Q3 2023 IRIDEX Corp Earnings Call

November 14, 2023

Okay.

Good day, and thank you for standing by and welcome to the Q3 2023 Iridex earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session. Please press star one on your terms.

The phone and wait for your name to be announced to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today trip Taylor Investor Relations.

Thank you and thank you all for participating in today's call. Joining me are David Bruce Chief Executive Officer, and bottom on interim Chief Financial Officer earlier today <unk> released financial results for the quarter ended September 32023, a copy of the press release is available on the Companys.

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 1095.

Any statements made during this call are not statements that are not his 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 uncertainty.

<unk> associated with our business please visit.

Please see the most recent Form 10-K and Form 10-Q filings 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 and is accurate only as of the live broadcast today November 14th 2023.

With that I'll turn the call over to Dave.

Good afternoon, Thanks trip and thank you all for joining us.

Today, I'll discuss recent corporate and Medicare reimbursement developments in our business progress then flood will provide details on the third quarter financials, and we will open the call for questions.

I'll start with the topic I expect people are most interested in learning and more about the Medicare coverage policy that was the subject of our recent 8-K.

And the potential impacts to our business.

On October 26th WPS, a Medicare administration contractor or Mac was the first to issue an LCD.

Changing its coverage related to minimally invasive glaucoma surgery or migs procedures.

Last week as expected for other Macs released similar Ltvs and all will become effective December 24th 2023, while the clear focus of the five Lcd's was migs device use they also changed their coverage criteria for a cycle of photo coagulation or CPC.

Which is the basis for Iridex is micro pulse and continuous wave glaucoma procedures.

While makes our institutional surgical procedures predominantly done coincident to a cataract surgery. The CPC procedures done with Iridex devices are neither <unk> nor are they commonly done coincident to cataract surgery.

While the Max provided little context or explanation for their motive and coverage changes. It's believed they were reacting to the rapid rise in volume and cost of Migs procedures, particularly driven by multiple migs devices deployed during one cataract intervention.

This drove an increase in surgeon submitting multiple billing codes and a large increase in reimbursement expense per procedure and in total.

Ltd's.

That makes procedures concomitant with cataract surgery to a single device and specifically call out newer makes devices that enable both that can alloplasty goniotomy procedure to be performed with a single device.

These and several other procedures were labeled as investigational.

Which means they were made ineligible for Medicare reimbursement.

Until more rigorous clinical work on effectiveness is published.

The LCD.

Confirm that cycle of photo coagulation.

<unk> continuing payment coverage.

Unlike the targeted makes procedures CPC is not label. This investigational however, the coverage criteria for CBC was redefined via an extensive list of patient characteristics and symptoms that would effectively limit reimbursement to procedures performed on patients suffering from very advanced stage glaucoma.

For our business on patients enrolled in these restricted coverage Max this means fewer micro pulse DLT procedures and stricter limitations for continuous wave CPC procedures.

So how many fewer procedures.

Let me run through the numbers to get a sense of what impact the LCD as might have on iridex as glaucoma revenue and note Theres still a high degree of uncertainty we believe the following classifications and assumptions represent the situations.

First.

Half of Iridex as glaucoma revenue is international and unaffected.

Further two of the seven total Mac payers in the United States have not issued a change to the cycle of photo coagulation coverage and these macs cover.

One third of our U S footprint, including key states, like Florida, Texas and Pennsylvania.

To be clear CPC is still covered in all the Macs. The procedure is just now subject to restrictions narrowing its coverage and 5% to seven Max.

Yeah.

So the American Glaucoma Society estimates that approximately 50, sorry, 60% of U S. Glaucoma patients are covered by Medicare or.

Our procedures are performed on moderate to advanced severity, probably skews a little bit older. So we estimate about 70% of our volume has Medicare coverage.

However, within Medicare about half of patients are covered by these Max network of payers and half are in Medicare advantage programs, which are administered by traditional insurance companies like Aetna and United Healthcare.

Currently none of the Mac advantage or Medicare advantage payers have altered their coverage for CPC, even as they are issued new updates for their makes coverage criteria.

At this time Iridex cannot accurately predict the impact these LCD coverage changes will have.

On its U S glaucoma probe or system business.

The math implies about 20% of U S procedures fall directly under the Mac coverage restrictions with our glaucoma procedures for the most severe patients at least affected and those for more moderate stage being most effective at.

At this time, it's uncertain, how physicians will react to coverage reductions and their decisions to offer our treatment to patients.

We've heard many doctors, particularly during the recently held American.

Academy of Ophthalmology in San Francisco.

The CPUC has not only a proven and effective but an essential part of their treatment program for controlling the progression of glaucoma for their patients.

These physicians communicated their strong intention to continue performing CPC and several doctors discussed the possibility of offering patients for whom CPC is obviously, the best next treatment and option for self pay at coverage.

Available under their plan.

Qualitatively.

There are two important competing considerations first there's going to be physician confusion and frustration surrounding these reimbursement changes in the effected Max dates we expect the coverage restrictions will result in many of our potential prospects deferring adoption, leading to fewer domestic orders for console and probes.

As providers work through the confusion around what has changed and who's affected and how they will position CPC in their practice.

Ineffective Mac regions doctors may not be aware of an individual patient's coverage and to whom they can offer our procedures and generally pullback usage to avoid non reimbursed procedures.

On the other hand, there are some potential positives for iridex.

Migs are a big deal in the glaucoma community right now in the LCD is are receiving a lot of attention and this includes physicians.

Wrestling with their options going forward in treating the disease Ironically with the LCD is falling hardest on migs and thereby almost certainly reducing the number of mixed procedures that will be performed.

It should be greater need recognition and interest in non institutional alternatives.

This is a marketing opportunity that plays right into iridex as existing positioning in glaucoma.

The lcd's effort to reduce the number of mixed procedures may ultimately triggered a longer term effect of significantly improving the market opportunity for our CPC offerings, both in the U S and O U S.

Ophthalmologists that have long been caught up in a growing assortment and uptake of Migs may be more open to iridex as non institutional alternative.

And beyond working to appeal the LCD coverage restrictions iridex will have the opportunity to position itself as a champion for patients physicians and pursuing the best medicine. Many clinicians have commented to us that it's a mistake to channel patients toward more advanced surgical procedures too early.

It's basic disease management to defer more complicated higher risk surgeries as latest feasible.

On top of that there are many patients where surgery, who may not be indicated this includes older poorer health candidates.

And the younger otherwise healthy individuals for whom our glaucoma surgery and there are 40%, 50% <unk> it.

