IRIDEX Corporation

Thank you all for participating in today's call. Joining me from the company are Scott Schuta, Executive Chairman, Patrick Mercer, Chief Executive Officer, and Fuad Ahmad, Interim Chief Financial Officer. Earlier today, Iridex released financial results for the quarter ended September 28, 2024. 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 were 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 our most recent Form 10-K and Form 10-Q filings with the SEC. IRDX 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 12, 2024. And with that, I'll turn the call over to Scott.

Good afternoon, and thank you all for joining us. I'll start today's call by providing a high-level overview of some of the most important current topics that are here today. Then I'll introduce our new CEO, Patrick Mercer, who will share his perspective on the recently completed quarter. Next, Wad will walk us through the third quarter financial results. And last, Patrick will go into detail on some important strategic topics. Today's call will not include a question-and-answer session. In my portion of today's call, I will cover three things. why we recently made the change as CEO, the status of our strategic review, and cost-cutting measures underway that are designed to eliminate the long-running cash burn and quickly move the company toward break-even operation. These three things are all closely related, and each shares the same driver. The extended length of time our strategic review has been ongoing. Verdex's board of directors was not satisfied with the pace and progress of the strategic review. And as stated in the press release that announced the elevation of Patrick Mercer to CEO, it was believed that new leadership had the potential to accelerate the process and get the company to the desired results of delivering a transaction that will unlock shareholder value. Moving to the second topic, the status of our strategic review, I'm happy to report that we appear to have been successful in accelerating our agenda. Among other proactive steps taken, Patrick and I teamed up at the recent American Academy of Ophthalmologists conference in Chicago to meet with representatives of more than a half dozen entities. Between these meetings and calls both before and after the conference, we have reconfirmed that there is strong interest in Iridex, our global brand, and industry-leading products. There was also an appreciation expressed by several third parties for the opportunity to restart or reinvigorate discussions. and also our willingness to consider broader and more creative transaction structures. Iridex is, along with its bankers, in active discussions with multiple entities, and I can reiterate that an announcement with respect to one or more transactions is both possible and desired before the end of the year. Third and last, following the change in CEO, the company has adopted a much less tolerant attitude toward the company's operating cash firms. There was a belief that heavier spending could continue given the expectation of the transaction in the company's near-term future. That approach may have been appropriate at some point in the past, but Patrick and I believe that it is now the right thing to take steps that will bring costs more in line with the company's operating cash flows. We expect that the fourth quarter, which is our seasonally strongest period, will be EBITDA positive. Before handing the microphone over to Patrick, I'd like to provide a few items of introduction on our new CEO. Patrick has been with the company for six years. Before becoming the company's CEO, Patrick served first as chief operating officer and then also became the company's president. Prior to becoming CEO in his entire tenure with the company, Patrick's role was to serve as Iridex's number two executive. While Chief Operating Officer, Patrick's broad responsibilities included manufacturing, R&D, and regulatory affairs. Patrick has led and will continue to lead the process of outsourcing more of the company's manufacturing processes with the goal of helping the company to continue offering its products at international and competitive prices. In the weeks since being named Iridex's CEO, Patrick has worked quickly and effectively on multiple fronts, and his positive energy has been noticed and well received both inside and outside the company. Patrick, over to you.

Thank you, Scott. Good afternoon, everyone. In this portion of the call, I will provide some thoughts on our performance in the third quarter and our outlook for the fourth quarter and beyond. Revenue for the third quarter was lower than anticipated, primarily due to challenges in our retina business. However, this appears to be largely a timing issue. In the second quarter, we reported solid growth in retina cells, and we've seen a strong start to the fourth quarter as well. The slower sales in Q3 were not unique to our company. Many capital equipment firms, both within and outside the healthcare sector, have faced similar sell-through delays. Additionally, we have experienced some shipment delays in certain regions due to regulatory hurdles, but these are expected to be resolved in the fourth quarter. As we said in our press release, The third quarter has traditionally been the quarter most subject to seasonal softness. We are encouraged despite this. We saw increasing momentum in our glaucoma products family. That business is predominantly based on single-use probes that are consumed and must be restocked, and thus they are much less subject to issues that might affect larger ticket capital equipment purchases. Aggregate glaucoma probe and console sales were both up versus the prior year. Turning to the fourth quarter, I am in regular contact with members of our sales teams, and I'm hearing encouraging reports, particularly as it relates to orders received in ship early in the quarter. Some of this is likely related to a very productive showing at this year's American Academy of Ophthalmology meeting in Chicago. We had strong activity in the booth and generated many promising leads for both our retina and glaucoma products. This year's AEO is also where we introduced and begin taking orders for our new i5 laser platform. These are the systems where most of the work is performed by our contract manufacturing partners. The new console features a slick new user interface and utilize the same basic layout with this design to deliver significant product efficiencies. After Fuad takes us through the details of the recently completed quarter, I will come back and talk about two strategic topics. First, our cost-cutting program to bring expenses in line with our revenue. Second, the LCD reimbursement change for glaucoma that will go into effect on November 17th, which represents a 180-degree reversal from what we saw last year. I am excited for the opportunity to explain why we believe the new LCD is likely to encourage physicians to perform more glaucoma procedures using Iridex laser consoles and probes.