Q3 2022 IRIDEX Corp Earnings Call
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Good day and thank you for standing by welcome to the Iridex third quarter 2022 conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one.
One on your telephone you will then hear an automated message advising your hand is raised please be advised for today's conference is being recorded.
Now like to hand, the conference over to your speaker today, we can tally with Investor Relations. Please begin.
Thank you operator, and thank you all for participating in today's call. Joining me are David Bruce Chief Executive Officer, and thought Ahmad interim Chief Financial Officer earlier today Iridex released financial results for the quarter ended October one 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 include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities 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 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 the SEC here.
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 the live broadcast today November 10th 2022, and with that I'll turn the call over to Dave.
Good afternoon, and thank you all for joining us today.
On this call I will provide updates on our business and commercial progress.
Rod will cover the third quarter financials, and we will open the call for questions.
Third quarter was highly productive for iridex highlighted by a 29% increase in placements of psychology six systems globally. The launch of psychology, six in China, and the U S. Soft launch of our next generation retina laser systems at the American Academy of Ophthalmology, We expect these.
These developments to be growth drivers for the business over many quarters to come.
Turning to our results in the third quarter revenue totaled $14 6 million growth of 10% compared to the third quarter of 2021, and importantly, 6% sequential quarterly growth despite elevated foreign exchange headwinds and typical summer seasonality.
Growth in the quarter was led by the retina business growing 13% year over year, and the psychology, six product family growth of 10% year over year.
In the glaucoma market <unk> system placements grew 29% compared to the prior year period was 54 systems shipped representing a strong appetite for adoption of our non institutional approach to treat glaucoma, both in the U S and internationally.
On the probe utilization front, we experienced an improved operating environment relative to the second quarter.
In Q3, <unk> probe unit sales in the U S grew 6% while probe revenue grew 10% as asps increased compared to the third quarter of 2021.
Outside the U S. G. Six probe revenue did not meet our expectations and was down slightly resulting in overall <unk> pro growth of only 2%.
The expanding growth rate in the U S is encouraging however, the <unk> return to growth has lagged expectations and were starting to see signs of improvement.
To drive increased <unk> adoption, we're focused on educating clinicians on the updated dosing recommendations and the benefits of.
<unk> used earlier in the treatment continuum as a pre incision intervention as published by our clinical consensus panel plus expanding adoption among comprehensive ophthalmologists.
And adding users at surgery centers that already have cycled <unk> systems.
Our top initiative has been training clinicians on the updated dosing recommendations that have been shown to improve <unk> efficacy and durability.
A crucial aspect for building the foundation for increased utilization.
We believe this effective clinician led dosing guidance is demonstrating improved consistency of patient outcomes and to facilitate this method. We are rolling out our suite management software upgrade designed to better guide clinicians technique and help achieve desired outcomes. This process will take time, but our confidence remains high.
That physician recognition of improved outcomes and consistent durability will lead to much broader adoption.
Looking ahead as we more closely aligned with our distributors, we believe the international opportunities, especially Japan, and China can drive significant incremental growth.
In collaboration with our distribution partners in China.
The psychology six launch in the region is underway.
The launch initially focused on 10% to 15 <unk>.
Key opinion leader pilot sites to build a strong experience and outcome Foundation.
For our future adoption within China.
These early sites are treating their initial patient cohorts were evaluated at 30 days post treatment and regular increments thereafter to confirm efficacy safety and durability results.
Expect more meaningful contribution from this new market going forward as a result emergent site expansion begins.
As we mentioned on our last call we've added to our international commercial team to increase our geographic footprint in resources to support the needs of our distribution partners and end customers.
While we expect growth to return internationally and increased domestically.
Third quarter lags caused us to expect <unk> probe sales for the year of about $60000 versus guidance of 61 to 63000.
There's still implies a strong fourth quarter probe sales of about 16000 units.
We are focused on the large opportunity for increased procedure adoption for moving earlier in the treatment continuum and our confidence in the strong growth potential and differentiated competitive position of micro pulse trans clearer laser therapy remains high.
Now turning to our retina business strong third quarter execution drove revenue growth of 13% year over year.