It can be complication prone and lifestyle limiting and May also result in decades of more involved and expensive follow up.

We believe we have a strong case to appeal the specifics of the Ltvs and we're gaining and gathering support within the physician community. We've submitted the first phase of our appeal.

Working with several influential physicians, some of whom plan their own letters and referenced studies, explaining why overly restricting CPC is a mistake.

The final LCD is ultimately set the criteria for CPC patient characteristics.

Adopting conclusions from an AI technology assessment report that has 22 years old.

We believe they aired by setting compounding criteria for coverage, resulting in overly narrow patient qualifications.

Also aired by only choosing some of the recommendations.

From that assessment and ignoring others.

The conclusion of that assessed.

Assessment by the Ao.

Presented a list of several patient types for which CPC is indicated as appropriate treatment options.

The Lcd's quoted this list of symptoms and characteristics, but replaced the commas between them with the word and the resulting effect means that to qualify a patient must have all of the characteristics of each listed patient type.

This appears clearly wrong.

We sent a correction request, noting.

Noting the process errors and seeking rapid adjustment to the definition. We believe this appeal is compelling and should emphasis on the word should.

Lead to a relatively speedy correction of the LCD.

To lessen the success of restriction of coverage for CPC.

We believe the Arab interpretation embodied in the current wording if uncorrected.

Will lead to Unrecoverable loss of vision in patients who may be denied access because of the erroneous restriction, we urged each Mac administrated promptly correct. This error before the effective date.

We're also.

<unk>.

Subsequent appeal for reconsideration to further broaden the criteria for reimbursement.

First the coverage change did not appear to take into account patient safety by requiring a patient must have undergone more invasive higher complication rates.

Surgeries like trabeculectomy or tube shunts by pushing patients into earlier invasive surgeries greater follow up manage them as required.

Later life options will be more limited.

Basically if you use up your IOP control tool tools too early it can lead to greater loss of vision later in life.

Second the process for considering study evidence was flawed.

We have a large body of peer reviewed clinical studies to support our procedures in a broad range of patient types and severities. This past summer we submitted to the Max over 80 published papers on Transco Aero cycle of photo coagulation trading over 2000 patients. It appears their process criteria rejected most of this evidence.

Instead, we will seek them to consider the broader body of evidence that supports the safety and efficacy of cyclic photo coagulation.

So this leaves straight into updating it.

Our ongoing clinical programs.

As we've discussed.

Prior we had planned to enroll the first patient by the end of the year and our new prospective multicenter study.

That will include key opinion leaders as investigators this release of new clinical criteria within the LCD will potentially cause a modest delay in the launch as we assess whether our protocol and method are best aligned but we are nonetheless fortunate to already be well along the road towards producing the clinical data.

They have stated is required for future reimbursement decision consideration.

Okay.

Having glaucoma physicians rally in support of Iridex CPC at the same time, we're finalizing preparation for clinical study on efficacy of CPC, specifically targeted to post makes patients seems very favorable we will try to advance our message and market position by capitalizing on the opportunity and attention.

Created by the LCD.

We have confidence the efficacy and safety of our procedures will prevail and.

And the increased clinician awareness generated through this process can provide exposure and positive public relations that have scale, we could never have afforded.

Let me shift to recent announcements that the board of directors has engaged in a review and evaluation of strategic alternatives that may be available to iridex to unlock shareholder value.

This is an appropriate time for the company to explore options for future of each of our product lines in the company as a whole.

Our retina business has achieved a global leadership position in both sales and installed base and ophthalmic laser treatment systems for retina specialists over the past 30 years. The company has developed products and has set the clinical and technical standards in the space.

Most recently, we launched the new Pascal platform with micro pulse capability and glaucoma, we've been a leading provider of non institutional trans scleral laser treatment, beginning 30 years ago with the G probe.

<unk> a quick coagulation treatment for later stage glaucoma patients and more recently with micro <unk> laser therapy for moderate to advanced stage glaucoma patients.

Since launching <unk>, we steadily expanded our market presence to over 2000 glaucoma laser consoles worldwide and delivered over 250000 single use probes.

Both our revenue and product offerings, the strongest they've ever been.

We're progressing through our process, but do not plan to provide commentary or updates.

Along the way until the board of directors determines.

That disclosure is appropriate.

Before I turn over to <unk> for a review of the third quarter financials I'd like to add a couple of.

Items with perspective.

The quarter was in line sequentially, which is positive given Q3 is generally seasonally softer than the second quarter.

This quarter was tougher year over year comparison against a strong third quarter of 2022, especially given the.

Loss from explorations.

We expected the announcement of our strategic review might have impacted short term results, but Fortunately we saw a little of this domestically and it was primarily our distributors that held back orders concerned about appropriate levels of inventory to carry going forward.

As a result of the Medicare reimbursement changes, we have suspended our guidance due to the high variability of the U S glaucoma situation and how our business may unfold in Q4 and going into 2024.

We remain very focused on cash management to remain our operating runway.

And intend to adjust our glaucoma operations as we evaluate the impact to our business from these reimbursement changes.

With that I'll pass the call over to fly to discuss the quarter's financial results.

Thanks, Dave and good afternoon, everyone and thank you for joining us today.

I'd like to begin by reviewing our financial performance for Q3 of fiscal 2023.

Let me start by providing a high level summary lead.

We generated $12 9 million in total revenue in Q3, which was flat sequentially versus Q2.

Importantly, because it is typically a seasonally slower quarter. However, it was down $1 8 million from the prior period, continuing the overall softness in the capital equipment market in 'twenty three.

A significant part of the declining approximately 500000 was due to loss in royalty revenue as we previously mentioned.

And this will be a drag until we lap it next year.

The <unk> six and retina sides of the business the macro economic.

The macro and the probe adoption headwinds in 2023, we discussed during the August 2nd quarter results call continued to affect overall sales in Q3.

Our retina segment revenue in Q3 was $7 9 million compared to $8 8 million in the prior period.

In the quarter, we continued to see stronger longer capital sales cycles, and strong dollar made pricing challenging internationally and has persisted throughout 2023.

While these dynamics contributed to lower sales in retina systems, we arent seeing customers cancel their capital purchase plan and we are maintaining a solid pipeline and our strong market share in the U S looks stable.

In glaucoma.

<unk> purchases were significantly slowed as capital sales were impacted by higher interest rates and economic certainty contributing to elongated sales cycles.

This led to system sales up 27 units in the quarter compared to 54 systems in the prior year period.

