CapsoVision, Inc. ($CV)

Hello, and thank you so much for standing by. Ladies and gentlemen, welcome to CapsoVision Q1 2026 Earnings Conference Call. Please note that this call is being recorded. [Operator Instructions]. Thank you.

Thank you, operator. Good afternoon, everyone, and thank you for joining us for CapsoVision's First Quarter 2026 Earnings Call. Joining me today are Johnny Wang, President and Chief Executive Officer; and Senior Vice President of Finance, David Garcia; as well as Doug Atkinson, Senior Vice President of Sales. Before we begin, please remember that today's remarks included forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Form 10-Q filed by us with the SEC. These forward-looking statements speak only as of the date of this call, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Our call today will cover the following agenda. Johnny will begin with an update on CapsoVision's business, target markets and recent highlights from our pipeline development. Then Dave will walk through our commercial update and recent financial results. After our prepared remarks, we'll open the call for Johnny, David and Doug to take your questions. With that, I'll turn the call over to Johnny Wang. Johnny?

Thank you, Leigh, and good afternoon, everyone. CapsoVision remains focused on advancing earlier, more accurate and more accessible detection of gastrointestinal disease for patients worldwide. We are working towards a unified injectable capsule platform capable of screening for multiple cancers, including esophageal, gastric, pancreatic, liver and colorectal through a single noninvasive procedure enabled by advanced imaging and AI. With that as our foundation, we continued to see consistent solid underlying performance in the first quarter. While revenue and new account additions remained stable year-over-year, we saw further expansion of CapsoCams used to detect a widening range of the mobile diseases. In the first quarter, underlying procedure volume reflecting end user consumption continued to expand, demonstrating deeper engagement with existing accounts and increasing reliance on CapsoCam Plus in routine clinical practice. We believe these trends reinforce the strength of our installed base and highlights the growing role our platform is playing in supporting physician workflow and patient care. During the quarter, we also secured key renewals for large GI networks, including Indiana University Health Systems, Providence Health Systems and the Gastro Health, which we believe reinforces the value of our platform and the strength of our long-term customer relationships. Turning to our technology platform. We are entering an important phase in our AI strategy. As you know, we previously submitted our 510(k) application for our AI-assisted reading capability for CapsoCam Plus. We continue to expect the clearance around midyear, and we are preparing for a commercial launch shortly thereafter. We have been actively demonstrating this capability, which we have branded AI highlights at recent industry meetings and the feedback from gastroenterologists has been very encouraging. Physicians are particularly focused on the potential to streamline review time, while maintaining clinical rigor, which we believe will be an important driver of adoption. AI Highlights is designed to identify friends with suspected pathology and present them within a structured review workflow fully integrated within our cloud native CapsoCloud platform. We believe this capability has the potential to reduce the physician waiting time, while enhancing workflow efficiency and represents a meaningful step forward in advancing a fully integrated AI-enabled diagnostic system. Building on that momentum, we continue to make steady progress across our pipeline. For CapsoCam Colon, our development program remains on track with imaging of our second-generation capsule and its AI module expected in the third quarter of 2026. We continue to believe that our decision to prioritize Gen 2 positions us to enter the market with a more competitive and clinically differentiated product. Turning to our CapsoCam UGI program and pancreatic cancer initiative. We are pleased to report that enrollment began this week in our clinical study. This represents an important milestone as we work to establish diagnostic criteria and build the clinical foundation for what we believe could be a first of its kind noninvasive screening approach for pancreatic disease. While this remains a longer-term opportunity, we continue to believe the potential impact in this area is significant given the lack of effective early detection tools today. Overall, we believe the business is progressing as expected. We are seeing continued strength in utilization, advancing key pipeline programs and moving closer to what we expect will be an important inflection point with the introduction of AI-enabled capabilities. More broadly, we remain focused on redefining how gastrointestinal diseases are detected, leveraging our platform to make diagnosis earlier, more accessible and more efficient for both patients and providers. With that, I will turn the call over to Dave to walk through our commercial and the financial results.

