Q4 2021 IRIDEX Corp Earnings Call
Thank you for standing by and welcome to Iridex fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker 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 todays call may be recorded should you require any further assistance. Please press star zero I would now like to hand, the call over to Hunter Kabi Investor Relations.
Thank you and thank you for participating in today's call. Joining me are David Bruce Chief Executive Officer, and falling Ahmad interim Chief Financial Officer.
Earlier today Iridex released financial results for the quarter ended January one 2022 .
Copy of the press release available on the company's website.
Before we begin I'd like to remind you that means you'll make statements. During this call may 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 indication warm act of 1995.
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 talked a moment matters sales trends and the markets in which we operate.
All forward looking statements are based on 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 and Form 10-Q filings with 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 and is accurate only as of today.
10% 2022, and with that I'll turn the call over to Dave.
Good afternoon, and thank you all for joining us.
To quickly recap of 2021, the Iridex team significantly advanced the company as we navigated and adapted to endemic driven global challenges. Our achievements included a transformational collaboration with top com, a leading market participant.
That strengthened our balance sheet improved our competitive positioning expanded our product portfolio and enhanced our global distribution network.
We also significantly increased utilization of our cycle <unk> six platform for the treatment of glaucoma, which yielded a 27% year over year increase in probe sales.
Our retina business was revitalized in both U S and international markets through the acquisition of a new product platform, a retina focused U S sales team.
And new low U S distribution network. So for the full year retina revenue grew 72% over 2020.
And we employ judicious cash management, that's going to enable us to securely pursue our growth plans in 'twenty two and beyond.
We're highly confident in our ability to continue delivering valuable execution with progress in both of our key ophthalmic markets.
Turning to recap our recent results.
Glaucoma business, we continue to prioritize investments in clinical evidence developing key opinion leader proof statements and expanding clinical physician to physician messaging around the benefits of our micropump G. L T treatment in.
In addition, while in person training and industry Tradeshows return late in the year. We also successfully hosted virtual training sessions and showcase several new clinical papers.
As we pre announced in January .
Our fourth quarter cycle, <unk> probe sales increased 13% year over year, despite facing headwinds due to the <unk> spike in the latter half of the quarter, we still achieved the guidance set back in March for the full year.
Logistics system placements in the fourth quarter increased 58% year over year, bringing.
Bringing our total global installed base to more than 2100 systems at year end.
In addition, our international sales teams at initial success bundling offerings with our collaboration partner top con that allowed us to win a significant joint tender contract and we expect this bundling model to yield more opportunities in the future.
On our last call, we announced Iridex is support of an independent assessment of our micro pulse T. L T product.
By 10 key opinion leaders from around the world.
The goal of determining proper dosing levels and settings to optimize clinical results.
These kols presented their conclusions prior to the a O conference and have submitted the findings for peer reviewed publication.
Follow on session occurred at the recent American Glaucoma Society meeting and more sessions are planned at the upcoming Aas Crs as well as an additional smaller meetings around the country. We expect to have this data in key users drive procedure optimization and lead to greater adoption.
As a result, we achieved success in increasing awareness of our micro pulse technology in treating moderate severity glaucoma prior to a surgical incision based procedures.
That resulted in increased usage throughout the year the cycle <unk> product family achieved 24% revenue growth for the.
Over the full year of 2020.
Turning to our retina business 2021, Mark a significant turning point in what had been slowly declining market for iridex.
As anticipated our investment in the Pascal line acquired from top gun is delivering revenue growth and scale efficiencies.
Fourth quarter revenue grew 31% year over year of which 17% came from sales of Pascal products.
For the full year 2021, total retina revenue grew 72% year over year, which included 22% contribution from Pascal products.
This large move upward in 2021 was primarily driven by two unique events Pascal acquisition and recovery from the 2020 Covid trough.
We believe our retina business has been significantly strengthened and can grow at or above the 3% worldwide retina laser market rate compared to the slow decline we had experienced in prior years.
In 2022, our focus is on accelerating the momentum we gained in 2021.
In each of the markets we serve this.
This includes further supporting our global commercial team with.
Increased clinical data and education programs aimed at consistent strong outcomes.
Combined with continued key opinion leader support and peer to peer training.
Plus podium presentations.
All expected to drive continued physician adoption.
