended September 30, 2024, and reaffirmed revenue guidance and updated adjusted operating expense 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, liquidity position, and ability to achieve cash flow break-even in 2024 revenue and adjusted operating expenses guidance, ability to achieve current and long-term strategic objectives, market opportunity, and ability to enter new markets and capture market share, pricing strategy, product reimbursement coverage and strategy, expectations regarding regaining commercial momentum, account utilization and engagement, clinical trial strategy, and results, and the disposition of ongoing patent 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 the company's public filings with the Securities and Exchange Commission, including in the risk factors section of its 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 this 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.

Paul Badawi (CEO)

Thanks, Trip. Our mission is to develop transformative interventional technologies that allow eye care providers to procedurally elevate the standards of care, empowering people to keep seeing. Our success is contingent on supporting eye care providers with the technologies they rely on to improve the lives of their patients. Recently, there have been advancements in our strategic initiatives that will help bolster our ability to provide value in ophthalmology and optometry for the long term. We have developed two market-tested interventional technologies in OMNI and TearCare that address two of the biggest problems in eye care: glaucoma and dry eye disease. OMNI has been used in over 200,000 glaucoma procedures, while TearCare has been used in over 60,000 dry eye procedures.

With a strong product-market fit established for both technologies, we've been focusing much of our work this year on ensuring equitable market access for both technologies and have made good progress on both fronts. These developments help lay the foundation to establish Sight Sciences as a leading interventional eye care company and position us for growth in 2025 and beyond. Starting with our surgical glaucoma segment, the draft local coverage determinations, or LCDs, that were published by five of the seven Medicare administrative contractors in June of this year will become effective in mid-November and confirm continued Medicare coverage for cataract surgery procedures performed with a single MIGS procedure, including both canaloplasty and goniotomy procedures. This is a critical development that, coupled with the continued optimization of our commercial organization and strategy, will support the growth of our surgical glaucoma franchise over the coming years.

OMNI's differentiated clinical profile has been demonstrated with high-quality, long-term peer-reviewed data that we believe will continue to support market access. While we are pleased to have this Medicare reimbursement clarity, we also recognize there will be some impact to the MIGS device market growth rate with the inclusion of the restrictions on combination MIGS procedures. Our estimate is that approximately 10% of total MIGS codes billed were billed as secondary procedures in combination with another MIGS code. Those secondary procedures will not be allowed under the new LCDs, and instead, the surgeon will have to choose one MIGS procedure at a time. While we expect that OMNI's comprehensive procedure profile and strong efficacy provide a compelling case for surgeons to regularly choose OMNI over other MIGS devices, we expect this to impact market growth until this headwind is lapped.

While the limitations on combination MIGS procedures are a headwind in the short term, we believe that long term this will be a differentiator of OMNI with its comprehensive procedure profile. Sticking with surgical glaucoma market access, I also want to comment on the final 2025 Medicare payment rule for hospitals and ASCs that was issued on November 1st. We were disappointed to see that, unlike the proposed payment rule issued in July, the final rule did not assign device-intensive status for calendar year 2025 to procedures billed under CPT code 66174, a code associated with procedures performed with our OMNI technology. In the final rule, the code's reported device cost fell under the 30% threshold necessary to assign device-intensive status.

We are evaluating the basis for CMS's determination and the device cost calculation in this final rule as the offset amount of 29.14% was very close to the device-intensive threshold. Device-intensive status for OMNI procedures has been a long-term initiative for the company, and we plan to continue to pursue this status by working closely with our hospital stakeholders to ensure device costs are properly reported to CMS. We believe the device-intensive categorization is appropriate for OMNI procedures to ensure a more comprehensive Medicare payment in the ASC. Based on the final Medicare rates for 2025, the ASC facility rates for CPT 66174 will increase by $49, or about 2%, compared to the 2024 rates, and the Medicare HOPD facility rates will increase by $149, or about 4%, compared to prior year.

In addition, Medicare professional fees are similar to 2024 rates, with a slight decrease overall, but still maintain the rate differentials for more involved procedures like canaloplasty and goniotomy versus stents, which we believe is important to surgeons. So we still feel like we can execute our growth plans in the existing reimbursement environment. Now, turning to our third quarter, we generated total revenue of $20.2 million, reflecting growth of 1% versus the same period in the prior year. Revenue did not meet our expectations due to surgical glaucoma revenue performance and a slower-than-expected recovery from the LCDs, partially offset by higher dry eye revenue driven by demand for TearCare SmartLids ahead of the price increase effective October 1st.

Surgical glaucoma revenue was $18.6 million, representing an increase of 1% compared to the third quarter of 2023 and a sequential decline of 8% compared to the second quarter of 2024. While we expected lower sales in the third quarter compared to the second quarter due to seasonality, we'd expected a faster recovery from the LCDs and better performance in ordering accounts and utilization than we experienced. Our recovery from the ongoing LCD process during a temporary period of coverage uncertainty fell short of our expectations. The disrupted LCD environment has raised the bar on the level of commercial execution excellence required by our team to deliver on our plan. While many territories recovered to their pre-LCD levels of utilization following the issuance of the final LCDs, others haven't recovered as quickly, and utilization in these territories is lower than expected.

