IRIDEX Corporation

Good day and thank you for standing by. Welcome to the Q3 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 the 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 Fahad Ahmad, Interim Chief Financial Officer. Earlier today, Iridex released financial results for the quarter ended September 30th, 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 Security Litigation Reform Act of 1995. Any statements made during this call are not statements 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 a discussion of the risks and uncertainties associated with our business, please visit please see the most recent Form 10-K and Form 10-Q filings with the SEC. Euredex 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, November 14, 2023. And with that, I'll turn the call over to Dave.

Good afternoon. Thanks, Tripp. And thank you all for joining us. Today, I'll discuss recent corporate and Medicare reimbursement developments and our business progress. Then Fuad will provide details on the third quarter financials, and we will open the call for questions. I'll start with the topic I expect people are most interested in learning more about, That's the Medicare coverage policy that was the subject of our recent 8K and the potential impacts to our business. On October 26th, WPS, a Medicare administration contractor, or MAC, was the first to issue an LCD changing its coverage related to minimally invasive glaucoma surgery, or MIGS, procedures. Last week, as expected, four other MACs released similar LCDs, and all will become effective December 24th, 2023. While the clear focus of the five LCDs was MIGS device use, they also changed their coverage criteria for cyclophotocoagulation, or CPC, which is the basis for Iridex's micropulse and continuous wave glaucoma procedures. While MIGS are incisional surgical procedures predominantly done coincident to a cataract surgery, The CPC procedures done with Iridex devices are neither incisional nor are they commonly done coincident to cataract surgery. While the MACs provided little context or explanation for their motive in coverage changes, it's believed they were reacting to the rapid rise in volume and cost of MIGS procedures, particularly driven by multiple MIGS devices deployed during one cataract intervention. This drove an increase in surgeons submitting multiple billing codes and a large increase in reimbursement expense per procedure and in total. The LCDs limit MIGS procedures concomitant with cataract surgery to a single device and specifically call out newer MIGS devices that enable both a canaloplasty and a goniotomy procedure to be performed with a single device. These and several other procedures were labeled as investigational which means they were made ineligible for Medicare reimbursement until more rigorous clinical work on effectiveness is published. The LCDs confirmed that cyclophotocoagulation received continuing payment coverage. Unlike the targeted MIGS procedures, CPC is not labeled as investigational. However, the coverage criteria for CPC was redefined via an extensive list of patient characteristics and symptoms that would effectively limit reimbursement to procedures performed on patients suffering from very advanced stage glaucoma. For our business on patients enrolled in these restricted coverage MACs, this means fewer micropulse TLT procedures and stricter limitations for continuous wave CPC procedures. So how many fewer procedures? Let me run through the numbers to get a sense of what impact the LCDs might have on Iridex's glaucoma revenue. and note there's still a high degree of uncertainty, we believe the following classifications and assumptions represent the situation. First, half of Viridex's glaucoma revenue is international and unaffected. Further, two of the seven total MAC payers in the United States have not issued a change to their cyclophotocoagulation coverage, and these MACs cover about one-third of our U.S. footprint, including key states like Florida, Texas, and Pennsylvania. To be clear, CPC is still covered in all the MACs. The procedure is just now subject to restrictions, narrowing its coverage in five of the seven MACs. So the American Glaucoma Society estimates that approximately 50, sorry, 60% of U.S. glaucoma patients are covered by Medicare. Our procedures are performed on moderate to advanced severity, probably skews a little bit older, so we estimate about 70% of our volume has Medicare coverage. However, within Medicare, about half of patients are covered by these MACs, network of payers, and half are in Medicare Advantage programs, which are administered by traditional insurance companies like Aetna and UnitedHealthcare. Currently, none of the MAC Advantage or Medicare Advantage payors have altered their coverage for CPC, even as they've issued new updates for their MIGS coverage criteria. At this time, Iridex cannot accurately predict the impact these LCD coverage changes will have on its U.S. glaucoma probe or system business. The math implies about 20% of U.S. procedures fall directly under the MAC coverage restrictions, with our glaucoma procedures for the most severe patients least affected and those for more moderate stage being most affected. At this time, it's uncertain how physicians will react to coverage reductions and their decisions to offer our treatment to patients. We've heard many doctors, particularly during the recently held American Academy of Ophthalmology in San Francisco, that CPC is not only proven and effective, but an essential part of their treatment program for controlling the progression of glaucoma for their patients. These physicians communicated their strong intention to continue performing CPC And several doctors discussed the possibility of offering patients for whom CPC is obviously the best next treatment an option for self-pay if coverage isn't available under their plan. Qualitatively, there are two important competing considerations. First is going to be physician confusion and frustration surrounding these reimbursement changes in the affected MAC states. We expect the coverage restrictions will result in many of our potential prospects deferring adoption, pleading to fewer domestic orders for consoles and probes as providers work through the confusion around what has changed and who's affected and how they will position CPC in their practice. In affected MAC regions, doctors may not be aware of an individual patient's coverage and to whom they can offer our procedures and generally pull back usage to avoid non-reimbursed procedures. On the other hand, there are some potential positives for Iridex. Migs are a big deal in the glaucoma community right now, and the LCDs are receiving a lot of attention. And this includes physicians wrestling with their options going forward in treating the disease. Ironically, with the LCDs falling hardest on migs, and thereby almost certainly reducing the number of migs procedures that will be performed, there should be greater need, recognition, and interest in non-incisional alternatives. This is a marketing opportunity that plays right into Iridex's existing positioning and glaucoma. The LCD's effort to reduce the number of MIGS procedures may ultimately trigger the long-term effect of significantly improving the market opportunity for our CPC offerings, both in the US and OUS. Ophthalmologists