Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Iridex fourth quarter 2019 earnings call. At this time, all participants' lines in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
Please be advised that today's conference maybe recorded if you require any further assistance. Please press star Zero I would now like turn the conference over to your Speaker today Leigh Salvo with Investor Relations. Please go ahead.
Thank you Catherine and thank you all for participating in today's call. Joining me are David Burke, Chief Executive Officer, and Romeo Dizon, Vice President Finance.
Earlier today Iridex released financial results for the quarter ended December 28, 29 chain a copy of the press releases are available on the company's website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 any statements made during this call that are not statements of historical facts, including but not limited to statements country.
Turning our strategic goals and priorities product development matters sales trend and the markets in which we operate.
All forward looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ.
From that was anticipated or implied by these forward looking statements. Accordingly, you should not place reliance on these statements for a discussion of the risks and uncertainties associated with our business to please see our most recent form 10-K and form 10-Q filings with the FCC.
Your next disclaims any intention or obligation, except as otherwise required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
This conference call contains time sensitive information and it's accurate only as of the live broadcast today March 12, 2020 with that I'll turn the call over to date.
Thank you Lee good afternoon, everyone and thank you for joining us today.
[noise] the team at Iridex is made significant progress in our strategic shift to emphasize physician adoption of the micropulse trends glitter, a laser therapy in their glaucoma practices.
In the second half of 29 team, we realigned our sales processes launched our revised Micropulse P. threed device and made operational improvements to significantly reduce costs an increase efficiencies.
I'm confident we will continue to build on these achievements in working with physicians to grow adoption of our unique non incisional glaucoma therapy.
Which has been proven in over 140000 procedures to date and over 20 peer reviewed publications.
In the fourth quarter of 2019 or cycle GE six product family revenue grew 18% year over year to 3.7 million worth 31% of total revenue.
As we transition our sales model to drive crude utilization and simultaneously launched our revised MP three probe we shipped over 13700 probes that quarter, representing an 11% year over year increase.
In the quarter. We also shipped 107 cyclo Gsix glaucoma laser systems. This was a decline from 122 shipped in 2018.
But in line with our expectation based on the shift in sales focus to probe utilization.
Our growth initiatives remain concentrated in expanding our share of the glaucoma treatment market with a unique non incisional therapy, and disposable probe business our execution of a shift in selling includes a validation process that drives physician confirmation of efficacy through their own experience we've launched.
It over 120, Validations targeting first hand customer experience and the resulting outcomes in safety profile.
This approach has been very well received in the clinical community as a means to gain confidence in a therapy and as a step valued toward true adoption.
Coupling this with a branding shift of our treatment name.
Two micropulse trans clear a laser therapy help broaden the first the physician perceived applicability.
From its origins is primarily a later stage treatment option toward more moderate stage glaucoma patients. Our users are telling us. They are very pleased with the results across the spectrum of moderate to advance glaucoma patients.
The launch of our revised Micropulse P. three devices is progressing well.
We began commercial roll out of this probe in October 2019, and converted 100 doctors by the end of the year. We're now passing that 50% conversion point in the U.S. and targeting completion by mid year.
We publicly announced the rep to probe availability at the American Glaucoma Society meeting in Washington, D.C. last month, as well as through a series of advertisements email promotions and social media.
Reception to the probe has been very encouraging thanks to the ergonomic improvements in procedures simplification and body didn't this revised probe, we're seeing heightened interest by the glaucoma and comprehensive ophthalmology community and our therapy and that is confirming to us there's a significant need for this effective safe and durable not.
Incisional approach.
To manage the runway of their glaucoma patients.
We believe continued physician education training and the opportunity for hands on validation of the procedure benefits will result in broader adoption of our therapy by ophthalmologist across the full range of moderate to severe glaucoma patients.
Turning to our retina business, our comprehensive medical in surgical platform continues to hold a leadership position in the treatment of a broad range of retinal diseases.
However that market remains competitive and price sensitive.
Revenues in the fourth quarter increased approximately 8% over the third quarter and decreased 5% compared to the prior year.
We remain committed to allocating appropriate resources in investments to maintain this segment for example in Q4 and earlier this quarter, we launched improvements to a few of our key delivery devices in response to user feedback to maintain the preferred position here at axis enjoyed three decades at the forefront of retinal disease laser treatment.
[noise], we would like to take a minute to discuss the cobot 19 outbreak and its potential impact on our business.
We entered 2020 with great momentum generating confidence in our long term growth opportunity that has not changed despite the turbulence caused by the covert 19 virus and numerous business environments, where we operate in cell today.
Here's what we do know.
We have a stable supply chain to meet anticipated demand and the operational efficiencies and capital resources to support our business during this period.
