Q4 2023 IRIDEX Corp Earnings Call

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Operator: Hello, and thank you for standing by. Welcome to EIRDC's Q4 2023 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, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.

Operator: To withdraw your question, please press star 11 again. I would now like to hand the conference over to Trip Taylor. You may begin. Thank you. And thank you all for participating in today's call. Joining me from earnings are David Bruce, Chief Executive Officer, and Fuad Ahmad, Interim Chief Financial Officer. Earlier today, Euridex released financial results for the quarter ended December 30, 2023. 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 are 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 should be considered forward-looking. 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.

Yeah.

Speaker Change: Hello, and thank you for standing by welcome to Iridex Q4, 2023 earnings conference call.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question. During this session you will need to press star one on your telephone.

Speaker Change: In her automated message advising yohan just raised.

Speaker Change: To withdraw your question. Please press star one again.

Speaker Change: I would now like to hand, the conference over to trip Taylor you may begin.

Philip Taylor: Thank you and thank you all for participating in today's call.

Philip Taylor: And David Bruce Chief Executive Officer in Guatemala.

Philip Taylor: Earlier today <unk> financial results for the quarter ended September 32020.

Philip Taylor: 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.

Philip Taylor: 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. Your next statement does not state any intention or obligation, except as required by law, to update or revise any financial projections or forms of these 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, March 26, 2024. And with that, I'll turn the call over to Dave.

Philip Taylor: These statements.

Federal Securities laws, which are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act.

Philip Taylor: Okay.

Philip Taylor: 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.

Philip Taylor: What matters sales trends in the markets in which we operate should be considered forward looking all forward looking statements are based upon our current estimates and various assumptions.

Philip Taylor: 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 mill.

David I. Bruce: Good afternoon, everyone, and thank you all for joining us on today's call. I'll start out by providing an update on our strategic review process and then discuss our recent business progress and priorities for 2024. Then Fuad will provide details on the fourth quarter financials, and we will open the call for questions. In August 2023, Airdex announced a strategic review process with the intent of exploring transaction options for the future of each or all of our product lines to unlock shareholder value. To date, we've engaged bankers, prepared business overviews, and engaged in introductory discussions with numerous parties.

Philip Taylor: Recent Form 10-K, and Form 10-Q filings with the SEC.

Philip Taylor: <unk> 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.

Philip Taylor: This conference call contains time sensitive information and is accurate only as of the life broadcast Tuesday March 26, 2024, and with that I'll turn the call over to David.

David I. Bruce: We are currently in discussions with multiple parties in more detail relating to specific product lines and believe we are on track toward reaching our first agreement soon on the sale of certain assets. Additionally, we continue to be open to any transaction or series of transactions that will benefit our shareholders. Given our prioritization of the strategic review process and intent to pursue value realization of each of our assets this year, we are not providing business line financial guidance for at this time. Along with our high priority to advance the strategic alternatives process, we remain focused on pursuing our business line growth strategies with cost-effective and value building plans. While we had a confluence of factors impacting our fourth quarter business results, both our retina and glaucoma business opportunities remain strong. Heading into 2024, we're encouraged that the market environment appears to be normalized.

David I. Bruce: Good afternoon, everyone and thank you all for joining us on today's call I'll start out by providing an update on our strategic review process and then discuss our recent business progress and priorities for 2024.

David I. Bruce: Slide will provide details on our fourth quarter financials, and we will open the call for questions.

David I. Bruce: In August 2023, Iridex announced a strategic review process with the intent of exploring transaction options for the future of each of our all of our product lines to unlock shareholder value.

David I. Bruce: To date, we've engaged bankers prepared business overviews and engaged an introductory discussions with numerous parties. We're currently in discussions with multiple parties in more detail relating to specific product lines and believe we are on track toward reaching our first agreement soon on the sale of certain assets.

David I. Bruce: Uncertainty regarding US glaucoma procedure reimbursement is dissipating, the macroeconomic capital purchase environment is stabilizing, and our distributor inventory adjustment impacts are largely behind us. Now, let me turn to our fourth quarter and full year results and talk about the opportunities we are pursuing. For 2023, we generated revenue of $51.9 million for the full year, led by a strong first half, then impacted by a softer second half, culminating in fourth quarter revenue totaling $12.5 million. In the fourth quarter, we experienced a combination of unique events that impacted our revenue in the quarter. These included the MAC glaucoma local coverage determination, or LCDs, which restricted Medicare reimbursement for our laser treatments for moderate glaucoma, and this caused surgeons to temporarily reduce orders for procedure probes and defer adoption of laser systems in the U.S.

David I. Bruce: Additionally, we continue to be open to any transaction or series of transactions that will benefit our shareholders.

David I. Bruce: Even our prioritization of the strategic review process and intend to pursue value realization of each of our assets. This year, we are not providing business line financial guidance for 2024 at this time.

David I. Bruce: Along with our high priority to advance the strategic alternatives process, we remain focused on pursuing our business line growth strategies with cost effective and value building plan.

David I. Bruce: While we had a confluence of factors impacting our fourth quarter business results, both our retina and glaucoma business opportunities remained strong heading into 2024, we're encouraged the market environment appears to be normalized.

David I. Bruce: Uncertainty regarding U S. Glaucoma procedure reimbursement is dissipating macroeconomic capital purchase environment is stabilizing and our distributor inventory adjustment impacts are largely behind us.