Given this emerging recovery and consistency across territories during a more challenging LCD period, we likely overestimated the pace of our overall recovery. We've also experienced elevated trialing of lower-priced devices during a commercially disruptive LCD process that included coverage uncertainty. This period of our intense focus on the LCDs may have allowed more trialing with less immediate and effective competitive counterselling from our team than in prior periods. We continue to look at the sales force organization and areas in which we can optimize performance to drive stronger growth. Despite our results this quarter, the fundamentals are very much intact, and our product-market fit is well established. Many sales reps are performing effectively within the dynamic environment by clearly articulating the value of OMNI and continuing to grow our business.

However, a portion are performing below expected levels during this LCD period, and we are addressing the root causes of this underperformance in each market. Over the past several months, we have been making some key organizational changes to certain layers of commercial leadership and to certain commercial functions to enhance our execution and territory performance consistency across the country. We believe these enhancements are already having an impact and driving a greater level of consistency and performance, but we remain focused on continuing to optimize our organization until all territories are competing effectively and growing.

We are confident clarity and stabilized environment we expect to come with the effectiveness of the final LCDs later this month that provide coverage clarity and a stabilized new normal for us to operate within, coupled with the commercial organizational enhancements we have made over the past few quarters, position us for better performance and predictability. In addition to our commercial organization enhancements, to re-accelerate growth, we are focused on improving our competitive positioning and increasing our standalone market growth, which we believe will lead to increased surgeon utilization across all accounts, re-engagement with accounts that have decreased orders, engagement with new accounts, and an increased pipeline of new surgeons training on OMNI, SION. We are actively working on evolving our competitive positioning to align with the strong clinical efficacy of OMNI.

We are proactively working with accounts on how to navigate the new environment without combination MIGS as a treatment option for Medicare patients and why OMNI should be their preferred MIGS in patients where proven safety and efficacy to reduce IOP and medication burden are a priority. With this, we believe we will return to more positive growth trends in our surgical glaucoma segment. Now, moving to re-engagement with accounts. Following the uncertainty resulting from draft MIGS LCDs issued in 2023, re-engagement following 2024 LCD updates has been slower than expected. We are focused on re-engaging accounts that have historically been frequent OMNI users, but which in recent periods have reduced their OMNI utilization, particularly those accounts identified as engaged in trialing of competitive devices or lost during the LCD process.

New surgeon training was in line with our quarterly run rate for 2024, but below historic averages before the LCD uncertainty period. Given the coverage clarity following the finalized LCDs, we look forward to growing our base of surgeons trained on our technology. There remains significant opportunity in training new surgeons, as we believe we have trained less than half of the MIGS-trained surgeons in the United States. Further, we believe that the improvements we are making to our standalone strategy will also support our growth over time. We continue to see a shift in the care continuum and how physicians think about treating patients from medical management to procedural intervention.

We have taken a deeper look at the care continuum in the evolving MIGS landscape and drilled down on the specific patient population for whom OMNI standalone cases have a compelling value proposition due to the comprehensive nature of the procedure and its ability to address all three areas of resistance and the drainage pathway. This patient segment consists of patients three or more years out from prior cataract surgery, who may have had a MIGS procedure at the time of cataract surgery, whose IOP is not well controlled on two or more medications, and are at risk of disease progression. Most of these later-stage patients are on their way to an invasive and complicated procedure, like a trabeculectomy or a shunt, but we believe that standalone intervention performed with OMNI can be effectively utilized for these patients, thus potentially delaying the need for these riskier advanced procedures.

In conclusion on our surgical glaucoma segment, while we were disappointed that CPT 66174 did not receive device-intensive status, we believe that confirmed coverage for MIGS in the finalized LCDs, coupled with improvements to our surgical glaucoma organization and heightened focus on execution and strategy post-LCDs, position us for a return to growth. We expect to strengthen commercial execution and meet our organizational goals to drive further adoption of our clinically differentiated surgical glaucoma technologies and remain confident in the resumed growth trajectory for OMNI in both combination cataract and standalone use cases in the fourth quarter of 2024 and into 2025. Now, I'll turn to our dry eye business.

With TearCare, we continue to advance our work toward achieving equitable market access, notably driving payer awareness of our 12-month SAHARA RCT results and budget impact analysis that demonstrate the long-term clinical and health economic value of TearCare interventions relative to the standard of care prescription eye drops. We have developed a three-pronged approach, which we believe will facilitate our long-term mission of pioneering the field of reimbursed interventional dry eye and establishing a market-leading position. This strategy includes developing best-in-class technology, delivering superior long-term clinical outcomes supported by RCTs, and executing an effective market access strategy to establish equitable reimbursement. Since the inception of our dry eye business, we have dedicated time and resources to building the market around our TearCare technology and working to provide a solution for the estimated 11 million U.S. patients diagnosed with MGD-associated dry eye disease.

