IRIDEX Corporation

Good day and thank you for standing by. Welcome to the second quarter 2023 Iridex earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Tripp Taylor, Investor Relations.

Thank you, and thank you all for participating in today's call. Joining me are David Bruce, Chief Executive Officer, and Fuad Ahmad, Interim Chief Financial Officer. Earlier today, Iridex released financial results for the quarter ended July 1st, 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 include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 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 the most recent Form 10-K and Form 10-Q filings with the SEC. ERDX disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, August 10, 2023. And with that, I'll turn the call over to Dave.

Good afternoon, and thank you all for joining us. Today I'll provide updates on our business progress, and FWOD will then provide details on second quarter financials, and we'll open the call for questions. In the second quarter of 2023, we generated $12.9 million in total revenue, a reduction of $900,000 versus last year's second quarter. Continued moderate growth in glaucoma revenue was offset by declines in surgical and medical retina, and this was our first quarter experiencing reduced royalty income, resulting from the previously discussed expiration of licensed patents. As we continue to execute our strategy, we're managing through two dynamics that have impacted our growth. We experienced more cautious customer behavior, which lengthened capital purchasing cycles and softened our systems sales. Also, our initiatives to accelerate glaucoma procedure adoption are taking longer to gain traction across the customer base. As a result, with first half of the year performance below our expectations, we are updating our guidance for the full year 2023 and now expect revenue to be in the range of $55 million to $57 million. Cyclo-G6 probe sales of 61,000 to 63,000 units, and expansion of the Cyclo-G6 system installed base by 210 to 230 systems. Looking ahead, we believe our long-term growth opportunity is strong based on the uniquely differentiated clinical value propositions of our non-incisional glaucoma treatments, as well as launching our refreshed market-leading retina laser platforms. While our glaucoma procedure growth rate is currently in the mid-single digits, we believe we have the technology, strategy, and team to accelerate our growth from here. Our optimism is highlighted by the increasing clinical interest in micropulse TLT and the 16 posters presented at the recent World Glaucoma Congress and the multiple levers we're implementing across our substantial user base to drive utilization. These include education on proper dosing and patient selection, the rollout of suite management software, targeting adoption among comprehensive ophthalmologists, and most notably expanding clinical evidence supporting micropulse TLT through a large-scale, multicenter, prospective clinical trial. These are necessary steps to retain attention in a crowded glaucoma device base, but together represent a larger-scale opportunity to become a key treatment choice for the moderate-stage glaucoma patient. In parallel, we recognize the need to preserve our capital runway to reach this longer-term goal. On our last call, we talked about steps taken to reduce our operating cash usage, and this quarter's usage declined to $1.2 million, and additional cost controls and inventory reduction actions are in place to further decrease cash usage in the coming quarters. Revenue growth at the current rate of our higher margin disposable probes is expected to continue reducing cash usage and bridge operations until our initiatives gain meaningful traction and accelerate growth. Looking closer at our glaucoma business, second quarter cycle G6 revenue increased by 5% year-over-year to $3.7 million. Global adoption of the G6 platform continued as we increased our installed base of systems by 41 units in the quarter. Probe revenue increased by 9% year-over-year, driven by ASP increases, and 4% volume growth. While the 15,500 probes sold in the quarter was below our expectation, we're encouraged by progress in several aspects of the business. Our current top initiative is educating customers on the updated micropulse TLT dosing recommendations to ensure clinicians achieve large IOP reductions and a strong safety profile with our glaucoma treatments. using systems with sweep management software aid surgeons in reliably delivery of the proper dose. The baseline dosing recommendations that were issued over a year ago by our clinical consensus panel were based on studies published at the time. Since then, more dosing studies, which I'll highlight later, have shown that higher dosing through slower sweep speeds improves patient outcomes. Training surgeons on dosing guidelines Ensuring proper technique through case support and upgrading system software requires a high-touch effort from our team. With this approach, the process entails clinicians treating an initial cohort of patients with our proctoring, then tracking results to confirm they achieved the desired outcomes at 30- and 90-day follow-ups. We believe this process can contribute considerably to growth over time. as some of our lower volume accounts increase their confidence in procedure outcomes and choose to treat a broader profile