LENSAR Inc Stock

Hello, and welcome to LENSAR, Inc. Second Quarter 2026 Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Lee Roth, President of Burns McClellan, Investor Relations Adviser to LENSAR. Mr. Roth, please go ahead.

Thanks, Towanda. Good morning, everyone, and once again, welcome to the LENSAR Second Quarter 2026 Financial Results and Strategic Update Conference Call.

Earlier this morning, the company issued a press release providing an overview of our financial results for the second quarter of 2026. This release is available on the Investor Relations section of our website at www.lensar.com.

Joining me on the call today is Nick Curtis, Chief Executive Officer; and Mike Rossi, Interim Chief Financial Officer of LENSAR, who will provide an overview of recent developments, our go-forward strategy and financial results. Following these prepared remarks, we'll turn the call back over to the operator to take your questions.

Before we begin, I'd like to remind you all that today's call will contain forward-looking statements, including statements regarding future results, unaudited and forward-looking financial information as well as information on the company's future performance and/or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from any future results or performance expressed or otherwise implied on this conference call.

We caution you not to place any undue reliance on these forward-looking statements. For additional information, including a detailed discussion of the company's risk factors, please refer to our documents filed with the Securities and Exchange Commission, which can be accessed on the website.

In addition, this call contains time-sensitive information accurate only as of the date of this live broadcast, August 13, 2026. LENSAR undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this live call.

With that said, it's now my pleasure to turn the call over to our Chief Executive Officer, Nick Curtis. Nick?

Thank you, Lee, and good morning, everyone. Thanks for joining us today. We appreciate it. Before I get into the quarter, I'd like to spend a moment reflecting on where we are as a company. As many of you know, the first half of 2026 marked an important turning point for LENSAR. The proposed merger with Alcon was terminated towards the end of Q1. And in the second quarter, we returned to operating as an independent company with a renewed focus on executing our strategy and building the business for the long term.

One thing that's become very clear over the past several months is that the market demand for ALLY is as strong as ever. Our team remains focused on supporting our surgeon partners, advancing the adoption of ALLY and continuing to execute our strategy. Their diligence, pride and deep commitment enabled us to quickly reset, and I'm really proud of what we've accomplished in Q2.

While quarterly financial performance will always be critical and important, I've said before that our success over the next several quarters should be measured by more than just the numbers on the income statement. The metrics we're focused on are the ones that position us for sustainable long-term growth, rebuilding our commercial momentum, expanding our installed base, increasing utilization across that base, growing recurring revenue and continuing to strengthen our relationships in addition to building new relationships with surgeons around the world.

Now diving into the quarter. We're very pleased with our performance in the second quarter. We delivered 18% total revenue growth with Q2 revenue of $16.5 million, 20% recurring revenue growth of $13.7 million and 23% procedure revenue growth to $10.2 million, while also achieving our strongest adjusted EBITDA performance to date. Overall, it was another quarter that demonstrated the strength and resilience of our business model, continued demand for the ALLY system and early evidence of renewed momentum across the business.

One of the things I'm most encouraged by is the continued growth of our recurring revenue. As we said before, the long-term value of our business isn't simply measured by the number of systems we place in any given quarter. It's measured by what happens after those systems are installed as the practices get comfortable with the ALLY, see the outcomes they deliver for their patients and ramp up their conversions to laser-assisted cataract surgery. This quarter is another great example of that.

LENSAR laser systems performed 31% more procedures as compared to MarketScope's stated national average of installed systems. As a result, procedure revenue increased 23% year-over-year, driving recurring revenue to 83% of total revenue. As our installed base continues to expand and utilization increases, recurring revenue becomes an even more meaningful driver of long-term growth and create greater visibility into our financial performance.

We're also beginning to see those operating trends translate into improved profitability. Delivering our strongest adjusted EBITDA performance reflects not only higher revenue, but also the operating leverage we're realizing as recurring revenue becomes a larger portion of our business. That's exactly the type of financial profile we're working to build as we continue to scale.

Another metric we're encouraged by is our continued market share expansion. In the U.S., procedure market share increased to 24.1% in the second quarter as compared to 23.4% in the first quarter and 21.4% in the second quarter of last year. Those gains as a result of the continued growth of our installed base, increasing utilization across existing customers and an increasingly relevant market segment, installations of lasers into accounts that heretofore have not performed laser-assisted cataract surgery. This is a direct reflection of the value and technology differentiation surgeons are seeing from the ALLY system.

As the recurring revenue increased, procedure volume was another highlight this quarter. We performed more than 58,600 procedures, up 13% from the second quarter of last year and a solid 8% over the first quarter. As we continue expanding our installed base and supporting our surgeon partners, we believe we're well positioned to build on these gains and further strengthen our competitive position in the quarters ahead.

We continue to make solid progress in growing our installed base. During the quarter, we placed 10 ALLY systems, up from 7 placements in the first quarter, bringing our installed base to approximately 215 ALLY systems worldwide. Combined with our legacy LENSAR laser systems, our global installed base reached 445 systems, up from approximately 410 systems a year ago. We also exited the quarter with 13 ALLY systems in backlog.

One data point I'd like to highlight is that ALLY now accounts for nearly half of our global installed base. That's a significant milestone and reflects the continued adoption we're seeing from our next-generation platform. More importantly, every new ALLY installation creates another long-term recurring revenue opportunity to strengthen the base of business and contribution to our gross margins.

As we stated previously, our strategy is consistent: expand our installed base, support our surgeon partners with best-in-market education, training and service, which is resulting in increased utilization on systems in the field and continuing to grow our recurring revenue business. The progress we've made this quarter from higher sold system placements and procedure growth to expanding recurring revenue and building a healthy installation backlog gives us confidence that we're executing well against those priorities.

Overall, we're very pleased with the momentum we carried through the second quarter, an expanding installed base, increasing utilization, growing recurring revenue and our strongest adjusted EBITDA performance to date all reinforce we're building a stronger, more durable business. We remain focused on creating long-term value for our shareholders while continuing to support our surgeon partners and the patients they serve.

As we continue to engage with our partner customers and prospective partner customers, we've expanded our meeting presence to include the ESCRS in Q3 2026 Europe. Europe has the potential to be an increasingly important market for us, and this will be the first time we've taken a direct presence at this meeting. We're making this investment to continue to educate surgeons in the region and further increase interest in the ALLY robotic laser cataract system.

Before I hand things over to Mike, I'd just like to emphasize that we're exactly where we want to be. We've put the uncertainty of the past year behind us, and we're fully focused on executing our strategy, and we see evidence of this execution in our top line growth. The progress we've made this quarter from growing our installed base and recurring revenue to increasing utilization and building our backlog gives us confidence that we're rebuilding the momentum we had before the merger announcement and positioning the business for sustainable long-term growth.

It is too early to tell, however, important to note that historically, cataract surgery procedures are the lowest of the year in the third quarter given extended holidays in various regions of the world and summer vacations in the U.S. We continue to work tirelessly to deliver the results we expect and continue to be proud of. I would also like to thank all of our partner customers for their continued support and of course, all the LENSAR employees for their commitment and dedication to excellence as well as continuous improvement.

And with that, I'll turn the call over to Mike to walk through the financial results in more detail.

Thanks, Nick. It's been great to get to know the LENSAR business the last 2 months and see the strong results delivered in Q2. Let me provide some additional context around our performance during the quarter. Let me start with our balance sheet.

We ended the second quarter with $13.6 million in cash and cash equivalents compared to $18 million at the end of 2025. During the quarter, we were essentially breakeven in cash flow after using $4.4 million of cash in Q1 as positive adjusted EBITDA was offset by investments in inventory and working capital to support future growth.

Turning to the P&L. We delivered another strong quarter with total revenue of $16.5 million, representing 18% growth over the second quarter of 2025. This performance was driven by continued momentum in our recurring revenue business, which increased 20% year-over-year to $13.7 million and represented 83% of total revenue during the quarter.

Procedure revenue increased 23% year-over-year to $10.2 million, reflecting continued utilization growth across our expanding installed base. Procedure volume reached 58,682 procedures, an increase of 13% compared to the prior year period, reinforcing the strength of our recurring revenue model and reflecting improved utilization over Q1 '26.

During the quarter, we placed 10 ALLY systems, bringing our installed base to approximately 215 ALLY systems, an increase of 30% from a year ago. Our total installed base reached 445 systems, up 9% year-over-year, and we ended the quarter with a backlog of 13 ALLY systems pending installation, providing continued visibility into future placements.