Thank you, Johnny. Turning to our commercial performance. As of March 31, 2026, more than 167,000 patients have been imaged with CapsoCam Plus for small bowel screening across the U.S. and international markets. During the first quarter, we shipped 6,229 CapsoCam Plus capsules compared to 6,447 in the prior year period, representing a year-over-year decrease of 3%, reflecting the timing of shipments that have now been placed in the second quarter. Our technology continues to be supported by a strong intellectual property portfolio, currently with 85 issued U.S. patents, reinforcing our position in capsule endoscopy innovation. In addition, reimbursement under CPT code 91110 continues to support adoption across a broad range of care settings, including both private practices and hospital systems. From a commercial strategy perspective, one of our key advantages is the ability to leverage our existing sales infrastructure as we expand into new indications. We expect that the same physician call point driving adoption of CapsoCam Plus today will serve as a natural entry point for CapsoCam Colon following regulatory clearance, creating a meaningful cross-selling opportunity without requiring significant incremental headcount. We continue to see encouraging engagement across larger gastroenterology networks, including GI clinics and multisite group practices, where we are expanding our presence within existing accounts and continuing to deepen utilization across larger networks. In addition, we are seeing ongoing traction within hospital systems and group purchasing organizations, particularly as contracts come up for renewal and providers evaluate alternative solutions. As Johnny noted, we are also pleased to secure renewals with several large GI networks during the quarter, including Indiana University Health Systems, Providence Health Systems and Gastro Health, supporting continued engagement across our installed base. As of quarter end, our U.S. direct sales organization remained consistent at 26 representatives, supported by 7 regional sales managers and trainers. Internationally, we continue to build momentum, including a dedicated team of 4 representatives in Germany, while expanding our global footprint through distributor partnerships in high potential markets. Turning to our financial performance. For the first quarter of 2026, total revenue was $2.8 million, consistent with prior year period. While the number of capsules sold was modestly lower year-over-year, this was offset by a slight increase in ASP. And as Johnny noted earlier, we continue to see strong underlying patient volume and utilization expansion trends across our installed base. Gross profit for the quarter was $1.3 million with a gross margin of 48% compared to 54% in the first quarter of 2025. The change in gross margin was primarily due to tariffs impacting our cost of goods sold. Operating expenses were $8.4 million, an increase of $1.5 million compared to the prior year period. This increase was driven primarily by continued investment in our pipeline, including development work related to the next-generation imaging sensor under our agreement with Canon as well as clinical trial activities supporting the CapsoCam Colon Gen 2 program. We ended the quarter with $17.9 million in cash and cash equivalents. As a reminder, in March, we strengthened our balance sheet with the closing of a $14 million private placement with participation from both new and existing investors. We believe this financing reflects continued confidence in our strategy and provides additional flexibility to support our key priorities, including product innovation, clinical development and commercial expansion. Overall, we remain focused on disciplined investment to support long-term growth. Before I turn the call back to Johnny, I'd like to provide some perspective on how we're thinking about the remainder of the year. We expect second quarter revenue to be higher than the first quarter, and we also expect revenue in the second half of the year to be higher than in the first half as we continue to build on the momentum we're seeing in our pipeline and customer engagement as well as the anticipated launch of the AI module for CapsoCam Plus. Now I'd like to turn the call back to Johnny for some closing remarks.

Thanks, Steve. To close, we believe the business is progressing as expected. We are seeing continued strength in utilization across our installed base, reinforcing the growing role CapsoCam Plus is playing in routine clinical practice. At the same time, we are approaching an important inflection point with the anticipated introduction of our AI-assisted capabilities, which we believe will further enhance workflow efficiency and strengthen the value of our platform for physicians. Across the pipeline, we continue to execute with discipline with CapsoCam Colon on track and early progress underway in our pancreatic cancer program following the initiation of our clinical study. More broadly, we remain focused on advancing a differentiated AI-enabled platform designed to improve how gastrointestinal diseases are detected through panoronic imaging, cloud-native workflow capabilities and AI-assisted diagnostics that make review more accessible and efficient for physicians. Our platform enables physicians to securely review cases anytime and anywhere without the need for on-site servers for dedicated IT infrastructure, while also creating a growing cloud-based data depository that we believe will serve as an important foundation for continued AI development and training over time. At this time, Dave, Doug and I would be happy to take your questions. Operator, can you please open the line?

