CapsoVision, Inc.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for Capsovision's second quarter 2025 earnings call. Joining me today are Johnny Wong, President and Chief Executive Officer, Kevin Lundquist, Chief Financial Officer, and Doug Atkinson, Vice President of Sales. Before we begin, please remember that today's remarks include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Form 10-Q filed by us with the FCC. These forward-looking statements speak only as of the date of this call, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any changes in our expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based. Our call today will cover the following agenda. Johnny will begin with an overview of Capsovision's business, market opportunity, and recent highlights from our pipeline. Then, Kevin will walk through a commercial update, financial results for 2025. After our prepared remarks, we'll open up the call for Johnny, Kevin, and Dove to take your questions. With that, I'd like to turn the call over to Johnny.

Thank you, Lee, and good afternoon, everyone. Today marks an exciting milestone for Capsovision as we host our first earnings call as a public company. On behalf of the entire team, I want to thank our employees, our positioning partners, and our shareholders for your trust and support. As the co-founder of Capsovision, our mission has always been clear to deliver an early, accurate, accessible, and patient-friendly solution for advanced disease screening in the GI tract. We believe our approach to the detection of pre-cancerous legions sets Capsovision apart from most, if not all, commercially available, non-invasive GI screenings that are used to detect cancer early at a lower cost, and while it's potentially still treatable. Our long-term, life-saving vision is an ingestible capsule that in a single, convenient, non-invasive procedure screens for multiple cancers, esophageal, gastric, pancreatic, stem mobile, and colorectal at the early and still pre-cancerous stages, using AI to analyze thousands of images captured in the GI tract. We have developed a next-generation capsule endoscopy system that provides high-resolution 360-degree imaging, offering a more comfortable, non-invasive alternative to traditional GI screening options. Patients simply swallow a few sides of the camera, making the screening process easier and more approachable. Capsule Chem Plus, our FDA-cleared capsule for small bowel visualization, is already in commercial use across the U.S. and several international markets. We believe a key differentiator is its ability to capture a panoramic view of the small bowel. Imaging areas that often missed by competitive panoramic view capsules. This more complete visualization has been proven to significantly reduce blind spots, allowing physicians to more effectively identify complications such as GI-obscure bleeding, Crohn's disease, and other small bowel abnormalities. In peer-reviewed articles, our capsule showed a significantly higher detection rate of spina papilla, which is small bowel landmark, where the pancreas releases fluid into the small bowel. I will elaborate on this advantage in terms of pancreas screening later in my comments. Our small bowel capsule also delivers an industry-leading 97% procedural completion rate, a key benchmark for clinical reliability due to our long battery-powered operation time. In an incomplete study, portions of this small bowel may not be examined, and as a result, potential pathologies may be missed. Because capsule chem is wire-free, with data storage in the capsule and secure post-procedural workflow, it removes traditional bottlenecks such as scheduling office visits or managing body-warm equipment. Physicians can review patient results anytime, anywhere, not just during office hours. And with no need for onsite servers or IT support, multiple providers can access patient results through a centralized cloud-based infrastructure. Importantly, our cloud platform, where all patient images are downloaded, transcoded, and accessible, is developing into a trove of de-identified imaging data that we believe is a strategic asset that we can leverage in our in-house AI development. Earlier this year, we announced two important milestones for our capsule endoscopy solution. First, we received FDA clearance of Capsule Chem Plus for use in pediatric patients as young as two, providing a safe, non-invasive option for early diagnosis in treatment, particularly when traditional endoscopy is not feasible. In addition, the FDA also cleared the removed ingestion of Capsule Chem Plus for both adults and pediatric patients, enabling the procedure to be completed from home under visual supervision through telemedicine. Together, these clearances marked a major advancement in access, comfort, and the integration of our capsule endoscopy platform. Into telehealth workflows. Turning to our development pipeline, we are on track to submit our AI module for Capsule Chem Plus to the FDA in late September or early October. Upon approval, we will be able to offer a -in-class solution that integrates advanced