David I. Bruce: Continued capital equipment purchasing deferrals related to higher financing costs impacted both glaucoma and retina system sales, and we experienced supply chain limitations that created a larger than typical backlog, which put revenue beyond the quarter end. And finally, the largest impact in the quarter was from a double-digit decline in orders from key international distributors as they reduced inventory significantly, likely in reaction to our previously announced strategic options review and upcoming transition to new platforms. The aggregate effect was lower revenue in the quarter and a weaker than expected overall 23 performance.

Let me turn to our fourth quarter and full year results and talk about the opportunities we are pursuing.

David I. Bruce: For 2023, we generated revenue of $51 9 million for the full year led by a strong first half then impacted by a softer second half, culminating in fourth quarter revenue totaling $12 5 million.

David I. Bruce: In the fourth quarter, we experienced a combination of unique events that impacted our revenue in the quarter. These included.

David I. Bruce: Mac glaucoma local coverage determination or LCD, which restricted Medicare reimbursement for our laser treatments and moderate glaucoma.

David I. Bruce: During the first quarter of 2024, we're seeing business flows more consistent with our, We're focused on addressing and improving the factors that have been impacting the business, specifically awareness of the LCD withdrawals to drive U.S. glaucoma orders back to and beyond prior levels, Advancing the capital equipment pipeline consistent with seasonally adjusted purchasing trends, especially for Pascal scanning laser systems, Resolving Supply Chain Issues, and Stabilizing In January, at the Hawaiian Eye and Retina Conference, we saw continuing interest in our new PASCAL scanning laser platform and introduced our new IRIDEX 532 and 577 single spot platform of retina lasers.

David I. Bruce: And this caused surgeons to temporarily reduce orders for procedure probes and defer adoption of laser systems in the U S.

Continued capital equipment purchasing deferrals related to higher financing costs impacted both glaucoma and retina system sales.

David I. Bruce: And we experienced supply chain limitations that created a larger than typical backlog, which pushed revenue beyond the quarter end.

David I. Bruce: And finally, the largest impact in the quarter was from a double digit digit decline.

David I. Bruce: And orders from key international distributors as they reduced inventory significantly likely in reaction to our previously announced strategic options review.

David I. Bruce: And upcoming transition to new platforms.

David I. Bruce: The aggregate effect was lower revenue in the quarter and weaker than expected overall 23 performance.

David I. Bruce: Throughout the year, the business was impacted by a series of transient, external, and internal factors that caused growth to be below our expectations. Despite these 23 headwinds, we made strong progress for our glaucoma segment, highlighted by a significant presence at the World Glaucoma Congress with 16 posters demonstrating rising clinical interest in micropulse, DLT, and the cycle G6 product. We completed our clinical protocol and engaged with first sites toward the launch of our runway study, a large-scale prospective multi-center post-market study focused on proving the efficacy and safety of micropulse TLT for the post-cataract glaucoma patient population. In addition, we've launched a registry program in the UK, which I'll discuss in a moment. In the past year at Retina, we received FDA clearance for our new single spot platform for the Iridex 532 and 577 systems and recently commenced the commercial launch.

During the first quarter of 2024, we're seeing business flow is more consistent with our history.

David I. Bruce: <unk> focused on addressing and improving the factors that have been impacting the business specifically awareness of the LCD withdrawals to drive U S glaucoma orders back to and beyond prior levels.

David I. Bruce: <unk> the capital equipment pipeline consistent with the seasonally adjusted purchasing trends, especially for Pascal scanning laser systems.

David I. Bruce: Resolving the supply chain issues and stabilizing distributor orders in.

In January at the Hawaiian Eye and Retina conference, we saw a continuing interest in our new Pascal scanning laser platform and introduced our new Iridex $5 32, and $5 77 single spot platform of retina lasers.

David I. Bruce: Throughout the year the business was impacted by a series of transient external and internal factors that cause growth to be below our expectations.

David I. Bruce: Spite these 23 headwinds we made strong.

David I. Bruce: When combined with our new IRIDEX PASCAL platform launched earlier in 2023, we have two refreshed platforms with a full complement of laser systems and delivery devices, positioning the business to advance our worldwide leadership in laser-based red. We also exercised operational discipline to limit our cash usage to one million in the fourth quarter, the lowest quarterly cash used, during 2023.

David I. Bruce: Progress for our glaucoma segment highlighted by significant presence at the World Glaucoma Congress with 16 posters, demonstrating rising clinical interest in micro pulse DLT in the cycle <unk> six product families. We completed our clinical protocol and engaged with first sites toward launch of our runway study.

David I. Bruce: Our large scale prospective multicenter post market study focused on improving the efficacy and safety of micro pulse DLT for the post cataract glaucoma patient population.

David I. Bruce: We did experience a significant reduction in international probe and system orders as key regional distributors did not replenish inventory. In the U.S., the announced Medicare LTD reimbursement reduction, the Suppressed Glaucoma Probe, and new system sales during the fourth quarter. As a result of these two factors, Cyclo G6 revenue was $3.0 million compared to $4.2 million in the fourth quarter. 2022.

David I. Bruce: In addition, we've launched a registry program in the UK, which I'll discuss in a moment.

David I. Bruce: In the past year and retina, we received FDA clearance for our new single spot platform for the Iridex $5 32, and $5 70 70.

David I. Bruce: 577 systems and recently commenced the commercial launch.

David I. Bruce: When combined with our new Iridex Pascal platform launched earlier in 'twenty three we have to refresh platforms with a full complement of laser systems and delivery devices.