We have been introducing the results of the budget impact analysis in our conversations with payers, which showcases the cost savings over existing treatment options. The budget impact analysis, which we expect to be published in the coming months, is important as it estimates the fiscal outcomes of adopting a new technology or treatment within a specific provider environment and therefore is a key part of a manufacturer's formulary listing or reimbursement submission. We continue to be encouraged by the work we are doing with payers, and we have had a number of TearCare claims paid through commercial insurance and Medicare plans. This progress is tracking toward our expectations, and we continue to focus on establishing broad coverage and payment policies.

With strong clinical data and health economics in hand, we feel our dry eye business is well positioned to advance coverage conversations that will drive policy and/or payment decisions in 2025. Once we have some reimbursement wins, we believe we can start to activate the over 1,000 eye care providers who have invested in TearCare hubs, been trained on the TearCare procedure by our team, and performed over 60,000 TearCare procedures since launch. We were also very pleased with our third quarter results in dry eye and saw stronger customer demand than expected, highlighting eye care providers' significant interest in TearCare as a compelling solution for their dry eye patients. Lastly, I'm excited to announce that we have recently added additional leadership talent to our Sight Sciences team with the appointment of Dr. MK Raheja.

As Executive Vice President, Research and Development and Brenton Taylor as Executive Vice President, Operations. MK has more than 35 years of experience in ophthalmology medical device innovation, bringing over 70 ophthalmic innovations to market from past roles overseeing global industry-leading ophthalmic R&D organizations within companies such as Johnson & Johnson Vision, Abbott Medical Optics, Ciba Vision, and Bausch & Lomb. Brenton has nearly 25 years of experience in medical and energy technology development and operations, overseeing innovation, product development, and manufacturing. He most recently served as Chief Executive Officer at Next Energy Technologies and also was a co-founder and EVP Engineering at Inogen Inc. Both MK and Brenton bring a unique skill set with vast med tech experience that will further enhance our executive team's existing capabilities.

Separating the R&D and operations functions will contribute to advancing our strategic plans with dedicated resources to ensure we have the appropriate infrastructure to support significant pipeline development, scale, and profitable growth over the coming years. Looking ahead, the recent developments in 2024, including MIGS LCD clarity, continued momentum in making TearCare the expected first mover in reimbursed interventional dry eye in 2025, and recent executive team hires give us ample opportunity and capability to execute on our goals and accelerate growth in 2025. I'll now turn the call over to Ali to discuss our financials.

Ali Bauerlein (CFO)

Thanks, Paul. Before I turn to the third quarter financial results, I want to mention that as we continue to progress both our strategic and operational goals and improve execution, we are doing so from a position of financial stability with the ability to support these goals moving forward.

We plan to achieve cash flow break-even without the need to raise additional equity capital and are excited about our long-term growth opportunity. Moving back to the third quarter, total revenue was $20.2 million. This reflects a 1% increase compared to the same period in the prior year. Surgical glaucoma revenue for the third quarter was $18.6 million, up 1% versus the comparable period in the prior year. The increase was primarily driven by higher account utilization, which increased by 3% versus the same period in the prior year. Utilization decreased roughly 7% sequentially, and while we expected lower utilization in the third quarter compared to the second quarter due to seasonality, utilization was lower than expected. Over 1,100 customers ordered surgical glaucoma products in the third quarter, down 2% from the second quarter of 2024 and flat from the third quarter of 2023.

Our dry eye revenue for the third quarter was $1.5 million, down 4% compared to the third quarter of 2023, but ahead of expectations. The expected decline was primarily due to fewer new accounts and related SmartHub sales as a result of the focus on the next phase of our commercial strategy for our dry eye segment, which involves achieving equitable market access. Gross margin for the third quarter was 84%, down compared to 87% in the same period in the prior year, as expected due to higher overhead costs per unit in the current period as a result of lower production volumes in both segments. Total operating expenses for the third quarter were $28.1 million, a decrease of 8% compared to $30.7 million in the third quarter of 2023, which reflects improved operating expense leverage. The decrease was primarily due to lower legal expenses in the current period.

Adjusted operating expenses were $23.8 million for the third quarter, a decrease of 11% compared to $26.8 million in the same period in the prior year. Our net loss for the third quarter was $11.1 million, or $0.22 per share, compared to a net loss of $13 million, or $0.27 per share for the third quarter of 2023. We ended the quarter with $118.6 million of cash and cash equivalents and $35 million of debt, excluding debt discounts and amortized debt issuance costs. We generated $0.4 million of cash in the quarter, reflecting continued operational discipline and a substantial improvement in working capital. This was a significant improvement compared to the $10 million of cash used in the third quarter of 2023. The key drivers of our working capital improvement during the period were a significant decrease in accounts receivable and inventory.