that have long been caught up in the growing assortment and uptake of MIGS may be more open to Iridex's non-incisional alternative. And beyond working to appeal the LCD coverage restrictions, Iridex will have the opportunity to position itself as a champion for patients, physicians, and pursuing the best medicine. Many clinicians have commented to us that it's a mistake to channel patients toward more advanced surgical procedures too early. It's basic disease management to defer more complicated, higher risk surgeries as late as feasible. On top of that, there are many patients where surgery may not be indicated. This includes older, poorer health candidates, and the younger otherwise healthy individuals for whom a glaucoma surgery in their 40s, 50s, and 60s, it can be complication prone and lifestyle limiting and may also result in decades of more involved and expensive follow-up. We believe we have a strong case to appeal the specifics of the LCDs and we're gaining and gathering support within the physician community. We've submitted the first phase of our appeal. working with several influential physicians, some of whom plan their own letters and reference studies explaining why overly restricting CPC is a mistake. The final LCDs ultimately set the criteria for CPC patient characteristics by partially adopting conclusions from an AAO technology assessment report that is 22 years old. We believe they erred by setting compounding criteria for coverage, resulting in overly narrow patient qualifications. They also erred by only choosing some of the recommendations from that assessment and ignoring others. The conclusion of that assessment by the AAO presented a list of several patient types for which CPC is indicated as appropriate treatment options. The LCDs quoted this list of symptoms and characteristics but replaced the commas between them with the word and, the resulting effect means that to qualify a patient must have all of the characteristics of each listed patient type. This appears clearly wrong. We sent a correction request noting the process errors and seeking rapid adjustment to the definition. We believe this appeal is compelling and should, emphasis on the word should, lead to a relatively speedy correction of the LCDs to lessen this excessive restriction of coverage for CPC. We believe the error of interpretation embodied in the current wording, if uncorrected, will lead to unrecoverable loss of vision in patients who may be denied access because of the erroneous restriction. We urged each MAC administrator to promptly correct this error before the effective date. We're also preparing a subsequent appeal for reconsideration to further broaden the criteria for reimbursement. First, The coverage change did not appear to take into account patient safety. By requiring, a patient must have undergone more invasive, higher complication rates, surgeries like trabeculectomy or tube shunts. By pushing patients into earlier invasive surgeries, greater follow-up management is required. Later life options will be more limited. Basically, if you use up your IOP control tools too early, it can lead to greater loss of vision later in life. Second, the process for considering study evidence was flawed. We have a large body of peer-reviewed clinical studies to support our procedures in a broad range of patient types and severities. This past summer, we submitted to the MACS over 80 published papers on transcleral cyclophotocoagulation, treating over 2,000 patients. It appears their process criteria rejected most of this evidence. Instead, we will seek them to consider the broader body of evidence that supports the safety and efficacy of cyclophotocoagulation. So this leads straight into updating our ongoing clinical programs. As we've discussed prior, we had planned to enroll the first patient by the end of the year in our new prospective multicenter study that will include key opinion leaders as investigators. This release of new clinical criteria within the LCDs will potentially cause a modest delay in the launch as we assess whether our protocol and method are best aligned. But we're nonetheless fortunate to already be well along the road toward producing the clinical data they have stated as required for future reimbursement decision consideration. Having glaucoma physicians rally in support of Iridex CPC at the same time we're finalizing preparation for clinical study on efficacy of CPC specifically targeted to post-mix patients seems very favorable. We'll try to advance our message and market position by capitalizing on the opportunity and attention created by the LCDs. We have confidence the efficacy and safety of our procedures will prevail and the increased clinician awareness generated through this process can provide exposure and positive public relations at a scale we could never have afforded. Let me shift to recent announcements that the board of directors is engaged in a review and evaluation of strategic alternatives that may be available to Iridex to unlock shareholder value. This is an appropriate time for the company to explore options for future of each of our product lines and the company as a whole. Our retina business has achieved a global leadership position in both sales and installed base in ophthalmic laser treatment systems for retina specialists. Over the past 30 years, the company has developed products and has set the clinical and technical standards in the space. Most recently, we launched the new Pascal platform with micropulse capability. In glaucoma, we've been the leading provider of non-incisional transcleral laser treatment beginning 30 years ago with the G-probe, cyclophotocoagulation treatment for later stage glaucoma patients, and more recently with micropulse transcleral laser therapy for moderate to advanced stage glaucoma patients. Since launching MPTLT, we've steadily expanded our market presence to over 2,000 glaucoma laser consoles worldwide and delivered over 250,000 single-use probes. Both our revenue and product offerings are strongest they've ever been. We're progressing through our process, but do not plan to provide commentary or updates along the way until the Board of Directors determines that disclosure is appropriate. Before I turn over to Fuad for a review of the third quarter financials, I'd like to add a couple of items of perspective. The quarter was in line sequentially, which is positive given Q3 is generally seasonally softer than the second quarter. This quarter was tougher year-over-year comparison against a strong third quarter of 2022, especially given the loss from expirations. We expected the announcement of our strategic review might have impacted short-term results, but fortunately we saw a little of this domestically, and it was primarily our distributors that held back orders concerned about appropriate levels of inventory to carry going forward. As a result of the Medicare reimbursement changes, we've suspended our guidance due to the high variability of the U.S. glaucoma situation and how our business may unfold in Q4 and going into 2024. We remain very focused on cash management to remain our operating runway and intend to adjust our glaucoma operations as we evaluate the impact to our business from these reimbursement changes. With that, I'll pass the call over to Fuad to discuss the quarter's financial results.

