Q2 2022 IRIDEX Corp Earnings Call
You.
Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lee Salvo with investor relations. Please go ahead.
Thank you, Carmen, and thank you all for participating in today's call. Joining me are David Bruce, Chief Executive Officer, and Florida Mod in our chief financial officer. And Florida Mod in our chief financial officer.
Earlier today, Eric actually released financial results for the quarter ended July 2nd, 2022. A copy of the press release is 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 security flaws, which are made pursuant to the state parable provisions of the Private Security's litigation reform 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, 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 discussion on the risks of the risk and uncertainties associated with our business, please see our most recent Form 10-K and Form 10-Q filings with the FCC.
Heredex descends in the intention or obligation, except it's required by law to update or revise any financial projections or forward looking statement, whether because of new information, future events, or otherwise.
This conference call contains time sensitive information and is accurate only as is a live broadcast today, August 15th, 2022. And with that, I'll turn the call over today. Thank you.
Good afternoon and thank you all for joining us today.
Following our top-con collaboration and capital infusion in March of last year, Eridex has enjoyed a multi-quarter trajectory tracking significantly higher top-line revenue.
In this year's second quarter results, we experienced a plateau with total revenue growth leveling to 2%.
The context is important here. Last year's quarter was particularly strong, and this year's summer slowdown appears to be short-term and attributable to a combination of factors.
Macro headwinds from inflationary pressure and US dollar strength relative to foreign exchange rates has dampened our OUS retina capital system sales during the quarter.
and increasing pricing pressure on our international customers from high inflation across many segments.
They've driven up customers' total spending and has led them to assess their capital purchase kind of
In the glaucoma market segment, we experienced relative procedure volume weakness in the second quarter. This is largely due to strong, comparable result to the prior year second quarter.
But on top of this, we did experience headwinds from continued COVID impacts to surge of center capacity and patient procedure volumes.
Surprisingly, vacations by doctors, staff, and patients ran unusually high and as a result, added to reduced or delayed procedures. These combined deliver some procedure softness in late May and June .
We believe these headwinds are temporary.
And our team has maintained steady focus on expanding our market and building the physician adoption of our non-incisional approach to treating glaucoma and retinal disease.
Clinicians have proven receptive to our enhanced dosing guidance and are monitoring patient outcomes over time as they build experience toward expanded usage and a wider indication of patients.
While this process is taking longer than we like, our confidence remains high that we're demonstrating improved outcomes that will lead to broader adoption.
Glaucoma probe sales volume increased 2% quarter over quarter.
but declined 6% versus the prior year.
As I discussed, the decline stems from second quarter 2021 OUS probe sales that were particularly strong as the parting distributors placed and sold final orders before Topcon took over distribution for over half of our...
all US territories.
Despite these challenges, we're pleased that second quarter probe sales attained our second highest quarter.
Ever only behind last year's second quarter.
In Japan, we completed distributor transition at the beginning of the second quarter, marking the last of our large international market transitions.
As part of the transition, TopCon received probably inventory from the prior distributor and therefore placed minimal orders in the quarter. We anticipate renewed contribution from this region in the latter half of the year.
and going forward.
In June , we were pleased to receive a long-awaited regulatory clearance to market and sell our CycloG6 glaucoma platform in China.
This important milestone opens up a significant new market for Iredex. An estimated 9.4 million adults in China are afflicted with glaucoma. That's a market scale comparable to that of the US.
We sold the initial systems and probes to begin the launch, and together with our distribution partners, Topcon and Clinico, we conducted clinical launch meetings with over 70 physicians, significantly exceeding our expectation of 15 to 20 from our initial launch site.
Together with our partners, we'll support pilot sites and patient experience to build a strong initial presence in China that we can then leverage to penetrate the broader market.
To support the growing awareness of PLT in our China launch, we expanded our commercial team with the addition of a Vice President of Marketing, as well as new sales team members, two in the US and three internationally.
Increasing our sales team enables us to continue broadening the geographic reach and focus of our sales efforts.
Lastly, our capital position remains secure.
So again, this quarter we deployed some cash to mitigate potential supply chain impacts, and we continue investing in initiatives to secure our long-term growth.
year-to-date cash reduction is approximately 5.9 million
with about 3.1 million of that shifted in current assets from cash.
to inventories and prepayments to mitigate
lingering supply chain challenges.
On the critical front, we had several notable updates that put on the work done over the previous quarter.
clinical presentations and industry articles supporting the dosing impact on outcomes and the importance of sweet-speed techniques are increasing awareness of methods to secure optimal results.