In addition, our Kols consensus group recommended a broad T L T patient profile, including used as a key non institutional tool for treating moderate stage glaucoma patients, thereby creating an opportunity to expand market penetration and utilization and a growing installed base.
In the U S. We will invest and selectively expanding territories and sales rep head count and.
And internationally, we will expand opportunities such as glaucoma product regulatory clearance in China as well as bundled tender programs in collaboration with top con.
Lastly, we expect to see our increased product development investments bear fruit as.
As we introduce enhanced performance and cost reduced platform laser systems across our product line.
In order to achieve our goals for the year, we plan to leverage revenue growth and the resulting gross profit.
Viciously expand our investments, while still maintaining our secure capital position and multi year operating runway.
In terms of guidance for the full year 2022, we anticipate cyclo <unk> probe unit sales of 67000 to 70000, which represents growth of approximately 18% over the prior year at the midpoint.
Psychology, six systems installed base is expected to expand by 225 to 250 units.
Total revenue for the full year is expected to be 57 million to $59 million.
So far in 2022.
We've been successful navigating the challenges of our supply chain and have set our guidance based on continuing success sourcing components and products. We also note that the worldwide impact of Omicron continued to exhibit softness in glaucoma procedure volumes, but we see a shift to increasing traction as capacity limits and mandates are lifted.
<unk>.
In anticipation of solid growth as reflected in our guidance for 2022.
With that I'd like to turn the call over to <unk>.
Thank you.
And good afternoon, everyone.
I will review, our financial performance for the fourth quarter and full year of fiscal 2021.
Starting with revenue.
Total revenue for the fourth quarter was $15 3 million up 24% from $12 3 million in the fourth quarter of last year.
Total revenue was up 48% to $53 9 million from $36 4 million in 2020.
We sold 15200 cyclo <unk> probes in the quarter up 13% from the prior year period.
We know that that on the crime surge that started in Q4 somewhat affected staffing capacity and patient appetite in the surgery center sites during the period.
We sold 90 site logistics systems in the quarter compared to 57 in the prior period, representing a return to a more normal buying patterns for the capital equipment.
Consistent with our sales focus, Florida fiscal 2021 and we have continued to maintain good pricing discipline and saw a steady uptake of fire system ASP.
Overall product revenue from Psych logistics product family was $3 9 million up 11% compared to the fourth quarter of 2020.
Total black on the product revenue for 2021 was $13 9 million up 23% from 2020.
Our retina product revenue improved significantly in the fourth quarter to $9 1 million, an increase of 31% compared to the prior year period.
Fourth quarter included $1 6 million of Pascal revenue after adjusting for Pascal revenue our retina.
Product revenues still grew 9% period over period.
For the full year 2021 eye retina product revenue was $31 1 million and grew nearly 72% compared to 2020.
After adjusting for Pascal revenue full year retina revenue was still up 35%.
Other revenue, which includes royalties services and other legacy products.
The legacy products.
Increased 20% to $2 3 million in the fourth quarter of 'twenty, one compared to the same period in 2020 the.
The substantial increase resulted from inclusion of Pascal service revenue and amortize revenue recognition from the sale of distribution rights to top line.
For the full year 2021, other revenue was $8 8 million compared to $7 million in 2020.
Gross profit of $6 million in the quarter was up 8% from the same period last year.
Gross margin percentage for the period was 39, 3% compared to 45, 4% in the fourth quarter of 2020.
The decrease in gross margin percentage is attributable to product mix and a one time inventory adjustment in the fourth quarter without such adjustment our gross margin percentage would have been 41%.
Operating expenses for the fourth quarter were $8 4 million compared to $5 9 million in the same period of the prior year.
The increase was a result of increase of R&D spend from the acquisition of the Pascal product line, and our planned increases and product development initiatives sales and marketing activities, including additional headcount in the sales organization.
Total operating expenses for 2021 $34 million compared to $22 1 million in 2020.
Net loss in the fourth quarter of 2021 was $2 4 million or a net loss of <unk> 15 per share compared to a loss of <unk> <unk> per share for the same period in 2020.
For the year, we reported net loss of $5 2 million or <unk> 34 per share compared to a net loss of $6 3 million or <unk> 46 per share in 2020.
Note that 2021 included a onetime gain of $2 5 million from PPP loan forgiveness.