imaging with AI-powered interpretation or small-ball diagnostics. Through our knowledge, we are the only company in our industry with in-house AI core competency. We believe that AI has the potential to make the procedure more efficient, as well as deliver more accurate results. This, together with our growing anonymous imaging data tool, proprietary to our cloud-based system, gives us a significant advantage in bringing disruptive AI-enabled GI screening solutions to market. Looking beyond the small ball, in June, we submitted a fighting kit to the FDA for our first generation Capsule Chem Colon, a non-invasive capsule for colon particle detection. Capsule Chem Colon provides a comfortable sedation-free alternative to optical colonoscopy, ideal for early detection of precancerous regions and, ultimately, colon cancer prevention. We plan to initially address patients who have higher colonoscopy procedure-related risk or those who have had an incomplete procedure. We estimate this market, combined with new opportunities in integrated delivery networks, who don't rely on Medicare or private insurers for reimbursement for capsule-based colon screening, has a market potential of over $1 billion. Of course, our ability to assess this market is subject to timely receipt of the required regulatory approvals and patient procedure indication. Importantly, we believe Capsule Chem Colon is the only capsule in development that combines advanced imaging capability with deep learning AI-assisted analysis, offering more complete view and particle detection capability. Clinically, it has potential applications beyond colorectal cancer screening, including IBD and bleeding evaluation. Economically, it could reduce reliance on operating room time and anesthesia and facility-based recovery, supporting both cost savings and scalability. We are also in development of a second-generation colon capsule that will provide improved optics and plan to conduct a smaller second-arm study to facilitate the regulatory approval of this improved capsule and give physicians confidence in accuracy and completeness. The new optics have 35% more viewing area with substantially better image quality than the Gen 1. To provide some additional color here, a capsule or any endoscopy for that matter can mix polyps in two ways related to its camera. The first is capsule air. When the capsule camera fails to capture images of polyps. The second is perception air. When the image of the polyp is captured, but the doctor fails to identify it as a polyp, possibly because it sits among other denied bumps in the colon. With a larger viewing area and a better image quality, our Gen 2 capsule can reduce both capsule air and perception air. We expect to submit it for 510K FDA approval of the Gen 2 capsule in the first quarter of 2026. We are also expanding our pipeline to address other parts of the GI tract. One area of focus that I'm especially excited about is the pancreas. This is one of the deadliest cancers, in large part because there is no effective weaning tool available today. As discussed earlier, our panoramic capsule endoscopy has a distinctively higher detection rate for duodenal papilla. The landmark in small bowel where the pancreas releases fluid into the small bowel. Some pancreatic abnormality will cause the papilla to dilate and this dilation in turn will cause the gastric fluid and the duodenal content to reflux into the pancreatic duct. But this dilation of the papilla is associated with pancreatic neoplasia, likely precursor to pancreatic cancer. Improved visualization may enable earlier detection. Based on promising results, we saw in an early feasibility study on pancreas weaning application. And the continued development progress, we plan to submit an application for breakthrough device designation by year end. A breakthrough designation if received, among other benefits, could facilitate the communications with the FDA, help inform the structure of our related clinical development efforts and accelerate the FDA review process. Our development pipeline also includes screening for esophageal varices. Most of the serotic patients during the course of disease progression are at high risk of developing esophageal varices. And the current guidelines recommend regular screening. In the US alone, there are an estimated five million patients with cirrhosis and over 85% develop varices, making this a large high-risk population. We plan to initiate pivotal studies in the second half of 2026 for subsequent regulatory submission to expand into this indication. In summary, GI diseases remain a major health challenge worldwide. And we believe capsule vision has a tremendous opportunity to address the broad and underserved market. Barriers such as invasiveness, cost and patient hesitation continue to limit access to GI examination and screening. We believe our capsule-based solution and our innovation pipeline are well positioned to address these gaps. I will now turn the call over to Kevin to cover recent commercial and operational highlights, as well as our financial results for the second quarter. Kevin?

