Q2 2021 IRIDEX Corp Earnings Call

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Good day, and thank you for standing by and welcome to the Iridex Q2, 2021 earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Hunter Kabi.

Investor Relations. Please go ahead.

Thank you and thank you all for participating in today's call. Joining me are David Bruce Chief Executive Officer, and Guatemala, interim Chief Financial Officer.

Earlier today Iridex released financial results for the quarter ended July three 2021, a copy of the press release is available on the company's website.

Before we begin I'd like to remind you that management may make statements. During this call that include forward looking statements within the meaning of the federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.

Any statements made during this call that are not statements of historical fact, including but not limited to statements concerning our strategic goals and priorities product development matters sales trends 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 those 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. Please see our most recent Form 10-K Form 10-Q filings with SEC.

Alright at the St any intention or obligation, except as 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 is accurate only as of the wide broadcast today August 12, 2021, and with that I'll turn the call over to Dave.

Good afternoon, and thank you all for joining us.

As we announced a very strong quarter for Iridex I can't help remembering.

Net entering last year's second quarter.

<unk> had plunged our company into shocking changes to our market environment and as a result, we took steps to ensure the security of our business.

These included implementing significant cost controls and cash preservation measures to extend our operating runway and today. Our cash is about two five times. What it was then and we have significantly improved cost structure, allowing us to invest for growth.

In addition, we prioritize re engaging with our significant installed base, while expanding awareness of the benefits of our non institutional micro pulse.

<unk> scleral laser therapy procedure for new customers a year later, our installed base exceeds 2000 systems and glaucoma probe sales reached record quarterly levels.

And lastly, we continued to pursue initiatives that would deepen our market penetration.

And improved gross margins today, we are seeing our investment in expanding the U S sales and marketing team beginning to show results. In addition, we're achieving efficiencies in manufacturing costs overhead absorption on higher sales and an increasing percentage of our revenue from higher margin disposables, which helped to improve gross margin too.

Over 45% this quarter.

And integration of the Pascal product line acquired earlier this year from our collaboration with top kind is going smoothly overall, we meaningfully strengthened and positioned our company for long term growth.

Turning now specifically to the second quarter results revenue was $13.4 million or 116% year over year increase and a record high going all the way back since 2007, when Iridex was a very different company.

We also saw significant growth in our glaucoma business, including a new record 16000 cycle <unk> probes sold Ah.

Our retina business had a robust return on sales.

Nearly tripling off the Covid lows of the second quarter last year.

The integration of Pascal product line acquired from top Con during the first quarter is progressing well without any disruption to production volumes and we're generally on track in our transition to top karnes portion of distribution in our worldwide sales partner network.

This momentum as we head into the second half of 2021.

This confidence to raise full year guidance to a total revenue of 50 million to $52 million, reflecting growth of 38% to 43% over fiscal year 2020.

Also to increase expected cycle <unk> probe sales to a range of 58000 to 60000 units.

Diving deeper into our glaucoma business.

G six product family revenue was $3.6 million, an increase of 70% year over year.

Cycled <unk> probe sales increased to 103% year over year, and 18% quarter over quarter.

While we anticipate there will be seasonal quarterly lumpiness, we are confident in the solid growth trajectory being established.

Moving to our cycle <unk> glaucoma laser systems, we sold 47 units in the second quarter of 2021.

We believe there continues to be a large opportunity for system placements with new customers. This volume is consistent with our current strategic focus on driving procedure adoption and probe utilization.

Over system placements.

On the retina side of our business, we saw product revenue grow 190% year over year, including a 28% contribution from sales of Pascal products.

<unk> heard from top time.

Through the second quarter, our new retina focused U S sales team and our direct international distributors came up to speed on Pascal products, leading to strong sales performance simultaneously. We've conducted extensive training programs with popcorn and their sub distributors in those regions, where we're transitioning iridex Prada.

<unk> into their hands and we continue to have high confidence in the long term growth potential for our collaboration.