David I. Bruce: We sold 12,700 G6 probes and 35 G6 systems. Both represent significant decreases compared to the prior year period. In late December, the Medicare LCDs were withdrawn, but too late to affect the quarter.

David I. Bruce: <unk> the business to advance our worldwide leadership and laser based retina treatment.

David I. Bruce: We also exercised operational discipline to limit our cash usage to $1 million in the fourth quarter, the lowest quarterly cash used.

David I. Bruce: This withdrawal reverted Medicare patient access to the prior unrestricted coverage for translateral laser procedures, and we saw the provider community begin to increase usage in the first quarter. Turning to updates on the growing glaucoma clinical portfolio, as we discussed previously, reimbursement uncertainty led to a modest delay in the launch of our runway study, as we have the benefit of understanding the criteria for coverage that was outlined in the LCDs. We assessed requirements in detail and have adjusted our protocol and methods to best align with what we anticipate could meet coverage criteria in any future LCA. As of now, we've completed the clinical protocol and engaged the initial sites. The study is designed to evaluate approximately 250 patients at 10 centers, measuring IOP and safety over two years of follow-up, with six month and one year readouts built in. This study will be instrumental in further validating the safety and effectiveness of micropulse TLP for post cataract glaucoma patients and increasing confidence among physicians.

David I. Bruce: During 2023.

David I. Bruce: Taking a closer look at glaucoma events.

David I. Bruce: We did experience a significant reduction in international probe in system orders as key regional distributors did not replenish inventory levels.

David I. Bruce: In the U S the announced Medicare LCD reimbursement reductions.

David I. Bruce: Suppressed glaucoma probe and new system sales during the fourth quarter as a result of these two factors psychology, six revenue was 3.0 million compared to $4 2 million in the fourth quarter.

David I. Bruce: 2022, we sold 12700, <unk> probes and 35 <unk> systems, both represent significant decrease as compared to the prior year period.

David I. Bruce: In late December the Medicare LCD is were withdrawn, but too late to affect the quarter.

David I. Bruce: This withdrawal reverted Medicare patient access to the prior unrestricted coverage for transplant or a laser procedures and we saw the provider community to begin to increase usage in the first quarter.

David I. Bruce: Turning to updates on the growing glaucoma clinical portfolio as we've discussed previously the reimbursement uncertainty led to a modest delay in the launch of our runway study.

David I. Bruce: Additionally, in January, the first patient was enrolled in a large-scale multi-center research registry, in collaboration with Imperial College Health Care NHS Trust and the United Kingdom. The three-year registry support allows evaluation of micropulse TLT using the cycle G6 laser and is structured for expanded participation, currently focusing on 25 other UK providers to build enrollment for a large patient cohort. As part of the collaboration, we agreed to fund support components of the study and created a custom-designed and secured database management system.

David I. Bruce: As we.

David I. Bruce: Has the benefit of understand the criteria for coverage that was outlined in the LCD as we assessed the requirements in detail and have adjusted our protocol and methods to best align with what we anticipate could.

David I. Bruce: Could meet coverage criteria in any future LCD.

David I. Bruce: As of now we've completed the clinical protocol and engage the initial sites studies designed to evaluate approximately 250 patients at 10 centers.

David I. Bruce: During IOP in safety over two years of follow up.

David I. Bruce: With six month, and one year Readouts built in.

David I. Bruce: We believe this large volume of patient data will allow UK investigators to further expand the clinical evidence base and increase usage for physicians and patients in the UK and worldwide. All together, we continue to be excited about our glaucoma business offerings and have strategies in place to build adoption across the large and growing population of moderate-stage patients. Glaucoma patients, and additionally, drive utilization across existing installations. Specifically, our growth levers include cementing usage of the proper doses and patient selection.

David I. Bruce: This study will be instrumental in further validating safety and effectiveness of micro pulse DLP for post cataract glaucoma patients and increasing the confidence among the physician community.

David I. Bruce: Additionally in January the first patient was enrolled in a large scale multicenter research registry in collaboration with Imperial College Healthcare NHS Trust.

David I. Bruce: And the United Kingdom.

David I. Bruce: The three year registry support allows evaluation of <unk> youth.

David I. Bruce: Using the cycle <unk> laser and is structured for expanded participation currently focusing on 25 other UK providers to build enrollment for a large patient cohorts as.

David I. Bruce: Utilization of our sweep speed management software to assist in delivering the dosing and proper technique, and targeting adoption among comprehensive ophthalmologists for the post-cataract look. Shifting to our retina business, performance in the fourth quarter, product revenue was $7.5 million, a decrease of 7% compared to 2022. Outside the broader headwinds faced in both businesses, we experienced supply chain limitations causing product shipment delays, leading to an increased International distributors also destocked inventory in anticipation of the new laser platforms and potential impact from our strategic review program at the Hawaiian Eye meeting in January. We showcased our new single-shot platform and saw a continued interest in our new Pascal scanning laser introduced last year.

David I. Bruce: As part of the collaboration we've agreed to fund support components of the study and created a custom designed and secured database management system. We believe this large volume of patient data will allow UK investigators to further expand the clinical evidence base and increased usage for physicians and patients in the U K and worldwide.

David I. Bruce: Altogether, we continue to be excited for our glaucoma business offerings and have strategies in place to build adoption across the large and growing population moderate stage.

David I. Bruce: Glaucoma patients and additionally drive utilization across our existing installed base.

David I. Bruce: Specifically our growth levers include cementing usage of the proper dosing and patient selection, Utah.