Gross profit in the quarter was approximately $9.8 million, representing a gross margin of approximately 59% compared to approximately 50% in the second quarter of 2025. We recorded a $1.1 million benefit in cost of goods sold related to a tariff refund in Q2. Without this benefit, gross margin was 52%. This improvement reflects the higher revenue and increased contribution from higher-margin recurring revenue.

From an expense standpoint, we continue to demonstrate disciplined cost management. SG&A expenses declined significantly over the year to $6.1 million, reflecting the absence of the $4.2 million of merger-related costs incurred during the prior year period, while research and development spending remained focused on supporting our innovation pipeline.

Second quarter 2026 expenses, particularly SG&A, were reflective of the continued early reemergence of LENSAR following the deal termination. Looking ahead, we expect operating expenses to trend modestly higher, approaching historical levels as we begin to increase investment in commercial efforts to support continued growth.

Total operating expenses declined to $7.6 million. These improvements translated into strong bottom line performance. We reported GAAP net income of $3.5 million compared to a net loss of $1.8 million in the second quarter of 2025. We delivered adjusted EBITDA of $3.6 million, representing our strongest quarterly adjusted EBITDA performance to date. These results were driven by higher revenue, lower operating expenses and a $1.1 million tariff refund that I mentioned.

With GAAP net income growth partially offset by lower noncash income associated with the change in the fair value of warrant liabilities. Looking ahead, we expect to see a certain degree of variability in our income and EBITDA over the next several quarters as our operating expenses continue to normalize as a result of the strategic investments I mentioned.

Nick will now close this out with some final thoughts on the quarter.

Thanks, Mike. So as we look ahead, we're encouraged by the momentum we've built through the first half of the year. This quarter demonstrated continued demand for the ALLY system, strong growth in recurring revenue and procedures, the expansion of our installed base and our strongest adjusted EBITDA performance to date. More importantly, it reinforces that our strategy is working.

As Mike discussed, we expect our spending levels to gradually expand as we continue investing in our commercial organization and other key growth initiatives. Those investments are highly strategic and reflect our confidence and optimism in the long-term opportunity ahead.

We're focused on building a larger installed base, increasing utilization across our growing fleet of ALLY systems and further expanding our high-quality recurring revenue business. We believe those fundamentals will continue to drive operating leverage and position the company for sustainable long-term growth.

While we're pleased with the progress we've made, we believe we're still in the early stages of capturing the opportunity ahead. With the momentum we're seeing across the business and the strength of our recurring revenue model, we remain confident in our ability to create long-term value for our shareholders while continuing to deliver differentiated technology that benefits surgeons and the patients that they serve.

Thank you all for joining our call today and for your continued interest in LENSAR. We look forward to updating you as we make further progress throughout the year, and we'll now open the line for questions.

[Operator Instructions] Our first question comes from the line of Frank Takkinen with Lake Street Capital Markets.

I was hoping to ask one on the composition of the backlog with -- I hope I can get some kind of insight into how you're thinking about Q3 and Q4. When looking at that backlog, is it U.S.-based, OUS based? And then any color on if they are U.S.-based, if they're expected to be sales or placements and how that influences Q3, Q4 expectations?

That's a great question, Frank. So it's -- with everything. It's a little bit of both. We have some backlog with POs, as I may have mentioned in the previous quarter conference call for primarily fourth quarter delivery OUS, given the sort of the holiday season and whatnot that I mentioned towards the end of my remarks. And then some backlog in the U.S. with a few sold and placed systems.

I haven't looked too granularly at those because some of those are facilities that we're still waiting for them to finish the facility where they were new facility, for example, one that's out West that is a new facility that they've had some delays in construction and getting into as an example. So I'm a little unclear on the ones in the U.S. yet due to those going into new facilities.

Okay. Fair enough. That makes sense. I appreciate that color. And then how should we think about recurring revenue per procedure? I know it's not a perfect calculation if you're looking at procedure volume and recurring product revenue. But it seems like that is ticking up a little bit if you're just using kind of the math and reverse engineering into it. Obviously, that's not perfect math, but how should we kind of think about that ASP going forward? And can we see that improve over time?

I see the ASP staying a bit steady here. It may go up negligibly just because the U.S. procedures with more U.S. systems are going in. And so you'll see some increase, some creep, if you will, in the ASP as compared to systems sold outside the U.S., which are going through distributors. And so there's a lower ASP to the procedures there, if you will.

So you'll see some increase in the ASP, again, a modest increase there as the U.S. systems continue to produce. The timing of these are hard, as you know, we've talked about that. Like as these systems get installed, it takes somewhere between 60 and 90 days for them to fully ramp up to get to their productive. And given a higher number of systems into what we refer to as the femto-naive, new customers coming in, the good news is that overall, it grows the market segment because those are customers that heretofore aren't doing any laser-assisted cataract surgery. And at the same time, it takes a while for them to ramp up net-net.

We do see -- we are going to start seeing more LLS customers, the legacy system, the LENSAR laser system start to gradually move out and replacing those with ALLY systems. And so net-net, you'll see those appear except for when we sell those ALLY systems in where you'll get a bump in the CapEx, but you'll see revenue ramp in those faster due to their familiarity with the system. However, those are more moderate volume accounts to begin with, which is one of the reasons why they've continued with the legacy system, and we've managed that sort of fewer taking those systems out of the market, if you will. So it's a little complex from the modeling perspective.

Okay. Very helpful. And then maybe if I can just have one more question, a big picture related. Last quarter, you outlined an objective of your reestablishing and reaccelerating your distributor relationships, OUS. Maybe an update on that would be good and how we're thinking about that objective.

Work in progress, continued work in progress. I mentioned it was going to take several quarters for that -- for me to feel comfortable that, that was "back, all the way back." ESCRS, as I remarked, we're taking a direct presence there. And so I'll have some important meetings set up there. I'm also participating in an innovation session there and doing a presentation on LENSAR as well to a wide group audience there on that Sunday. So it's -- I've got a lot of important meetings set up at ESCRS. So I would say stay tuned for some news on that afterwards.

It's going to take us a few quarters there to fully -- the transaction stopped much of the activity. And so restarting it is, again, customers have to go through their cycle as well, if you will. And I don't have as big a view through the distributor network to the end user, if you will. So we're going to have a lot of meetings at ESCRS and bring a lot of energy there and enthusiasm. And as I mentioned, Europe has some potential to be an important market for us.

Our next question comes from the line of Ryan Zimmerman with U.S. Bancorp. BTIG.

Nick, just congrats to you and the team showing a lot of resilience in terms of coming out of the transaction, breaking and putting up the results you did this quarter, really hats off to you there. I'd like to just ask on ALLY pricing. The pricing on the systems has bounced around a little bit in the last few quarters. Maybe talk to me about kind of where you see that trending over time. We appreciate the metrics. You're giving a lot more metrics this quarter, which is great to see. But how do you think about the durability and stability of pricing on ALLY as you move into the rest of the year and maybe longer term?

Yes. Ryan, thank you for your kind words. I appreciate it. We work hard here every day, as you know. There's no rest for the weary. We -- the -- so pricing on ALLY systems, I'm assuming that you're talking about sold systems there. Is that...

Yes, exactly. Exactly.

And so those prices, I'm not as concerned about the prices on the ALLY system because when we sell the systems, it obviously for us, we get a return on the CapEx there, and it helps us quite a bit in terms of breaking even right away on the systems. You're going to see fairly flat pricing on the ALLY systems. When we sell more to distributors, the price dips down. When we sell in the U.S., the price is up slightly from there, but they're starting to sort of normalize a little.

When we sell systems to like the private equity groups, it's a very -- it's a funny thing, right, because interest rates haven't come down. Those private equity groups that are running those practices, that own the practices, they're leveraged. They're pretty highly leveraged. And so we adjust those prices up or down depending on how many they're taking in terms of a commitment, not that they take delivery of them all at once, but how many they take, they get some benefit to pricing moving down as they purchase more systems, if you will. And we're not talking about huge material differences here. And then these are slight variances because they get really good prices to begin with on those systems, again, good for them and good for us.

And then on the procedures, we have these tiers in place. So we partner with them. So the more volume they drive, the better pricing they get and the less volume they drive, the higher pricing they get. And that can fluctuate on a quarterly basis because of the way we true up on a quarterly basis with them.

So those private equity groups drive a lot of volume. And at the same time, there's some variability there. So prices you're going to see on the systems are going to stay relatively flat in terms of what you're seeing on the systems themselves. You'll see continuing growth in the recurring revenue. And you might see over the next couple of quarters, what would appear to be a little bit of a flattening, but it's not because we're replacing some of the LLS systems with ALLY systems. If that's...