Cash used in the nine months ended September 30, 2024, was $19.6 million compared to $40.5 million in the same period in the prior year. As a reminder, we have not received any monetary damages awarded in our successful jury trial verdict in our patent infringement case against Alcon. The final ruling is still pending the judge's determination whether to confirm the jury's verdict, establish ongoing royalty damages, and/or determine any potential enhancements, and is subject to appeal. Moving to our revenue outlook for the full year 2024, we are maintaining our expectation of approximately $81 million-$83 million. We still expect double-digit surgical glaucoma revenue growth in the fourth quarter of 2024 compared to the same period in the prior year as we regain commercial momentum and expand utilization and our customer base.

However, we also acknowledge headwinds to fourth quarter revenue growth with the slower-than-expected recovery in surgical glaucoma utilization and active accounts experienced in the third quarter of 2024 and the LCD effective date mid-quarter, which we believe will impact devices used in procedures due to combination MIGS limitations. While the limitations on combination MIGS is a headwind in the short term, we believe that long-term this will be a differentiator of OMNI with its comprehensive procedure profile. We expect dry eye revenue for the fourth quarter of 2024 to be less than $0.5 million.

Dry eye revenue is still expected to decrease following the implementation of an increase in dry eye pricing effective October 1, 2024, which is expected to have a significant negative impact on cash pay procedure volumes in the fourth quarter of 2024 before we expect a return to growth in 2025 with market access wins and an expanded commercial presence. We are revising our guidance expectations for full year 2024 adjusted operating expenses to approximately $104 million-$106 million from our prior range of $107 million-$109 million, representing a decrease of approximately 4%-6% compared to 2023. We remain focused on further penetrating and expanding the surgical glaucoma and dry eye markets as we execute and deliver on our long-term goals and build for our future. Operator, please open the line for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session.

Should you have a question, press star followed by one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to withdraw, please press star followed by one again. If you are using a speakerphone, please lift the handset before pressing any keys. Our first question comes from the line of Margaret Kaczor Andrew from William Blair, please go ahead.

Hey, everyone. This is Macaulay on for Margaret tonight. Thanks for taking our question. Really appreciate the color on some of the moving pieces within the surgical glaucoma performance this quarter and understand your strategy longer term, Paul. But assuming another sequential decline in dry eye sales, as you mentioned, Ali, the reiterated guidance obviously assumes that utilization step up sequentially within surgical glaucoma in the fourth quarter.

So just wondering if we could get a little bit more color on if you're already seeing improvements in that portion of reps that were performing below expectations and ultimately what gives you that confidence of a sequential step up, especially with the headwinds around the LCD, as both of you mentioned?

Ali Bauerlein (CFO)

So I'll be happy to take the start of that, but Matt or Paul, please feel free to jump in here. So first of all, what I would note is that on the glaucoma side of the business, we typically see the fourth quarter utilization higher than the third quarter, where we typically see some summer seasonality in procedure volume. So we do expect that to be a factor in the fourth quarter. We have seen improvements in the overall business, but it is very early in the quarter still.

So we are looking to see that to continue to improve, but we feel like we have a very targeted plan that we are executing against in the fourth quarter. And also, dry eye is ahead of our original expectations for the fourth quarter, while still a modest number expected in the fourth quarter of $0.5 million or less. That is ahead of our last provided guidance on dry eye. And of course, there was outperformance in the third quarter as well that offset a portion of the glaucoma shortfall in that period.

Matt Link (Chief Commercial Officer)

And maybe just secondary, I'll add that reiterating some of the commentary from the prepared remarks. We've been working actively within our sales organization, as we said, responding to what is an always very dynamic and evolving environment. Our team has done a great job of engaging in the marketplace, engaging and supporting our providers.

And look, while there are certain takeaways with the finalization of the LCD specifically impacting combination of MIGS procedures, it does create a level of certainty in the market that eliminates noise and allows us to be very deliberate, I think, in our efforts as we continue to reengage accounts, reengage providers where we may have seen a decrease in utilization previously. And so the team has been working effectively against that. And again, as Allie alluded to, one of the things that we will continue to rely on is the comprehensive nature of OMNI as a procedure, the demonstrated efficacy, ensuring that we continue to win our fair share of those opportunities. So the clarity and certainty with the finalization of the LCDs, I think, ultimately becomes a benefit as we continue to target our efforts across all segments of the U.S. surgical glaucoma business.

That's great. Very helpful.

Maybe just to follow up with one on the device intensive and not getting that in the final rule. Could you maybe just talk about how that calculation is computed, I guess, and were they looking at a trailing 12-month claim and that's what shifted it from the 29% from the 31% used in the proposal, or just, I guess, any clarity in terms of the device intensive nature? Thanks.

Yeah, this is Matt. So the short answer is we don't have the details of what ultimately the claims data was that led to the calculation, and ultimately, it's falling below the 30% threshold. The process is looking at 2023 data claims up through the middle point of the year for the proposed position on device intensive, and then an interval between looking at the claims data through the balance of 2023, second half. That's not data we have yet.

So assuming no mistakes in the calculation and ultimate determination, there is something in that data which will become publicly available and we'll ultimately look into it. Again, as we've stated multiple times, we believe strongly in the fact that OMNI should qualify for device intensive. It meets all the criteria. We've worked diligently with accounts to ensure that it's coded correctly so the accurate billing data is collected to inform these calculations. And once we have the data, the claims data from the second half of the year, we can better understand what we need to do and what will be required moving forward to ensure that OMNI is ultimately reimbursed in a manner commensurate to the value it provides both physicians and patients.