U S. Pascal sales were particularly strong as a reminder, in the comparable period a year ago, we were transitioning the technology into our portfolio.
In September at the American Academy of Ophthalmology.
We held showings of our new laser platforms in a private technology suite, we're launching our next generation versions of our three mainstream later laser projects for retina treatment.
Theyre reveal generated strong engagement and positive feedback from clinicians.
We are also announcing today that we have received U S. FDA clearance for our new Iridex Pascal platform and are excited to begin shipments to customers in the U S. This quarter.
Regulatory approvals beyond the U S are expected to be achieved throughout 2023.
The new Iridex Pascal platform combines leading pattern scanning precision and speed pioneered by Pascal with.
With clinically proven tissue sparing micro pulse and endpoint management capabilities plus pattern scanning laser trabeculoplasty for early stage glaucoma treatment.
Providing incredible versatility and proven clinical power and have the footprint.
We believe combining this fast and broadly capable system with the emerging need for combined laser and anti VEGF drug protocols will drive higher laser procedure volumes and can trigger a replacement motive for older less capable scanning laser systems.
As a reminder, these new platforms also have manufacturing cost advantages.
Which can enable pricing flexibility for share gains or improved margins.
At <unk>, we also invited multiple speakers to present their findings at our booth to highlight clinical.
Clinical and practice advantages presentations covered combined laser in anti VEGF therapy for diabetic macular edema.
Micro pulse PLT glaucoma experience with dosing and broad patient selection.
Micropump TLC adoption experienced by our comprehensive ophthalmologist practice.
And progress made in the ongoing <unk> dose escalation study.
We're excited to share the full redoubt, including developing durability data as it becomes available.
This will serve as an important guide for MPT LTE users demonstrating the specific outcomes safety and durability from cohorts receiving estimate escalated levels of parameter dosing.
While we've experienced our challenges this year, we're confident in our efforts to drive further adoption and utilization of our glaucoma procedures and continue to grow our broad retina product line across key market distribution channels and build off the momentum of our new product launches and geographic expansion opportunities.
Entities.
Finally, we continue to carefully manage our capital to provide sufficient operating runway for us to execute these gross growth initiatives.
With that I'd like to turn the call over to flood.
Thank you, Dave and good afternoon, everyone I will now review our financial performance for the third quarter of fiscal 2022.
Starting with revenue.
Total revenue for the third quarter was $14 6 million up $1 4 million or 10% from $13 3 million in the third quarter of last year and nearly 900000 sequentially.
Despite Q3 being seasonally weakest quarter of our fiscal year.
We sold 30700 <unk> probes in the third quarter, an increase of 2% from the prior year period, and a decrease of 9% quarter over quarter.
As Dave noted earlier the sequential decrease in the third quarter was a result of expected normal seasonality and continuing operating environment headwinds.
We sold 54 cycle logistics systems in the quarter compared to <unk> 42 in the prior year period.
Year to date, we have sold 158 site logistics systems tracking our initial expectation for the full year and validating our worldwide install base expansion goals for 2022.
It also highlights the broadening adoption of <unk> for the treatment of glaucoma.
Total product revenue from our <unk> product family was $3 5 million up 10% compared to the third quarter of 2021.
Turning to our retina business product revenue was $8 8 million, an increase of 13% compared to the prior year period.
Rod strength across retina products, but offset by relative softness in our U S Pascale revenue.
Recall that last year in Q2, and Q3, we shipped extra units to start building inventory in Japan head up by shipment blackout as we've registered iridex as a manufacturer of Pascal.
Other revenue, which includes royalties services and other legacy products increased 4% to $2 4 million in the third quarter of 2022 compared to the same period in 2021.
Gross profit of $6 5 million in the quarter, reflecting gross margin of 44% up 50 basis points compared to the same period last year.
As you stated in the past, we continue to face headwinds on the supply chain side and inflationary pressures on parts and materials. Therefore, the improvement in gross margin, albeit modest is a testament to durability of our long term supplier relationships and tireless efforts of our operations team.
We expect meaningful margin expansion will come from increased probe volume and sales of our new laser platforms as they take the place of the existing system in the future quarters.