Yes. Very helpful. And the gross margins, even stripping away the tariff refund were good. I mean, they were a new level that we're seeing. And so in that 52% range. So my question is, with the recurring revenue now run rating at $55 million annually, is this a new level that you can sustain on the gross margin side? And Mike, I know you're only 2 months into the role, but I would appreciate your thoughts on this because, obviously, it has the potential to really start to pick up as the recurring revenue grows faster.

Yes, that's exactly right. That's really what's showing is because we're growing recurring revenue so much right now. So I know the company had previously talked about kind of high 40s. I think we're kind of comfortably in the low -- around where we're at right now basically. So this -- I think with the recurring revenue model, growing as it is, I think that's a more sustainable gross margin there.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to Nick Curtis for closing remarks.

So I really appreciate everyone's interest in LENSAR and tuning in today. And as you can see, we're a work in progress here, and I'm pleased with where we are. And I thank you for joining the call. Stay tuned. More news as we continue to go. See you next quarter.

That concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by, and welcome to the LENSAR First Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded.

And now, I'd like to introduce your host for today's program, Lee Roth, President of Burns McClellan, Investor Relations Adviser to LENSAR. Mr. Roth, please go ahead.

Thanks, Jonathan. Good morning, everyone, and welcome to the LENSAR First Quarter 2026 Financial Results and Strategic Update Conference Call. Earlier this morning, we issued a press release providing an overview of our financial results for the first quarter ended March 31, 2026. A copy of this press release is available on the Investor Relations section of the company's website at www.lensar.com.

Joining me on the call is Nick Curtis, Chief Executive Officer; and Tom Staab, Chief Financial Officer of LENSAR, who will provide an overview of recent developments, our go-forward strategy and financial results. Following these prepared remarks, we'll turn the call back over to the operator to take your questions.

Before we begin, I'd like to remind you all that today's call will contain forward-looking statements, including statements regarding future results, unaudited and forward-looking financial information as well as information about the company's future performance and/or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from any future results or performance expressed or implied on this conference call. You should not place any undue reliance on these forward-looking statements. For additional information, including a detailed discussion of the risk factors, please refer to the company's documents filed with the Securities and Exchange Commission, which can be accessed on our IR website.

In addition, this call contains time-sensitive information accurate only as of the date of this live broadcast, May 8, 2026. LENSAR undertakes no obligation to revise or otherwise update any forward-looking statements to reflect events or circumstances that may occur after the date of this live conference call.

With that said, it's now my pleasure to turn the call over to our Chief Executive Officer, Nick Curtis. Nick?

Thank you, Lee, and good morning to everyone. Thank you for joining us today. Near the end of the first quarter, we turned the page, marking a new beginning for LENSAR as we exited the transaction-related holding pattern we are operating in for the past year and began to once again carve our own path as an independent organization. With the termination of the merger not happening mid-March, we spent most of quarter 1 in the state of limbo, and that state of being was reflected in our results for the quarter. However, in a positive light, the FTC position and deal termination validated, we have the best technology in the market.

Subsequently, we have made substantial progress since March 16 and look forward to expanding our global footprint, allowing more surgeons and their patients to experience the life-changing benefits of ALLY without the uncertainty of a pending transaction. While our near-term financial and operating -- operational performance will no doubt be watched closely, it's important to understand that for the next several quarters, success won't be measured by any metric on our P&L, but rather by progress towards reestablishing the solid foundation and momentum for growth that we were building on prior to the announcement of the merger at the end of Q1 2025.

We're returning to the fundamentals of growing new placements and the resulting recurring revenue in and outside the U.S. with purpose. It has been almost 8 weeks since announcing the termination of the Alcon transaction and the progress we've made in that short time gives us cause for optimism over what the future holds for LENSAR.

As I shared on our fourth quarter call, we continue to believe strongly in our ability to deliver value over the long term for all of our key stakeholders, including our surgeon partners in the U.S., international distributor partners. Let's not forget about the patients that our end-user partners serve and ultimately, our shareholders.

In parallel with these efforts to complete this organizational and mind reset, we are working diligently to return to the level of growth we were enjoying pre-transaction. We're taking a matter-of-fact, business-as-usual approach with a very clear path forward and a keen focus on rebuilding momentum throughout the business, and I'm pleased to share that we're making some great progress.

We generated total revenue of $13.4 million in the quarter, which was down about 5% from $14.2 million a year ago. That decline, however, was a result of lower system capital sales, down roughly $1.8 million year-over-year as opposed to the placement revenue. This was partially offset by increased procedure revenue driven by continued growth in global procedure volumes. One of the most important takeaways I'd like to highlight from this quarter's financial performance was the continued growth in our recurring revenue, which was up $1.1 million, or 9%, compared to the first quarter of 2025, representing 94% of our total revenue for Q1 2026.

We expect recurring revenue growth in 2 ways. The first is to increase as we begin again to expand the installed base of ALLY. The second important initiative is to continue to leverage our existing installed base to grow recurring revenue driven by the materially industry-leading utilization rates of the ALLY System. As system installations and base ramp back up, procedure-based recurring revenue will accelerate further. In the coming quarters, I look forward to tracking and updating you in this regard.

We placed 7 ALLY systems during the quarter, bringing our ALLY installed base to 205 systems approximately, with another 11 systems in backlog pending installation. The total installed base of ALLY and LLS systems reached approximately 440, up 12% compared to March 31, 2025. ALLY now accounts for nearly half of our global installed base, demonstrating the strong adoption we continue to see for our next-generation platform. It's important to recognize that this growth in the ALLY installed base has been achieved despite limited contribution from our OUS markets the past year.

As I pointed out on the last call, the initial ALLY launch outside the U.S. was very successful, but the momentum that we were building came to a halt just as quickly as it started given the uncertainty over the post-acquisition business integration and ALLY distribution plan forward. While complexities around the go-forward commercial dynamic created a headwind for us, physician interest in ALLY and its numerous benefits have never subsided. Now that we and our distributors have clarity, I'm confident we can rebuild the strong international presence over time. So while placement activity in the quarter was down, I want to draw attention to the more important story, which is the continued strength in the recurring revenue.

We're reaching an inflection point where the size of our installed base is increasingly supportive of the recurring revenue growth even during periods of slower system placements. That represents materially a much stronger and more durable business model than the one we had in the early days of the ALLY launch. Procedure volume also continued to trend in the right direction. We performed approximately 54,000 procedures in the first quarter, up from about 52,000 last year and 39,000 in 2024. Our U.S. procedure market share at the end of the first quarter was 23.4%, consistent with reported market share on December 31 and expected given the fewer laser installations in Q4 '25 and Q1 2026, which generate share growth for LENSAR.

I believe that we will get back to the recent trend of quarter-to-quarter market share gains moving forward as we continue to convert competitive system users and attract additional femto-naive surgeons into the ALLY ecosystem. My strong conviction is grounded in firsthand observations from the field. LENSAR has maintained a presence at the key ophthalmology meetings and with the knowledge that we will be moving forward as an independent company, our attendance at these key industry congresses is expected to return to pre-acquisition levels.

While our booth at the ASCRS Annual Meeting last month in Washington, D.C. was smaller than we've had historically, it was no less productive. As you know, these meetings are planned months in advance, and we had precious little time or the opportunity to expand our footprint as an independent company following the decision to terminate the merger. Although we didn't have prime real estate in the exhibition hall and overall meeting attendance was lower than previous conferences, booth traffic was incredibly high, which resulted in more than 50 system demos. That's a great indicator of interest and engagement from potential surgeon partners and a very encouraging way to reinitiate LENSAR's presence at these important industry events. I'm really proud of what our team accomplished at the ASCRS, pulling it together with such professionalism and pride in a matter of weeks, and I look forward to a more visible presence at the upcoming major conferences.

This conference was a bright spot and everyone on the team is reenergized as the enthusiasm and interest in the benefits of ALLY was reaffirmed for our entire organization. While the workflow and practice efficiency benefits of ALLY are well known throughout the community, we see a significant opportunity to continue building upon the robust body of clinical evidence supporting that ALLY enables surgeons to consistently deliver optimal outcomes for patients. In the coming months, we'll have podium presence at several key industry congresses with ALLY continuing to represent a leading voice in the ongoing clinical discourse around the benefits of laser-assisted cataract surgery to surgeons, their staff, and the patients that they serve.

