Q1 2020 Earnings Call
[music].
Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2020, Iridex, earning conference call. At this time all participants are no listen only mode. I can speak for presentation, there won't be a question and answer fashion.
A question during the session anyway suppressed by one of your telephone if you're far any further assistance. Please press star Zero I would now like they had the conference over to your Speaker today, Lisa Hoyt Investor Relations. Please go ahead ma'am.
Thank you and thank you all for participating in today's call. Joining me are gave the group Chief Executive Officer, Jim mechanism interim Chief Financial Officer.
Earlier today Index released financial results for the quarter ended March 28, 2020, 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 includes forward looking statements within the meaning of federal Securities laws, which are made pursuant to safe Harbor provisions of the private Securities Litigation Reform Act, making.
Inside any statements made during this call, but are not statements of historical facts, including but not limited to statements concerning our strategic goals and priorities product development matters sales trends in the markets in which we operate all forward looking statements are based upon our current estimates in various assumptions. These statements involve a terrorist and uncertainties that could cause actual results or that stupid.
She really differ from those anticipated or implied by these forward looking statements.
Accordingly, you should not place alliance on these statements for a discussion of the listen uncertainties associated with that business. Please see our most recent form 10-K and form 10-Q filings with the FCC.
The next disclaims any intention or obligation, except as required by law decade, or revise any financial projections or forward looking statements, but because of new information future events or otherwise. This conference call contains time sensitive information and it's accurate only as Lifelock yesterday, a 11 2020 with that I'll turn the call over the day.
Thank you Lisa good afternoon, and thank you all for joining us.
Our last earnings call was only 60 days ago.
But during that short time, so much has changed.
Colby 19 pandemic has affected as all in many ways.
We are especially appreciative of all been working tirelessly to deal with the cobot 19 incursion and continue to be inspired by their dedication skills and compassion of everyone from first responders to medical staff to care facility workers, who selflessly take on the personal risk.
Returning to the front lines every day.
I would also like to thank the Iridex team as we all reacted quickly in March to shift our headquarters operation to function remotely or sales and marketing activities to be effective in a virtual environment and coming together as a team showing dedication and flexibility and do under extraordinary circumstances.
For today's call I'd like to flip the order of discussion.
I'd like to introduce do you, Jim Mcconathy, who rejoined here index in March as interim CFO.
Who will start with a brief review of our first quarter performance. Jim was previously the company's Chief operating officer from 2012 to 2015.
And also served as CFO from 2008 2012.
[noise], we're happy to have them back and value his expertise in these unprecedented times following Jim's remarks, I'll comment on our response to the pandemic and our commitment to supporting physicians in glaucoma patients.
And current trends in our business plus our positioning for the long term.
With that I'd like to turn the call over to Jim.
Good afternoon, everyone and thank you Dave for the warm welcome we.
We find ourselves in very unusual circumstances with the advent of could 19, but I'm excited to be part of the Iridex team again.
I've always thought the psychology six product line represents a great opportunity for the company and it's been impressed by the steps Dave in the team has taken in driving adoption and explaining the associated patient benefits glycomed physicians around the world.
With that said I'll now turn into our Q1 results.
Despite the strong start to Twentytwenty as the Kobin 19 pandemic began to spread rapidly throughout the world and many regions began implementing strict guidelines for deferrable procedures consistent with many other medical device companies, we too were impacted.
Total revenue was 9.0 million down from 10.6 million or 15% from the first quarter of last year.
However, we should point out the revenues from energy six proves increased to 0.2 million over the comparable period last year.
We shipped 13050 cyclo gsix probes in the quarter and although that is lower than the 14000 number shipped in Q1 last year repeat customer sales were up as growing physician adoption offset the bulk discount placements offered last year.
We have previously mentioned that the move away from both discount placements towards pro utilization was part of our change in sales strategy and this shift has impacted our GE six system sales, we shipped 38 GE six systems in the quarter compared to 114 in the prior year period, the reduction being partially due to the.
Shifting sales strategy and partially due to the Covidien Juicy capital purchase deferrals.
Total revenues for the Cyclo Gsix product family was 2.9 million down 6% compared to the first quarter of 29 team.
The majority of the decline in total revenues compared to last year was experienced in our retuned to business down 25% you should be noted that a large portion of I reckon to businesses sales of capital equipment. These purchases tend to be backend loaded in a quarter and a significant portion were deferred due to cope with 19.
