Sight Sciences, Inc. (SGHT)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the information presented in our financial statements and the related notes included in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by these forward-looking statements. Please also see the section of this Annual Report on Form 10-K titled “Special Note Regarding Forward-Looking Statements.”

Overview

Sight Sciences’ mission is to develop transformative, interventional technologies that allow eyecare providers to procedurally elevate the standards of care – empowering people to keep seeing. We are passionate about improving patients’ lives by helping them preserve their sight. Our objective is to develop and market products for use in new treatment paradigms and to create an interventional mindset in eyecare whereby our products may be used in procedures which supplant conventional outdated approaches. Our business philosophy is grounded in the following principles:

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comprehensively understanding disease physiology;

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developing transformative technologies that are intended to preserve, protect and restore natural physiological functionality to diseased eyes;

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developing and marketing products with proven clinical evidence that achieve superior effectiveness versus current treatment paradigms while minimizing complications or side effects;

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providing intuitive, patient-friendly, interventional solutions to ophthalmologists and optometrists (together, "ECPs"); and

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delivering compelling economic value to all stakeholders, including patients, providers and third-party payors such as Medicare and commercial insurers.

Our initial product development has focused on the treatment of two of the world’s most prevalent and underserved eye diseases, glaucoma and dry eye disease (“DED”). We have commercialized products in each of our two reportable operating segments, Surgical Glaucoma and Dry Eye. Our Surgical Glaucoma revenue consists of sales of the OMNI® Surgical System ("OMNI") and the SION® Surgical Instrument ("SION"), while our Dry Eye revenue consists of sales of the TearCare® System ("TearCare"), and related components and accessories. Each product is primarily sold through a highly involved direct sales model that offers intensive education, training and customer service. We believe this model not only enables us to differentiate our products and company from competitors, but also expands our addressable market by educating ECPs, patients and other stakeholders on our products and evolving treatment paradigms. Outside of the U.S., we have established direct commercial operations in the United Kingdom and Germany. We also sell OMNI in several other countries in Europe through distributors.

We sell OMNI and SION to facilities where ophthalmic surgeons perform outpatient procedures, such as ambulatory surgery centers ("ASCs") and hospital outpatient departments ("HOPDs"), which are typically reimbursed by Medicare or private payors for procedures using our products. We are focused on educating surgeons on the clinical benefits of earlier interventions with the comprehensive OMNI procedure, re-engagement efforts with accounts highlighting reimbursement clarity, enhanced competitive counter selling, investments in targeted commercial resources, pseudophakic standalone market development, and an upcoming new product launch.

We sell TearCare to ECPs. Currently, there is no meaningful reimbursement coverage by Medicare or private payors for DED procedures, including TearCare, and patients typically pay out-of-pocket for TearCare, although some payors may agree to provide case-based coverage outside of a formal policy. We are continuing our controlled commercial launch and are focused on our comprehensive, clinical data-driven long-term market development plan that aims to improve awareness and patient access to TearCare. In the fourth quarter of 2024, we instituted a price increase for our TearCare products to reflect the clinical value of our technology as we seek to establish broader coverage with commercial payors and Medicare. This increase materially reduced customer demand for TearCare in the fourth quarter of 2024 and we believe it will continue to impact demand in the future until broader reimbursement coverage can be established.

We have dedicated meaningful resources to execute our commercial strategy as we reduce operating expenses and improve cost efficiencies to better align our operating structure for long-term, profitable growth. The overall success of our approach to eyecare to date is evidenced by over 295,000 estimated uses of Surgical Glaucoma products and their predicates

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in over 2,100 hospitals and ASCs in the U.S. and Europe, and over 65,000 estimated uses of TearCare in over 1,500 eyecare facilities in the U.S. through December 31, 2024.

We do not currently have any internal manufacturing capability or infrastructure and rely on a limited number of third-party manufacturers, many of which are single source suppliers, for our production requirements. We believe the manufacturing capacity provided by our suppliers will be adequate to meet our current and anticipated manufacturing needs across all of our product lines. We plan to continue to utilize third party contract manufacturers for our products and any related components.

Revenue in our Surgical Glaucoma segment for the years ended December 31, 2024 and 2023 was $75.9 million and $74.3 million, respectively, with gross margins for the same periods of 87.6% and 88.1%, respectively. Revenue in our Dry Eye segment for the years ended December 31, 2024 and 2023 was $4.0 million and $6.7 million, respectively, with gross margins for the same periods of 46.2% and 54.8%, respectively. For the year ended December 31, 2024, we generated approximately 95% of our revenue from customers in the U.S.

Our Surgical Glaucoma revenue was relatively flat for the years ended December 31, 2024 and 2023 due to a number of factors, including reimbursement challenges and increased competition from other MIGS devices. We expect to continue to experience near-term revenue challenges arising out of the restrictions on the performance of multiple MIGS procedures in combination with cataract surgery for Medicare patients in the jurisdictions administered by the five MACS that issued the LCDs containing such restrictions, which restrictions became effective in the fourth quarter of 2024. We believe that these restrictions have led to a decrease in the number of overall MIGS devices used in procedures that are being performed, including procedures utilizing our OMNI technology. In addition, our Surgical Glaucoma gross margins will be adversely impacted in 2025 by the tariffs imposed by the U.S. on China, as our primary supplier manufacturers OMNI and SION products as well as SmartLids out of its China-based manufacturing facility.

Given the earlier stage of TearCare’s commercial development, we expect our Dry Eye segment’s gross margins to be lower than our Surgical Glaucoma segment’s gross margins for the near- and medium-term due to the allocation of fixed labor and overhead costs to the segment's cost of goods sold. In addition, we experienced lower demand in the Dry Eye segment in the fourth quarter of 2024 due to our increase in dry eye pricing which took effect on October 1, 2024, and was a result of our focus on achieving reimbursed market access for TearCare procedures instead of cash-pay procedures. We expect TearCare procedure revenue will return to a growth trajectory upon receipt of positive payor coverage or payment determinations that provide for sufficient and equitable reimbursement. We currently anticipate that we and our customers will begin receiving coverage and payment determinations with respect to the TearCare procedure in 2025, though there is no guarantee that such determinations will be made in accordance with this time frame.

We believe in the importance of continued strategic investment in initiatives that:

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further demonstrate our products’ clinical effectiveness and safety to potential customers, patients, payors and regulators, including (i) establishing OMNI and SION as standards of care of interventional glaucoma treatment among MIGS-trained surgeons, (ii) developing the Standalone Market Segment with a focus on pseudophakic patients whose IOP is not well-controlled on two or more medications and who are at risk of disease progression, and (iii) pursuing coverage and equitable reimbursement for TearCare;

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enhance our commercial capabilities and expertise, including resources dedicated to sales, marketing and education;

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ensure the broadest possible patient access to the treatment alternatives that our products are cleared to offer;

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enhance and improve upon our existing product technologies;

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develop our existing international markets and expand into new international markets; and

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allow us to create transformational and interventional technology innovation with new products, devices or drugs, in glaucoma and ocular surface disease or in new eye disease areas.

As a result, we intend to continue to invest in product development, market access, sales and marketing, clinical studies, and education initiatives. Because of these and other factors, we expect to continue to incur net losses for at least the next several years, and we may seek additional debt and equity financing to fund our operations and planned growth.

To date, our primary sources of capital have been private placements of redeemable convertible preferred stock, debt financing agreements, the sale of common stock in our IPO, and revenue from the sale of our products. As of December 31,

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2024, we had an outstanding term loan balance of $40.0 million (excluding debt discount and amortized debt issuance costs), cash and cash equivalents of $120.4 million and an accumulated deficit of $346.3 million.

Factors Affecting Our Business and Results of Operations

We believe there are several important factors that have impacted and that will continue to impact our business, financial condition, and results of operations. For additional information on risk factors that could impact our results, please refer to the sections entitled “Risk Factors” in this Annual Report on Form 10-K.

These factors affecting our business and results of operations include, but are not limited to:

Product Development

We believe our product development approach is a key differentiator of our team and our company. We are focused on continuous innovation and design and utilize input from our network of expert employees (including ophthalmologists on staff), advisors and customers to rapidly iterate our pre-and post-commercial product designs with the aim of better satisfying the needs of our customers and their patients, delivering the most effective, safe, and consistent outcomes, and increasing adoption and utilization of our solutions. We believe it is critical to our product development approach to comprehensively understand the disease physiology, treat the underlying causes with an interventional mindset, and create products with an intuitive design and strong clinical evidence.

Once our products are launched, our customer feedback loop helps us further develop our products. This is particularly evident in the evolution of OMNI, which originated from the combined functionality of two internally developed, commercial predicate devices, each of which had their own multiple commercial iterations. Our future growth is dependent on our ability to continue innovating and applying our expertise of disease physiology to improve existing products and develop new products.

We intend to add to the OMNI family and bring OMNI Edge to market in the first half of 2025. The addition of OMNI Edge is intended to accommodate varying physician preferences and patient needs in today’s evolving MIGS marketplace. OMNI Edge is designed to increase the amount of viscoelastic delivered with our patented motion synchronized delivery system to ensure the consistency, reproducibility, and safety surgeons have come to trust in the OMNI procedure. With this product, we are further advancing procedural intervention and reinforcing our commitment to best serving both our surgeon customers and the patients they care for. The addition of OMNI Edge reflects our ongoing dedication to enhancing outcomes and supporting the evolving needs of the eye care community.

Reimbursement Rates and Coverage

In the U.S., healthcare providers use separate billing codes to report the provision of medical procedures and use of supplies to third-party payors, such as government programs or private insurance, and seek reimbursement for all or a portion of those costs. Physician fee payment rates for products covered by temporary Current Procedural Terminology (“CPT”) codes are set by the multi-state, regional contractors, or Medicare Administrative Contractors (“MACs”), which are responsible for administering Medicare claims. MACs have in the past, and may in the future, change coverage terms, and there can be no assurance that coverage and adequate reimbursement will be obtained from, or maintained by, the MACs.

In June 2023, for instance, five of the seven MACs published draft local coverage determinations (the “Draft LCDs”), which identified certain procedures as investigational in patients over the age of 18 for glaucoma management, including canaloplasty in combination with trabeculotomy (ab interno), which is a procedure associated with OMNI. The Draft LCDs, as amended, were published in final form during the quarter ended December 31, 2023, with a future effective date of January 29, 2024, and subsequently withdrawn in late December 2023. Had the Draft LCDs, as amended, not been withdrawn, canaloplasty followed by trabeculotomy (ab interno) would have been rendered non-covered as of January 29, 2024 with respect to Medicare Part B beneficiaries in the states administered by these MACs. Further, each of the Final LCDs that became effective in November 2024 adopted a non-coverage policy when an aqueous shunt or stent procedure is performed with another surgical MIGS procedure, such as canaloplasty or goniotomy, at the same time in the same patient eye. We estimate that approximately 15% of total MIGS codes billed in the nine months ended September 30, 2024 were done in combination with another MIGS code and expect the non-coverage determination for multiple MIGS procedures will reduce overall MIGS procedure claims volumes, which may adversely impact our business, revenue and prospects. Any updated or new local coverage determinations or other coverage policies that may establish a policy of Medicare non-coverage, or materially restrict coverage, for one or more of our products would have materially and adversely impacted our business, financial condition, and results of operations.

Further, we have historically only sold TearCare on a limited, cash pay basis while in parallel we have worked to develop robust clinical and health economics data to support equitable and sustainable reimbursement for the TearCare procedure. As

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part of our reimbursement efforts, we revised TearCare pricing in the fourth quarter of 2024 to what we believe more accurately reflects the clinical value of the TearCare procedure. We are in the process of actively engaging with commercial payors and MACs to obtain appropriate coverage and payment determinations for the TearCare procedure. If we are not able to achieve sufficient reimbursement for the TearCare procedure, we will not be able to achieve broad customer acceptance and use of TearCare; thus, the future success of TearCare depends on our ability to successfully advocate for and achieve what we believe is fair coverage and reimbursement for the TearCare procedure.

Proper reimbursement for our products is critical to the adoption of our products, and we plan to continue to focus on improving and expanding reimbursement coverage and payment amounts for our OMNI technology, and establishing reimbursement coverage and payment amounts for our TearCare technology.

Market Education and Training on the Benefit of Our Products vis-à-vis Existing Treatment Alternatives

One of the key drivers of our success is educating ophthalmologists, optometrists, patients, and third-party payors about the clinical and safety benefits of our products and of the benefits of more proactive, interventional approach to treating glaucoma and DED. We believe the required market education and development is best accomplished through a differentiated, highly involved commercial approach. As such, we devote significant resources to onboarding our sales professionals and to continuously augmenting their knowledge and capabilities. Our sales professionals provide ECPs with the necessary education, training and support to adopt and continue to safely use our products. We believe that increasing acceptance and usage of our products will require continued investment in our sales force and education efforts to ensure ECPs, patients and third-party payors learn more about our products and appreciate our benefits to their target patient populations.

Maximizing Product Usage by Customers

Demand for our products will be highly dependent on our ability to develop their potential addressable markets and maximize the breadth of patients our products can serve. OMNI is indicated for canaloplasty followed by trabeculotomy to reduce elevated intraocular pressure (“IOP”) in adult patients with primary open-angle glaucoma (“POAG”) in the U.S. and with open-angle glaucoma (“OAG”) in the EU. We believe OMNI is the only device that is authorized by the FDA as an ab interno procedure to: reduce IOP in adult patients with POAG across the spectrum of disease severity; be used in mild-to-moderate Combination Cataract or Standalone Procedures; access 360 degrees of the diseased conventional outflow pathway through a single clear corneal incision; and facilitate two consecutive procedures, canaloplasty and trabeculotomy, to comprehensively treat all three known areas of resistance in the conventional outflow pathway in a single operating room visit. Our ability to establish OMNI as a standard of care for all POAG patients by continuing to grow its adoption and utilization in Combination Cataract Procedures and by pioneering the development of the market for interventional Standalone Procedures, with a focus on pseudophakic patients, will have a substantial impact on our future growth.

We introduced our SION Surgical Instrument in the third quarter of 2022. SION satisfies the American Academy of Ophthalmology definition of goniotomy and is registered with the FDA as a Class I 510(k) exempt device. SION’s bladeless design, micro-engineered and precision manufactured using specialized lasers, excises tissue without cutting. SION grasps and removes diseased tissue as the surgeon sweeps the instrument around Schlemm’s canal with a single smooth motion. The bladeless technology of SION was developed with leading ophthalmic surgeons to improve safety and ease of use by eliminating the need to navigate sharp instrumentation within the eye’s anterior chamber and iridocorneal angle anatomy. SION allows us to serve specific subsets of customers who may prioritize a faster or simpler procedure. Our target customers for SION include three types of combination cataract MIGS surgeons that are distinct from target OMNI customers: (1) high volume cataract surgeons seeking to perform the quickest MIGS procedures, (2) surgeons who are initially less experienced with MIGS such as surgical fellows at academic institutions and (3) surgeons looking for the most cost effective MIGS procedures. We believe that these use cases have very little overlap with the use cases for our OMNI device. Our ability to establish SION as a product with differentiated ease of use, safety and efficacy will be an important driver of SION’s commercial growth and success.

TearCare is a unique open-eye heating and expression device designed to melt and remove meibomian gland obstructions. We believe TearCare has a compelling physiological profile to address obstruction from meibomian gland disease ("MGD"), which is the primary cause of evaporative DED, a disease characterized by low quality tears that evaporate prematurely. The current DED treatment market primarily consists of an abundance of OTC and prescription eyedrops that seek to lubricate the ocular surface, alleviate inflammation and/or increase tear production. However, OTC and prescription eyedrops are incapable of clearing obstructions in the meibomian glands and do not address MGD’s eyelid-borne physiology and poor tear quality. MGD is associated with up to 86% of DED cases and is a leading root cause of evaporative DED, which is characterized by low quality tears that evaporate prematurely. Clinical studies have demonstrated that treating MGD by liquefying and removing clogged meibum is the most effective method to eliminate obstructions and restore the lipid layer

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of tear film, thereby preventing premature evaporation of tears. TearCare was designed to be administered during the course of a routine office visit to an ECP, which makes it convenient for patients, and allows providers to maintain procedural throughput in their practices. Our ability to improve patient access and market education on TearCare and the benefits of proactive MGD treatment will be key drivers of TearCare’s future growth. We believe that sufficiently reimbursed patient access to the TearCare procedure is necessary to drive broad customer acceptance and adoption.