David I. Bruce: Utilization of our sweep speed management software to assist delivering the dosing and proper technique.

David I. Bruce: And targeting adoption among comprehensive ophthalmologists for the post cataract glaucoma patients.

David I. Bruce: The launch of the new platform now underway in the U.S. further strengthens our retina market leadership position. But these two launches were focused on capitalizing on our improved and refreshed retina portfolio as the year unfolds. We recently were granted a new European patent that further protects intellectual property encompassing our micropulse devices across both retina and glaucoma markers.

David I. Bruce: Shifting to our retina business performance in the fourth quarter.

David I. Bruce: Revenue was $7 5 million, a decrease of 7% compared to 2022.

David I. Bruce: Outside the broader headwinds faced in both business segments.

David I. Bruce: We experienced supply chain limitations, causing product shipment delays, leading to an increased order backlog exiting the quarter.

David I. Bruce: International distributors also destock inventory in anticipation of a new laser platform and potential impact from our strategic review process.

David I. Bruce: We are exclusive providers of devices utilizing this patented, significant advancement in tissue-friendlier, safe, and effective laser technology throughout Europe. Finally, given where we are with the calendar, let me provide some color on the first quarter business progress. In summary, we're seeing a return to business flow that is more consistent with the past. Following the retirement of Medicare LCD proposals, U.S. glaucoma orders are trending to more normalized levels. We're also seeing improvement in capital purchasing trends. Typical of normal seasonality

David I. Bruce: At Hawaiian eye meeting in January we showcased our new single spot platform and saw continued interest in our new Pascal scanning laser introduced last year.

David I. Bruce: The launch of the new platform now underway in the U S. Further strengthens our retina market leadership position. These two launches we're focused on capitalizing on our improved general express retina portfolio as the year unfolds.

David I. Bruce: We recently were granted a new European patent that further protects intellectual property encompassing our micro pulse devices across both retina and glaucoma market.

David I. Bruce: Our exclusive providers of devices utilizing this patented significant advancement in tissue friendlier safe and effective laser technology throughout Europe.

Fuad Ahmad: And lastly, we have resolved supply chain issues that allowed progress against the year-end backlog and our position to be responsive to leaner distributor inventories that could lead to faster sell-through for future work. We're excited about 2024 and the value we seek to create for our shareholders as we execute on the strategic alternatives process and pursue our cost-effective growth strategies to advance our two main lines of business. With that, I will turn the call over to Dave. Thank you, Dave. Good afternoon, everyone.

David I. Bruce: Finally, given where we are with the calendar, let me provide some color on the first quarter business progress.

David I. Bruce: In summary, we are seeing a return to business flow is more consistent with historical patterns.

David I. Bruce: Following the retirement of Medicare LCD proposals U S. Glaucoma orders are trending to more normalized levels. We're also seeing improvement in capital purchasing trends.

David I. Bruce: Typical of normal seasonality.

David I. Bruce: And lastly, we have resolved the supply chain issues and progress against the year end backlog and are positioned to be responsive to leaner distributor inventories that could lead to faster sell through for future orders.

Fuad Ahmad: And thank you for joining us today. I would like to begin by reviewing our financial performance for the fourth quarter, followed by our full year fiscal 2023 results and December 30, 2023. Fourth quarter total revenue generated was $12.5 million, down $2.7 million from the prior year period. Revenue for the year ended December 30, 2023, was $51.9 million compared to $57 million in 2020. The declines are driven by continuous softness in capital equipment purchases resulting in lower system and probe sales and from the previously reported loss in royalty revenues that significantly impacted the second half of the year. Starting with Glaucoma, we had system sales of 35 units in the quarter compared to 78 systems in the prior year period.

David I. Bruce: We're excited about 2024 and the value we seek to create for our shareholders as we execute on the strategic alternatives process and pursue our cost effective growth strategies to advance our two main lines of business.

With that I will turn the call over to swap.

Swap: Thank you Dave Good afternoon, everyone and thank you for joining us today I would like to begin by reviewing our financial performance for the fourth quarter, followed by our full year fiscal 2023 results ended December 32023.

Swap: Fourth quarter total revenue generated was $12 5 million down $2 7 million from the prior year period.

Swap: Revenue for the year ended December 32023 was $51 9 million compared to $57 million in 2022.

Swap: The declines were driven by continued softness in capital equipment purchases are resulting in lower system and probe sales and from the previously reported loss and royalty revenue that significantly impacted the second half of the year.

Swap: Starting with glaucoma, we have system sales up 35 units in the quarter compared to 78 systems in the prior year period.

Fuad Ahmad: This was driven by distributor destocking and reimbursement uncertainty that persisted for most of the quarter in the US. The overall decrease in fourth-quarter system sales represents a decline in cycle G6 revenue to $3 million from $4.2 million last year. Total glaucoma product revenue for 2023 was $13.4 million compared to $14.7 million in 2020. At the product level, total revenue from the Cyclo G6 product family in the fourth quarter was $3 million, down $1.2 million compared to the same period in 2022. We sold 12,700 Cyclo G6 probes in the fourth quarter, representing a substantial decline from 16,400 probes sold in the prior year period. As Dave mentioned in his remarks, we experienced significant headwinds from the LCD reimbursement uncertainty in the US. We also saw international distributors reduce inventory and did not execute their replenishment orders.

Swap: This was driven by distributor Destocking and reimbursement uncertainty that persisted for most of the quarter in the U S.

Swap: The overall decrease in fourth quarter system sales represents a decline in fact logistics revenue to $3 million and $4 2 million last year.