That's very helpful. Thanks.

Operator (participant)

Thank you. Our next question comes from the line of Matthew O'Brien from Piper Sandler. Please go ahead.

Hey, this is Phil from Matt. Thanks for taking our questions. I just wanted to get your take on MIGS volumes and more specifically how the restrictions on multiple MIGS procedures performed in a single surgery impacted your business. You called out 10% of procedures being historically billed with multiple devices. Any idea how many of those procedures you captured in Q3 here? And my second part of this question is Q4 surgical glaucoma guidance looks like it's low single-digit growth on a two-year stack. Any expectations for 2025 given where these LCDs fell?

Ali Bauerlein (CFO)

Yeah, sure. So I'll take the second question first here. Today, we're not going to be giving 2025 guidance. Obviously, we're seeing some level of impact associated with combination MIGS, but we don't have good data that tells us specifically what subset of our procedure is done in combination.

So when we discuss that 10%, that's looking at claims data and looking at total volumes of claims billed with the various procedures in combination with a stent procedure. We don't have a way of understanding how much of that is specifically OMNI, which can be billed as either canaloplasty or goniotomy. And obviously, there are other products that are billed under those codes as well. So we don't know how much of that is associated either in the third quarter or the potential impact in the fourth quarter, but we do feel like we are having good conversations with our customers to proactively discuss what their plans are in the circumstances that they are doing combination procedures. And we feel like we have a unique value proposition because of the comprehensive nature of the OMNI procedure.

That's helpful.

And my second question here, and I think lost in the discussion of reimbursement and LCDs was you were pretty cash flow positive in Q3, and you reiterated expectations for break-even with current liquidity. Can you kind of walk us through the expectations built into your model, some of the leverage you expect to exhibit, and then any thoughts on maybe free cash flow positive next year? Thank you.

Sure. Great. Appreciate the question. And we are very proud of the reductions that we've accomplished in cash burn year to date, being under $20 million burned year to date with over $40 million burned in the same period of 2023. And we've really been diligent with our expense management as well as working capital.

As you know, we don't provide specific cash burn guidance or specific break-even guidance, and we're not prepared to change that today to provide guidance on those areas. But if you look at in the period of the third quarter, we did reduce our cash flow or reduce our working capital, our accounts receivable, and inventory almost $9 million associated with those two buckets. So those are more one-time benefits. After that, you would typically see accounts receivable and inventory grow more proportionally to revenue growth. So I think that's important to take into account in your future modeling of cash usage. But this is an area of focus for the company, seeing both sequential and year-over-year improvement in cash generation versus burn, and we will continue to look to be diligent in our spend.

Now, on top of that, I would say there are key areas that we are investing in as a company, and that includes our TearCare market access now, and next year will be on our TearCare commercial expansion as we get market access wins, and also looking at our pipeline activities, which we continue to believe are very important for our long-term value creation. So all that said, we are taking a balanced approach here. We expect to continue to make progress in reducing our burn over time and feel like we are sufficiently capitalized, but we won't be providing specific break-even guidance today.

Paul Badawi (CEO)

And Phil, I just want to add one comment to Ali's comments around the comprehensive nature of OMNI.

In a one MIGS world, first of all, we believe that surgeons should have the flexibility to provide their patients with whatever procedures they feel are medically necessary to give them the best patient care. We've obviously developed OMNI to do just that. And with its unique indication and unique design, we think long-term, once this one MIGS headwind is lapped, long-term, midterm, long-term, the fact that it offers multiple mechanisms of action by design, it has unique indication. While it's a single comprehensive procedure, it's indicated to perform canaloplasty followed by trabeculotomy. And that was deliberate. Three sources of outflow resistance in the conventional outflow pathway that's diseased in glaucoma. These two sequential mechanisms address all three: trabecular meshwork, Schlemm's canal, and collector channels.

So competitively, as we look out over the long term in a one MIGS world, we think that OMNI offers surgeons a very reliable procedure that comprehensively addresses the conventional outflow pathway.

Very helpful. Thanks so much.

Thanks.

Operator (participant)

Thank you. Our next question comes from the line of David Saxon from Needham & Company. Please go ahead.

David Saxon (Equity Research)

Hi guys. Paul, Allie, Matt, this is Joseph on for David. Thanks for taking our questions. So this might be a long one, but I just want to combine them. If you could maybe talk about in dry eye, if there's any way to quantify how many claims you've seen adjudicated and paid out, and maybe what's the next step of expanding that group of docs who are submitting claims.

And then from the doctors or practices that have gotten TearCare claims paid out, what are you seeing in terms of their volumes, stable, growing? Yeah. And then I'll have a follow-up.