Operational Excellence and Cost Efficiency

We aim to achieve operating and financial milestones with optimal capital efficiency, and focus on our market value relative to invested capital as a key measurement of our performance. To date, we have raised $402.4 million in net proceeds from equity and debt financings, including $252.2 million from our IPO. With a portion of these net proceeds (our December 31, 2024 cash and equivalents was $120.4 million), we have developed and commercially launched two clinically differentiated products, funded multiple completed and ongoing clinical trials, and built our management team and company infrastructure to support the continued growth of our business. We believe this level of operational and commercial progress relative to our total capital investment to date compares favorably to medical technology peers and we seek to design products that can achieve attractive long-term gross margins.

However, during the year ended December 31, 2024 and in the first months of 2025, global and regional economies, as well as the markets we serve, have experienced significant volatility, including as a result of the impacts of macroeconomic conditions, such as tariffs, inflation, supply shortages, and geopolitical pressures. For example, in February and March 2025, the United States imposed additional tariffs on products from China. A significant portion of our OMNI and SION products, and certain of our TearCare system components, are produced and assembled in China by a single Taiwan-based manufacturer. These tariffs, as well as any future tariffs, by the United States or other countries could significantly increase the cost of our products and components, and will have a negative impact on our gross margins. However, the impact of any such tariffs will depend upon various factors, including the timing, amount, scope, and nature of the tariffs, as well as any mitigating actions we implement, including by diversifying our third-party suppliers.

While the impact of these macroeconomic factors is not readily determinable, we have not been materially impacted by these macroeconomic conditions, but there can be no assurance that our business operations and financial condition will not be materially adversely affected in the future. The duration and scope of these conditions cannot be predicted with certainty, and it is uncertain what impacts, if any, these pressures may have on our ability to support the efficient and sustainable growth of our business.

Components of Our Results of Operations

Revenue

We currently derive the majority of our U.S. revenue from the sale of our OMNI and SION products to ASCs and HOPDs and from the sales of our TearCare products to ECPs. To date, the revenue from our Surgical Glaucoma segment has accounted for over 90% of our total revenue, substantially all of which was generated from sales within the U.S. Our Surgical Glaucoma customers place orders based on their expected procedure volume and reorder as needed, typically on a biweekly, monthly or bimonthly basis. Our TearCare customers typically purchase a TearCare System which consists of one or more TearCare SmartHubs® (“SmartHubs”), multiple single-use TearCare SmartLids® (“SmartLids”) and other accessories. After utilizing their initial inventory, customers can reorder SmartLids as needed. No single customer accounted for 10% or more of our revenue for the years ended December 31, 2024 and 2023.

The growth of our revenue is primarily driven by the demand for elective surgery and treatment utilizing our products in the United States and Europe, product reimbursement rates and coverage criteria, and competition. Such demand is often lower during summer months because of ECP vacations and in winter months because of fewer business or surgery days due to holidays and adverse weather conditions.

Cost of Goods Sold

Our components and products are produced by third-party suppliers and manufacturers. Our cost of goods sold consists primarily of amounts paid for our products to third-party manufacturers, and our manufacturing overhead costs, which consist primarily of personnel expenses, including salaries, benefits and stock-based compensation, and reserves for excess, obsolete and non-sellable inventory. Cost of goods sold also includes depreciation expenses for production equipment which we provide to our third-party manufacturers and certain direct costs, such as shipping and handling costs.

Gross Profit and Gross Margin

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We calculate gross margin as gross profit divided by revenue. Our gross margin has been, and we believe it will continue to be, affected by a variety of factors, including differences in segment gross margins, changes in average selling prices, changes in product reimbursement rates, product sales mix, production and ordering volumes, manufacturing costs, product yields, and headcount. In general, we expect our gross margins to increase over the long term to the extent our production and ordering volumes increase and as we spread the fixed portion of our overhead costs over a larger number of units produced. We intend to use our design, engineering and manufacturing know-how and capabilities to further advance and improve the efficiency of our suppliers’ manufacturing processes, which we believe will reduce costs and increase our gross margins. However, our gross margins could fluctuate from quarter to quarter due to a number of factors, including variations in product mix, changes in product reimbursement rates, transitions to new suppliers, introduction of new products by us or our competitors, adoption of new manufacturing processes and technologies, and responses to evolving macroeconomic, and geopolitical conditions, including the adoption of tariffs by the United States and China.

Research and Development Expenses

Research and development ("R&D") expenses consist primarily of costs associated with engineering, product development, clinical studies to develop and support our products, including clinical trial design, clinical trial site initiation and study costs, internal and external costs associated with our regulatory compliance and quality assurance functions, medical affairs, cost of products used for clinical trials and other costs associated with products and technologies – either new or enhancements of existing platforms – that are in development. These expenses also include personnel expenses, including salaries, benefits and stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation expenses for equipment and an allocation of information technology ("IT") and facility overhead expenses. Our R&D expenses as a percentage of revenue may vary over time depending on the level and timing of new product development efforts, as well as clinical development, clinical trial and other related activities. We expect our R&D expenses to increase for the next several years as we continue to invest in our active clinical trial programs, develop new products, and improve our existing products.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation related to selling, marketing and corporate functions, allocation of IT and facility overhead expenses, bad debt expense, finance, legal and human resource costs. Other SG&A expenses include training, travel expenses, promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, professional services fees (including external legal, audit, consulting and tax fees), insurance costs, and general corporate expenses.

Our SG&A expenses as a percentage of revenue may vary over time depending on the level and timing of commercial expansion efforts. We expect our SG&A expenses to increase for the next several years as we continue to invest in our commercial team, market access, and launch new products.

Investment Income

Investment income primarily consists of interest and amortization on held-to-maturity investments in U.S. treasury securities and money market funds.

Interest Expense

Interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the accretion of debt discount and amortization of debt issuance costs associated with our term loan agreements.

Loss on Debt Extinguishment

The loss on debt extinguishment is associated with our termination and settlement of the MidCap Term Loan.

Other Income (Expense), Net

Other income (expense), net primarily consists of income and expenses that do not originate from our primary business.

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Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

Revenue. Revenue in the year ended December 31, 2024 was $79.9 million, a decrease of $1.2 million, or 1.5%, compared to the prior year. In the year ended December 31, 2024, Surgical Glaucoma and Dry Eye sales contributed $75.9 million and $4.0 million, respectively, compared to $74.3 million and $6.7 million, respectively, in the prior year. The overall increase in Surgical Glaucoma revenue was primarily attributable to an increase in unit utilization per ordering account, partially offset by a slight decrease in the number of ordering facilities and lower prices due to product sales mix in the year ended December 31, 2024. Our Dry Eye revenue decreased in the year ended December 31, 2024 primarily due to fewer SmartHubs and SmartLids sales, which was the result of the Company’s focus on achieving market access for TearCare procedures instead of cash-pay procedures.

Cost of Goods Sold. Cost of goods sold during the year ended December 31, 2024, decreased $0.3 million, or 2.5%, compared to the prior year. Our Surgical Glaucoma cost of goods sold increased $0.6 million compared to 2023. The increase was primarily driven by product sales mix and higher per unit cost, partially offset by higher scrap charges in the prior year. Dry Eye cost of goods sold decreased $0.9 million compared to the prior year, primarily driven by higher overhead costs per unit and lower sales volumes.

Gross Profit and Gross Margin. Our total gross profit was $68.3 million for the year ended December 31, 2024, a decrease of $0.9 million, or 1.3%, compared to the prior year. Total gross margin increased to 85.5% for the year ended

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December 31, 2024, up from 85.3% in the prior year period. Gross margin in our Surgical Glaucoma segment was 87.6% for the year ended December 31, 2024, a decrease from 88.1% for the prior year period. The decrease in our Surgical Glaucoma gross margin was primarily due to product sales mix and higher per unit cost, partially offset by higher scrap charges in the prior year. In our Dry Eye segment, gross margin decreased from 54.8% in 2023, to 46.2% for the year ended December 31, 2024, primarily due to higher overhead costs per unit due to lower volumes.

Research and Development Expenses. R&D expenses were $18.0 million for the year ended December 31, 2024, an increase of $0.4 million, or 2.5%, compared to the prior year. The increase was primarily attributable to a $1.0 million increase in personnel costs including payroll and related benefits and professional and outside services, which were partially offset by a decrease of $0.7 million in clinical study expenses.

Selling, General, and Administrative Expenses. SG&A expenses were $100.8 million for the year ended December 31, 2024, a decrease of $8.1 million, or 7.4%, compared to the prior year. The decrease was primarily attributable to a $5.3 million decrease in personnel expenses, including payroll and related benefits, commissions, and incentive compensation. In addition, the Company saw a $1.7 million decrease in marketing expenses, a $1.6 million decrease in legal expenses, and a $0.9 million decrease in facilities expenses. These decreases were partially offset by a $2.4 million increase in stock-based compensation expense, and a $0.6 million increase in accounting and related expenses.

Investment Income. Investment income was $5.9 million for the year ended December 31, 2024, a decrease of $1.4 million, or 18.8%, from $7.3 million in the prior year period. The decline was primarily due to lower investment balances during the current year.

Interest Expense. Interest expense was $4.7 million in the year ended December 31, 2024, a decrease of $0.7 million, or 13.8%, compared to the prior year period due to lower lending rates associated with the Hercules Loan Agreement. See the section titled “Hercules Capital Loan Agreement” below, for additional information.

Loss on Debt Extinguishment. Loss on debt extinguishment was $2.0 million for the year ended December 31, 2024 compared to $0.0 million in the prior year. The increase in the current year was driven by our loss on the termination and settlement of the MidCap Term Loan.

Other Expense, Net. Other expense, net was expense of less than $0.1 million for both the years ended December 31, 2024 and 2023.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

Net Cash Used in Operating Activities

Net cash used in operating activities for the year ended December 31, 2024 was $22.4 million, consisting primarily of a net loss of $51.5 million, partially offset by non-cash charges of $20.1 million and a net change in our operating assets and liabilities of $9.0 million. The $9.0 million change in our net operating assets and liabilities included decreases of $3.5 million in accounts receivable and $1.6 million in inventory, as well as increases of $5.2 million in accrued compensation and $0.3 million accounts payable. These were partially offset by a $1.6 million decrease in other noncurrent liabilities. The non-cash charges primarily consisted of $17.1 million related to stock-based compensation, $1.0 million of noncash loss on debt extinguishment, $0.8 of accretion of debt discount and debt issuance costs, $0.7 million of depreciation and amortization, and $0.6 million of noncash operating lease expense.

Net cash used in operating activities for the year ended December 31, 2023 was $47.2 million, consisting primarily of a net loss of $55.5 million and a net change in our operating assets and liabilities of $9.1 million, partially offset by non-cash charges of $17.5 million. The change in our net operating assets and liabilities was primarily due to a $7.4 million decrease in accrued and other current liabilities and accrued compensation. This was due to a decline in sales commissions and incentive compensation, as well as reduced inventory purchases following the publication of the Draft LCDs in the fourth quarter of 2023. The Company also had a $2.2 million increase in inventory to support its planned growth in operations.

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These were partially offset by $0.8 million decrease in prepaid expenses and other current assets due to lower insurance premiums, as well as a $0.7 million decrease in accounts receivable. The non-cash charges primarily consisted of $14.6 million related to stock-based compensation, $0.6 million of depreciation, $0.6 million of accretion of debt discount and amortization of debt issuance costs, and $1.0 million of noncash operating lease expense.

Net Cash Used in Investing Activities

Net cash used in investing activities in the years ended December 31, 2024 and 2023 was $0.4 million and $0.8 million, respectively, consisting of purchases of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2024 was $5.0 million, consisting primarily of proceeds from the Hercules Loan Agreement, partially offset by costs associated with refinancing the term loan agreement. Net cash provided by financing activities for the year ended December 31, 2023 was $1.1 million, which primarily related to proceeds from the exercise of common stock options and proceeds from employee stock purchase plan purchases.

Liquidity and Capital Resources

Sources of Liquidity

To date, our primary sources of capital have been private placements of redeemable convertible preferred stock, the sale of common stock in our IPO, debt financing arrangements, and revenue from the sale of our products. Since our inception through December 31, 2024, we have raised an aggregate of approximately $402.4 million in net proceeds from sales of our redeemable convertible preferred stock and common stock and borrowed an aggregate of approximately $37.9 million of net proceeds under our term loans. In January 2024, we entered into a Loan and Security Agreement (the “Hercules Loan Agreement”) with Hercules Capital, Inc (“Hercules”) and certain of its affiliates (collectively with Hercules, the “Lenders”), which provides for a senior secured term loan facility in the aggregate principal amount of up to $65.0 million. We used the proceeds from an initial $35.0 million tranche funded under the Hercules Loan Agreement to discharge our indebtedness under our prior secured credit facility with MidCap Financial Trust and certain of its affiliates (the “Prior Lenders”). In December 2024, we consummated the drawdown of the $5.0 million Tranche I(b) term loan advance (the "Tranche I(b) Loan") contemplated by the Hercules Loan Agreement. While our indebtedness to the Lenders remains outstanding, we are required to use commercially reasonable efforts to grant to the Lenders the option to invest up to $3.0 million in our next round of equity financing, if any, broadly marketed to multiple investors on the same terms, conditions and pricing offered to investors in such subsequent equity financing.

As of December 31, 2024, we had cash and cash equivalents of $120.4 million, an accumulated deficit of $346.3 million and $40.0 million outstanding under the Hercules Loan Agreement (before debt discounts and amortized debt issuance costs). Based on our currently planned operations and strategic objectives, we expect our cash and cash equivalents and additional borrowings available under the Hercules Loan Agreement will enable us to fund our operations for at least the next 12 months.

Our historical cash outflows have been primarily been associated with cash used for operating activities such as sales, marketing and commercialization of our products, research and development activities, regulatory and market access activities, intellectual property portfolio expansion and enforcement, capital expenditures and debt service costs. Our cash requirements will depend extensively on our ability to obtain and maintain sufficient reimbursement for our products, including our ability to successfully protect reimbursement for our Surgical Glaucoma products and establish reimbursement for our Dry Eye products. Our requirements also will be significantly impacted by our ability to manage and grow our business by maintaining and expanding our sales to existing customers or introducing our products to new customers, the level of our investment in commercialization and research and development including clinical trials, whether we make strategic acquisitions, entry and expansion into new markets, and competition. We cannot accurately predict our long-term cash requirements at this time. An extended period of global supply chain, geopolitical or trade tensions, or economic disruption could materially affect our business, results of operations, access to sources of liquidity, and financial condition. We may seek additional sources of liquidity and capital resources through equity or debt financings, such as additional securities offerings or through borrowings under a new or existing credit facility. There can be no assurance that such transactions will be available to us on favorable terms, if at all.

Hercules Capital Loan Agreement

In January 2024, we entered into the Hercules Loan Agreement, which provides for a maximum $65.0 million credit facility. An initial tranche of $35.0 million (the “Initial Loan”) was funded under the credit agreement on January 22, 2024 (the “Closing Date”). On December 10, 2024, we consummated the Tranche 1(b) Drawdown (together with the Initial Loan, the "Tranche I Commitment"). In addition to the Initial Loan and Tranche 1(b) Drawdown, the Hercules Loan Agreement

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provides additional tranches available to the Company (the “Tranche Loans,” and together with the Initial Loan, the “Term Loans). Tranche 2 consists of $10.0 million available to draw upon through September 15, 2025, contingent upon the achievement of certain performance milestones. The Company does not currently anticipate achieving these milestones prior to the June 30, 2025 performance deadline. Tranche 3 consists of $15.0 million available for us to draw through the interest only period in increments of $5.0 million, subject to the sole approval of Hercules' investment committee.