Today, we're faced with challenges of a highly variable and changing business landscape, including travel restrictions limited hospital access and cancellation of industry and physician meetings.
As a result, the duration and any sustained impact on our business is very difficult to predict with any degree of confidence.
Our development and manufacturing partner for new laser systems is in Wuhan, China and has experienced shutdowns in project delays is the Chinese government has acted to restrict transmission of cobot 19.
They have come back online this week and we're working closely on plans to mitigate delays with the goal to achieve product launches later this year.
Historically Iridex is offered full year guidance at this time of the fiscal year.
As our board and management team assess the timing and range of possible outcomes from impacts of the cobot 19 outbreak and related uncertainties. It became clear that various scenarios would result in guidance ranges too wide to be meaningful.
Therefore, we've made the decision to to defer full year 2020 guidance.
We remain as confident as ever in our long term growth opportunity and we'll continue driving operational excellence.
During this outbreak period, where the priority on limiting risk for our customers and employees. We are actively adjusting our business methods to remain in close contact with our customers employing more digital and virtual meetings selectively visiting customers where accessible in order to continue to drive forward. The momentum we achieved in the later part of too.
Any 19.
We believe normalcy will eventually return to the world as it works through the coated 19 outbreak.
And we will accelerate our strategic activities to increased demand for our non incisional glaucoma therapy and deliver long term growth for iridex as that emerges.
Now I'd like to turn the call over to Romeo to discuss our fourth quarter financial results in more detail.
Roamio, Thank you, Dave and good afternoon, everyone.
I'll begin with an update on the GE six business.
In the fourth quarter of 2019, GE six revenues increased approximately 18% compared to the fourth quarter 2018.
We shipped 176 systems in the quarter compared to 122 in the prior year period.
During the previous call, we disclosed that we have discontinued laser advantage program and the second quarter and as a result reduction GE six system shipments and the associated volume of initial probe shipments recognize with those systems.
Despite the reduction of 12% and GE six system shipments, we recognized an increase in G. six systems revenues of 15% due to higher A.S. piece.
On the GE six probe side, we shipped 13700 probes in the fourth quarter of 2019 compared to 12300 probes in the prior year period.
Increase of 11%.
The probing ASP decreased slightly in a global basis compared to third quarter due to a higher portion of sales to distributors outside the U.S.
For our retina business revenue in Q4 was approximately 46% of U.S. and 54% outside the U.S.
This compares with 51% in the U.S. and 49% outside the U.S. in the prior year Q4.
Total revenues for the fourth quarter 2019 were 11.8 billion, an increase of 3% compared to the fourth quarter 2018.
The increase is due primarily to increase NRG six revenue.
Offset by decreases I run the products.
In the fourth quarter 2019 run a product revenues decreased 5% from 2018 66.2 million.
Other revenues, which includes royalties services and other legacy products.
Increased 3% to 1.9 million in the fourth quarter 2019, compared to 2018, mainly due to an increase in services royalty revenue.
Gross margin in the fourth quarter, 2018 was 41.2% compared to 41% in the fourth quarter of 2018.
Improving gross margin was due primarily to a decrease in manufacturing overhead spending.
Offset by the increase in manufacturing variances in a ship and geographic mix.
Operating expenses for Q4, 2019 decreased 15% from seven point Sixmillion to 6.5 million compared to 2018.
Operating expenses in the quarter reflected a reduction in cost associated with lower headcount and a reduction in our sales and marketing programs offset by an increase in development expenses and commissions.
Hi revenue were lower expenses combined to reduce our operating loss in the fourth quarter of 2019, So 1.6 million versus 2.9 million in the prior year.
For balance sheet perspective, we ended the fourth quarter of 2019, with 12.7 million cash and equivalents and we continue to carry no debt.
We believe our existing cash cash equivalents plus our available line of credit will be sufficient to meet our anticipated cash needs over the next 12 months.
With that I'd like to turn over to call to the operator for questions.
Operator.
Thank you as a reminder to ask a question you'll need to press star one on the telephone.
Our first question comes from Jon Block with Stifel. Your line is open.
Thanks, Good afternoon, guys just oppose what's taking more of a clarification, the 50% into one and 100% conversion I believe that you alluded to for P. Three can you run back the timing on that I sort of missed your when you called out the timing of those conversion rich.
Sure. We we started in October of 2019 with a goal by the end of the year of of achieving conversion, where the first 100 doctors and we achieved that.
Now we're at about the 50% point of conversion.
Sure.
Virtually as we speak today and the goal is to carry that through and complete conversion to say the 95% level by the end of the second quarter.
Okay, Great and then.
You can you give us shorten the a.
The base for that in other words, when you're talking about 50% today 95 or somebody into the second quarter, what would base of active accounts or you are you running that off of.