The system sales shortfall accounted for the declines in overall Q3, <unk> revenue to $3 million from $3 5 million last year.

Overall, we saw glaucoma probe revenue increased 3%.

At 3% decline in units, primarily due to order flow and international markets.

International volumes are affected by loss of sales to Russia, due to geopolitical issues and soft China sales plus anti corruption initiatives caused a stall in new adoption similar to what other companies are seeing.

We also saw distributors, reducing inventory levels in both present systems, possibly as a result, our strategic announcement in August but also to reduce carrying costs.

Now to product level detail total revenue from cycle logistics product family in Q3 was $3 million down 12% compared to the same period in 2002.

So 13250, <unk> probes in Q3, representing revenue growth of 3% on higher Asps on a negative 3% unit growth from the prior year period.

We also saw 27 cycle as you said systems in the quarter compared to 54 in the prior peer.

<unk>.

Our retina product revenues was $7 9 million up 15% sequentially.

A 10% decline from the prior year period.

Other revenue, which includes royalties services and other legacy products decreased 20% to $1 9 million in Q3 23 compared to the same period in 2002, driven primarily by reduced royalty revenue of approximately 500000 from exploration of licensed patents and lower than anticipated service and repair volume.

Gross profit for Q3 of 23 was $5 6 million compared to $6 5 million in the prior year period.

Gross margin was 43, 7% compared to 44, 1% in Q3 of 'twenty two.

The decline in gross margin was the result of lower overhead absorption in the current period and more favorable product mix in Q3 of 'twenty two.

Okay.

Operating expenses in Q3 of 23 were $7 3 million a significant decrease compared to $8 2 million in the same period last year.

The decrease in operating expenses as a result of cost reduction initiatives. The company began in Q2 of 'twenty three.

Our net loss in Q3 of 23 was $1 8 million or net loss of <unk> 11 per share compared to a net loss of $1 8 million.

And a net loss of <unk> 11 per share for the same period in 2002.

I will now discuss our cash position and cash flows.

The net cash reduction in the quarter was $1 8 million performance with $8 million at quarter end.

We were successful, but inventory reduction of $1 1 million, while we also reduce accounts payable by $1 seven.

Over the summer months, we significantly reduce our operating expense run rate by more than $3 million annualized.

As a result, we are positioned for a significantly lower cash usage in Q4.

Stanley lower run rate in 2024.

We will remain focused on expense management and operating efficiencies in coming quarters. As we continue to unwind inventory related investments and manage cost and mitigate U S. Glaucoma probe revenue from reimbursement limitation.

Finally as.

As we previously reported in light of the ongoing ambiguity related to Medicare reimbursement picture for our glaucoma procedures. We are withdrawing our fiscal 2023 guidance, we will provide a comprehensive update when we have more clarity on the matter.

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. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.

Our first question comes from Tom <unk> with Stifel. You May proceed.

Great Hey, guys. Thanks for the questions I'll start with the LCD is just a couple here, Dave what's the mix of moderate versus severe patients for <unk> today.

I think in the past you've talked about moderate being a very large opportunity for <unk>.

It was maybe no more than 25% of volume today. So I guess, if the majority of your volume is that refractory patients I'm just curious why the coverage criteria would be such a headwind.

Hey, Tom.

Yes, Hi, Tom Thanks for the question, yes. So.

The very late very late stage patients and cry.

The criteria calls for for example.

Very limited visual potential in pain, among the list of various things they also call for.

Having had a prior trabeculectomy or tube shunts procedure.

So these are all restrictions that would <unk>.

Eliminate a lot of the later stage.

Procedures as well so we think it's probably in the 25% range that.

Would qualify under this strict criteria in about 75% of our procedures.

In advanced stage patients, but in front of these kinds of criteria. So in the PE or places where the Max or the insurers are the patients we think it's pretty restrictive that said.

If the if the clinicians understand that cut.

Coverage that their patients have an.

On average it's going to be two thirds that maintained coverage and so we think it's important to work with clinicians so that they understand what their coverage.

Of their patients is and if they arent in the practice now of knowing their coverage it might be something they.

Might want to pick up.

That makes sense and then with the LCD is just regarding the timing of the 8-K.

The proposed LCD is obviously came out starting in June and CPC wasn't even determined to be covered at that time.

Why is it now expected to be 2023 headwind or issue.

And maybe why wasn't that the case or the thought.

I guess it was four or five months ago.

Yes.

Yes, so the <unk>.

Proposed LCD as came out in the June timeframe. We responded with an appeal and I described some of the clinical evidence that we submitted.

And a number of other arguments.

To retain coverage.

We were somewhat successful in that in the original Lcd's. They had classified all our cyclic photo coagulation as investigational and now that there is there is a coverage, but with a lot of restrictions associated with it and we think erroneously.

Assumptions went into creating that list.

This happened two years ago, one of the Max.

Had proposed it.

B at cyclone photo coagulation be investigational during the.

The proposed period, we sent back responses and we're successful and there was there was no change no mention in the finals.

So in the.

Timeframe when when this year's Ltvs were submitted as proposed and.

Put it in our responses, we deemed that it was not likely that there would be some incremental restrictions that came came to us. So we didn't put out an 8-K at the time and frankly.

A lot of the clinicians.

Are unaware of that hole.

Sequence of events and and are just now learning that new LCD final.

Determinations are.

Are going to affect.

It's almost real time here how are they.

They are considering it and learning about it considering it displaying some outrage, but then trying to figure out okay. What am I going to do going forward so for us.

And cycle of photo coagulation it really.

It didn't become an issue until the actual determination came out now that the actual determination has come out and we have a significant restriction. We think there is two potential short term impacts that have a wide range of variability here for Q4 number one I think in a lot of the areas.

Where Mac coverage is restricted that clinicians will reconsider.

And the consideration whether to adopt and buy a new system and probes or not and we think it's likely that they'll take their time and so those potential.

Potential purchases will be deferred out of out of this year for sure.

Is that in those areas, where the decision is well if I've got only partial coverage I'm not going to offer it to patients so I'm going to.

Use up my inventory I'm, not going to be ordering to replenish so I will significantly reduce the orders from.

For for the remainder.

The remainder of the year.

Use up the probes I have.

Before restrictions come into place and I stop offering.

And we've had conversations with a number of clinicians and frankly, they're.

All across the board on what they may or May not do going forward, so we rather than try to.

A very broad range of potential.

Outcomes in the quarter, we just withheld the guidance to spend at the guidance.

Okay.