The Hercules Loan Agreement includes a maturity date of July 1, 2028, with an interest-only period running for a 30 months, extendable up to 36 months upon the achievement of certain milestones. The agreement contains a floating rate of the greater of 10.35% or the Prime Rate plus 2.35%, with the initial interest rate under the agreement of 10.85%. The final payment fee is set at 5.95% of the funded balance. In conjunction with the funding of the Initial Loan, we issued seven-year warrants to the Lenders to purchase up to an aggregate of 135,686 shares of our common stock at an exercise price of $5.159 per share. In connection with the funding of Tranche 1(b) Drawdown, in December 2024 we issued seven-year warrants to the Lenders to purchase up to an aggregate of 26,095 shares of our common stock at an exercise price of $3.83 per share.

Our obligations under the Hercules Loan Agreement are guaranteed by us and our future subsidiaries, subject to exceptions for certain foreign subsidiaries. Our obligations under the agreement are secured by substantially all of our assets, including our material intellectual property. Additionally, we are subject to customary affirmative and negative covenants, including covenants that limit or restrict the ability of us to, among other things, incur indebtedness, grant liens, merge or consolidate, make investments, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock and enter into certain transactions with affiliates, in each case subject to certain exceptions. We are also subject to certain minimum cash and minimum revenue covenants under the Hercules Loan Agreement.

MidCap Loan Agreements

In January 2019, we entered into credit and security agreements with the Prior Lenders. These agreements were amended and restated in November 2020, providing for a maximum $40.0 million credit facility consisting of a $35.0 million senior secured term loan (the "2020 Term Loan") and a $5.0 million revolving loan (the "2020 Revolver” and together with the 2020 Term Loan, the “MidCap Credit Facility”). In January 2024, we terminated the MidCap Term Loan Agreement and paid off in full the secured obligations thereunder in connection with our entry into the Hercules Loan Agreement.

The Amended and Restated Credit and Security Agreement (Term Loan) evidencing the 2020 Term Loan (the “MidCap Term Loan Agreement”) extended the maturity date of the 2020 Term Loan to November 1, 2025 and adjusted the stated floating interest rate to reserve-adjusted SOFR, plus 7.00%. Principal payments under the MidCap Term Loan Agreement were extended and scheduled to begin in December 2024. The final payment fee was amended to 6.0%.

Our obligations under the MidCap Term Loan Agreement were guaranteed by us and our future subsidiaries, subject to exceptions for certain foreign subsidiaries. Our obligations under the agreements were secured by substantially all of our assets, including our material intellectual property. Additionally, we were subject to customary affirmative and negative covenants, including covenants that limited or restricted our ability to, among other things, incur indebtedness, grant liens, merge or consolidate, make investments, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock and enter into certain transactions with affiliates, in each case subject to certain exceptions.

The MidCap Credit Term Loan Agreement contained events of default that included, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross-defaults and bankruptcy and insolvency events.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements

Critical Accounting Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are more fully described in Note 2 to our financial statements included in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting estimates, which

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are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Stock-Based Compensation

We maintain an equity incentive plan that permits the grant of stock-based awards, such as stock options and restricted stock units ("RSUs"), to employees, directors, and consultants. We recognize equity-based compensation expense for awards of equity instruments based on the grant date fair value of those awards. We estimate the fair value of our stock option awards based on the estimated fair values as of the grant date using the Black-Scholes-Merton ("Black-Scholes") option-pricing model, net of estimated forfeitures. The model requires us to make a number of assumptions, including expected volatility, expected term, risk-free interest rate, and expected dividend yield.

The fair value of RSU awards is determined based on the number of units granted and the closing price of the Company's common stock as of the grant date. We expense the fair value of our equity-based compensation awards on a straight-line basis over the requisite service period, which is the period during which the related services are provided.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K for more information about recent accounting pronouncements, the timing of their adoption, and our assessment with respect to their impact on our financial statements and related disclosures.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the information presented in our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations, and beliefs that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by these forward-looking statements. Please also see the section of this Annual Report on Form 10-K titled “Special Note Regarding Forward-Looking Statements.”

Overview

Sight Sciences’ mission is to develop transformative, interventional technologies that allow eyecare providers to procedurally elevate the standards of care – empowering people to keep seeing. We are passionate about improving patients’ lives by helping them preserve their sight. Our objective is to develop and market products for use in new treatment paradigms and to create an interventional mindset in eyecare whereby our products may be used in procedures which supplant conventional outdated approaches. Our business philosophy is grounded in the following principles:

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comprehensively understanding disease physiology;

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developing products that are intended to preserve, protect, and restore natural physiological functionality to diseased eyes;

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developing and marketing products with proven clinical evidence that achieve superior effectiveness versus current treatment paradigms while minimizing complications or side effects;

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providing intuitive, patient-friendly, interventional solutions to ophthalmologists and optometrists (together, "ECPs"); and

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delivering compelling economic value to all stakeholders, including patients, providers and third-party payors such as Medicare and commercial insurers.

Our initial product development has focused on the treatment of two of the world’s most prevalent and underserved eye diseases, glaucoma and dry eye disease (“DED”). We have commercialized products in each of our two reportable operating segments, Surgical Glaucoma and Dry Eye. Our Surgical Glaucoma segment consists of sales of the OMNI® Surgical System ("OMNI") and the SION® Surgical Instrument ("SION"), while our Dry Eye segment includes sales of the TearCare® System ("TearCare"), and related components and accessories. Each product is primarily sold through a highly involved direct sales model that offers intensive education, training and customer service. We believe this philosophy and model not only enable us to differentiate our products and company from competitors, but also expand our addressable market by educating ECPs, patients and other stakeholders on our products and evolving treatment paradigms. Outside of the U.S., we have established direct commercial operations in the United Kingdom and Germany. We sell OMNI in several other countries through distributors.

We sell OMNI and SION to facilities where ophthalmic surgeons perform outpatient procedures, such as ambulatory service centers ("ASCs") and hospital outpatient departments ("HOPDs"), which are typically reimbursed by Medicare or private payors for procedures using our products. We sell TearCare to ECPs. Currently, there is no meaningful reimbursement coverage by Medicare or private payors for meibomian gland disease ("MGD") procedures, including TearCare, and patients typically pay out-of-pocket for TearCare, although some payors may agree to provide case-based coverage outside of a formal policy. We are continuing our controlled commercial launch and are focused on our comprehensive, clinical data-driven long-term market development plan that aims to improve awareness and patient access to TearCare. We have dedicated meaningful resources to execute our commercial strategy as we reduce operating expenses and improve cost efficiencies to better align our operating structure for long-term, profitable growth. The overall success of our approach to eyecare to date is evidenced by over 220,000 estimated uses of Surgical Glaucoma products and their predicates in over 1,900 hospitals and ASCs in the U.S. and Europe, and over 50,000 estimated uses of TearCare in over 1,500 eyecare facilities in the U.S. through December 31, 2023.

We do not currently operate any manufacturing facilities and instead contract with third parties for our production requirements. We believe our suppliers will be able to meet our current and anticipated manufacturing needs across all our products. We plan to continue to utilize third party contract manufacturers for our products and any related components.

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Revenue in our Surgical Glaucoma segment for the years ended December 31, 2023 and 2022 was $74.3 million and $65.6 million, respectively, with gross margins for the same periods of 88.1% and 87.4%, respectively. Revenue in our Dry Eye segment for the years ended December 31, 2023 and 2022 was $6.7 million and $5.7 million, respectively, with gross margins for the same periods of 54.8% and 29.1%, respectively. Given the earlier stage of TearCare’s commercial development, we expect our Dry Eye segment’s gross margins to be lower than our Surgical Glaucoma segment’s gross margins for the near- and medium-term due to the allocation of fixed labor and overhead costs to the segment's cost of goods sold. For all periods presented, substantially all of our revenue was generated from customers in the U.S.

We believe in the importance of continued strategic investment in initiatives that:

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further demonstrate our products’ clinical effectiveness and safety to potential customers, patients, payors and regulators including establishing OMNI and SION as the standards of care of interventional glaucoma treatment among MIGS-trained surgeons, develop the standalone MIGS market, and pursue coverage and equitable reimbursement for TearCare;

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enhance our commercial capabilities and expertise, including resources dedicated to sales, marketing and education;

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ensure the broadest possible patient access to the treatment alternatives that our products are cleared to offer; enhance and improve upon our existing product technologies;

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develop our existing international markets and expand into new international markets; and

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allow us to create transformational and interventional technology innovation with new products, devices or drugs, in glaucoma and ocular surface disease or in new eye disease areas.

As a result, we intend to continue to invest in clinical studies, sales and marketing, education initiatives, market access, and product development. However, we are also focused on disciplined expenditures, and seek to grow our operating expenses at a lower rate than revenue. Because of these and other factors, we expect to continue to incur net losses for at least the next several years, and we may seek additional debt and equity financing to fund our operations and planned growth.

To date, our primary sources of capital have been private placements of redeemable convertible preferred stock, debt financing agreements, the sale of common stock in our IPO, and revenue from the sale of our products. As of December 31, 2023, we had an outstanding term loan balance of $35.0 million (excluding debt discount and amortized debt issuance costs), cash and cash equivalents of $138.1 million and an accumulated deficit of $294.8 million.

Factors Affecting Our Business and Results of Operations

We believe there are several important factors that have impacted and that will continue to impact our business, financial condition, and results of operations. These factors include, but are limited to:

Product Development

We believe our product development approach is a key differentiator of our team and our company. We are focused on continuous innovation and design and utilize input from our network of expert employees (including ophthalmologists on staff), advisors and customers to rapidly iterate our pre-and post-commercial product designs with the aim of better satisfying the needs of our customers and their patients, delivering the most effective, safe, and consistent outcomes, and increasing adoption and utilization of our solutions. We believe it is critical to our product development approach to comprehensively understand the disease physiology, treat the underlying causes with an interventional mindset, and create products with an intuitive design and strong clinical evidence. Once our products are launched, our customer feedback loop helps us further develop our products. This is particularly evident in the evolution of OMNI, which originated from the combined functionality of two internally developed, commercial predicate devices, each of which had their own multiple commercial iterations. Our future growth is dependent on our ability to continue innovating and applying our expertise of disease physiology to improve existing products and develop new products.

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Reimbursement Rates and Coverage

In the U.S., healthcare providers use separate billing codes to report the provision of medical procedures and use of supplies to third-party payors, such as government programs or private insurance, and seek reimbursement for all or a portion of those costs. Physician fee payment rates for products covered by temporary Current Procedural Terminology (“CPT”) codes are set by the multi-state, regional contractors, or Medicare Administrative Contractors (“MACs”), which are responsible for administering Medicare claims. MACs have in the past, and may in the future, change coverage terms, and there can be no assurance that coverage and adequate reimbursement will be obtained from, or maintained by, the MACs. In June 2023, for instance, five of the seven MACs published draft local coverage determinations (the “Draft LCDs”), which identified certain procedures as investigational in patients over the age of 18 for glaucoma management, including canaloplasty in combination with trabeculotomy (ab interno), which is a procedure associated with OMNI. The Draft LCDs, as amended, were published in final form during the quarter ended December 31, 2023, with a future effective date of January 29, 2024, and subsequently withdrawn in late December 2023. Had the Draft LCDs, as amended, not been withdrawn, canaloplasty followed by trabeculotomy (ab interno) would have been rendered non-covered as of January 29, 2024 with respect to Medicare Part B beneficiaries in the states administered by these MACs, which states accounted for approximately 63% of our total Surgical Glaucoma revenue in 2022. Any updated or new local coverage determinations or other coverage policies that may establish a policy of Medicare non-coverage, or materially restrict coverage, for one or more of our products would have materially and adversely impacted our business, financial condition, and results of operations.

Market Education and Training on the Benefit of Our Products vis-à-vis Existing Treatment Alternatives

One of the key drivers of our success is educating ophthalmologists, optometrists, patients, and third-party payors about the clinical and safety benefits of our products and of the benefits of more proactive, interventional approach to treating glaucoma and DED. We believe the required market education and development is best accomplished through a differentiated, highly involved commercial approach. As such, we devote significant resources to onboarding our sales professionals and to continuously augmenting their knowledge and capabilities. Our sales professionals provide ECPs with the necessary education, training and support to adopt and continue to safely use our products. We believe that increasing acceptance and usage of our products will require continued investment in our sales force and education efforts to ensure ECPs, patients and third-party payors learn more about our products and appreciate our benefits to their target patient populations.

Maximizing Product Usage by Customers

Demand for our products will be highly dependent on our ability to develop their potential addressable markets and maximize the breadth of patients our products can serve. OMNI is indicated for canaloplasty followed by trabeculotomy to reduce elevated intraocular pressure (“IOP”) in adult patients with primary open-angle glaucoma (“POAG”) in the U.S. and with open-angle glaucoma (“OAG”) in the EU. We believe OMNI is the only device that is authorized by the FDA as an ab interno procedure to: reduce IOP in adult patients with POAG across the spectrum of disease severity; be used in mild-to-moderate Combination Cataract or Standalone Procedures; access 360 degrees of the diseased conventional outflow pathway through a single clear corneal incision; and facilitate two consecutive procedures, canaloplasty and trabeculotomy, to comprehensively treat all three known areas of resistance in the conventional outflow pathway in a single operating room visit. Our ability to establish OMNI as the standard of care for all POAG patients by continuing to grow its adoption and utilization in Combination Cataract Procedures and by pioneering the development of the market for interventional Standalone Procedures will have a substantial impact on our future growth.

We introduced our SION Surgical Instrument in the third quarter of 2022. SION satisfies the American Academy of Ophthalmology definition of goniotomy and is registered with the FDA as a Class I 510(k) exempt device. SION’s bladeless design, micro-engineered and precision manufactured using specialized lasers, excises tissue without cutting. SION grasps and removes diseased tissue as the surgeon sweeps the instrument around Schlemm’s canal with a single smooth motion. The bladeless technology of SION was developed with leading ophthalmic surgeons to improve safety and ease of use by eliminating the need to navigate sharp instrumentation within the eye’s anterior chamber and iridocorneal angle anatomy. SION allows us to serve specific subsets of customers who may prioritize a faster or simpler procedure. Our target customers for SION include three types of combination cataract MIGS surgeons that are distinct from target OMNI customers: (1) high volume cataract surgeons seeking to perform the quickest MIGS procedures, (2) surgeons who are initially less experienced with MIGS such as surgical fellows at academic institutions and (3) surgeons looking for the most cost effective MIGS procedures. We believe that these use cases have very little overlap with the use cases for our

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OMNI device. Our ability to establish SION as a product with differentiated ease of use, safety and efficacy will be an important driver of SION’s commercial growth and success.

TearCare is a unique open-eye heating and expression device designed to melt and remove meibomian gland obstructions. We believe TearCare has a compelling physiological profile to address obstruction from meibomian gland disease ("MGD"), which is the primary cause of evaporative DED, a disease characterized by low quality tears that evaporate prematurely. The current DED treatment market primarily consists of an abundance of OTC and prescription eyedrops that seek to lubricate the ocular surface, alleviate inflammation and/or increase tear production. However, OTC and prescription eyedrops are incapable of clearing obstructions in the meibomian glands and do not address MGD’s eyelid-borne physiology and poor tear quality. MGD is associated with up to 86% of DED cases and is a leading root cause of evaporative DED, which is characterized by low quality tears that evaporate prematurely. Clinical studies have demonstrated that treating MGD by liquefying and removing clogged meibum is the most effective method to eliminate obstructions and restore the lipid layer of tear film, thereby preventing premature evaporation of tears. TearCare was designed to be administered during the course of a routine office visit to an ECP, which makes it convenient for patients, and allows providers to maintain procedural throughput in their practices. Our ability to improve patient access and market education on TearCare and the benefits of proactive MGD treatment will be key drivers of TearCare’s future growth.

