Q3 2021 IRIDEX Corp Earnings Call
Okay.
Ladies and gentlemen, thank you Jenny.
Cost of getting more materially again, thank you for standing by your conference call should I begin momentarily. Thank you.
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Thank you for standing by and welcome to the Iridex third quarter 2021 earnings Conference call. At this time, all participants on a listen only mode.
After the speaker presentation there'll be a question and answer session to ask a question at that time. Please press Star then one when you touch tone telephone.
As a reminder, today's conference call is being recorded.
I would now like turn the comfort you host Mr. Hunter Kabi with 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 bought Ahmad interim Chief Financial Officer.
Earlier today Iridex released financial results for the quarter ended October <unk> 2021 copy of the press release available on the company's website.
Before we begin I'd like to remind you that that means you will make statements. During this call may include forward looking statements within the meaning of the federal Securities laws.
Pursuant to this paper provisions of the private Securities Litigation Reform Act of 1995.
Any statements made during this call that are not.
That are not statements of historical fact, including but not limited to statements concerning our strategic goals and priorities locked up all that matters sales trends in markets in the queue operator.
All forward looking statements are based upon our current estimates and various assumptions. These.
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 their business. Please see our most recent Form 10-K and Form 10-Q with the SEC.
Iridex disclaims 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 that is accurate.
We only have the live broadcast today November 11, 2021, and with that I'll turn the call over to Dave.
Good afternoon, and thank you all for joining us.
This quarter, we saw strength in both our glaucoma and retina markets. Thanks.
Thanks to sales execution from market focused reps and our expanded global distribution network like logistics probe utilization grew and retina sales meaningfully improved following our top con collaboration and Pascal acquisition.
Turning to our third quarter highlights, we achieved a significant year over year top line improvement and encouraging sequential results revenue grew 51% year over year and was only slightly below our high watermark posted in the previous quarter.
Despite the third quarter is typically softer seasonality in the ophthalmic business and we achieved solid gross margin improvement and limited cash usage.
In our glaucoma market. Despite the worldwide COVID-19 surge leading to some degree of procedure volume restrictions and limitations to accessing physicians like.
<unk> <unk> probe volume grew 18% versus last year.
In retina, our new dedicated U S sales team continued to build up the strong momentum from the second quarter and our top line also benefited from the smooth transition and our international distribution network, including solid Pascal orders.
More specifically in our glaucoma business psychology, six product family revenue increased 13% year over year we.
We sold 13400 <unk> probes.
<unk> firm in the U S and growing nicely and our O U S segment.
While cycle <unk> system placements increased year over year and helped drive probe usage in the third quarter. It lagged our initial expectations.
Which we largely attribute to COVID-19 restrictions worldwide dampening customers' decisions to expand investments and adopt new treatments.
Believe this will recover as the pandemic subsides.
And our efforts to drive expanded cycle <unk> probe utilization Iridex supported an arm's length assessment by 10 key opinion leaders from around the world to assess the current situation for micro pulse DLT and determined proper dosing levels and settings to optimize results.
Last week in advance of a Ao, we hosted a webinar titled Micro pulse PLT consensus and international expert panel.
Were these kols presented their conclusions we were delighted to see strong positive response to the webinar with over 1000 views so far.
The conclusions were very supportive of the efficacy and safety profile of.
Micro pulse DLT and included clear broad patient selection recommendations and effective treatment protocol parameters.
The panel operated independent of Iridex influence to achieve an objective assessment base.
Just on literature review surveys of the group's direct clinical experience and feedback from other clinicians to create a consensus conclusion for clinical indications and treatment parameters. In addition, the panel intends to submit a paper for peer reviewed publication later this year, which can serve as a definitive guide do micro pulse DLT.
Clinical application.
We are very optimistic this type of peer to peer documentation.
The greater confidence and adoption among a broader base of physicians, who may be slower to adopt and seek further endorsement of newer technologies.
Turning to our retina business.
We saw a retina product revenue grew 76% year over year of which 24% came from sales of Pascal products acquired from top Com earlier this year.
Our U S. Retina focused sales team is exceeding targets and new <unk> distributors are coming up to speed following broad sales rep training programs in the second quarter.
We maintain high confidence in our sales collaboration with top gun as we look to expand our focus from successful transition.
To broader joint sales opportunities.
Part of the initial international strength and retina last quarter was from Pascal inventory building in Japan ahead of temporary import limitations as we shift product manufacturer of registrations.
We filed this registration in Q3 and expect about one quarter of import limitations during Q4.
Turning to U S reimbursement news.
CMS released its final 2022 payments scheduled for ophthalmic procedures.
As it historically has done they again reduced physician reimbursements for most glaucoma surgical procedures.
The largest reduction was received in the migs space by stent placements concomitant with cataract surgery, effectively reducing the incremental payment to physicians for placing the migs device by about 75%.
Can alloplasty took at 22% hit.