The first clinical paper from our PLT consensus committee has been published.
and the group is finalizing the submission for the second half of the guidance paper, which will be published in the same journal.
We expect these papers to serve as critical proof point as we continue to drive adoption of PLT and introduce this technology to more and more physicians.
Turning to product launches, we're excitedly preparing to launch a new suite of laser systems at the upcoming AAL conference beginning September 30th.
This launch will include new platforms for the three main laser products within our retina treatment portfolio.
Not only will the platform deliver modernized architecture and ultimately connectivity capability, but they provide iridescent lower cost of manufacturing which we can use to drive share gains and improve margins.
We expect initial shipments in the U.S. to begin in Q4, followed by OUS approvals over the next several quarters, and we'll roll out international market launches as those come,
As we look at the full year 22. We assess their performance year to date and the impact from extended prevalence of cobit plus the macro headwinds affecting our expectations for the 2nd of the year.
and conclude that it's prudent to lower our revenue and probe guidance for the year.
Our updated full year 2022 outlook is as follows.
Total revenue of 56 million to 58 million reflecting growth of 48% year over year.
And we now expect probe sales of 61,000 to 63,000, both of 5 to 8% over 2021.
Our expectation for glaucoma system sales remains unchanged at 225 to 250 units.
We'll continue to focus on executing our growth catalysts.
And when combined with typically stronger 2nd, half of the year sales, we have confidence in our ability to build momentum through the remainder of 2022.
In summary, we perceive the current challenges as impacting the fiscal year 22, but we're confident that we have in place an energized commercial team, high quality distribution network.
Enhanced product portfolios and a multi-year capital runway that will allow us to succeed in our long-term growth strategy. And PhysicianEraDEX is the leading provider of non-incisional laser-based treatments in the ophthalmology market.
With that, I'd like to turn the call over to Fwad.
Thank you Dave and good afternoon everyone.
I will now review our financial performance for the second quarter of Fiscal 2022, starting with revenue.
Total revenue for the second quarter of...
The second quarter was 13.8 million, up 2% from 13.4 million in the second quarter of last year.
We saw a 15,000-cyclo-G6 growth in the second quarter, a decline of 6% from the prior period, and a 2% increase quarter over quarter.
As Dave noted earlier, the year-over-year decline was primarily a result of the prior period including final orders by distributors in advance of our move to Topcon's exclusive distribution.
Moreover, we're also experiencing some headwinds from a stronger dollar as vast majority of us revenues price to USD.
We solved 48 cyclo-g6 systems in the quarter compared to 47 in the prior period.
Year-to-date, we have sold 104 cycle-adhesive systems, tracking our initial expectation for the full year, and validating our worldwide install-based expansion goals for 2022.
It also highlights the broadening adoption of TOT for the treatment of glaucoma.
Total product revenue from a Cyclo G6 product family was $3.5 million, down 3% compared to the second quarter of 2021.
into our retina business.
Product revenue was $7.5 million flat compared to the prior period.
Strength in our legacy Iridex Retina product was offset by relative softness in Pascal revenue.
Recall that last year in Q2 and Q3 we shipped extra units to start building inventory in Japan ahead of a shipment blackout as we registered Aerodex as the manufacturer of record for Pascal.
Other revenue, which includes royalties, services, and other legacy products, increased 22% to $2.7 million in the second quarter of 2022 compared to the same period in 2021.
The substantial increase resulted from higher service revenue and higher amortized revenue recognition from the sale of distribution rights to TopCon.
We expect to sustain this level for the balance of the year.
Gross profit of $6.3 million in the quarter reflected gross margin of 45.6% compared to 45.5% in the second quarter of 2021.
We expect that further margin expansion will come from increased probe volumes and sale of our new laser platforms as they take the place of existing systems in the future.
Operating expenses for the second quarter were $8.4 million compared to $7.2 million in the same period of the prior year.
The increase was the result of higher R&D spend on planned investments in new product developments and additional R&D capability from the acquisition of the Pascal product line.
Additional plan investments in the sales organization as well as expanded marketing and clinical activities also contributed to the higher operating expense in the period versus the same period last year.
Higher R&D and sales and marketing expense was partially upset by lower G&A expense in the period.
Net loss in the second quarter of 2022 was $2.2 million, or a net loss of $0.14 per share, compared to an income of $0.09 per share for the same period in 2021.
Please note, second quarter of 2021 included a one-time gain of $2.5 million from forgiveness of our PPP loan.
We ended the quarter with cash and cash equivalents of $18 million, representing cash usage of $2.7 million during the quarter.
Cash usage included approximately 1.1 million investment inventory and related pre-orders.
