Hello, and thank you for standing by. Welcome to IRIDEX Q4 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question-and-answer session [Operator Instructions]. I would now like to hand the conference over to Philip Taylor. You may begin.

Thank you. And thank you all for participating in today's call. Joining me from IRIDEX are David Bruce, Chief Executive Officer; and Fuad Ahmad, Interim Chief Financial Officer. Earlier today, IRIDEX released financial results for the quarter ended December 30, 2023. A copy of the press release is available on the company's Web site. 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 facts, including, but not limited to, statements concerning our strategic goals and priorities, product development matters, sales trends and the markets in which we operate should be considered forward-looking. 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 our 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, March 26, 2024. And with that, I'll turn the call over to Dave.

Good afternoon, everyone. And thank you all for joining us. On today's call, I'll start out by providing an update on our strategic review process and then discuss our recent business progress and priorities for 2024. Then Fuad will provide details on the fourth quarter financials and we will open the call for questions. In August 2023, IRIDEX announced a strategic review process with the intent of exploring transaction options for the future of each or all of our product lines to unlock shareholder value. To date, we've engaged bankers, prepared business overviews and engaged in introductory discussions with numerous parties. We're currently in discussions with multiple parties in more detail relating to specific product lines and believe we are on track toward reaching our first agreement soon on the sale of certain assets. Additionally, we continue to be open to any transaction or series of transactions that will benefit our shareholders. Given our prioritization of this strategic review process and intend to pursue value realization of each of our assets this year, we are not providing business line financial guidance for 2024 at this time. Along with our high priority to advance the strategic alternatives process, we remain focused on pursuing our business line growth strategies with cost effective and value building plan. While we had a confluence of factors impacting our fourth quarter business results, both our retina and glaucoma business opportunities remain strong. Heading into 2024, we're encouraged the market environment appears to be normalized. Uncertainty regarding US glaucoma procedure reimbursement is dissipating, the macroeconomic capital purchase environment is stabilizing and our distributor inventory adjustment impacts are largely behind us. Let me turn to our fourth quarter and full year results and talk about the opportunities we are pursuing. For 2023, we generated revenue of $51.9 million…

Thank you, Dave. Good afternoon, everyone, and thank you for joining us today. I would like to begin by reviewing our financial performance for the fourth quarter, followed by our full year fiscal 2023 results ended December 30, 2023. Fourth quarter total revenue generated was $12.5 million, down $2.7 million from the prior year period. Revenue for the year ended December 30, 2023 was $51.9 million compared to $57 million in 2022. The declines were driven by continued softness in capital equipment purchases resulting in lower system and probe sales and from the previously reported loss in royalty revenues that significantly impacted the second half of the year. Starting with glaucoma. We had system sales of 35 units in the quarter compared to 78 systems in the prior year period. This was driven by distributor destocking and reimbursement uncertainty that persisted for most of the quarter in the US. The overall decrease in fourth quarter system sales represented a decline in Cyclo G6 revenue to $3 million from $4.2 million last year. Total glaucoma product revenue for 2023 was $13.4 million compared to $14.7 million in 2022. At the product level, total revenue from Cyclo G6 product family in the fourth quarter was $3 million, down $1.2 million compared to the same period in '22. We sold 12,700 Cyclo G6 probes in the fourth quarter, representing a substantial decline from 16,400 probes sold in the prior year period. As Dave mentioned in his remarks, we experienced significant headwinds from the LCD reimbursement uncertainty in the quarter in the US. We also saw international distributors reduced inventory and did not execute their replenishment orders. However, these declines were partially offset by higher ASPs. We sold 35 Cyclo G6 systems in the quarter compared to 27 in the third quarter and 78…

Our first question comes from the line of Tom Stephan with Stifel.

Maybe I'll start with the strategic update. Dave, appreciate the color. Maybe if I could just ask, how are you guys balancing, call it, portfolio optimization in terms of garnering value from potential transactions, I guess, while also maintaining sort of the higher priority assets? And then maybe just as a follow-up to that, I guess with this first sale that may be coming soon, how far does that get you in terms of rightsizing the balance sheet and the P&L?

A lot in there. Let me start with the business focus. So we're -- have two main lines and some other smaller lines of business, the retina and the glaucoma lines each have their own strengths and business opportunities to be pursued. As stewards of those businesses, we are making the investments with -- and I both to cost effectiveness as well as continuing to move those businesses forward, and that's the summary of the key programs that I discussed in my remarks. In terms of a potential transaction that would most likely generate cash that would give us significant incremental runway to pursue the other potential transactions associated with the assets. As we progress down that pathway, we'll make those judgments as needed in terms of capital or other disposition of the cash assets. So we're kind of in a fluid situation here. So it's hard to be definitive about those kinds of things, but we're very focused on executing both the growth elements of the business as well as the potential transactions to realize that for shareholders.