Before wrapping up my prepared remarks, I'd like to quickly share a recent interaction with one of our surgeon partners, a reflection -- a perfect reflection of why we're so enthusiastic and optimistic by what the future holds for LENSAR. I've known this particular doctor for years. She was using a competitor's first-generation laser and struggling with the inefficiencies of that technology. She had reached a point where she was considering stopping laser-assisted cataract procedures altogether because she just couldn't justify the cost of premium surgeries for her patients given the limited benefit she was realizing with this competitive system.

Her facility ultimately upgraded to an ALLY System and saw the difference almost immediately. Based on early experience, this included not only improved efficiencies, but also the outcomes and extending to improving the patient experience in their cataract procedure. With ALLY, her perspective on laser-assisted cataract surgery changed completely, and she is now recommending it to all of her patients. I spoke with the surgeon in a recent users call that we had, and the comments she made was quite telling. She said, "Nick, I will never do another premium procedure without using ALLY. " For us, that really captures what this is really all about, delivering on the promise of our technology. ALLY isn't simply an incremental step forward. It improves the experience for all surgeons and their ability to optimize treatment for premium cataract patients.

The big players in our industry who thought they'd be eating our lunch are instead trying to catch up. We welcome their advancements, which no doubt bring greater attention to the market, and we look forward to not only maintaining but also extending our technological lead.

I'll now turn the call over to our CFO, Tom Staab, to cover the financial highlights for the quarter. But before doing so, I'd like to acknowledge that after today's call, Tom will be leaving us and going back to his biotech roots as well as locating closer to his home.

On behalf of the entire organization, I'd like to thank him for the 6-plus years he served alongside me and the numerous contributions he's made to help us get to the point we're at today. He's been a trusted colleague and a dear friend, and I wish him the very best as he starts his next chapter. Tom?

Thank you, Nick, for your kind words, and good morning, everybody. Before I begin, I'd like to thank the entire LENSAR team for 6 incredible years. It has been a rewarding experience launching ALLY and helping grow the company to its current state with recurring revenue annualizing over $50 million and ALLY continuing to reign over all other inferior first-generation lasers. LENSAR's future is bright, and I leave the organization in a strong position to reclaim the success we experienced in 2024. I look forward to watching LENSAR build momentum and advance its mission of delivering next-generation care in refractive cataract surgery.

With that, let me turn to a brief conversation of our financial results for the first quarter, and there are only a few items to discuss in greater detail. Our total revenue for the first quarter of 2026 was $13.4 million compared with $14.2 million in the first quarter of '25. The year-over-year decline was primarily due to lower system revenue, which was partially offset by continued growth in recurring revenue.

System revenue was approximately $800,000 this quarter compared with $2.6 million in the prior year quarter, reflecting lower placement activity from our acquisition malaise Nick discussed earlier. Recurring revenue continued to be the bright spot in our performance with total recurring revenue of $12.6 million, up 9% from the $11.5 million in the prior year quarter. Gross margin for the first quarter was approximately $6.4 million or 48% of revenue compared to $7.1 million or 50% in the first quarter of 2025. Our gross margin percentage is squarely in the range of 46% to 49% discussed in our fiscal '25 results call and as discussed then, reflects the higher cost of production associated with inflationary increase and tariffs that we have chosen not to pass on to our customers.

Total operating expenses were $4.1 million compared with $12.9 million in the first quarter of last year. Specifically, SG&A expenses declined significantly to $2.5 million from $11.1 million, primarily due to a credit of $4.4 million associated with unpaid acquisition costs that were eliminated or written off through concession of our acquisition advisers. When you exclude acquisition-related costs, SG&A costs were consistent at $6.9 million for both first quarters ending March 31, '26 and '25.

Net income from the quarter was $36.3 million or $1.56 per basic share compared to a net loss of $27.3 million a year ago. It's important to note that this quarter's net income was largely driven by noncash items, including a $23.9 million gain related to the change in fair value of warrant liabilities, along with the recognition of $10 million acquisition deposit into our other income in our first quarter results associated with the termination of the acquisition. This recognition did not increase our cash balance as funds were already in our operating accounts, but funds were not owned by us until the acquisition termination.

Moving on to adjusted EBITDA, which was negative $311,000 versus a positive $165,000 in the prior year quarter. We expect upon achieving a rebound of our quarterly placements to see our adjusted EBITDA will return to positive territory and thereby again generate cash from operations. We ended the quarter with $13.5 million in cash, cash equivalents and investments, and we continue to manage our liquidity carefully while we cautiously rebuild our business and keep ALLY as the premier robotic laser in the marketplace.

That concludes my comments. And now I'd like to turn the call over to Jonathan, and we look forward to answering your questions.

And our first question for today comes from the line of Frank Takkinen from Lake Street Capital Markets.

Tom, wish you the best. Congrats on your transition. I was hoping to start with just an update on kind of current state of affairs. I know we've talked about a number of different things you're rebuilding, Nick, from internal on the U.S. side as well as OUS with distributors. I was just hoping to get a general update on how all of that is going and then the primary goal of kind of getting to when can the business get back to some of the prior growth rates we've seen based on the progress you've made thus far?

Yes. Thanks, Frank. I hope you're doing well today. I appreciate your question. So we've been doing exactly that. You and I had a chance to meet at ASCRS, and we talked about some of this. I've been meeting with -- and I've met individually with each of our distributors. We're getting people back on board. I don't want to say too much, but we have received purchase orders from our distributors, which is very positive because that indicates that they're getting back on track and have orders. We should ship some systems this quarter outside U.S., which will be the first time in about a year. So optimistic about that and restarting that business. And we've got some POs that will take us into the fourth quarter as well here. So I'm optimistic about that.

Activity, those 50 demos, and we did a conference call as well. We did like a Webex. We had about 77 participants on that Webex just to talk about LENSAR's going-forward plan and strategy. And the doctors couldn't have been more supportive of the company and our initiatives there. And peer-to-peer activity is very strong. We've got some conferences coming up this summer. And I'd say that I'm pretty pleased with the activity that we've got and the increase in activity that we've seen in the U.S. post termination of the deal.

That's helpful. And maybe just a follow-up on that, the distributor POs. Is that something that's included in the backlog today? Or was that post quarter end?

That's post quarter end. It's going to take us -- just to very succinctly, it's going to take us the next couple of quarters. I really expect the next few quarters to be this like steady progress of rebuilding and improvement here. I think the really great story is that our recurring revenue is so strong and that it continues to grow. And I feel that's going to continue. So now as we start adding additional placements, I think really looking toward '27 is going to be really, really good for us.

Got it. Very helpful. And then maybe just one more for Tom would be great to get a sense of how we should think about operating expense. Is that $6.9 million adjusted figure, how we should be thinking about that for quarters moving forward in 2026? And then if you could refresh us on kind of cash use expectations as we work through the transition and get back to growth and profitability.

Yes. Good question, Frank. And the easiest way to respond to your question is over the last 12 months, we've kind of not rebuilt our human resource system. And so we're going to -- and some of our people have left the thinking that the Alcon was going to take the reins and went to other opportunities. And so our SG&A expenses are actually going to increase now organically from the $6.9 million. Obviously, we had acquisition costs in there, and we won't have any of those going forward. But we need to build our service and customer application specialists as well as our regional sales representatives to support the growth that we're going to do. But we're going to do it judiciously as we go forward.

And so I think the best way to look at this and as you reflect on the fourth quarter, our system placements were down, but it was simply because we had no placements in the first quarter outside the United States versus we had 8 placements in the quarter of first quarter of '25. So that's a huge governor on our business when we were being so successful outside the United States. And as Nick's comments allude to, we're just getting those distributors back on board, and they're excited to get back on board, but it's not something that you just flip on a light switch. And so as we increase those number of sales, then we're going to devote that cash back to the business. And we're in a strong financial position right now, but we do have to be judicious in how quickly we build just because of paying the transaction costs and because of getting the distributors back in the saddle.

And so the good news, as you compare the first quarters of '25 to '26 in the United States, we actually increased placements in the United States. And so that's a good thing. So all indicators, as Nick mentioned, are that we're going to grow the business. It just may take a couple of quarters for the distributors to get back on the horse and for the U.S. business based on the sales cycle to get back to where we were in 2024.

And our next question comes from the line of Ryan Zimmerman from BTIG.