Operating expenses for the third quarter were $8 2 million compared to $7 9 million in the same period of the prior year the.
The increase was a result of investments in the sales organization as well as expanded marketing activities.
Net loss in the third quarter of 2002 was $1 8 million or a net loss of <unk> 11 per share compared to a loss of <unk> 14 per share for the same period in 2021.
We ended the quarter with cash and cash equivalents of $50 9 million, representing cash usage of $2 $1 million during the quarter cash usage includes approximately 500000 investment.
And inventory and related preorders, we believe these investments and materials and inventory are necessary to mitigate potential supply chain bottlenecks in the future.
We expect to start bringing down inventories starting in the fourth quarter of fiscal 2022 and into fiscal 2023.
We reiterate that these shifts in our current assets are essential part of supply chain management strategy in the current environment.
In conclusion, I will provide an update to our guidance for 2022.
We confirm total revenue for the fiscal year of 2020 to 56 million to $58 million.
Our expectation for growth of our fact logistics glaucoma laser system installed base to remain unchanged at 225 to 250 units.
And we expect <unk> probe sales to be about 60000 units.
Our <unk> result in <unk> <unk> sales has lagged our expectations for a rebound similar to that in the US However, we are confident that the previously outlined initiatives and accelerate our growth into 2023, starting with the expectations for a strong fourth quarter approach.
With that David and I would like to turn the call over to the operator for questions operator. Thank you.
As a reminder to ask a question you will need to press star one on your telephone. Please wait for your name to be announced please standby we compile the Q&A roster.
One moment for your first question.
Our first question comes from Scott Henry with Roth. Your line is now open.
Thank you and good afternoon.
It sounds like the quarter was.
Pretty much as expected.
Aside from a little.
S weakness, which.
Which sounds pretty good after a tough prior quarter.
So I guess.
Do you agree with that statement and then a couple of small questions.
First the new Pascal machine.
How should we think about that impacting revenues.
Should that increase the growth rate or is it just.
A typical update this.
Any thoughts on that.
So this is a completely new platform hi, Scott by the way.
It's good to hear from you.
This is a new platform. So it's reengineered it soon a much smaller footprint integrated.
The more capable system. So we think this actually increases our competitive strength.
<unk>.
We can use it to drive gains.
It's a competitive marketplace and capital equipment challenges.
And a.
Interest rate rising environment.
Potential.
Recession headwinds.
Going around and on People's minds.
It may affect the overall demand, but we think this will really help us too.
Gained share and maintain or possibly even.
Increased.
The growth that we've been able to accomplish on our retina side of things.
And when do you think you would start to see the impact of this.
Probably first quarter of next year or perhaps even a little at the end of this year.
We will sell a few systems this year.
Partway through the quarter already so.
Exercise, our commercial systems will start actively promoting it and we think the biggest impact will come next year.
<unk> is a little bit below 40% or so of our unit volume. So U S will come first and this will generally substitute and therefore gives us that competitive strength and cost position improvement for.
A high percentage I'll say of the 2023 systems and then we will gradually receive our clearances around the world.
Increase the total percentage of systems too.
I would say a reasonably high percentage of all systems by the end of 2023.
Okay.
Thank you and then you spoke about the opportunity for <unk> six in Japan and China.
How should we think about the magnitude of that opportunity.
Relative to say, a $15 million to $20 million base in the U S.
Hi.
Yeah.
How material is it relative to that base.
So I'll start with Japan, So Japan has.
Really recovering from a lull in the in the transition from one distributor to another distributor.
<unk>.
Manufacturer, which puts you out of the marketplace for a period of time and so that recovery will occur through the course of the.
The next couple of quarters, and really recovery cover that strength and start growing Japan is our biggest market for.
Psychology, six outside the U S. So that's an important impact on the business and then China is an extremely large opportunity when we first got clearance we talked about.
<unk> 9 million glaucoma patients in China versus $6 million in the U S. So the scale is is tremendous and so we think thats going to be a long term growth driver.
The short term quarters are still in the initial launch phases as I described in my comments, we need to really see a good experience and then lever that those key opinion leaders across the other.