Other revenues, which include royalties service and other legacy products increased 4% to 2.0 million in the first quarter twentytwenty compared to 2090.
Gross margin in the first quarter 2020 was 43% compared to 40% in the first quarter 2019. The increase in gross margin was primarily attributable to a favorable shift in product mix to per procedure products and discontinued the bulk discount placements the cyclo gsix product offering.
Which is on long term strategy and a decrease in manufacturing overhead spending partially offset by an increase in manufacturing of advances.
Operating expenses for the first quarter Twentytwenty decreased 24% to 5.6 million compared to 7.3 million in the same period of the prior year.
The decrease in operating expenses was the result of significant cost saving measures implemented in the second half of 2019.
The benefits of these cost saving measures showed up in the narrowing of our operating loss, even with reduced revenues in the first quarter 2020, we recorded a loss of 1.7 million versus 3.0 million in the prior year.
And the cash used in our operations for Q1 22, and he was 1.5 million for the quarter.
Compared to 3.8 million this time last year.
From a balance sheet perspective, we ended the first quarter of Twentytwenty with 11.1 billion cash cash equivalents and we continue to carry no debt.
Subsequent to the quarter end, we received a 2.5 million loan under the U.S Treasury Department's Paychex protection program. We welcome. The intended purpose the program, which has enabled the rigs to retain our team on payroll during the severe activity dislocation brought on by coated 19, we tend to use these funds.
As for payroll to bridge the period until activities begin to recover.
And we will monitor and adjust our business activities as the us and countries worldwide emerge from the pandemic.
Which brings us to guidance, we continue to believe that Weve coded 19 outbreak unrelated uncertainties create a broadly variable business environment for us and as a result, we are unable to provide a meaningful guidance range for twentytwenty.
With that I'd like to tend to go back to date.
Thanks, Jim.
Prior to the onset of covert 19, we saw very encouraging momentum in the first couple of months of 2020.
As the U.S rollout of our revised MP three probe expanded the interest of glaucoma physicians in our non Incisional mug Micropulse laser therapy as we noted in our Q4 earnings call in early March interest at the American Glaucoma Society meeting doubled versus last year's meeting.
Previously dormant customers were re engaging with us attracted to the improvements embodied in the revised probe.
And we had surpassed the 50% conversion of sites in the U.S. and we're well on our way to reaching our goal of completion by mid year.
It's important to keep in mind that glaucoma is a progressive disease without a cure whose treatment paradigm requires a sequence of increasingly invasive approaches to slow the rate of disease progression.
Therefore, the glaucoma procedures deferred because of coded driven restrictions still need to be performed and within an acceptable timeframe before incremental permanent damage could occur to patient vision.
The interest in our non Incisional glaucoma therapy that effectively lowers I LP and extended the runway before patients need more complex incision based surgeries remains intact. Despite the limits on current procedure volume and patient visits.
Given this dynamic we are confident in our intermediate and longer term growth potential remaining very promising.
Late in Q1 measures began to be implemented to stop the spread of Cobas 19 searches mandated shelter in place orders recommendations for noncovered patients to avoid hospitals.
Recommendations by the medical societies and governments to defer all non urgent procedures.
And most ophthalmology offices closing and staffing furloughed or reduced to minimal activity for only urgent patient visits and procedures.
This resulted in our physician customers experiencing significant short term limitations to conducting procedures and they also made decisions to defer capital equipment purchases in the second half of March that persisted through April.
In fact in our outreach to existing GE six accounts. During this period approximately 25% were closed and the remainder were solely treating emergency cases.
Your next has also taken steps to mitigate the impact of coded 19 to our business operations and limit risk for our customers employees, we made adjustments to our business methods to remain in close contact with our customers employing more digital and virtual meetings and selectively visiting customers where accessible and needed.
In order to continue to drive forward the momentum we achieved in the beginning of this year.
We are located in the San Francisco Bay area, and as such filed the recommendations from County government and healthcare agencies in mid March Iridex quickly transitioned almost all employees to remote work environment, a small number our team continues to support essential operations at our facilities. After we instituted.
Social distancing and other recommended measures to ensure their safety, we will continue to follow the local and national guidelines to determine the appropriate time to resume in office functions.
Our sales organization is largely shifted to virtual sales activity and encouragingly has been able to continue strong engagement with customers.
