IRIDEX Corporation (IRIX) Q2 2025 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Second Quarter 2025 IRIDEX Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Trip Taylor, Investor Relations. You may begin.

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 June 28, 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 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. 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, August 12, 2025. And with that, I'll turn the call over to Patrick.

Good afternoon, everyone, and thank you for joining us. Today, I'm excited to highlight our second quarter business results. Our performance over the past 3 quarters has demonstrated the transformation we have made in the business to improve business execution and drive greater operating efficiency at IRIDEX. In the second quarter, we achieved year-over-year revenue growth, operating expense reductions compared to the prior year period and positive adjusted EBITDA. Importantly, this is our third quarter in a row achieving each of these items, and I can confidently say we have successfully transitioned our business consistent with the mandate I was given upon becoming CEO in October of last year. As you will remember, starting in the fourth quarter of 2024, we initiated a number of aggressive cost reduction programs that have steadily reduced our cost. As a result of these changes made starting in October 2024, we reduced operating expenses by 28% compared to the prior year period. This decrease in expenses is expected to hold and continue throughout the year. These improvements have resulted in lower cash burn and ultimately, the improved financial health of the business. On top of these significant improvements, we have identified additional opportunities to continue improving the financial profile of the business. We are now taking action to further reduce operating expenses and improve our gross margins. This includes continuing negotiation with several contract manufacturers who we expect will be able to help reduce our manufacturing costs relative to our current infrastructure in Mountain View, California. Our current facilities lease expires in August 2026, and we intend to relocate to a smaller space in a less expensive ZIP code in order to realize further savings. We have made significant strides in reducing our cost structure. We will continue and extend these efforts to increase our profitability, and we are on track to deliver upon our financial commitments of achieving cash flow breakeven and positive adjusted EBITDA in 2025. We will update the progress and status of these activities on our next call. I am also very pleased to report that in the second quarter, our top line revenue increased year-over-year and sequentially despite a reduced Salesforce and scaled down marketing programs. We are very proud of the increased efficiency and continued success of the team. They continue to leverage technology and relationships to drive product sales. Now taking a closer look at the second quarter revenue, we generated a second quarter top line of $13.6 million, representing 7% growth year-over-year and 14% sequential growth over the first quarter of 2025. Growth in the quarter was driven primarily by higher laser console sales, particularly Pascal and G6 systems. Medical and surgical retina system sales were particularly strong and were partially offset by lower G6 and surgical retina probe sales, which is something I will provide additional commentary later on. Focusing on our retina product family, our current priorities are focused on driving adoption of our flagship Pascal system and achieving additional international regulatory approvals for our newer retina systems in order to leverage our very strong global distribution network. In the U.S., Pascal sales came in above plan where we are seeing consistent momentum toward adoption of this premier system, and our sales teams are actively capitalizing on the strong customer demand. Medical and surgical retina both exceeded our expectations, and we ended the quarter with some backlog that is expected to carry into Q3. EndoProbe sales held steady throughout the quarter, and we are tracking ahead of the planned annual run rate, which is a very promising sign relating to the overall health of the business. Turning to international retina performance. In EMEA revenue continues to be strong and aligned with our forecast, driven especially by robust Pascal system sales in the Middle East and Africa. We are seeing great work by the team there. In GmbH, unfortunately, progress was slowed by a few key issues. This includes some ongoing service challenges and delays in MDR certification for the IRIDEX Pascal system. In Asia, the quarter was challenging as uncertainty around the tariff dispute with China led to a rush in stock orders that added strain to supply chains affecting both Q2 and potentially future quarters. Logistics delays have impacted the Pascal rollout in Japan, but those are being resolved. We believe we have identified key impacts and have plans in place to mitigate the challenges going forward. In Latin America and Canada, Pascal sales fell short of expectations due to pricing pressures. However, we had a highly successful PAAO meeting in Colombia, where we conducted several strategic activities aimed at turning around the situation in that territory. Furthermore, we officially launched the IRIDEX Pascal in the Latin America region. We also hosted a well-attended and impactful glaucoma retina symposium and restructured distribution appointments across multiple countries. Turning to glaucoma. We remain excited by the growth potential for the business globally. Our strategy with the G6 system in the U.S. is to leverage our large installed base and drive increased system utilization. Shifting product mix towards higher-margin disposables will support increasing overall company gross margins. Not only are we focused on driving more procedures per user, but we have identified opportunities where we can train additional users and practices that already own G6 systems. The team is effectively communicating G6 systems ROI and clinical data that supports broader use cases and demonstrates the value of our G6. Our consensus panel data and dose escalation studies clearly outline optimal procedure guidelines for improved clinical outcome. This information is resonating with users, and we believe it will support increasing utilization. The new Medicare LCDs have also created an opportunity for G6 use earlier in the continuum of care. Operationally, we are using MedScout, a sales efficiency tool to identify accounts that fall in the middle of the utilization bell curve. We believe these users have shown a commitment to G6 and through additional engagement, we can significantly increase their utilization. During the second quarter, Cyclo G6 unit sales came in over plan. Probe units, however, were materially lighter than expected with this due to supply constraints that impacted our ability to ship against orders at the end of the quarter. This issue has been resolved, and we're shipping against the backlog while keeping up with current orders. Now turning to international glaucoma. In EMEA glaucoma, we saw a continuation of sales and usage per prior levels. In GmbH, the story was different and G6 probe sales are climbing steadily, providing a solid base to build on within the glaucoma segment. In Asia, the glaucoma business remained stagnant, a decline in G6 console sales in certain regions was offset by a [ rust ] order from China. The G6 probe business also no signs of growth. However, we are implementing new business models aimed at driving higher probe consumption. Latin America and Canada, G6 business growth was modest as competitors emphasize reusable probe offerings. While this impacted our disposable probe sales, we see this as an opportunity to reinforce the clinical and economic benefits of our solutions. Now I will hand the call over to Romeo to discuss our financial results.

