Earnings Call Transcript - IRIX Q1 2025

Operator, Operator

Ladies and gentlemen, thank you for your patience. My name is Desiree, and I will be your conference operator today. I would like to welcome everyone to the First Quarter 2025 IRIDEX Earnings Conference Call. I will now turn the conference over to Trip Taylor of Investor Relations. You may begin.

Trip Taylor, Investor Relations

Thank you, and thank you all for participating in today's call. Joining me from the company are Patrick Mercer, IRIDEX's Chief Executive Officer; and Romeo Dizon, the company's Chief Financial Officer. Earlier today, IRIDEX released financial results for the quarter ended March 29, 2025. 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 the 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 risks and uncertainties associated with our business, please see the most recent Form 10-K and Form 10-Q filings with the SEC. IRIDEX 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, May 13, 2025. And with that, I'll turn the call over to Patrick.

Patrick Mercer, CEO

Good afternoon, everyone, and thank you for joining us. Today, I'm excited to highlight IRIDEX's improved financial condition, our first quarter business progress and developments with our strategic plans in partnership with Novel Inspiration. Over the past months, we have worked very hard, and I'm extremely proud of how the team has transformed IRIDEX. For the past two quarters, we have grown revenues even while materially decreasing expenses compared to prior years. The result of these operating improvements is delivering our first two quarters of adjusted EBITDA positive results in recent history. Our improving profitability is a result of rightsizing our cost structure. In the fourth quarter, we initiated a number of cost reduction programs. The reduction of nonessential spend across the business demonstrates the potential efficiency of our business model and positions IRIDEX for sustained success. To further bolster our financial health of the business, in March, we strengthened our balance sheet with a $10 million strategic investment from Novel Inspiration. This capital represents Novel's confidence in IRIDEX's business prospects and our ability to extend our leadership position in providing innovative and versatile laser-based medical systems for the treatment of glaucoma and retinal disease. These accomplishments over the past two quarters represent significant progress stabilizing and improving the outlook of the business. As a result, we remain on track to deliver cash flow breakeven and positive adjusted EBITDA results in 2025 as long as conditions remain as they are. Now taking a closer look at the first quarter where our results demonstrate our commitment to improving operations and advancing our path to profitability. On the top line, we generated revenue of $11.9 million, just above the first quarter of last year. Along with that, we again generated positive adjusted EBITDA of $0.4 million, representing an improvement of $2.9 million compared to the prior year quarter. Revenue in the quarter was driven by an increase in our Cyclo G6 product family revenue, which grew 8% year-over-year and was offset by the slight declines in our retina product revenue. Let's take a look at our glaucoma probes performance for the first quarter of 2025. Overall, we are seeing very positive indicators in the business, and we were above plan in the quarter, which is a strong start to the year. We're making real progress towards our strategic goal of driving earlier and repeat utilization of MP3 CPC treatments on mild and moderate glaucoma patients. The four providers then transitioned to treatments using our G-Probes for progressing in later-stage glaucoma. Our target for the year is to sell more MP3 units than G-Probes. And based on Q1 performance, we're definitely headed in the right direction. MP3 probe unit sales exceeded our expectations, thanks to a few key drivers. We are working hard to increase awareness and train surgeons on our new treatment settings, which is driving improved patient outcomes. We are also ensuring the glaucoma community is aware of the ongoing dose escalation study and its promising early results. Our focus on the clinical guidance has been essential to winning greater product adoption. We're also leveraging a new sales support tool, MedScout, which has proven to be a valuable asset, delivering high-impact provider-level insights that are helping our teams execute effectively in the field. G-Probe unit sales have remained steady despite our recent price increase. That tells us there's still solid demand for the product. Now I'll discuss the retina side of the business. PASCAL sales were slower in the beginning of the year as we optimize some technical settings, but this was offset by strong sales of our IQ family of products. Surgical retina sales exceeded our expectations, contributing significantly to the overall retina sales. There was a notable increase in our Tx product sales as accounts increasingly seek cost-effective solutions. This was the highest volume of Tx sales since Q3 2023, while SLx product sales remained steady. It was also a very strong quarter for EndoProbes, which exceeded the forecast by $0.1 million, though the market for this product remains volatile. Shifting to OUS. In EMEA, the region remains our most stable revenue generator with strong growth potential in the glaucoma segment. Robust sales of PASCAL systems are further driving revenue expansion. In Asia, regulatory approvals for the IRIDEX PASCAL system are fueling strong capital equipment sales, particularly in India and Japan. In China, medical retina sales are showing a healthy recovery, supported by continued growth in retina probe sales. Looking to Latin America, business is stabilizing with clear growth momentum, particularly following the approval of the IRIDEX PASCAL systems across several key markets. In GmbH, sales experienced a slight decline, primarily due to some unresolved service issues, which remains an area of active management focus. Now I'd like to touch on our partnership with Novel and our strategic priorities moving forward. Novel decided to invest in IRIDEX because of the significant value of our franchise and the potential to enhance that value by becoming a more active participant in the ongoing market reshuffling. Together, we are focused on innovation and long-term value creation, and Novel is open to expanding our partnership as compelling opportunities become available. Our initial focus is to leverage our loyal base of global customers and stable revenue while improving operations to create a self-sustaining entity. Novel is aligned with our objective of creating long-term shareholder value. Looking ahead, we are evaluating our strategy to optimize our gross margins, especially in light of the new tariff policies and ensuring an improved responsiveness to customers, especially those working with IRIDEX through an international distributor and searching for opportunities to drive revenue, which could include partnerships, distribution agreements or small acquisitions to expand our product portfolio and leverage our global customer base.