We ended the year with cash and cash equivalents of $23 9 million, an increase of $12 2 million from the end of 2020.
The increase was due to the top comp transaction that yielded $17 5 million of cash in 2021. In addition, $1 9 million was received in January of 2022.
The additional liquidity from the top gun transaction has given us increased investment capability, which we have deployed to expand our sales teams in the U S and make investments in the product development clinical and marketing programs to accelerate our growth and periods to come.
In conclusion, I'll reiterate our guidance for 2022, we expect total revenue for fiscal 'twenty, two to be 57 million to $59 million.
<unk>.
Did the range from 67000 to 70000, and <unk> glaucoma laser system installed base to expand from $2 25.
250 units.
With that David and I would like to turn the call over to the operator for questions.
Operator.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Tom Stefan of Stifel. Your line is open.
Great. Thanks for the questions. If I can start on June six 2022 guidance and the business look solid came in above our estimates.
Can you start off by talking about maybe the most important drivers we should be thinking about with probe growth specifically in 'twenty two.
And then longer term what are the growth aspirations for the <unk> business do you think this can become a consistent 20% plus growth business.
So what gets you there.
Yes, Hi, Tom Thanks for the question.
So.
We think the a couple of things that help us accelerate from here and we're forecasting about 18% at the midpoint for 2022 in terms of growth on cycle <unk> probes.
There are a couple of areas, where we are moving clinicians who may be happy with our products, but using them in later stage patients.
As you remember this product came to market.
As an outgrowth from the late stage treatment of Cyclophosphamide regulation.
This one is intended for our more moderate stage patient.
And.
As people get familiar and comfortable in a later stage patients they move toward the moderate stage patients a lot of our clinical evidence and key opinion leader training sessions and otherwise are highlighting the combination of efficacy and safety profile that makes it appropriate for that stage patients and I think as people get.
Experience moving.
Towards the milder stage not into the milder stage, but toward the moderate stage.
That that will be a growth leg for us. There are also quite a large number of sites, where we have one.
123 users that.
We're just center may have eight or nine potential.
Users for us and so bringing more users in the same sites onboard is another growth vehicle and then the third growth vehicle is additional site placement and new users in a greenfield site and we think all of those things will combine the enhancements to dosing.
<unk> and very.
Precise technique has also demonstrated anecdotally in the papers are coming that efficacy is more consistently achieved and the safety profile is preserved and we think as that evidence and experience gets out more people will broaden the patient profile for which they are recommending our <unk>.
<unk> procedure.
Longer term.
We think that we're kind of on that classic S curve of penetration and still on that lower leg that growth but.
Flatter growth curve in more efforts, both selling in and experience building with with users and we will hit that critical mass and accelerate at a faster rate.
We see the opportunity to.
Be somewhat equivalent to the early stage treatment that's been around for about 20 years called <unk> selective laser trabeculoplasty.
And that has about a 20% penetration into the mild stage patients and we are still very low penetration a couple percentage points into the moderate stage patients. So we think there's a big growth opportunity both in the U S and outside the U S where the simplicity of our procedure.
And the attractive economics of our procedure compared to.
Other implants or device related <unk> surgeries really should shine and in more cost sensitive environment.
We believe that we should be in the 20% to 30% growth range as we.
Mature these various growth levers and people start to recognize the role in that long term continuum of caring for our glaucoma patient.
Got it that was really helpful and maybe just as a quick follow up.
You mentioned the moderate stage patient population as a growth driver for 'twenty two.
Have you or are you seeing that in the field now and if so any numbers you can put around that in terms of.
Percentage of procedures that are in that patient population.
There's macro data and there is kind of the analytics that we get from.
Patient cases that we support.
I would say, we're probably achieving in our experience as we support cases physician by physician.
Probably in the 20% range of our cases are what we would call pre incision, all meaning as they progress in the severity of their glaucoma at some point theres, a need to do something more than drops or multiple drops and they start to consider and seasonal surgeries and we believe PLT belongs.
Before you do those incision procedures and can be repeated and generate.
Multiple years of.
Runway before you have to do the more severe procedures and thats really what were investing around is that.
Change in the treatment continuum and paradigm.
In terms of the number of.
Moderate stage patients, there's about $6 million total glaucoma diagnose patients in the U S.