Operational Excellence and Cost Efficiency

We aim to achieve operating and financial milestones with optimal capital efficiency, and focus on our market value relative to invested capital as a key measurement of our performance. To date, we have raised $402.4 million in net proceeds from equity and debt financings, including $252.2 million from our IPO. With a portion of these net proceeds (our December 31, 2023 cash and equivalents was $138.1 million), we have developed and commercially launched two clinically differentiated products, funded multiple completed and ongoing clinical trials, and built our management team and company infrastructure to support the continued growth of our business. We believe this level of operational and commercial progress relative to our total capital investment to date compares favorably to medical technology peers and we seek to design products that can achieve attractive long-term gross margins. However, during the year ended December 31, 2023, global and regional economies, as well as the markets we serve, have experienced significant volatility, including as a result of the impacts of macroeconomic conditions, such as inflation, supply shortages, and geopolitical pressures. While the impact of these factors is not readily determinable, we have not been materially impacted by these macroeconomic conditions. However, the duration and scope of these conditions cannot be predicted with certainty, and it is uncertain what impacts, if any, these pressures may have on our ability to support the efficient and sustainable growth of our business.

Components of Our Results of Operations

Revenue

We currently derive the majority of our U.S. revenue from the sale of our OMNI and SION products to ASCs and HOPDs and our TearCare products to ECPs. During the years ended December 31, 2023 and 2022, the revenue from our Surgical Glaucoma segment accounted for over 90% of our total revenue, substantially all of which was generated from sales within the U.S. Our Surgical Glaucoma customers place orders based on their expected procedure volume and reorder as needed, typically on a biweekly, monthly or bimonthly basis. Our TearCare customers typically purchase a TearCare System which consists of one or more TearCare SmartHubsTM (“SmartHubs”), multiple single-use TearCare SmartLids® (“SmartLids”) and other accessories. After utilizing their initial inventory, customers can reorder SmartLids as needed. No single customer accounted for 10% or more of our revenue for the years ended December 31, 2023 and 2022.

The growth in our revenue is driven by the demand for elective surgery and treatment utilizing our products in the United States and Europe. Such demand is often lower during summer months because of ECP vacations and in winter months because of fewer business or surgery days due to holidays and adverse weather conditions.

Cost of Goods Sold and Gross Margin

Our components and products are produced by third-party suppliers and manufacturers. Our cost of goods sold consists primarily of amounts paid for our products to third-party manufacturers, and our manufacturing overhead costs, which consist primarily of personnel expenses, including salaries, benefits and stock-based compensation, and reserves for excess, obsolete and non-sellable inventory. Cost of goods sold also includes depreciation expenses for production equipment which we provide to our third-party manufacturers and certain direct costs, such as shipping and handling costs.

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We calculate gross margin as gross profit divided by revenue. Our gross margin has been and we believe it will continue to be, affected by a variety of factors, including differences in segment gross margins, changes in average selling prices, product sales mix, production and ordering volumes, manufacturing costs, product yields, and headcount. In general, we expect our gross margins to increase over the long term to the extent our production and ordering volumes increase and as we spread the fixed portion of our overhead costs over a larger number of units produced. We intend to use our design, engineering and manufacturing know-how and capabilities to further advance and improve the efficiency of our suppliers’ manufacturing processes, which we believe will reduce costs and increase our gross margins. Our gross margins could fluctuate from quarter to quarter as we transition to new suppliers, introduce new products, and adopt new manufacturing processes and technologies.

Research and Development Expenses

Research and development ("R&D") expenses consist primarily of costs associated with engineering, product development, clinical studies to develop and support our products, including clinical trial design, clinical trial site initiation and study costs, internal and external costs associated with our regulatory compliance and quality assurance functions, medical affairs, cost of products used for clinical trials and other costs associated with products and technologies – either new or enhancements of existing platforms – that are in development. These expenses also include personnel expenses, including salaries, benefits and stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation expenses for equipment and an allocation of information technology ("IT") and facility overhead expenses. Our R&D expenses as a percentage of revenue may vary over time depending on the level and timing of new product development efforts, as well as clinical development, clinical trial and other related activities. We expect our R&D expenses to increase for the next several years as we continue to invest in our active clinical trial programs, develop new products, and improve our existing products.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation related to selling, marketing and corporate functions, allocation of IT and facility overhead expenses, bad debt expense, finance, legal and human resource costs. Other SG&A expenses include training, travel expenses, promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, professional services fees (including external legal, audit, consulting and tax fees), insurance costs, and general corporate expenses.

Interest Expense

Interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the accretion of debt discount and amortization of debt issuance costs associated with our term loan agreement.

Other Income (Expense), Net

Other income (expense), net consists of interest income and amortization on held-to-maturity investments in treasury securities.

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Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

Revenue. Revenue in the year ended December 31, 2023 was $81.1 million, an increase of $9.7 million, or 13.6%, compared to the prior year. In 2023, Surgical Glaucoma and Dry Eye sales contributed $74.3 million and $6.7 million, respectively, compared to $65.6 million and $5.7 million, respectively, in 2022. The overall increase in Surgical Glaucoma revenue was primarily attributable to an increase in the number of OMNI and SION units sold in the year ended December 31, 2023. This growth in units was driven by both a growth in the number of ordering facilities, as well as an increase in unit utilization per ordering facility. Our Dry Eye revenues increased in the year ended December 31, 2023 due to an increase in total TearCare procedures performed versus the prior year.

Cost of Goods Sold. Cost of goods sold during the year ended December 31, 2023, decreased $0.5 million, or 3.9%, compared to the prior year. Our Surgical Glaucoma cost of goods sold increased $0.5 million as compared to the comparable period in 2022. The increase was driven by increased sales activity, and product mix, partially offset by lower per-unit production costs as a result of continued manufacturing efficiencies. Dry Eye cost of goods sold decreased $1.0 million compared to the prior year, driven primarily by charges associated with the voluntary recall of our SmartHub 1.0 devices in 2022, as well as increased efficiencies driven by increased volumes.

Gross Profit. Our total gross profit was $69.2 million for the year ended December 31, 2023, an increase of $10.2 million, or 17.3%, compared to the prior year. Total gross margin increased to 85.3% for the year ended December 31, 2023, up from 82.7% in the prior year period. The increase in gross margin was primarily due to increased sales volume in OMNI units and manufacturing efficiencies. Gross margin in our Surgical Glaucoma segment was 88.1% for the year ended December 31, 2023, an increase from 87.4% for the prior year period. In our Dry Eye segment, gross margin increased from 29.1% in 2022, to 54.8% for the year ended December 31, 2023.

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Research and Development Expenses. R&D expenses were $17.6 million for the year ended December 31, 2023, a decrease of $5.3 million, or 23.2%, compared to the prior year. The decrease was primarily attributable to a $2.3 million decrease in costs associated with clinical studies and general R&D. In addition, the Company saw a $1.2 million decrease in consulting, legal, and professional services and a $0.5 million decrease in personnel expenses, including payroll and related benefits.

Selling, General, and Administrative Expenses. SG&A expenses were $108.9 million for the year ended December 31, 2023, a decrease of $11.2 million, or 9.3%, compared to the prior year period. The decrease was primarily attributable to a $5.1 million decrease in personnel expenses, including payroll and related benefits, commissions, and incentive compensation. In addition, the Company saw a $3.9 million decrease in marketing expenses, a $3.2 million decrease in consulting, recruiting, and professional services, and a $0.8 million decrease in facilities expenses. These decreases were offset by a $2.0 million increase in legal, accounting and related expenses, and a $0.7 million increase in stock-based compensation expense.

Interest Expense. Interest expense was $5.4 million, an increase of $0.9 million, or 21.1%, compared to the prior year period due to an increase in lending rates during the year ended December 31, 2023.

Other Income (Expense), Net. Other income, net was $7.2 million, an increase of $5.0 million, or 225.6%, for the year ended December 31, 2023 as compared to $2.2 million for the year ended December 31, 2022. The income is attributable to the amortization of purchase discounts on held-to-maturity cash-equivalent investments. The Company began investing in treasury securities in June 2022.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

Net Cash Used in Operating Activities

Net cash used in operating activities for the year ended December 31, 2023 was $47.2 million, consisting primarily of a net loss of $55.5 million and a net change in our operating assets and liabilities of $9.1 million, partially offset by non-cash charges of $17.5 million. The change in our net operating assets and liabilities was primarily due to a $7.4 million decrease in accrued and other current liabilities and accrued compensation. This was due to a decline in sales commissions and incentive compensation, as well as reduced purchasing of inventory due to the impacts of the Draft LCDs in the fourth quarter of 2023. The Company also had a $2.2 million increase in inventory to support the planned growth in operations. These were partially offset by $0.8 million decrease in prepaid expenses and other current assets due to lower insurance premiums, as well as a $0.7 million decrease in accounts receivable. The non-cash charges primarily consisted of $14.6 million related to stock-based compensation, $0.6 million of depreciation, $0.6 of accretion of debt discount and amortization of debt issuance costs, and $1.0 million of noncash operating lease expense.

Net cash used in operating activities for the year ended December 31, 2022 was $76.0 million, consisting primarily of a net loss of $86.2 million and a net change in our operating assets and liabilities of $5.7 million, partially offset by non-cash charges of $16.0 million. The change in our net operating assets and liabilities was primarily due to a $6.8 million increase in accounts receivable and a $3.3 million increase in inventory to support the continued growth of our operations. The Company had a $0.7 million decrease in accounts payable, while accrued compensation, as well as accrued and other current liabilities, increased $4.0 million, driven by the timing of payments on invoices and bonuses. The non-cash charges primarily consisted of $13.0 million related to stock-based compensation, $0.7 million of depreciation, $0.7 million of accretion of debt discount and amortization of debt issuance costs, and $0.5 million of noncash operating lease expense.

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Net Cash Used in Investing Activities

Net cash used in investing activities in the years ended December 31, 2023 and 2022 was $0.8 and $1.0 million, consisting of purchases of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities in the years ended December 31, 2023 and 2022 was $1.1 and $1.2 million, which primarily relates to proceeds from the exercise of common stock options and proceeds from employee stock purchase plan purchases.

Liquidity and Capital Resources

Sources of Liquidity

To date, our primary sources of capital have been private placements of redeemable convertible preferred stock, debt financing agreements, the sale of common stock in our IPO, and revenue from the sale of our products. Since our inception through December 31, 2023, we have raised an aggregate of approximately $402.4 million in net proceeds from sales of our redeemable convertible preferred stock and common stock and borrowed $32.9 million of net proceeds under our term loans. In January 2024, we entered into a Loan and Security Agreement (the “Hercules Loan Agreement”) with Hercules Capital, Inc (“Hercules”) and certain of its affiliates (collectively with Hercules, the “Lenders”), which provides for a senior secured term loan facility in the aggregate principal amount of up to $65.0 million. We used the proceeds from an initial $35.0 million tranche funded under the Hercules Loan Agreement to discharge our indebtedness under our prior secured credit facility with MidCap Financial Trust and certain of its affiliates (the “Prior Lenders”). While our indebtedness to Lenders remains outstanding, we are required to use commercially reasonable efforts to grant to Lenders the option to invest up to $3.0 million in our next round of equity financing, if any, broadly marketed to multiple investors on the same terms, conditions and pricing offered to investors in such subsequent equity financing.

As of December 31, 2023, we had cash and cash equivalents of $138.1 million, an accumulated deficit of $294.8 million and $35.0 million outstanding under our term loan agreement with our Prior Lenders (before debt discount). Based on our current planned operations, we expect our cash and cash equivalents and additional borrowings available under the Hercules Loan Agreement will enable us to fund our operations for at least the next 12 months and the foreseeable future.

MidCap Loan Agreements

In January 2019, we entered into credit and security agreements with the Prior Lenders. These agreements were amended and restated in November 2020, providing for a maximum $40.0 million credit facility consisting of a $35.0 million senior secured term loan (the "2020 Term Loan") and a $5.0 million revolving loan (the "2020 Revolver” and together with the 2020 Term Loan, the “MidCap Credit Facility”). In July 2023, we terminated the 2020 Revolver.

The Amended and Restated Credit and Security Agreement (Term Loan) evidencing the 2020 Term Loan (the “MidCap Term Loan Agreement”) extended the maturity date of the 2020 Term Loan to November 1, 2025 and adjusted the stated floating interest rate to reserve-adjusted SOFR, plus 7.00%. Principal payments under the MidCap Term Loan Agreement were extended and scheduled to begin in December 2024. The final payment fee was amended to 6.0%.

Our obligations under the MidCap Term Loan Agreement were guaranteed by us and our future subsidiaries, subject to exceptions for certain foreign subsidiaries. Our obligations under the agreements were secured by substantially all of our assets, including our material intellectual property. Additionally, we were subject to customary affirmative and negative covenants, including covenants that limited or restricted our ability to, among other things, incur indebtedness, grant liens, merge or consolidate, make investments, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock and enter into certain transactions with affiliates, in each case subject to certain exceptions. As of December 31, 2023, we were in compliance with all financial and non-financial covenants under the MidCap Term Loan Agreement.

The MidCap Credit Term Loan Agreement contained events of default that included, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross-defaults and bankruptcy and insolvency events.

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In January 2024, we terminated the MidCap Term Loan Agreement and paid off in full the secured obligations thereunder in connection with our entry into the Hercules Loan Agreement.

Hercules Capital Loan Agreement

In January 2024, we entered into the Hercules Loan Agreement, which provides for a maximum $65.0 million credit facility. An initial tranche of $35.0 million (the “Initial Loan”) was funded under the credit agreement on January 22, 2024 (the “Closing Date”). In addition to the Initial Loan, the Hercules Loan Agreement provides for additional tranches available as follows: $5.0 million available in a single draw through December 15, 2024 (together with the Initial Loan, the “Tranche I Commitment”), $10.0 million available to draw upon the achievement of certain performance milestones through September 15, 2025, and $15.0 million available for us to draw through the interest only period in increments of $5.0 million, subject to the sole approval of Hercules' investment committee (the “Tranche Loans,” and together with the Initial Loan, the “Term Loans”).

The Hercules Loan Agreement includes a maturity date of July 1, 2028, with an interest only period running for a period 30 months, extendable up to 36 months upon the achievement of certain milestones. The agreement contains a floating rate of the greater of 10.35% or the Prime Rate plus 2.35%, with the initial interest rate under the agreement of 10.85%. The final payment fee is set at 5.95% of the funded balance. In conjunction with the funding of the Initial Loan, we issued seven year warrants to the Lenders to purchase up to an aggregate of 135,686 shares of our common stock at an exercise price of $5.159 per share.

Our obligations under the Hercules Loan Agreement are guaranteed by us and our future subsidiaries, subject to exceptions for certain foreign subsidiaries. Our obligations under the agreement are secured by substantially all of our assets, including our material intellectual property. Additionally, we are subject to customary affirmative and negative covenants, including covenants that limit or restrict the ability of us to, among other things, incur indebtedness, grant liens, merge or consolidate, make investments, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock and enter into certain transactions with affiliates, in each case subject to certain exceptions. We are also subject to certain minimum cash and minimum revenue covenants under the Hercules Loan Agreement.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements

Critical Accounting Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting estimates, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Stock-Based Compensation

We maintain an equity incentive plan that permits the grant of share-based awards, such as stock options and restricted stock units (RSUs), to employees and directors. We recognize equity-based compensation expense for awards of equity instruments based on the grant date fair value of those awards. We estimate the fair value of our stock option awards made to employees and directors based on the estimated fair values as of the grant date using the Black-Scholes option-pricing model, net of estimated forfeitures. The model requires us to make a number of assumptions, including expected volatility, expected term, risk-free interest rate, and expected dividend yield.