Romeo Dizon, CFO

Thank you, Patrick. Good afternoon, everyone, and thank you for joining us today. I would like to begin by reviewing our financial performance for the first quarter ended March 29, 2025. As we noted in our press release and in Patrick's comments, our total revenues for the first quarter of 2025 were $11.9 million, up marginally compared to $11.8 million reported for the first quarter of 2024. Retina product revenue decreased 3% in the first quarter of 2025 to $6.6 million compared to the first quarter of 2024, driven primarily by lower PASCAL system sales, partially offset by higher medical and surgical retina system sales. Total product revenue from the Cyclo G6 Glaucoma product family was $3.2 million, an increase of $0.2 million or 8% year-over-year, primarily driven by higher probe sales. Other revenue increased $0.1 million to $2.1 million in the first quarter of 2025 compared to $2.0 million in the first quarter of 2024, driven primarily by an increase in service and certain legacy product revenue. Switching attention to gross profit, expenses and cash. Gross profit for Q1 2025 was $5.1 million or a gross margin of 42.5%, an increase compared to $4.5 million or a gross margin of 37.9% in Q1 2024. The increase in gross margin was driven by favorable product mix and lower manufacturing expenses. Operating expenses were $5.3 million in Q1 2025, a substantial decrease of $2.5 million compared to $7.8 million in Q1 2024. The decrease was due primarily to expense reduction measures taken in late 2024, driven by a reduction in the workforce, resulting in lower headcount-related expenses and lower discretionary spend. During the quarter, we settled the Lind note payable, which resulted in writing off the associated capitalized loan origination costs of approximately $1.5 million. Consequently, net loss was $1.7 million or $0.10 per share for Q1 2025 compared to a net loss of $3.5 million or $0.21 per share in the same period of the prior year. Total adjusted EBITDA for Q1 2025 was $0.4 million, an improvement of $2.9 million compared to adjusted EBITDA loss of $2.5 million for Q1 2024. The improvement is driven primarily by the expense reduction measures implemented in late 2024. On to the balance sheet. In March 2025, we had a cash infusion of $10 million from Novel Inspiration. Concurrent with the close of this investment, we settled the Lind note payable and used a portion of the proceeds to liquidate the debt. We believe the convertible portion of the Novel investment represents a lower cost of capital and more favorable terms for the company. With that, cash and cash equivalents totaled $7.2 million at the end of the first quarter of 2025. Before turning it back to Patrick, I will touch on the recent global trade policy contemplated by the U.S. government. We want to highlight that we manufacture and source our products primarily within the United States. And as such, we expect minimal direct exposure to the most recently implemented tariff-related policies. We will continue working on areas that we control that is reducing operating expenses and generating additional efficiencies to improve our gross margins.

Patrick Mercer, CEO

Thank you, Romeo. As you can hear, we are extremely proud of our progress over the past two quarters, growing revenues and generating positive adjusted EBITDA. We have stabilized our business and improved our balance sheet. We will continue to focus on driving adoption of our differentiated glaucoma and retina technology platforms, enhancing our global customer relationships and improving operations to advance our path to profitability. There is a massive opportunity ahead for IRIDEX, and we believe we have the team and strategy in place to create durable value for IRIDEX shareholders. Now I'd like to address some questions we have recently received from IRIDEX shareholders. People are interested in understanding the effects if the tariffs stay in place, especially the high tariffs related to China. As mentioned in our prepared remarks, most of our products are sourced and manufactured in the United States. We use raw materials and components from various suppliers worldwide, but final assembly happens in the U.S. However, most manufacturing work is not done at our Mountain View headquarters. Many of our disposable and an increasing number of hardware products are made by third-party OEMs, mainly located in the U.S. This explains our minimal direct exposure to the recently implemented tariff policies. Competitors relying on imported fully manufactured products face higher costs, longer lead times, and significant uncertainty. This situation gives us an advantage in pricing and supply chain, making our U.S.-made products more appealing to customers seeking stable pricing and reliability. Regarding the impact of high reciprocal tariff rates imposed on the U.S., our product shipments to China are not significant at this time. Moving to the second question about our discussions on product extensions related to Novel investment. Is IRIDEX considering acquiring companies or distributing more products through existing channels? We have built long-term relationships with a global customer base, establishing ourselves as leaders in laser-based medical equipment for ophthalmology. To leverage these relationships and boost sales, we are collaborating with Novel to find ways to expand our product portfolio to meet customer needs better. We consider this a highly efficient way to grow revenue, which could involve distribution agreements, partnerships, or small, synergistic acquisitions. Novel supports this strategy, and we are actively pursuing this initiative. The last question pertains to our cash burn situation. Are we truly finished with cash burn, and can we adjust to operating more efficiently than cash flow breakeven? The straightforward answer is yes. When I took on the role of CEO in late 2024, the Board directed that we take immediate actions to stop the cash burn. Our last two quarters' results show that we have not only lowered our operating expenses but have also remained disciplined in further cutting costs. For Q1 2025, our net cash used in operating activities was $1.1 million, a decrease of $0.5 million or 31% compared to Q1 2024. We cut our operating expenses by 32% and 14% compared to Q1 2024 and Q4 2024, respectively. As we continue to look for additional savings and closely monitor expenses, we plan to maintain the same level of financial discipline. Our goal is to achieve positive adjusted EBITDA and cash flow breakeven this year while generating revenue consistent with 2024. Thank you all for participating.

Operator, Operator

This concludes today's conference call. Thank you all for joining, and you may now disconnect.