And.
But half of those are in the mild stage.
Most of the rest are in the moderate stage two to $2 5 million. So.
The simple math of applying the same 20% penetration of.
Esselte and the early stage patients who could generate several hundred thousand procedures.
We just completed a year, where we did almost 60000 procedures roughly split even internationally and domestically.
So we see that as a.
Twentyfold growth opportunity and really capturing significant penetration into the moderate stage patients.
I don't know if that answers your question.
Certainly does.
So, yes, let me put it to retina.
Working through the guidance.
We are arriving at implied growth in 2022.
Low to mid single digit and I think you've talked about maybe growing above the 3% market growth if I heard you correctly, but.
Maybe just for retina can you help us with the pushes and pulls.
In that business for 2022, and as a tack on.
Can you remind us just because of the different product launches and enhancements coming up and kind of the timing around those as well.
Sure so we.
We did a couple of things through 2020 , one that really allowed us to improve our competitive positioning.
The prior Iridex products and then we acquired the Pascal product line.
Which when combined puts us in a much better competitive position.
We've done some things to reduce cost so we can be more aggressive in our pricing.
And so we think we have moved from a slow decliner to a grower at the market or better that said the retina capital equipment segment of the market is relatively mature.
Primarily <unk>.
Placement or expansion if.
Center has satellite offices and wants to replicate the same.
Laser equipment in those satellite offices as the physicians.
Go out and support patients in those areas.
It's a relatively mature marketplace in that sense and so the just the growth opportunities for the market itself are a relatively low low single digits and we think we can start to gain share as is the breadth of our offering and the quality of our competitiveness has improved.
To that end.
Later in the year, we'll be introducing a new platform across our standalone lasers.
532 nanometer and $5 77 nanometer laser systems. So we have a commonality in the platform and just to.
Essentially different.
Frequencies of the laser systems. So the cost is spread over a broader base.
<unk>.
Obviously, we've focused on some cost reduction areas there as well.
Exact timing is going to be I'll call. It the second half of the year.
Want to be sensitive to the competitive nature in the marketplace as well as not freezing up our customer base with.
Kind of imminent.
Announcement of a product so we're.
Going to kind of keep the details of that close to closer to the best year. Thank you understand that but.
But longer term, we think we have the opportunity to gain share we have the premium place in the marketplace in terms of off feature offering as well as.
Reputation and we want to continue to build on that.
Got it helpful last couple for me.
Just on margins Bob this might be for you, but for 2022 at a high level, how should we be thinking about gross margin, obviously, a lot of moving parts this quarter.
Maybe if you can help us with the cadence and Directionally, what should it look like versus 2021.
Yes, So I think you'll see you saw Q4, which was unusually low for the period and as we mentioned in our prepared remarks.
Everything to do with the.
The product mix.
And one small adjustment looking forward, assuming a product mix comes out the way just Dave talked about we get the growth in the glaucoma business, which is a high margin product as well as <unk>.
And the retinal growth at the levels that we're talking about we are we feel like gross margin in the mid Fourteens is reasonable.
The expectation now having said that there are supply chain issues. They are inflationary issues on on staff, we've been able to manage that fairly well.
We will continue to do that and strive towards it but I think realistically mid forty's is a.
Good way of looking at it.
Okay great.
Got it got it and then last one just on pricing.
How should we be thinking about pricing across the portfolio for for 2022 can that be an incremental tailwind or general thoughts there. Thanks guys.
Yes.
That's a tough one time, because we are seeing pressure on the cost side and as I think all manufacturers are in not just in our industry in our segment. So we feel that to preserve preserve margin and we need to make those.
Those increases and our hope is that.
Essentially that the market is receptive to that seeing the.
The pressures that are across the economies in our in the headlines in terms of inflation today. So we do think in terms of revenue.
That that that is a helper for us.
We factored some of that into our guidance, but.
Like I said I think it's.
It's tough to to know how.
How much sticks, what the competition does particularly in the more price competitive segments.
So we don't see it as a as a.
As a major revenue driver, we think successfully competing for the business and winning market share is going to be our primary revenue driver.
That sorry that and adoption from.
In the glaucoma front with physicians, just using a broader a broader range of patients as I described.
Great. Thanks again.
Yes.