Ali Bauerlein (CFO)

So I can start with that, Matt. Feel free to jump in here. So far, we've just seen a small volume of claims being paid. We're not going to quantify that at this stage, but it's been both commercial and Medicare payers that have had claims processed, and each is an individual processing of a claim. There's not a standardization in the amounts paid yet. We are happy with the partners who are working with us to get these claims submitted and work through the process so we can establish coverage policy. And it is a critical step in the process, but we're still early stage in that.

I would say, though, that the conversations in general are very productive with the payers, leveraging that budget impact analysis as well as the SAHARA RCT. And we have a compelling value proposition here where we are having cost savings versus the standard of care, and we have an RCT versus the standard of care. So we do look forward to getting that budget impact analysis published in the coming months, and that will be important over time for everybody to see that data.

Matt Link (Chief Commercial Officer)

And maybe the second part of that question was around provider utilization and just to dovetail on Allie's comments, very measured at this point. And so I want to reiterate her comments that we've seen incredible partnership from the eye care provider community in working with us.

Paul Badawi (CEO)

There's a tremendous interest and enthusiasm in ensuring we're providing fair access to patients for this novel and exciting procedural intervention for dry eye, but as you can imagine, not yet having received formal coverage policies for the procedures or claims they've been submitted or standardized payments, being very judicious as we would expect, but above all, we're very appreciative of their partnership and enthusiasm, and the fact that we're seeing that broadly across the U.S., working, as Allie said, with both commercial payers and Medicare, is very encouraging. Lastly, on Sahara, the current update, it's a very ambitious, rigorous RCT, a two-year RCT versus the standard of care prescription dry eye therapeutic, as Allie mentioned. We completed phase one, the six-month versus Restasis, and that's published. We completed the 12-month crossover arm, and that's published.

And then the last phase, phase three, the crossover patients from month 12 through month 24, which is designed to demonstrate to payers the durability of treatment effect for TearCare and the need for retreatments. Excited to share that the last patient, last visit, completed last month. So that data, the final data of the two-year RCT, is being analyzed, reviewed, soon to be drafted into a publication and submitted for publication. So that's the exciting development on this high-impact dry eye RCT, SAHARA, two years.

David Saxon (Equity Research)

Okay. Thank you very much for all that color. Just maybe one more on dry eye, the performance in the quarter. You guys have any idea maybe on how much of the performance was driven by, I guess, stocking ahead of the price increase?

Ali Bauerlein (CFO)

Yeah, sure.

So obviously, we don't know exactly how much was associated with that, but obviously, we saw significant interest in buying TearCare SmartLids before the price increase went into effect. And that's really a testament to the value of TearCare and how much these providers really do want to continue doing TearCare procedures. And I think some of those were stocking to be able to do cash pay procedures over the coming months before reimbursement is secured. But really, I think we're trying to work with our customers to balance those needs versus the long-term goal here of really a reimbursed TearCare procedure, which we think is the highest value creation.

So while we were happy to see the revenue, really the value creation for us with TearCare is associated with getting market access wins, not necessarily the $1.5 million of revenue that we achieved in the quarter. So while we're happy to meet the needs of our customers, we really are heavily focused on market access.

David Saxon (Equity Research)

Sure. Okay. Absolutely. Well, thank you very much for taking our questions.

Operator (participant)

Thank you. Again, should you have a question, please press star followed by the number one. Our next question comes from the line of Joanne Wuensch from Citi. Please go ahead.

Hey, guys. This is George on for Joanne. Thanks for taking our questions. I guess first, I kind of want to push back a little bit in terms of the previous question on free cash flow. And I'll try to frame it another way.

So it sounds like you guys are spending a lot in terms of investing in re-engaging with these accounts, whether it's existing or prior accounts, and then also really working hard on both just working through with the payers in terms of getting TearCare reimbursement and then also kind of building out your data. So with all that said, as we think about going forward, how are you able to balance all that investment with being able to generate free cash flow positive? And then more so like, what are the specific levers that you can pull to be able to continue to drive that free cash flow positive moving forward?

Ali Bauerlein (CFO)

Yeah, sure. Happy to take that question.

I mean, what I would comment is, first of all, I think we've shown good execution in this area where we have been able to reallocate funds to the highest value areas of the business and reduce spend in other areas that weren't generating as high of a return for us. So when we talk about our plans here, that it's more of that. It's more of looking at where are we spending money and where is the right area for us to spend money. And the highest value for us when we look across the business in terms of incremental spend is, of course, the TearCare expansion when we look at 2025. But still, that will be incremental in nature in the sense that we will get regional wins of these contracts, and then we will put people in place in those areas as we get wins.

So we will be doing this in a disciplined manner. We also will continue to invest in R&D, continue to invest in our surgical glaucoma business, which we are very excited about, the standalone opportunity and how we can continue to partner with surgeons. And we feel like we still have the proper amount of operating expenses in the business to allocate to these very critical initiatives. So obviously, that's something we will have to continue to prove over time. And again, we're not going to get into 2025 guidance today on spend levels, but we are in the process of finalizing our 2025 plans, which includes that balanced look at revenue growth and investments for the future.