Got it that's great color.

Then last question just pivoting to retina.

Modest upside in the quarter relative to our estimates and sequential growth.

Was very strong I guess, Dave can you talk about how you're executing in that business.

And you're now lapping I think some tougher comps. So what do you believe is a sustainable growth rate for that segment kind of as we sit here today.

Sure.

The retina business is strong the.

The weakness in kind of macro environmental considerations that really proliferated across the start of the year demonstrated to us that clinicians were deferring.

We're not canceling, but deferring their decisions to buy and I think part of that might be the third quarter performance might be deferrals from the second quarter that came in in the third quarter.

And so we feel like maybe where we're passing that uncertainty period. We also introduced our new Iridex Pascal platform and Thats been very well received and so we're seeing people, having the opportunity to have to evaluate that and and decide to purchase.

So so we think the capital equipment side is is solid in the U S. <unk>.

Internationally.

Can't claim that we've seen that kind of.

I'll call it recovery of the purchase mentality and we've got the.

Inventory swings that occur and distributors. So we can have a higher quarter end.

And then the next quarter lower than the next quarter higher there is a little bit of incur.

Increased volatility is.

As distributor inventory varies from quarter to quarter as well.

So all in all we think that the.

Glaucoma, sorry, the retina businesses.

Strong and we can.

Look forward to solid growth in the future. It's a mature segment of the industry the.

Approximate long term growth rate is in the kind of the mid to lower single digits. We think we can grow at that rate or better.

I think we will continue to see a little volatility quarter to quarter end and its the moving average that's probably more.

Indicative of how the business is doing but we're quite comfortable and confident in the retina side of the business.

Got it thanks, David and thanks for all the color.

Thanks, Tom.

Thank you one moment for questions.

Our next question comes from Scott Henry with Roth Capital You May proceed.

Thank you good afternoon, Dave I, just wanted to did I hear you correct.

With regards to the retina business, when we think about organic growth there.

Did I hear you correct mid single digits is what you would be shooting for or the categories that I just wanted to make what we think the long term in that space. The long term is in that range. So it is a mature segment. There is replacement cycle and there is expansion at least domestically theres replacement cycle and there is expansion.

<unk>.

As a group practice or say a university.

In a metropolitan area opened satellite facilities in the suburbs. They want the same equipment and so that's the nature of that market at this stage, while we feel like we have the leading technologies.

There is not a new cycle being created to replace older equipment because of Av.

Extraordinary new capabilities, we are in the lead for replacement and we actually think we can look forward to.

Our replacement cycle, because there are so many.

Greater than five years old and even a lot of Pascal systems that are in the end of service.

Period, where that system breaks it simply can't be repaired.

So we think that we can have some opportunities for growth above trend and if if we get a more conducive capital equipment environment that we could see.

Growth higher growth than that in.

But but we do think that theres still going to be volatility quarter to quarter.

One is particularly strong.

As we for example saw last year's third quarter.

The comparisons in the subsequent <unk> might be on the weaker side. So the long term trend is up and the.

And the short term.

Moving averages are up in that mid single digits or better range.

Range.

Okay.

And then.

With the other line it declined sequentially from <unk> to <unk>.

Just kind of one 9 million number.

Do you think where do you think that that's the base or should we expect that decline more just trying to get a sense of.

You know where the bottom is for that category I know theres, some things that went away and they'll annualize, but just trying to understand what the base level.

Yes, the two drivers of volatility in that number are the the change an elimination of a long royalty contract that we had the patent expired and so the contract expired and that was about 500000.

A quarter.

And Thats why the comparison to last year was.

Dip of about 500000.

Also in that other category is service revenue.

So we have a strong service business where.

Most of it is depot service they ship a system back to us we repair it and.

Ship it back and we sell extended warranty contracts so were booking revenue.

Accruing it quarterly for those extended service warranty contracts and then we're also doing individual service on a on a.

Non functioning system as well as preventive maintenance. So there are regular preventive maintenance cycles in certain states are stricter than others, but we have a steady flow of systems that need to.

To be checked calibrated and recertified and sent back so that business goes up and down and that can vary by a 100000 or more in any one quarter.

And so that can contribute to that number.

Okay.

And then.

On the <unk> business.

And I'm not going to ask you for guidance I know youre not going to provide that but when you think about Q4, which I guess, we're about halfway through.

Yes.

What should we think about for email from that perspective, I mean has system sold is it just kind of fallen apart like how do we you just trying to get a sense of at least in the next month.

What kind of reaction you initially saw.

Well I mean, frankly, so are we.

It's all across the board and you feel like.

A play by play announcer because you have one conversation with someone who.

It's from.

A state where there is no change to coverage.

What's the.

What's the issue here.

And then others that just fear this is very restrictive that it could extend to additional.

Payers and are very seriously considering.

Eliminating or at least very significantly restricting their offering of CPC and those are the factors that make it very difficult and and so as much as we tried to really.

Put together.

Scenarios and identify a range.

It's a little bit difficult here.

This news is two weeks old so.

That's the that's the problem with trying to do guidance clearly people have said I got to wait let's see what happens in terms of system purchases and adoption.

If a significant chunk of their intended procedure volume isn't going to be available because it's restricted.

On reimbursement.

So will we.

We will.

Obviously stay very focused on it and as we can develop a picture we'll take a look at.

When it's appropriate to reinstate guidance.

Okay, and I'm going to ask you. Another question you may not answer but you might.

Uh huh.

If I think about your prior guidance before everything happened with G. Six.

At least in my model the implication would've been that retina would've been strong in Q4.

Sequentially stronger in Q4 than Q3, even with the numbers that came in this quarter should we still I mean is that is that a reasonable assumption or retina.

Is it a seasonably strong Q4, typically or im just trying to get a sense of.

How we can take some of the variability out of the model.

Yes without guiding in the fourth quarter. It is the strongest quarter of the year typically it is.

Above what usually is the second strongest quarter, which is second quarter. I mean, this year's second quarter, we experienced some weakness in every year is a little bit different but if you look back historically the fourth quarter is the strongest in it.

But.

I actually don't remember the percentage difference between the weaker in the stronger but it is stronger.

So we think.

That dynamic is.

Is going to be consistent this year, but.

We're only halfway through and capital equipment happened.

At the end of the quarter, the typical pattern, where most of the ordering happens later in the year.

Okay Fair enough and final question with regards to the appeals process, what would be our next data point.

Well as I said in the comments, we submitted an appeal on the grounds of.

Misinterpretation of the actual study that they quoted to set the definition of the criteria.