In the U.S., there's approximately 500.
Active accounts and and so we've been moving through that group.
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Yeah. It moves you know we're looking at it in terms of pro volume. So there is obviously different probe volumes spread across that user base and so we're focusing on moving everyone. There eventually by the middle of the year and.
Based on the the number of sites plus their average usage, we're passing the 50% point in Enpro volume, Okay got it and maybe if you can talk about it at a high level because I know, it's still early to your point on the conversion, but what are you seeing in those accounts are you able to put any numbers to it hey, it before their utilization.
It was actually now which is why or even anecdotally you know you're seeing more cases for mild to moderate maybe you can just provide some color around that thanks.
Sure John So it is too early to try to get quantitative in terms of before it was this and now it's that the.
The typical processes the order probes and we'll do the conversion and they'll have some number of probes and then at some point. They will you go use those up and reorder and so it really is a bit too early to try to look at that order rate data and say look here's the the result of that.
Anecdotally.
We are we're finding universal acceptance and and preference for the the improvements that come with that probe and that that just drives confidence in a physician's ability to perform and get consistent results and those are the things that will lead to greater usage.
The.
The average user would looks at approximately 30 days postop before they decide what is the outcome that expect from this and so to get a number of patients over that threshold and and have a look at had a true representative sample is it just takes time and so we're still early in that.
But anecdotally, it's a it's a big success and numerous sites are saying I can.
Combination of the access and the consistency.
Makes it just an easier procedure to perform and therefore no.
They express the willingness to do more and we'll keep a close eye on the numbers and try to confirm that now at the same time, we're taking the opportunity to try to educate them on clinical studies in evidence that is in the literature now on more moderate stage patients and so that coupled with.
Any easier pro to use and what we believe will be improvements in consistency of outcome. We think will help drive that adoption and broaden the profile of patients.
Okay, and maybe just a couple more for me well me is there anything to call out on a is paid basis or gross margin Oh from a gross margin perspective on the new probe or is it is more about ease of use a I just want to make sure. We're level set on and he is pure or gross margin benefits associated with being true.
Oh, no themart, we've been talking to say just during the same coffee margins just a rough ones.
Okay.
You did last one just to take a step back end spin.
Well when few days and few weeks with Colby 19, maybe if you can just talk about the run in the past two to three weeks into the world just seems to be a very different place today versus even where we worship seven or 10 days ago show, where you're seeing any headwinds in.
Early to mid February has the problem just started to become more acute in the past week or two and I'm curious is the issue today would be a is she is or is it more around some of the other items that you alluded to I.E. travel restrictions for sales reps or you know symposiums and conference is being canceled of your.
Able to detailed the difference thanks for your time guys.
Yes, yes, it is really a moving target.
The as we as I expressed in the comments the.
The run into the year.
Gave us a lot of confident we add momentum we had a very positive response to the new probe and even at the age yes meeting toward the end of February was well attended the booth was well attended and and our opportunity to have conversations and and.
Really establish a commitment to do validations with new customers lead count was up by 100% compared to prior age yes. So in that timeframe. There was still a fair amount of activity and and obviously that demonstrated the the interest and demand for for the new pro.
Nope.
It literally probably started later in.
February where there was starting to be some.
I'm talk about restrictions on travel beyond.
The China connection South Korea started to.
Exhibit more cases in restrictions kicked in there and then obviously is as Italy, and Iran kicked up.
Other places started to add.
First travel restrictions and.
And then shortly after everything from nobody, but doctors and patients accessing hospitals.
To if you've traveled to regions.
In the last two weeks or exhibit any.
Disease symptoms you're not.
Able to come in.
Less so in the United States and.
But I would say right now, it's probably more focused in hospitals and hospital chain institutions as opposed to ask sees but it's it's all anecdotal at this point, there's there's not a lot of.
Statistical.
Information around it.
You know Weve continued with conversations and we see business activity.
Continuing even in hard hit places orders and activity is continuing its just hard to have much prediction around.
At what rate and more importantly, how long.
That suppression of activity continues and how fast it comes back.
Okay very helpful color. Thank you.
Thank you and our next question comes from Scott Henry with Roth Capital. Your line is open.
Thank you good afternoon, I guess I'll just.
Follow up quickly on the Covidien 19 line of questions. Just I you know curious your takes it to your closer to it than I am I guess for starters.
Do you think there any changes and I guess, it's all in real time in patient flow or are we seeing the same number of patients coming through the offices or perhaps that's pulling back a little bit as people are staying away from.
More elective procedures.
No quite effective but curious your your thought on that.
We don't have very good data on it.
You know these glaucoma procedures are.
They're necessary, but they're not urgent and away a say a cardiac intervention for stent would be.
