IRIDEX Corporation
Q3 2017 Earnings Call Transcript

Published: 3 Nov 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q3 2017 IRIDEX Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Ms. Leigh Salvo Investor Relations. Ma'am, you may begin.

[Leigh Salvo:]

Thank you, Candice. And thank you all for participating in today's call. Joining me are William Moore, CEO; and Atabak Mokari, CFO. Earlier today, IRIDEX released financial results for the quarter and nine months ended September 30, 2017. 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 includes 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 contained in this call that are not statements of historical fact, including statements concerning the amount and timing of revenue and Cyclo G6 unit and disposable sales and shipments, the development of our sales and marketing model medical, medical retina and surgical retina projections, timing and benefits of our Cyclo G6 product initiatives, future sales and product launch activities, future operating expenses, changes in personnel, product development and intellectual property-related matters, the adoption and effect of the Company products on its results, the market in which the Company operates, usage and efficacy of the Company's products, the Company's future financial results, our clinical study plans and the Company's strategic plans and objectives should be deemed to be forward-looking statements. All forward-looking statements are based on 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 undue reliance on these statements. For a fulsome description of the risks and uncertainties associated with our business, please see our 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, November 7, 2017. And with that, I'll turn the call over to Will.

[William Moore:]

Thank you, Leigh. Good afternoon, everyone, and thank you for joining us. Positive third quarter results demonstrated continued progress towards making our G6 platform the global standard of care used to treat glaucoma patients across all stages of the disease. On the financial front, we reported third quarter revenues of $10.9 million versus $9.8 million in the comparable quarter last year. These results represent a record third quarter for IRIDEX, which is typically a seasonally slower quarter due to summer holidays. Revenues in the quarter benefited from an increase in G6 sales in the U.S. and a global increase in medical retina sales over the prior year. Although, we are still in early stages of the G6 adoption, I believe our growth investments, such as hiring and onboarding new reps and building out our marketing organization, are beginning to demonstrate potential for our long-term success and shareholder value. I'd like to take the next few minutes to review the performance of each of our business segments in the third quarter and cover highlights relative to our commercial infrastructure and product development goals us we laid out earlier this year. As a quick reminder, we have three primary business segments

[Atabak Mokari:]

Thank you, Will. I will begin with an update on our G6 business and then review the financials. In the third quarter of 2017, we shipped 111 G6 systems and approximately 7,800 G6 probes. The improvements we saw in G6 system sales was primarily driven by a record quarter in the U.S. On the G6 probe side, we realized that we have a significant opportunity to improve our probe utilization with the initiatives that Will discussed. Revenues for the third quarter of 2017 were $10.9 million, compared to $9.8 million in the prior year, representing a record third quarter and a year-over-year increase of 11%. Revenue in both G6 and medical retina improved while surgical retina remained relatively flat. In the third quarter of 2017 domestic system sales increased 12% to $2.5 million and $2.2 million in the third quarter of 2016 while our international system sales increased 40% to $3.0 million from $2.1 million in the comparable quarter. Our business generates recurring revenues through sales of consumable products, predominantly single-use laser probe devices and other instrumentation as well as repair, servicing and extended service contracts for our laser systems. Recurring revenues in the third quarter of 2017 was relatively flat at $5.4 million as growth in our G6 probe was offset by decline in our legacy probes. Gross margin in the third quarter of 2017 was 40.3% compared to 43.4% in the third quarter of 2016. Gross margin was primarily impacted by an unfavorable shift to lower-margin products due to product and geographic mix, partially offset by a decrease in manufacturing overhead spending. Operating expenses for Q3 2017 were $7.4 million, up from $5.5 million in Q3 2016. The level of our operating expenses reflects our growth investments to support our expanding commercial infrastructure, including increased sales and marketing expenses. Consequently, our operating loss in the third quarter of 2017 was $3.1 million compared with operating loss of $1.2 million in the prior year's third quarter. From a balance sheet perspective, we ended the third quarter with $22.8 million in cash and no debt. In terms of our financial expectations, we are reiterating our previously provided guidance range for revenues G6 systems and G6 probes. With that, I'll turn the call back over to Will.

[William Moore:]

Thank you, Atabak. We are making meaningful progress each and every day towards the worldwide commercialization of our G6 and building awareness for the benefits from our MicroPulse technology. Physicians and surgeons around the world are recognizing the value of our G6 platform, and we are committed to making our product the standard of care in treatment of glaucoma. We truly have a transformational opportunity on our sites, and I'm confident we have on the right path, and we have the right people to get there. Looking ahead, our near-term focus is to drive improved G6 probe utilization. I’m confident that our initiatives to improve our marketing outreach and customer follow-up in the body of clinical evidence will lead to a greater adoption of our procedure. I want to thank you all of our employees for your hard work during this time of transformation. With that, I'd like to turn the call over to the operator for questions. Operator?

[Operator:]

Thank you. [Operator Instructions] And we do have a question from the line of David Solomon from ROTH Capital. Your line is open.

[David Solomon:]

Hey, guys. Congrats on the strong quarter. I was just curious if we can learn a little bit more about the geographic mix of the G6 systems and probe sales.

[William Moore:]

So the geographic mix on the probe sales, predominantly, we're talking about in the U.S. Globally, we've got our probe sales where we concentrate on just a few countries where we have positive reimbursement rates. So that's mostly in U.S. and a little bit on the OUS side. I'm not sure I'm answering your question, David but…

[David Solomon:]

Yes, just – well, we may need to wait for the K – the Q for specific numbers, but I'm just trying to understand exactly how much more it grew in the U.S. and what the growth rate was ex-U.S.?

[Atabak Mokari:]

Yes. So on the G6 side with the systems and probes, we haven't disclosed a breakout between U.S. versus OUS. But as we talked about on the call that the U.S. side was particularly strong this quarter on the system side, and it was actually a record quarter. And on the probe side, as Will talked about, that's consistent since launch that the U.S. has been stronger probe market for us, as – particularly since a lot of markets outside of the U.S. have different reimbursement profile than in the U.S. so we have at our current cost structure had a different utilization dynamics.

[David Solomon:]

That’s very helpful. Thanks. If I could ask another question, regarding the pricing. Where do you see it going for the G6 and then for the medical retina? I believe you said the surgical retina is going to be relatively flat, correct?

[William Moore:]

Correct. I don't see any real differentiation or decrease in the pricing of the G6 glaucoma system at this time. I think what Atabak was talking about was we call it price mismatches in certain countries around the world. That's really more on what I talked about on the new product development side, will be with that. But I don't see pressures on pricing on G6 at this time. Medical retina is a different animal, and we'll continue to see pricing pressures around the world on that product. But I don't think we're talking about any major changes. You want to add any more?

[Atabak Mokari:]

Yes. I mean, the only color I would add is on the G6 side. We've been able to maintain pricing and then glaucoma markets actually improved pricing since its launch.

[David Solomon:]

Great. That’s very helpful. Thank you, I’ll hop back on the queue.

[Operator:]

Ladies and gentlemen, I'd like to turn it back over. I'm sorry.

[William Moore:]

Are there no other questions?

[Operator:]

I’m showing no other questions at this time.

[William Moore:]

All right. Well, I want to say thank you to all for your participation, and we look forward to speaking with you next quarter. Thank you, operator.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This conclude the program, and you may all disconnect. Everyone, have a great day.