While not a replacement for global industry conferences face to face meetings and onsite clinical training.
We have effectively shifted to a broad virtual program hosting a number of widely attendant sales events and maintain continuity with key accounts as closely as possible.
One opportunity.
Of the clinic in surgery Center closures is that physicians and staff are more available to engage with US we've conducted over a dozen grand rounds, and clinical training with eight to 15 physicians engaging in these virtual sessions.
Many more than we could typically engage at one time when their clinical in surgical schedules will fall.
As we speak today near the midpoint of the second quarter, we see two phases of activity within the quarter in the first half that was widespread shutdown and the second half we expect to see stays reopening.
In the shutdown environment only urgent procedures were performed in our trans clear a laser therapy.
It was a desirable choice for patients with high intraocular pressure that urgently needed treatment.
Early in April we conducted a web and are discussing treatment choices and the role of here at X procedures as a tool for that environment. We attracted over 300 registrations 150 attendees and hundreds of follow on viewings.
Demonstrated to us physician interest in exploring the solution.
Customers are telling us they were selecting our therapy for those urgent procedures, because the short procedure time and non incisional effective I hope he reduction was a solution that minimize exposure risk and especially important required only minimum patient follow up.
The reopening phase is starting now survey show, 30% to 50% of surgery centers plan to reopen in May and many of the rest plan to reopen in June.
And in a recent survey about the Molla just nearly half indicated they anticipated rescheduling patient cases before the end of second quarter.
But our customers are also telling us they expect initially to be operating under reduced capacity to allow extended time for safe patient management and equipment cleaning some are estimating capacity at 50% initially and growing to 75% over a couple of months.
In this environment, we're encouraged to hear a customer, saying the simplicity of our procedure and minimal patient follow up are highly valued.
So while we've been promoting these value elements all along to drive adoption.
Of extended non incisional runway for progressing glaucoma patients.
The importance and attractiveness has increased in this cobot environment.
We are engaged and ready to support our customers in the new environment by conducting remote Proctoring for cases web based physician certification and educational seminars supporting customers and prospective customers.
For example in the US we've conducted more than 60 virtual physician trainings, often with multi Dr participation, including large groups at several major top tier teaching institutions.
We are encouraged by the engagement with our customers and progress that is achievable through these methods.
Our international sales and glaucoma are primarily through premier distributors around the world.
Our plans.
For the rollout the revised version of our MP three probe internationally, but had to be adjusted in the restricted cobot world.
In April we conducted a worldwide virtual training for distributors with over 240 attendees, which was a record online meeting for us.
We follow that up with direct virtual detailed training with individual country distributors staff and key opinion leaders in that country.
Again, we're encouraged with the engagement and focus indicating the intermediate and longer term potential remains very strong.
In the US we're getting updates from our field team and our monitoring the news and market reports to determine the actual return of elective surgeries state by state and are encouraged by our strong presence in many states that are easing restrictions or plan to use such restrictions in the near term.
In regions outside the US procedure recovery is progressing at various rates with Asia Pacific leading.
The European Union Union, showing limited recovery is starting but still uncertain capacity or pace of opening and Latin America and other regions are still evolving.
Therefore at this stage there are simply too many variables to quantitatively predict procedure volumes, which type of procedures will be prioritized and which markets.
Summarizing glaucoma for all the reason that discussed we believe iridex is well positioned to recover and grow our volume as various regions of the us in worldwide begin to expand patient visits and procedure volumes. Our team is eager to move forward, where it's safe and appropriate to do so to support our customers and continue.
Expanding a rule for effective durable non incisional glaucoma procedures.
Turning to our retina business.
Our comprehensive medical and 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.
Customers are also experiencing significant economic impacts from the deferral of procedure revenue. So we expect but can't get quantify they're shifting appetite for capital purchases.
Some deferrals are clear because of the shutdown periods at offices in surgery centers and we experienced that at the end of the first quarter.
How laser system purchase volume recovers and to what degree short term and longer term is still uncertain.
However, it's important to note that a significant portion of sales in a mature segment like our retina and surgical laser systems.
His replacement of old or failing equipment and tends to be more resilient, we expect that business to reflect the overall economic recovery for the practices.
And additional important segment of our retina business is disposable surgical endoprobes.
That is likely to follow a similar recovery for ophthalmic surgeries as we've discussed for our glaucoma probes.