Tom, great working with you these past few years and enjoy being back in the Carolinas. I want to just kind of pick up a number of things. And so one of the things is if you go back to first quarter '25, you guys had very strong procedure growth. So it was a tough comp this quarter. But Nick, can you talk about both the U.S. -- like parse out the U.S. versus international procedure growth this quarter relative to maybe what you saw in first quarter '25.

And then the second question is just I appreciate you're not giving guidance. It's a very unique dynamic in terms of kind of getting things going post the transaction. But help us with some broad strokes about how you think about the pace of recovery as we think about both procedures and recurring revenue and system placements. And again, I recognize the challenge of it, but how you see that playing out over the course of the year, I think, would be helpful.

Can you hear me? I'm sorry.

Yes. Now we can hear you, sir.

Okay. Great. So I appreciate the thoughtful question here. So whether -- we've talked a little bit about this before, but I'll give a little color to it and how it relates to now. When you -- when we install a system, due to the training and the integration of the -- especially if they're moving it into the OR for the first time and learning how to do fully sterile procedures, so on and so forth with the system, we look at about 30 to 90 days to sort of -- depending on the account and their experience and whether we have a fewer number of surgeons or a larger number of surgeons to get trained. Obviously, it takes longer with a higher number, and it could be much more concentrated with a fewer number of surgeons that are performing the volume in any given facility. So it takes 30 to 90 days to really to ramp up a system where they're doing productive procedure revenue, if you will.

So in current installed base, you should think about the -- where we talk about the 7 systems in the first quarter, 11 on backlog, those systems will start to be installed. And from the fourth quarter now, those systems are starting to produce in the way of paid systems. So recurring revenue kind of comes a little bit in waves from the growth side of it. And so new systems will bring completely fresh revenue. Existing systems will grow but will grow at a slower rate. And what we see on average is -- as compared to a competitive device, on average, we perform, this is MarketScope data now, 27% higher procedure numbers on average than -- and I alluded to this in my remarks, than a competitive system that's been installed. And we see about an 11% increase if we're upgrading from an LLS to an ALLY as well, somewhere around 11% increase in procedures. And so take the new systems and project those out 30 to 90 days from the revenue increase perspective.

And so as we start to get more placements into the field, that recurring revenue begins to grow a little more exponentially. And that's why I'm being very cautious about the next 2 quarters because we're just getting back to the point where now people know who they're dealing with. And so they're getting back to that decision-making relating to installing of the systems. And so 27% increase over competitive devices on average and about 11% on upgrades. And so cataract volumes in 2025 and heading into 2026 were somewhat flat in overall cataract volumes. And subsequently, as you see, just with the larger companies that are selling the premium lenses, -- if they haven't taken market share from one of the other companies, you see fairly flat numbers from them. So we're actually doing pretty well from a procedure and integration perspective once we get it. But don't forget that little bit of a lag.

In OUS, where we recognize revenue immediately upon selling of a system when it leaves LENSAR different than revenue recognition in the U.S. So as we see some systems go there, we'll recognize revenue immediately on that, but a similar time from -- on the ramp-up of procedures there as well to what you see here. And procedure numbers have been pretty strong outside U.S., which actually has been a pleasant surprise with the existing systems that are in. So as we start getting more systems out there, I'd expect to get a little bump there, too.

Very helpful, Nick. And if we go back, and this goes back even when you guys came out of PDL BioPharma, the intent of the system was to do a combined femto and phaco, right? And we lived through the early dynamics with FDA, et cetera. But now as you guys kind of refocus the company, what is your thoughts around the technology -- the ALLY technology itself? I mean, what do you want to do with it? What enhancements do you want to make? What's the kind of pipeline road map, if you will? Because we know that the market will get more competitive. There are some companies developing new FLACS systems over time here. And so how do you sustain this momentum and advantage over time, technologically speaking?

Yes. So I love this question because this is really -- I feel, especially as an independent company, this is really important for us on a going-forward basis, right? Because now we're getting some critical mass, and I talked about that in my remarks as far as the procedures are concerned. And so there are several applications that we're looking at enhancing the ALLY device. And all of this was kind of put on hold during the transaction because we didn't really know what the acquiring party was going to do or not want to do or what was going to be important.

So now to be able to restart that and from a LENSAR position, I would say that -- so we're going to -- I'm going to talk about some of this at the upcoming meeting at the AECOS meeting in Madrid, but I would say that it's probably pretty obvious that we would start looking at something like flaps and looking at some other corneal procedures. And I won't get too specific about that. I want to be able to make an announcement to talk to surgeons about some of those things when I present. But with the system having the capability it does with the dual-pulse laser, we certainly have the capability of doing more in the cornea than what you've seen to date.

The other thing is that since we have the makings of a robotic technology here, you'll see us move towards more robotic function, continued enhancement, robotic function of the device. And suffice to say that one area that we could look at very closely, and I will talk more specifically about this as we go forward would be in terms of some of the docking and the docking of the PID to make that more automated and to make it less surgeon-dependent but surgeon guided as we go forward there.

On the phaco side, I remain open-minded because we have very strong intellectual property around the integration of the phaco device. And so we'll see what's best. Obviously, it's highly unlikely that LENSAR is going to take the time or the resource to develop a phaco. That's not going to happen. But would we revisit integration? It depends on market dynamics and sort of what a deal would look like for us.

So I was just going to address your procedure question, which is when you look at the procedure growth in the quarter, it is solely related to U.S. activity. So Nick and I can't -- I guess we can't emphasize enough that when the acquisition was announced, there was a slow turn-off of our distributor activity. And so you see that in not only procedure volume, but more importantly, in placements. And so right now, the U.S. business is still doing pretty well. But outside the United States, you're kind of like a flat line up until the activity that Nick just mentioned.

But Tom, I think it's important to call out that in the 52,347 from 1Q '25, there is procedure volume outside the U.S. in that comp, right? So yes, so you're comping a U.S. number against both a U.S. and OUS number, just to be clear.

What I'm saying is the increase is solely associated with the United States as you're comparing those numbers and that the procedure volume outside the United States was effectively flat from Q1 of '25.

Okay. Yes, I can take that offline. But just last one for me, Nick. I mean, with Alcon terminating the agreement, they have this significant LenSx installed base now. And I'm curious, given how old that technology is these days, what the response has been from the Alcon users who are sitting on these older LenSx systems. And for you guys, does that represent meaningful opportunity because they thought maybe they would -- there was a pathway to get to LENSAR or to get to ALLY, I should say, excuse me. I'm just curious kind of what you're hearing from those users or that segment of the market.

Yes. That's a really good question. There is no doubt that it is delaying surgeons decisions. I like an analogy that's very simple, like when do you buy a new car? And when people evaluate when they're going to get a new car, they many times will try to drive the car that they've got until they simply -- their maintenance bills get high, they just don't want to continue to deal with what they're dealing with, with their older vehicle. And I think that's kind of where we're getting to, and I believe we're going to get to an inflection point. I don't want to get ahead of myself here, but we're looking at certain multisystem opportunities that have older technology and specifically, in cases, the LenSx installed. And I think people need to come to their own realization that despite a vast portfolio of product, arguably, that product is old and is getting towards the end of its useful life.

So I'm looking forward to continuing to go after those systems. We're pretty disciplined, though, because it won't be at any cost. We're pretty disciplined about our pricing, and we're creative about how we can put a deal together, which is one of the nice things about having this be the only product that we deal with. But at a certain point, from a pricing perspective, we bring way more efficiency. The doctor can do many more cases in a day than they can do with any of the other devices. I'm not talking about full treatments, and they can save time for their patient, they can save time for themselves. That allows them to do additional premium procedures that bring in a premium of revenue for them as well and higher EBITDA for them and their practices and particularly with the PE groups.

We shouldn't have to compete on a price basis. And so -- because we bring higher benefits. So there's a fine line there between the incumbent using all of their resources to try to keep the incumbent in place versus at what time will they switch. And so it's not if, it's when.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Nick Curtis for any further remarks.

So I really appreciate everybody joining the call today and even more so, your continued interest in LENSAR. I look forward to updating you as we continue to make further progress throughout the year and look forward to our next call.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Good morning, and thank you for your participation. [Operator Instructions] As a reminder, this conference call will be recorded. I would now like to turn the call over to Lee Roth, President of Burns McClellan, Investor Relations Adviser to LENSAR. Mr. Roth, please go ahead.

Thanks, Josh. Once again, good morning, everyone, and welcome to the LENSAR Fourth Quarter and Full Year 2025 Financial Results and Strategic Update Conference Call. Earlier this morning, the company issued a press release providing an overview of its financial results for the fourth quarter of 2025. This release is available on the Investor Relations section of the company's website at www.lensar.com.