And that's in the hands of.

The various Mac administrators and there is no.

Defined schedules that they must act under and respond under so it's difficult to.

No whether they will respond immediately that's what we seek we think it's compelling that they do.

It's very unusual.

Can't say I've seen it.

In.

And any other types of situations where the specific.

Paper that you quote you change the.

The criteria that was written in that paper and it just seems highly unusual to us and to everyone that we've discussed this with and seems like an air an interpretation that should be corrected and we hope they see it that way.

Okay, Alright, thank you Dave for taking all the questions.

Thanks Scott.

Thank you I would now like to turn the call back over to Dave Bruce for any closing remarks.

Thank you Ed and thank you all for attending I know, it's a bit of a turbulent time. There was a lot of information that came our way and we tried to share with you.

And we'll stay focused on managing through this situation and look forward to updating you in the future. Thank you.

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

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Draw. Your question. Please press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today trip Taylor Investor Relations.

Thank you and thank you all for participating in today's call. Joining me are David Bruce Chief Executive Officer, and <unk> interim Chief Financial Officer earlier today <unk> released financial results for the quarter ended September 32023, a copy of the press release is available on the Companys.

<unk> associated with our business please visit.

This conference call contains time sensitive information and is accurate only as of the live broadcast today November 14 2023.

With that I'll turn the call over to Dave.

Good afternoon, Thanks trip and thank you all for joining us.

Today, I will discuss recent corporate and Medicare reimbursement developments in our business progress then flood will provide details on our third quarter financials, and we will open the call for questions.

I'll start with the topic I expect people are most interested in learning a memorial about that's the Medicare coverage policy that was the subject of our recent 8-K and the potential impacts to our business.

On October 26th WPS, a Medicare administration contractor or Mac was the first to issue an LCD.

Changing its coverage related to minimally invasive glaucoma surgery or migs procedures.

Last week as expected for other Macs released similar Lcd's and all will become effective December 24th 2023, while the clear focus of the five Lcd's was migs device use they also changed their coverage criteria for a cycle of photo coagulation or CPC.

Which is the basis for Iridex is micro pulse and continuous wave glaucoma procedures.

While <unk> surgical procedures predominantly done coincident to a cataract surgery. The CPC procedures done with Iridex devices are neither <unk> nor are they commonly done coincident to cataract surgery.

While the Max provided little context or explanation for their motive and coverage changes. It's believed they were reacting to the rapid rise in volume and cost of mixed procedures, particularly driven by multiple makes devices deployed during one cataract intervention.

This drove an increase in surgeon submitting multiple billing codes and a large increase in reimbursement expense per procedure and in total.

The lcd's limit makes procedures concomitant with cataract surgery to a single device and specifically call out newer makes devices that enable both that can alloplasty goniotomy procedure to be performed with a single device.

And several other procedures were labeled as investigational.

Which means they were made ineligible for Medicare reimbursement.

Until more rigorous clinical work on effectiveness is published.

The LCD is confirmed that cycle of photo coagulation.

<unk> continuing payment coverage.

Unlike the targeted makes procedures CPC is not labeled as investigational. However, the coverage criteria for CBC was redefined via an extensive list of patient characteristics and symptoms that would effectively limit reimbursement to procedures performed on patients suffering from very advanced stage glaucoma.

For our business on patients enrolled in these restricted coverage Max this means fewer micro pulse DLT procedures and stricter limitations for continuous wave CPC procedures.

So how many fewer procedures.

Let me run through the numbers to get a sense of what impact the LCD might have on Iridex as glaucoma revenue and note Theres still a high degree of uncertainty we believe the following classifications and assumptions represent the situation.

First.

Half of Iridex as glaucoma revenue is international and unaffected.

Further two of the seven total Mac payers in the United States have not issued a change to the cycle of photo coagulation coverage and these macs cover.

One third of our U S footprint, including key states, like Florida, Texas and Pennsylvania.

To be clear CPC is still covered in all the Macs. The procedure is just now subject to restrictions narrowing its coverage in five to seven Max.

Yeah.

So the American Glaucoma Society estimates that approximately 50, sorry, 60% of U S. Glaucoma patients are covered by Medicare.

Our procedures are performed on moderate to advanced severity, probably skews a little bit older. So we estimate about 70% of our volume has Medicare coverage. However.

Currently none of the Mac advantage or a Medicare advantage payers have altered their coverage for CPC, even as they've issued new updates for their makes coverage criteria.

At this time Iridex cannot accurately predict the impact. These LCD coverage changes will have on its U S glaucoma probe or system business.

At this time, it's uncertain, how physicians will react to coverage reductions and their decisions to offer our treatment to patients.

We've heard many doctors, particularly during the recently held American.

Academy of Ophthalmology in San Francisco.

The CPUC has not only a proven and effective but an essential part of their treatment program for controlling the progression of glaucoma for their patients.

These physicians communicated their strong intention to continue performing CPC and several doctors discussed the possibility of offering patients for whom CPC is obviously the best next treatment option for self pay if coverage isn't available under their plan.

Qualitatively.

There are two important competing considerations first there's going to be positioned confusion and frustration surrounding these reimbursement changes in the effective Max dates we expect the coverage restrictions will result in many of our potential prospects deferring adoption, leading to fewer domestic orders for console and probes.

As providers worked through the confusion around what has changed and who's affected and how they will position CPC in their practice.

And effected Mac regions doctors may not be aware of an individual patient's coverage and to whom they can offer our procedures and generally pullback usage to avoid non reimbursed procedures.

On the other hand, there are some potential positives for iridex.

Migs are a big deal in the glaucoma community right now in the LCD is are receiving a lot of attention and this includes physicians.

Wrestling with their options going forward in treating the disease, Ironically with lcd's falling hardest on migs and thereby almost certainly reducing the number of migs procedures that will be performed.

There should be greater need recognition and interest in non institutional alternatives.

This is a marketing opportunity that plays right into iridex as existing positioning in glaucoma.

The lcd's effort to reduce the number of Migs procedures may ultimately triggered a longer term effect of significantly improving the market opportunity for our CPC offerings, both in the U S and O U S.

Ophthalmologists that have long been caught up in a growing assortment and uptake of Migs may be more open to iridex as non institutional alternative.

It's basic disease management to defer more complicated higher risk surgeries as latest feasible.

On top of that there are many patients where surgery. It may not be indicated this includes older poorer health candidates.

And the younger otherwise healthy individuals for whom our glaucoma surgery and there are 40%, 50% <unk> it.