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The fair value of RSU awards is determined based on the number of units granted and the closing price of the Company's common stock as of the grant date. We expense the fair value of our equity-based compensation awards on a straight-line basis over the requisite service period, which is the period in which the related services are received.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements appearing under Part II, Item 8 for more information about recent accounting pronouncements, the timing of their adoption, and our assessment.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the information presented in our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectation, and beliefs that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by these forward-looking statements. Please also see the section of this Annual Report on Form 10-K titled “Forward-Looking Statements.”

Overview

Sight Sciences’ mission is to transform ophthalmology and optometry through the development and commercialization of proprietary devices that target the underlying causes of the world’s most prevalent eye diseases. We are passionate about improving patients’ lives. Our objective is to develop and market products for use in new treatment paradigms and to create an interventional mindset in eyecare whereby our products may be used in procedures which supplant conventional outdated approaches. Our business philosophy is grounded in the following principles:

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comprehensively understand disease physiology;

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develop products that are intended to restore natural physiological functionality to diseased eyes;

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develop and market products that achieve superior effectiveness versus current treatment paradigms while minimizing complications or side effects;

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provide intuitive, patient friendly solutions to ophthalmologists and optometrists; and

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deliver compelling economic value to all stakeholders, including patients, providers and third-party payors such as Medicare and commercial insurers.

Our initial product development has focused on the treatment of two of the world’s most prevalent and underserved eye diseases, glaucoma and dry eye disease. We have commercialized products in each of our two reportable segments; Surgical Glaucoma and Dry Eye. Our Surgical Glaucoma segment consists of sales of the OMNI and SION, while our Dry Eye segment includes sales of the TearCare, and related components and accessories. Each product is primarily sold through a highly-involved direct sales model that offers intensive education, training and customer service. We believe this philosophy and model not only enables us to differentiate our products and our overall company from competitors, but also to expand our addressable market by educating ECPs, patients and other stakeholders on our products and evolving treatment paradigms. Outside of the U.S., we have historically sold OMNI primarily through a network of distributors, although we began employing a small direct sales force outside of the United States in 2021.

We sell OMNI and SION to facilities where ophthalmic surgeons perform outpatient procedures, mainly ASCs and HOPDs, which are typically reimbursed by Medicare or private payors for procedures using our products. We sell TearCare to optometrist and ophthalmologist practices. Currently, there is no meaningful reimbursement coverage by Medicare or private payors for MGD procedures, including TearCare, and patients typically pay out-of-pocket for TearCare. We are continuing our controlled commercial launch and are focused on our comprehensive, clinical data-driven long-term market development plan that aims to improve awareness and patient access to TearCare. We have dedicated meaningful resources to execute our commercial strategy and we continue to expand our sales organization through additional sales representatives and territories. The overall success of our approach to eyecare to date is evidenced by the over 130,000 estimated uses of OMNI and its direct predicates in over 1,500 hospitals and ASCs in the U.S. and Europe, and over 20,000 estimated uses of TearCare in over 1,000 eyecare facilities in the U.S. through December 31, 2022.

We currently operate no manufacturing facilities and instead contract with third parties for our production requirements. We believe our suppliers will be able to meet our current and anticipated manufacturing needs across all our products. We plan to continue to utilize third party contract manufacturers for our products and any related components.

Our gross margin in our Surgical Glaucoma segment for the years ended December 31, 2022 and 2021 was 87.4% and 86.1%, respectively. In 2021, we shifted our primary production of OMNI from a U.S.-based third-party contract manufacturer, to a lower cost, higher volume contract manufacturer in Asia. We are in the process of supplementing this OMNI production capacity with a U.S.-based contract manufacturer. These cost optimization initiatives contributed to the increase in gross margins in our Surgical Glaucoma segment. Our gross margin in our Dry Eye segment for the years ended

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December 31, 2022 and 2021 was 29.1% and 13.1%, respectively. The TearCare System includes the SmartHub component, which is typically only sold in initial purchase orders, and single-use SmartLids which are sold as part of initial purchase orders and through repeat orders as the ECP performs procedures over time. Given the earlier stage of TearCare’s commercial development, we expect our Dry Eye segment’s gross margins to be lower than our Surgical Glaucoma segment’s gross margins for the near and medium-term due to the allocation of fixed labor and overhead costs to the segment's cost of goods sold.

We believe in the importance of continued strategic investment in initiatives that: further demonstrate our products’ clinical effectiveness and safety to potential customers, patients, payors and regulators; enhance our commercial capabilities, including resources dedicated to sales, marketing and education; ensure the broadest possible patient access to the treatment alternatives that our products are cleared to offer; enhance and improve upon our existing product technologies; and allow us to innovate new products, devices or drugs, in glaucoma and ocular surface disease or in new eye disease areas. As a result, we intend to continue to invest in clinical studies, sales and marketing, education initiatives, market access, and product development. Because of these and other factors, we expect to continue to incur net losses for at least the next several fiscal years. Moreover, we expect to incur expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and those of the Nasdaq Stock Market, additional insurance expenses, investor relations activities and other administrative and professional services. As a result of these and other factors, we may require and seek additional debt and equity financing to fund our operations and planned growth.

To date, our primary sources of capital has been private placements of redeemable convertible preferred stock, debt financing agreements, the sale of common stock in our IPO, and revenue from the sale of our products. In July 2021, we completed our IPO, receiving net proceeds of $252.2 million. As of December 31, 2022, we had an outstanding term loan balance of $35.0 million (excluding debt discount and amortized debt issuance costs), cash and cash equivalents of $185.0 million and an accumulated deficit of $239.2 million.

During the year ended December 31, 2022, we generated revenue of $71.3 million, with a gross margin of 82.7%. Our net loss for the year ended December 31, 2022 was $86.2 million. For the year ended December 31, 2021, we generated revenue of $49.0 million, with a gross margin of 82.4%. Our net loss for the year ended December 31, 2021 was $63.0 million. For all periods presented, substantially all of our revenue was generated from customers in the U.S.

Impact of COVID-19

The global COVID-19 pandemic has impacted and may in the future impact demand for our products, which are used in procedures and therapies that are considered elective. Future surges of COVID-19 may result in governmental restrictions being re-implemented to reduce the spread of COVID-19 or patients and healthcare providers otherwise postponing elective eyecare procedures.

Any future impact of the COVID-19 pandemic will depend on future developments that are highly uncertain and cannot be predicted with confidence, and will depend on certain developments, including the duration and severity of the COVID-19 pandemic and its potential variants. Among other things, the COVID-19 pandemic could disrupt the operations of our third-party manufacturers and other suppliers. We are working closely with our manufacturing partners and suppliers to help ensure that we are able to source key components and maintain appropriate inventory levels to meet customer demand. Nevertheless, as occurred in earlier stages of the COVID-19 pandemic, we may, among other things, experience reduced customer demand or constrained supply that could materially adversely impact our business, results of operations, liquidity and cash flows in future periods.

Factors Affecting Our Business and Results of Operations

We believe there are several important factors that have impacted and that will continue to impact our business and results of operations. These factors include, but are limited to:

Product Development

We believe our product development approach is a key differentiator of our team and our company. We are focused on continuous innovation and design and utilize input from our network of expert employees (including several ophthalmologists on staff), advisors and customers to rapidly iterate our pre-and post-commercial product designs with the aim of better satisfying the needs of our customers and their patients, and increasing adoption and utilization of our

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solutions. Once our products are launched, our customer feedback loop helps us further develop our products. This is particularly evident in the evolution of our OMNI Surgical System, which originated from the combined functionality of two internally developed, commercial predicate devices, each of which had their own multiple commercial iterations. Our future growth is dependent on our ability to continue innovating and applying our expertise of disease physiology to improve existing products and develop new products.

Market Education and Training on the Benefit of our Products vis-à-vis Existing Treatment Alternatives

One of the key drivers of our success is educating ophthalmologists, optometrists, patients, and third-party payors about the clinical and safety benefits of our products and of the benefits of more proactive, interventional approach to treating glaucoma and DED. We believe the required market education and development is best accomplished through a differentiated, highly involved commercial approach. As such, we devote significant resources to onboarding our sales professionals and to continuously augmenting their knowledge and capabilities. Our sales professionals provide ECPs with the necessary education, training and support to adopt and continue to use our products. We believe that increasing acceptance and usage of our products will require continued investment in our sales force and education efforts to ensure ECPs, patients and third-party payors learn more about our products and appreciate our benefits to their target patient populations.

Maximizing Product Usage by Customers

Demand for our products will be highly dependent on our ability to develop their potential addressable markets and maximize the breadth of patients our products can serve. OMNI is indicated for canaloplasty followed by trabeculotomy to reduce IOP in adult patients with POAG in the U.S. and with OAG, in the EU. We believe that OMNI is the only device that is authorized by the FDA as an ab interno procedure to: reduce IOP in adult patients with POAG across the spectrum of disease severity; be used in mild-to-moderate Combination Cataract or Standalone procedures; access 360 degrees of the diseased conventional outflow pathway through a single clear corneal incision; and facilitate two consecutive procedures, canaloplasty and trabeculotomy, to comprehensively treat all three primary points of resistance in the conventional outflow pathway in a single operating room visit. Our ability to establish OMNI as the standard of care for all POAG patients by continuing to grow its adoption and utilization in Combination Cataract procedures and by pioneering the development of the market for interventional standalone procedures will have a substantial impact on our future growth.

We introduced our SION Surgical Instrument in the third quarter of 2022. SION satisfies the American Academy of Ophthalmology definition of goniotomy and is registered with the FDA as a Class I 510(k) exempt device. SION’s bladeless design, micro-engineered and precision manufactured using specialized lasers, excises tissue without cutting. SION grasps and removes diseased tissue as the surgeon sweeps the instrument around Schlemm’s canal with a single smooth motion. The bladeless technology of SION was developed with leading ophthalmic surgeons to improve safety and ease of use by eliminating the need to navigate sharp instrumentation within the eye’s anterior chamber and iridocorneal angle anatomy. SION allows us to serve specific subsets of customers who may prioritize a faster or simpler procedure. Our target customers for SION include three types of combination cataract MIGS surgeons that are distinct from target OMNI customers: 1) high volume cataract surgeons seeking to perform the quickest MIGS procedures, 2) surgeons who are initially less experienced with MIGS such as surgical fellows at academic institutions and 3) surgeons looking for the most cost effective MIGS procedures in facilities that may emphasize procedural profitability. We believe that these use cases have very little overlap with the use cases for our OMNI device. Our ability to establish SION as a product with differentiated ease of use, safety and efficacy will be an important driver of SION’s commercial growth and success.

TearCare is a unique open-eye heating and expression device designed to melt and remove meibomian gland obstructions. We believe TearCare has a compelling physiological profile to address obstruction from meibomian gland disease, or MGD, which is the primary cause of evaporative DED, a disease characterized by low quality tears that evaporate prematurely. The current DED treatment market primarily consists of an abundance of OTC and prescription eyedrops that seek to lubricate the ocular surface, alleviate inflammation and/or increase tear production. However, OTC and prescription eyedrops are incapable of clearing obstructions in the meibomian glands and do not address MGD’s eyelid-borne physiology and poor tear quality. MGD is associated with 86% of DED cases and is a leading root cause of evaporative DED, which is characterized by low quality tears that evaporate prematurely. Clinical studies have demonstrated that treating MGD by liquefying and removing clogged meibum is the most effective method to eliminate obstructions and restore the lipid layer of tear film, thereby preventing premature evaporation of tears. TearCare was designed to be administered during the course of a routine office visit to an ECP, which makes it convenient for patients,

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and allows providers to maintain procedural throughput in their practices. Our ability to improve patient access and market education on TearCare and the benefits of proactive MGD treatment will be key drivers of TearCare’s future growth.

Operational Excellence and Cost Efficiency

We aim to achieve operating and financial milestones with optimal capital efficiency, and focus on our market value relative to invested capital as a key measurement of our performance. To date, we have raised $402.4 million in net proceeds from equity and debt financings, including $252.2 million from our IPO. With a portion of these net proceeds (our December 31, 2022 cash and equivalents was $185.0 million), we believe we have developed and commercially launched two clinically differentiated products, funded multiple completed and ongoing clinical trials, and built our management team and company infrastructure to support the continued growth of our business. We believe that this level of operational and commercial progress relative to our total capital investment to date compares favorably to medical technology peers. We seek to design products that can achieve attractive long-term gross margins.

Components of Our Results of Operations

Revenue

We currently derive the majority of our U.S. revenue from the sale of OMNI and SION to ASCs and HOPDs and TearCare to ophthalmology and optometry practices. During the years ended December 31, 2022 and 2021, the revenues from our Surgical Glaucoma segment accounted for over 90% of our total revenues. Substantially all of our revenues for both periods were generated from sales within the U.S. Our Surgical Glaucoma customers place orders based on their expected procedure volume and reorder as needed, typically on a biweekly, monthly or bimonthly basis. Our TearCare customers typically purchase a TearCare System which consists of one or more SmartHubs, multiple single-use SmartLids and other accessories. After utilizing their initial inventory, customers can reorder SmartLids as needed. No single customer accounted for 10% or more of our revenue for the years ended December 31, 2022 and 2021.

The growth in our revenue is driven by the demand for elective surgery and treatment utilizing our products. Such demand is often lower during summer months because of ECP vacations and in winter months in certain parts of the world because of fewer business or surgery days due to holidays and adverse weather conditions.

Cost of Goods Sold and Gross Margin

Our products are produced by third-party manufacturers. Our cost of goods sold consists primarily of amounts paid for our products to third-party manufacturers, and our manufacturing overhead costs, which consist primarily of personnel expenses, including salaries, benefits and stock-based compensation, and reserves for excess, obsolete and non-sellable inventory. Cost of goods sold also includes depreciation expenses for production equipment which we provide to our third-party manufacturers and certain direct costs, such as shipping and handling costs.

We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, including differences in segment gross margins, changes in average selling prices, product sales mix, production and ordering volumes, manufacturing costs, product yields, and headcount. In general, we expect our gross margins to increase over the long-term to the extent our production and ordering volumes increase and to the extent we spread the fixed portion of our overhead costs over a larger number of units produced. We intend to use our design, engineering and manufacturing know-how and capabilities to further advance and improve the efficiency of our suppliers’ manufacturing processes, which we believe will reduce costs and increase our gross margins. Our gross margins could fluctuate from quarter to quarter as we transition to new suppliers, introduce new products and adopt new manufacturing processes and technologies.

Research and Development Expenses

Research and development ("R&D") expenses consist primarily of engineering, product development, clinical studies to develop and support our products, including clinical trial design, clinical trial site initiation and study costs, internal and external costs associated with our regulatory compliance and quality assurance functions, medical affairs, cost of products used for clinical trials and other costs associated with products and technologies – either new or enhancements of existing platforms – that are in development. These expenses also include personnel expenses, including salaries, benefits and stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation expenses for equipment and an allocation of IT and facility overhead expenses. Our R&D expenses as a percentage of revenue may vary over time depending on the level and timing of new product development efforts, as well as clinical development, clinical

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trial and other related activities. We expect our R&D expenses to increase for the next several years as we continue to invest in our active clinical trial program, develop new products and improve our existing products.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation related to selling, marketing and corporate functions, allocation of IT and facility overhead expenses, bad debt expense, finance, legal and human resource costs. Other SG&A expenses include training, travel expenses, promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, professional services fees (including external legal, audit, consulting and tax fees), insurance costs, and general corporate expenses.

Interest Expense

Interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our outstanding loan.