Joining me on the call today is Nick Curtis, Chief Executive Officer; and Tom Staab, Chief Financial Officer of LENSAR, who will provide an overview of recent developments, our go-forward strategy and our Q4 financial results. Following these prepared remarks, we'll turn the call back over to the operator to answer your questions.

Before we begin, I'd like to remind you all that today's conference call will contain forward-looking statements, including statements regarding our future results, unaudited and forward-looking financial information as well as information on the company's future performance and/or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from any future results or performance expressed or implied on this call.

We caution you not to place any undue reliance on these forward-looking statements. For additional information, including a detailed discussion of the risk factors, please refer to our documents filed with the Securities and Exchange Commission, which can be accessed on the website. In addition, this call contains time-sensitive information accurate only as of the date of this live broadcast, March 31, 2026. LENSAR undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this live call.

With that said, it's now my pleasure to turn the call over to Nick Curtis, Chief Executive Officer of LENSAR. Nick?

Thank you, Lee. Good morning, everyone. I appreciate you joining us today. It is no doubt an understatement to say 2025 was a unique and unprecedented year for LENSAR. We take great satisfaction knowing that the leading eye care company in the world, Alcon, publicly recognized the value of ALLY and LENSAR given the joint acquisition announcement made in March of 2025. This validates our statement that ALLY is the best next-generation technology, delivering significant and relevant performance improvements in each of the critical elements of laser-assisted cataract surgery, including advanced ergonomics, efficiencies, imaging and automated treatment planning with a dual modality laser. ALLY is the only system that employs machine learning and compute power during treatment planning and optimized treatment to deliver outcomes that are better than any first-generation competitor.

The termination of the acquisition agreement was a mutual pragmatic decision made after a year of focused effort and considerable expense from both sides. While this acquisition was approved overwhelmingly by our stockholders, ultimately, we made the decision to terminate because the Federal Trade Commission would seek to enjoin the merger. While both parties work towards offering acceptable accommodation to allow it to close, it became clear the FTC was not open to changing their position.

We were disappointed in the outcome. However, the upside of this process is the validation of the ALLY Robotic Laser Cataract System superiority compared to all other first-generation lasers available today as well as the value attributed to LENSAR based on the success the product has achieved since its launch and its future potential. Therefore, with new resolve and new purpose, we're excited to emerge and reengage as an independent company, picking up where we left off 12 months ago. We've spent the last 2 weeks working on initiatives and jump-starting relationships with key stakeholders.

I'll briefly discuss the last 2 weeks and share our high-level go-forward strategy today. Relationships are important. And before I present our strategy, I would like to take a minute to thank our partner vendors, agents and suppliers who not only provided excellent support and counsel, ultimately shared that disappointment and financial burden with us through granting reductions in fees as well as extended payment terms. These partnerships are beneficial in LENSAR returning to our prior operating cadence, allocating more of our financial resources and attention to operations. We can immediately start getting back to our business as usual and smooth return to focusing on growth and expanding our presence with increased installed base and procedures.

We appreciate their collaboration and contribution to our future success. Additionally, in association with the termination of the acquisition, we received the $10 million transaction deposit that had been in escrow. In the last 3 quarters of 2025, we operated with an increasing degree of uncertainty among our partner customers, potential partner customers and distributors regarding our future and the timing of the close of the acquisition.

Despite the uncertainty that delayed U.S. customer decision-making on ALLY and LENSAR and halted OUS distributor activities and purchasing systems, we expanded the ALLY installed base by nearly 50% compared to year-end 2024, while achieving 20-plus percent year-over-year growth in procedure volume for both the fourth quarter and full year 2025. There's no question the last 9 months of 2025 were negatively impacted by the acquisition process and extended time line and not just by the increased SG&A expenses associated with supporting the transaction.

While our 2025 results include a 9% revenue growth, I need to be transparent and clear. We expect through the next several quarters of 2026, a gradual return to our historical operating performance. When you consider our longer-term growth metrics, the trajectory has been impressive. Our full year 2025 procedure volumes are up 50% compared to 2023, the first full year of ALLY commercial availability. By reflecting on a longer-term vantage point, you get a much better picture of what we see as the future opportunity for LENSAR and ALLY.

Since the launch in August of 2022, we grew our installed base to approximately 200 ALLY systems and grew our procedure volume, gaining market share from 14% procedure share in the U.S. to 23.4% as of the end of 2025. I want to say we gained almost 9.5% of market share points in 3.5 years. These market share gains come from 3 specific areas. First, it comes from competitive accounts, replacing first-generation lasers with our ALLY Robotic Laser Cataract System accounts for the largest gain in share.

Second, the gain in share is demonstrated by what happens after we replace a competitive system. LENSAR on average performs 27% more procedures annually than the national average per laser, providing evidence that we are growing the overall market for robotic laser cataract procedures. Third, nearly 50% of our systems in Q4 2025 were from Femto-naive surgeons, further expanding the market for laser cataract-assisted surgery. The data provides evidence LENSAR is addressing the shortcomings of the first-generation laser-assisted cataract surgical lasers by delivering the most technologically advanced next-generation robotic laser for cataract surgery in multiple ways.

Significantly improving efficiencies and patient throughput, allowing for more procedures with faster treatments and fewer staff interactions, leading to the potential for fewer mistakes, less anxiety and a better overall patient experience. Second, customizing precise, specific reproducible treatments optimized by utilizing features such as machine learning and surface anatomy recognition, imaging and optimizing data for treatments by communicating with preoperative devices in the surgeon offices, leading to better outcomes in refractive cataract surgery using astigmatism management.

To put in perspective, our competitors have the ability to bundle more products using cataract procedures, more feet on the street and much deeper financial human and operational resources. Despite this, we've been incredibly successful in increasingly growing ALLY's market share. Why? LENSAR is a small, nimble and resilient organization. We're known for innovation that aligns with surgeons' practices and patients' objectives. LENSAR is and always will be a surgeon and practice-centric organization. We have extensive clinical evidence that is giving surgeons the confidence to make the decision to implement ALLY in their practice.

Over the last 3 years, ALLY's performance, placements and procedure volume speaks for itself. All I can say as we start the second quarter of 2026, we expect to compete as we have in the past. Listen here, we are back. I'd like to spend a few moments talking about our business outside the United States. As a reminder, while LENSAR started commercializing ALLY in the U.S. in August of 2022, it wasn't until 2 years later that we received the European certification and began to sell ALLY internationally.

Looking at the time line, ALLY had been on the market outside the United States for roughly 7 months when the transaction was announced. The uncertainty over the post-acquisition ALLY distribution landscape had a greater impact on our outside United States distributors than our U.S. customers, and that uncertainty caused a meaningful slowdown in our international business expansion over the last year. With our distributors, the ALLY launch got off to a very successful start, quickly gaining acceptance with new sites and meaningful momentum, which came to a hard stop.

After meeting with the distributors post-acquisition termination announcement, I believe we will begin to return to significant system growth in these international markets over time. Most, if not all, the distributors were both happy and relieved with the termination of the merger. Although they have all indicated their enthusiasm and are ready to support the business going forward, their conservative immediate forecast indicate this will take some time. We will work together on the transition timing to regain the lost momentum and begin to contribute to an increase in worldwide system and procedure market share.

I'm confident in our ability to drive long-term success and create value for our surgeon partners in the United States, our distribution partners overseas, our global customers, the patients they serve and our shareholders. We also continue to rely on our long-term existing physician partners and private equity groups as they are our partners in success. These partners recognize we are working hard to deliver and provide the most responsive service, support and best product in the market.

Going forward, we'll be focusing on a few key areas. Continuing to grow our procedure volumes and recurring revenue will be critical to our success. This will come through a combination of additional system placements and increased utilization on the 200 ALLY systems currently in the field. Our procedure revenue is recurring in nature. It is stable. It has a predictable trajectory following an install and importantly, carries a significantly higher margin than system revenue. The acceleration of system growth discussed in my remarks will contribute to significant long-term growth in procedure volumes, which will further strengthen our recurring revenue base.

An important statistic to consider here is system utilization rates, another area where we are well positioned for success and driving overall market growth. Once again, LENSAR systems in the U.S. perform an average of 27% more procedures than the national annual average of lasers currently installed. There is not another robotic femtosecond laser available in the marketplace. We're excited to speak with you, answer your questions, and we appreciate the confidence and support you put into the LENSAR team.