[Operator Instructions] Your first question comes from the line of Kyle Bauser with Titan Partners.

Maybe I will just start out regarding the application for the AI-assisted reading feature. Johnny, I guess, any sort of remaining items that need to be addressed with the FDA? Or are responses in and you're now just waiting for a response? I guess any color on the update there?

Yes. FDA and CapsoVision had a few interactions during these months. And right now, we have reacted on their request during this previous interactions. And we are waiting for a meeting in the next few weeks, and that is current status, and we have no show stoppers to my knowledge.

Great. I appreciate that. And then can you remind me -- so for the pancreatic cancer clinical study, which you just started enrolling, which is great. Can you remind me the size of this trial, how many patients and kind of the expected time line for enrollment?

For this study, we plan to enroll 120 patients with high-grade dysplasia or cancer, pancreatic cancer confirmed HGD or cancer. But we -- to account for possible dropout, patient dropout, we plan to enroll 140 to make sure we have 120 to make the statistical to make statistics more powerful. And also, we will have 120 subjects as a reference, healthy patients reference. This 120 patients imaging will be extracted -- pulled out from our cloud storage. As we just mentioned, we have enormous turn-out repository in our cloud storage due to our workflow. So we can pull out this reference -- healthy reference images. So total is 240, yes. And the enrollment, we cannot speculate at this time. But I would see this as a much shorter not even Colon. Yes, so that's what I can say at this point without saying too much as a public company.

Yes, makes sense, and that's helpful. I appreciate all that color. And then maybe lastly, David, I guess, I appreciate your thoughts on the cadence of revenue in Q2 and the back half of this year. Any sort of thoughts you can call out on OpEx? Just kind of wondering how this line item should kind of trend throughout the year.

Yes. So thanks, Kyle. I think that the next couple of quarters, you're going to see continued investment in the colon study as we continue to progress on that, that will continue through Q3. And then only until we get to Q4 will be the time when that will start to trail off a bit when -- as we will have completed the colon study at that point in time. But all the remaining items should be fairly stable nominal growth to support the business.

Your next question comes from the line of Bruce Jackson of StoneX.

I'd like to kind of take a closer look at the first quarter revenue number. You mentioned that the ASPs were higher. I was wondering if you potentially put in a price increase and if there was any forward buying behavior. You also said that some of the sales may have moved into the second quarter. I'm curious about that. And of course, you often get deductible resets and everything like that out in the market. So if you could kind of put those pieces together for us and tell us how that impacted the first quarter revenue number, that would be very helpful.

Sure. I'll take that one. Thank you. Yes. So in terms of the capsule volume, it was really just the impact of timing. We saw some of the orders -- some of our bigger orders actually fall into April as opposed to March. And then in terms of the ASP, there was no price increase. The only thing that happened there was we just saw a little bit of a shift in our mix to some of the higher-priced regions in the world. So that's really the only thing impacting ASP there and the volume. Other than that, the underlying business remains strong, and there's nothing that would have changed that.

Okay. Great. And then just a quick question on the research and development spending. Would you -- how do you expect that level for the full year to look in comparison to 2025?

Yes. So it will be pretty similar to 2025. We did spend quite heavily in 2025 on the Colon study, and that continues through -- it continued through Q1, and it will continue through Q3, as I just mentioned. So when it's all said and done, the full year R&D spending will be pretty similar to 2025.

Yes. Bruce, this is Johnny. Please allow me to add. During our workflow, our capsule is shipped to the downloading center to treat the data to -- for the cloud assess -- cloud review by the doctor. So we can measure the end user consumption very easily. So that's the benefit -- one of another benefit of cloud. We know what features cloud doctors are using. We can monitor that through cloud. And during monitoring of this end user consumption, we can tell you the end user consumption growing -- growth is healthy. It's growing and very healthy. So that's my eking. Thank you.

[Operator Instructions] There are no further questions from the analysts. That concludes our question-and-answer session. And that concludes our today's call as well. Thank you all for joining. You may now disconnect.