We believe these investments in materials and inventory are necessary to mitigate potential supply chain bottlenecks in the future.
We expect to start bringing down inventory starting in the fourth quarter of fiscal 2022 into fiscal 2023.
We reiterate that these shifts in our current assets are an essential part of the supply chain management strategy in the current environment.
In conclusion, I'll provide an update to our guidance for 2022. As Dave mentioned, we now expect total revenue for fiscal year 2022 to be 56 million to 58 million compared to 57 million to 59 million previously.
G6 probe cells are now expected to range from 61,000 to 63,000 compared to a range of 67,000 previously.
And finally, our expectations for growth for cyclo-G6 glaucoma laser systems install-based growth remains unchanged at 225 to 250 units.
With that, Dave and I would like to turn the call over to the operator for questions. Operator? Thank you. And as a reminder, to ask a question, simply press star 11 on your telephone. One moment while we compile the Q&A roster.
Our first question comes from the line of Tom Stefan with CIFO. Please proceed..
Great. Hey, guys, thanks for the questions. If I can just start on G6 guidance, you maintain the system's placement guide.
Which I would think would be the impacted portion from inflation and macro, which I think on the retina side you said
may be impacted, but then with G6, I think the probe shipments is where guidance came down somewhat meaningfully for 2H. So I guess on the probe side, what else are you seeing beyond macro? Because I guess wouldn't that least procedure volumes.
be a bit more resistant to macro. Just trying to make sense of this dynamic. Is it competition? Just any color there Dave would be helpful.
Sure, hi Pam.
Yeah, I would say that macro is a factor and then as shifted distribution, some of the softness in the second quarter was inventory shifts for example in Japan as I mentioned.
Going forward, we think we'll recover on those items and reestablish the growth trajectory. Our original guidance was about 18 percent probe growth through the course of the year, and we've been relatively flat year-to-date versus last year. So as we start to grow again, we think we'll recover on those items and reestablish the growth trajectory.
in the second half, we've got that lack of growth in the first half to carry. And that's why the numbers.
are down. So we're going to grow at a rate, but you know, we're starting at a lower base than we would have expected for the second half of the year. So I think you'll win you when you do that math, you see it sounding lower than than you would expect. We're actually pretty pleased with the guidance of system sales. That it indicates the appetite is there to adopt and the ability is such that, you know, we're feeling comfortable that they're still demand there. So, um.
price points for that capital equipment are not too high. They're in the $25,000 range.
So, you know, that's that's an easier capital purchase to. To continue forward with then.
retinal laser system that might be between 50 and 100,000 depending on the feature set.
Does that clarify things for you a bit? Yeah, that's helpful. I actually think that's a really good segue into my second question. It's just on kind of the medium term for G6. I'm not going to ask you to guide for 2023, but I'm curious how we should be thinking about next year at this stage. It sounds like some of the current headwinds are transitory. What is your medium term?
outlook, because I do think guidance implies flattish utilization in 2022 versus 2021, but again, you do think it sounds like you'll get back on the normal growth trajectory of that business, so for 2023, is it fair to think about G6 kind of getting back to the 15 to 20% plus growth rates as we enter next year?
I think so, you know, we thought that was going to be the case this year and I think. Persisted longer than I think many of us anticipated. And.
You know, it kept us at a level as opposed to growth in this first half of the year. We established growth in the second half of the year and I think that continues.
But there are a couple of nice catalysts to accelerate that growth. We really have high confidence that our newer dosing and sweep speed communication coming from papers, KOLs, and our sales teams calling on customers is...
really gonna take capture traction and start the number one give.
very consistent and durable results and cause our clinicians to start to broaden the
the patient base on which they use it. You know, for the longest time we've talked about expanding to the more moderate-space patient.
But before you get that, you've got to get that confidence and the durability and especially the safety profile. And we think we're building that now.
So I think those things will come out as we move along in the second half of the year. There are also some studies that are ongoing that will demonstrate the current dosing with the current probe and the outcomes and safety profile from that. So as that emerges, I think it gives a greater and greater confidence of existing users to broaden the patient selection and newer users to come on board. So yes, we think.
23, we should be on a higher growth trajectory. So barring any other.
exogenous events that start to affect usage and ability to do procedure volumes and those kinds of things.
Got it, that's helpful. Maybe last one for me, just on the Salesforce, can you remind us how large it is now between each segment? Just talk about the strategy and the rationale here, kind of where these new reps will be focused between...
between the different businesses.
Sure. So in the US, we have a team of
six territories plus a support team that adds up to about ten on the retina side of the business.
And so that's a capital business. It's a.