Now let me turn the call over to Tom, and he'll cover our financial highlights for the quarter. Tom?

Thank you, Nick. I'd like to discuss our fourth quarter and fiscal 2025 results. However, my remarks will be succinct and pointed for 2 reasons. One, our fourth quarter and 2025 results were impacted by conducting our operations under the previously contemplated acquisition by Alcon; and two, we start the second quarter as a stand-alone company tomorrow. So I'll highlight the relevant aspects of Q4 and our 2025 results as they relate to our future results and operations.

In association with the termination of the merger, there are some significant adjustments to our future financial statements that I'd like to highlight. First, the $10 million merger deposit that was being held in our bank account becomes ours. Thus, the cash that we report at December 31 of $18 million is ours with full title and the $10 million deposit liability will be eliminated in our first quarter 2026 results. Second, we recorded $17.1 million in total acquisition costs in 2025, with $14 million of those expenses unpaid as of December 31.

With the termination of the merger, approximately $4.3 million of the unpaid balance will be eliminated or written off by concession of our acquisition advisers and then $5 million of the remaining liability will be payable starting in May 2027, a significant payment deferral. Lastly and importantly, as Nick has mentioned, we have reengaged with our key stakeholders, including our distributors, and we start today with the help of these key stakeholders to reestablish our stand-alone operations at an operating cadence more similar to prior to the announcement of our acquisition. Our performance in the fourth quarter was solid with a total revenue of $16 million, representing a 4% decline year-over-year, primarily as a result of lower system sales.

As you look at regional sales, U.S. ALLY sales were 12 systems, increasing 1 system from Q4 2024. However, there was only 1 ALLY sale outside the United States in the fourth quarter of 2025 compared to 10 ALLY systems sold outside the United States in the fourth quarter of 2024. We attribute the fluctuation in ALLY unit sales year-over-year, largely due to our distributors' uncertainty as to when their collaboration with ALLY and LENSAR would end. You can understand our excitement as initial conversations with distributors demonstrated their willingness and enthusiasm to reengage. This will be an important growth driver to top line revenue, recurring revenue as well as enhanced cash flow. The quicker our distributors reach out to potential ALLY customers and reengage in ALLY's promotion, the faster our operations outside the United States begin to meaningfully contribute to our total system sales and enhance our cash flow.

Another important aspect of our business is recurring revenue. While total 2025 revenue increased a respectable 9% over 2024, 2025 recurring revenue increased 15% over 2024, offsetting the decrease in system sales for the year. The decrease in system sales for 2025 was entirely due to sales outside the United States, decreasing to 20 systems in 2025 from 23 systems in 2024. This is especially noteworthy as 8 systems, 40% of our fiscal 2025 system sales occurred in the first quarter of 2025 prior to the acquisition announcement. And the comparable 2024 period, as Nick mentioned, was only 5 months of activity as we did not receive regulatory approval and launch in Europe and Taiwan until August 2024.

Recurring revenue grew 17% in the fourth quarter 2025 to $12.7 million, annualizing to over $50 million, and we exited the full year 2025 at $46.3 million, up 15% compared to the $40.1 million in 2024. This performance reflects the continued expansion of our installed base as well as increased system utilization with procedure volume remaining a key driver. Fourth quarter procedure volume increased approximately 20% year-over-year and full year procedures grew 22%, surpassing 206,000 globally.

We placed 15 ALLY systems in the fourth quarter, bringing the installed base to just over 200 ALLY systems, up 48% year-over-year, while our total combined installed base of ALLY and LLS systems grew to approximately 435, an increase of 13%. We exited 2025 with a backlog of 13 systems pending installation. Gross margin for the quarter was $6.9 million and represented a gross margin percentage of 43% compared to a 42% gross margin in the fourth quarter of 2024. Our gross margin for the full year was 46% versus 48% for fiscal 2024. The decline in margin percentage represents the impact of inflationary cost increases to our raw materials and production processed accompanied by tariffs assessed in 2025. We did not pass on tariff costs to our customers.

We are forecasting an increase in our gross margin percentage and expect it to be in the 46% to 49% range for fiscal 2026. The more successful we are with system sales, the lower we will be in this gross margin range. However, increased system sales will have a more beneficial impact on our recurring revenue as gross margin percentage and recurring revenue factors are inversely correlated when it comes to ALLY sales. Other than the recurring revenue, another important aspect of our 2025 results is that we maintained a positive adjusted EBITDA for the year with a fourth quarter adjusted EBITDA of $595,000, thereby indicating operating cash flow positive operations, excluding any working capital impact.

We are proud of our positive adjusted EBITDA operations for the year, considering we operated 9-plus months under the pending acquisition. And during that period, we were missing top line revenue and cash flow from our typical system sales outside the United States. From an expense perspective, our fourth quarter results were impacted by approximately $3.5 million in merger-related costs, which drove a 51% increase in SG&A year-over-year to $10.3 million and a 41% increase in total operating expenses to $11.9 million in the fourth quarter. Going forward, we expect that the underlying expense profile of the business will become more stable with our cash-based operating expenses being a reasonable guide for 2026 with us expecting no more than a 10% increase in cash-based operating expenses and the majority of this increase devoted to commercial activities.

As we look ahead, our focus is on transitioning from this 12-month period of disruption to one of execution and growth with 3 clear priorities: first, accelerating revenue growth. We expect continued expansion of our installed base and increasing system utilization, thereby increasing recurring revenue. Second, maintaining our cost discipline. This priority continues and has been a focus since launching ALLY. Third, enhancing cash flow, especially as it relates to increasing system sales, particularly outside the United States. We believe that the combination of cash on hand as well as the discounted and extended payment terms of acquisition costs provide us with the necessary flexibility and financial resources to effectively restart our operations and return to our previous growth run rate and operating success.

We would now like to turn the call over to Josh for Q&A. We're happy to answer your questions.

[Operator Instructions] Our first question comes from Frank Takkinen with Lake Street Capital Markets.

A lot to cover. So maybe I'll start with the distributor commentary, Nick, it sounds like the conversations you've had over the last few weeks have been really positive, but I did hear the comment of exercising a little conservatism as you reengage with those folks and think about kind of how that's going to actually translate to OUS system revenues. What more can you tell us there? And how should we be thinking about reading into that commentary and applying it to our models as we think about growth reaccelerating throughout 2026 or 2027?

Sure. Frank, good to hear from you. It's been a while since we've done these calls. So the business outside U.S. is different in a lot of cases, particularly in a few of the countries where you don't have as many private practice and, let's say, ambulatory surgery center owners where they can make the decision or a private equity group that makes the decision, for example, in Germany, where we have a large private equity group, and we are one of the primary suppliers there. And so in some of the -- particularly Southeast Asia, some of these go on tenders. And given the uncertainty, they were hesitant to engage in a tender because they're over an extended period of time.

So for example, they'll start reengaging in these tenders and those tenders take time. And quite frankly, we may have lost a few renewals in the short term from some of these deals, not our deals where they had our systems, but where we had an opportunity to, let's say, quickly replace a competitive system. And so I just expect that it's going to take us several quarters to really reinvigorate, get out and assess where some of those tenders are, where we have opportunities and begin to do that as well as participating in some of the various conferences like we do here.

And so I just caution to say that -- because we had this massive quick start when we got the ALLY approved 2 years later, now essentially, there's been 0 activity for the last 9 months and so there'll be some restart-up. And it's not like there's a backlog sitting there because essentially, these distributors didn't -- again, we're planning for life without LENSAR that they didn't expect to be distributing on a going-forward basis. So they're really enthused. And I just say it's going to take us a little time to get back to that sort of momentum that we had in the last quarter of 2024.

Yes. Very helpful. And then as we think about placements going forward, it's -- to me, it seems like there's 2 phenomenons going on. OUS likely more capital placement oriented. And then in the U.S., with each incremental placement, it gets incrementally harder. So maybe there's less upfront payment and more kind of lease-based placements. How should we think about that throughout the year and a mix of maybe kind of more lease-based or usage-based placements versus actual capital sales throughout the year?

Yes, great question. So as you know, and as Tom had indicated, when we sell a system outside the U.S., when it leaves our dock, we essentially we recognize revenue on the system sale itself. And so it's a very quick recognition. In the U.S., the rev rec is different. You have to get the system installed. You have to begin training and the system is accepted by the customer, the end user, before you begin to recognize revenue.