Thanks, Johnny. I am excited to be here at this historic moment for our company. Our first earnings call is a publicly traded company. Turning to commercial highlights, as of June 30th, 2025, Capsocam Plus for small bowel screening has been used by more than 143,000 patients across the US and internationally. In the second quarter of 2025, approximately 7,900 patients used our system compared to approximately 6,700 in the second quarter of 2024, representing -over-year growth of 17%. Today, our technology is protected by 82 issued US patents reinforcing our strong foundation in IP and clinical innovation. In addition, the device is reimbursed under CPT code 91110, supporting adoption across both private practices and hospital systems. A key strategic advantage of our approach to the GI market is the ability to leverage our existing sales infrastructure as we expand into additional indications. Importantly, we expect that the same call point for Capsocam Plus will serve as the entry for Capsocam colon once it has been approved for commercialization, creating a built-in cross-sell opportunity without requiring significant increases in headcount. While we expect to scale over time, as of June 30th, 2025, our US direct sales team included 25 representatives supported by seven regional sales directors and trainers. Internationally, we're gaining traction with four representatives in Germany, and we continue to efficiently expand into high potential global markets through distributor partnerships. New accounts grew 75% in the second quarter of 2025 over the comparable quarter in 2024, demonstrating continued physician adoption of our capsule for use in small bowel screening, as well as the impact of approval in pediatric patients over two years old and remote ingestion of the capsule, furthering the benefits of telemedicine. We were also encouraged to see a 46% increase in GI clinics and mega GI groups, which we define as those with more than 150 providers with multiple locations and in multiple states in the second quarter of 2025 over the same quarter last year. Although our historic focus has been on private gastroenterology practices, we are now achieving momentum in hospitals and GPOs as incumbent contracts come up for renewal. In the second quarter of 2025, hospital systems customers increased 35% over the prior year. Turning to our financial performance, for the second quarter of 2025, total revenue was 3.3 million, reflecting 17% growth compared to the second quarter of 2024. This was driven by an increase in the number of CapsaCAM Plus capsules sold. Our gross margin was 55% for the quarter, consistent with our expectations as we scale. Operating expenses were 6.5 million for the second quarter of 2025, compared to 6.9 million in the second quarter of 2024. The decrease was attributable to $800,000 decrease in the number of expensive expenses associated with ongoing clinical trials as the CapsaCAM colon pivotal study was completed at the end of 2024, and clinical expenses for ongoing clinical trials in 2025 were lower. This was partially offset by a $400,000 increase in general and administrative expenses, primarily due to higher professional service expenses, including audit, legal, and consulting fees. Net loss was 4.6 million for the second quarter of 2025, compared to a net loss of 5.3 million in the second quarter of 2024. We ended the quarter with 1.1 million in cash and equivalents. Subsequent to quarter end, on July 3rd, 2025, we completed our initial public offering and received total net proceeds of 23.4 million. We also recently announced a development agreement with Canon to design and evaluate next generation CMOS image sensor for future versions of our capsule endoscopes. While not intended for CapsaCAM Plus or CapsaCAM colon, this collaboration marks the key step in advancing our innovation pipeline and imaging capabilities. The agreement, valued at approximately 4.1 million, including milestone-based payments, lays the groundwork for a strategic supplier relationship. Looking out towards the remainder of 2025, we expect second half revenue to be higher than first half and are already experiencing stronger sales in Q3. In addition, our Q4 sales have historically been seasonally our highest. As we look ahead, I'd like to summarize the catalysts that we believe will drive our growth and value creation for our shareholders. First, continued market share gains in the small bell market supported by strong physician enthusiasm for our technology's diagnostic performance and patient convenience. Second, integration of our AI module in CapsaCAM Plus, which we expect to submit to the FDA by late September or early October. Third, the expected regulatory clearance of CapsaCAM colon with the AI module that we will believe will unlock a significant new market opportunity for non-invasive colorectal screening by the second half of 2026. Fourth, anticipated development of pancreatic and esophageal varices disease screening, which we believe will further broaden our market opportunity and position us to image the entire GI tract. In short, we are confident that we have the right technology, the right strategy and the right team to execute on these opportunities. Thank you for your support and interest in CapsaVision. We look forward to keeping you updated on our progress. At this time, Johnny, Doug and I would be happy to take your questions. Operator, can you please open the line?

