IRIDEX Corporation

Thank you for standing by and welcome to the Eridex Third Quarter 2021 Earnings Conference Call. At this time, all participants are on listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question at that time, please press star then 1 on your touchtone telephone. As a reminder, today's conference call is being recorded. I will now turn the conference over to your host, Mr. Hunter Cobby, with investor relations. Sir, please go ahead.

Thank you, and thank you all for participating in today's call. Joining me are David Bruce, Chief Executive Officer, and Fawad Ahmed, Interim Chief Financial Officer. Earlier today, ERDX released financial results for the quarter ended October 2nd, 2021, a copy of the press release available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the State Forbidden 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 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 Forum 10-K and Forum 10-Q with SEC. ERDX 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 that is accurate only as it's live broadcast today, November 11th, 2021. And with that, I'll turn the call over to Dave.

Good afternoon, and thank you all for joining us. This quarter, we saw strength in both our glaucoma and retina markets. Thanks to sales execution from market-focused reps and our expanded global distribution network, Cyclo-G6 probe utilization grew and retina sales meaningfully improved following our TopCon collaboration and Pascal acquisition. Turning to our third quarter highlights, We achieved a significant year-over-year top-line improvement and encouraging sequential results. Revenue grew 51% year-over-year and was only slightly below our high-water mark posted in the previous quarter, despite the third quarter's typically softer seasonality in the ophthalmic business. And we achieved solid gross margin improvement and limited cash usage. In our glaucoma market, despite the worldwide COVID surge, leading to some degree of procedure volume restriction and limitations to accessing physicians, Cyclo G6 ProBiome grew 18% versus last year. In Retina, our new dedicated U.S. sales team continued to build up the strong momentum from the second quarter and our top line also benefited from the smooth transition in our international distribution network, including solid Pascal orders. More specifically, in our glaucoma business, Cyclo-G6 product family revenue increased 13% year-over-year. We sold 13,400 Cyclo-G6 probes, holding firm in the US and growing nicely in our OUS segment. While Cyclo-G6 system placements increased year-over-year and helped drive probe usage in the third quarter, it lagged our initial expectations. which we largely attribute to COVID restrictions worldwide dampening customers' decisions to expand investments and adopt new treatments. We believe this will recover as the pandemic subsides. In our efforts to drive expanded Cyclo-G6 probe utilization, Iridex supported an arm's length assessment by 10 key opinion leaders from around the world to assess the current situation for micropulse TLT and determine proper dosing levels and settings to optimize results. Last week, in advance of AAO, we hosted a webinar titled Micropulse TLT Consensus, an International Expert Panel, where these KOLs presented their conclusions. We were delighted to see strong positive response to the webinar with over 1,000 views so far. The conclusions were very supportive of the efficacy and safety profile of Micropulse TLT and included clear, broad patient selection recommendations and effective treatment protocol parameters. The panel operated independent of Iridex Influence to achieve an objective assessment based on literature review, surveys of the group's direct clinical experience, and feedback from other clinicians to create a consensus conclusion for clinical indications and treatment parameters. In addition, the panel intends to submit a paper for peer-reviewed publication later this year, which can serve as a definitive guide to micropulse CLT clinical application. We are very optimistic this type of peer-to-peer documentation will encourage greater confidence and adoption among a broader base of physicians who may be slower to adopt and seek further endorsement of newer technologies. Turning to our retina business, We saw retina product revenue grow 76% year-over-year, of which 24% came from sales of Pascal products acquired from Topcon earlier this year. Our U.S. retina-focused sales team is exceeding targets, and new OUS distributors are coming up to speed following broad sales rep training programs in the second quarter. We maintain high confidence in our sales collaboration with Topcon as we look to expand our focus from successful transition to broader joint sales opportunities. Part of the international strength in retina last quarter was from Pascal Inventory Building in Japan ahead of temporary import limitations as we shift product manufacturer registrations. We've filed this registration in Q3 and expect about one quarter of import limitations during Q4. Turning to U.S. reimbursement news, CMS released its final 2022 payment schedules for ophthalmic procedures. As it historically has done, they again reduced physician reimbursements for most glaucoma surgical procedures. The largest reduction was received in the MIGS space by stent placements concomitant with cataract surgery, effectively reducing the incremental payment to physicians for placing the MIGS device by about 75%. Canaloplasty took a 22% hit, SLT was reduced 20%, and our CPC and TLT procedures by 15%. We think the upshot is that our TLT procedure becomes incrementally more attractive from an economic standpoint to complement our clinical advantages of 30% IOP reduction and strong safety profile from a non-incisional five-minute procedure. As we enter the final quarter of the year, we continue to improve our positioning in the markets we serve. Splitting the U.S. sales organization at the beginning of the year enhanced our traction. Our new international distributor relationships are now settling into place, and remaining transition disruption is subsiding. We see growing utilization of cyclo-G6 probes thanks to our sales efforts and support from clinical key opinion leaders driving further procedure adoption. In the past year, we have significantly reinvigorated our retina business. And we have a number of product enhancements underway for launch next year. Finally, we are very pleased that all these increased investment costs have been covered by expansion of the business such that we sustain low cash usage. Tempering all the successes, COVID resurgence continues to show signs of suppressing patient procedures and physician expansion appetites. which we look forward to recovering as COVID wanes. And while we have been successful managing our key supply chain needs, we are addressing supply chain constraints as they continue to emerge. Nonetheless, we feel confident in our momentum and visibility as we enter this quarter. And as such, we have raised our revenue guidance to a range of 52 million to 53 million reflecting growth of 43% to 46% over fiscal 2020. FWAD will expand on this in a moment. With that, I'd like to turn the call over to FWAD.