Swap: Total glaucoma product revenue for 2023 was $13 4 million compared to $14 7 million in 2022.

Swap: At the product level total revenue from psychology, six product family in the fourth quarter was $3 million down $1 2 million compared to the same period in 2002.

Swap: We sold 12700 <unk> six probes in the fourth quarter, representing a substantial decline from 16400 probes sold in the prior year period.

Swap: As Dave mentioned in his remarks, we experienced significant headwinds from the LCD reimbursement uncertainty in the quarter in the U S. We also saw international distributors reduce inventory and did not execute their replenishment orders.

Swap: However, these declines were partially offset by higher asp's.

Swap: We sold 35 <unk> systems in the quarter compared to 27.

Fuad Ahmad: However, these declines were partially offset by higher ASI. We sold 35 Cyclo G6 systems in the quarter compared to 27, in the third quarter and 78 in fiscal 2020. We expect sales to stabilize throughout the year as probe orders are backfilled and the resumption of regular purchasing behavior from the glaucoma practice. RECNA segment revenue in Q4 was $7.5 million, a decrease of 7% compared to the prior year period.

Swap: In the third quarter and 78 in fiscal 2023.

Swap: We expect sales to stabilize throughout the year as orders are backfill and the resumption of breath in their purchasing behavior from the glaucoma practices.

Swap: Our retina segment revenue in Q4 was $70 5 million a decrease of 7% compared to the prior year period and the quarter, we continued to see elongated capital purchase cycles and distributor Destocking.

Swap: For the full year 'twenty three retina product revenue was $29 4 million down 7% compared to 2022.

Fuad Ahmad: In the quarter, we continue to see elongated capital purchase cycles and distributor destock. For the full year, retina product revenue was $29.4 million, down 7% compared to 2022. As customer capital purchase plans remain generally intact, we anticipate a return to baseline performance in 2024, especially domestically, where our market share remains strong. Other revenues, which include royalty services and other legacy products, decreased to $2 million in the fourth quarter from $2.9 million in 2022. With a full year 2023, the other revenue decreased to $9.1 million compared to $10.6 million in 2022, driven by a reduction of $1.5 million in royalty revenue from the expiration of license patents. Gross profit for the fourth quarter of 2023 was 4.9 million compared to 6.7 million in the prior year period.

Swap: As customer capital purchase plans remain generally intact, we anticipate a return to baseline performance in 2024, especially domestically where our market share remains strong.

Swap: Other revenues, which includes royalties services and other legacy products decreased to $2 million in the fourth quarter from $2 9 million in 2022.

Swap: For the full year 2023.

Swap: Yes.

Swap: Other revenue decreased to $9 1 million compared to $10 6 million in 2022, driven by a reduction of $1 five.

Swap: $5 million in royalty revenue from the exploration license patents.

Swap: Gross profit for the fourth quarter of 'twenty, three was $4 9 million compared to $6 7 million in the prior year period.

Swap: Gross margin was 39, 2% compared to $49 40.

Swap: <unk> 43, 9% in the fourth quarter of 'twenty two.

Swap: The decline in gross margin was a result of lower overhead absorption and less favorable product mix.

Swap: We also saw in the fourth quarter and lost royalty revenue.

Fuad Ahmad: Gross margin was 39.2% compared to 43.9% in the fourth quarter of 2022. The declining gross margin was the result of lower overhead absorption and less favorable product making that we also saw in the fourth quarter and lost royalty revenue. Gross profit for the full year 23 was 21.8 million compared to 25.4 million in the prior year. Gross margin for 2023 was 42% compared to 44.5% during the year. Operating expenses in the fourth quarter of 23 were $8 million, a slight decrease compared to $8.1 million in the same period last year. The relatively flat operating expenses result of planned cost reduction initiatives offset by the implementation of our new Enterprise Resource Planning, or ERP, system and strategic review expenses. Total operating expenses for 23 were $31.8 million compared to $32.9 million in total.

Swap: Gross profit for the full year 'twenty, three was $21 8 million compared to $25 4 million in the prior year gross margin for 2023, less 42% compared to 44, 5% during the year.

Swap: Operating expenses in the fourth quarter of 2003, where 8 million a slight decrease compared to $8 1 million in the same period last year, the relatively flat operating expense as a result of planned cost reduction initiatives offset by implementation of our new enterprise resource planning or ERP system.

Swap: <unk> strategic review expenses.

Swap: Total operating expenses were 23 were $31 8 million compared to $32 9 million in 2002.

Swap: Our net loss in the fourth quarter of 2023 was $3 million or <unk> 18 per share compared to a net loss of $1 1 million or <unk> <unk> per share for the same period in 2002 for the full year. We recorded a net loss of $9 6 million or <unk> 59 per share compared to $7 5 million or <unk> 47.

Swap: <unk> per share in 2002.

Swap: Not to our cash position and cash flows.

Swap: The net cost reduction in the quarter was $1 million, our lowest quarterly cash usage in 2023.

Swap: Due to previously announced initiatives to reduce operating expenses a reduction in inventory on a more practical working capital management strategy by more closely aligning payables and receivables.