But that said you know, it's a progressive disease and the decision to take the next step to control interactive pressures and prevent or reduce the the progression of the disease.
Can't wait forever, so we aren't anticipating any.
Significant change in the demand for procedures.
In the call to longer term, but it's very difficult and we just are trying not to speculate and anticipate.
On the timing of return to normalcy or where the rate at which it comes back.
Those are hypothetical situations and we just we just can't comment on the hypothetical right now but to your earlier question is absolutely anecdotal at this point and.
Probably.
Regionally and it's a different impact.
There are certain areas, where we don't hear much impact at all but geographically in the United States in and in various.
Countries incontinence around the world.
Thank you that's helpful in and I guess from the other side of.
The equation, how about for the sales rep <unk> well, they even let the sales rep and the sales rep still want to go in to two these plays I mean, just what kind of interaction and.
I guess, it's all short term but.
Curious your your take on that from from the reps perspective accessibility wise.
Yes different you know obviously different personalities react differently are.
I'll I'll speak in the average and the average we're still seeking ways to.
Get to institutions and continue for example, if we have an active validation started and there are patients scheduled.
Obviously, we want to be able to support those cases subject to anything that comes up that.
Patient cancellations or.
Limitations on access and there are anecdotal situations, where he sees our are limiting access for sales reps and hospitals are limiting access for sales reps, but in general it is is more driven around.
Trying to continue the processes in the selling processes that we execute our our four step process of appropriate targeting driving a commitment to the benefits we deliver and then validating those benefits on representative sample of patients.
And then in the last stage, which we call conversion is working with them. So that when they are seeing patients in the lane their offering this not incisional therapy as a as an option or even a recommendation.
For a given the appropriate patient.
Okay, and and in the prepared remarks, you spoke a little bit about the supply chain.
I I just want to make sure I understood that in my mind that take away what was that there.
Don't appear to be any issues in the supply chain right now and if anything it should be getting better certainly in <unk> and <unk> am I interpreting that correctly.
Yes, we don't see anything today that is causing us concern over having product to supply against demand.
At our partner and we will happen is for future products. So we aren't reliant on them for existing product and if there are delays associated with bringing that new product to market, we simply will increase the supply from our.
Existing suppliers on current products.
So we don't anticipate demand, we don't anticipate demand exceeding what what we supply but it is a very fluid situation. So it's difficult to be absolute, but but we have some confidence in that area right now.
Okay, and you know obviously, you've got the new probe out there right now, but you know what are some of the other.
New products, you're looking out later this year.
I don't recall, we have we have talked about new laser system platforms in the past and are targeting launching those this year. Our initial plans were around mid year. We know we're experiencing some delays because the the partner was basically unavailable for.
Something on the order of 60 days as the governments in the one area of shutdown activities there.
So.
They've they've worked through that they're back at the offices in and they are opening in general it appears opening and opening up in China, It's business specifically in the EU on area.
Which was ground central for the the initial outbreak and so we're optimistic that from here forward.
We're we're in recovery of schedule mode, and and we're working to to figure that out actively so the goal would be new laser systems of we were focusing on Oh.
Various frequency systems that we offer today, a 10 532 in 577.
Okay. Great final question, a and it's just for clarification did did you give a retina number for the quarter I I don't think I took that down.
Quarterly.
[noise], 46% was the U.S., 54% outside the U.R. so.
It was.
[noise] retina product revenue in the fourth quarter was 6.22.
Which was.
Pretty pretty good number.
How do how do I think about that.
Hi.
Going forward.
So retina is a capital equipment, it's concentrated towards the ends of the quarters, it's concentrated towards the end of the fiscal year and its price competitive and yes, it's variable and we we worked hard and did a good job that pursuing and.
Closing the business and we were feeling.
Competent stable in that space will continue to make some judicious investments to improve products and particularly some of the delivery devices, where feedback has said we want these improvements.
And and so that's what we were alluding to some of the things that we released in the.
And the fourth quarter, and then earlier in the first quarter two to supplement and support that we do have a strong market position in a reputation build up over essentially the life of the company and.
And feel confident that we can represent a strong product offering and compete well, but it is price sensitive in and can be challenging at times and that ebbs and flows we were pleased with the fourth quarter and.
And we'll compete hard going forward in 2020.
Okay, Great I appreciate that and I appreciate.
You taking all the questions. Thank you.
Thank you and I'm showing no other questions and acute.
Back to Dave for closing remarks.
Thank you John and Scott for those questions and and thank you everyone for joining the call today.
We look forward to updating you on our progress is being used to execute on our initiatives then.
And hopefully that will be short lived impact to the entire marketplace in the world with the Cobot 19 outbreak and good luck to you all.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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