<unk> was reduced 20%.
And our CPC TLD procedures by 15%.
We think the upshot is that our <unk> procedure becomes incrementally more attractive from an economic standpoint to.
To complement our clinical advantages of 30% IOP reduction and strong safety profile from a non incision a five minute procedure.
As we enter the final quarter of the year, we continue to improve our positioning in the markets we serve.
Splitting the U S sales organization into the beginning of the year enhanced our traction.
Our new international distributor relationships are now settling into place and remaining transition disruption is subsiding.
We see growing utilization of psychology, six probes, thanks to our sales efforts and support from clinical key opinion leaders driving further procedure adoption.
In the past year, we have significantly reinvigorated our retina business.
And we have a number of product enhancements underway for launch next year.
Finally, we are very pleased that all of these increased investment costs.
Ben covered by expansion of the business such that we sustained low cash usage.
Tempering all the successes Covid resurgence continues to show signs of suppressing patient procedures and physician expansion appetite.
Which we look forward to recovering as Covid wanes and while we've been successful managing our key supply chain needs.
We are addressing supply chain constraint constraints as they continue to emerge.
Nonetheless, we feel confident in our momentum and visibility as we enter this quarter and as such we have raised our revenue guidance to a range of $52 million to $53 million.
Collecting growth of 43% to 46% over fiscal 2020.
Slide will expand on this in a moment.
With that I'd like to turn the call over to Floyd.
Thank you, Dave and good afternoon, everyone.
I'll now summarize our financial performance for the third quarter of fiscal 2021.
Starting with revenue.
Total revenue for the third quarter of fiscal 'twenty, one was $13 3 million up $4 5 million or 51% from $8 8 million in the second quarter of last year and essentially flat sequentially.
Despite Q3 being the seasonally weakest quarter of our fiscal year.
I'm, particularly strong retina product performance, both in the U S and O U S.
Revenue from our glaucoma product family in the third quarter of fiscal 'twenty, one, but $3 1 million up 13% compared to the third quarter of fiscal 'twenty.
We sold 13400, <unk> six pros in the quarter up 18% from the same period last year and 42 site logistics system this quarter compared to 37 in the comparable prior year period.
Our retina product revenue improved significantly this quarter, posting a 76% increase compared to the same period last year.
Our results included $1 9 million up revenue from past got product line, which we acquired from top con.
However, even adjusting for Pascal product revenue year over year growth was a strong 29%.
Clearly highlights the strength of our retina product family and points as strong execution by the go to market team.
Other revenue.
$2 3 million up 47% compared to the same period last year.
The growth was due to higher service revenue increased build activity inclusion of additional service revenue from the Pascal product line and recognition of distribution rights revenue from the top comp transaction.
Okay.
Gross margin increased 210 basis points to 43, 6% compared to the same period last year.
Gross margin improvement is attributed primarily to increased overhead absorption on over 50% increase in year over year revenue and continuing manufacturing cost improvements compared to last year.
Okay.
Operating expenses for this quarter was $7 9 million up 44% increase compared to $5 5 million in the same period prior year.
The increase was due primarily to planned investments in sales marketing and clinical and increases in product development programs, including those acquired with the Pascal business.
We recorded a net loss of $2 2 million in the quarter, a net loss of <unk> 14 per share up from a net loss of $1 7 million and net loss of <unk> 12 per share for the same period last year.
We ended the third quarter with cash and cash equivalents of $25 6 million, reflecting cash usage of only 700000.
Turning to our outlook for the remainder of the year, having delivered strong results for the first three quarters of the year. We are updating our guidance for the second time to CF for fiscal 2021.
We now expect revenue to be in the range of 52 to 53 million. This is up from our previously expected range of $50 million to $52 million.
<unk> probe unit sales guidance range of 58000 to 60000 is unchanged from our prior guidance range.
Glaucoma laser system sales guidance is now 215 to 230 units reduced from 250 to 275 units were the reasons Dave discussed earlier.
With that David and I would like to turn the call over to the operator for questions.
Greater.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchtone telephone again, if he would like to ask a question. Please press Star then one.
One on the perfect question.
Our first question comes from Jon Block of Stifel. Your line is open.
Thanks, guys good afternoon.
Maybe I'll start with you just on the gross margin certainly good gross margin number even with some of the negative mix shifts due to the retina outperformance.
Can you just talk to gross margins going forward, how the supply chain is holding up are there any pressure points for extra costs like labor are shipping that you currently see.
<unk> are experiencing or that might be on the horizon over the next couple of quarters.
Yes, let me.
Speak to the last part of the question for our satellite like all the manufacturers we are certainly.
Subject to the same supply chain.
Headwinds.
The team has done really well here, we've been able to.
Ameliorate.
Issues by planning early so I think we feel pretty good about where we are we certainly not out of the words and I think that's something that we're going to have to deal with.
In the coming quarters, but I think we feel pretty good about down on where we are right now.