Other Income (Expense), Net

Other income (expense), net consists of interest and amortization on held-to-maturity investments in treasury securities, as well as, gains and losses resulting from the remeasurement of the fair value of our redeemable convertible preferred stock warrant liability. The redeemable convertible preferred stock warrants were exercised in 2021 and the final fair value of the warrant liability was reclassified to stockholders’ equity. We will no longer record any related periodic fair value adjustments.

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Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

Revenue. Revenue in the year ended December 31, 2022 was $71.3 million, an increase of $22.4 million, or 45.7%, from our revenue in 2021. Surgical Glaucoma and Dry Eye sales contributed $65.6 million and $5.7 million, respectively. The overall increase in Surgical Glaucoma revenue was primarily attributable to a significant increase in the number of OMNI units sold in the year ended December 31, 2022 as a result of growth in the number of facilities ordering OMNI and an increase in unit utilization per ordering facility, as well as the introduction of SION in the third quarter of 2022. Our Dry Eye revenues increased in the year ended December 31, 2022 versus the prior year due to the continued growth in our installed base of facilities that have purchased TearCare. Surgical Glaucoma sales represented 92.0% and 95.0% of our revenue generated in the years ended December 31, 2022 and 2021, respectively.

Cost of Goods Sold and Gross Profit. Cost of goods sold during the year ended December 31, 2022, increased $3.8 million compared to the prior year. The increase was driven by an increase both our Surgical Glaucoma and Dry Eye segments. Dry Eye cost of goods sold increased $1.9 million in the year ended December 31, 2022 over the prior year, which was driven by increased sales activity, as well as by $0.9 million of charges in 2022 associated with a voluntary recall of our SmartHub 1.0 devices. Our Surgical Glaucoma cost of goods sold increased $1.8 million as compared to 2021, which was primarily driven by an increase in sales activity.

Our total gross profit was $59.0 million for the year ended December 31, 2022, an increase of $18.6 million compared to the prior year. Our total gross margin increased from 82.4% to 82.7% from the year ended December 31, 2021 to the year ended December 31, 2022. The increase in gross margin was primarily due to increased sales volume in OMNI units and manufacturing efficiencies. Gross margin in our Surgical Glaucoma segment was 87.4% for the year ended December

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31, 2022, an increase from 86.1% for the prior year period. In our Dry Eye segment, gross margin increased from 13.1% in 2021, to 29.1% for the year ended December 31, 2022.

Research and Development Expenses. R&D expense for the year ended December 31, 2022 was $22.9 million, an increase of $7.2 million compared to the prior year. The increase was primarily attributable to a $3.9 million increase in personnel expenses as a result of increased headcount, including a $0.9 million increase in stock-based compensation expense. In addition, there was a $2.1 million increase in clinical studies expense and $0.8 million increase in legal expenses incurred.

Selling, General, and Administrative Expenses. SG&A expenses were $120.1 million for the year ended December 31, 2022, an increase of $43.9 million from the prior year comparable period. The increase was attributable to a $27.9 million increase in personnel expenses as a result of increased headcount, which included a $7.0 million increase in stock-based compensation expense. In addition to personnel expense increases, our SG&A expense from 2021 to the 2022 period included a $6.1 million increase in professional services expense, including consulting and legal expenses, a $3.8 million increase in marketing expenses, a $1.9 million increase in training, events, and demos, and a $1.7 million increase in travel expenses.

Interest Expense. Interest expense was consistent during the year ended December 31, 2022 compared to the year ended December 31, 2021.

Other Income (Expense), Net. Other income (expense), net was $2.2 million for the year ended December 31, 2022 as compared to an expense of $6.9 million for the year ended December 31, 2021. The income in the current year is attributable to the amortization of purchase discounts on held-to-maturity cash-equivalent investments. During the related prior year comparable period, the expense relates to the remeasurement of our convertible preferred stock warrants and recognition of the change in fair value. As detailed in the notes to our financial statements included herein, the convertible preferred stock warrants were automatically converted into common stock warrants concurrent with our IPO and subsequently exercised in the third quarter of fiscal year 2021.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

Net Cash Used in Operating Activities

Net cash used in operating activities for the year ended December 31, 2022 was $76.0 million, consisting primarily of a net loss of $86.2 million and a net change in our operating assets and liabilities of $5.7 million, partially offset by non-cash charges of $16.0 million. The change in our net operating assets and liabilities was primarily due to a $6.8 million increase in accounts receivable and a $3.3 million increase in inventory to support the continued growth of our operations. The Company had a $0.7 million decrease in accounts payable, while accrued compensation, as well as accrued and other current liabilities, increased $4.0 million, driven by the timing of payments on invoices and bonuses. The non-cash charges primarily consisted of $13.0 million related to stock-based compensation, $0.7 million of depreciation, $0.7 of accretion of debt discount and amortization of debt issuance costs, and $0.5 million of noncash operating lease expense.

Net cash used in operating activities for the year ended December 31, 2021 was $52.5 million, consisting primarily of a net loss of $63.0 million and a net change in our operating assets and liabilities of $4.3 million, partially offset by non-cash charges of $14.7 million. The change in our net operating assets and liabilities was primarily due to a $3.7 million increase in accounts receivable, a $3.0 million increase in our prepaid expenses to support the continued growth of our operations, and a $1.3 million increase in inventory. Partially offsetting those changes was a $1.2 million increase in accounts payable, a $1.9 million increase in accrued compensation, and a $0.3 million increase in accrued and other current liabilities, driven by the timing of payments on invoices and bonuses. The non-cash charges primarily consisted of $6.9

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million from the fair value remeasurement of our convertible preferred stock warrants, $5.1 million related to stock-based compensation, $0.7 million of accretion of debt discount and amortization of debt issuance costs, $0.6 million in depreciation and amortization, $0.6 million of noncash operating lease expense, and $0.4 million provision for excess and obsolete inventories.

Net Cash Used in Investing Activities

Net cash used in investing activities in the years ended December 31, 2022 and 2021 was $1.0 and $0.8 million, consisting of purchases of property and equipment.

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities in the year ended December 31, 2022 of $1.2 million primarily relates to proceeds from the exercise of common stock options and proceeds from employee stock purchase plan purchases.

Net cash provided by financing activities in the year ended December 31, 2021 of $252.5 million primarily relates to proceeds from the issuance of common stock, net of related offering costs, of $252.2 million.

Liquidity and Capital Resources

Sources of Liquidity

To date, our primary sources of capital have been private placements of redeemable convertible preferred stock, debt financing agreements, the sale of common stock in our IPO, and revenue from the sale of our products. Since our inception, we have raised an aggregate of approximately $402.4 million in net proceeds from sales of our redeemable convertible preferred stock and common stock and borrowed $32.9 million of net proceeds under our term loans.

As of December 31, 2022, we had cash and cash equivalents of $185.0 million, an accumulated deficit of $239.2 million and $35.0 million outstanding under our term loan agreement (before debt discount). Based on our current planned operations, we expect our cash and cash equivalents and additional borrowings available under the 2020 Term Loan and the 2020 Revolver will enable us to fund our operations for at least the next twelve months and the foreseeable future.

MidCap Loan Agreements

In January 2019, we entered into credit and security agreements with MidCap Financial Services (the "Lender"), which provided a maximum of $25.0 million credit facility consisting of a $20.0 million senior secured term loan (the "2019 Term Loan") and a $5.0 million 2019 revolving loan (the "2019 Revolver" and collectively with the 2019 Term Loan, the “2019 MidCap Credit Facility”). In November 2020, we entered into amended and restated credit and security agreements with the same institution, which replaced the 2019 MidCap Credit Facility, and provided for a maximum of $40.0 million credit facility consisting of a $35.0 million senior secured term loan (the "2020 Term Loan") and a $5.0 million revolving loan (the "2020 Revolver and collectively with the 2020 Term Loan, the “2020 MidCap Credit Facility”).

Our obligations under the 2020 MidCap Credit Facility are guaranteed by us and our future subsidiaries, subject to exceptions for certain foreign subsidiaries. Our obligations under the agreements are secured by substantially all of our assets, including our material intellectual property. Additionally, we are subject to customary affirmative and negative covenants, including covenants that limit or restrict the ability of us to, among other things, incur indebtedness, grant liens, merge or consolidate, make investments, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock and enter into certain transactions with affiliates, in each case subject to certain exceptions. As of December 31, 2022, we were in compliance with all financial and non-financial covenants.

The 2019 MidCap Credit Facility and 2020 MidCap Credit Facility each contain events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross-defaults and bankruptcy and insolvency events.

2020 Term Loan

The 2020 Term Loan agreement amended the maturity date to November 1, 2025 and adjusted the stated floating interest rate to reserve-adjusted SOFR, plus 7.00%. Outstanding principal amounts of Tranche One Loans and Tranche Two Loans borrowed under the 2019 Term Loan were designated as Tranche One Loans and Tranche Two Loans under the

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2020 Term Loan. The Tranche Three Loan commitment amount was increased to $21.0 million and the full amount was drawn in November 2020. Principal payments under the 2020 Term Loan have been extended and are scheduled to begin in December 2023. However, if certain conditions are met, the initiation of principal payments can be delayed to December 2024. We currently expect that we will be in a position to meet the conditions necessary to extend the commencement date for the initiation of principal payments under the 2020 Term Loan from December 1, 2023 to December 1, 2024. In addition, the final payment fee was amended to 6.0%. We are subject to certain financial and non-financial covenants.

We incurred $0.7 million of issuance costs in conjunction with the 2020 Term Loan which were netted against the borrowed funds in the balance sheet and are being accreted using the effective interest method as interest expense over the contractual period of five years.

In conjunction with the funding of the 2020 Term Loan, we issued a 10-year warrant to the Lender to purchase 300,000 shares of our Series F redeemable convertible preferred stock at an exercise price of $21.88 per share, or the 2020 MidCap Warrant, with the estimated fair value of $1.8 million. The 2020 MidCap Warrants were recorded at the fair value as a debt discount and as a warrant liability. The debt discount is being accreted using the effective interest method as interest expense over the contractual period of four years for the 2020 Term Loan.

2020 Revolver

The maturity date of the 2020 Revolver was amended to November 1, 2025 and the stated floating interest rate was adjusted to reserve-adjusted SOFR plus 7.00%. As of December 31, 2022, $5.0 million was available to be drawn under the 2020 Revolver which remains undrawn. Other key terms of the 2020 Revolver remained substantially unchanged compared to those of 2019 Revolver.

Lease Agreements

Our corporate headquarters are located in Menlo Park, California, where we lease approximately 11,000 square feet of office, research and development, engineering and laboratory space pursuant to a lease that commenced on August 1, 2021, and expires on August 31, 2024. We also lease approximately 2,040 square feet of office space, which is primarily used by our commercial leadership team, in Southlake, Texas, pursuant to a lease that commenced on April 30, 2019 and expires on May 15, 2024.

Critical Accounting Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Stock-Based Compensation

We maintain an equity incentive plan that permits the grant of share-based awards, such as stock options and restricted stock units (RSUs), to employees and directors. We recognize equity-based compensation expense for awards of equity instruments based on the grant date fair value of those awards. We estimate the fair value of our stock option awards made to employees and directors based on the estimated fair values as of the grant date using the Black-Scholes option-pricing model, net of estimated forfeitures. The model requires us to make a number of assumptions, including expected volatility, expected term, risk-free interest rate, and expected dividend yield.

The fair value of restricted stock unit ("RSU") awards is determined based on the number of units granted and the closing price of the Company's common stock as of the grant date. We expense the fair value of our equity-based

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compensation awards on a straight-line basis over the requisite service period, which is the period in which the related services are received.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements appearing under Part II, Item 8 for more information about recent accounting pronouncements, the timing of their adoption, and our assessment.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the information presented in our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectation, and beliefs that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by these forward-looking statements. Please also see the section of this Annual Report on Form 10-K titled “Forward-Looking Statements.” A discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019 has been reported previously in our final prospectus dated July 14, 2021 (File No. 333-257320) filed with the SEC on July 15, 2021 pursuant to Rule 424(b)(4) of the Securities Act (the “Prospectus”), under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

Sight Sciences’ mission is to transform ophthalmology and optometry through the development and commercialization of proprietary devices that target the underlying causes of the world’s most prevalent eye diseases. We are passionate about improving patients’ lives. Our objective is to develop and market products for use in new treatment paradigms and to create an interventional mindset in eyecare whereby our products may be used in procedures which supplant conventional outdated approaches. Our business philosophy is grounded in the following principles:

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comprehensively understand disease physiology,

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develop products that are intended to restore natural physiological functionality to diseased eyes;

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develop and market products that achieve superior effectiveness versus current treatment paradigms while minimizing complications or side effects,

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provide intuitive, patient friendly solutions to ophthalmologists and optometrists; and

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deliver compelling economic value to all stakeholders, including patients, providers and third-party payors such as Medicare and commercial insurers

Our initial product development has focused on the treatment of two of the world’s most prevalent and underserved eye diseases, glaucoma and dry eye disease. We have commercialized products in each of our two reportable segments. Our Surgical Glaucoma segment consists of sales of the OMNI Surgical System, or OMNI, and also included sales of VISCO360 and TRAB360, OMNI’s predicate devices, until they were discontinued in the first quarter of 2019. Our Dry Eye segment includes sales of the TearCare System, or TearCare, and related components and accessories. For the year ended December 31, 2021, 95% and 5% of our revenues were derived from our Surgical Glaucoma and Dry Eye segments, respectively. Both systems are primarily sold through a highly-involved direct sales model that offers intensive education, training and customer service. We believe this philosophy and model not only enables us to differentiate our products and our overall company from competitors, but also to expand our addressable market by educating ECPs, patients and other stakeholders on our products and evolving treatment paradigms. Outside of the U.S., we have historically sold OMNI primarily through a network of distributors, although we began employing a small direct sales force outside of the United States in April 2021.

We commercially launched OMNI and TearCare in February 2018 and April 2019, respectively. In May 2020, we introduced our next generation OMNI Surgical System that incorporated extensive feedback from our physician users and that we believe improved upon the first-generation device. We sell OMNI to facilities where ophthalmic surgeons perform outpatient procedures, mainly ASCs and HOPDs, which are typically reimbursed by Medicare or private payors for procedures using our products. We sell TearCare to optometrist and ophthalmologist practices. Currently, there is no meaningful reimbursement coverage by Medicare or private payors for MGD procedures, including TearCare, and patients typically pay out-of-pocket for TearCare. We are continuing our controlled commercial launch and are focused upon our comprehensive, clinical data-driven long-term market development plan that aims to improve awareness and patient access to TearCare. As of December 31, 2021, we employed over 100 people to execute our commercial strategy in direct sales, marketing, training and professional services. The overall success of our approach to eyecare to date is evidenced by the over 85,000 estimated uses of OMNI and its direct predicates in over 1,200 hospitals and ASCs in the U.S. and Europe, and over 15,000 estimated uses of TearCare in over 550 eyecare facilities in the U.S. through December 31, 2021.

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We currently operate no manufacturing facilities and instead contract with third parties for our production requirements. We believe our suppliers will be able to meet our current and anticipated manufacturing needs across all our products. We plan to continue to utilize third party contract manufacturers for our products and any related components.

Our gross margin in our Surgical Glaucoma segment for the years ended December 31, 2021 and 2020 was 86.1% and 72.8%, respectively. Beginning with the production of finished goods inventory in Q1 2021, we shifted our primary production of OMNI from a U.S.-based third-party contract manufacturer, to a lower cost, higher volume contract manufacturer in Asia. We are in the process of supplementing this OMNI production capacity with a U.S.-based contract manufacturer. These cost optimization initiatives contributed to the increase in gross margins in our Surgical Glaucoma segment in 2021 as compared to the same period in 2020. The TearCare System includes the SmartHub component, which is typically only sold in initial purchase orders, and single-use SmartLids which are sold as part of initial purchase orders and through repeat orders as the ECP performs procedures over time. In an effort to build a meaningful TearCare installed base and encourage product trial and adoption by ECPs, our pricing strategy for SmartHubs has not focused on gross profit maximization. As the installed base of TearCare customers grows, we believe SmartLids, which currently generate higher gross margins than SmartHubs, will increase as a proportion of total Dry Eye segment revenues and gross profit. Given the earlier stage of TearCare’s commercial development and our pricing strategy with respect to SmartHubs, we expect our Dry Eye segment’s gross margins to be lower than our Surgical Glaucoma segment’s gross margins for the near and medium-term. Our gross margin for our Dry Eye segment for the years ended December 31, 2021 and 2020 was 13.1% and (30.5%), respectively.