We have enjoyed solid order flow from top com for Pascal products.

Well outside the U S. We recognize that a part of this is built out of inventory in Japan ahead of temporary import limitations as we shift to Iridex labeled Pascal product registrations later this year.

And finally.

O U S sales of Iridex products in the second quarter, we're still primarily through existing distributors as they finish out their termination period following notification of the transfer of the top com.

Next I'd like to take a few minutes to highlight some of the growth investments, we're making in sales and marketing.

In the first quarter of this year, we split and expanded the U S sales team into 12 dedicated glaucoma territories and six dedicated retina territories.

Rep training programs were completed in Q2, and our new reps are coming up to speed encouragingly dedicated retina rep sales have been an important contributor to our recent U S business strength as I noted earlier.

We also increased our investment in building clinical evidence and developing closer key opinion leader relationships that can improve confidence and adoption of our <unk> Trans scleral laser therapy products.

Going forward, we plan to expand the clinical physician to physician messaging around T. L. T that we believe will support expanded adoption and use of cross broader patient indications.

In the second quarter, we virtually attended the World Glaucoma Congress.

We're micropump T. L. T was well represented with 18 peer reviewed presentations and posters.

We also have budgeted for the anticipated return of in person trade meetings and clinical events that will require greater investment, but we expect will provide good returns downstream.

And our first live meeting this year Hawaiian eye and retina, we showcased the new Iridex 810 laser with good feedback and reception.

Recently, we launched new Iridex branding, including a new logo look and messaging on our website in advertising and at the American Society of cataract and refractive surgery meeting in Las Vegas.

Our goal with this rebranding is to raise awareness and position Iridex is unique non institutional laser treatment runway for glaucoma patients a truly beneficial combination of effective and safe treatment to manage ocular pressures and controlling glaucoma for mild moderate and advanced disease.

Alrighty without surgical incisions.

A few other notable second quarter updates I'd like to highlight include.

Noticed that our paycheck protection program loan was forgiven.

Rod will cover the details and impact later.

Also we filed a form S. Three with the SEC to register top times shares in July.

This routine filing establishes market liquidity capability for top con in accordance with our collaboration agreements signed and closed in March.

On July 13th.

<unk> published its calendar year 2022, Medicare physician fee schedule proposed rule for the coming year.

Which included significant reductions in payments for certain migs devices used in combination with cataract surgery.

The proposal reduces incremental position payment for concomitant use of these devices.

By over 90% and significantly reduces the facility payment as well.

Well, it's not unusual for CMS to recommend reducing payments and they did propose a 5% reduction for Iridex is CPT code.

We believe there is potential that surgeons will reevaluate the relative merits of various devices and find it economically more attractive to increased usage of our pro base glaucoma procedures.

Much of our peer reviewed clinical data on micropump PLT regularly demonstrates 30%.

IOP reductions versus a few millimeters of mercury for some migs devices studied.

P L T a clinically attractive alternative treatment as well.

In conclusion.

New sales records this quarter demonstrate that iridex is breaking out to new highs of performance and we're proud of the results that our team has achieved.

We are wary, however that the rise in the Delta variant and other associated Covid related restrictions could limit access to our customers or possibly slow the completion of the distribution transitions to top con territories and were watching these dynamics carefully.

Nevertheless, we are confident that we can manage through headwinds.

We are most includes because we believe we're still in the early stages of our opportunities and see the pathway for long term upside.

With that I'd like to turn the call over to flood.

Thank you, Dave and good afternoon, everyone.

I will now summarize our financial performance for the second quarter of fiscal 2021.

Starting with revenue.

Total revenue for the second quarter of fiscal 'twenty, one was $13.4 million up 116% from $6.2 million in the second quarter of last year and up 12% sequentially.

Revenue from our glaucoma product family in the second quarter of fiscal 'twenty, one with $3.6 million up 70% compared to the second quarter of fiscal 'twenty and up 7% sequentially.