In terms of the gross margin profile I think the best way to kind of look at it is over a longer term horizon.
Period to period gross margin.
These are really subject to.
Our product mix.
And in quarter adjustments to inventory and so on so I think.
In the short run I don't think its a good way to measure our performance in the long run yes, we expect the margins to expand our goal has always been to.
To get those margins up.
Close to that 50% range that is a longer term goal for the company and state itself.
And I think you'll see the margin improvement from where we are in the coming quarters.
Overall over a longer term.
Isn't so.
I think I think that's where that's where we are.
Great very helpful. Thank you and then.
Maybe this one for you and I'll start with retina, and then maybe as my final one on glaucoma, but Brenda you referenced a solid pipeline and I know youre not going to give 2022 guidance today, but just at a high level, how do we think about the retina business.
You're making investments you've got a strong pipeline of the positive but on the flip side, you're going to be lapping some pretty significant comps going into 'twenty, two and obviously the bhaskar was all incremental in 'twenty, one and you'll be lapping that as well. So maybe you can just talk to us about that business and from an investor standpoint, do we still think about that as a growth business arguably in 'twenty two and beyond.
Yeah, we think theres room to grow in our retina business.
Worldwide growth rate is is in the low single digits.
And it might be.
Flat in the U S. It's hard to really know where the state of the market right now given the disruptions that occur because of COVID-19, but.
We've strengthened our competitive position we have products in the pipeline for next year that are going to.
Help on the cost side of things, which we can either use.
<unk>.
Price decreases to be more competitive and gained share or take higher gross margins.
We've also got the ability to combine the best of our Iridex scanning laser technology and micro pulse.
Pascal product line, we've been working on that since we combined the businesses.
That product will likely hit the market next year as well. So we think we've got some improvements.
And then there are other segments, where we've been working on developing applications.
<unk>.
We have some.
Technology and potentially disposables that helped drive.
That business on the retina side as well.
No.
When the time is right, we'll be able to talk about those things. So we like the retina business and in terms of our position.
As a long standing leader in that segment and we get.
The chance to see a lot of the opportunities out there and we're in better and better positioned to win those so we think we can take that from what has historically been prior to 2021.
It's a slow declining segment of our business to slow growing segment of our business and obviously, we're seeking to make it a higher growth, but that's the nature of the segment as we see it we're excited about it and in the products that we have.
Got it great and last one for me and then I'll follow up offline, but maybe just to conclude with GCI.
Certainly the probe number but taking the LNG six capital expectations and then you mentioned some difficulty due to COVID-19 and clearly unfortunately that continues to exist out there and were resolved just at a high level.
How do we think of that in other words do we think of these as pushes you brought down the box number I think in and around 50 for the year do we think about those 50 units sort of pushing into 'twenty, two and you recapturing that once the world does a better job of fully reopening or are there any other things you call out from a <unk> six capital headwind.
Perspective, where maybe they're not all pushes maybe half or or even less than that would just love. Some color. Thanks guys.
Yes.
So.
Zoom back we think the glaucoma segment as a long term significant grower you need to have a laser system in place to use our probes and do procedures and while we've got a good footprint existing already at about 2000, a little over 2000 systems worldwide.
Little more than half outside the U S a little less than half inside the U S. There are still a lot of sites that are growth opportunities and we will drive the system placements by driving adoption.
We have numerous.
Prior call said it is not our focus to necessarily place a system. It's our focus to bring on a user at a at a flow of procedures and probe utilization and when they need to buy a system.
We sell on the system.
I do think Covid has created.
Let me get through this period, I don't necessarily need to adopt some new technologies or invest in and an incremental thing, but I have an interest in it and.
I'll pick it up afterwards, and I think Thats a real factor again, we did our original guidance at the beginning of the year not knowing the persistence of Covid.
I think in general during that time, the expectation was it was a first half of 'twenty, one thing and that turned out to persist longer. So we're not particularly concerned about it obviously, we'd like people to adapt sooner than later.
But we do think that.
Those are just simply pushed off in time before they start and.
We will work toward that with our direct teams in the U S.
And then.
Our continuing outside the U S partners and then the newer <unk>.
Parts of the top kind of distribution network as well too.
Make that up next year and.
Really engage that longer term growth trajectory and we think it also helps drive.
Probe.
Volume growth as well, obviously with an incremental site so.
Long winded answer to your question, but I do think.
We make up the pace I'll say next year, whether there's kind of an accelerated catch up for what was deferred that's a tougher one to predict.
Understood perfect. Thanks, guys.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one when you touched on telephone.
One moment please.
Okay.
I get it if he would like to ask a question. Please press Star then one.
Okay.
Showing no further questions at this time I will turn the call back over to Dave <unk> for any closing remarks.
Thank you operator thank.
Thank you all for joining today, we look forward to our conversations with you in the future.
Good afternoon.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.
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