We believe in the importance of continued strategic investment in initiatives that: further demonstrate our products’ clinical effectiveness and safety to potential customers, patients, payors and regulators; enhance our commercial capabilities, including resources dedicated to sales, marketing and education; ensure the broadest possible patient access to the treatment alternatives that our products are cleared to offer; enhance and improve upon our existing product technologies; and allow us to innovate new products, devices or drugs, in glaucoma and DED or in new eye disease areas. As a result, we intend to continue to invest in clinical studies, sales and marketing, education initiatives, market access, and product development. Because of these and other factors, we expect to continue to incur net losses for at least the next several fiscal years. Moreover, we expect to incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and those of the Nasdaq Stock Market, additional insurance expenses, investor relations activities and other administrative and professional services. As a result of these and other factors, we may require and seek additional debt and equity financing to fund our operations and planned growth.

To date, our primary sources of capital has been private placements of redeemable convertible preferred stock, debt financing agreements, the sale of common stock in our IPO, and revenue from the sale of our products. In July 2021, we completed our IPO, including the underwriters full exercise of their option to purchase additional shares, selling 11,500,000 shares of our common stock at $24.00 per share. Upon completion of our IPO, we received net proceeds of $252.2 million, after deducting underwriting discounts and commissions and offering costs. As of December 31, 2021, we had an outstanding term loan balance of $35.0 million (excluding debt discount and amortized debt issuance costs). As of December 31, 2021, we had cash and cash equivalents of $260.7 million and an accumulated deficit of $153.0 million.

During the year ended December 31, 2021, we generated revenue of $49.0 million, with a gross margin of 82.4%. Our net loss for the year ended December 31, 2021 was $63.0 million. For the year ended December 31, 2020, we generated revenue of $27.6 million, with a gross margin of 66.7%. Our net loss for the year ended December 31, 2020 was $34.7 million. For all periods presented, substantially all of our revenue was generated from customers in the U.S.

Impact of COVID-19

The global COVID-19 pandemic impacted and is expected to continue to impact demand for our products, which are used in procedures and therapies that are considered elective. Although some of these governmental restrictions have since been lifted or scaled back, recent and future surges of COVID-19 may result in restrictions being re-implemented in response to efforts to reduce the spread of COVID-19. As elective eyecare procedures in many facilities that utilize our products were temporarily suspended by governmental authorities, many patients avoided visiting ECPs, and, even in areas that allowed elective procedures, ECPs and healthcare facilities in general substantially reduced or in some cases halted, the scheduling and performance of such procedures. The decrease in demand for our products due to COVID-19 most significantly impacted our revenues in the latter part of the first quarter and the first half of the second quarter of 2020. Beginning in June 2020, we began to see an increase in the number of procedures using our products. In the first quarter of

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2021, our customers experienced a significant number of procedure cancellations which we believe were largely driven by patients postponing in-office treatments until their COVID-19 vaccinations were completed (as opposed to any restrictions imposed on elective procedures), thus adversely impacting our revenues. As vaccine availability and the vaccinated population increases across the U.S., the recovery of our end markets resumed in the second quarter of 2021. Our normal business operations were again disrupted by resurgence of the Delta variant in the third quarter of 2021 and emergence of the Omicron variant in the fourth quarter of 2021 and into early 2022.

We are continuing to closely monitor the global COVID-19 pandemic. In order to operate in a safe manner, we are following the health and safety guidelines of the U.S. Centers for Disease Control and Prevention, Occupational Safety and Health Administration, and local and state public health departments where we operate. The majority of our employees at our headquarters have been asked to work from home, with only limited access given to employees to work in the office when necessary. For roles that require employees to be on-site, such as our R&D and manufacturing technical staff, we are providing protective equipment, practicing social distancing, and enforcing mask wearing and we have increased sanitization standards. In addition, we have created a business continuity plan and incident management team to respond quickly and effectively to COVID-19 related issues in order to offer customers uninterrupted products, services and support while safeguarding the best interests of employees, suppliers and stakeholders. The ultimate impact of the global COVID-19 pandemic on our operations is unknown and will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 pandemic, the status of health and safety actions taken to contain its spread and any additional preventative and protective actions that governments, or we, may direct, any resurgence of COVID-19 that may occur and how quickly and to what extent economic and operating conditions normalize within the markets in which we operate. The global COVID-19 pandemic could disrupt the operations of our third-party manufacturers and other suppliers. Although we have not experienced material disruptions in our supply chain to date, we cannot predict how long the pandemic and measures intended to contain the spread of COVID-19 will continue and what effect COVID-19 and the associated containment measures will have on our suppliers and vendors, in particular for any of our suppliers and vendors that may not qualify as essential businesses and suffer more significant disruptions to their business operations. We are working closely with our manufacturing partners and suppliers to help ensure we are able to source key components and maintain appropriate inventory levels to meet customer demand.

Factors Affecting our Business and Results of Operations

We believe there are several important factors that have impacted and that will continue to impact our business and results of operations. These factors include, but are limited to:

Product Development

We believe our product development approach is a key differentiator of our team and our company. We are focused on continuous innovation and design and utilize input from our network of expert employees (including several ophthalmologists on staff), advisors and customers to rapidly iterate our pre-and post-commercial product designs with the aim of better satisfying the needs of our customers and their patients, and increasing adoption and utilization of our solutions. Once our products are launched, our customer feedback loop helps us further develop our products. This is particularly evident in the evolution of our OMNI Surgical System, which originated from the combined functionality of two internally developed, commercial predicate devices, each of which had their own multiple commercial iterations. We further refined ergonomics and functionality in our next generation OMNI Surgical System, which we launched in May 2020. Our future growth is dependent on our ability to continue innovating and applying our expertise of disease physiology to improve existing products and develop new products.

Market Education and Training on the Benefit of our Products vis-à-vis Existing Treatment Alternatives

One of the key drivers of our success is educating ophthalmologists, optometrists, patients, and third-party payors about the clinical and safety benefits of our products and of the benefits of more proactive, interventional approach to treating glaucoma and DED. We believe the required market education and development is best accomplished through a differentiated, highly involved commercial approach. As such, we devote significant resources to onboarding our sales professionals and to continuously augmenting their knowledge and capabilities. Our sales professionals provide ECPs with the necessary education, training and support to adopt and continue to use our products. We believe that increasing acceptance and usage of our products will require continued investment in our sales force and education efforts to ensure ECPs, patients and third-party payors learn more about our products and appreciate our benefits to their target patient populations.

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Maximizing Product Usage by Customers

Demand for our products will be highly dependent on our ability to develop their potential addressable markets and maximize the breadth of patients our products can serve. OMNI is indicated for canaloplasty followed by trabeculotomy to reduce IOP in adult patients with POAG in the U.S. and with OAG, in the EU. We believe that OMNI is the only device that is authorized by the FDA as an ab interno procedure to: reduce IOP in adult patients with POAG across the spectrum of disease severity; be used in Mild-to-Moderate Combination Cataract or Standalone procedures; access 360 degrees of the diseased conventional outflow pathway through a single clear corneal incision; and facilitate two consecutive procedures, canaloplasty and trabeculotomy, to comprehensively treat all three primary points of resistance in the conventional outflow pathway in a single operating room visit. Our ability to establish OMNI as the standard of care for all POAG patients by continuing to grow its adoption and utilization in Combination Cataract procedures and by pioneering the development of the market for interventional standalone procedures will have a substantial impact on our future growth.

TearCare is a unique open-eye heating and expression device designed to melt and remove meibomian gland obstructions. We believe TearCare has a compelling physiological profile to address obstruction from meibomian gland disease, or MGD, which is the primary cause of evaporative DED, a disease characterized by low quality tears that evaporate prematurely. The current DED treatment market primarily consists of an abundance of OTC and prescription eyedrops that seek to lubricate the ocular surface, alleviate inflammation and/or increase tear production. However, OTC and prescription eyedrops are incapable of clearing obstructions in the meibomian glands and do not address MGD’s eyelid-borne physiology and poor tear quality. MGD is associated with 86% of DED cases and is a leading root cause of evaporative DED, which is characterized by low quality tears that evaporate prematurely. Clinical studies have demonstrated that treating MGD by liquefying and removing clogged meibum is the most effective method to eliminate obstructions and restore the lipid layer of tear film, thereby preventing premature evaporation of tears. TearCare was designed to be administered during the course of a routine office visit to an ECP, which makes it convenient for patients, and allows providers to maintain procedural throughput in their practices. Our ability to improve patient access and market education on TearCare and the benefits of proactive MGD treatment will be key drivers of TearCare’s future growth.

Operational excellence and cost efficiency

We aim to achieve operating and financial milestones with optimal capital efficiency, and focus on our market value relative to invested capital as a key measurement of our performance. To date, we have raised $402.4 million in net proceeds from equity and debt financings, including $252.2 million from our IPO. With a portion of these net proceeds (our December 31, 2021 cash and equivalents was $260.7 million), we believe we have developed and commercially launched two clinically differentiated products, funded multiple completed and ongoing clinical trials, and built our management team and company infrastructure to support the continued growth of our business. We believe that this level of operational and commercial progress relative to our total capital investment to date compares favorably to medical technology peers. We seek to design products that can achieve attractive long-term gross margins. For example, we generated significantly higher gross margins in our Surgical Glaucoma segment in 2021 than prior years, which was a key financial objective we targeted for the year.

Components of our Results of Operations

Revenue

We currently derive the majority of our U.S. revenue from the sale of OMNI to ASCs and HOPDs and TearCare to ophthalmology and optometry practices. During the years ended December 31, 2021 and 2020, the revenues from our Surgical Glaucoma segment, including OMNI and its predicate devices, accounted for over 90% of our total revenues. Substantially all of our revenues for 2021 and 2020 were generated from sales within the U.S. Our OMNI customers place orders based on their expected procedure volume and reorder as needed, typically on a biweekly, monthly or bimonthly basis. Our TearCare customers typically purchase a TearCare System which consists of one or more SmartHubs, multiple single-use SmartLids and other accessories. After utilizing their initial inventory, customers will reorder SmartLids as needed. No single customer accounted for 10% or more of our revenue for the years ended December 31, 2021 and 2020.

The growth in our revenue is driven by the demand for elective surgery and treatment utilizing our products. Such demand is often lower during summer months because of ECP vacations and in winter months in certain parts of the world because of fewer business or surgery days due to holidays and adverse weather conditions.

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Cost of Goods Sold and Gross Margin

Our products are produced by third-party manufacturers. Our cost of goods sold consists primarily of amounts paid for our products to third-party manufacturers, and our manufacturing overhead costs, which consist primarily of personnel expenses, including salaries, benefits and stock-based compensation, and reserves for excess, obsolete and non-sellable inventory. Cost of goods sold also includes depreciation expenses for production equipment which we provide to our third-party manufacturers and certain direct costs, such as shipping and handling costs.

We calculate gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, including differences in segment gross margins, changes in average selling prices, product sales mix, production and ordering volumes, manufacturing costs, product yields, and headcount. In the near term, we expect our gross margins to increase as we transition production of OMNI to lower-cost manufacturers and as we expect Surgical Glaucoma revenues will grow as a percentage of our overall revenue mix. In general, we expect our gross margins to increase over the long-term to the extent our production and ordering volumes increase and to the extent we spread the fixed portion of our overhead costs over a larger number of units produced. We intend to use our design, engineering and manufacturing know-how and capabilities to further advance and improve the efficiency of our suppliers’ manufacturing processes, which we believe will reduce costs and increase our gross margins. Our gross margins could fluctuate from quarter to quarter as we transition to new suppliers, introduce new products and adopt new manufacturing processes and technologies.

Research and Development Expenses

Research and development, or R&D, expenses consist primarily of engineering, product development, clinical studies to develop and support our products, including clinical trial design, clinical trial site initiation and study costs, internal and external costs associated with our regulatory compliance and quality assurance functions, medical affairs, cost of products used for clinical trials and other costs associated with products and technologies – either new or enhancements of existing platforms – that are in development. These expenses also include personnel expenses, including salaries, benefits and stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation expenses for equipment and an allocation of IT and facility overhead expenses. Our R&D expenses as a percentage of revenue may vary over time depending on the level and timing of new product development efforts, as well as clinical development, clinical trial and other related activities. We expect our R&D expenses to increase for the next several years as we continue to invest in our active clinical trial program, develop new products and improve our existing products.

Selling, General and Administrative Expenses

Selling, general and administrative, or SG&A, expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation related to selling, marketing and corporate functions, allocation of IT and facility overhead expenses, bad debt expense, finance, legal and human resource costs. Other SG&A expenses include training, travel expenses, promotional activities, marketing initiatives, market research and analysis, conferences and trade shows, professional services fees (including external legal, audit, consulting and tax fees), insurance costs, and general corporate expenses. We expect SG&A expenses to continue to increase in absolute dollars as we expand our infrastructure to both drive and support the anticipated growth in revenue and due to additional legal, accounting, insurance and other expenses associated with being a public company.

Interest Expense

Interest expense consists primarily of interest incurred on our outstanding indebtedness and non-cash interest related to the amortization of debt discount and issuance costs associated with our outstanding loan.

Interest Income

Interest income consists of interest earned on our balances of cash and cash equivalents.

Other Income (Expense), Net

Other income (expense), net primarily consists of gains and losses resulting from the remeasurement of the fair value of our redeemable convertible preferred stock warrant liability during each reporting period. The redeemable convertible preferred stock warrants were exercised during 2021 and the final fair value of the warrant liability was reclassified to stockholders’ equity. We will no longer record any related periodic fair value adjustments.

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Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

Revenue. Revenue in the year ended December 31, 2021 was $49.0 million, an increase of $21.3 million, or 77.1%, from our revenue in 2020. Surgical Glaucoma and Dry Eye sales contributed $46.5 million and $2.5 million, respectively. The overall increase in revenue was primarily attributable to an increase in the number of OMNI units sold as a result of growth in the number of facilities ordering OMNI and an increase in unit utilization per ordering facility, which resulted in a $20.5 million increase in Surgical Glaucoma revenues.

Cost of Goods Sold and Gross Profit. The $0.6 million decrease in cost of goods sold from 2020 to 2021 was attributable to a $1.0 million decrease in the reserve for obsolete inventory from a 2020 write-down of legacy OMNI inventory, as well as manufacturing efficiencies. As we transitioned primary OMNI manufacturing to Asia in early 2021, we were able to lower our production cost per unit. This lower production cost per unit also assisted in allowing the Company to lower cost of goods sold while driving sales growth.

Our total gross profit increased $21.9 million from $18.4 million in the year ended December 31, 2020 to $40.3 million in the year ended December 31, 2021. Our total gross margin increased from 66.7% to 82.4% between 2020 and 2021 primarily due to higher sales volume as well as lower production cost associated with shifting production to lower cost contract manufacturers. Gross margin in our Surgical Glaucoma segment increased from 72.8% in 2020 to 86.1% in 2021, and in our Dry Eye segment gross margin increased from (30.5)% in 2020 to 13.1% in 2021. Our Dry Eye segment had a lower gross margin than our Surgical Glaucoma segment because TearCare is earlier in its commercial cycle than

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OMNI and SmartHub equipment is priced to encourage new user adoption rather than to maximize gross profit for its one-time, upfront purchase by ECPs.