And on procedure deals or when we do placements and really even when we sell a system in the U.S., usually, you're looking at in the neighborhood of close to 60 days before you really start getting into the revenue phase that they get to some normal procedure volume because you're training people and you're getting the systems put up in place and procedures and whatnot. Traditionally, we've been in the neighborhood of somewhere north of 50% sold systems in the U.S. and, let's say, 50-50 or perhaps even a little bit more on the sold versus the placed.

And I would expect that, that's probably going to drop a little bit. What we've seen is that the competition, they lack the system, they go out with procedures, and they try to drive a price competitive versus what we do with the value proposition with a much more efficient, faster, better treatment overall. So I think that over the next couple of quarters, you'll see us go from that sort of 50%, 55% sales sold systems versus placed systems in the U.S. to a lower percentage, particularly as OUS takes a little time to sort of ramp up there. Does that help you in terms of the percentage?

Yes. No, that's very helpful. I appreciate that. And then maybe just the last one for Tom. I heard the comment, a 10% increase in cash OpEx. So I just want to make sure I understand that. Essentially, if we look at 2025 OpEx and back out the $17.1 million of M&A-related expense and then grow that 10%, -- is that what you're inferring? So you would be in the neighborhood of kind of $38 million, $39 million of operating expense for 2026?

That's exactly right, Frank. The only thing that I'll say is the way we look at things is cash-based operating expenses. So we threw out sort of amortization as well as stock-based comp and then it's the 10% off that base. But yes, you're correct.

Our next question comes from Ryan Zimmerman with BTIG.

So maybe just to start, I don't think I heard the procedure growth was still really good worldwide. And I'm wondering if you could comment, Nick, on U.S. procedure growth because I think you also faced a tougher comp there. We saw a bit of a slowdown in cataract volumes through much of 2025. Maybe you could just comment on kind of where that stands? And then as you think about the business going forward, I appreciate that the system dynamics will be choppy as you kind of get the train out the station. But talk to us about the recurring revenue side of things, particularly around procedures and how you think that will kind of function as we look ahead to 2026?

Yes. Thanks. Good to hear from you, Ryan. I appreciate your questions. So as Tom had mentioned, we exited the year with $46 million, approximately $46 million in recurring revenue, and that was ramping closer to $50 million when you look at the fourth quarter and on a rolling forward basis. And so we're really -- our business is becoming very healthy on the recurring revenue side. It was 79% of our revenue in the fourth quarter. And so as we go forward, we expect that those 200 installed systems will continue to produce.

We're doing approximately about 600 procedures a year or so on average on the ALLY units in the U.S. on a going-forward basis on average. And so that's quite a bit higher than what the average installed base is. We expect that, that's actually going to continue. And because of what we do with astigmatism management, we started to see more femtosecond laser naive, we refer to as femto-naive, which represented 50% of our new business in the fourth quarter. So we expect that to continue and to continue to grow as well. Now those accounts of caution take a little bit longer to get to the -- they take longer to ramp because they've never done lasers before and they're putting in a new system and they're getting trained and they have to train staff and educate patients and whatnot.

So that will take us a quarter, 2 quarters to get those folks sort of up to speed as more new customers come on, but representing a pretty large segment and a lot of -- particularly when you look at cataract surgery reimbursements and the need to deliver better outcomes, our astigmatism management over 65% of procedures that we do involve some form of astigmatism management. So I think you'll see the mix of customers that heretofore are replacing older competitive devices and so on average, we do 20%, 27% more procedures than the national average 0of systems. And so we take about a 60-day ramp and you see those procedures coming up to where our averages are or more.

And then you'll see a mix of newer customers and maybe some of the office-based surgery centers, which is trending moving into office-based suites, where those are lower volume accounts take a little more time. So you may see the average number of procedures drop slightly, but you'll see more systems doing those and whereas the current installed base will continue to grow.

Okay. Very helpful. Just to circle back, Tom, on expenses. I appreciate the math and commentary that you gave. It's very helpful. But I guess my question is, in this transitory period, I imagine expenses came down artificially. Now you do also need to kind of, again, get the train up the station, if you will. And so when you think about kind of the cadence of expenses and appreciating kind of where it's going, shouldn't we see some type of kind of acceleration, foot on the gas pedal, if you will, to get things -- get kind of operations coming again. I'm just wondering if the 10% is the right number as I think about kind of into '27 and beyond, I guess. I know it's a little premature, but it just seems like there's kind of multiple vectors here, cross currents around operating expenses for '26.

So very astute question and a very good observation, Ryan. I mean, yes, we're -- our expenses did go down over the last 13 months just because of being under the acquisition process. And with the -- even though our advisers discounted and extended the payment terms, that's still a big nut for us to cover as a small company. And so we're being very judicious in our expenses and the increases are all going to be commercial for the most part in 2026. And then as our distributors come online and we see a larger contribution of sales outside the United States and more cash flow coming in, I fully envision ramping up our commercial activities in 2027 well beyond 10% -- but we're kind of in this moderation phase until we're certain and how quickly our distributors can come back after this 13-month lag where they effectively put their pencils down.

Right. No, understood. And when you think about kind of what's entail, and this is more direct to that, Nick, I guess, like yes, you've had conversations with the distributors outside the U.S. They understand where you guys are at as a company now, not going through with the merger. Does your thinking around your OUS efforts change? Does it -- do you see bigger opportunities than maybe you thought about before? And is there room to go beyond kind of the markets that you were in kind of premerger. Some of those approvals were really good. We saw a really good uptake in Europe. But now the question is, as a stand-alone, does your aperture change, I guess, particularly outside the U.S.

Yes. So a really, really great question. So you're starting to delve a little bit into some strategy here. So I've seen -- it's really interesting because in terms of especially replacing some of the older systems from competition that are out there. And so I've seen some interest in a few other countries that heretofore, we have not gone into. And so I'm going to be looking at a few opportunities such as Australia and New Zealand, in particular, where there's actually quite a bit of interest in replacement of older systems there. And that would be one market that we haven't been into that we may look into. I think that we'll see in Southeast Asia, our activity come back there. Like I said, there's more of a tender business there. And so it's going to take us a little more time where I see there'll be some systems there this year. But I think that really as we get into 2027 into first, second quarter of 2027, we'll see quite a bit more growth in that Southeast Asia market.

And I think there's a lot more expansion growth in Europe into countries where heretofore, we haven't been in because, again, not to underemphasize or overemphasize, ALLY addresses a lot of the shortcomings as to the reasons why people abandon femtosecond laser-assisted cataract surgery before. And because we have this good installed base in the U.S. and our business is growing, it's almost been an advantage getting the approvals later outside the U.S. because it's helpful for the distributors where they see that there's uptake here in the replacement of competitive devices. And so there's a lot of systems outside U.S. where they're sitting in accounts that are just not very productive. And I feel like competitive systems. And so we'll have some opportunity there.

I don't see the opportunity coming back in South Korea anytime soon. As you know, they've got big issues around reimbursement and insurance company reimbursement there, but that's been away from us for quite a while. So it doesn't impact our business negatively or positively, if you will. And I think we probably need to look at some other markets in South America, Latin America, where heretofore, we haven't been either. But I think now we can address some of these things. But those are longer term. I think we'll see Europe come back, and we'll have some opportunity outside of Germany that we hadn't really gone after before. I think our distributors are interested in doing that, and we've made some additional relationships there. And I think we'll see Southeast Asia in various countries there we do business come back strong, and then we'll look at a few of these other markets.

Okay. I appreciate it. I know this -- again, this call was a maybe change in plan from what everyone expected, but it's good to hear from you guys, and we'll get the dust off and move forward.

Ryan, you know what, that's life and life throws your curves. And the reality is what you do to adjust and how you pivot and how you decide to move from there. You've got 2 choices. You can quit or you can come out fighting. And I've never quit, and I have to come out fighting so.

Thank you. I would now like to turn the call back over to Nick Curtis for any closing remarks.

I really appreciate everyone joining us today. It's been invigorating to do a call after not having the call for about a year now. While the termination of the merger was not the outcome that we anticipated, I think it really positions us to -- the positive there is it positions us to move forward with a much greater focus and control as an independent company.

As a stand-alone company, we certainly know we have the best product available. I think it was -- came out loud and clear through the process here, and we're ready to capitalize on the significant market opportunities that lie ahead. Rebuilding momentum is going to take several quarters, but our priorities are very clear, and I believe our team is aligned to deliver. We're confident that on the path it really is enabling us to unlock even greater long-term value for our surgeons, patients and shareholders, and we look forward to sharing our progress with you all as we move forward. And so in closing, I just want to say once again, LENSAR is back. Thank you.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.