Fuad Ahmad: Our net loss in the fourth quarter of 2023 was $3 million or $0.18 per share compared to a net loss of $1.1 million or $0.07 per share for the same period in 2022. For the full year, we recorded a net loss of $9.6 million or $0.59 per share compared to $7.5 million or $0.47 per share in 2020. Now to our cash position and cash flows. The net cash reduction in the quarter was one million, the lowest quarterly cash usage in 2023. Due to previously announced initiatives to reduce operating expenses, a reduction in inventory, and a more practical working capital management strategy by more closely aligning payables and receivables, cash and cash equivalents totaled $7 million as of December 30, 2020. With that, Dave and I would like to turn the call over to the operator for questions. Operator? Thank you. Ladies and gentlemen, to ask a question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again.

Swap: Cash and cash equivalents totaled $7 million as of December 30, <unk> 2023.

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

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen to ask a question. Please press star one on your telephone and then wait to hear your name announced.

Speaker Change: To withdraw your question. Please press star one again please.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Tom Stefan with Stifel. Your line is open.

Thomas M. Stephan: Great Hey, guys. Thanks for the questions.

Thomas M. Stephan: Maybe I'll start with the.

Thomas M. Stephan: The strategic update Dave I appreciate the color.

Thomas M. Stephan: Maybe if I could just ask how are you guys balancing call.

Call it portfolio optimization in terms of garnering value from potential transactions I.

Thomas M. Stephan: I guess, while also maintaining sort of a higher priority assets and then maybe just.

Speaker Change: As a follow up to that.

Speaker Change: I guess with this first sale that may be coming soon how far does that.

Speaker Change: Get you in terms of right sizing the balance sheet and the P&L.

Operator: Please stand by while we compile the Q&A box. Our first question comes from the line of Tom Stephan with CFO. Your line is open.

Speaker Change: Hey, Tom Thanks for the questions a lot in there.

Thomas M. Stephan: Let me start with the.

Thomas M. Stephan: Great. Hey guys, thanks for the questions. Maybe I'll start with the strategic update, Dave. I appreciate the color. Maybe if I could just ask, you know, how are you guys balancing, call it, portfolio optimization in terms of garnering value from potential transactions. I guess while also maintaining sort of the higher priority assets, and then maybe just as a follow-up to that, you know, I guess with this first sale, that may be coming soon, how far does that get you in terms of right sizing the balance sheet and the P&L? Hi Tom.

Speaker Change: The business focus so were.

I have two main lines and some other smaller lines of business.

Thomas M. Stephan: The retina and glaucoma lines, each have their own strengths and business opportunities to be pursued.

Thomas M. Stephan: As stewards of those businesses, we are making the investments with.

Thomas M. Stephan: And I, both to cost effectiveness as well as continuing to move those businesses forward and.

Thomas M. Stephan: That's the.

Thomas M. Stephan: Summary of the key programs that I discussed in my remarks.

David I. Bruce: Thanks for the question. There is a lot in there. Let me start with the business focus. So we have two main lines and some other smaller lines of business. The retina and the glaucoma lines each have their own strengths and business opportunities to be pursued.

Thomas M. Stephan: In terms of.

Thomas M. Stephan: Potential transaction that would.

Thomas M. Stephan: Most likely generate cash that would.

Give us significant incremental runway to pursue the other potential transactions associated with the assets.

David I. Bruce: As stewards of those businesses, we are making the investments with both cost-effectiveness in mind as well as continuing to move those businesses forward. And that's the summary of the key programs that I discussed in my remarks, in terms of a potential transaction that would most likely generate cash that would give us, you know, significant incremental runway to pursue the other potential transactions associated with the asset and David Bruce. As we progress down that pathway, we'll make those judgments as needed in terms of capital or other disposition of cash assets. So, you know, we're in kind of a fluid situation here, so it's hard to be definitive about those kinds of things, but we're very focused on executing both the growth elements of the business as well as potential transactions to realize that for sure. Perfect. That's really helpful.

As we progress down that pathway will make.

Thomas M. Stephan: Make those judgments as needed in terms of capital or.

Thomas M. Stephan: Other disposition of cash assets so.

Thomas M. Stephan: Sure.

Thomas M. Stephan: We're kind of in a fluid situation here. So it's hard to be definitive about those kinds of things, but we're very focused on executing.

Thomas M. Stephan: Both the growth elements of the business as well as the.

Thomas M. Stephan: The potential transactions to realize that for shareholders.

Speaker Change: Perfect. That's helpful. I appreciate that and then.

Speaker Change: Just moving to I guess, the 2020 for outlook.

Speaker Change: Our our models I should say.

Speaker Change: Dave I appreciate the <unk> 24 commentary just about the business flow coming back any guardrails around sales or other metrics for the first quarter.

David I. Bruce: I appreciate that. And then, Just moving to, I guess, the 2024 outlook, or our models, I should say. Dave, I appreciate the 1Q24 commentary just about the business flow coming back. Any guardrails around sales or other metrics for the first quarter in particular? We're just about done here with the quarter.

Speaker Change: <unk>.

Dave: We're just about done here with the quarter. It sounds like things are coming back to normal a bit.

Speaker Change: I think it would just be helpful.

Speaker Change: Getting any additional visibility into the performance this quarter, just as we try to figure out sort of how to update our models for the full year.

David I. Bruce: It sounds like things are coming back to normal a bit. I think it would just be helpful getting any additional visibility into the performance this quarter, just as we try to figure out sort of how to update our models for the full year. Yeah, so, without guidance to the quarter, and we, you know, we still have a little bit of the quarter left, and in the capital equipment business, in particular, there are late orders and shipments and those kinds of things.

Speaker Change: Yes, so without guiding to the quarter and we still have a little bit of a quarter left in the capital equipment business in particular.

There are late orders and shipments and those kinds of things. So so there is some potential movement.