Paul Badawi (CEO)

Yeah. And maybe just in terms of account engagement, re-engagement, and competitive re-engagement, it's really about driving efficiencies, right, and being as effective as we can.

So one of the things we talked about earlier, specifically as it relates to the surgical glaucoma side, is removing the overhang and uncertainty of the LCD scenario, having clarity moving forward, working with our organization, and really driving targeted efforts across account re-engagement, driving utilization, and building what is a really compelling standalone opportunity. On both sides of our business, in surgical glaucoma and ocular surface, we have exceptional sales professionals. And so in continuing to ensure that they have the right tools to go out and do their jobs effectively is certainly of the most importance to us. But as Ali said, we're absolutely prepared to continue to invest on a cadence that is supported by the performance and execution of the business.

So from that standpoint, I feel like we're in the right place, focused on the right things as we end the year preparing for how we move into 2025.

Okay. That's very helpful. Thank you for that. And I guess my other question would be just on the standalone opportunity. Can you remind us where you are in terms of your percent of revenues, where that stands in terms of your standalone opportunity? And then as we look forward, does the kind of the recent LCDs, do they change the way you think about how you're approaching your standalone or being more aggressive in that channel?

Yeah. So at the current state, I'd say we're still early days in the market development effort around standalone. Look, it's not just a matter of technology and advancements of technology.

It's really a paradigm shift in patient care and a movement toward earlier procedural intervention at every step along the care continuum for glaucoma patients. We all know and understand glaucoma is not a disease you cure, you treat, you manage, and continue to try to preserve not just visual field, but really the elements of life and enjoyment for patients that are impacted by this disease. So it's a market that takes time to develop. One of the things that we refer to in the script, though, is really being thoughtful. We've already demonstrated, and we have the data through the trade data that shows the efficacy of OMNI. So this isn't an efficacy issue with respect to our ability to treat and develop the standalone market. Again, it's really driving a paradigm shift in the continuum of care.

And so what's really exciting now is being more discreet and deliberate, and looking at where along the patient care continuum can we garner alignment and buy-in with physicians to help ensure that we have the greatest impact on patients and associated outcome and quality of life. And so that's really the effort we're doing. Again, the company has been, will continue to be a market leader in this segment, and we're excited about what's in front of us in terms of our ability to continue to build out that market in a really meaningful and compelling way moving forward. However, it will take time, not unlike the introduction of MIGS in combination with cataract surgery. It's really, again, not just about the technology, but building the philosophy and the paradigm shift in patient care.

Just to add to Matt's comments on the clinical side, we're excited to have reviewed and analyzed real-world outcomes from the IRIS Registry, American Academy of Ophthalmology's real-world database, partnered with Verana, to mine standalone outcomes. So these are real surgeons, real cases, real patients. We've looked at up to three-year standalone outcomes, a surgeon intervening on a standalone basis with long-term outcomes going out to three years. That data has been analyzed. We're excited to get the publication out in the 2025 timeframe so Matt and team can go and further develop the standalone market. So three-year standalone outcomes, real-world from the IRIS Registry coming hopefully in the first half of 2025. There was, sorry, there was one last part of your question that I failed to respond to, which is whether or not the LCDs would have an impact on our strategy for standalone.

So we've already spoken to and highlighted that one of the outcomes of the LCDs was elimination of the combination of MIGS procedures. I think one of the things that's really important to think about, and I think it actually really accentuates our approach to standalone, is a standalone procedure by definition is you're doing an incisional surgery solely for the purpose of treating glaucoma, which really emphasizes and highlights the importance of efficacy. And again, one of the things we feel extremely confident in is not just the label and the indication for use of OMNI and standalone, but the demonstrated efficacy. Paul just talked about the real-world data. We have other clinical data in support of that. And so while there is some impact with respect to the potential combination of MIGS therapies, this is a patient population in need and growing.

And so as we approach the market, we can do so with confidence, knowing that OMNI will be, we believe, the best solution that surgeons have to choose from based on the comprehensive efficacy it provides.

Got it. That's really helpful. Thank you.

Operator (participant)

Next question comes from the line of Frank Takkinen. Please go ahead.

Great. This is Nelson Cox on for Frank. I have a couple of questions. Wondering if you can start with SION and whether or not you think you could see that business contribute in 2025 given the positive reimbursement that's still in play for goniotomy.

Ali Bauerlein (CFO)

Sure. I can start there. So SION is a small portion of our total portfolio today. It's a good complementary product to OMNI for surgeons who want to do a less comprehensive procedure and a less complicated procedure.

It is not something that we see as a significant growth driver going out and to be the same size as OMNI, for example, in our business. So we think it's a nice complementary business line, but not something that we would say is an inherent growth driver. Obviously, goniotomy has a slightly higher professional fee versus canaloplasty. And there also are other goniotomy solutions that providers use. But in general, our business is really driven in surgical glaucoma based on our success with OMNI, and SION is a smaller subset of that.

All right. Fair enough. And then can you talk a bit about your longer-term glaucoma pipeline and any thoughts around therapeutic delivery?