Thank you. Our next question comes from Scott Henry of Roth Capital. Your line is open.
Thank you and good afternoon, a couple questions I will start on the revenue side.
Staying with pricing.
Forward, but in Q4.
I look at the G six businesses it seemed like.
Pricing was a little lower than the past couple of quarters and am I seeing that correct and any comments on that.
So theres two components to the the <unk> pricing the probe.
Disposable price and then the laser systems price so for Rod was referring to a steady increase in the ASP of the system the value of that capital equipment piece is quite strong when you look at the potential procedure volume in and the reimbursement that facility and the physician receive.
That the payback period can be relatively short with any.
Reasonable volume of procedures and.
So we have been cognizant of that and trying to move up.
The average selling price of those laser systems probes has been relatively stable I would say, we're creeping it up as we have.
Discontinued some of the bulk.
<unk> discounting.
That's happened to a greater degree in the past so the general trend has been up but very slightly in the in the probe side of the business much more substantially in the capital equipment side of the business.
Okay.
Thank you and then.
Looking at.
Pascal.
Through the quarters.
It looks like Q4 is a little lighter.
Q3, and Q2 is there seasonality there or.
Just curious how you know if that business is performing as.
As expected and how we should think about it going forward is it still a is it a growing business or a declining business.
It's performing very well if you remember when we.
Talked about the second and the third quarters, we talked about the strength of Pascal business and some of the potential shifting of revenue in the distributor network from one quarter to another quarter and one example that we used which is relevant in this case was that.
In regulatory approvals as it switched to an iridex product.
Sorry is it switched from a top com product to an iridex product. There are registration blackout periods that for example in Japan. When you file you can't sell until you get the approval and that can be a full quarter.
So in anticipation of that we built and top gun bought inventory for those market segments.
In the second and third quarter.
And.
Obviously, we did not sell units to them for that segment in the fourth quarter. So I think that accounted for I don't know the percentages offhand, but that accounted for part of the shift that occurred in.
And the Pascal line, specifically between say stronger third quarter, and second quarter and weaker fourth quarter typically the fourth quarter is going to be the strongest capital equipment quarter of the year.
Pascal.
A key part of our investment going forward in and developing that platform and consolidating with the iridex products. So as we look into 'twenty two and beyond.
We'll consolidator in a single platform with a full featured set and we think that will be very strong competitively.
The result is that it will shift revenue from potentially hour.
Iridex or older Iridex Tech cell.
Scanning laser platform onto the Pascal platform for example.
We'll talk about the net number of sales or net revenue of sales as opposed to continuing to breakout the iridex and the Pascal product lines.
No. We're very pleased with the performance of the business and.
Continuation of strong selling by top con in their regions around the world.
Okay, great. Thank you.
Shifting to the income statement.
Uh huh.
R&D.
A little higher in Q4 than in Q3, which was higher than Q2 and Q1.
Should we expect R&D to continue.
At that sort of fourth quarter level going forward is that a kind.
Kind of deliberate focus to use kols more to get involved or do you think it might pull back a little from from that level going forward.
No no actually you are actually putting you're right Q4 is a kind of a more representative quarter of where we expect to be.
For 2022, not just for R&D, but I think thats more of a representative of other line items in the Opex as well.
Opex up 8.4.
$4 million.
Is what do you expect that.
2000, 22022 to be going forward.
Okay, great. Thank you for it and May.
Maybe keeping it right there with you.
That mid 40.
Gross margin.
Do you think we'll see that climb throughout the year or do you think youre going to get there right away and kind of more of a steady number.
The mid Forty's is.
It's going to be incremental over the course of the year and a lot is dependent on revenue some more revenue in the later Q4 means more overhead absorptions are higher.
Gross margin, so, but it will be incremental the 40, the mid Forty's is a.
Kind of normalized number over the course of the year and Thats how it that's how we should be thinking about it.
So, but so earlier.
In the period, there should be less than going to be over 45, averaging approximately 45 for the quarter and for the year.
Okay. Great then that should do it for me. Thank you for taking the questions.
Thanks Scott.
Thank you at this time I'd like to turn the call back over to David Bruce for closing remarks, Sir.
Okay. Thank you operator, and thank you all for joining the call. We look forward to reporting strong performance next time.
Thanks again.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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