Speaker Change: Even this close to the end of the quarter, but that said.

Speaker Change: As I mentioned, we are seeing some stabilization on the capital equipment purchasing cycles, we're seeing recovery from the I'll say more dour outlook in the glaucoma U S marketplaces.

David I. Bruce: So, there is some potential movement, even this close to the end of the quarter. But that said, as I mentioned, we are seeing some stabilization on capital equipment purchasing cycles. We're seeing recovery from the, I'll say, more dour outlook in the glaucoma U.S. marketplace as reimbursement restrictions ended up being lifted at the end of the quarter.

Reimbursement restrictions ended up being lifted at the end of the quarter and I think consistent with what others have commented in our space.

Speaker Change: In their recent reports.

Speaker Change: We're seeing recovery and we.

Speaker Change: Spect that to continue however, we also see people being a bit judicious theirs.

David I. Bruce: And I think consistent with what others have commented on in our space in their recent reports. We're seeing recovery, and we expect that to continue. However, we also see people being a bit judicious.

Speaker Change: A sentiment that there may be some follow on activity.

Speaker Change: By the.

Speaker Change: By the Max and I think people are sensitive to that but I think in general.

David I. Bruce: There's, you know, a sentiment that there may be some follow-on activity and by the by the max, and I think people are sensitive to that. But I think, in general, the declines that occurred in the fourth quarter around the lack of reordering probes and, you know, really suspending interest in system purchases to adopt the technology. We're seeing some recovery of system orders and such, so we're optimistic that that trend will strengthen as the year goes by. You know, as an aside, we think the reimbursement change that we accomplished before the LCDs became effective or, ultimately, then withdrawn, bodes well for any potential reimbursement limitations going forward. We think we're in a good position if such a discussion needed to occur. Okay, I got it.

Speaker Change: The declines that occurred in the fourth quarter.

Speaker Change: Around lack of reordering probes and.

Speaker Change: Really suspending interest in system purchases to adopt the technology, we're seeing some.

Speaker Change: Recovery of system orders and such so we're optimistic that that trend will strengthen as the year goes by.

Speaker Change: As an aside we think.

Speaker Change: The reimbursement change that we accomplished before the ltvs became effective and ultimately been withdrawn.

Speaker Change: Bodes well for any potential reimbursement limitations going forward, we think we're in a good position if such a discussion needed to occur.

Speaker Change: Okay got it so I guess, maybe just to push you a little bit I mean is it fair to expect.

David I. Bruce: So I guess maybe just to push you a little bit, I mean, is it fair to expect 1Q24 sales to be maybe flat to up relative to 4Q? Just as we think about a lot of one-timer customers in 4Q that arguably could create sort of a bolus heading into this year, is flat to up reasonable to consider for 1Q? And I know we only have two, three days left in the quarter. Sorry, I'm sorry to speak over you there.

Speaker Change: <unk> 24 sales to be maybe.

Speaker Change: Maybe flat to up relative to <unk>, just as we think about a lot of one timers in the <unk> that.

Speaker Change: Arguably could create sort of a bolus heading into this year is flat to up.

Speaker Change: Reasonable to consider for <unk>.

Speaker Change: I know, we only have two or three days.

David I. Bruce: Let me answer that a little bit differently. Typically, you see seasonality that occurs; Q4 is, and has historically been, the strongest quarter of the year, and then a dip as you come into the first quarter. We're seeing significantly better performance against that typical seasonality than in prior years. Okay, so a better sort of meaning still down, but not down as much, I guess. It's not down compared to the degree that it's been down. Okay, okay, perfect. That's helpful.

Speaker Change: He is left in the quarter.

Speaker Change: Oh, sorry, sorry to speak of either let me answer that a little bit differently typically youll see seasonality that occurs Q for US has historically been the strongest quarter of the year and then a dip as you come into the first quarter.

Speaker Change: We're seeing significantly better performance against that typical seasonality.

Speaker Change: Then in.

Speaker Change: In prior years.

Okay, so better sort of meeting still down, but not down as much I guess.

David I. Bruce: And then moving to Retina, you know, I think it was down on a year over year basis for maybe the fourth or fifth straight quarter. I know you called out capital purchasing trends, maybe even some distributor and supply chain factors. But Dave, maybe you can help us with sort of how you view the 2024 and long-term growth outlook of that business. I think in the past, we talked about, you know, maybe low to mid single-digit percent growth. But, you know, given the recent underperformance and declines. Is there any renewed thinking on what kind of a normal, long-term growth profile is for the retina for you guys?

Speaker Change: It's not down compared to the degree that it's been down in the past okay. Okay. Perfect. That's helpful.

Speaker Change: And then moving to retina.

Speaker Change: I think it was down on a year over year basis for maybe the fourth or fifth straight quarter.

Speaker Change: I know you called out.

Speaker Change: Yes.

Speaker Change: Capital purchasing trends.

Speaker Change: Maybe even some distributor and supply chain factors.

Speaker Change: But Dave maybe.

Dave: You can help us with sort of how you view.

The 2024 and long term growth outlook.

Dave: Of that business I think in the past.

Dave: You talked about.

Dave: Maybe low to mid single digit percent growth.

Dave: But.

David I. Bruce: I think the long-term outlook has not changed. I think it's a mid single digit, Opportunity. I think the overall worldwide market in that space is low single-digits, so we think we can outperform the overall market even if it's only a few percentage points. But the performance throughout 2023 really was a persistent softness in capital purchases, primarily driven by interest rate increases, cost of capital, as well as, if you recall, in the early part of the year, people were quite concerned about the recession. And, you know, that But, you know, it did affect the business.