In 2019, the combination of retina endoprobes in glaucoma probes made up about half our overall revenue and we're well positioned in both procedures for volume recovery to drive sales recovery.
However, so much variability in how recovery progresses makes forecasting difficult what we control is our efforts to support and promote the benefits we deliver two which our team is fully committed.
With regards to our product development projects, we reported to you in March that our development and manufacturing partner for new laser systems and move on China had experienced shutdowns and project delays as the Chinese government acted to restrict transmission of code 19.
They came back on line in mid March about the time here index became subject to shelter in place orders and began to work remotely.
However, we are effectively working closely and making good progress toward a goal to achieve product launches later this year.
As we reported in March we remain confident and we have a stable supply chain to meet projected demand and the operational efficiencies and capital resources to support our business during this period.
We believe normalcy will eventually return as the World works through the Covance 19 outbreak and we will accelerate our initiatives to drive demand for our glaucoma therapy. We are optimistic we have new found recognition in glaucoma community for the enhanced role of our non incisional effective and durable.
Lowering of interact with the pressure.
That requires minimal patient follow up we continue to see the opportunity for significantly increasing our share of the treatment for the millions of moderate to severe glaucoma patients worldwide.
With that I'd like to turn the call over to the operator for questions operator.
Thank you.
A question you will need to press star one on the telephone will follow question pressed upon pool.
First question comes from Jon Block with Stifel. Your line is now open.
Hi, guys. This is Tom on for John Thanks for taking my questions maybe to start off by dung update on has gone.
Okay.
What percent of the six installed base.
And on the new Pete CRO I think pre co bid the thought was to have 95% of the base trained by the end of two Q 20 Bye now.
Now are there any new expectations as to when you might be able to train the majority of the installed base.
Yes, so we were about 50% of the way there before the covered restrictions kicked in we have been conducting virtual training sessions as I described and we're making progress.
It's it's tough to to quantify right now whether we've we're going to hit that 95% by the end of second quarter, but the interest is extremely strong and so the ability to procter cases and move from.
Virtual education to relocate support.
Virtually is still there just it may be delayed slightly but we don't see it as a significant.
Extension to the time to get that introduced in people converted over and then internationally were.
We've shifted to virtual approach as opposed to an in person approach and we're encouraged both with the participation by our distributor partners, but also our ability to reach through in conjunction with them on these virtual meetings to engage directly with key opinion leaders and leading customers. So.
We think thats going to progress very close to as planned and we're still thrilled with the response, we're getting from from users of the revised growth.
Got it and maybe just stick with the revised program during early data or any reads on utilization of it. So maybe from the doctors you converted early on in the rollout sort of late last year, maybe you have any reorders kicked in yet from early adopters or did.
Well the kind of core wrench in that.
No. They are absolutely reordering once someone converts over there.
Typically very pleased with how much easier the.
Procedure is to perform and they're looking at their patient data outcomes to confirm consistency of outcomes and such but remember that.
30 day peak.
Period before they do their first.
Call. It read on what the outcome is expected to be and then I think they also in their mind want to see.
Three months six months experience. So they are converting and continuing with the volume or more that they had done before and we fully expect that is.
They see the consistency that that.
That same store sales growth can can continue upward as they gain confidence in the procedure.
Yes, okay.
Last one.
Shifting gears to capital can you share with us how policemen.
Placements of the system trended in the first two months of the year. So just pre Tobin.
Yes, I mean, most of the system placements were in those first two months of the year, but typically capital equipment is back loaded so you expect to higher.
Portion of your volume in the last month and often in the last couple of weeks, which is right and the timing, where where cobot came along and deferred.
Cases so.
We're we're optimistic that it's solely.
Short term economic impact is not.
A reduction in the interest in fact, we think the contrary that there is stronger interest in our procedure because of its.
Benign profile in this environment.
But capital equipment is going to experience some deferrals most of the information is anecdotal so far so it's it's hard to quantify impact.
But but we expect there to be some and and we're not quite sure how long that will last.
Great. Thanks, guys.
Goal kill and our next question comes from Scott Henry of Roth Capital. Your line is now open.
Thank you good afternoon, I've got a few questions.
First I think I missed the retina number for the quarter could you give me that again.
I'm looking down here.
I don't know recorded that we just call that 20 pipes and let me, let me come back to with the absolute number yes.