Thanks, Dave, and good afternoon, everyone, and thank you for joining us today. I would like to begin by reviewing our financial performance for Q3 of fiscal 2023. Let me start by providing a high-level summary. We generated $12.9 million in total revenue in Q3, which was flat sequentially versus Q2. important because it is typically a seasonally lower quarter. However, it was down $1.8 million from the prior period, continuing the overall softness in capital equipment market in 23. A significant part of the decline, approximately $500,000, was due to loss in royalty revenue, as we previously mentioned. And this will be a drag until we lap it next year. On both the G6 and retina size of the business, the macroeconomic The macro and the probe adoption headwinds in 2023 we discussed during the August second quarter results call continue to affect overall sales in Q3. Our retina segment revenue in Q3 was $7.9 million compared to $8.8 million in the prior period. In the quarter, we continue to see longer capital sales cycles and strong dollar-made pricing challenging internationally and has persisted throughout 2023. While these dynamics contributed to lower sales in retina systems, we aren't seeing customers cancel their capital purchase plans, and we are maintaining a solid pipeline, and our strong market share in the U.S. looks stable. In Gautama, system purchases were significantly slowed as capital sales were impacted by higher interest rates and economic certainty contributing to elongated sales cycles. This weakness led to system sales of 27 units in the quarter compared to 54 systems in the prior year period. The system sales shortfall accounted for the declines and overall Q3 Cyclo-G6 revenue to $3 million from $3.5 million last year. Overall, we saw glaucoma probe revenue increase 3% but suffered a 3% decline in units, primarily due to order flow in international markets. International volumes were affected by loss of sales to Russia due to geopolitical issues, and soft China sales as anti-corruption initiatives caused a stall in new adoption similar to what other companies are seeing. We also saw distributors reducing inventory levels in both pros and systems, possibly as a result of a strategic announcement in August, but also to reduce carrying costs. Now to product level details. Total revenue from Cyclo-G6 product family in Q3 was $3 million, down 12% compared to the same period in 22. We sold 13,250 Cyclo-G6 probes in Q3, representing revenue growth of 3% on higher ASPs on a negative 3% unit growth from the prior year period. We also saw 27 Cyclo-G6 systems in the quarter compared to 54 in the prior period. Our retina product revenue in Q3 was $7.9 million, up 15% sequentially, but a 10% decline from the prior year period. Other revenue, which includes royalties, services, and other legacy products, decreased 20% to $1.9 million in Q3 of 23 compared to the same period in 22, driven primarily by reduced royalty revenue of approximately $500,000 from expiration of licensed patents and lower than anticipated service and repair volume. Gross profit for Q3 of 23 was $5.6 million compared to $6.5 million in the prior period. Gross margin was 43.7% compared to 44.1% in Q3 of 22. The decline in gross margin was the result of lower overhead absorption in the current period and more favorable product mix in Q3 of 22. Operating expenses in Q3 of 23 were $7.3 million, a significant decrease compared to $8.2 million in the same period last year. The decrease in operating expenses is a result of cost reduction initiatives the company began in Q2 of 23. Our net loss in Q3 of 23 was $1.8 million, or net loss of $0.11 per share compared to a net loss of $1.8 million and a net loss of $0.11 per share for the same period in 22. I will now discuss our cash position and cash flows. The net cash reduction in the quarter was $1.8 million to finish with $8 million in quarter rent. We were successful with inventory reduction of $1.1 million, but we also reduced accounts payable by $1.7. Over the summer months, we significantly reduced our operating expense run rate by more than $3 million annualized. As a result, we are positioned for a significantly lower cash usage in Q4 and a substantially lower run rate in 2024. We will remain focused on expense management and operating efficiencies in coming quarters as we continue to unwind inventory-related investments and manage costs to mitigate U.S. glaucoma probe revenue from reimbursement limitations. As we previously reported, in light of the ongoing ambiguity related to Medicare reimbursement picture for our glaucoma procedures, we are withdrawing our fiscal 2023 guidance. We will provide a comprehensive update when we have more clarity on the matter. With that, Dave and I would like to turn the call over to the operator for questions. Operator?