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 second quarter ended of June 28, 2025. As we noted in our press release, our total revenues for the second quarter of 2025 were $13.6 million, representing a 7% year-over-year growth and a 14% sequential growth versus the first quarter of 2025. Retina product revenue increased 10% in the second quarter of 2025 to $8.0 million compared to the second quarter of 2024, driven primarily by higher Pascal system sales, medical and surgical retina system sales, partially offset by a decrease in surgical retina probe sales. Total product revenue from the Cyclo G6 glaucoma product group was $3.3 million, essentially flat year-over-year. Other revenue increased $0.2 million to $2.2 million in the second quarter of 2025 compared to $2.0 million in the second quarter of 2024, driven primarily by an increase in service revenue. Gross profit in Q2 2025 was $4.7 million or a gross margin of 34.5%, a decrease of $0.4 million compared to $5.1 million or a gross margin of 40.7% in the second quarter of 2024. This was driven primarily by an increase in overall manufacturing costs, partially offset by an increase in ASPs. Manufacturing costs were higher due to product mix with materially higher console sales, which are lower margin than consumable probes, strong international sales, which are lower margin due to working through distributors and due to the various impact related to tariffs and rising costs from inflation. We believe we'll return to more normal levels in future quarters. Operating expenses were $5.6 million in Q2 2025, a decrease of $2.2 million compared to $7.8 million in Q2 2024 due to expense reduction measures taken in late 2024. Consequently, net loss was $1.0 million or $0.06 per share for Q2 2025 compared to a net loss of $2.7 million or $0.16 per share in the same period of the prior year. Non-GAAP adjusted EBITDA for Q2 2025 was $21,000, an improvement of $1.7 million compared to non-GAAP adjusted EBITDA loss of $1.7 million for Q2 2024. The improvement is driven primarily by the expense reduction measures implemented in late 2024. Cash and cash equivalents totaled $6.8 million end of the second quarter of 2025, a reduction of just $0.4 million compared to $7.2 million at the end of Q1. We are very pleased with our reduction in cash usage and expect cash use to continue or improve from these levels. As you can see, we are making significant progress advancing our business model with a focus on profitability. We are pleased with the start of 2025 and are excited to continue executing our plan to improve the financial profile of the business. And with that, I'll turn the call back to Patrick.

Thank you, Romeo. Despite isolated challenges this quarter, our team executed with resilience and captured opportunities across the business. We outperformed in key areas, including the U.S., in EMEA and with our retina business, particularly our flagship Pascal systems. With strong fundamentals and clear plans to address obstacles, we're confident in the path ahead, especially as we head into Q3 with healthy carryover revenue, improved supply visibility and growing demand across our strategic platforms. Thank you for joining us. We look forward to updating you on our progress in the future.

This concludes the meeting. You may now disconnect.