We sold 16000 <unk> probes in the quarter up 103% from the same period last year and 18% above the first quarter of fiscal 'twenty one.

As was the case in the first quarter, we again saw strong year over year growth in all U S up over 126%.

We sold 47 cycle logistics systems in the second quarter of 'twenty, one compared to <unk> 42 in the prior year period.

Our retina product line revenue improved significantly in the second quarter of fiscal 'twenty, one posting a 190% increase compared to the same period last year.

Our results for the second quarter of fiscal 'twenty. One included $2.1 million of revenue from Pascal product line acquired from top time.

However, even adjusting for the Pascal revenue year over year growth was approximately 108%.

Other revenue, which includes royalties services and other legacy products and revenues related to exclusive distribution rights were approximately $2.3 million in the second quarter of fiscal 'twenty, one up 50% compared to the prior year period.

The growth is due to higher service revenue and increased field activity includes.

Inclusion of additional services revenue from the Pascal product line and recognition of distribution rights revenue from the top comp transactions.

Gross margin in the second quarter of fiscal 'twenty, one increased 680 basis points to 45, 5% compared to the second quarter of fiscal 'twenty.

The gross margin improvement is attributed primarily to a significant overhead absorption on the 116% increase in year over year revenue and recognition of certain manufacturing cost savings in the period.

Operating expenses for the second quarter of fiscal 'twenty, one by $7.2 million compared to $5.2 million in the same period of the prior year, a 40% increase income.

The increase was due primarily to additional R&D expenses from the acquisition of Pascal business and planned investments in the sales organization beginning in early 2021.

As you may recall in the second quarter of 'twenty received a paycheck protection program loan in the amount of $2.5 million.

Pursuant to the terms of the loan we were eligible to apply for forgiveness, which we did in the fourth quarter of fiscal 'twenty.

In June of this year, we received notice of forgiveness. As a result, you recognized $2.5 million nonoperating gain in other income in the second quarter of fiscal 'twenty one.

We recorded $1.4 million and net income in the second quarter of fiscal 'twenty, one or a net income of <unk> nine per share up from a net loss of $2.8 million or a net loss of <unk> 20 per share for the same period last year.

However, even after adjusting for onetime gain on forgiveness of debt or loss per share for the period would have been <unk>.

So a substantial improvement over the same period last year.

We ended the second quarter of fiscal 'twenty, one with cash and cash equivalents of $26.3 million down from $28 million from the end of the first quarter of fiscal 'twenty one.

<unk> cash usage amount.

Of one $7 million.

Turning to our outlook for the remainder of the year. Despite some lingering uncertainty on new COVID-19 variance and inevitable distribution transition volatility we have delivered strong revenue performance.

Strong first half momentum as we head into the second half of fiscal 'twenty, one gives us the confidence to raise our guidance for the full year.

We now expect revenue to be in the range of $50 million to $52 million. This is up from our previously expected range of $48 million to $51 million.

We're also increasing our <unk> probe unit sales guidance range to 58000 to 60000.

Previous guidance range of 56, thousands of $59000, while keeping <unk> glaucoma laser system sales guidance of $2.50 to $2.75 units unchanged.

With that David and I would like.

So I'll turn the call over to the operator for questions.

Later.

As a reminder to ask a question you will need to press star one on your telephone.

All your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Jon Block from Stifel. Your line is now open.

Great. Thanks, guys and good afternoon.

Steve maybe I'll start just a really good really strong probe number you took up the guidance for probes for the year, maybe just some more commentary in other words is it broad based on the accounts is that a reflection of the bifurcated sales rep approach that I believe you recently implemented a steeper adoption curve and some of the accounts had adopted the new.

Probe just a little bit more color on the nice step up in probe utilization. Please.

Sure Hi, John.

Yes.

The strongest component was international growth and international probe usage and it had been delayed from in the third and fourth quarter last year when the U S was rebounding strongly and it really started coming on in the first and second quarters of this year. So that's the most significant piece and a broader suite.

