IRIDEX Corporation ($IRIX)

Thank you for standing by, and welcome to IRIDEX First Quarter 2026 Earnings Conference Call. I'd like to remind everyone that this call is being recorded. [Operator Instructions] I would now like to turn the call over to Trip Taylor, Investor Relations. Please go ahead.

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 April 4, 2026. 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 fact, including, but not limited to, statements concerning our strategic goals and priorities, products and 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, May 19, 2026. And with that, I'll turn the call over to Patrick.

Good afternoon, everyone, and thank you for joining us. I am pleased to share our first quarter results and the continued progress we're making as we build on the positive momentum we delivered throughout last year. For context, before diving into Q1, I want to highlight some of the significant milestones we achieved last year. In 2025, we delivered positive adjusted EBITDA for the first time in the company's recent history and we also achieved positive cash flow from operations in Q4. These achievements represent a fundamental shift in IRIDEX's financial profile and reflect the hard work completed to reposition the business for sustainable profitability going forward. As a result of this work and our solid start to the year, we remain on track to be cash flow positive in 2026. We executed according to plan in Q1 despite several anticipated headwinds, including the Iran conflict, temporary supply chain constraints and extended time lines associated with certain regulatory approvals. Against this backdrop, we delivered revenue of $11.8 million essentially flat year-over-year and above the guidance communicated on our last earnings call. Our highest margin business, G6 probes was a clear bright spot during the quarter. Continued growth and adoption of our glaucoma solution underscore the strength of our clinical value proposition and the loyalty physicians have to the G6 platform. Internationally, we operated in a challenging environment with supply disruptions, regulatory delays and geopolitical volatility, particularly impacting revenue in Asia and the Middle East. Importantly, underlying demand remains solid, and we believe revenue and earnings would have been higher had we been able to fulfill certain orders that were backlog at the end of the quarter. Looking ahead, supply chain conditions and regulatory processes are improving, and we continue to actively manage through these dynamics. As a result, we believe some of the timing-related impacts that affected our first quarter performance represent incremental revenue opportunities for the balance of the year. On the operations front, we again reduced our operating expense compared to the prior year period as we continue to drive efficiencies across the organization. We are pleased to report that the relocation of certain general and administrative functions out of California, again delivering quarterly savings starting in Q1 2026. We also remain on schedule to relocate our headquarters later this year, which is expected to reduce our fixed cost base by approximately $600,000 on an annualized basis. Additionally, our multiyear initiative to transition production to lower-cost third-party contract manufacturers is underway with meaningful transfers initiated in the first quarter. Full implementation is expected to be completed in 2027, and this transition will drive gross margin improvement as we progress through the year and into next year. Turning now to our commercial performance in the first quarter, starting with our glaucoma business. In total, in the first quarter, we sold 15,500 products versus 13,900 in the prior year period. This represented growth in the competitive glaucoma market, which is a testament to the strength of our value proposition and physician loyalty to the G6 platform. Utilizing MedScout to target G6 adopters with average utilization continues to be our most effective strategy. Our MedScout platform continues to be a valuable tool for targeted outreach. Here, we are focused on 2 groups. The first are those who already have G6 systems and our average users and the second are high-volume facilities that do not currently perform micropulse procedures. With the mid utilization accounts, we focus on education, working with physicians to expand their patient selection criteria to treat patients earlier in the glaucoma severity continuum. With the second group, the focus is also on education with particular focus on the efficacy of TLT patients who have already had a mixed procedure. Speaking of mix, the Medicare LCD introduced last year are creating tailwinds for us, including expanding our target segments and supporting earlier adoption of G6 therapy for both the mild to moderate and post meg glaucoma patients. Combined with our updated suite speed, procedural techniques and clinical data demonstrating the IOP-lowering efficacy of the procedure. We believe we are well positioned to drive sustainable growth in this business throughout 2026. Pricing discipline also supported our Q1 performance, as our ASP increases on both probes and systems in the U.S. carried over from 2025. This is indicative of enhanced recognition of the value proposition of our procedure and the growing recognition among ophthalmologists of G6 as a safe, effective