It can be complication prone and lifestyle limiting and May also result in decades or more.

We're involved in expensive follow up.

We believe we have a strong case to appeal the specifics of the Ltvs and we're gaining and gathering support within the physician community.

<unk> submitted the first phase of our appeal working with several influential physicians some of whom plan their own letters and referenced studies, explaining why overly restricting CPC is a mistake.

The final LCD is ultimately set the criteria for CPC patient characteristics by partially adopting conclusions from an AI technology assessment report that has 22 years old.

We believe they aired by setting compounding criteria for coverage, resulting in overly narrow patient qualifications.

Also aired by only choosing some of the recommendations.

From that assessment and ignoring others.

The conclusion of that assessed.

Assessment by the a O.

Presented a list of several patient types for which <unk> is indicated as appropriate treatment options.

The LCD is quoted this list of symptoms and characteristics, but replaced the commas between them with the word and the resulting effect means that to qualify a patient must have all of the characteristics of each listed patient type.

This appears clearly wrong.

We sent a correction request, noting.

Noting the process errors and seeking rapid adjustment to the definition. We believe this appeal is compelling and should emphasis on the word should.

Lead to a relatively speedy correction of the LCD.

To lessen the success of restriction of coverage for CPC.

Yes.

We believe the Arab interpretation about it in the current worthy if uncorrected.

We will lead to Unrecoverable loss of vision in patients who may be denied access because of the erroneous restriction, we urged each Mac administrated promptly correct. This error before the effective date.

We're also <unk>.

Repairing a subsequent appeal for reconsideration to further broaden the criteria for reimbursement.

First the coverage change did not appear to take into account patient safety by requiring a patient must have undergone more invasive higher complication rate.

Surgeries like trabeculectomy or tube shunts by pushing patients into earlier invasive surgeries greater follow up management is required.

Later life options will be more limited basically if you use up your IOP control tool tools too early it can lead to greater loss of vision later in life.

Second the process for considering study evidence was flawed.

Have a large body of peer reviewed clinical studies to support our procedures in a broad range of patient types and severities.

Past summer, we submitted to the Max over 80 published papers on <unk> cycle of photo coagulation trading over 2000 patients. It appears their process criteria rejected most of this evidence.

Instead, we will seek them to consider the broader body of evidence that supports the safety and efficacy of cycle of photo coagulation.

So this leaves straight into updating it.

Our ongoing clinical programs.

As we've discussed.

Prior we had planned to enroll the first patient by the end of the year and our new prospective multicenter study.

That will include key opinion leaders as investigators this release of new clinical criteria within the Lcd's will potentially cause a modest delay in the launch as we assess whether our protocol and method are best aligned but were nonetheless fortunate to already be well along the road towards producing the clinical data.

They have stated is required for future reimbursement decision consideration.

Yeah.

Okay.

Having glaucoma physicians rally in support of Iridex CPC at the same time, we're finalizing preparation for clinical study on efficacy of CPC, specifically targeted to post makes patients seems very favorable we'll try to advance our message and market position by capitalizing on the opportunity and attention created by the LCD.

We have confidence the efficacy and safety of our procedures will prevail and the.

<unk> clinician awareness generated through this process can provide exposure and positive public relations that have scale, we could never have afforded.

Let me shift to recent announcements that the board of directors has engaged in a review and evaluation of strategic alternatives that may be available to iridex to unlock shareholder value.

This is an appropriate time for the company to explore options for future of each of our product lines in the company as a whole.

Our retina business has achieved a global leadership position in both sales and install base and ophthalmic laser treatment systems for retina specialists over the past 30 years. The company has developed products and has set the clinical and technical standards in the space.

Most recently, we launched the new Pascal platform with micro pulse capability and glaucoma, we've been a leading provider of non incision trans scleral laser treatment, beginning 30 years ago with the G probe.

<unk> coagulation treatment for later stage glaucoma patients and more recently with micro pulse <unk> laser therapy for moderate to advanced stage glaucoma patients.

Since launching <unk>, we steadily expanded our market presence to over 2000 glaucoma laser consoles worldwide and delivered over 250000 single use probes.

Both our revenue and product offerings, the strongest they've ever been.

We're progressing through our process, but do not plan to provide commentary or updates.

Along the way until the board of directors determines.

That disclosure is appropriate.

Before I turn over to <unk> for a review of the third quarter financials I'd like to add a couple of.

Items of perspective.

Quarter was in line sequentially, which is positive given Q3 is generally seasonally softer than the second quarter.

This quarter was tougher year over year comparison against a strong third quarter of 2022, especially given the.

Loss from explorations.

We expected the announcement of our strategic review might have impacted short term results, but unfortunately, we saw a little of this domestically and it was primarily our distributors that held back orders concerned about appropriate levels of inventory to carry going forward.

As a result of the Medicare reimbursement changes, we have suspended our guidance due to the high variability of the U S glaucoma situation and how our business may unfold in Q4 and going into 2024.

We remain very focused on cash management to remain our operating runway.

And intend to adjust our glaucoma operations as we evaluate the impact to our business from these reimbursement changes.

With that I'll pass the call over to fly to discuss the quarter's financial results.

Thanks, Dave and good afternoon, everyone and thank you for joining us today.

I'd like to begin by reviewing our financial performance for Q3 of fiscal 2023.

Let me start by providing a high level summary, regeneron.

We generated $12 9 million in total revenue in Q3, which was flat sequentially versus Q2.

It's important because it is typically a seasonally slower quarter. However, it was down $1 8 million from the prior period, continuing the overall softness in the capital equipment market in 'twenty three.

A significant part of the declining approximately 500000, what's due to loss in royalty revenue as we previously mentioned.

And this will be a drag until we lap it next year.

The <unk> six and retina sides of the business the macro economic.

The macro and the probe adoption headwinds in 2023, we discussed during the August 2nd quarter results call continued to affect overall sales in Q3.

Our retina segment revenue in Q3 was $7 9 million compared to $8 8 million in the prior period and.

In the quarter, we continued to see stronger longer capital sales cycles, and strong dollar made pricing challenging internationally and has persisted throughout 2023.

While these dynamics contributed to lower sales in retro systems, we arent seeing customers cancel their capital purchase plan and we are maintaining a solid pipeline and our strong market share in the U S looks stable.

In the Arkoma.

Some purchases were significantly slowed as capital sales were impacted by higher interest rates and economic certainty contributing to elongated sales cycle.

This led to system sales up 27 units in the quarter compared to 54 systems in the prior year period.

