IRIDEX Corporation

Thank you for standing by. My name is Tina and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2026 Eredex earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, simply press star 1 on your telephone keypad. To withdraw your question, press star 1 again. It is now my pleasure to turn the call over to Tripp Taylor, Investor Relations. Please go ahead.

Thank you, operator, and thank you all for joining us this afternoon. With me on today's call are Patrick Mercer, Iridex's chief executive officer, and Romeo Dizon, the company's chief financial officer. Earlier today, Iridex issued a press release detailing our financial results for the quarter ended July 4th, 2026, which is posted to the investor section of our 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 a 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. Here at X 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 18, 2026. With that, I'll pass the call to Patrick.

Good afternoon, everyone, and thank you for joining us for our second quarter call. If there is one message I want to leave you with today, it is that Airdex has reached an important inflection point in its financial profile. We generated positive cash flow in the second quarter, demonstrating the meaningful progress we have made over the past two years to fundamentally transform our cost structure strengthen working capital management and create a more disciplined and sustainable business. As part of our activity to further improve the efficiency of the business, this month we began the process of relocating our headquarters. This is a long anticipated cost-cutting step and an important part of our broader effort to optimize our cost structure, improve operational efficiency, and align our infrastructure with the business we are building for the future. The headquarters move will require a new registration process and managing global registration blackout periods. In order to secure our international supply chain and protect top line distributor revenue streams through the transition, we are in the process of building safety stock inventory to maintain supply continuity. This project is being implemented in a careful coordination with our vendors and distribution partners, all of whom are familiar with the special demands of medical device manufacturing and particularly the necessary regulatory approvals. We anticipate that the temporary working capital investment, which impacted our second quarter cash flow and will further impact our third quarter cash flow, will enable us to achieve our 2026 revenue guidance, of $51 to $53 million. Cash flow from operations should be unaffected, but the increased deployment of working capital will reduce our cash on hand through 2026 without reversing and becoming a cash tailwind in 2027 as we work down the elevated inventory levels and continue to more tightly manage our working capital. We continue to right-size the business with discipline and the positive cash flow we delivered in the second quarter is proof point of our success and the growing financial strength of the business. I am pleased to announce that we have again reduced our operating expenses compared to the prior year period through our various cost savings initiatives. As mentioned previously, the relocation of our headquarters is ongoing and the multi-year shift to production to lower cost and other third-party contract manufacturers continues to advance. We view both as becoming powerful drivers of improving gross margins ahead in 2027. We believe some of the timing-related impacts that affected our first half 2026 performance represent incremental revenue opportunities for the remainder of the year. Our focus in the back half of the year remains on strengthening our supply chain, building inventory ahead of our manufacturing transitions and advancing our international regulatory submissions. Now turning to our commercial performance in the quarter, our glaucoma business once again delivered solid, probe-led growth this quarter. This continued growth in demand and utilization for this higher margin product is an encouraging indicator of the increasing utilization of our G6 platform, demonstrating the increasing adoption of our technology by physicians. In our retina business, we faced a number of market dynamics and operational execution challenges that affected commercial activity during the quarter. We are actively addressing these factors and remain focused on strengthening execution, improving performance, and positioning the retina business for sustainable, profitable growth. Total revenue for the quarter was $12.6 million, Cyclo-G6 probe volume rose roughly 35% year over year and G6 product family revenue increased 19%, a direct reflection of expanding physician adoption of our non-incisional approach and increased utilization of the G6 platform. The breadth of this growth is encouraging as it came from every region in which we operate. The year over year revenue decline in our overall business was driven entirely by retina and by a set of temporary commercial transition and regulatory related factors, internationally rather than by any change in the fundamental demand of our products. Starting with glaucoma for the quarter, Cyclo-G6 probe volume totaled 17,700 units, a 35% increase from 13,100 units sold in the prior year period. Three initiatives are driving strong growth customer targeting with MedScout, LCD tailwinds, and increased ASPs. Our primary growth driver in glaucoma this quarter continue to be increased utilization of the G6 platform with particularly strong momentum and probe volumes. Through MedScout, we have become increasingly targeted in how we identify and engage physicians with the greatest opportunity to expand utilization. We are focused on two key segments, existing G6 accounts with moderate utilization where there's an opportunity to increase procedure volume and high volume glaucoma practices that have not