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for questions. Our first question comes from Tom Steffen with Stiefel. You may proceed.

Great. Hey, guys. Thanks for the questions. I'll start with the LCDs and just a couple here. Dave, what's the mix of moderate versus severe patients for cyclo-G6 today? I think in the past you've talked about moderate being a very large opportunity for G6, as it was maybe no more than 25% of volume today. So I guess if the majority of your volume is that refractory patient, I'm just curious why the coverage criteria would be such a headwind. And then I have a follow-up.

Hey, Tom. Yeah, hi, Tom. Thanks for the question. Yeah, so... The very, very late stage patients, the criteria calls for, for example, very limited visual potential and pain among the list of various things. They also call for having had a prior trabeculectomy or tube shunt procedure. So these are all restrictions that would eliminate a lot of the later stage patients procedures as well. So we think it's probably in the 25% range that would qualify under this strict criteria and about 75% of our procedures in advanced stage patients, but in front of these kinds of criteria. So in the pay or places where the max are the insurers of the patients, we think it's pretty restrictive. That said, If the clinicians understand the coverage that their patients have, on average, it's going to be two-thirds that maintain coverage. And so we think it's important to work with clinicians so that they understand what their coverage of their patients is. And if they aren't in the practice now of knowing their coverage, it might be something they might want to take up.

That makes sense. With the LCDs, just regarding the timing of the 8K, the proposed LCDs obviously came out starting in June, and CPC wasn't even determined to be covered at that time. So why is it now expected to be a 2023 headwind or issue? And maybe why wasn't that the case or the thought? I guess it was four or five months ago.