alternative to incisional surgery. On the system side, we sold 24 G6 units in the quarter, in line with the prior year period. Unit placement has remained steady year-over-year and physician relocations continue to drive dedicated to some acquisitions at new practice sides. This steady growing installed base provides a solid foundation for driving incremental probe utilization as we execute on our commercial strategy. Turning to our international glaucoma business. Performance was mixed across regions as we navigated a number of operational and macroeconomic challenges. In Europe, Middle East and Africa, we conducted multiple high-impact G6 symposiums and clinical trainings that reinforced our value proposition in multiple countries including Russia, Saudi Arabia, Egypt and Poland. U.K. registry product is moving forward as planned. The engagement from the clinical community has been strong, and we believe this positions us well or continued adoption in the region. In Germany, G6 probes sales remained stable with existing customers, and we believe our German market utilization is well positioned to absorb incremental volume as we work through distributor transitions in the country. In Asia, we navigate ongoing volatility throughout the year. Demand of our products remained stable, but challenging economic conditions created some headwinds for our commercial execution. In Japan, we restored G6 probe inventory following prior regulatory challenges which was a meaningful positive development for the region. However, macro headwinds from a weekend continue to persist, and we are monitoring the macro environment closely and expect conditions to improve over time. In Latin America and Canada, we saw stable G6 probe performance with users being led by Peru and Mexico. Additional focus is being placed on Canada, Brazil and Argentina, to leverage the sizable installed base of G6 systems. Turning to our retina portfolio. Our strategic priorities remain focused on 3 areas: driving the U.S. PASCAL upgrade cycle, expanding international PASCAL adoption and obtaining regulatory clearance for our next-generation platform to leverage our established global distribution footprint. In the United States, surgical retina was a standout performer driven by continued strong demand for SLX, TX and LIOs. This category exceeded expectations for the quarter and demonstrated the underlying strength of our surgical platforms. Medical retina continued to perform strongly, particularly PASCAL, benefiting from a robust pipeline of leads generated at the American Academy of Ophthalmology Annual Meeting in Q4. It is worth noting that PASCAL continues to be firmly established as our flagship system in the U.S. market. We are seeing a consistent trend of existing PASCAL customers upgrading to our newer platforms and newly graduating ophthalmologists are selecting PASCAL systems due to our efforts to ensure PASCAL as the preferred system used in university and training programs. On the commercial front, we announced an important partnership with EyeProGPO in early April. This agreement expands access to our retina laser portfolio to their more than 1,800 members, including ophthalmology practices, ambulatory surgery centers and hospitals in the United States. Through this partnership, EyeProGPO members receive preferred pricing on our PASCAL laser platform IQ 532 and IQ 577 lasers and the OcuLight TX laser. It adds to our existing Cyclo G6 contract with EyeProGPO and represents a significant commercial milestone. Beyond contract status reinforces the credibility of our technology enables a more streamlined sales process for our team and customers while expanding the addressable market for our retinal laser systems. We believe this partnership will be an important driver of retina systems placements in the coming quarters. Turning to international retina in Europe, Middle East and Africa, lack of MDR approval continues to constrain PASCAL growth in Europe, madly offset by the launch of the new IRIDEX PASCAL in Africa. In Germany, EndoProbe sales are gaining traction, in line with plan as we take over business from our previous distributor. In Asia, China experienced some challenges during the quarter, including EndoProbe supply constraints that materially impacted sell-through. We have been working with our manufacturing partners, and these issues should be resolved this month. In Japan, large PASCAL orders were deferred to Q2 due to regulatory delays associated with electrical safety testing. This is a timing item not a demand concern, and we expect the order to ship in the current quarter. In Latin America and Canada, PASCAL and medical retina sales came below expectations, impacted in part by seasonal summer holiday slowdown. As we look ahead to the remainder of 2026, our strategic priorities remain clear and focused. For the full year 2026 we are reaffirming our revenue guidance of $51 million to $53 million. As a reminder, this guidance excludes revenue from the Middle East region and represent approximately 1% to 5% pro forma growth versus 2025. I am proud of the sustained execution we have demonstrated across all 4 of our 2025 commitments revenue growth, cost reduction, positive adjusted EBITDA and positive cash flow from operations in Q4. The foundation is set for continued progress in 2026. Now I'll hand the call over to Romeo to discuss our financial results.