Matt Link (Chief Commercial Officer)

We've been working on our surgical glaucoma pipeline for years now, and we're making good progress. We're going to be speaking publicly about it next year. I think maybe you saw the announcement.

We've hired Executive Vice President of Research and Development, Dr. MK Raheja, to help us efficiently and effectively advance our robust pipeline in surgical glaucoma and dry eye over the coming years. So we are building the leading interventional eye care company. We're in glaucoma and dry eye with OMNI and TearCare today, but do expect to learn about interventions from sustained release to other MIGS approaches next year. We want to offer our eye care providers and surgeons technologies that allow them to intervene procedurally in a safer, more efficacious, more user-friendly manner, user-friendly to both the eye care provider as well as the patient from first diagnosis of glaucoma all the way to end-stage disease. So we're excited about the work we're doing there. We're excited about the new leadership who's going to help us develop this pipeline.

MK's managed a much broader project, R&D projects at companies like AMO prior to its acquisition by Johnson & Johnson. So excited to share with you more details next year, but just know that we're making very good progress, and we're very encouraged by what we're seeing.

Perfect. Thanks, guys.

Operator (participant)

Our last question comes from the line of Tom Stephan from Stifel. Please go ahead.

Tom Stephan (VP of Healthcare Equity Research)

Great. Thanks, everyone. Thanks for taking the questions. First one on TearCare, I wanted to ask about how we should be thinking about what comes on the other side of payer wins or even right before in terms of investments and preparation. Maybe if you could discuss what that will look like before and/or after a payer win and sort of how quickly that can ramp from the perspective of the timing around revenue contribution. And hopefully, that made sense.

Ali Bauerlein (CFO)

Yeah. Sure.

First of all, what I would say is we already have a small team of TearCare sales and marketing team that have been working on developing our overall strategy and supporting the cash pay business for many years. We have a base of infrastructure that's already built into our numbers that you see. We've also had over 1,000 customers buy TearCare hubs and do 60,000 procedures. We don't start from ground zero when we get a payer win. We already have established relationships with the customers that are excited about the potential for us to get these reimbursement wins. From that perspective, I do think that we will see success quickly. Now, what will depend is what size of the payer win, how good is the reimbursement. All of those dynamics are unknown at this point.

We can't give certainty or clarity around what exactly that ramp looks like. But what I would say is that on the investment side, the incremental investment side will be relatively small to start. And as we see success, as we add areas, that will come at the same time right after a payer win. It will not come in advance of those payer wins. We have the infrastructure we need to execute winning those payer contracts already built into the base business today.

Tom Stephan (VP of Healthcare Equity Research)

Got it. That's great color.

Paul Badawi (CEO)

I would just want to emphasize what Ali mentioned on the providers out there. This is an interventional procedure. It takes a lot of training, a lot of effort, a lot of education. And we've been at it for years.

We've had a team out there doing great work for years in a cash pay environment, recognizing that's not the optimal way to create value, but we got a lot out of that cash pay experience in terms of perfecting the technology, understanding how it might compare to market-leading therapeutics like Restasis, executing that SAHARA RCT that's pretty ambitious, obviously, with confidence. So training 1,000 eye care providers on an interventional procedure and having those folks out there now with SmartHubs and understanding how to deliver the procedure for their patients is something that normally under a launch from ground zero, as Ali mentioned, would take a lot of time and a lot of investment. That's already been done.

So there's a lot more work to do commercially, obviously, after we get payer wins, but there's a lot of work that's been done and a lot of eye care providers that are waiting for the moment that we get that first payer win. It'll be exciting.

Tom Stephan (VP of Healthcare Equity Research)

Super helpful. Thanks, Paul. And I should have apologized in advance if any of these questions were asked jumping between calls. But my second question is just on surgical glaucoma. Obviously, a lot of dynamics shifting pretty quickly between device-intensive, the new LCDs precluding stacking, competition. So I wanted to ask about kind of your double-digit 2025 growth target. Maybe if you could discuss sort of how your level of confidence in achieving that compares to, I think it was maybe a couple of quarters ago when this was initially conveyed. What's the latest on kind of your conviction in that target? Thanks.

Ali Bauerlein (CFO)

Yeah. Thanks, Tom. So at a high level, we do expect to return to growth in 2025. We won't be providing specifics on that 2025 plan. We're still obviously working through all of those impacts and understanding the areas that we can focus on to enhance our growth profile over time and also working through that dry eye launch plan and potential scenarios on market access wins. So today, sitting in November of 2024, we're not prepared to give specifics around what that growth plan will look like or give any specific targets, but we'll come back at a later date once we have our plan fully vetted and provide an update to you guys.

Tom Stephan (VP of Healthcare Equity Research)

Got it. Very fair. Thanks, Ali.

Operator (participant)

That concludes our Q&A session. I will now turn the conference back over to Paul Badawi for final closing comments.

Paul Badawi (CEO)

Thank you for attending today's call.

We appreciate your interest in Sight Sciences, and we look forward to updating you on our progress in the future. Thank you.

Operator (participant)

That concludes our conference call for today. You may now disconnect. Thank you.