Yes. Proposed LCDs came out in the June timeframe. We responded with an appeal and I described some of the clinical evidence that we submitted and a number of other arguments to retain coverage. We were somewhat successful in that in the original LCDs, they had classified all of cyclophotocoagulation as investigational. And now that there's a coverage, but with a lot of restrictions associated with it. And we think erroneously assumptions went into creating that list. This happened two years ago. One of the MACs had proposed it be at cyclophotic coagulation be investigational during the proposed period. We sent back responses and were successful and there was no change, no mention in the finals. So in the timeframe when this year's LCDs were submitted as proposed and we put in our responses, we deemed that it was not likely that there would be some incremental restrictions that came to us. So we didn't put out an AK at the time and frankly, A lot of the clinicians are unaware of that whole sequence of events and are just now learning that the new LCD final determinations are going to affect, and it's almost real time here, how they're considering it and learning about it, considering it, displaying some outrage, but then trying to figure out, okay, what am I going to do going forward? So for us in cyclophotocoagulation, it really didn't become an issue until the actual determination came out. Now that the actual determination has come out and we have a significant restriction, we think there's two potential short-term impacts that have a wide range of variability here for Q4. Number one, I think in a lot of the areas where MAC coverage is restricted, that clinicians will reconsider or extend the consideration whether to adopt and buy a new system and probes or not. And we think it's likely that they'll take their time. And so those potential purchases will be deferred out of this year for sure. The second is that in those areas where the decision is, well, if I've got only partial coverage, I'm not going to offer it to patients. So I'm going to use up my inventory, I'm not gonna be ordering to replenish. So I will significantly reduce the orders for the remainder of the year as I use up the probes I have before restrictions come into place and I stop offering them. And we've had conversations with a number of clinicians and frankly, they're all across the board on what they may or may not do going forward. So we, rather than try to put a very broad range of potential outcomes in the quarter, we just withheld the guidance, suspended the guidance.

Got it. That's great, Collar. And then last question, just pivoting to Retna. Modest upside in the quarter relative to our estimates and sequential growth was very strong. I guess, Dave, can you talk about how you're executing in that business And you're now lapping, I think, some tougher comps. So what do you believe is a sustainable growth rate for that segment, kind of as we, I guess, sit here today? Thanks.

Sure. The retina business is strong. The weakness in kind of macro environmental considerations that really proliferated across the start of the year demonstrated particularly to us that clinicians were deferring, were not canceling, but deferring their decisions to buy. And I think part of that might be the third quarter performance might be deferrals from the second quarter that came in in the third quarter. And so we feel like maybe we're passing that uncertainty period. We also introduced our new Iridex Pascal. platform and that's been very well received and so we're we're seeing people having the opportunity to to evaluate that and and decide to purchase so so we think the the capital equipment side is is solid in the u.s internationally i can't claim that we've seen that kind of uh i'll call it recovery of the purchase mentality and we've got the inventory swings that occur in distributors. So we can have a higher quarter and then the next quarter lower, then the next quarter higher. There's a little bit of increased volatility as distributor inventory varies from quarter to quarter as well. So all in all, we think that the retina business is strong and we can look forward to solid growth in the future. You know, it's a mature segment of the industry. The approximate long-term growth rate is in the, you know, kind of the mid to lower single digits. We think we can grow at that rate or better. And, and I think we will continue to see a little volatility quarter to quarter and, and it's the moving average. That's probably more indicative of how the business is doing, but we're, quite comfortable and confident in the retina side of the business.

Got it. Thanks, Dave, and thanks for all the color.

Thanks, Tom. Thank you. One moment for questions. Our next question comes from Scott Henry with Roth Capital. You may proceed.

Thank you. Good afternoon. Dave, I just wanted to – did I hear you correct – With regards to the retina business, when we think about organic growth there, did I hear you correct? Mid-single digits is what you would be shooting for or the category is that? I just wanted to make sure.

Well, we think the long-term, in that space, the long-term is in that range. So it's a mature segment. There is replacement cycle and there's expansion, at least domestically, there's replacement cycle and there's expansion as a, As a group practice or say a university in a metropolitan area, open satellite facilities in the suburbs, they want the same equipment. And so that's the nature of that market. At this stage, while we feel like we have the leading technologies, there's not a new cycle being created to replace older equipment because of extraordinary new capabilities. We're in the lead for replacement. And we actually think we can look forward to a replacement cycle because there are so many, you know, greater than five years old and even a lot of Pascal systems that are in the end of service period where that system breaks, it simply can't be repaired. So we think that we can have some opportunities for growth above trend. and if if we get a more conducive capital equipment environment that we could see you know growth higher growth than that and uh um but but we do think that there's still going to be volatility quarter to quarter and uh you know if one is particularly strong um as we for example saw last year's third quarter the you know the comparisons and the subsequent might be on the weaker side so the long-term trend is up and the and the short-term moving averages are up in that mid-single digits or better range.