Thank you, Patrick. Good afternoon, everyone. Thank you for joining us today. As we noted in our press release and in Patrick's comments, our total revenues for the first quarter of 2026 were $11.8 million, ACV flat with $11.9 million reported in the first quarter of 2025. Revenue was in line with our expectations and the guidance we provided with our Q4 results. The decrease in revenue was primarily driven by a decrease in retina system sales, partially offset by an increase in glaucoma probe sales of service and other revenues. Retina product revenue was $5.8 million compared to $6.6 million in the prior year period, driven primarily by lower sell-through of retina system sales internationally. Total product revenue from the Cyclo G6 product family was $3.6 million, representing growth of 14% year-over-year compared to $3.2 million in the prior year quarter. The increase is attributable to both the increase in units sold domestically and internationally and an increase in ASP domestically. Other revenue increased $0.2 million to $2.3 million in the first quarter of 2026 compared to $2.1 million in the first quarter of 2025, driven primarily by the increase in service and other certain legacy product revenues. Gross profit in the first quarter of 2026 was $4.7 million or a 40% gross margin, a decrease of $0.3 million compared to $5.0 million or a 43% gross margin in the prior year period. Gross margin decreased primarily due to the increase in overall manufacturing costs, including increased product costs associated with the recent tariff development. On a sequential basis, first quarter gross margins improved 300 basis points compared to fourth quarter 2025 gross margins. Operating expenses were $5.1 million in the first quarter of a decrease of $0.2 million or 4% compared to $5.3 million in the first quarter of 2025. The decrease was primarily attributable to lower general and administrative expenses, driven by reduced consulting costs, reduced deal-related legal expenses and cost savings realized from the general and administrative transfer initiative discussed in prior period. In Q4, we announced that we were relocating certain G&A functions out of California commencing in the first quarter of 2026. We have achieved about 70% of this initiative and have realized approximately $100,000 in savings in the first quarter of 2026, short of our expected quarterly benefit of approximately $165,000. We will update you on our progress on our next call. Loss from operations was $0.3 million, an increase of $0.1 million compared to a loss from operations of $0.2 million in the first quarter of 2025. Other expense net was $0.1 million in the first quarter of 2026, primarily consisting of interest and amortization of loan expenses. Other expense net was $1.5 million in the first quarter of 2025 due primarily to costs associated with the note payable settlement. Consequently, net loss was $0.5 million or $0.03 per share in the first quarter of 2026 compared to a net loss of $1.7 million or $0.10 per share in the same period of the prior year. Non-GAAP adjusted EBITDA for the quarter of 2026 was $0.3 million compared to non-GAAP adjusted EBITDA of $0.4 million for the first quarter of 2025. Cash and cash equivalents as of April 4, 2026, were $4.6 million, a decrease of $1.4 million in the quarter. As we guided on our last call, in general, our cash usage is highest in the first quarter of the fiscal year, resulting from payments of accrued compensation and other year-end accrued expenses and liabilities. For the remaining quarters of the year, we expect to generate cash and for the quarterly cash generation to improve sequentially as we sell through inventory and collect receivables on increased revenues. Cumulatively, this will result in positive cash flow for fiscal year 2026. Total operating expenses continued a favorable trend in Q1 2026, reflecting the sustained impact of cost reduction initiatives implemented beginning in the fourth quarter of fiscal 2024. Our first quarter performance confirms that we are on track for 2026. A sequential revenue decline we saw in Q1 was anticipated as consistent with the normal seasonality we see in our business, and we managed to reduce our net loss despite the lower revenue. As Patrick mentioned, we are reaffirming our 2026 guidance. We expect to generate revenue of $51 million to $53 million. As a result of the market disruption from the ongoing comp in the Middle East, this guidance does not include revenue from that region. On a pro forma basis, adjusted to exclude Middle East revenue in 2025, guidance represents 2026 growth of 1% to 5% compared to 2025. We also want to reiterate the seasonality we experienced in our business. Q1 on average represents 22% of our annual revenue and is the lowest quarterly total revenue for the year. From the total dollar perspective, second and fourth quarters are seasonally stronger than the first with the fourth quarter being the strongest quarter of the year and the third quarter is generally a sequential decline from the second quarter. We are also reiterating our expectation for adjusted operating expenses, which exclude depreciation, amortization and stock compensation to be in the range of $19 million to $19.5 million for the full year 2026. We also continue to expect to generate positive operating cash flow for the full year 2026. And with that, I'll turn the call back to Patrick.