Okay with down 25% I think yes from Q1 of last year.
Okay, I think that can estimated at least from there.
Second.
When I look at spending in Q1.
DNA in sales and marketing we're down.
Down pretty pretty good certainly bill from a year ago.
Not as much from the second half of 19. The question is I do think those are sustainably low rates or will those bounce up but how should we think about spending going forward.
Spending in the first quarter was really the result of significant adjustments we made in the second half of last year.
And we've talked about those and primarily reflective of of those adjustments in the first quarter.
If sales are down somewhat there are incremental areas of sensitivity like.
Commissions toward the end of the quarter, there was with some reduction in travel and travel related expenses, but but by and large that's the the the run rate that we tried to set in place in advance of all this.
Not in anticipation of it but to do put our cost structure in a position where cash burn was under control as we grew the glaucoma business into breakeven profitability.
Going forward, there are incremental savings and things like trade shows that can't be.
That have been canceled and won't be attended.
There is.
Virtually been no travel quarter to date, we'll see how that opens is.
As access improves in the second part of this quarter, but we think those reductions are sustainable and there are other incremental things is that just mentioned that can help us keep the.
The.
Expense rate under control as we.
Drive the recovery.
Okay.
Thank you I appreciate that color and.
So you're not giving guidance to the this isn't meant to gauge any specific projections.
But but I'm just wondering how we should think about Q2 versus Q1, obviously Q1, you had the first two months, which were probably relatively on impacted but end up doing most your business in the last month as the quarter. So.
I want to Q, you're probably not doing much business at all as far as capital equipment sales, but then maybe in June you will or won't let me I'm just trying to think of how what kind of lag we might see before people start buying capital equipment again, and just your thoughts on Q2.
Relative to Q1.
Yes, I mean Q2, obviously for the first half has had.
A significant.
Essentially shutdown of disposables.
And.
Not that we havent seen a flow because of emergency procedures, but that's pretty significant impact and it's just very difficult to predict what happens in the and the second half with disposable procedures, we do know and hear from physicians that they're eager to.
Get procedures back on line and going both from a patient.
Therapy standpoint, because there's only a limited amount of delay that is available for glaucoma.
Patients.
And they're therapies.
But also for their own economics to too.
Get the business back on track so on that we see it as really limited by their ability to come back online and what efficiency what operating.
Rate capacity compared to their prior.
Call at 100%.
Capacity.
In terms of capital equipment, we do think that theres going to be delays.
There has been so far in the quarter as you would expect with most practices being shutdown and remains to be seen how the end of quarter.
Order demand appears but we think it's going to be a tough quarter for capital equipment.
And.
My question is how do you think probe inventory is that your customers.
I think he normal such that a.
Probably utilization can reflect end user demand or might there be in inventory work down out there given that nothing's really happening right now.
I think since the introduction of the rub two version of the probe there has been some inventory management aspects to it working off the older inventory and not ordering as much.
And.
Whether it's been work through in the fourth quarter in the first quarter there's.
Theres more to be done in the second quarter is.
As volumes come back.
It's hard to be precise, but but we expect a lot of that has been worked through at least in the United States, where we have direct contact with customers.
And and we think it's hard to to know when a procedure is done how long how much inventory they burn before they order and.
And then what their shelf stock goals are and those kinds of things, but but we think going forward be more closely representative of procedure volume, even if it lags a bit.
Okay, and just a final question.
You group revenue into the three categories T six threatened and other.
How does that other tend to hold up I mean, if that a little more of a stable business line. Then then retina Angie Hicks just.
Curious as it's kind of catch all but.
And.
It's going to show a little bit of stability to begin with it'll it'll potentially sort of have more an inflection later. The reason is its components are we have a royalty component reported from a partner, which is a one quarter lag. So they had Q1 report comes into our Q2.
And then it's also a lot of its service a bit of paid service, but also service contracts. So within Q2, probably holding up fairly well and then there will be a little bit of a lag and we might see a little bit of compression in Q3 before it sort of recovers.
Okay, great. Thank you for taking the questions.
Thanks, Gil and ladies and gentlemen, this does conclude our question answer session I would now like to turn the call back over to David Group CEO for any closing remarks.
Thank you again and thanks, everyone for joining the call today, we look forward to updating you on our progress as we continue to execute our initiatives and and drive the recovery from covert 19.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating may now disconnect.
[music].