Okay. And then with the other line, it declined sequentially from 2Q to 3Q. This is kind of 1.9 million number. Do you think that's the base, or should we expect it to decline more? Just trying to get a sense of where the bottom is for that category. I know there's some things that went away and they'll annualize, but just trying to understand what the base level is.

Yeah, the two drivers of volatility in that number are the change in elimination of a long royalty contract that we had. The patent expired, and so the contract expired, and that was about $500,000 a quarter in And that's why the comparison to last year was a dip of about $500,000. Also in that other category is service revenue. So we have a strong service business where most of it is depot service. They ship a system back to us. We repair it and ship it back. And we sell extended warranty contracts. So we're booking revenue accruing it quarterly for those extended service warranty contracts. And then we're also doing individual service on a non-functioning system, as well as preventive maintenance. So there are regular preventive maintenance cycles, and certain states are stricter than others, but we have a steady flow of systems that need to be checked, calibrated, and recertified and sent back. That business goes up and down, and that can vary by $100,000 or more in any one quarter. And so that can contribute to that number.

Okay. And then on the G6 business, I'm not going to ask you for guidance. I know you're not going to provide that. But when you think about Q4, which I guess we're about halfway through, you know, what should we think about for, you know, from that perspective? I mean, has systems sold? Has it just kind of fallen apart? Like how do we, you're just trying to get a sense of at least in the next month, you know, what, what kind of reaction you initially saw?

Well, I mean, frankly, so are we, it's, uh, it's, it's all across the board and you feel like, uh, uh, a play-by-play announcer because you have one conversation with someone who is from a state where there is no change to coverage. What's the issue here? And then others that just fear this is very restrictive, that it could extend to additional payors and are very seriously considering uh eliminating or at least very significantly restricting their offering of cpc and and those are the factors that make it very difficult and and so as much as we tried to really uh put together uh uh scenarios and and identify a range it's it's a little bit difficult here um i mean this news is you know two weeks old so That's the problem with trying to do guidance. Clearly, people have said, I've got to wait. Let's see what happens in terms of system purchases and adoption. If a significant chunk of their intended procedure volume isn't going to be available because it's restricted on reimbursement. We will obviously stay very focused on it and As we can develop a picture, we'll take a look at when it's appropriate to reinstate guidance.

Okay. I'm going to ask you another question. You may not answer, but you might. If I think about your prior guidance before everything happened with G6, at least in my model, the implication would have been that retina would have been strong in Q4, sequentially stronger in Q4 than Q3, even with the numbers that came in this quarter. Should we still, I mean, is that a reasonable assumption? Or retina, is it a seasonably strong Q4 typically? I'm just trying to get a sense of how we can take some of the variability out of the model.

Yes, without guiding in the fourth quarter, it is the strongest quarter of the year, typically. It is above what usually is the second strongest quarter, which is second quarter. I mean, this year's second quarter experienced some weakness, and every year is a little bit different. But if you look back historically, the fourth quarter is the strongest, and I actually don't remember the percentage of between the weaker and the stronger, but it is stronger. So we think that dynamic is going to be consistent this year, but we're only halfway through, and capital equipment happens at the end of the quarter. It's the typical pattern where most of the ordering happens later in the year.

Okay, fair enough. Final question. With regards to the appeals process, what would be our next data point?

Well, as I said in the comments, we submitted an appeal on the grounds of misinterpretation of the actual study that they quoted to set the definition of the criteria. And that's in the hands of the various MAC administrators, and there is no... define schedules that they must act under and respond under. So it's difficult to know whether they will respond immediately. That's what we seek. We think it's compelling that they do. It's very unusual. I can't say I've seen it in any other types of situations where the specific paper that you quote, you change the criteria that was written in that paper. And it just seems highly unusual to us and to everyone that we've discussed this with and seems like an error in interpretation that should be corrected. And we hope they see it that way.

Okay. All right. Thank you, Dave, for taking all the questions.

Thanks, Scott.

Thank you. I would now like to turn the call back over to Dave Bruce for any closing remarks.

Thank you. And thank you all for attending. I know it's a bit of a turbulent time. There was a lot of information that came our way, and we tried to share with you. And we'll stay focused on managing through this situation and look forward to updating you in the future. Thank you. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.