Primarily a replacement business, although there is some expansion in facilities that want to have a satellite facility and have the same kind of equipment in that facility. But, you know, overall the doctor base is everyone has a laser and it's, you know, it's really an opportunity for our new platforms to have some growth as we replace older systems with newer systems.
So that's the retinocyte in the US. And then the glaucoma side in the US, we have 14 territories, so we just brought us up from 12 to 14. We have some clinical support team members, as well as some management and inside support. And so that team totals about, just about 20 people. So that's the retinocyte in the US.
And that's focused on glaucoma exclusively in the US.
And then internationally, we expanded by three, both in Asia Pacific as well as in Europe , to put more support in place to help Topcon and their distributors drive the business in their channels. So we added what we call area sales manager, as well as clinical specialists to help support cases and train.
sales reps in the territories. And so that international team now totals about
seven people covering
with roughly 60 distributors and including the sub distributors underLEX.com
Great, that's helpful. And if I can squeeze in one more, just going back to glaucoma.
Obviously there's a lot of new entrants from a product perspective, you know, recently and even more so on the horizon.
Dave, can you just talk about your view on the competitive landscape?
and to what extent maybe it's factored into the revised guidance and I guess just more broadly, how are you thinking about, um,
you know, ramping competition and
G6 utilization. Thanks.
Sure.
We think that our non-incisional approach is relatively unique.
we can treat the moderate stage to the later stage, and we don't need an incision, and we don't need the clinician to decide to make an incision in order to treat, for example, a MIG's standalone. And what we're hearing from the clinicians is their preference, if they can avoid it, is to not make an incision and use our technique if they're satisfied that it delivers the results in the safety profile.
That said, I think there is a lot of interest in understanding it and potentially trialing some of the newer entrants and new approvals for standalone. I think it's taking some mind share. I don't know at this point that it's really affecting – we don't hear it – that I'm doing a bunch of these other things now, so I'm using yours less. We just did not hear that.
So I think it's out there. I think it's it's a distraction. I think that
that space has
So many competitors and all of them with a large number of sales reps.
there's just a thunderous noise in that space.
targeted at glaucoma specialists and comprehensives who are doing this.
And so we're one of the voices in one sense that they're hearing. We think from a product standpoint we're well differentiated, but from a communication standpoint we think it's a challenge to...
to be heard with all the other noise. Internationally, I think there's less of that because I think MIPS is less eagerly adopted, or at least in the percentages internationally. And so we don't feel that is challenging. There are a couple of competitors out there attempting to do what we do in our non-incisional probe approach. Thank you.
But, you know, as we've detailed, there's so much work that has gone into getting the right configuration of the probe, the right clinical and dosing and technique and the training and support that we think, you know, we have a relatively dominant position in the actual procedure volumes going on and that we can maintain that.
Thank you.
Great, thanks Dave.
Thank you.
Our next question comes in the line of Scott Henry with Ross. Please go ahead.
Thank you and good afternoon. Just a couple questions. Dave, I guess.
You know first and I know you've talked about it in the prepared remarks and probably in the last question as well
But I just wanted to flush it out one more time. So the G6 came in below expectations, and I've heard a lot of different things, capacity, constraints. Meghan up our stinkin Clickable.
What do you think was the main driver?
while why it came in below expectation. And if you don't want to put it on just one thing.
Maybe if they're like, you know, how would you know if you're just trying to simplify it as much as possible? What do you think happened in 2Q that made things not turn out as much as you thought they would?
I think it's 2 things that that you can look to that are very straightforward number 1.
I think it's 2 things that that you can look to that are very straightforward number 1.
You know, the COVID persistence.
continue to dampen procedure volume, at least in our facilities, with our procedures.
And secondly,
You know, it was very visible to us that the latter part of May and into June there was just procedure volume softness and
I was quite surprised when we canvassed that this concept of vacation kept coming up. So I at first didn't necessarily believe it, but I've heard that other conference halls, people have observed the same phenomenon. So I think that that's a very short-term focused thing. I think it's hard to extrapolate. We hate to look at week by week or month by month.
and call it a trend, but we did see recovery in July that made us more comfortable.
Number one, there was some truth to that and number two, that people did actually come back from their vacation.
So when you say, Dave, when you say procedure volume softness.
It sounds like you're speaking about the market, not market share as much as the denominator in the equation.
