IRIDEX Corporation

Good day and thank you for standing by. Welcome to the Aerodex Q2 2021 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 the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Hunter Cobby, Investor Relations. Please go ahead.

Thank you, and thank you all for participating in today's call. Joining me are David Bruce, Chief Executive Officer, and Fouad Ahmad, Interim Chief Financial Officer. Earlier today, Iridex released financial results for the quarter ended July 3rd, 2021. A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that Mangell makes statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the state private provisions of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that are not statements of historical fact, including but not limited to statements concerning our strategic goals and priorities, product development matters, sales trends, and the markets in which we operate. All forward-looking statements are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place reliance on these statements. For discussion of the risks and uncertainties associated with our business, please see our most recent Form 10-K and Form 10-Q filings with SEC. If your district claims 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, August 12, 2021. And with that, I'll turn the call over to Dave.

Good afternoon, and thank you all for joining us. As we announce a very strong quarter for Iridex, I can't help remembering that entering last year's second quarter, Thank you. Thank you. Thank you. We prioritized re-engaging with our significant installed base while expanding awareness of the benefits of our non-incisional micropulse transscleral laser therapy procedure for new customers. A year later, our installed base exceeds 2,000 systems and glaucoma probe sales reached record quarterly levels. And lastly, we continued to pursue initiatives that would deepen our market penetration and improve gross margins. Today we are seeing an investment in expanding the U.S. sales and marketing team beginning to show results. In addition, we're achieving efficiencies in manufacturing costs, overhead absorption on higher sales, and an increasing percentage of our revenue from higher margin disposables, which help to improve gross margins to over 45% this quarter. An integration of the Pascal product line acquired earlier this year from our collaboration with Topcon is going smoothly. Overall, we meaningfully strengthened and positioned our company for long-term growth. Turning now specifically to second quarter results, revenue was $13.4 million, 116% year-over-year increase, and a record high going all the way back since 2007 when Iridex was a very different company. We also saw significant growth in our glaucoma business, including a new record 16,000 cyclo-G6 probes sold. Our retina business had a robust return on sales, nearly tripling off the COVID lows of the second quarter last year. The integration of Pascal product line acquired from Topcon during the first quarter is progressing well without any disruption to production volumes, and we're generally on track in our transition to Topcon's portion of distribution in our worldwide sales partner network. This momentum as we head into the second half of 2021, gives us confidence to raise full-year guidance to a total revenue of $50 million to $52 million, reflecting growth of 38% to 43% over fiscal year 2020. Also, to increase expected Cyclo-G6 probe sales to a range of 58,000 to 60,000 units. Diving deeper into our glaucoma business, Cyclo-G6 product family revenue was $3.6 million An increase of 70% year over year. Cyclo-G6 probe sales increased 103% year over year and 18% quarter over quarter. While we anticipate there will be seasonal quarterly lumpiness, we are confident in the solid growth trajectory being established. Moving to our Cyclo-G6 glaucoma laser systems, we sold 47 units in the second quarter of 2021. While we believe there continues to be a large opportunity for system placements with new customers, this volume is consistent with our current strategic focus on driving procedure adoption and probe utilization over system placements. On the retina side of our business, we saw product revenue grow 190% year-over-year, including a 28% contribution from sales of Pascal products acquired from Topcon. Through the second quarter, our new retina-focused U.S. sales team and our direct international distributors came up to speed on Pascal products, leading to strong sales performance. Simultaneously, we've conducted extensive training programs with Topcon and their sub-distributors in those regions where we're transitioning Iridex products into their hands, and we continue to have high confidence in the long-term growth potential for our collaborations. We have enjoyed solid order flow from Topcon for Pascal products. Well, outside the U.S., we recognize that a part of this is build-out of inventory in Japan ahead of temporary import limitations as we shift to Iridex-labeled Pascal product registrations later this year. And finally, our OUS sales of Iridex products in the second quarter were still primarily through existing distributors, as they finished out their termination period following notification of the transfer to TopCon. Next, I'd like to take a few minutes to highlight some of the growth investments we're making in sales and marketing. In the first quarter of this year, we split and expanded the U.S. sales team into 12 dedicated glaucoma territories and six dedicated retina territories. Sales rep training programs were completed in Q2, and our new reps are coming up to speed. Encouragingly, Dedicated retina rep sales have been an important contributor to our recent U.S. business strength, as I noted earlier. We also increased our investment in building clinical evidence and developing closer key opinion leader relationships that can improve confidence and adoption of our non-incisional transcleral laser therapy products. Going forward, we plan to expand the clinical physician-to-physician messaging around TLT that we believe will support expanded adoption and use across broader patient indications. In the second quarter, we virtually attended the World Glaucoma Congress where MicroPulse TLT was well represented with 18 peer-reviewed presentations and posters. We also budgeted for the anticipated return of in-person trade meetings and clinical events that will require greater investment What we expect will provide good returns downstream. At our first live meeting this year, Hawaiian Eye and Retina, we showcased the new Iridex 810 laser with good feedback and reception. Recently, we launched new Iridex branding, including a new logo, look, and messaging on our website, in advertising, and at the American Society of Cataract and Refractive Surgery meeting in Las Vegas. Our goal with this rebranding is to raise awareness and position Iridex's unique non-incisional laser treatment runway for glaucoma patients, a truly beneficial combination of effective and safe treatments to manage ocular pressures in controlling glaucoma for mild, moderate, and advanced disease severity without surgical incisions. A few other notable second quarter updates I'd like to highlight include Notice that our Paycheck Protection Program loan was forgiven. Claude will cover the details and impact later. Also, we filed a Form S3 with the SEC to register TopCon's shares in July. This routine filing establishes market liquidity capability for TopCon in accordance with our collaboration agreement signed and closed in March. On July 13th, CMS published its calendar year 2022 Medicare physician fee schedule proposed rule for the coming year, which included significant reductions in payments for certain MIGS devices used in combination with cataract surgery. The proposal reduces incremental physician payment for concomitant use of these devices by over 90% and significantly reduces the facility payment as well. While it's not unusual for CMS to recommend reducing payments, and they did propose a 5% reduction for Iridex's CPT code. We believe there's potential that surgeons will reevaluate the relative merits of various devices and find it economically more attractive to increase usage of our probe-based glaucoma procedures. Much of our peer-reviewed clinical data on micropulse TLT regularly demonstrates 30% ILP reductions versus a few millimeters of mercury for some MIGS devices studied. making TLT a clinically attractive alternative treatment as well. In conclusion, new sales records this quarter demonstrate that Iridex is breaking out to new highs of performance and we're proud of the results that our team has achieved. We are wary, however, that the rise in the Delta variant and other associated COVID-related restrictions could limit access to our customers or possibly slow the completion of the distribution transitions to TopCon territories, and we're watching these dynamics carefully. Nevertheless, we're confident that we can manage through headwinds, and we are most enthused because we believe we're still in the early stages of our opportunities and see the pathway for a long-term upside. With that, I'd like to turn the call over to Fuad.