Potential adopters across across so that will continue to pick up steam and.
Become we think ultimately become.
A nice driver of O U S growth.
Okay great.
That should do it for me. Thank you for taking the question.
Thank you Scott.
Thank you.
One moment for our next question.
And our next question comes from.
Tom Stephan with Stifel. Your line is now open.
Hey, guys. Good afternoon, its John on from Tom.
Dave maybe I will start on June six probes in utilization can you just talk about.
How the quarter progressed, and how some of the headwinds and <unk> that.
I think you alluded to from Covid and vacations and maybe how that played out over the course of the third quarter of 'twenty two.
Sure.
We saw the U S recover reasonably even starting in July .
And I think we even made a comment on.
On the conference call over to questions.
In the Middle of August we had seen the U S recover.
Yes.
Less so.
Probably a combination of still working through.
The distribution channel and getting that newer set of sales reps.
Fully up to speed and driving business in the different countries and regions.
And I think the typical vacationing and other things that happened in the third quarter internationally.
And that has stayed on a relatively flat track as the macro numbers demonstrate in the U S. We did see that recovery in.
In July and it carried on through the quarter.
Yes.
Not to the level that we want to see it yet, but it's encouraging versus where we were in the in the first half of the year.
So we feel like that's building and the activities. We've been doing are starting to pay off so we're seeing more and more clinicians.
Confirming.
Their satisfaction.
Even.
Even happiness with the.
The dosing and the durability of that new dosing and understanding the importance and really starting to broaden their usage.
As the.
Unit.
<unk> numbers for the systems demonstrate theres still quite a significant appetite to.
The capability in place to adopt TLC and Biopsychology six systems as well and we're seeing that continue into the third.
Fourth quarter and our experience so far.
Okay, and then you might just touch on that at the end of that answer, but just to be clear. So on the cap equipment side in both glaucoma and retina. When we looked at the field you still see a solid consistent appetite for capital capital equipment selling conversion cycles are stable and havent really lengthened of late.
No we haven't seen any lengthening.
Well you could argue there's been lengthening, but it's coming to fruition, but we think what's driving this is the desire to have the capability. It is not the same as a decision too.
Maybe replace your retina laser system.
You have the capability in place and you may have.
And more economic challenging times, so I can make it another year before you have to do something.
Getting the capability seems to still be.
Strong motivation and so we've not seen a <unk>.
Significant.
Reduction in that in fact, it's been a recovery for the.
The third quarter numbers are.
Pretty strong.
Okay, Okay, and just the last one.
Looking out to 2023, just high level from a revenue perspective, maybe if you could just talk about the key puts and takes what we should be taking into consideration on both sides of the business and more specifically for <unk> six.
Comfortable with sort of the 15% to 20% plus growth potential specific for <unk>. Looking ahead. Thank you for your time guys.
Yes, so the.
The strength of bringing out new platforms and rolling them out across the globe on the retina side. We think is going to continue to drive interest and improve our competitive position.
Little hard to handicap what.
Interest rates and.
And potential recession can do against capital equipment. So we have successfully taken retina from.
A decliner.
As a product line and our.
Quarterly and annual revenue progression to a gainer.
And we think we can continue that but.
I think there is.
There's a lot of variability in what the future holds so our expectation is growth in the retina side and continuing recovery toward growth in the glaucoma side.
We think that the O U S growth can recover we think we can reach higher growth rates in the U S.
We think it will build it's hard to.
Have step functions in this business, but we think it can build and head back in that direction.
Im not giving you guidance, but.
That's the general expectation and belief and we are seeing day in and day out.
Physician.
Recognizing that.
Yes.
The right dosing is important to their outcomes and the driver of their outcomes as opposed to <unk>.
Reaction to the overall technology that I didn't get the results of that technology must not be.
As effective as people represent I think I think that message is starting to go through and we're continuing to do clinical studies that demonstrate that and we're looking to drive.
Broader and larger scale study next year as well to really cement.
The clinical evidence as well as the individual evidenced clinician by clinician.
Perfect that's great color. Thanks, Dave.
Thank you John .
This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
The conference will begin shortly to raise Johan during Q&A you can dial one one.
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