The system sales shortfall accounted for the declines in overall Q3, <unk> revenues were $3 million from $3 5 million last year.

We saw glaucoma probe revenue increased 3% suffered at 3% decline in units, primarily due to order flow and international markets.

International volumes were affected by a loss of sales to Russia due to geopolitical issues and soft China sales of anti corruption initiatives caused a stall in new adoption similar to what other companies are seeing.

We also saw distributors, reducing inventory levels in both pros and systems, possibly as a result, our strategic announcement in August but also to reduce carrying costs.

Now to product level detail total revenue from cycle logistics product family in Q3 was $3 million down 12% compared to the same period in 2002.

13250, <unk> logistics approach in Q3, representing revenue growth of 3% on higher Asps on a negative 3% unit growth from the prior year period.

We also saw 27 cycle as you said systems in the quarter compared to 54 in the prior period.

Our retina product revenues was $7 9 million up 15% sequentially, but a 10% decline from the prior year period.

From exploration of licensed patents and lower than anticipated service and repair volume.

Gross profit for Q3 of 23 was $5 6 million compared to $6 5 million in the prior year period.

Gross margin was 43, 7% compared to 44, 1% in Q3 of 'twenty two.

The decline in gross margin was the result of lower overhead absorption in the current period and more favorable product mix in Q3 of 'twenty two.

Okay.

Operating expenses in Q3 of 23 were $7 3 million a significant decrease compared to $8 2 million in the same period last year.

The decrease in operating expenses as a result of cost reduction initiatives. The company began in Q2 of 'twenty three.

Our net loss in Q3 of 23 was $1 8 million or net loss of <unk> 11 per share compared to a net loss of $1 8 million and a net loss of <unk> 11 per share for the same period in 2002.

I will now discuss our cash position and cash flows.

The net cash reduction in the quarter was $1 8 million performance with $8 million at quarter end.

We were successful with inventory reduction of $1 1 million, but we also reduced accounts payable by $1 seven.

Over the summer months, we significantly reduced our operating expense run rate by more than $3 million annualized.

As a result, we are positioned for a significantly lower cash usage in Q4, and a substantially lower run rate in 2024.

We will remain focused on expense management and operating efficiencies in coming quarters, as we continue to align inventory related investments and manage cost and mitigate U S. Glaucoma probe revenue from reimbursement limitations.

Finally.

With that David and I would like to turn the call over to the operator for questions operator.

Okay.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment for questions.

Our first question comes from Tom Stefan with Stifel. You May proceed.

Okay.

Great Hey, guys. Thanks for the questions I'll start with the LCD is just a couple here, Dave what's the mix of moderate versus severe patients for <unk> today.

I think in the past you've talked about moderate being a very large opportunity for <unk> six.

As it was maybe no more than 25% of volume today. So I guess, if the majority of your volume is that refractory patients I'm just curious why the coverage criteria would be such a headwind.

Hey, John Yeah.

Yes, Hi, Tom Thanks for the question, yes. So.

The very late very late stage patients.

The criteria calls for for example.

Very limited visual potential in pain.

Among the list of various things they also call for <unk>.

Having had a prior trabeculectomy or <unk> procedure.

So these are all restrictions that would.

Eliminate a lot of the later stage.

Procedures as well so we think it's probably in the 25% range that.

Would qualify under this strict criteria in about 75% of our procedures.

In advanced stage patients, but in front of these kinds of criteria.

So in the PE or places, where the Max or the insurers are the patients we think it's pretty restrictive that said.

If the if the clinicians understand that.

Coverage that their patients have.

On average it's going to be two thirds that maintained coverage and so we think it's important to work with clinicians so that they understand what their coverage.

Of their patients is and if they arent in the practice now of knowing their coverage it might be something they.

Might want to pick up.

That makes sense and then with the LCD is just regarding the timing of the 8-K.

The proposed LCD is obviously came out starting in June and CPC wasn't even determined to be covered at that time. So why is it now expected to be a 2023 headwind or issue.

And maybe why it wasn't that the case or the thought.

I guess it was four or five months ago.

Yes, so the <unk>.

Proposed LCD came out in the June timeframe, we responded with an appeal and I described some of the clinical evidence that we submitted.

And a number of other arguments.

To retain coverage.

We were somewhat successful in that in the original Lcd's had classified all our cyclic photo coagulation as investigational and now that there is there is a coverage, but with a lot of restrictions associated with it and we think erroneous Lee.

Assumptions went into creating that list.

This happened two years ago, one of the Max.

Had proposed it.

B cyclopia coagulation be investigational during the.

The proposed period, we sent back responses and we're successful in there was there was no change no mention in the finals.

So in the.

Timeframe when when this year's Lcd's were submitted as proposed and we put in our responses. We deemed that it was not likely that there would be some incremental restrictions that came came to us. So we didn't put out an 8-K at the time and frankly.

A lot of the clinicians.

Are unaware of that hole.

Sequence of events and and are just now learning that the new LCD final.

Determinations are.

Are going to effect in there.

It's almost real time here how are they.

They are considering it and learning about it considering it displaying some outrage, but then trying to figure out okay. What am I going to do going forward so for us.

And in cycle of photo coagulation it really.

Where Mac coverage is restricted that clinicians will reconsider or extend the consideration whether to adopt and buy a new system and probes or not and we think it's likely that they'll take their time and so those.

Potential purchases will be deferred out of out of this year for sure.

Is that in those areas, where the decision is well if I've got only partial coverage I'm not going to offer it to patients so I am going to.

Use up my inventory I'm, not going to be ordering to replenish so I will significantly reduce the orders from.

For for the remainder of the year as I use up the probes I have.

Before restrictions come into place and I stop offering.

And we've had conversations with a number of clinicians and frankly, they're.

All across the <unk>.

Our board on what they may or May not do going forward, so we rather than try to.

A very broad range of potential.

Outcomes in the quarter, we just withheld the guidance to spend at the guidance.

Got it Thats great color.

Then last question just pivoting to retina.

Modest upside in the quarter relative to our estimates and sequential growth.

Was very strong I guess, Dave can you talk about how you're executing in that business.

And you're now lapping I think some tougher comps. So what do you believe is a sustainable growth rate for that segment kind of as we sit here today. Thanks.

Sure.

The retina business is strong.

The weakness in kind of macro environmental considerations that really proliferate it across the start of the year demonstrated to us that clinicians were deferring.

We're not canceling, but deferring their decisions to buy and I think part of that might be the third quarter performance might be deferrals from the second quarter that came in in the third quarter.