yet incorporated micropulse therapy into their treatment protocols. In both segments, our commercial team is working directly with physicians through education focused on appropriate patient selection, clinical outcomes, and the efficacy and versatility of the procedure. This targeted approach is helping us move beyond simply placing systems and toward driving great utilization of the installed base. We're also seeing continued tailwinds from the Medicare LCDs implemented last year, which have supported broader consideration of micropulse therapy across the glaucoma treatment continuum. Our commercial organization is using these reimbursement developments as an important educational opportunity, working with physicians to highlight the procedure's ability to lower IOP while providing a non-incisional, repeatable treatment option, which we believe this combination of clinical education, reimbursement support, and growing physician experience is helping expand the role of G6 therapy within glaucoma treatment pathways. The third contributor to glaucoma revenue growth was another increase in US average selling prices for both probes and systems. The continued improvement in ASPs reflects the value physicians place on micropulse therapy and the clinical utility of the G6 platform. Importantly, as we increase utilization, within the installed base, we believe the combination of higher probe volumes and increased ASPs provides an attractive foundation for continued growth in the glaucoma business. On systems, we placed 18 cycler G6 units during the quarter versus 35 in the prior year period. That step down was driven largely by order timing in Europe, Middle East, and Africa, together with ongoing competitive pressures on new console placements in our GMBH business. Moving to the international glaucoma business, in Europe, Middle East, and Africa, our UK registry is progressing nicely and engagement from the clinical community has remained strong. We believe the data generated through the registry will be an important step in supporting broader reimbursement for micropulse therapy in the UK. expanded reimbursement would improve access for patients, increase physician adoption, and over time drive greater utilization of the installed G6 base and increased probe volumes. We believe this positions us well for continued growth in the UK and broader adoption across the region. In GmbH, Germany and Austria operations again perform well as we continue to reclaim business previously handled by our former distributor. The main soft spot in the region remains G6 console sales, where competition persists for new console placements. In Asia, our distributor partner began stocking inventory ahead of the coming business transition in Japan, which increased purchases of MicroPulse P3 probes, EndoProbes, and Pascal systems. In Latin America and Canada, G6 probe sales held steady Thank you for joining us. advancing the Pascal upgrade cycle domestically, expanding Pascal's international footprint, and securing regulatory clearances for our next-generation platforms that will allow us to leverage our global distribution network. We remained encouraged by the opportunity for our retina business, and customer demand remained strong. That said, during the quarter, we confronted the market and operational execution dynamics that impacted sales during the quarter. We are actively addressing these factors and are confident we are implementing long-term solutions that will improve our execution and distributor sell-through. Since our last earnings call, we took an important step to broaden access to our retina product portfolio domestically, announcing the addition of our endoprobe handpieces to our existing product offering with iProGPO. That agreement now gives us more than 4,300 member practices ambulatory surgery centers, and hospitals across the country preferred pricing on endoprobe, building on the Pascal, IQ532, IQ577, Oculite TX, and Cyclo G6 platforms already available through that channel. We see this as a meaningful expansion of the value we offer retina specialists and ophthalmic providers and another lever supporting our U.S. retina business going forward. Turning to international retina, abroad, retina results were inconsistent, and we are taking steps to ensure we are executing commercially and operationally to satisfy the strong demand from our global customer base. In Europe, Middle East, and Africa, we expect Pascal to secure MDR approval in Europe in the first half of next year, and we anticipate meaningful demand once that certification is complete. In China, sell-through was impacted by regulatory constraints as well as the need for our distributor to work through existing inventory before placing additional orders. We're actively progressing the regulatory renewal process and expect these factors to normalize over the coming quarters. In Latin America and Canada, past sales resumed following previous market challenges, and we anticipate continued momentum and growth throughout the remainder of the year. As we turn to the rest of 2026, our priorities remain focused on commercial and operational execution in conjunction with continued expense management to drive positive cash flow from operations for the year. In alignment with these priorities, we are reaffirming our full year revenue guidance of $51 million to $53 million. To reiterate, That range excludes revenue from the Middle East region and on a comparable basis reflects roughly 1 to 5% pro forma growth against 2025. The cadence of international ordering has had a meaningful effect on our results this quarter. In some markets, that sets up incremental opportunity as previously deferred backlog shifts and the product re-registration tied to our relocation are completed. and others where distributors place larger stocking orders this quarter, we expect a corresponding decline next quarter representing some continued choppiness in different regions globally.