And then just moving to, I guess, the 2024 outlook or our models, I should say. Dave, I appreciate the 1Q '24 commentary just about the business flow coming back. Any guardrails around sales or other metrics for the first quarter? In particular, we're just about done here with the quarter, it sounds like things are coming back to normal a bit. I think it would just be helpful getting any additional visibility into the performance this quarter just as we try to figure out sort of how to update our models for the full year?

So without guiding to the quarter, and we still have a little bit of the quarter left and in the capital equipment business, in particular, there are late orders and shipments and those kinds of things. So there is some potential movement even this close to the end of the quarter. But that said, as I mentioned, we are seeing some stabilization on the capital equipment purchasing cycles. We're seeing recovery from the, I'll say, more dollar outlook in the glaucoma US marketplace as reimbursement restrictions ended up being lifted at the end of the quarter. And I think consistent with what others have commented in our space in their recent reports, it’s -- we're seeing recovery and we expect that to continue. However, we also see people being a bit judicious. There is a sentiment that there may be some follow-on activity by the MACs, and I think people are sensitive to that. But I think in general, the declines that occurred in the fourth quarter around lack of reordering probes and really suspending interest in system purchases to adopt the technology, we're seeing some recovery of system orders and such. So we're optimistic that, that trend will strengthen as the year goes by. As an aside, we think the reimbursement change that we accomplished before the LCDs became effective and ultimately been withdrawn, bodes well for any potential reimbursement limitations going forward. We think we're in a good position if such a discussion needed to occur.

So I guess maybe just to push you a little bit, I mean, is it fair to expect 1Q '24 sales to be maybe flat to up relative to 4Q? Just as we think about a lot of one-timers in 4Q that arguably could create sort of a bolus heading into this year is flat to up reasonable to consider for 1Q? And I know we only have two, three days -- a handful of days left in the quarter.

Let me answer that a little bit differently. Typically, you see seasonality that occurs, Q4 has historically been the strongest quarter of the year and then a dip as you come into the first quarter. We're seeing significantly better performance against that typical seasonality than in prior years.

So better sort of meaning still down, but not down as much, I guess?

It's not down compared to the degree that it's been down in the past.

And then moving to retina, I think it was down on a year-over-year basis for maybe the fourth or fifth straight quarter. I know you called out capital purchasing trends, maybe even some distributor and supply chain factors. But Dave, maybe you could help us with sort of how you view the 2024 and long term growth outlook of that business. I think in the past, you talked about maybe low to mid single digit percent growth. But given the recent underperformance and declines, is there any renewed thinking on what kind of a normal long term growth profile is for retina for you guys?

I think the long term outlook has not changed. I think it's a mid single digit opportunity. I think the overall worldwide market in that space is low single digits. So we think we can outperform the overall market even if it's only a few percentage points. But the performance throughout 2023 really was a persistent softness in capital purchases, primarily driven by interest rate increases, cost of capital, as well as, if you recall, in the early part of the year, people were quite concerned about recession and that cleared up in the second half of the year, but it did affect the business. So those are longer term, I'll call them, cycle waves that you have a softness from capital equipment. And I think other capital equipment providers saw a similar dynamic throughout the course of the year and also talked about seeing an improvement in coming into 2024. So I think we're consistent with the overall capital equipment marketplace. And then I think we've now positioned ourselves for a better recovery out of that with two new platforms on the retina side of the business and already seeing solid interest in the new IRIDEX PASCAL platform. So I don't think there's any major change. I think it's multiple quarters is really part of that longer term impact on softness in capital in general. So maybe the industry as a whole and that segment did not see that mid single digits kind of growth in '23 versus '22.

Last one for me, just on the balance sheet. I think burn was $1 million in the quarter. Dave or Fuad, how should we be thinking about, I guess, normalized quarterly burn or lack thereof in 2024?

We have been talking about adjustments to our spending rate and reducing our cash usage and we achieved that in the fourth quarter despite having some other singular expenses that offset those savings. So it wasn't as dramatic. But we're also managing on the balance sheet side with inventory reductions and trying to better match up our payables and receivables in terms of days outstanding. And so all of that led to a relatively good cash usage performance in the fourth quarter. Those cost reductions will carry through, that's part of our planning to pursue the growth initiatives with an eye to the cost effectiveness of those things. And so we anticipate that we can manage through the period with cash on hand for the execution as we simultaneously pursue potential transactions.

Thank you [Operator Instructions]. I'm showing no further questions in the queue. I would now like to turn the call back over to Dave for closing remarks.

Thank you. And thank you all for joining the call. We look forward to reporting updates as they unfold. Good afternoon.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.