Thank you, Romeo. As I reflect on the first quarter, I am encouraged by the progress we are making on our strategic initiatives. Our U.S. glaucoma business delivered solid growth in a competitive environment. Our cost structure improvements are flowing through as planned, and our manufacturing transition is underway and on track to drive meaningful margin expansion. We remain confident in our ability to deliver on our priorities for 2026. These priorities are clear: expand our G6 utilization through effective targeting, advanced regulatory approvals internationally, to unlock new geographies for our retina systems and continue to transition to lower cost contract manufacturers to drive gross margin improvement. We will now turn the call over to the operator for your questions.

[Operator Instructions] And your first question comes from the line of Scott Henry from AGP.

A lot of information in there. Just to get started, on the retina line, 1 of the lighter quarters we've seen in a while, is that a lot to do with the international headwinds, anything else there? And when we think about full year 2026, I know last year was a strong retina year. Should we be thinking about that comp making the 2026 kind of a negative year-over-year move for retina revenues?

Scott, thank you for your question. In first quarter, we ran through some regulatory delays that hurt us internationally, particularly on PASCAL. There were orders that didn't ship to Japan because of that. There were other orders that didn't ship due to a material issue with our EndoProbes, that issue has been resolved and we are going to ship the product this month. The regulatory issues have been resolved. So going forward, we do not see these as issues at all. In fact, our PASCAL in the U.S. performed very well and so did our surgical retina. So going forward, we don't expect anything different. We still see the PASCAL upgrade cycle to be ongoing, both international and in the U.S. We've engaged hospitals and universities for graduating ophthalmologists to start using our PASCAL systems. And particularly with this EyeProGPO partnership, we see things improving over Q1. Q1, we got snagged by a few challenges in supply chain and regulatory issues. But those hopefully will be behind us. We feel strong that certainly moving forward, they will be.

Okay. Great. And you mentioned you had some backlog at the end of the quarter. I didn't hear, but did you quantify the amount of that? And should that have a favorable impact on 2Q? And also was that backlog, was that in the retina section? Or was it in G6?

That backlog was around $800,000, and it was all retina. And we didn't -- we anticipated the EndoProbe backlog. We did not anticipate the regulatory. We'd hope to get that over the finish line. But as you know, with regulatory items, some of those things are up to the bodies of those countries. But going forward, we look for that revenue to ship this quarter. And -- yes.

Okay. Great. And then shifting gears to G6. The systems sold was flat year-over-year. Do you think you can grow that total system sold in 2026? Or will the focus be more on the probes, which did very well in the quarter?

Yes. We think we will grow the system somewhat, but we're really focused on driving probe utilization and driving particularly those more moderate patients in the U.S. There's 2.1 million moderate patients. And we're just scratching the surface there. And with our MedScout targeting that we're going after, where we can see who's doing what procedures, we're going to continue to focus on utilization and selling more probes. Certainly, we are setting up new accounts, and we look for those numbers to remain in line with our expectations and our plan. But our real objective is to drive probe utilization. And I want -- 1 reminder is we -- in the U.S. particularly, we increased ASP on both the probes and the systems. So we saw growth from obviously, the ASP but also from units as well. And we're excited about that. We feel really good about our glaucoma business going throughout the rest of the year.

Okay. Great. Final question. Gross margin was up sequentially in Q1. But last year, it did dip in those middle quarters. How should we think about gross margin in 2Q and 3Q relative to what we saw this quarter?

Scott, this is Romeo. Thanks for the question. Yes. Basically, going forward now, we've -- over the last couple of quarters, we've been studying the reserves for the contract manufacturing transition of products. So we figured those part costs. We'd expect them there. That's why the margins were lower. But given even with the continued increase in our production costs, I think they've normalized in the high 30s, low 40s, just really dependent on the product and region mix as well, which helped this quarter.

That concludes our Q&A session. I will now turn the conference back over to Patrick for closing remarks.

Thank you for your time today. We look forward to updating you on future calls. Thank you.

Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.