Net of.

Units installed in the first half of the year as increase that.

The site placements and therefore.

Broader set of people using it.

In the U S. It's still growing at not at the same rate as internationally.

We have expanded the team, but they're coming up to speed.

The expanded territories and so we haven't seen as big an impact in growth, but again compared to.

Where we were a third and fourth quarter last year and got the search domestically.

We're comfortable with that growth and we continue to reach out to.

All of the potential opportunities, including moving existing users toward more moderate stage patients and broadening the pool of applicable pace.

Patients as well as additional users in those sites, where we may have one or two but there are numerous additional people who could come onboard as well as new site placements. So our focus is really on driving adoption and utilization.

Secondarily.

Pursuing new sites.

Okay got it that was very helpful and then.

Maybe just a follow up to that you guys are reporting maybe a week or two later than some others.

Yes.

Evolving and changing with Covid. Unfortunately in the Delta variant is there anything to call out our recent trends that youre seeing in some hot spots that I think might also be some.

Some pretty big glaucoma ask markets, like Florida, or Texas, I'm, just curious if youre seeing any.

Any pullback in some of those hotspots due to delta that may of.

We started to take hold over the past two to three weeks.

It's probably too short a time frame to see any results in revenue, but we are anecdotally hearing a lot of the old COVID-19 restrictions on access from our reps for our reps.

And supporting cases, visiting the offices all of those restrictions in in.

In numerous markets are coming back and so our teams are as focused as ever on communicating and.

It may have some impact EMEA flattened.

Flattened things a bit as you look forward, but we don't see it as a.

As a major headwind the ability to.

Have.

Either.

Bone or zoom conversations still exists.

So we'll just manage through it but we are seeing.

As in the General news, we're seeing restrictions that.

At the margin will affect our abilities. However, we're still scheduling cases, a lot of cases.

Port as well as some.

Education sessions.

The practices and those kinds of things just with I would say increased.

Striction on.

On the requirements for the reps to show up.

Got it and last last one for me.

I'll make it two parts one for Florida.

Even in light of some of those challenges.

Called out Youre still increase in guidance, but do we take some of those headwinds into account and think about anything on the cadence in other words is the seasonality when we think about the back part of the year is the seasonality in <unk> more pronounced relative to what we've experienced in past years, and then Dave maybe just to conclude the top car in training I think you called it out and you mentioned good progress there is it.

Complete is there anything to do anything more to do from a training perspective.

Their sales force for your products. Thanks, guys.

Okay.

In terms of the seasonality I think if you look at the experience Q3 has.

It's typically the low period that Europe shuts down for some period of time. So I think we're seeing the same level of seasonality in Q4 still expect it to be.

The strongest quarter of this year, so I think that.

We're still comfortable with.

That cadence holding out for.

For the year.

And then on the on the training side well first of all the training is never done, but but going through the first phase where.

The.

New sales teams are adopting are going to be selling iridex products. For example, we did it in two stages, we did kind of a global.

<unk>.

Training session that is loaded on top times, what's called top Con University and that's their general training.

Tool and then we went country by country with our team engaging with the local team to work on Iridex products, both the retina side.

And then the glaucoma side to be sure that they have the detail of how we go about pursuing for example, glaucoma opportunities and taking people through validation processes and those kinds of things.

To drive adoption.

We expect it to continue and.

Our focus and our requirement is that.

We do as much as as is needed to try to.

Make it seamless and it just continues on and there is kind of a minimal coming up to speed period.

Perfect. Thanks for your time guys.

Thank you thanks John.

Thank you.

At this time I'm showing no further questions I would like to turn the call back over to David Brown for closing remarks.

Thank you operator, and thank you all for attending the call.

Very pleased with our performance this quarter and we're going to stay focused on our on our growth trajectory and execution. So thanks, everyone.

This concludes today's conference call. Thank you for participating you may now disconnect.

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