Dave: Given.

Dave: The recent underperformance in declines is there any renewed thinking on what kind of a normal long term growth profile is for retina for you guys.

Speaker Change: I think the.

Speaker Change: The long term outlook has not changed I think it's a it's a.

Mid single digit.

Speaker Change: Opportunity.

Speaker Change: And I think the overall worldwide market in that space is low single digit. So we think we can outperform the overall market, even if it's only a few percentage points, but.

Speaker Change: The performance throughout 2023 really was a persistent.

Speaker Change: Softness in capital purchases, primarily driven by interest rate increases cost of capital as well as if you recall the early part of the year people were quite concerned about recession and that cleared up in the second half of the year, but.

David I. Bruce: So, you know, those are longer-term, I'll call them cycle waves that you have a softness from Capital Equipment, and I think other Capital Equipment providers saw a similar dynamic throughout the course of the year and also talked about seeing an improvement in coming into 2024. So I think we're consistent with the overall capital equipment marketplace. And then I think we've now positioned ourselves for a better recovery out of that with two new platforms on the retina side of the business and are already seeing a solid interest in the new Iridex Pascal platform. So I don't think there's any major change. I think it's, you know, multiple quarters are really part of that longer-term impact on softness and capital in general. So, maybe the industry as a whole, and that segment did not see that mid single-digit kind of growth in 23 versus 22.

Speaker Change: It did affect the business so.

Speaker Change: Those are longer term.

Speaker Change: Cycle waves that.

Speaker Change: You have a softness from.

Speaker Change: Capital equipment, and I think other capital equipment providers.

Similar.

Speaker Change: Dynamic throughout the course of the year and are also.

Speaker Change: Talk also talked about seeing an improvement.

Speaker Change: Coming into 2024, so I think we're consistent with the overall capital equipment marketplace, and then I think we've now positioned ourselves for a better recovery out of that with two new platforms on the retina side of the business and already seeing.

Speaker Change: Solid interest in the new Iridex Pascal platform.

Speaker Change: I don't think Theres any major change I think.

Speaker Change: Multiple quarters is really part of that longer term impact and softness in capital in general so to maybe the industry as a whole.

David I. Bruce: Got it. Great color. Last one for me just on the balance sheet. I think Byrne earned $1 million in the quarter.

David I. Bruce: Dave or Fuad, what should we be thinking about, I guess normalized quarterly Byrne or lack thereof in 2024? Thanks. Yeah, we've been talking about adjustments to our spending rate and reducing our cast usage. And, you know, we achieved that in the fourth quarter, despite having some other singular expenses that offset those savings. So, you know, it wasn't as dramatic, but we're also managing on the balance sheet side with inventory reductions and trying to better match up our payables and receivables in terms of days outstanding. And so all of that led to, you know, a relatively good cash usage performance in the fourth quarter. Those cost reductions will carry through. That's part of our planning to pursue the growth initiatives with an eye to the cost effectiveness of those things. And so, you know, we anticipate that we can manage through the period with cash on hand for the execution as we simultaneously pursue potential transactions.

Speaker Change: And that segment did not see that mid.

Mid single digits.

Speaker Change: Kind of growth in 'twenty three versus 22.

Got it great color last one for me just on the balance sheet.

Speaker Change: Burn was $1 million in the quarter.

Speaker Change: <unk>, how should we be thinking about I guess normalized quarterly burn or lack thereof.

Speaker Change: In 2024.

Speaker Change: Yes.

Speaker Change: We have been talking about adjustments to our spending rate and reducing our <unk>.

Speaker Change: Our cash usage.

Speaker Change: And we achieved that in the fourth quarter, despite having some other.

Speaker Change: Singular expenses that offset those savings so it wasn't as dramatic but we're also managing the balance sheet side with <unk>.

Speaker Change: Inventory reductions and trying to better match up our payables and receivables in terms of days outstanding.

Speaker Change: And so all of that led to.

Speaker Change: Relatively good.

Speaker Change: Cash usage performance in the fourth quarter those cost reductions will carry through thats part of our planning to pursue.

Speaker Change: The growth initiatives with with an eye to the cost effectiveness of those things and so we anticipate that we can manage through.

David I. Bruce: Got it. I appreciate all the color. Thanks, guys. Thank you. As a reminder, ladies and gentlemen, that's star 11 to ask the question.

Speaker Change: The period.

Speaker Change: With cash on hand for <unk>.

Speaker Change: For the execution as we as we simultaneously pursue potential transactions.

Speaker Change: Got it appreciate all the color thanks, guys.

Speaker Change: Thank you.

Speaker Change: As a reminder, ladies and gentlemen, Thats star one to ask a question.

David I. Bruce: I'm showing no further questions in the queue. I would now like to turn the call back over to Dave for closing remarks. Thank you, and thank you all for joining the call. We look forward to reporting updates as they unfold.

Speaker Change: I'm showing no further questions in the queue I would now like to turn the call back over to Dave for closing remarks.

Dave: Thank you and thank you all for joining the call.

Dave: We look forward to reporting updates as they unfold.

Dave: Good afternoon.

Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Operator: Good afternoon. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Speaker Change: Yes.

Speaker Change: Right now.

Speaker Change: Okay.

Sure.

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Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yeah.

Speaker Change: Mhm.

Speaker Change: [music].

Speaker Change: Okay.