of patients with micropulse TLT. Another area of focus is targeting comprehensive ophthalmologist users. They largely see and manage glaucoma patients earlier in the disease continuum, generally at the mild stage through moderate severity patients, before referring to glaucoma specialists. This represents a larger provider and patient pool, second only to the mild stage population, which is primarily treated with SLT and medication drops. We see a significant opportunity for MPT-LT to provide a clinical and business opportunity for these practices to manage their patients longer by treating patients they would otherwise have referred on. Retaining those patients in the practice to deliver future regular visits and diagnostic test revenue, can approach $2,000 per patient per year over additional years. In recent surgical cases our team has proctored, we're observing the population being treated is about 40% pre-incisional patients. Furthermore, we're seeing the average procedure volume by comprehensive users can be significantly higher than traditional glaucoma specialists. The last glaucoma growth initiative I'll discuss today is expanding the clinical data supporting micropulse TLT. there were 16 posters presented recently at the World Glaucoma Conference. All but one of these was physician-sponsored and represents the broadening clinical interest in micropulse TLT. These studies contained over 850 combined eyes studied and cover topics from traditional continuous wave applications to demonstrating structural safety in adjacent tissues, the various patient cohort types, with micropulse treatment and various dosing parameters. I'd like to highlight a few findings from these studies. On the topic of dose escalation, three different studies totaling 130 patients demonstrated over 30% reduction in ILP with greater efficacy from slower sweep speeds while delivering the same excellent patient profile, safety profile. One of these studies was a randomized 60-patient prospective single-center study. The patient inclusion criteria was a key target cohort of ours, post-cateract and failed mixed patients needing further treatment. Patients were randomly assigned to three different dosing protocols. Dose escalation was accomplished by slowing sweep speed, thereby extending the dwell time of probe energy and increasing the target tissue temperature, or by adding additional passes of the probe. Higher IOP reductions were achieved by each escalated dose, with an average 50% reduction at the highest dosing while still maintaining the same safety profile across all doses. These types of findings can provide the confidence for surgeons to pursue higher efficacy with the comfort that safety will be maintained. The positive results of these dose escalation studies has provided Iridex the confidence to invest in a larger scale multi-center prospective trial. The goal of the trial will be to demonstrate the safety and effectiveness of micropulse TLT for the moderate stage glaucoma patients with statistically powered patient volumes. We're in the final stages of designing the study protocol as guided by a small group of influential KOLs. We're finalizing selection of the CRO and identifying investigational centers interested in participating. We're still targeting first patient enrollment by year end. A successful study would provide powerful support for G6 adoption and utilization by an increasing number of clinicians. We remain confident we have the right product and a cost-effective strategy to increase our penetration to the glaucoma market over time. Shifting our focus now to update on the retina business, revenue in the second quarter declined to $6.9 million from $7.5 million in the prior year period. While we continue to see strong interest in our Pascal platform, its growth was offset by softness in surgical and medical retina systems. As we mentioned on our last call, during the second quarter, we saw lengthening sales cycles for capital equipment amid uncertainty in the rising interest rate macro environment. That seems to be stabilizing recently, but remains difficult to forecast rebound timing. We are tracking toward our U.S. launch of the new single spot laser platform with our new Iridex 532 and 577 versions in the fourth quarter. As with the start of any new product cycle, when international distributors prepare for these transitions, inventories and order volumes can soften until the new products are available. This coupled with generally slower capital purchase cycles can soften demand and our second quarter results exhibited that. As economic fears subside and new products clear international regulatory approvals, these challenges should turn to a growth tailwind in 2024. We will continue to execute our strategy and top initiatives with a constant focus on preserving our cash runway that provides multi-year execution visibility. In the second quarter, we took steps to reduce our operating expenses and extend our runway and are tempering our project spending going forward. We also see meaningful recovery of cash by further reducing inventory in the third and fourth quarters that was built up to mitigate supply chain challenges. We continue to balance spending to support our growth plans against the cash usage rate to maintain a multi-year runway with current resources. Now I'd like to turn the call over to Fuad to cover financial details.