And so we feel like maybe where we're passing that uncertainty period. We also introduced our new Iridex Pascal platform and that's been very well received and so we're seeing people, having the opportunity to have to evaluate that and and decide to purchase.

So so we think the capital equipment side is is solid in the U S. <unk>.

Internationally.

Can't claim that we've seen that kind of a.

I'll call it recovery of the purchase mentality and we've got the.

Inventory swings that occur and distributors. So we can have a higher quarter in.

And then the next quarter lower than the next quarter higher there is a little bit of.

Increased volatility is.

As distributor inventory varies from quarter to quarter as well.

So all in all we think that the.

Oklahoma, sorry, the retina businesses.

Strong and we can.

Look forward to solid growth in the future. It is a mature segment of the industry the.

Approximate long term growth rate is in the kind of the mid to lower single digits. We think we can grow at that rate or better.

I think we will continue to see a little volatility quarter to quarter end and its the moving average thats probably more.

Indicative of how the business is doing but we're quite comfortable and confident in the retina side of the business.

Got it thanks, Dave and thanks for all the color.

Thanks, Tom.

Thank you one moment for questions.

Our next question comes from Scott Henry with Roth Capital You May proceed.

Thank you good afternoon, David did I hear you correct.

With regards to the retina business, when we think about organic growth there.

Did I hear you correct mid single digits is what you would be shooting for or the categories that I had I just wanted to make what we think the long term in that space. The long term is in that range. So it is a mature segment. There is replacement cycle and there is expansion at least domestically theres replacement cycle and Theres expansion.

<unk>.

As a group practice or a university.

In a metropolitan area opened satellite facilities in the suburbs they want the same equipment and so.

That's the nature of that market at this stage, while we feel like we have the leading technologies.

There is not a new cycle being created to replace older equipment because of Av.

Extraordinary new capabilities, we are in the lead for replacement and we actually think we can look forward to.

Our replacement cycle, because there are so many.

Greater than five years old and even a lot of Pascal systems that are in the end of service.

Period, where that system breaks it simply can't be repaired.

So we think that we can have some opportunities for growth above trend and if if we get a more conducive capital equipment environment that we could see.

Growth higher growth in that end.

But we do think that theres still going to be volatility quarter to quarter.

One is particularly strong.

As we for example saw last year's third quarter.

The comparisons and the subsequent might be on the weaker side. So the long term trend is up and the.

In the short term.

Moving averages are up in that mid single digits or better range.

Range.

Okay.

Then.

With the other line it declined sequentially from <unk> to <unk>.

Kind of $1 9 million number.

Do you think where do you think that that's the base or should we expect the decline more just trying to get a sense of.

You know where the bottom is for that category I know theres, some things that went away and they'll annualize, but just trying to understand what the base level.

Yes, the two drivers of volatility in that number are the the change in elimination of long royalty contract that we had the patent expired and so the contract expired and that was about 500000.

Our quarter.

And that's why the comparison to last year was.

Dip of about 500000.

Also in that other category is service revenue.

So we have a strong service business where.

Most of it is depot service they ship the system back to us we repair it and.

Ship it back and we sell extended warranty contracts so were booking revenue.

Accruing it quarterly for those extended service warranty contracts and then we're also doing individual service on a on a.

Don functioning system as well as preventive maintenance. So there are regular preventative maintenance cycles in certain states are stricter than others, but we have a steady flow of systems that need to.

To be checked calibrated and recertified Vincent back so that business goes up and down and that can vary by a 100000 or more.

In any one quarter.

And so that can contribute to that number.

Okay.

And then.

On the <unk> business.

And I'm not going to ask you for guidance I know youre not going to provide that but when you think about Q4, which I guess, we're about halfway through.

Yeah.

What should we think about for email from that perspective, I mean has system sold is it just kind of fallen apart like how do we you just trying to get a sense of at least in the next month.

What kind of reaction you initially saw.

Well I mean, frankly, so are we.

It's all across the board and you feel like.

I'll play by play announcer because.

I have one conversation with someone who.

It's from.

A state where there is no change to coverage.

What's what's the.

What's the issue here.

And then others that just fear this is very restrictive that it could extend to additional.

Payors.

<unk> are very seriously considering.

Eliminating or at least very significantly restricting their offering of CPC and those are the factors that make it very difficult and and so as much as we tried to really.

Put together.

Scenarios and identify a range.

It's a little bit difficult here.

This news is two weeks old so.

That's the that's the problem with trying to do guidance clearly people have said I got to wait, let's see what happens and in terms of system purchases and adoption.

If a significant chunk of their intended procedure volume isn't going to be available because it's restricted on on reimbursement.

So we will we.

We will.

Obviously stay very focused on it and as we can develop a picture we'll take a look at.

When it's appropriate to reinstate guidance.

Okay, and I'm going to ask you. Another question you may not answer but you might.

<unk>.

If I think about your prior guidance before everything happened with G. Six.

At least in my model the implication would've been that retina would've been strong in Q4.

Sequentially stronger in Q4 than Q3, even with the numbers that came in this quarter should we still I mean is that is that a reasonable assumption or retina.

Is it a seasonably strong Q4, typically or im just trying to get a sense of.

How we can take some of the variability out of the model.

Yes without guiding in the fourth quarter. It is the strongest quarter of the year typically it is.

But.

I actually don't remember the percentage difference between the weaker in the stronger but it is stronger.

So we think.

That dynamic is.

Is going to be consistent this year, but.

We're only halfway through and capital equipment happens.

At the end of the quarter, the typical pattern, where most of the ordering happens later in the year.

Okay Fair enough a final question with regards to the appeals process.

What would be our next data point.

Well as I said in the comments, we submitted an appeal on the grounds of.

A misinterpretation of the actual study that they quoted to set the definition of the criteria.

And that's in the hands of.

The various Mac administrators and there is no.

Defined schedules that they must act under and respond under so it's difficult to know.

Whether they will respond immediately that's what we seek we think it's compelling that they do.

It's very unusual.

I can't say I've seen it.

And.

And any other types of situations where the specific.

Paper that you quote you change the.

Okay, Alright, thank you Dave for taking all the questions.

Thanks Scott.

Thank you I would now like to turn the call back over to Dave Bruce for any closing remarks.

Thank you Ed and thank you all for attending I know, it's a bit of a turbulent time. There was a lot of information that came our way and we tried to share with you and we'll stay focused on managing through this situation and look forward to updating you in the future. Thank you.

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

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