Thank you. Again, to ask a question, press star one on your telephone keypad. And our first question comes from the line of Jason Wittes with Roth Capital, please go ahead.

Hi, thanks for doing the questions and congrats on public. So first off, just to clarify, in terms of the colon launch, the plan is for the second generation device, not for the initial device that you submitted for. Just wanted to clarify that.

That's correct.

Okay, simple enough. And also- John, okay. And in terms of just timing, it sounds like if I, maybe I'm reading too much into this, but I think Johnny, you said the plan is for first quarter submission for the second gen or the second gen with the improved lens colon capsule. I guess I would imply that I assume that would come after the first approval, right? So that would be preference on getting that first approval. Okay. Exactly. Okay, thank you. And then you mentioned the Canon arrangement. It's 4.1 million. Is that an initial upfront payment and how long, what are the deliverables for that relationship and I guess what time frame should we be thinking about?

Sure. It's an upfront payment of a million dollars. It's a development contract for a new CMOS sensor. So the agreement is over a couple of years. And then once we've agreed with Final Engineering Design and signed a mutual agreement with them, they'll put it into production and that four point, the remainder of that will be allocated to a piece part on a minimum contract for a few years going on.

Okay, thank you.

Okay. Go ahead. We do have an option on that contract once they deliver a final device that we're gonna submit to the FDA. The approval is contingent on it clearing the FDA.

Will that be a device that's sold by Canon or is it? It'll be

our device. It'll be our device. It'll be our device, a future device.

Okay and I'll jump out of here but I did have one other question on financials. What was the cash burn in the quarter and what's the expectation for cash burn for the year?

I believe cash burn was around 11.5 million. We're still tracking at the about two million a month with our clinical trials. So I think our negative net income for the year is about 20 million where we said it would be 20 to 22.

Okay, I appreciate the detail. I'll jump back in too.

Our next question is from the line of Bruce Jackson with the Benchmark Company. Please go ahead.

Hi, good afternoon and thank you for taking my questions. I wanted to focus on the AI feature. Two questions there. One is the timeline. Are you still planning to submit in the fourth quarter with a possible launch next year sometime?

Yes, we do. We plan to submit at the end of September.

Okay.

And the first quarter next year we plan to launch.

Okay and then I wanted to ask about just the market receptivity to the AI feature. Is this something where the doctors are already aware of the feature and they're receptive to it or is this something where you might have to do some education to get them to buy into it?

Yeah, the AI is detecting abnormalities within small bowel will recognize the abnormalities within GI space. So there's no need for actual additional education. Thank you.

Okay and then last question for me on the AI. You mentioned that you've got the in-house capabilities. I was just wondering what type of advantage do you think that you have with your AI compared to the other options that are out there?

For in-house development on this kind of technology like software, it's always difficult because the turnaround, we control our own destiny. We control our own efforts. If someone else do it for you, it's this kind of communication and the other company always have their priorities. So you may not do, they may not do what you want and put enough resource. So this advantage actually is tremendous. So we are the only company we know in this space with in-house AI, complete in-house AI development. From labeling to the model restructure as well as training, validation and other aspects of AI technology we need. So this is in-house development and also when you need to modify AI, if other company you want them to do it, they may have other priority. It's not your company. So they may assign it to some people. It's not a great people. They don't, so this one, this condition is almost like in the software industry. If you have in-house software, you are much better off than you ask other company to develop software for you. It's the same situation.

Okay, that's it for me. Thank you very much and congratulations on the quarterly results. Thank you. Thank you.

Again, to ask a question, press star one on your telephone keypad. And with no further questions in queue, this does conclude today's conference call. You may now disconnect.