Is that correct? It's notoriously hard to get...
market share indications, but it's pretty clear that our sites were saying, yes, we're doing many fewer procedures, our clinicians are on vacation or staff is on vacation or sick, or patients don't want to come in because they know five people who had COVID and they just don't want to be exposed. Those are the indicators for us. We don't really have good macro visibility on what was happening to cataract procedures in those.
collaboration with Topcon is that we will see these quarterly periods where we'll have volume shifts of orders from one quarter to the next quarter just based on the timing of when they place their stocking or orders for their sub distributors or end customers. And I think we saw some of that internationally. And I used the example of Japan where that distribution shift occurred really at the end of Q1 beginning of Q2.
And with that final shift over came inventory and program inventory. So the normal flow of orders.
From that region didn't come to us and we expect that to come in the future, but. You know that you know it's a significant market for us Japan and that you know it affects it affects the totals so.
I think those are probably the two biggest. They're clearly short term.
I think the macro, if I would give you a third, is that even though people are quite receptive and users understand the importance of dosing and speed on outcomes,
Our procedure does take a while to see that outcome and durability. So typically they will evaluate at 30 days. But then they also want to see 3 and 6 month outcome both from a bar Nepal or India.
reduction of intraocular pressure, percentage reduction, also safety profile. So
Like I said, it's it's in the comments, it's taking longer than we anticipate, but the results seem to be there. And so we're quite confident that.
That that adoption will be confirmed and we'll get that broadening. And so. You know, as that plays through, I think that we can accelerate our growth and.
have recovery from those short term factors from the quarter.
Yeah, I mean, I guess what I was trying to flush out is all of this seems temporary and Glaucoma is not going away, barring some sort of contraction from the economic cycle where perhaps...
People just see the doctor less for a period of time that
that should reverse at some point. You should expect to see growth return to trend perhaps in 2023. Is that a fair assumption?
Yeah, that's that's very fair assumption. It's our expectation. We've. You know, we've continued hiring, we're pushing our marketing programs and clinical programs. To to get back to that phase and look, you can't. Exceed every quarter expectations every quarter you're either. Under projecting or.
have a rabbit to pull out of your hat each time. This is one of those quarters where it became clear that these factors...
it didn't cause significant declines, but they prevented the growth that we were expecting to achieve. And look, I think it's very short term in the sense that the specific quarter elements were clear. That said, we still have work to do to drive adoption, engagement with clinicians and...
Expand both the clinical and the study base so that. The evidence builds and the comfort level is there that and that's what drives adoption. So it's a. It's a multi quarter event. We're comfortable that we're going to recover from. You know, these these headwinds and. You know, we're still quite optimistic on the.
Apple equipment opportunity as well when you look at the reduction of our guidance was really.
related to the glaucoma probe reduction, we really haven't put a significant reduction in.
For capital equipment in the 2nd, half of a year and that's. Partly because we've got new products and excitement coming and partly because. You know, we feel like we've got the value proposition to continue to drive that business.
Okay, great. Just another question.
No real reason to ask it now, but it just seems on my mind. On the R&D side, the company spends a good amount, $2 million a quarter on research and development. The question is, I don't know, some of that may be sales related, but what products is the company working on and where is the return from that investment? I'm just curious if you want to highlight any of the questions.
stuff you are working on.
Yes, some of the focus, significant part of the focus of R&D right now has been
getting our new platforms, in particular the Pascal platform.
through the production cycle and launched and it's a
It's a next level platform as opposed to an improvement of the current platform. So it entails a higher level of investment and a longer period of time. And we're coming to the end of that.
And the opportunity really is to redeploy those to other areas of opportunity.
and look at the spend that we should be having given those opportunities.
There's a whole wave of
connectivity and connectivity to
various clinicians and bringing images into the field. There are some smattering of offerings out there. A Topcon partner is quite strong in that space between their diagnostic equipment, communicating between say, autonomous and risk management. Some patients will know this technology, which is something...
And that will close for this work.
I'm optimistic that there are other people that have made it.
and then we think there are advances to be made in the way we deliver energy for glaucoma and other applications in the front of the eye delivering energy to create a
therapeutic or some type of a clinical effect.
and have a delivery device that may or may not be disposable, but drives incremental revenue for the company as procedure volume grows.
And so we will invest in those things going forward.
I'm not ready to disclose it's a competitive space and no point in disclosing those things to our.
competitors.
Okay, great. Great. Well, thank you for taking the questions.
And with that, we end our Q&A session for today. I will turn the call back to David Bruce for final remarks.
Thank you and thanks everyone for joining the call.
We'll continue to work on behalf of growth and.
Strong shepherding of the assets and look forward to reporting to you next quarter.
And with that, ladies and gentlemen, we thank you for participating in today's program. You may now disconnect. Everyone, have a great day.
The conference will begin shortly. To raise your hand during Q&A, you can dial star 11.
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