Research and Development Expenses. The $6.8 million increase in research and development expenses from 2020 to 2021 was primarily attributable to costs related to the development of our next generation OMNI Surgical System, an increase of $1.3 million in contract manufacturing for Dry Eye product development, $0.6 million in clinical studies, $0.5 million in patent related legal expenses, and an increase of $2.0 million in personnel expenses primarily as a result of increased headcount. We expect our research and development expenses to increase as we initiate and execute additional clinical trials over the coming years, develop new products and improve our existing products.

Selling, General, and Administrative Expenses. The $34.4 million increase in SG&A expenses from 2020 to 2021 was primarily due to our continued commercial investment and scaling of operations and corporate headcount to support our growth, which resulted in an increase of $20.0 million in personnel expenses, including higher stock-based compensation ($4.6 million increase from 2020 to 2021) and commissions during the current year. In addition, legal, accounting, and consulting costs increased $5.2 million from 2020 to 2021 due, in part, to incurred fees associated with the IPO in July 2021.

Interest Expense. The $2.0 million increase in interest expense from 2020 to 2021 was attributable to the executed debt financing in November 2020.

Other Expense, Net. The $6.9 million increase in other expense from 2020 to 2021 was primarily due to fair value adjustments on the preferred stock warrants during the current year.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

Net Cash Used in Operating Activities.

Net cash used in operating activities for the year ended December 31, 2021 was $52.5 million, consisting primarily of a net loss of $63.0 million. The primary add-backs to net cashed used in operating activities was the $6.9 million change in fair value of redeemable convertible warrants, issued in November 2020 as part of the debt refinancing, and $5.1 million in stock-based compensation expense. The increased stock-based compensation expense coincided with the Company increasing stock awards in advance of and associated with the public offering in July 2021. The $7.6 million increase in our operating assets consisted of a $3.7 million increase in accounts receivable, a $1.3 million increase in our inventory, and a $3.0 million increase in our prepaid expenses, each to support the continued growth of our operations. In addition, the Company's operating liabilities increased by $3.4 million. This was primarily driven by a $1.2 million increase in accounts payable due to increase inventory purchasing activity and a $1.9 million increase in accrued compensation, from an increased employee headcount.

Net cash used in operating activities for the year ended December 31, 2020 was $32.2 million, consisting primarily of a net loss of $34.7 million, which included a $2.2 million benefit from the proceeds from our Paycheck Protection Program, or PPP, loan under the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, and an increase in net operating assets of $0.7 million, partially offset by non-cash charges of $4.0 million. The $0.7 million increase in our operating assets was primarily due to a $1.5 million increase in accounts receivable, a $1.7 million increase in our inventory, and a $0.7 million increase in our prepaid expenses, each to support the continued growth of our operations, partially offset by a $1.9 million increase in accrued compensation and $2.0 million in accrued and other liabilities. The non-cash charges primarily consisted of a $1.4 million provision for excess and obsolete inventories, primarily related to the write-down of legacy first generation OMNI inventory due to the launch of our next generation of OMNI Surgical System in 2020, $0.5 million related to stock- based compensation, $0.6 million of right of use asset amortization related to

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office lease, $0.6 million of accretion of debt discount and amortization of debt issuance costs and $0.6 million in depreciation and amortization.

Net Cash Used in Investing Activities.

Net cash used in investing activities in the years ended December 31, 2021 and 2020 was $0.8 and $1.0 million, consisting of purchases of property and equipment.

Net Cash Provided by (Used in) Financing Activities.

Net cash provided by financing activities in the year ended December 31, 2021 of $252.5 million primarily relates to proceeds from the issuance of common stock, net of related offering costs, of $252.2 million.

Net cash provided by financing activities in the year ended December 31, 2020 of $73.4 million primarily relates to proceeds from issuance of debt of $20.3 million and proceeds of $53.4 million from the issuance of our Series E redeemable convertible preferred stock and Series F redeemable convertible preferred stock, partially offset by the related offering costs of $0.3 million.

Liquidity and Capital Resources

Sources of Liquidity

To date, our primary sources of capital have been private placements of redeemable convertible preferred stock, debt financing agreements, the sale of common stock in our IPO, and revenue from the sale of our products. Since our inception, we have raised an aggregate of approximately $402.4 million in net proceeds from sales of our redeemable convertible preferred stock and common stock and borrowed $32.9 million of net proceeds under our term loans.

As of December 31, 2021, we had cash and cash equivalents of $260.7 million, an accumulated deficit of $153.0 million and $35.0 million outstanding under our term loan agreement (before debt discount). Based on our current planned operations, we expect our cash and cash equivalents and additional borrowings available under the 2020 Term Loan and the 2020 Revolver will enable us to fund our operations for at least the next twelve months.

MidCap Loan Agreements

In January 2019, we entered into loan and security agreements, or the 2019 MidCap Credit Facility, with MidCap Financial Services, or the Lender, which provided for a term loan facility, or the 2019 Term Loan, and a revolving line of credit, or the 2019 Revolver. In November 2020, we entered into an amended and restated loan and security agreement, or the 2020 MidCap Credit Facility, with the Lender, which replaced the 2019 MidCap Credit Facility, and provided for a term loan facility, or the 2020 Term Loan, and a revolving line of credit, or the 2020 Revolver. Together with the 2019 Term Loan and 2019 Revolver, the 2020 Term Loan and 2020 Revolver are referred to as the MidCap Loan Agreements. The 2020 MidCap Credit Facility includes a maximum of $40.0 million credit facility consisting of a senior secured term loan of up to $35.0 million and a $5.0 million revolver.

Our obligations under the 2020 MidCap Credit Facility are guaranteed by us and our future subsidiaries, subject to exceptions for certain foreign subsidiaries. Our obligations under the agreements are secured by substantially all of our assets, including our material intellectual property. Additionally, we are subject to customary affirmative and negative covenants, including covenants that limit or restrict the ability of us to, among other things, incur indebtedness, grant liens, merge or consolidate, make investments, dispose of assets, make acquisitions, pay dividends or make distributions, repurchase stock and enter into certain transactions with affiliates, in each case subject to certain exceptions. The 2020 MidCap Credit Facility agreements also have financial covenants that relate to minimum trailing revenue targets, which began in November 2020, and are tested on a monthly basis. As of December 31, 2021, the Company was in compliance with all financial and non-financial covenants.

The MidCap Loan Agreements each contain events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross-defaults and bankruptcy and insolvency events.

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2020 Term Loan

The 2020 Term Loan agreement amended the maturity date to November 1, 2025 and adjusted the stated floating interest rate to reserve-adjusted LIBOR, plus 7.00%. Outstanding principal amounts of Tranche One Loans and Tranche Two Loans borrowed under the 2019 Term Loan were designated as Tranche One Loans and Tranche Two Loans under the 2020 Term Loan. The Tranche Three Loan commitment amount was increased to $21.0 million and the full amount was drawn in November 2020. Principal payments under the 2020 Term Loan are scheduled to begin in December 2022. However, if certain conditions are met, the initiation of principal payments can be delayed to either December 2023 or December 2024. In addition, the final payment fee was amended to 6.0%. We are subject to certain financial and non-financial covenants.

We incurred $0.7 million of issuance costs in conjunction with the 2020 Term Loan which were netted against the borrowed funds in the balance sheet and are being accreted using the effective interest method as interest expense over the contractual period of five years.

In conjunction with the funding of the 2020 Term Loan, we issued a 10-year warrant to the Lender to purchase 300,000 shares of our Series F redeemable convertible preferred stock at an exercise price of $21.8779 per share, or the 2020 MidCap Warrant, with the estimated fair value of $1.8 million. The 2020 MidCap Warrants were recorded at the fair value as a debt discount and as a warrant liability. The debt discount is being accreted using the effective interest method as interest expense over the contractual period of four years for the 2020 Term Loan.

2020 Revolver

The maturity date of the 2020 Revolver was amended to November 1, 2025 and the stated floating interest rate was adjusted to reserve-adjusted LIBOR plus 4.50%. As of December 31, 2021, $5.0 million was available to be drawn under the 2020 Revolver which remains undrawn upon. Other key terms of the 2020 Revolver remained substantially unchanged compared to those of 2019 Revolver.

2019 Term Loan

In November 2020, the 2019 Term Loan was amended and restated pursuant to the 2020 Term Loan. The 2019 Term Loan had a four-year term and a stated floating interest rate which equated to reserve- adjusted LIBOR, plus 6.75%. Under certain circumstances, the floating interest rate could have been based on the prime rate instead of LIBOR. The 2019 Term Loan was split into three tranches as follows: (i) the Tranche One Loans provided for $12.0 million in term loans, (ii) the Tranche Two Loans provided for up to $2.0 million in term loans, and (iii) the Tranche Three Loans provided for up to $6.0 million in term loans. We borrowed $14.0 million under the Tranche One Loans and Tranche Two Loans. Although the conditions necessary to draw the Tranche Three Loans had been met as of December 31, 2019, we did not draw the Tranche Three Term Loans.

We incurred $1.5 million of issuance costs in conjunction with the 2019 Term Loan which were netted against the borrowed funds in the balance sheet and were being accreted using the effective interest method as interest expense over the contractual period of four years.

In conjunction with the funding of Tranche One Loans and Tranche Two Loans under the 2019 Term Loan, we issued a 10-year warrant to the Lender to purchase 29,514 shares of our Series C redeemable convertible preferred stock, or the 2019 MidCap Warrants, at an exercise price of $9.4868 per share. The estimated fair value of the 2019 MidCap Warrants was $0.2 million. The 2019 MidCap Warrants were recorded at the fair value as a debt discount and as a warrant liability.

The 2019 Term Loan granted us the right to voluntarily prepay the borrowings in full, with a prepayment premium beginning at 3.0% in the first year from tranche funding and declining to 2.0% in the second year from tranche funding, to 1.0% in the third year from tranche funding thereafter. In addition, a final payment fee of 5% of the original Tranche One Loans and Tranche Two Loans amounts borrowed was payable at the end of the term or when the borrowings are repaid in full. The borrowings were collateralized by a security interest in substantially all of our assets.

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2019 Revolver

In November 2020, the 2019 Revolver was amended and restated pursuant to the 2020 Revolver. The 2019 Revolver had a four-year term and had a stated floating interest rate which equated to reserve- adjusted LIBOR, plus 4.25%. Under certain circumstances, the floating interest rate could have been based on the prime rate instead of LIBOR. An unused line fee of 0.5% was payad aable monthly based on the average unused balance and a collateral management fee of 0.5% was payable monthly based on the outstanding balance of the 2019 Revolver. We could have requested to increase the 2019 Revolver commitment amount to $10.0 million under the terms of the agreement.

Paycheck Protection Program Loan

In May 2020, we received a loan of $2.2 million pursuant to the Paycheck Protection Program, or PPP, under the CARES Act. The Small Business Administration required that PPP loans only be used for eligible payroll costs, business mortgage interest payments, rent or utilities. Per SBA guidelines, we would be eligible to apply for loan forgiveness if we used the loan proceeds for acceptable expenses during the 8-week period after disbursement. The PPP loan was forgiven in June 2021. The Company has elected to recognize this government grant income as a reduction of the related expenses.

In connection with the PPP loan, we executed a promissory note in favor of Bank of America. Because the SBA confirmed full and complete forgiveness of the unpaid balance of the PPP loan and reimbursed Bank of America for the total outstanding balance, principal and interest, our obligations under the PPP loan are deemed fully satisfied and paid in full.

Lease Agreements

Our corporate headquarters are located in Menlo Park, California, where we lease approximately 10,823 square feet of office, research and development, engineering and laboratory space which was originally pursuant to a sublease agreement which was effective as of September 17, 2019 and expired on July 31, 2021. Effective August 1, 2021, we remain in the same space under a new lease agreement with the direct landlord to that space which will extend through August 31, 2024. We also lease approximately 2,040 square feet of office space, which is primarily used by our commercial leadership team, in Southlake, Texas, pursuant to a lease that commenced on April 30, 2019 and expires on May 15, 2024.

Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

While our significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Revenue Recognition

Revenue recognized during the years ended December 31, 2021 and 2020 relates entirely to the sale of our products within the Surgical Glaucoma and Dry Eye segments. These sales are primarily to hospitals, medical centers, and ECPs throughout the United States through sales representatives and distributors.

Our revenue arrangements consist of a single performance obligation. We recognize revenue at the point in time when control of the promised goods transfers to our customers. Revenue is measured at the amount of consideration expected to be received in exchange for the transfer of goods. The amount of revenue that is recognized is based on the transaction price, which represented the invoiced amounts and includes estimates of variable consideration, such as discounted, where applicable. We do not offer right of return, except in the case where item is defective as manufactured, and the company does not typically provide customers with a right to a refund. The amount of variable consideration included in the transaction price may be constrained and is included only to the extent that it is probable that a significant reversal in the

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amount of the cumulative revenue recognized under the contract will not occur in a future period. Payment terms, typically 30 days, are offered to our customers and do not include a significant financing component. We extend credit to our customers based upon their financial condition and credit history and generally require no collateral. We do not have any contract balances related to product sales.

Shipping and handling costs incurred for the delivery of goods to customers are included in cost of goods sold. In cases where we bill shipping and handling cost to customers, we classify those amounts in net revenue. As a practical expedient, we recognize the incremental costs of obtaining contracts, such as sales commissions, as an expense when incurred since the amortization period of the asset we otherwise would have recognized is one year or less. Sales commissions are recorded within selling, general, and administrative expenses in the statements of operations

Inventory

Inventory represents finished goods purchased from a third-party manufacturer and is valued at the lower of cost or net realizable value. Cost is determined using actual costs on a first-in, first-out basis for all inventory. Net realizable value is determined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We regularly review inventory quantities in consideration of actual loss experiences, projected future demand, and remaining shelf life to record a provision for excess and obsolete inventory when appropriate. The shelf life of our Surgical Glaucoma inventory averages approximately 24 months while the shelf life of our Dry Eye inventory varies depending on the component of TearCare, as SmartHubs have no expiration date while SmartLids have a shelf life of 24 months. Our policy is to write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected lower of cost or net realizable value, and inventory in excess of expected requirements. The estimate of excess quantities is judgmental and primarily dependent on our estimates of future demand for the particular product.

Stock-Based Compensation and Fair Value of Common Stock

We maintain an equity incentive plan that permits the grant of share-based awards, such as stock options and restricted stock units (RSUs), to employees and directors. We recognize equity-based compensation expense for awards of equity instruments based on the grant date fair value of those awards. We estimate the fair value of our stock option awards made to employees and directors based on the estimated fair values as of the grant date using the Black-Scholes option-pricing model, net of estimated forfeitures.

The fair value of restricted stock unit ("RSU") awards is determined based on the number of units granted and the closing price of the Company's common stock as of the grant date. The model requires us to make a number of assumptions, including expected volatility, expected term, risk-free interest rate, and expected dividend yield. We expense the fair value of our equity-based compensation awards on a straight-line basis over the requisite service period, which is the period in which the related services are received.

Redeemable Convertible Preferred Stock Warrants

Our redeemable convertible preferred stock warrants were classified as liabilities as the underlying redeemable convertible preferred stock was considered contingently redeemable and we were obligated to transfer assets to the holders upon occurrence of a deemed liquidation event. The warrants were recorded at fair value upon issuance and subject to remeasurement to fair value at each balance sheet date, with changes in fair value recognized as other expense in the statements of operations. The warrant liability was recorded as other noncurrent liabilities in the balance sheets. We continued to adjust the warrant liability for changes in fair value until the conversion of redeemable convertible preferred stock into common stock. At the time of conversion, the liability associated with the redeemable convertible preferred stock warrants was converted into warrants to purchase common stock and reclassified to additional paid-in capital. As a result, the redeemable convertible preferred stock warrant liability was settled and is no longer subject to remeasurement.

Recent accounting pronouncements

See Note 2 to our consolidated financial statements appearing under Part II, Item 8 for more information about recent accounting pronouncements, the timing of their adoption, and our assessment.